Exhibit 13
Unveiling the New F.N.B. Brand.
Our New Symbol of Trust, Commitment,
Friendship, Service & Loyalty.
[F.N.B. CORPORATION LOGO]
2001 ANNUAL REPORT
CORPORATE PROFILE
F.N.B. Corporation is a diversified financial services company
headquartered in Naples, Florida. The company owns and operates
traditional community banks, insurance agencies, a consumer finance
company and First National Trust Company. It has full-service offices
located in Florida, Pennsylvania, Ohio and Tennessee. The company's
common stock is traded on the Nasdaq National Market under the symbol
"FBAN."
F.N.B. has been honored as a Dividend Achiever by Mergent FIS,
formerly the Financial Information Services division of Moody's
Investors Service. This annual recognition is based on the company's
consistently outstanding record of increased dividend performance. The
company has increased dividend payments for 29 consecutive years.
OUR CORPORATE MISSION
F.N.B. Corporation is a growth company. We are an affiliation of
successful community banks and financial services companies seeking to
provide high-quality financial services to individuals and business
customers in a manner that is consistent with our philosophy of
personal banking and our commitment to maximizing shareholder value.
To achieve this commitment, we will attract and retain a professional
staff that is dedicated to exceptional customer satisfaction and
superior financial performance.
OUR CORPORATE LOGO
The spirit of F.N.B. Corporation is reflected in our new corporate
logo. This metaphoric symbol of a handshake and the American flag
represents our commitment to our customers, our employees and our
shareholders. It also symbolizes the core values for which we stand:
Trust, Commitment, Friendship, Service and Loyalty. This logo, which
was adopted after extensive market research and peer group studies,
will be rolled out at all F.N.B. locations as part of a strategic
branding effort throughout the year.
CONTENTS
1 Financial Highlights
2 Letter to Shareholders
6 Leadership Council
8 Our Commitment
14 Year in Review
16 Board of Directors
18 Corporate Officers
19 Affiliate Management
20 Principal Affiliates & Subsidiaries
21 Independent Auditors' Report
22 Financial Review
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on May 6, 2002 at 4 p.m. at the
Naples Beach Hotel, 851 Gulf Shore Blvd. N., Naples, FL 34102.
F.N.B. CORPORATION AND SUBSIDIARIES [F.N.B. CORPORATION LOGO]
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
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2001 2000 Percent Change
FOR THE YEAR*
Core operating earnings $ 51,756 $ 43,990 17.7%
Return on average assets 1.27% 1.12%
Return on average shareholders' equity 14.65% 13.71%
Net income $ 44,572 $ 43,990 1.3
Return on average assets 1.09% 1.12%
Return on average shareholders' equity 12.61% 13.71%
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PER COMMON SHARE*
Core operating earnings
Basic $ 2.01 $ 1.72 16.9%
Diluted $ 1.95 $ 1.68 16.1
Net income
Basic $ 1.73 $ 1.72 0.6
Diluted $ 1.68 $ 1.68 0.0
Cash dividends $ 0.75 $ 0.67 11.9
Book value at year end $ 14.22 $ 13.17 8.0
Market price at year end $ 26.35 $ 20.00 31.8
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PERFORMANCE RATIOS
Efficiency ratio 63.02% 64.47%
Net interest margin 4.69% 4.58%
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AT YEAR END
Assets $ 4,129,087 $ 4,055,921 1.8%
Net loans $ 3,161,659 $ 3,056,460 3.4
Deposits $ 3,292,392 $ 3,247,950 1.4
Shareholders' equity $ 369,197 $ 339,640 8.7
Common shares outstanding 25,711,313 24,256,076 6.0
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* Core operating earnings exclude consolidation charges of $2.1 million and
merger related and other non-recurring costs of $5.1 million for the year
ended December 31, 2001, both on an after tax basis.
CORE OPERATING EARNINGS
(Dollars in millions)
1997 33.9
1998 38.1
1999 41.8
2000 44.0
2001 51.8
CORE OPERATING EARNINGS PER SHARE
(diluted)(in dollars)
1997 1.45
1998 1.46
1999 1.58
2000 1.68
2001 1.95
TOTAL ASSETS
(Dollars in billions)
1997 3.1
1998 3.5
1999 3.8
2000 4.0
2001 4.1
F.N.B. Corporation 1
LETTER TO OUR SHAREHOLDERS
It is a pleasure to report that in 2001 F.N.B. Corporation achieved outstanding
financial results and made considerable progress in its strategic plan for
long-term growth and diversification.
Core operating earnings, which exclude non-recurring items, grew to a record
$51.8 million, an increase of 18% over the previous year. Core operating
earnings per diluted share were $1.95, representing an increase of 16% over the
previous year. Non-interest income, in particular, increased 31% to $82.8
million, accounting for approximately a third of total revenues and on target
with our long-term goal of achieving 40% of total revenue from fee-based
sources.
At the same time, we made significant progress in enhancing efficiency while
reducing expenses. The efficiency ratio, a key performance measure, improved
during the year to around 63%, which is well in line with industry peers.
Meanwhile, core return on average shareholders' equity (ROE) and return on
average assets (ROA) improved to 14.6% and 1.3%, respectively, for the year.
Much of this improvement resulted directly from a charter consolidation plan
that was completed in the first quarter of 2001. Under this initiative, F.N.B.'s
community bank affiliates in each state were combined under statewide operating
charters. The company's six Florida banks were consolidated under First National
Bank of Florida and its two Pennsylvania banks were merged under First National
Bank of Pennsylvania. The company's two banking affiliates in northeastern Ohio
had previously been consolidated under a single charter, Metropolitan National
Bank.
Each affiliate office continued to do business under its own brand name, managed
by a local President and Chief Executive Officer. While this move was
transparent to the customer, significant savings were realized by eliminating
operational redundancies, integrating common deposit and lending programs, and
developing statewide marketing and branding strategies. The company also
achieved major regulatory savings by reducing the total number of charters from
10 to three.
It is also important to note that despite the sluggish economy and national
tragedies, F.N.B. Corporation maintained superior asset quality during the year.
Non-performing assets as a percent of total assets were just 0.54%, which is on
par with historical levels. One of the true hallmarks of F.N.B. has been our
strong credit culture and that will not change.
In recognition of the company's consistently strong financial performance,
strong cash flow from operations, and the quality of our balance sheet, the
board of directors voted to
[PHOTO OF GARY L. TICE]
GARY L. TICE
President & Chief Executive Officer
F.N.B. Corporation 2
increase the company's dividend from the previous $0.72 per share to $0.80 per
share on an annualized basis.
One of the most notable achievements of the past year was the relocation of our
corporate headquarters from Hermitage, Pennsylvania, to Naples, Florida. The
move reflects the company's consistent expansion over the past five years in the
faster growing Florida market. In fact, F.N.B. Corporation is now the largest
bank holding company headquartered in the Sunshine State.
The aggressive steps taken over the past year are indicative of the continued
transformation of F.N.B. from a regional bank holding company into a diversified
financial services corporation where all employees share a true passion for
building loyal, profitable customer relationships. Our value propositions to our
target market segments include traditional bank products; electronic banking;
wealth management and investment services; insurance; and consumer finance.
We are also expanding cross-selling activities by placing licensed insurance and
investment professionals in most of our 172 banking offices in Florida,
Pennsylvania and Ohio. These offices will function as full-service financial
centers where customers will have access to a full range of exceptional products
and services. In addition, we remain committed to providing a level of superior
customer service at every location that will clearly differentiate us from our
competitors.
Through continued quality growth and strategic diversification, we are confident
that we can build F.N.B. Corporation into an even more valuable company for
long-term shareholders.
As we proceed into the next year, the management of F.N.B. will be focused on
achieving five key priorities:
F.N.B. MERGER WITH PROMISTAR
In January 2002, we completed the largest acquisition in our company's history.
Headquartered in Johnstown, Pennsylvania, Promistar Financial Corporation is a
bank holding company with more than $2.4 billion in total assets and 82 offices
throughout southwestern Pennsylvania.
All Promistar Bank offices are now operating under the First National Bank of
Pennsylvania name. This merger will benefit our customers by giving them more
than 100 convenient locations and will position First National Bank as the
eighth largest bank in Pennsylvania and the largest community bank operating in
the western half of the state.
Even more important are the opportunities for increasing fee income through the
sale of wealth management, trust, investment and insurance services. With the
addition of Promistar, we will expand the potential customer base for First
National Bank of Pennsylvania from approximately 800,000 to more than 2.2
million households. Clearly, the integration of Promistar into the F.N.B. family
in a timely and efficient manner will contribute greatly to our success.
[F.N.B. CORPORATION LOGO]
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The aggressive steps taken over the past year are indicative of the continued
transformation of F.N.B. from a regional bank holding company into a diversified
financial services corporation where all employees share a passion for building
loyal, profitable customer relationships.
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F.N.B. Corporation 3
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F.N.B. Corporation was recently honored by being listed in the 2002 edition of
America's Finest Companies, an annual investment directory that recognizes those
select few U.S. based companies that excel in consistent growth in dividends and
earnings per share.
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UPGRADE THE ORGANIZATION
To build a great company, you must be able to attract and retain great people.
At F.N.B. Corporation, we go to extraordinary lengths to recruit and hire the
very best person for each and every position. We measure and manage our
corporate culture continuously and have one of the strongest and most positive
corporate cultures in the financial services industry.
In addition, we hold all of our leaders and managers accountable not just for
the performance of their business units but also for continuous leadership
development, the effective mentoring and coaching of their direct reports, and
for leadership behaviors which honor our core values.
Through our commitment to continuously upgrading our organization, and by
reinforcing high-performance standards throughout our company, we will continue
to make our superior workforce our greatest competitive advantage.
SELECTIVE ACQUISITIONS
We believe that each of the markets in which we operate offers opportunities for
quality growth and continued high performance. However, it is clear that Florida
presents the most dynamic potential for expanding our franchise.
Robust population growth and per capita income growth, combined with
extraordinary economic and cultural diversity, provide a multitude of highly
attractive markets for expansion, particularly in the southern and central parts
of the state.
Since 1997, F.N.B. has acquired 11 community banks in Florida. Our latest
acquisition, Central Bank Shares Inc., the holding company for the Bank of
Central Florida, was completed in January 2002 and gives F.N.B. a foothold in
the fast-growing Orlando market. This transaction alone adds more than $200
million in deposits and six full-service offices. As with our other recent
acquisitions, we are committed to streamlining back room functions while
boosting fee income from the effective sales of our insurance, investment and
wealth management services.
We will continue to capitalize on the tremendous growth opportunities in Florida
and on our proven success in expanding the F.N.B. franchise through acquisitions
by targeting selective companies that make sense strategically and financially
and will contribute to long-term shareholder value.
THE F.N.B. CORPORATION STORY
Another key priority is expanding investor awareness of our company. In 2001, we
increased our corporate communications efforts as reflected by our first
quarterly earnings conference call and live webcast. Senior management also
participated as presenters in a number of banking industry conferences in order
to expand the knowledge of our company among analysts and brokers.
Not surprisingly, investors are beginning to take notice.
For example, F.N.B. Corporation was recently honored by being listed in the 2002
edition of America's Finest Companies, an annual investment directory that
recognizes those select few U.S.-based companies that excel in consistent growth
in dividends and earnings per share. Fewer than 2% of the nation's 19,000
publicly traded companies qualified for listing in the directory.
We have an even better story to tell in 2002! We plan to continue to communicate
"The F.N.B. Corporation Story" at every opportunity throughout the coming year
with a special emphasis on the outstanding opportunities for quality growth and
diversification in the years ahead.
F.N.B. Corporation 4
[F.N.B. CORPORATION LOGO]
BRANDING
The stronger a company's brand, the less it has to compete on price, which is
extremely important in today's highly competitive financial services industry.
With this year's annual report, we are officially unveiling our new corporate
logo. This metaphoric symbol of a hand shake and an American flag represents our
commitment to building loyal relationships with our customers, employees,
shareholders, and the individual communities we serve. It demonstrates what we,
as a company, stand for: Trust, Commitment, Friendship, Service and Loyalty. The
flag and its colors express our solidarity with the values of our nation.
This exciting new identity was developed through months of market research in
Florida, Pennsylvania and Ohio. As we build strong brand recognition and
awareness throughout our expanding trade area, this logo will facilitate and
support our marketing, sales, growth and diversification strategies.
At F.N.B. Corporation, it is truly our passion to create one of America's great
companies - one that creates superior value for our customers, employees and
shareholders. In the following pages, you'll read testimonials from some of the
people we have touched and how we have formed a bond that continues to earn
their loyalty.
We also will introduce you to the company's new Leadership Council. These are
the top corporate managers who are directly responsible for guiding our
corporation as we seek to achieve our goals for growth and diversification.
F.N.B. clearly is not a one-man operation. It takes the time and dedication of
all our "leaders" to make us the successful company we are today.
I would like to acknowledge our directors for their invaluable guidance and
wisdom over the past year. It is truly an honor to be associated with such a
fine group of individuals.
I would especially like to thank F.N.B. Chairman Peter Mortensen for the
innovative and professional leadership he has provided our company. Pete retired
last year as Chief Executive Officer after a very distinguished banking career
of more than 40 years. He has been my mentor and has shared his banking
knowledge with me, which I very much appreciate. It is my goal to carry forward
the core values that Pete has instilled in this company.
In closing, I would like to express my sincere gratitude and pride in the way
that all F.N.B. employees have responded to the tragedies of September 11, 2001.
The events of that day are something our nation had never experienced before and
hopefully will never have to endure again. Despite the widespread uncertainty
and fear generated by the terrorist attacks, our management and staff held firm,
maintaining uninterrupted service for our customers and helping restore
confidence. I am truly proud of the superior effort exerted by each and every
one of them.
/s/ Gary L. Tice
GARY L. TICE
President & Chief Executive Officer
March 18, 2002
F.N.B. Corporation 5
THE LEADERSHIP COUNCIL [F.N.B. CORPORATION LOGO]
At F.N.B. Corporation, we firmly believe that the foundation of any great
company - and the source of any sustainable competitive advantage - is
exceptional leadership at every level of the organization, beginning with the
senior leadership team.
Our Leadership Council consists of the most senior leaders of our organization.
This group meets at least monthly to thoroughly review the implementation of all
major strategic initiatives; to identify and prioritize all new opportunities to
more fully honor our customer, employee and shareholder commitments; to
proactively initiate whatever new strategies and action plans may be needed; and
to ensure that each of these leaders, and everyone they lead, remains focused on
our Strategic Vision and Plan.
Each of these senior executives is held accountable for meeting or exceeding
specific performance objectives and has been carefully selected based on
experience, character, demonstrated leadership effectiveness, and the proven
ability to achieve superior results. Above all else, each of these senior
leaders shares an absolute passion for living our core values and making our
strategic vision a reality because when you have a passion for something,
nothing is unimportant.
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The Leadership Council: First Row, left to right, Kevin C. Hale, Executive Vice
President & Chief Operating Officer; Stephen J. Gurgovits, Vice Chairman and
President & Chief Executive Officer of First National Bank of Pennsylvania; Cass
Bettinger, Executive Vice President & Chief Administrative Officer; Gary L.
Tice, President & Chief Executive Officer.
Second Row, left to right, William J. Rundorff, Executive Vice President & Chief
Legal Officer; C.C. Coghill, Executive Vice President & Chief Credit Officer;
John D. Waters, Vice President & Chief Financial Officer.
Third Row, left to right, Michael H. Morris, President & Chief Executive Officer
of First National Trust Company; Steven C. Powell, Executive Vice President &
Chief Technology Officer; James L. Goehler, Chief Operating Officer of First
National Bank of Florida; Garrett S. Richter, Executive Vice President and
President & Chief Executive Officer of First National Bank of Florida.
Fourth Row, left to right, Myron Harvey, Senior Vice President & Human Resources
Director; Tim Bouchard, Chief Operating Officer of Roger Bouchard Insurance
Inc.; Steven C. Ackmann, Senior Executive Vice President & Chief Operating
Officer of First National Bank of Pennsylvania.
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F.N.B. Corporation 6
[PHOTO OF THE LEADERSHIP COUNCIL]
F.N.B. Corporation 7
FOCUS ON CUSTOMER COMMITMENT
Each and every employee of F.N.B. Corporation and its financial services
subsidiaries shares a commitment - as a team - to build loyal, profitable
customer relationships.
To honor this commitment, we have identified in each of our markets the specific
market segments that offer the greatest opportunities for building loyal and
mutually profitable relationships.
On a regular and consistent basis we gather constructive feedback from our
customers to ensure that our value propositions contain the specific benefits
that represent the most important attributes of value for each target segment.
In addition, we continuously monitor the value propositions offered by our
direct and indirect competitors to make sure that we never become complacent or
satisfied.
Our transition to a diversified financial services company, offering a full
range of banking, insurance, investment, trust and wealth management services
through electronic as well as traditional delivery channels, has been customer
driven as well as shareholder driven. We now offer value propositions to each of
our target markets that meet all of their financial needs.
Because service quality is such an important attribute of value for each of our
target segments, we also have an absolute passion throughout the company for
consistently delivering a superior level of service that produces not just
satisfaction, but loyalty. We have identified the specific personality profiles
required for every position in our company, including all customer contact
positions. We make sure we hire the right people. Then, we provide them with a
comprehensive orientation program, and continuous training that covers every
aspect of our service quality commitment, including our F.N.B. Service Quality
Standards. Finally, through a variety of ways, we evaluate and monitor service
quality throughout the company on an ongoing basis and go to great lengths to
recognize and reward all our service quality champions.
Directly related to our Customer Commitment is our Community Commitment, which
encourages all officers and employees to take an active role in "contributing in
a positive way to the economic and social well-being to the communities in which
we live and work." Many of our most loyal and profitable customer relationships
have come about as a result of our commitment to our communities.
[F.N.B. CORPORATION LOGO]
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Robert R. Gilkey, Vice President of Pennsylvania Rail Car Company, has been
doing business with F.N.B. affiliate First National Bank of Pennsylvania since
the company began in 1983. Gilkey credits the bank's commitment to providing
superior customer service and relationship banking for much of the company's
recent success. The family-owned company manufactures a wide variety of rail car
parts for customers in the United States, Canada and Mexico.
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F.N.B. Corporation 8
[PHOTO OF ROBERT R. GILKEY]
F.N.B. Corporation 9
FOCUS ON EMPLOYEE COMMITMENT
In the final analysis, the performance of any company is nothing more or less
than the sum of the individual performances of all its people.
Our stated Employee Commitment is "to foster a corporate culture throughout our
company that attracts, develops and retains high-performance employees." While
many companies give lip-service to those types of statements, at F.N.B.
Corporation we take our Employee Commitment very seriously.
In addition to providing competitive salary and benefit packages, we have a
multitude of programs to assure that our workforce is a competitive advantage
for our company.
First, we profile every position in our company and set extremely high standards
for recruiting and hiring. In addition, we use a variety of validated screening
instruments, such as The Predictive Index, to make sure we put the right person
in the right position. This, of course, benefits each of our employees as well
as the organization itself.
Research has documented that the single most powerful influence on the attitude,
behavior and performance of talented employees is the effectiveness of their
immediate team leader. Because of this we only place people in leadership
positions who have the attributes necessary to become exceptional leaders. Based
on 360-degree evaluations, along with career development planning, every leader
prepares a professional development plan each year and is held accountable for
continuously improving his or her leadership effectiveness. In addition, through
the F.N.B. Center for Leadership Development, we provide an extensive leadership
curriculum for all existing and prospective leaders.
Finally, every 12-18 months we conduct a comprehensive corporate culture survey
at each of our financial services subsidiaries. We ask our employees to let us
know how we are doing in each of 20 components of corporate culture. The results
are thoroughly reviewed; opportunities for improvement are prioritized;
strategies and action plans are developed; and specific objectives are
quantified, all within the framework of our strategic planning process.
We believe that as a result of our Employee Commitment, we have a workforce that
is second to none. Our people truly are our greatest competitive advantage.
[F.N.B. CORPORATION LOGO]
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Candace Sizer began with F.N.B. affiliate First National Bank of Pennsylvania in
1977 as a personal banker trainee. Today, she is a Vice President and Manager of
the largest branch located in Hermitage, Pennsylvania. F.N.B. is committed to
cultivating its very best employees by equipping them with the educational tools
and training necessary to be successful.
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F.N.B. Corporation 10
[PHOTO OF CANDACE SIZER]
F.N.B. Corporation 11
FOCUS ON SHAREHOLDER COMMITMENT
Our Shareholder Commitment, which is clearly articulated in our mission
statement, is "to enhance shareholder value through superior profitability and
quality growth."
It is the responsibility of all officers and employees to honor this commitment
each day through their shared focus on building loyal, profitable customer
relationships and by proactively seeking opportunities to improve the financial
performance of their business units.
To this end, all new officers and employees complete an extensive orientation
program which covers in great depth how their jobs relate to our Customer and
Shareholder Commitments.
As additional reinforcement, our mission, including our Shareholder Commitment,
is the foundation for not only our strategic plan, but for every job
description. Accountabilities for each job are linked directly to the
Shareholder, Customer, Employee, and/or Community Commitments and are weighted
based on the relative importance for that specific job. In this way, every
position has clearly defined accountabilities directly related to the
Shareholder Commitment.
As an integral part of our companywide performance management system, all
officers and employees, working directly with their team leaders, establish
specific performance objectives based on their job description accountabilities
and on the financial performance objectives in their business unit strategic
plans.
In addition, we use a variety of performance-based compensation models to link
individual and team compensation directly to the achievement of specific
financial objectives.
In sum, all of our more than 2,800 financial services professionals are fully
committed to the key quality growth and profitability enhancement strategies
which support our Shareholder Commitment, and to which their job descriptions
and compensation are directly related.
[F.N.B. CORPORATION LOGO]
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Shari and Hiett Ward realize the value of an investment in F.N.B. Corporation.
The retired couple from Sanibel Island, Florida, say they felt comfortable
investing in the company because they are clients themselves and have firsthand
knowledge of the quality services offered through F.N.B. They also were
attracted by the company's consistent earnings performance and growth
opportunities, especially in the Sunshine State.
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F.N.B. Corporation 12
[PHOTO OF SHARI AND HIETT WARD]
F.N.B. Corporation 13
YEAR IN REVIEW
[F.N.B. CORPORATION LOGO]
Jan. 2 F.N.B. Corporation common stock opens trading in 2001 at $20.00
per share.
Jan. 5 F.N.B. Corporation completes the acquisition of James T. Blalock,
an independent insurance agency located in Venice, Florida. The
agency becomes a division of F.N.B.'s existing affiliate Roger
Bouchard Insurance Inc.
Jan. 9 F.N.B. Corporation announces a charter consolidation plan for its
community banking affiliates as part of an effort to improve
long-term shareholder value. The integration project is completed
during the first quarter of 2001.
Jan. 17 F.N.B. Corporation reports record 2000 net income of $42.8
million, or $1.88 per diluted share, an increase of 9 percent
over the prior year. Core operating earnings also were a record
at $42.8 million, or $1.88 per share.
Jan. 26 F.N.B. Corporation completes the acquisition of OneSource Group
Inc., an independent insurance agency with offices in
Jacksonville and Clearwater, Florida. The agency becomes a
division of Roger Bouchard Insurance Inc.
Feb. 1 F.N.B. Corporation completes the acquisition of Don Ostrowsky &
Associates Inc., an independent insurance agency located in Cape
Coral, Florida. The agency becomes a division of Roger Bouchard
Insurance Inc.
March 6 F.N.B. Corporation announces plans to relocate its corporate
headquarters from Hermitage, Pennsylvania, to Naples, Florida.
The reincorporation of F.N.B. in the state of Florida is formally
completed effective June 1, 2001.
April 6 F.N.B. Corporation announces that it has been selected for
inclusion in the America's Fastest Growing Companies index by
Individual Investor Group Inc., publisher of Individual Investor
magazine. The index is a barometer of the nation's 500 fastest
growing small-cap stocks ranging from $100 million to $2 billion.
April 17 F.N.B. Corporation reports core operating earnings of $10.7
million, or $0.46 per diluted share, for the first quarter of
2001. The results represent an increase of 3 percent over the
same period a year earlier.
April 23 F.N.B. Corporation declares a 5 percent common stock dividend at
its annual meeting in Naples, Florida. The move marks the 29th
consecutive year in which the corporation has paid a stock
dividend to its shareholders.
April 30 F.N.B. Corporation announces the successful completion of its
merger with Citizens Community Bancorp Inc., the parent of
Citizens Community Bank of Florida. The transaction makes F.N.B.
the third largest financial institution in the Naples/Collier
County area based on total deposits.
May 14 F.N.B. Corporation affiliate Roger Bouchard Insurance Inc.
announces plans to establish a full-service insurance agency
office in Naples, Florida. The start-up operation is directed by
Division Manager Larry W. Adams.
June 14 F.N.B. Corporation and Promistar Financial Corporation announce
the signing of a definitive agreement in which Promistar will
merge with and into F.N.B. Headquartered in Johnstown,
Pennsylvania, Promistar is a bank holding company with $2.4
billion in total assets and 82 offices serving southwestern
Pennsylvania.
F.N.B. Corporation 14
July 12 F.N.B. Corporation announces that it has been included once again
in the re-indexed Russell 3000 and Russell 2000 stock indexes.
The annual reconstitution of both Russell indexes is effective as
of July 1, 2001.
July 17 F.N.B. Corporation reports core operating earnings of $13.2
million, or $0.50 per diluted share, for the second quarter of
2001. The results represent an increase of 23 percent over the
same period a year earlier.
Aug. 22 F.N.B. Corporation announces that its Board of Directors has
raised the regular quarterly cash dividend on its common stock by
$0.02 to $0.20 per share. It is 11 percent higher than last
year's third quarter dividend.
Sept. 5 F.N.B. Corporation is named a Dividend Achiever based on its
outstanding record of increased dividend performance. The
distinction is awarded by Mergent FIS, formerly known as Moody's
Investors Service.
Sept. 17 F.N.B. Corporation announces that it has initiated construction
on a major expansion of its information technology center in
Hermitage, Pennsylvania. The $4.5 million project will increase
the size of the existing facility from 40,000 square feet to
76,000 square feet and will result in significant job additions.
Sept. 25 F.N.B. Corporation President and Chief Executive Gary L. Tice
participates as a presenter at the Sunbelt Community Bank
Conference hosted by SunTrust Robinson Humphrey Capital Markets
in Atlanta, Georgia.
Oct. 16 F.N.B. Corporation reports core operating earnings of more than
$13.6 million, or $0.51 per diluted share, for the third quarter
of 2001. The results represent an increase of 20 percent over the
same period a year ago.
Oct. 18 F.N.B. Corporation shareholders overwhelmingly approve the merger
with Promistar Financial Corporation. Management of both
companies announce that the formal closing is scheduled for
January 18, 2002.
Nov. 7 F.N.B. Corporation President and Chief Executive Gary L. Tice
participates as a presenter at the Mid-Atlantic 2001
Super-Community Bank Conference hosted by 12 presenting banks in
Baltimore, Maryland. While speaking at the conference, Mr. Tice
announces F.N.B.'s plans to acquire Central Bank Shares Inc., the
parent of the Bank of Central Florida.
Nov. 21 F.N.B. Corporation announces that it has been honored in the 2002
edition of America's Finest Companies by The Staton Institute
Inc. America's Finest Companies is an annual investment directory
that identifies U.S.-based companies with at least 10 consecutive
years of higher dividends or earnings per share.
Dec. 6 F.N.B. Corporation announces the appointment of Cass Bettinger as
Executive Vice President and Chief Administrative Officer. Based
in Naples, Florida, Bettinger is responsible for all strategic
planning, marketing and human resource leadership.
Dec. 31 F.N.B. Corporation common stock ends trading in 2001, closing at
$26.35 per share.
F.N.B. Corporation 15
BOARD OF DIRECTORS
[F.N.B. CORPORATION LOGO]
[PHOTO OF G. SCOTT BATON]
G. SCOTT BATON
Chairman
Chestnut Ridge Foam Inc.
[PHOTO OF W. RICHARD BLACKWOOD]
W. RICHARD BLACKWOOD
President
Harry Blackwood Inc.
[PHOTO OF ALAN C. BOMSTEIN]
ALAN C. BOMSTEIN
President &
Chief Executive Officer
Creative Contractors Inc.
[PHOTO OF WILLIAM B. CAMPELL]
WILLIAM B. CAMPELL
Retired Business Executive
[PHOTO OF CHARLES T. CRICKS]
CHARLES T. CRICKS
Principal
Starboard Ventures
[PHOTO OF HENRY M. EKKER]
HENRY M. EKKER
Attorney at Law, Partner
Ekker, Kuster, McConnell & Epstein LLP
[PHOTO OF STEPHEN J. GURGOVITS]
STEPHEN J. GURGOVITS
Vice Chairman
F.N.B. Corporation
President &
Chief Executive Officer
First National Bank of Pennsylvania
[PHOTO OF JAMES S. LINDSAY]
JAMES S. LINDSAY
Licensed Real Estate Broker
The Lindsay Company
Managing Partner
Dor-J's Partnership
[PHOTO OF PAUL P. LYNCH]
PAUL P. LYNCH
Attorney at Law
President &
Chief Executive Officer
Lynch Brothers Investments Inc.
[PHOTO OF EDWARD J. MACE]
EDWARD J. MACE
Certified Public Accountant
Chief Operating Officer
Ribek Corporation
[PHOTO OF PETER MORTENSEN]
PETER MORTENSEN
Chairman
F.N.B. Corporation
Chairman
First National Bank of Pennsylvania
F.N.B. Corporation 16
[PHOTO OF ROBERT S. MOSS]
ROBERT S. MOSS
Chairman
Associated Contractors of Conneaut Lake Inc.
[PHOTO OF WILLIAM A. QUINN]
WILLIAM A. QUINN
Retired Executive
Vice President & Cashier
First National Bank of Pennsylvania
[PHOTO OF HARRY F. RADCLIFFE]
HARRY F. RADCLIFFE
President &
Chief Executive Officer
Fort Pitt Capital Management Corporation
[PHOTO OF WILLIAM J. STRIMBU]
WILLIAM J. STRIMBU
President
Nick Strimbu Inc.
[PHOTO OF GARY L. TICE]
GARY L. TICE
President &
Chief Executive Officer
F.N.B. Corporation
Chairman
First National Bank of Florida
[PHOTO OF EARL K. WAHL JR.]
EARL K. WAHL JR.
Principal Owner
JED Corporation
[PHOTO OF ARCHIE O. WALLACE]
ARCHIE O. WALLACE
Attorney at Law
Partner of Rowley, Wallace,
Keck, Karson & St. John
[PHOTO OF JAMES T. WELLER]
JAMES T. WELLER
Chairman
Liberty Steel Products Inc.
[PHOTO OF ERIC J. WERNER]
ERIC J. WERNER
Vice President, General Counsel & Secretary
Werner Co.
[PHOTO OF R. BENJAMIN WILEY]
R. BENJAMIN WILEY
Chief Executive Officer
Greater Erie Community Action Committee
[PHOTO OF DONNA C. WINNER]
DONNA C. WINNER
Co-owner
The Radisson, Tara-A-Country Inn,
The Winner, Tiffany's
F.N.B. Corporation 17
CORPORATE OFFICERS
[F.N.B CORPORATION LOGO]
[PHOTO OF GARY L. TICE]
GARY L. TICE
President &
Chief Executive Officer
[PHOTO OF STEPHEN J. GURGOVITS]
STEPHEN J. GURGOVITS
Vice Chairman
[PHOTO OF KEVIN C. HALE]
KEVIN C. HALE
Chief Operating Officer
[PHOTO OF CASS BETTINGER]
CASS BETTINGER
Chief Administrative Officer
[PHOTO OF WILLIAM J. RUNDORFF]
WILLIAM J. RUNDORFF
Executive Vice President &
Chief Legal Officer
[PHOTO OF C.C. Coghill]
C.C. COGHILL
Executive Vice President &
Chief Credit Officer
[PHOTO OF STEVEN C. POWELL]
STEVEN C. POWELL
Executive Vice President &
Chief Technology Officer
[PHOTO OF GARRETT S. RICHTER]
GARRETT S. RICHTER
Executive Vice President
[PHOTO OF JOHN D. WATERS]
JOHN D. WATERS
Vice President & Chief
Financial Officer
[PHOTO OF DAVID B. MOGLE]
DAVID B. MOGLE
Secretary & Treasurer
F.N.B. Corporation 18
AFFILIATE SENIOR MANAGEMENT
FIRST NATIONAL BANK OF PENNSYLVANIA
Peter Mortensen
Chairman
Stephen J. Gurgovits
President & Chief Executive Officer
Steven C. Ackmann
Chief Operating Officer
Thomas B. Hebble
Executive Vice President
Robert A. Rimbey
Executive Vice President
Gale E. Wurster
Executive Vice President
FIRST NATIONAL BANK OF FLORIDA
Gary L. Tice
Chairman
Garrett S. Richter
President & Chief Executive Officer
James L. Goehler
Chief Operating Officer
Robert C. George
President & Chief Executive Officer
Clearwater, Fl.
Joseph D. Hudgins
President & Chief Executive Officer
Sarasota, Fl.
David W. Gomer
Chief Executive Officer
Cape Coral, Fl.
Robert J. Avery
President
Cape Coral, Fl.
Mark L. Morris
President & Chief Executive Officer
Fort Myers, Fl.
Darrell E. Ward
President & Chief Executive Officer
Marco Island, Fl.
Don Rogers
President & Chief Executive Officer
Orlando, Fl.
METROPOLITAN NATIONAL BANK
Gary J. Roberts
President & Chief Executive Officer
FIRST NATIONAL TRUST COMPANY
Michael H. Morris
President & Chief Executive Officer
FIRST NATIONAL INVESTMENT SERVICES COMPANY
Jack Kuhn
President
F.N.B. INVESTMENT ADVISORS INC.
Kim Craig
President
ROGER BOUCHARD INSURANCE INC.
Ray Bouchard
President
Richard Bouchard
Chief Executive Officer
Tim Bouchard
Chief Operating Officer
GELVIN, JACKSON & STARR INC.
Stephen F. Hunter
President & Chief Executive Officer
REGENCY FINANCE COMPANY
Stephen J. Gurgovits
Chairman
Robert T. Rawl
President & Chief Executive Officer
CUSTOMER SERVICE CENTER OF F.N.B. LLC
Steven C. Powell
President & Chief Executive Officer
Charlie Grau
Chief Operating Officer
F.N.B. AFFILIATE SERVICES
Myron Harvey
Senior Vice President &
Human Resources Director
Clay W. Cone
Vice President-Corporate Affairs
George D. Hagi
Vice President-Risk Management
Philip L. Nemni
Corporate Budget
& Information Director
James G. Orie
Vice President & Corporate Counsel
Robert T. Reichert
Vice President & Controller
Bernie G. Sponseller
Manager of Shareholder Services
Christine E. Tvaroch
General Auditor
F.N.B. Corporation 19
PRINCIPAL AFFILIATES & SUBSIDIARIES
COMMUNITY BANKING:
FIRST NATIONAL BANK OF FLORIDA
Naples, Florida
FIRST NATIONAL BANK OF PENNSYLVANIA
Hermitage, Pennsylvania
METROPOLITAN NATIONAL BANK
Youngstown, Ohio
WEALTH MANAGEMENT:
FIRST NATIONAL TRUST COMPANY
Naples, Florida
Hermitage, Pennsylvania
FIRST NATIONAL INVESTMENT SERVICES COMPANY
Naples, Florida
Hermitage, Pennsylvania
F.N.B. INVESTMENT ADVISORS INC.
Johnstown, Pennsylvania
INSURANCE:
ROGER BOUCHARD INSURANCE INC.
Clearwater, Florida
GELVIN, JACKSON & STARR INC.
Meadville, Pennsylvania
CONSUMER FINANCE:
REGENCY FINANCE COMPANY
Hermitage, Pennsylvania
CUSTOMER SERVICE:
CUSTOMER SERVICE CENTER OF F.N.B. LLC
Naples, Florida
Hermitage, Pennsylvania
[F.N.B CORPORATION LOGO]
F.N.B. Corporation 20
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
F.N.B. Corporation
We have audited the accompanying consolidated balance sheets of F.N.B.
Corporation and Subsidiaries (F.N.B. Corporation) as of December 31, 2001 and
2000, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2001. These consolidated financial statements are the responsibility of
management of F.N.B. Corporation. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of F.N.B.
Corporation at December 31, 2001 and 2000, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.
/s/ Ernst & Young LLP
Birmingham, Alabama
February 5, 2002
F.N.B. Corporation 21
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except par values
- -----------------------------------------------------------------------------------------------------------------
December 31 2001 2000
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 155,946 $ 147,530
Interest bearing deposits with banks 3,612 1,860
Federal funds sold 4,260 39,332
Mortgage loans held for sale 1,323 1,042
Securities available for sale 413,793 441,480
Securities held to maturity (fair value of $51,770 and $73,508) 51,368 73,522
Loans, net of unearned income of $44,383 and $62,271 3,202,504 3,096,833
Allowance for loan losses (40,845) (40,373)
- -----------------------------------------------------------------------------------------------------------------
NET LOANS 3,161,659 3,056,460
- -----------------------------------------------------------------------------------------------------------------
Premises and equipment 121,729 113,936
Other assets 215,397 180,759
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $4,129,087 $4,055,921
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Non-interest bearing $ 511,611 $ 478,167
Interest bearing 2,780,781 2,769,783
- -----------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 3,292,392 3,247,950
- -----------------------------------------------------------------------------------------------------------------
Other liabilities 71,104 65,768
Short-term borrowings 293,381 285,865
Long-term debt 103,013 116,698
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,759,890 3,716,281
- -----------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock - $0.01 and $10 par value Authorized - 20,000,000 shares Issued
- 147,033 and 167,732 shares
Aggregate liquidation value - $3,676 and $4,193 1 1,678
Common stock - $0.01 and $2 par value
Authorized - 500,000,000 and 100,000,000 shares
Issued - 25,774,491 and 24,489,817 shares 258 48,980
Additional paid-in capital 295,909 216,647
Retained earnings 67,727 75,127
Accumulated other comprehensive income 6,964 2,196
Treasury stock - 63,178 and 233,741 shares at cost (1,662) (4,988)
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 369,197 339,640
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,129,087 $4,055,921
- -----------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
F.N.B. Corporation 22
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Dollars in thousands, except per share data
- -------------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- -------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans, including fees $263,503 $269,746 $227,318
Securities:
Taxable 25,803 26,816 28,557
Nontaxable 1,721 1,852 2,210
Dividends 1,536 1,811 1,482
Other 4,130 1,632 2,209
- -------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 296,693 301,857 261,776
- -------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 106,608 115,090 93,076
Short-term borrowings 11,695 17,130 11,282
Long-term debt 7,364 8,143 4,928
- -------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 125,667 140,363 109,286
- -------------------------------------------------------------------------------------------------
NET INTEREST INCOME 171,026 161,494 152,490
Provision for loan losses 12,915 11,922 9,677
- -------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 158,111 149,572 142,813
- -------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Insurance commissions and fees 34,693 24,982 17,058
Service charges 26,581 22,525 20,254
Trust 4,738 4,463 3,852
Gain on sale of securities 1,157 176 1,674
Gain on sale of loans 6,235 3,184 2,187
Other 9,395 8,068 8,557
- -------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 82,799 63,398 53,582
- -------------------------------------------------------------------------------------------------
240,910 212,970 196,395
- -------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 91,922 84,001 75,597
Net occupancy 11,254 10,105 9,516
Amortization of intangibles 2,509 2,128 1,998
Equipment 13,424 13,046 10,916
Merger related 3,789 1,824
Promotional 2,698 2,782 2,952
Insurance claims 8,011 5,304 4,162
Other 41,223 31,132 31,338
- -------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 174,830 148,498 138,303
- -------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 66,080 64,472 58,092
Income taxes 21,508 20,482 17,511
- -------------------------------------------------------------------------------------------------
NET INCOME $ 44,572 $ 43,990 $ 40,581
- -------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Basic $ 1.73 $ 1.72 $ 1.59
- -------------------------------------------------------------------------------------------------
Diluted $ 1.68 $ 1.68 $ 1.54
- -------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
F.N.B. Corporation 23
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Dollars in thousands, except per share data
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Compre- Additional Compre-
hensive Preferred Common Paid-In Retained hensive Treasury
Income Stock Stock Capital Earnings Income Stock
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1999 $2,380 $44,214 $176,151 $73,680 $6,356 $(3,084)
Net income $ 40,581 40,581
Change in accumulated other comprehensive income (11,167) (11,167)
--------
Comprehensive income $ 29,414
========
Cash dividends declared:
Preferred stock (411)
Common stock $0.64 per share (16,518)
Purchase of common stock (17,735)
Issuance of common stock 129 425 (3,840) 17,707
Stock dividend 1,916 21,137 (23,053)
Conversion of preferred stock (305) 139 166
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 2,075 46,398 197,879 70,439 (4,811) (3,112)
Net income $ 43,990 43,990
Change in accumulated other comprehensive income 7,007 7,007
--------
Comprehensive income $ 50,997
========
Cash dividends declared:
Preferred stock (341)
Common stock $0.67 per share (16,311)
Purchase of common stock (17,671)
Issuance of common stock 306 1,230 (3,233) 15,795
Stock dividend 2,085 17,332 (19,417)
Conversion of preferred stock (397) 191 206
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 1,678 48,980 216,647 75,127 2,196 (4,988)
Net income $ 44,572 44,572
Change in accumulated other comprehensive income 4,768 4,768
--------
Comprehensive income $ 49,340
========
Cash dividends declared:
Preferred stock (293)
Common stock $0.75 per share (18,958)
Purchase of common stock (12,052)
Issuance of common stock 15 386 (4,259) 15,378
Stock dividend 2,437 26,025 (28,462)
Change in par values of stock (1,635) (51,195) 52,830
Conversion of preferred stock (42) 21 21
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 1 $ 258 $295,909 $67,727 $6,964 $(1,662)
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
F.N.B. Corporation 24
F.N.B. Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
- --------------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- --------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 44,572 $ 43,990 $ 40,581
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 13,918 13,043 11,668
Provision for loan losses 12,915 11,922 9,677
Deferred taxes (6,931) (1,225) (9,099)
Gain on sale of securities (1,157) (176) (1,674)
Gain on sale of loans (6,235) (3,184) (2,187)
Proceeds from sale of loans 22,290 23,961 45,858
Loans originated for sale (16,336) (14,009) (36,457)
Net change in:
Interest receivable 3,822 (3,385) 384
Interest payable (3,494) 3,746 796
Other, net (24,990) (17,476) 12,444
- --------------------------------------------------------------------------------------------------
Net cash flows from operating activities 38,374 57,207 71,991
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks (1,752) 3,618 (1,286)
Federal funds sold 35,072 (23,073) 47,527
Loans (118,134) (222,353) (425,244)
Securities available for sale:
Purchases (161,357) (104,567) (174,147)
Sales 17,719 13,299 32,053
Maturities 179,842 76,191 167,106
Securities held to maturity:
Purchases (20,259) (1,664) (9,021)
Maturities 42,410 18,504 45,739
Increase in premises and equipment (19,311) (14,764) (19,769)
Net cash paid for mergers, acquisitions
and divestiture (2,678) (341) (3,941)
- --------------------------------------------------------------------------------------------------
Net cash flows from investing activities (48,448) (255,150) (340,983)
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits, savings and NOW 72,811 107,898 59,426
Time deposits (28,369) 127,415 38,450
Short-term borrowings 7,516 (46,332) 181,216
Increase in long-term debt 7,630 49,391 70,560
Decrease in long-term debt (21,315) (51,076) (23,412)
Net acquisition of treasury stock (532) (3,573) (3,314)
Cash dividends paid (19,251) (16,652) (16,929)
- --------------------------------------------------------------------------------------------------
Net cash flows from financing activities 18,490 167,071 305,997
- --------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,416 (30,872) 37,005
Cash and cash equivalents at beginning of year 147,530 178,402 141,397
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $155,946 $147,530 $178,402
- --------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements
F.N.B. Corporation 25
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS:
F.N.B. Corporation (the Corporation) is a diversified financial services
company headquartered in Naples, Florida. The Corporation owns and operates
three regional community banks, two insurance agencies, a consumer finance
company and First National Trust Company. It has full service offices located in
Florida, Pennsylvania, Ohio and Tennessee.
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All significant intercompany balances and
transactions have been eliminated. Certain reclassifications have been made to
the prior years' financial statements to conform to the current year's
presentation, including restatements for transactions accounted for as
poolings-of-interests during 2001. (See the "Mergers, Acquisitions and
Divestitures" section of this report).
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
SECURITIES:
Debt securities are classified as held to maturity when management has the
positive intent and ability to hold securities to maturity. Securities held to
maturity are carried at amortized cost.
Debt securities not classified as held to maturity and marketable equity
securities are classified as available for sale. Securities available for sale
are carried at fair value with net unrealized securities gains (losses), net of
income taxes, reported separately as a component of other comprehensive income.
Amortization of premiums and accretion of discounts are recorded as
interest income from securities. Realized gains and losses are recorded as net
securities gains (losses). The adjusted cost of specific securities sold is used
to compute gains or losses on sales.
Presently, the Corporation has no intention of establishing a trading
securities classification.
MORTGAGE LOANS HELD FOR SALE:
Mortgage loans held for sale are recorded at the lower of aggregate cost or
market value. Gain or loss on the sale of loans is included in non-interest
income.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES:
Loans are reported at their outstanding principal adjusted for any
charge-offs and any deferred fees or costs on originated loans.
Interest income on loans is accrued on the principal amount outstanding. It
is the Corporation's policy to discontinue interest accruals when principal or
interest is due and has remained unpaid for 90 days or more unless the loan is
both well secured and in the process of collection. When a loan is placed on
non-accrual status, all unpaid interest is reversed. While on non-accrual,
contractual interest payments are applied against principal until the loan is
restored to accrual status. Non-accrual loans may not be restored to accrual
status until all delinquent principal and interest has been paid, or the loan
becomes both well secured and in the process of collection. Consumer installment
loans are generally charged off against the allowance for loan losses upon
reaching 90 to 180 days past due, depending on the installment loan type. Loan
origination fees and related costs are deferred and recognized over the life of
the loans as an adjustment of yield.
The allowance for loan losses is based on management's evaluation of
potential losses in the loan portfolio, which includes an assessment of past
experience, current economic conditions, known and inherent risks in the loan
portfolio, the estimated value of underlying collateral and residuals and
changes in the composition of the loan portfolio. Additions are made to the
allowance through periodic provisions charged to income and recovery of
principal on loans previously charged off. Losses of principal and/or residuals
are charged to the allowance when the loss actually occurs or when a
determination is made that a loss is probable.
Impaired loans are identified and measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, at
the loan's observable market price or at the fair value of the collateral if the
loan is collateral dependent. If the recorded investment in the loan exceeds the
measure of fair value, a valuation allowance is established as a component of
the allowance for loan losses. Impaired loans consist of non-homoge-
F.N.B. Corporation 26
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
neous loans, which based on the evaluation of current information and events,
management has determined that it is probable 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
non-accrual and restructured loans, in determining impaired loans.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed generally on the straight-line method over the asset's
estimated useful life. Useful lives are dependent upon the nature and condition
of the asset and range from 5 to 40 years.
OTHER REAL ESTATE OWNED:
Assets acquired in settlement of indebtedness are included in other assets
at the lower of fair value minus estimated costs to sell or at the carrying
amount of the indebtedness. Subsequent write-downs and net direct operating
expenses attributable to such assets are included in other expenses.
AMORTIZATION OF INTANGIBLES:
Goodwill is being amortized using the straight-line method over periods not
exceeding 20 years. Core deposit intangibles are being amortized using
accelerated methods over various lives ranging from 7-17 years. The Corporation
periodically evaluates its goodwill and core deposit intangibles for impairment.
INCOME TAXES:
Income taxes are computed utilizing the liability method. Under this method
deferred taxes are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
PER SHARE AMOUNTS:
Earnings and cash dividends per share have been adjusted for common stock
dividends, including the five percent stock dividend declared on April 23, 2001.
Basic 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.
Diluted earnings per common share is calculated by dividing net income by
the weighted average number of shares of common stock outstanding, assuming
conversion of outstanding convertible preferred stock from the beginning of the
year or date of issuance and the exercise of stock options and warrants. Such
adjustments to net income and the weighted average number of shares of common
stock outstanding are made only when such adjustments dilute earnings per common
share.
CASH EQUIVALENTS:
The Corporation considers cash and due from banks as cash and cash
equivalents.
NEW ACCOUNTING STANDARDS:
Financial Accounting Standards Statement (FAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," requires all derivatives to be
recorded on the balance sheet at fair value and establishes standard accounting
methodologies for hedging activities. Because the Corporation has not entered
into any derivative transactions, the adoption of this statement did not have a
material impact on the financial statements.
FAS No. 141, "Business Combinations," requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
FAS No. 141 also specifies criteria that intangible assets acquired in purchase
business combinations must meet to be recognized and reported apart from
goodwill.
FAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of the Statement. FAS No. 142 also requires that intangibles with
definite useful lives be amortized over their respective estimated useful lives
to the estimated residual values, and reviewed for impairment in accordance with
FAS No.121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The Corporation will apply the new rules
on accounting for goodwill and other intangible assets beginning in the first
quarter of 2002. Application of the non-amortization provisions of the Statement
is expected to result in an increase in net income of $1.4 million, or $0.05 per
share, per year. The Corporation is currently evaluating the impact of the
remaining provisions of this Statement.
F.N.B. Corporation 27
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MERGERS, ACQUISITIONS AND DIVESTITURES
On April 30, 2001 the Corporation completed its affiliation with Citizens
Community Bancorp, Inc. (Citizens), a bank holding company headquartered in
Marco Island, Florida, with assets of $170.0 million. Under the terms of the
merger agreement, each outstanding share of Citizens common stock was converted
into .524 shares of the Corporation's common stock. A total of 1,775,224 shares
of the Corporation's common stock were issued. The transaction was accounted for
as a pooling-of-interests. Citizens' banking affiliate, Citizens Community Bank
of Florida, was merged into an existing subsidiary of the Corporation, First
National Bank of Florida (FNBFL).
On January 31, 2001 and January 5, 2001, the Corporation completed its
affiliations with Ostrowsky & Associates, Inc. (Ostrowsky) and James T. Blalock
(Blalock), independent insurance agencies in Cape Coral and Venice, Florida,
respectively. The transactions were accounted for as purchases. Both Ostrowsky
and Blalock are operating as divisions of Roger Bouchard Insurance, Inc.
(Bouchard), a wholly-owned subsidiary of the Corporation.
On January 26, 2001, the Corporation completed its affiliation with
OneSource Group, Inc. (OneSource), an independent insurance agency with offices
in Clearwater and Jacksonville, Florida. The transaction was accounted for as a
pooling-of-interests. OneSource is operating as a division of Bouchard.
During 2000, the Corporation affiliated with Altamura, Marsh & Associates,
Clearwater and Fort Myers, Florida and Connell & Herrig Insurance, Inc.,
Sarasota and Englewood, Florida. These affiliations were accounted for as
purchases and these acquired agencies are operating as divisions of Bouchard.
Also during 2000, Regency Finance Company (Regency), purchased eight consumer
finance offices in Tennessee. The transaction was also accounted for as a
purchase and resulted in the recognition of $1.2 million of goodwill.
During 1999, the Corporation affiliated with Roger Bouchard Insurance,
Inc., Clearwater, Florida and Guaranty Bank & Trust Company, Venice, Florida.
These affiliations added assets and deposits of $157.2 million and $142.5
million, respectively, and were accounted for as poolings-of-interests. The
Corporation also affiliated with Gelvin, Jackson & Starr, Inc., Meadville,
Pennsylvania. This transaction was accounted for as a purchase. Also during
1999, Regency expanded its size and geographic scope through the purchase of 11
consumer finance offices in Tennessee and Kentucky. This transaction was also
accounted for as a purchase.
The Corporation regularly evaluates the potential acquisition of, and holds
discussions with, various acquisition candidates and as a general rule the
Corporation publicly announces such acquisitions only after a definitive merger
agreement has been reached.
SUBSEQUENT EVENTS (UNAUDITED)
On January 31, 2002, the Corporation completed its affiliation with Central
Bank Shares, Inc. (Central), a bank holding company headquartered in Orlando,
Florida, with assets of more than $251.4 million. The transaction, which was
accounted for as a purchase, resulted in the recognition of approximately $50.0
million of goodwill. Central's banking affiliate, Bank of Central Florida, was
merged into FNBFL.
On January 18, 2002, the Corporation completed its affiliation with
Promistar Financial Corporation (Promistar), a bank holding company
headquartered in Johnstown, Pennsylvania, with assets of $2.4 billion. Under the
terms of the merger agreement, each outstanding share of Promistar's common
stock was converted into .926 shares of the Corporation's common stock. A total
of 16,007,346 shares of the Corporation's common stock were issued. The
transaction was accounted for as a pooling-of-interests. Promistar's banking
affiliate, Promistar Bank, was merged into an existing subsidiary of the
Corporation, First National Bank of Pennsylvania (FNBPA). The Corporation
anticipates incurring a charge of approximately $41.0 million relating to this
transaction. Following is an unaudited summary of pro forma information, which
represents a combination of the results of operations of the Corporation and
Promistar (in thousands, except per share data):
2001 2000 1999
-------- -------- --------
Net interest income ........................ $250,090 $239,358 $233,171
Net income ................................. 53,247 61,627 61,169
Basic earnings per share ................... 1.29 1.51 1.49
REINCORPORATION
On June 1, 2001, the Corporation reincorporated in the state of Florida.
The Corporation now operates from corporate headquarters located in Naples,
Florida. The Corporation was incorporated in 1974 in Hermitage, Pennsylvania,
and at that time substantially all of the Corporation's business was being
conducted in Pennsylvania. The Corporation expanded into Florida four
F.N.B. Corporation 28
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
years ago. As a result of the dynamic growth experienced in that state and
because of subsequent acquisitions, a significant portion of the Corporation's
assets and shareholders now reside in Florida. In connection with the
reincorporation, the Corporation reduced the par value of both its common stock
and preferred stock to $0.01 per share.
CHARTER CONSOLIDATION
During the first quarter of 2001, the Corporation completed its charter
consolidation plan which reduced the number of bank charters from eight to
three. The Corporation's five Florida banks were merged under FNBFL and its two
Pennsylvania banks were combined under FNBPA. The Corporation had previously
consolidated its Ohio banks under a single charter, Metropolitan National Bank.
In connection with these charter consolidations, the trust operations of FNBFL
were consolidated into the Corporation's national trust company, First National
Trust Company. The Corporation incurred pre-tax consolidation expense of $3.2
million arising from legal and accounting fees, consulting fees, data processing
conversion charges, early retirement, involuntary separation and related benefit
costs. Involuntary separation costs associated with 42 terminated employees
totaled $1.4 million of the total consolidation expense. These separation costs
have been reflected within the income statement caption salaries and employee
benefits. The total amount of separation payments paid during 2001 was $1.0
million. The remaining separation costs will be paid in accordance with the
contractual terms of the employment and compensation agreements of the
terminated employees. All remaining significant payments are expected to be
completed by the end of the first quarter of 2002.
SECURITIES
The amortized cost and fair value of securities are as follows (in
thousands):
Securities available for sale:
- ---------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 2001 COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S. Government
agencies and corporations $184,022 $ 5,365 $(125) $189,262
Mortgage-backed securities of
U.S. Government agencies 195,166 2,692 (157) 197,701
States of the U.S. and political subdivisions 2,466 32 (44) 2,454
Other debt securities 1,250 1,250
- ---------------------------------------------------------------------------------------------------------
TOTAL DEBT SECURITIES 382,904 8,089 (326) 390,667
Equity securities 20,226 3,139 (239) 23,126
- ---------------------------------------------------------------------------------------------------------
$403,130 $11,228 $(565) $413,793
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 2000 COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S. Government
agencies and corporations $195,468 $1,835 $(335) $196,968
Mortgage-backed securities of
U.S. Government agencies 212,462 947 (1,319) 212,090
States of the U.S. and political subdivisions 2,951 32 (111) 2,872
- ---------------------------------------------------------------------------------------------------------
TOTAL DEBT SECURITIES 410,881 2,814 (1,765) 411,930
Equity securities 27,173 2,714 (337) 29,550
- ---------------------------------------------------------------------------------------------------------
$438,054 $5,528 $(2,102) $441,480
- ---------------------------------------------------------------------------------------------------------
F.N.B. Corporation 29
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1999 COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S. Government
agencies and corporations $210,443 $ 73 $ (6,384) $204,132
Mortgage-backed securities of
U.S. Government agencies 185,780 279 (4,528) 181,531
States of the U.S. and political subdivisions 3,091 3 (289) 2,805
Other debt securities 358 45 403
- ---------------------------------------------------------------------------------------------------------
TOTAL DEBT SECURITIES 399,672 400 (11,201) 388,871
Equity securities 22,711 3,601 (215) 26,097
- ---------------------------------------------------------------------------------------------------------
$422,383 $4,001 $(11,416) $414,968
- ---------------------------------------------------------------------------------------------------------
Securities held to maturity:
- ---------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 2001 COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S. Government
agencies and corporations $ 3,214 $ 47 $ 3,261
Mortgage-backed securities of
U.S. Government agencies 3,068 38 3,106
States of the U.S. and political subdivisions 43,493 541 $ (223) 43,811
Other debt securities 1,593 1 (2) 1,592
- ---------------------------------------------------------------------------------------------------------
$ 51,368 $ 627 $ (225) $ 51,770
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 2000 COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S. Government
agencies and corporations $ 30,887 $ 12 $ (170) $ 30,729
Mortgage-backed securities of
U.S. Government agencies 7,091 23 (18) 7,096
States of the U.S. and political subdivisions 35,442 221 (79) 35,584
Other debt securities 102 (3) 99
- ---------------------------------------------------------------------------------------------------------
$ 73,522 $ 256 $ (270) $ 73,508
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1999 COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S. Government
agencies and corporations $ 30,887 $ (1,161) $ 29,726
Mortgage-backed securities of
U.S. Government agencies 15,147 $ 10 (157) 15,000
States of the U.S. and political subdivisions 44,037 76 (656) 43,457
Other debt securities 288 (4) 284
- ---------------------------------------------------------------------------------------------------------
$ 90,359 $ 86 $ (1,978) $ 88,467
- ---------------------------------------------------------------------------------------------------------
F.N.B. Corporation 30
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2001 and 2000, securities with a carrying value of $199.8
million and $199.3 million, respectively, were pledged to secure public
deposits, trust deposits and for other purposes as required by law. Securities
with a carrying value of $218.9 million and $232.3 million at December 31, 2001
and 2000, respectively, were pledged as collateral for other borrowings.
As of December 31, 2001, the Corporation had not entered into any
derivative transactions.
As of December 31, 2001, the amortized cost and fair value of securities,
by contractual maturities, were as follows (in thousands):
- -------------------------------------------------------------------------------------
Held to Maturity Available for Sale
- -------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
December 31, 2001 Cost Value Cost Value
- -------------------------------------------------------------------------------------
Due in one year or less $ 6,611 $ 6,677 $ 45,139 $ 46,220
Due from one to five years 22,063 22,501 129,089 133,213
Due from five to ten years 19,367 19,227 11,168 11,231
Due after ten years 259 259 2,342 2,302
- -------------------------------------------------------------------------------------
48,300 48,664 187,738 192,966
Mortgage-backed securities of
U.S. Government agencies 3,068 3,106 195,166 197,701
Equity securities 20,226 23,126
- -------------------------------------------------------------------------------------
$51,368 $51,770 $403,130 $413,793
- -------------------------------------------------------------------------------------
Maturities may differ from contractual terms because borrowers may have the
right to call or prepay obligations with or without penalties. Periodic payments
are received on mortgage-backed securities based on the payment patterns of the
underlying collateral.
Proceeds from sales of securities available for sale during 2001, 2000 and
1999 were $17.7 million, $13.3 million and $32.1 million, respectively. Gross
gains and gross losses were realized on those sales as follows (in thousands):
- --------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Gross gains $1,165 $206 $1,734
Gross losses (8) (30) (60)
- --------------------------------------------------------------------------------
$1,157 $176 $1,674
- --------------------------------------------------------------------------------
LOANS
Following is a summary of loans (in thousands):
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Real estate:
Residential $1,219,502 $1,157,753
Commercial 984,973 849,276
Construction 206,269 204,267
Installment loans to individuals 284,233 341,755
Commercial, financial and agricultural 423,198 401,866
Lease financing 128,712 204,187
Unearned income (44,383) (62,271)
- --------------------------------------------------------------------------------
$3,202,504 $3,096,833
- --------------------------------------------------------------------------------
F.N.B. Corporation 31
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The loan portfolio consists principally of loans to individuals and small-
and medium-sized businesses within the Corporation's primary market area of
southwest Florida, western Pennsylvania, northern and central Tennessee and
eastern Ohio.
As of December 31, 2001, no concentrations of loans exceeding 10% of total
loans existed which were not disclosed as a separate category of loans.
Certain directors and executive officers of the Corporation and its
significant subsidiaries, as well as associates of such persons, were loan
customers during 2001. Such loans were made in the ordinary course of business
under normal credit terms and do not represent more than a normal risk of
collection. Following is a summary of the aggregate amount of loans to any such
persons who had loans in excess of $60,000 during the year (in thousands):
Total loans at December 31, 2000 .................................... $ 51,049
New loans ........................................................... 26,630
Repayments .......................................................... (34,341)
Other ............................................................... (4,288)
---------
Total loans at December 31, 2001 .................................... $ 39,050
=========
Other represents the net change in loan balances resulting from changes in
related parties during the year.
NON-PERFORMING ASSETS
Following is a summary of non-performing assets (in thousands):
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Non-accrual loans $14,488 $10,397
Restructured loans 4,697 2,810
- --------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 19,185 13,207
Other real estate owned 3,137 4,786
- --------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $22,322 $17,993
- --------------------------------------------------------------------------------
For the years ended December 31, 2001, 2000 and 1999, income recognized on
non-accrual and restructured loans was $771,000, $545,000 and $503,000,
respectively. Income that would have been recognized during 2001, 2000 and 1999
on such loans if they were in accordance with their original terms was $1.6
million, $1.6 million and $1.4 million, respectively. Loans past due 90 days or
more were $4.8 million, $4.5 million and $4.9 million at December 31, 2001, 2000
and 1999, respectively.
Following is a summary of information pertaining to loans considered to be
impaired (in thousands):
- --------------------------------------------------------------------------------
At or For the Year Ended December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Impaired loans with an allocated allowance $1,832 $ 969 $2,069
Impaired loans without an allocated allowance 1,023 1,027 1,762
- --------------------------------------------------------------------------------
TOTAL IMPAIRED LOANS $2,855 $1,996 $3,831
- --------------------------------------------------------------------------------
Allocated allowance on impaired loans 580 375 891
- --------------------------------------------------------------------------------
Portion of impaired loans on non-accrual 711 1,339 1,272
- --------------------------------------------------------------------------------
Average impaired loans 2,425 2,682 5,268
- --------------------------------------------------------------------------------
Income recognized on impaired loans 182 162 302
- --------------------------------------------------------------------------------
F.N.B. Corporation 32
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses (in
thousands):
- --------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Balance at beginning of year $ 40,373 $ 37,197 $32,761
Addition from acquisitions 767 2,813
Charge-offs (14,686) (11,251) (9,626)
Recoveries 2,243 1,738 1,572
- --------------------------------------------------------------------------------
NET CHARGE-OFFS (12,443) (9,513) (8,054)
Provision for loan losses 12,915 11,922 9,677
- --------------------------------------------------------------------------------
Balance at end of year $ 40,845 $ 40,373 $37,197
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT
Following is a summary of premises and equipment (in thousands):
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Land $ 22,516 $ 22,495
Premises 101,156 91,066
Equipment 80,386 71,923
- --------------------------------------------------------------------------------
204,058 185,484
Accumulated depreciation (82,329) (71,548)
- --------------------------------------------------------------------------------
$121,729 $113,936
- --------------------------------------------------------------------------------
Depreciation expense was $11.5 million for 2001, $11.2 million for 2000 and
$9.9 million for 1999.
The Corporation has operating leases extending to 2087 for certain land,
office locations and equipment. Leases that expire are generally expected to be
renewed or replaced by other leases. Rental expense was $4.4 million for 2001,
$4.6 million for 2000 and $3.3 million for 1999. Total minimum rental
commitments under such leases were $30.8 million at December 31, 2001. Following
is a summary of future minimum lease payments for years following December 31,
2001 (in thousands):
2002 ............................ $ 2,647
2003 ............................ 2,234
2004 ............................ 1,574
2005 ............................ 1,217
2006 ............................ 878
Later years ..................... 22,224
F.N.B. Corporation 33
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEPOSITS
Following is a summary of deposits (in thousands):
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Non-interest bearing $ 511,611 $ 478,167
Savings and NOW 1,438,492 1,399,125
Certificates of deposit and other time deposits 1,342,289 1,370,658
- --------------------------------------------------------------------------------
$3,292,392 $3,247,950
- --------------------------------------------------------------------------------
Following is a summary of the scheduled maturities of certificates of
deposit and other time deposits for each of the five years following December
31, 2001 (in thousands):
2002 ............................ $913,139
2003 ............................ 313,583
2004 ............................ 63,186
2005 ............................ 42,297
2006 ............................ 9,834
Later years ..................... 250
Time deposits of $100,000 or more were $389.2 million and $353.1 million at
December 31, 2001 and 2000, respectively. Following is a summary of these time
deposits by remaining maturity at December 31, 2001 (in thousands):
- --------------------------------------------------------------------------------
CERTIFICATES OTHER TIME
OF DEPOSIT DEPOSITS TOTAL
- --------------------------------------------------------------------------------
Three months or less $ 85,327 $ 2,456 $ 87,783
Three to six months 55,939 3,033 58,972
Six to twelve months 113,254 5,900 119,154
Over twelve months 109,046 14,228 123,274
- --------------------------------------------------------------------------------
$363,566 $25,617 $389,183
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS
Following is a summary of short-term borrowings (in thousands):
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Securities sold under repurchase agreements $184,348 $146,996
Federal funds purchased 6,865 865
Federal Home Loan Bank advances 42,400
Other short-term borrowings 332 25,296
Subordinated notes 101,836 70,308
- --------------------------------------------------------------------------------
$293,381 $285,865
- --------------------------------------------------------------------------------
Credit facilities amounting to $88.0 million at December 31, 2001 were
maintained with various banks with rates which are at or below prime rate. The
facilities and their terms are periodically reviewed by the banks and are
generally subject to withdrawal at their discretion. No credit facilities were
used at December 31, 2001.
F.N.B. Corporation 34
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM DEBT
Following is a summary of long-term debt (in thousands):
December 31 2001 2000
-------- --------
Federal Home Loan Bank advances ....................... $ 65,743 $ 70,829
Other long-term debt .................................. 1,431 1,380
Subordinated notes .................................... 35,839 44,489
-------- --------
$103,013 $116,698
======== ========
The Corporation has available credit with the Federal Home Loan Bank of
$708.2 million, of which $65.7 million was used as of December 31, 2001. These
advances are secured by residential real estate loans and Federal Home Loan Bank
Stock and are scheduled to mature in various amounts periodically through the
year 2010. Interest rates paid on these advances range from 5.46% to 6.40% in
both 2001 and 2000.
Subordinated notes are unsecured and subordinated to other indebtedness of
the Corporation. The subordinated notes are scheduled to mature in various
amounts periodically through the year 2011. At December 31, 2001, $25.8 million
of long-term subordinated debt is redeemable by the holders prior to maturity at
a discount equal to three months of interest. The Corporation may require the
holder to give 30 days prior written notice. No sinking fund is required and
none has been established to retire the debt. The weighted average interest rate
on long-term subordinated debt was 7.22% at December 31, 2001 and 7.45% at
December 31, 2000.
Scheduled annual maturities for all of the long-term debt for each of the
five years following December 31, 2001 are as follows (in thousands):
2002 ............................. $18,629
2003 ............................. 9,456
2004 ............................. 1,840
2005 ............................. 31,593
2006 ............................. 3,062
Later years ...................... 38,433
COMMITMENTS, CREDIT RISK AND CONTINGENCIES
The Corporation has commitments to extend credit and standby letters of
credit which involve certain elements of credit risk in excess of the amount
stated in the consolidated balance sheet. The Corporation's exposure to credit
loss in the event of non-performance by the customer is represented by the
contractual amount of those instruments. Consistent credit policies are used by
the Corporation for both on- and off-balance sheet items.
Following is a summary of off-balance sheet credit risk information (in
thousands):
December 31 2001 2000
---- ----
Commitments to extend credit ........................... $686,521 $594,867
Standby letters of credit .............................. 45,857 36,042
At December 31, 2001, funding of approximately 85% of the commitments to
extend credit is dependent on the financial condition of the customer. The
Corporation has the ability to withdraw such commitments at its discretion.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Based on management's credit evaluation of
the customer, collateral may be deemed necessary. Collateral requirements vary
and may include accounts receivable, inventory, property, plant and equipment
and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Corporation which may require payment at a future date. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loans to customers.
The Corporation established a litigation reserve by recording a pre-tax
charge of approximately $4.0 million to cover estimated legal expenses
associated with five cases filed against one of its subsidiary banks. The
plaintiffs allege that a third-party independent administrator misappropriated
funds from their individual retirement accounts held by the subsidiary bank. The
Corporation decided to establish the reserve as a result of developments which
occurred during 2001. The Corporation paid settlements and legal costs of $1.9
million during 2001. The Corporation believes the remaining reserve will be
sufficient for all costs associated with the litigation, including settlements
and adverse judgements.
F.N.B. Corporation 35
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY
Series A - Cumulative Convertible Preferred Stock (Series A Preferred) was
issued in 1985. Holders of Series A Preferred are entitled to 6.5 votes for each
share held. The holders do not have cumulative voting rights in the election of
directors. Dividends are cumulative from the date of issue and are payable at
$.42 per share each quarter. Series A Preferred is convertible at the option of
the holder into shares of the Corporation's common stock having a market value
of $25.00 at time of conversion. The Corporation has the right to require the
conversion of the balance of all outstanding shares at the conversion rate. At
December 31, 2001, 18,143 shares of common stock were reserved by the
Corporation for the conversion of the remaining 19,174 outstanding shares.
Series B - Cumulative Convertible Preferred Stock (Series B Preferred) was
issued in 1992. Holders of Series B Preferred have no voting rights. Dividends
are cumulative from the date of issue and are payable at $.46875 per share each
quarter. Series B Preferred has a stated value of $25.00 per share and is
convertible at the option of the holder into shares of the Corporation's common
stock at a price of $9.57 per share. The Corporation has the right to require
the conversion of the balance of all outstanding shares at the conversion rate.
During 2001, 20,679 shares of Series B Preferred were converted to 53,467 shares
of common stock. At December 31, 2001, 335,847 shares of common stock were
reserved by the Corporation for the conversion of the remaining 127,859
outstanding shares.
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, are as follows
(in thousands):
- ---------------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- ---------------------------------------------------------------------------------------------------
Net income $44,572 $43,990 $40,581
Other comprehensive income:
Unrealized gains (losses) on securities:
Arising during the period, net of tax expense (benefit)
of $2,745, $3,872 and $(5,454) 5,098 7,161 (10,129)
Less: reclassification adjustment for gains included in
net income previously reflected as an unrealized gain
or loss, net of tax benefit of $178, $99 and $559 (330) (184) (1,038)
Minimum pension liability adjustment 30
- ---------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 4,768 7,007 (11,167)
- ---------------------------------------------------------------------------------------------------
Comprehensive income $49,340 $50,997 $29,414
- ---------------------------------------------------------------------------------------------------
STOCK INCENTIVE PLANS
The Corporation has available up to 1,110,926 shares of common stock to be
issued under the restricted stock and incentive bonus and restricted stock bonus
plans to key employees of the Corporation. All shares of stock awarded under
these plans vest in equal installments over a five year period on each
anniversary of the date of grant. During 2001, the Corporation granted 5,824
shares of stock under these plans. The weighted average fair value of the
restricted shares issued was $21.70.
The Corporation has available up to 2,865,516 shares of common stock to be
issued under both incentive and non-qualified stock option plans to key
employees of the Corporation. The options vest in equal installments over
periods ranging from three to ten years. The options are granted at a price
equal to the fair market value at the date of the grant and are exercisable
within ten years from the date of the grant. Because the exercise price of the
Corporation's stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
F.N.B. Corporation 36
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with FAS No. 123, the following table shows pro forma net
income and earnings per share along with the significant assumptions used in the
Black-Scholes option pricing model (dollars in thousands, except per share
data):
- --------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Pro forma net income $42,511 $42,268 $39,185
Pro forma earnings per share:
Basic $1.66 $1.66 $1.55
- --------------------------------------------------------------------------------
Diluted $1.61 $1.62 $1.50
- --------------------------------------------------------------------------------
Assumptions:
Risk-free interest rate 5.25% 6.79% 4.72%
Dividend yield 2.84% 3.37% 3.20%
Expected stock price volitility .26% .26% .23%
Expected life (years) 5.00 5.00 5.00
- --------------------------------------------------------------------------------
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferrable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Corporation's employee stock options have
characteristics significantly different from those of traded options, and
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of the Corporation's
employee stock options.
Activity in the Option Plan during the past three years was as follows:
- ----------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE PRICE
2001 PER SHARE 2000 1999
- ----------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 2,163,398 $16.66 1,752,033 1,557,845
Granted during the year 663,301 21.38 587,097 466,592
Exercised during the year (253,547) 11.54 (105,069) (224,261)
Forfeited during the year (129,039) 16.39 (70,663) (48,143)
- ----------------------------------------------------------------------------------------------------------
Ending balance 2,444,113 19.34 2,163,398 1,752,033
- ----------------------------------------------------------------------------------------------------------
The following table summarizes information about the stock options
outstanding at December 31, 2001:
- ---------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
EXERCISE OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
PRICES OUTSTANDING CONTRACTUAL YEARS EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------
$ 5.23 - $ 7.85 88,740 4.63 $ 6.43 88,740 $ 6.43
7.86 - 11.79 331,624 2.44 9.80 305,142 9.79
11.80 - 17.70 195,345 4.38 15.54 179,076 15.58
17.71 - 26.57 1,571,810 7.93 21.38 452,744 20.99
26.58 - 28.64 256,594 6.05 28.64 160,051 28.64
- ---------------------------------------------------------------------------------------------------------------
2,444,113 1,185,753
- ---------------------------------------------------------------------------------------------------------------
F.N.B. Corporation 37
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation has granted warrants to purchase common stock (at an
exercise price of $9.00 per share). Such warrants are exercisable and will
expire on December 17, 2003. The Corporation has reserved 11,837 shares of
common stock for issuance in connection with these warrants.
RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS
RETIREMENT PLANS
Following are reconciliations of the change in benefit obligation, change in
plan assets and funded status (in thousands):
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Benefit obligation at beginning of year $33,590 $27,976
Service cost 2,075 1,416
Interest cost 2,854 2,336
Plan amendments 2,585 254
Actuarial loss 1,907 2,573
Termination charge due to curtailment 94
Benefits paid (1,389) (965)
- --------------------------------------------------------------------------------
Benefit obligation at end of year $41,716 $33,590
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $29,452 $29,510
Actual return on plan assets 263 (97)
Company contribution 2,411 1,004
Benefits paid (1,389) (965)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year $30,737 $29,452
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Funded status of plan $(10,978) $ (4,137)
Unrecognized actuarial loss (gain) 1,251 (2,766)
Unrecognized prior service cost 3,677 1,641
Unrecognized net transition obligation 27 32
- --------------------------------------------------------------------------------
Accrued pension cost $ (6,023) $ (5,230)
- --------------------------------------------------------------------------------
Included in the above reconciliation is the benefit obligation and fair
value of plan assets for the Basic Retirement Plan which were $11.9 million and
$0, respectively, as of December 31, 2001, and $8.0 million and $0,
respectively, as of December 31, 2000.
The amounts recognized in the Corporation's consolidated financial
statements include the following (in thousands):
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Prepaid pension cost $ 2,448 $ 1,177
Accrued pension cost (8,471) (6,407)
Additional minimum liability (3,460) (1,592)
Accumulated other comprehensive income 30
Intangible asset 3,460 1,562
- --------------------------------------------------------------------------------
Net amount recognized on balance sheet $(6,023) $(5,230)
- --------------------------------------------------------------------------------
F.N.B. Corporation 38
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The pension expense for the defined benefit plans included the following
components (in thousands):
- --------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Service costs $ 2,075 $ 1,416 $ 1,604
Interest cost 2,854 2,336 2,097
Expected return on plan assets (2,351) (2,327) (2,234)
Termination charge due to curtailment 94
Net amortization 533 32 319
- --------------------------------------------------------------------------------
Net pension expense $ 3,205 $ 1,457 $ 1,786
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Assumptions as of December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Weighted average discount rate 7.3% 7.5% 7.8%
Rates of increase in compensation levels 4.0% 4.0% 4.0%
Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
- --------------------------------------------------------------------------------
At December 31, 2001, plan assets include 81,712 shares of the
Corporation's common stock, having a market value of $2.2 million. Dividends
received on these shares totaled $61,000 for 2001.
Certain subsidiaries of the Corporation participate in a qualified 401(k)
defined contribution plan for the full-time employees of the subsidiary. A
percentage of employees' contributions to the plan are matched by the
Corporation. The Corporation's contribution expense amounted to $1.6 million in
2001, $1.0 million in 2000 and $844,000 in 1999.
Certain subsidiaries of the Corporation participate in a Salary Savings
ESOP Plan, under which eligible employees may contribute a percentage of their
salary. The Corporation matches 50 percent of an eligible employee's
contribution on the first 6 percent that the employee defers, and may make a
discretionary contribution payable either in cash or the Corporation's common
stock based upon the Corporation's profitability. Employees are generally
eligible to participate upon completing one year of service and having attained
age 21. Employer contributions become 20 percent vested when an employee has
completed two years of service, and vest at a rate of 20 percent per year
thereafter. The Corporation recognized expense of $1.4 million in 2001, $910,000
in 2000 and $1.0 million in 1999 related to the Salary Savings ESOP Plan.
OTHER POSTRETIREMENT BENEFIT PLANS
Following are reconciliations of the change in benefit obligation, change
in plan assets and funded status (in thousands):
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Benefit obligation at beginning of year $1,021 $1,205
Service cost 96 85
Interest cost 74 78
Plan participants' contributions 2 2
Plan amendments 13
Actuarial gain (32) (246)
Benefits paid (73) (108)
Curtailment and settlement 18 (8)
- --------------------------------------------------------------------------------
Benefit obligation at end of year $1,106 $1,021
- --------------------------------------------------------------------------------
F.N.B. Corporation 39
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 0 $ 0
Company contribution 71 106
Plan participants' contributions 2 2
Benefits paid (73) (108)
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 0 $ 0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
Funded status of plan $(1,106) $(1,021)
Unrecognized actuarial gain (276) (272)
Unrecognized prior service cost 67 72
Unrecognized net transition obligation 368 418
- --------------------------------------------------------------------------------
Accrued postretirement benefit cost $ (947) $ (803)
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost included the following components (in
thousands):
- --------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Service cost $ 96 $ 85 $101
Interest cost 74 78 74
Curtailment and settlement 18 (8)
Net amortization 27 33 38
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost $215 $188 $213
- --------------------------------------------------------------------------------
Discount rates of 7.3%, 7.5% and 7.8% for 2001, 2000 and 1999,
respectively, were used to determine the accumulated postretirement benefit
obligation.
The assumed health care cost trend rate has a significant effect on the
amounts reported. An 8.0% annual rate of increase in the per capita costs of
covered health care benefits is assumed for 2002, gradually decreasing to 5.0%
by the year 2005. A one percentage point change in the assumed health care cost
trend rate would have had the following effects on 2001 service and interest
cost and the accumulated postretirement benefit obligation at December 31, 2001
(in thousands):
- -------------------------------------------------------------------------------------------
1% 1%
Increase Decrease
- -------------------------------------------------------------------------------------------
Effect on service and interest components of net periodic cost $ 20 $(17)
Effect on accumulated postretirement benefit obligation 111 (96)
- -------------------------------------------------------------------------------------------
F.N.B. Corporation 40
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
Income tax expense consists of the following (in thousands):
- --------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Current income taxes:
Federal taxes $13,979 $17,805 $25,604
State taxes 599 1,643 958
- --------------------------------------------------------------------------------
14,578 19,448 26,562
Deferred income taxes:
Federal taxes 6,501 1,705 (9,051)
State taxes 429 (671)
- --------------------------------------------------------------------------------
$21,508 $20,482 $17,511
- --------------------------------------------------------------------------------
The tax effects of temporary differences giving rise to deferred tax assets
and liabilities are presented below (in thousands):
- ----------------------------------------------------------------------------------------
December 31 2001 2000
- ----------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 14,296 $ 13,558
Deferred compensation 3,297 3,042
Deferred benefits 2,865 2,612
Other 864 636
- ----------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX ASSETS 21,322 19,848
- ----------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (1,975) (1,728)
Deferred gain on sale of subsidiary (3,555) (3,555)
Unrealized (gains) losses on securities available for sale (3,750) (1,185)
Leasing (14,971) (20,506)
Other (1,283) (1,452)
- ----------------------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX LIABILITIES (25,534) (28,426)
- ----------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES $ (4,212) $ (8,578)
- ----------------------------------------------------------------------------------------
Following is a reconciliation between tax expense using federal statutory
tax and actual effective tax:
- --------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
Effect of nontaxable interest and dividend income (4.1) (4.1) (4.7)
State taxes 1.0 1.0 1.1
Goodwill .3 .5 .5
Merger related costs .6 .3
Other items (.3) (.6) (2.1)
- --------------------------------------------------------------------------------
Effective tax rate 32.5% 31.8% 30.1%
- --------------------------------------------------------------------------------
Income tax expense related to gains on the sale of securities was $405,000,
$62,000 and $586,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.
F.N.B. Corporation 41
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
- ------------------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
BASIC
Net income $44,572 $43,990 $40,581
Less: Preferred stock dividends declared (293) (341) (411)
- ------------------------------------------------------------------------------------------------------
Net income applicable to basic common shares $44,279 $43,649 $40,170
- ------------------------------------------------------------------------------------------------------
Average common shares outstanding 25,605,366 25,408,287 25,293,752
- ------------------------------------------------------------------------------------------------------
Earnings per share $1.73 $1.72 $1.59
- ------------------------------------------------------------------------------------------------------
DILUTED
Net income applicable to diluted common shares $44,572 $43,990 $40,581
- ------------------------------------------------------------------------------------------------------
Average common shares outstanding 25,605,366 25,408,287 25,293,752
Convertible preferred stock 379,757 449,047 574,919
Net effect of dilutive stock options based on the
treasury stock method using the average market price 601,013 405,330 539,634
- ------------------------------------------------------------------------------------------------------
Diluted average common shares outstanding 26,586,136 26,262,664 26,408,305
- ------------------------------------------------------------------------------------------------------
Earnings per share $1.68 $1.68 $1.54
- ------------------------------------------------------------------------------------------------------
REGULATORY MATTERS
Quantitative measures established by regulators to ensure capital adequacy
require the Corporation and its banking subsidiaries to maintain minimum amounts
and ratios of total and tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of tier 1 capital to average assets (as
defined). Management believes, as of December 31, 2001, that the Corporation and
each of its banking subsidiaries meet all capital adequacy requirements to which
they are subject.
As of December 31, 2001, the Corporation and each of its banking
subsidiaries have been categorized by the various regulators as "well
capitalized" under the regulatory framework for prompt corrective action. The
Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Corporation's and banking subsidiaries' capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
F.N.B. Corporation 42
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following are the capital ratios as of December 31, 2001 for the
Corporation and its significant subsidiaries, First National Bank of Florida and
First National Bank of Pennsylvania (dollars in thousands):
- ------------------------------------------------------------------------------------------------------------
WELL CAPITALIZED MINIMUM CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
F.N.B. Corporation $376,189 11.8% $317,686 10.0% $254,149 8.0%
First National Bank of Florida 173,173 10.1 171,176 10.0 136,940 8.0
First National Bank of Pennsylvania 115,932 10.6 109,579 10.0 87,663 8.0
TIER 1 CAPITAL (TO RISK-WEIGHTED ASSETS):
F.N.B. Corporation $335,132 10.6% $190,612 6.0% $127,075 4.0%
First National Bank of Florida 154,459 9.0 102,705 6.0 68,470 4.0
First National Bank of Pennsylvania 102,233 9.3 65,747 6.0 43,832 4.0
TIER 1 CAPITAL (TO AVERAGE ASSETS):
F.N.B. Corporation $335,132 8.3% $202,662 5.0% $162,130 4.0%
First National Bank of Florida 154,459 7.2 106,744 5.0 85,395 4.0
First National Bank of Pennsylvania 102,233 7.1 71,932 5.0 57,545 4.0
- ------------------------------------------------------------------------------------------------------------
The Corporation's banking subsidiaries were required to maintain aggregate
cash reserves with the Federal Reserve Bank amounting to $48.7 million at
December 31, 2001. The Corporation also maintains deposits for various services
such as check clearing.
Certain limitations exist under applicable law and regulations by
regulatory agencies regarding dividend payments to a parent by its subsidiaries.
As of December 31, 2001, the subsidiaries had $64.0 million of retained earnings
available for distribution as dividends without prior regulatory approval.
Under current Federal Reserve regulations, the Corporation's banking
subsidiaries are limited in the amount they may lend to non-bank affiliates,
including the Corporation. Such loans must be secured by specified collateral.
In addition, any such loans to a single non-bank affiliate may not exceed 10% of
any banking subsidiary's capital and surplus, and the aggregate of loans to all
such affiliates may not exceed 20%. The maximum amount that may be borrowed by
the parent company under these provisions approximated $69.5 million at December
31, 2001.
BUSINESS SEGMENTS
The Corporation operates in three reportable segments: community banks,
insurance agencies and consumer finance. The Corporation's community bank
subsidiaries offer services traditionally offered by full-service commercial
banks, including commercial and individual demand and time deposit accounts and
commercial, mortgage and individual installment loans. In addition to
traditional banking products, the Corporation's bank subsidiaries offer trust
services as well as various alternative investment products, including mutual
funds and annuities. The Corporation's insurance agencies are full-service
insurance companies offering all lines of commercial and personal
F.N.B. Corporation 43
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
insurance through major carriers. The Corporation's consumer finance subsidiary
is involved in making personal installment loans to individuals and purchasing
installment sales finance contracts from retail merchants. This activity is
funded through the sale of the Corporation's subordinated notes at the finance
company's branch offices. The following tables provide financial information for
these segments of the Corporation (in thousands). Other items shown in the table
below represent the parent company, other non-bank subsidiaries and
eliminations, which are necessary for purposes of reconciling to the
consolidated amounts.
- ----------------------------------------------------------------------------------------------------------------------
COMMUNITY INSURANCE FINANCE ALL
At or for the Year Ended December 31, 2001 BANKS AGENCIES COMPANY OTHER CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------
Interest income $ 270,881 $ 196 $ 27,533 $ (1,917) $ 296,693
Interest expense 118,137 232 8,374 (1,076) 125,667
Provision for loan losses 8,215 4,700 12,915
Non-interest income 47,926 26,720 1,773 6,380 82,799
Non-interest expense 129,955 20,724 11,928 9,714 172,321
Intangible amortization 1,608 775 126 2,509
Income tax expense (credit) 19,865 2,192 1,524 (2,073) 21,508
Net income 41,027 2,993 2,654 (2,102) 44,572
Core operating income* 45,531 2,993 2,654 578 51,756
Total assets 3,949,672 29,761 147,747 1,907 4,129,087
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COMMUNITY INSURANCE FINANCE ALL
At or for the Year Ended December 31, 2000 BANKS AGENCIES COMPANY OTHER CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------
Interest income $ 280,530 $ 164 $ 26,021 $ (4,858) $ 301,857
Interest expense 135,491 207 8,083 (3,418) 140,363
Provision for loan losses 7,787 4,165 (30) 11,922
Non-interest income 38,565 20,190 1,818 2,825 63,398
Non-interest expense 116,222 16,242 11,200 2,706 146,370
Intangible amortization 1,578 463 87 2,128
Income tax expense (credit) 18,635 1,214 1,585 (952) 20,482
Net income 39,382 2,228 2,719 (339) 43,990
Core operating income 39,382 2,228 2,719 (339) 43,990
Total assets 3,910,172 24,824 153,152 (32,227) 4,055,921
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
COMMUNITY INSURANCE FINANCE ALL
At or for the Year Ended December 31, 1999 BANKS AGENCIES COMPANY OTHER CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------
Interest income $ 246,293 $ 129 $ 17,966 $ (2,612) $ 261,776
Interest expense 105,971 179 4,586 (1,450) 109,286
Provision for loan losses 6,977 2,700 9,677
Non-interest income 33,053 14,040 1,240 5,249 53,582
Non-interest expense 111,023 11,762 8,208 5,312 136,305
Intangible amortization 1,891 64 43 1,998
Income tax expense (credit) 17,094 (359) 1,289 (513) 17,511
Net income 36,390 2,523 2,380 (712) 40,581
Core operating income* 36,818 2,523 2,380 128 41,849
Total assets 3,722,283 9,378 124,577 (24,936) 3,831,302
- ----------------------------------------------------------------------------------------------------------------------
* Core operating earnings exclude consolidation charges of $2.1 million and
merger related and other non-recurring costs of $5.1 million in 2001 and
merger related and other non-recurring costs of $1.3 million in 1999, all
on an after-tax basis. Such presentation is provided in order to eliminate
all items deemed by management to be of a non-recurring nature.
F.N.B. Corporation 44
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information (in
thousands):
- ------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- ------------------------------------------------------------------------------------------
Cash paid during year for:
Interest $129,161 $136,540 $108,277
Income taxes 22,996 19,592 8,118
Non-cash investing and financing activities:
Acquisition of real estate in settlement of loans $3,198 $2,022 $3,929
Loans granted in the sale of other real estate 3,178 465 176
- ------------------------------------------------------------------------------------------
PARENT COMPANY FINANCIAL STATEMENTS
Below is condensed financial information of F.N.B. Corporation (parent
company only). In this information, the parent's investments in subsidiaries are
stated at cost plus equity in undistributed earnings of subsidiaries since
acquisition. This information should be read in conjunction with the
consolidated financial statements.
BALANCE SHEET (in thousands)
- --------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------
ASSETS
Cash $ 8 $ 270
Short-term investments 7,534 10,409
Securities available for sale 190
Loans receivable 4,800
Premises and equipment 3,043 1,078
Other assets 18,520 5,778
Investment in bank subsidiaries 296,628 295,569
Investment in non-bank subsidiaries 196,449 175,267
- --------------------------------------------------------------------------------
TOTAL ASSETS $522,182 $493,361
- --------------------------------------------------------------------------------
LIABILITIES
Other liabilities $ 13,789 $ 11,600
Short-term borrowings 103,357 97,632
Long-term debt 35,839 44,489
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 152,985 153,721
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 369,197 339,640
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $522,182 $493,361
- --------------------------------------------------------------------------------
F.N.B. Corporation 45
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------
INCOME STATEMENT (in thousands)
- ----------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- ----------------------------------------------------------------------------------------
INCOME
Dividend income from subsidiaries:
Bank $45,630 $22,801 $22,875
Non-bank 3,191 2,570 1,565
- ----------------------------------------------------------------------------------------
48,821 25,371 24,440
- ----------------------------------------------------------------------------------------
Interest income 574 511 667
Service fee income 9,898 9,575 8,663
Other income 1,200 661 774
- ----------------------------------------------------------------------------------------
TOTAL INCOME 60,493 36,118 34,544
- ----------------------------------------------------------------------------------------
EXPENSES
Interest expense 8,883 8,847 5,846
Salaries and personnel expense 9,380 8,527 8,278
Service fees 872 598 319
Other expenses 7,850 2,984 4,984
- ----------------------------------------------------------------------------------------
TOTAL EXPENSES 26,985 20,956 19,427
- ----------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND EQUITY IN
UNDISTRIBUTED INCOME OF SUBSIDIARIES 33,508 15,162 15,117
Income tax benefit 5,729 3,828 3,070
- ----------------------------------------------------------------------------------------
39,237 18,990 18,187
- ----------------------------------------------------------------------------------------
Equity in undistributed income of subsidiaries:
Bank (4,603) 16,581 15,046
Non-bank 9,938 8,419 7,348
- ----------------------------------------------------------------------------------------
5,335 25,000 22,394
- ----------------------------------------------------------------------------------------
NET INCOME $44,572 $43,990 $40,581
- ----------------------------------------------------------------------------------------
F.N.B. Corporation 46
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS (in thousands)
- ------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- ------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 44,572 $ 43,990 $ 40,581
Adjustments to reconcile net income to net
cash flows from operating activities:
Undistributed earnings of subsidiaries (5,335) (25,000) (22,394)
Other, net (10,526) 4,894 2,410
- ------------------------------------------------------------------------------------------
Net cash flows from operating activities 28,711 23,884 20,597
- ------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net change in short-term investments 2,875 (5,283) 18,523
Securities available for sale:
Purchases (190)
Sales 190
Sale (purchase) of premises and equipment (1,965) 882 (883)
Net decrease (increase) in loans receivable 4,800 951 (3,715)
Advances from subsidiaries 1,621
Investment in subsidiaries (12,165) (32,964) (28,528)
- ------------------------------------------------------------------------------------------
Net cash flows from investing activities (6,265) (36,414) (13,172)
- ------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase in short-term borrowings 5,725 27,139 20,884
Decrease in long-term debt (15,390) (15,686) (17,736)
Increase in long-term debt 6,740 19,236 10,489
Net acquisition of treasury stock (532) (3,573) (3,288)
Cash dividends paid (19,251) (16,168) (16,520)
- ------------------------------------------------------------------------------------------
Net cash flows from financing activities (22,708) 10,948 (6,171)
- ------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH (262) (1,582) 1,254
Cash at beginning of year 270 1,852 598
- ------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 8 $ 270 $ 1,852
- ------------------------------------------------------------------------------------------
CASH PAID
Interest $ 9,069 $ 8,022 $ 5,933
- ------------------------------------------------------------------------------------------
F.N.B. Corporation 47
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each financial instrument:
CASH AND DUE FROM BANKS:
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
SECURITIES:
For both securities available for sale and securities held to maturity,
fair value equals quoted market price, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices for similar
securities.
LOANS:
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and remaining maturities. The fair value of residential
mortgage loans is estimated using market prices for similar portfolios.
DEPOSITS:
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity deposits is estimated by discounting future cash flows
using rates currently offered for deposits of similar remaining maturities.
SHORT-TERM BORROWINGS:
The carrying amounts for short-term borrowings approximate fair value for
amounts that mature in 90 days or less. The fair value of subordinated notes is
estimated by discounting future cash flows using rates currently offered.
LONG-TERM DEBT:
The fair value of long-term debt is estimated by discounting future cash
flows based on the market prices for the same or similar issues or on the
current rates offered to the Corporation for debt of the same remaining
maturities.
The estimated fair values of the Corporation's financial instruments are as
follows (in thousands):
- ---------------------------------------------------------------------------------------------------
2001 2000
- ---------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and short-term investments $ 163,818 $ 163,818 $ 188,722 $ 188,722
Securities available for sale 413,793 413,793 441,480 441,480
Securities held to maturity 51,368 51,770 73,522 73,508
Net loans, including loans held for sale 3,162,982 3,199,975 3,057,502 3,089,339
FINANCIAL LIABILITIES
Deposits $3,292,392 $3,314,767 $3,247,950 $3,257,849
Short-term borrowings 293,381 293,458 285,865 285,865
Long-term debt 103,013 107,543 116,698 120,879
- ---------------------------------------------------------------------------------------------------
F.N.B. Corporation 48
F.N.B. CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
Dollars in thousands, except per share data
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Total interest income $ 296,693 $ 301,857 $ 261,776 $ 250,217 $ 227,649
Total interest expense 125,667 140,363 109,286 110,236 97,936
Net interest income 171,026 161,494 152,490 139,981 129,713
Provision for loan losses 12,915 11,922 9,677 7,734 11,656
Total non-interest income 82,799 63,398 53,582 45,757 33,551
Total non-interest expenses 174,830 148,498 138,303 127,688 109,192
Net income before extraordinary items 44,572 43,990 40,581 33,740 29,338
Extraordinary items, net of tax 8,809
Net income 44,572 43,990 40,581 33,740 38,147
Core operating earnings * 51,756 43,990 41,849 38,083 33,903
- --------------------------------------------------------------------------------------------------------------------
AT YEAR-END
Total assets $4,129,087 $4,055,921 $3,831,302 $3,492,025 $3,142,875
Net loans 3,161,659 3,056,460 2,847,451 2,435,509 2,171,154
Deposits 3,292,392 3,247,950 3,011,932 2,914,418 2,620,521
Long-term debt 103,013 116,698 118,383 71,079 73,434
Preferred stock 1 1,678 2,075 2,380 2,875
Total stockholders' equity 369,197 339,640 308,868 299,697 277,211
- --------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income
Basic $ 1.73 $ 1.72 $ 1.59 $ 1.35 $ 1.71
Diluted 1.68 1.68 1.54 1.29 1.63
Core operating earnings *
Basic 2.01 1.72 1.64 1.52 1.52
Diluted 1.95 1.68 1.58 1.46 1.45
Cash dividends .75 .67 .64 .61 .52
Book value 14.22 13.17 12.55 12.19 11.88
- --------------------------------------------------------------------------------------------------------------------
RATIOS
Return on average assets 1.09% 1.12% 1.13% 1.02% 1.32%
Return on average assets, based
on core operating earnings * 1.27 1.12 1.16 1.16 1.17
Return on average equity 12.61 13.71 13.34 11.67 15.01
Return on average equity, based
on core operating earnings * 14.65 13.71 13.76 13.17 13.34
Dividend payout ratio 36.84 37.37 39.86 36.22 31.60
Average equity to average assets 8.65 8.15 8.46 8.77 8.76
- --------------------------------------------------------------------------------------------------------------------
* Core operating earnings exclude consolidation charges of $2.1 million and
merger related and other non-recurring costs of $5.1 million in 2001,
merger related and other non-recurring costs of $1.3 million in 1999,
merger related and other non-recurring costs of $4.3 million in 1998 and
extraordinary gains on the sale of a subsidiary and branches of $8.8
million and merger related and other non-recurring costs of $4.6 million in
1997, all on an after-tax basis. Such presentation is provided in order to
eliminate all items deemed by management to be of a non-recurring nature.
F.N.B. Corporation 49
F.N.B. CORPORATION AND SUBSIDIARIES
QUARTERLY EARNINGS SUMMARY
Dollars in thousands, except per share data
- --------------------------------------------------------------------------------
QUARTER ENDED 2001 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------
Total interest income $77,240 $75,874 $72,911 $70,668
Total interest expense 36,614 33,293 29,793 25,967
Net interest income 40,626 42,581 43,118 44,701
Provision for loan losses 2,241 2,652 3,297 4,725
Total non-interest income 18,615 20,050 20,843 23,291
Total non-interest expenses 48,081 43,451 40,609 42,689
Net income 6,244 10,964 13,500 13,864
Core operating earnings * 11,042 13,195 13,617 13,902
PER COMMON SHARE
Net income
Basic $ .24 $ .43 $ .52 $ .54
Diluted .24 .41 .51 .52
Core operating earnings *
Basic .43 .51 .53 .54
Diluted .42 .50 .51 .52
Cash dividends .17 .18 .20 .20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
QUARTER ENDED 2000 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------
Total interest income $71,404 $74,097 $77,676 $78,680
Total interest expense 31,181 33,314 37,352 38,516
Net interest income 40,223 40,783 40,324 40,164
Provision for loan losses 3,058 3,061 2,659 3,144
Total non-interest income 14,748 14,566 16,568 17,516
Total non-interest expenses 36,358 36,555 37,742 37,843
Net income 10,644 10,737 11,310 11,299
Core operating earnings 10,644 10,737 11,310 11,299
PER COMMON SHARE
Net income
Basic $ .42 $ .42 $ .44 $ .44
Diluted .41 .41 .43 .43
Core operating earnings
Basic .42 .42 .44 .44
Diluted .41 .41 .43 .43
Cash dividends .16 .17 .17 .17
- --------------------------------------------------------------------------------
* Core operating earnings exclude consolidation charges of $2.1 million and
merger related and other non-recurring charges of $2.7 million during the
first quarter of 2001, merger related costs of $2.2 million during the
second quarter of 2001, merger related costs of $117,000 during the third
quarter of 2001 and merger related costs of $38,000 during the fourth
quarter of 2001, all on an after-tax basis.
F.N.B. Corporation 50
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CHARTER CONSOLIDATION
During the first quarter of 2001, the Corporation completed its charter
consolidation plan which reduced the number of bank charters from eight to
three. The Corporation's five Florida banks were merged under First National
Bank of Florida (FNBFL) and its two Pennsylvania banks were combined under First
National Bank of Pennsylvania. The Corporation had previously consolidated its
Ohio banks under a single charter, Metropolitan National Bank. In connection
with these charter consolidations, the trust operations of FNBFL were
consolidated into the Corporation's national trust company, First National Trust
Company. The Corporation incurred pre-tax consolidation expense of $3.2 million
arising from legal and accounting fees, consulting fees, data processing
conversion charges, early retirement, involuntary separation and related benefit
costs. Involuntary separation costs associated with 42 terminated employees
totaled $1.4 million of the total consolidation expense. These separation costs
have been reflected within the income statement caption salaries and employee
benefits. The total amount of separation payments paid during 2001 was $1.0
million. The remaining separation costs will be paid in accordance with the
contractual terms of the employment and compensation agreements of the
terminated employees. All remaining separation payments are anticipated to be
paid by March 31, 2002.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
Core operating earnings increased 17.7% to $51.8 million in 2001 from $44.0
million in 2000. Basic earnings per share were $2.01 and $1.72 for 2001 and
2000, while diluted earnings per share were $1.95 and $1.68, respectively, for
those same periods. The results for 2001 include consolidation charges of $2.1
million and merger related and other non-recurring costs of $5.1 million, net of
tax. Including these items, net income was $44.6 million in 2001.
Net interest income, on a fully taxable equivalent basis, increased by 5.8%
as net average interest earning assets increased by $117.0 million. These
factors are further detailed in the discussion which follows.
Common comparative ratios for results of operations include the return on
average assets and the return on average equity. Based on core operating
earnings, the Corporation's return on average assets was 1.27% for 2001 and
1.12% for 2000, while the Corporation's return on average equity was 14.65% for
2001 and 13.71%for 2000. Including the non-recurring items in 2001, the
Corporation had a return on average assets of 1.09% and a return on average
equity of 12.61%.
NET INTEREST INCOME
Net interest income, the Corporation's primary source of earnings, is the
amount by which interest and fees generated by earning assets, primarily loans
and securities, exceed interest expense on deposits and borrowed funds. Net
interest income, on a fully taxable equivalent basis, totaled $173.1 million in
2001 versus $163.7 million in 2000. Net interest income consisted of interest
income of $298.8 million and interest expense of $125.7 million in 2001,
compared to $304.0 million and $140.4 million for each, respectively, in 2000.
The Corporation's net interest margin increased 11 basis points to 4.69% for
2001.
DILUTED CORE OPERATING EARNINGS PER SHARE
1997 $1.45
1998 $1.46
1999 $1.58
2000 $1.68
2001 $1.95
F.N.B. Corporation 51
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
The following table provides information regarding the average balances and
yields and rates on interest earning assets and interest bearing liabilities
(dollars in thousands):
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001 2000
- -----------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Interest earning assets:
Interest bearing deposits with banks $ 6,062 $ 178 2.94% $ 4,259 $ 290 6.81%
Federal funds sold 89,123 3,952 4.43 21,071 1,342 6.37
Taxable investment securities (1) 444,049 27,030 6.09 447,582 28,324 6.33
Non-taxable investment securities (2) 46,225 2,941 6.36 49,625 3,104 6.25
Loans (2)(3) 3,107,140 264,712 8.52 3,053,024 270,955 8.87
---------- ---------- ---------- ----------
TOTAL INTEREST EARNING ASSETS 3,692,599 298,813 8.09 3,575,561 304,015 8.50
---------- ---------- ---------- ----------
Cash and due from banks 125,105 123,620
Allowance for loan losses (40,171) (39,769)
Premises and equipment 115,195 113,222
Other assets 192,255 165,938
---------- ----------
$4,084,983 $3,938,572
========== ==========
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 558,276 9,014 1.61 $ 519,112 12,714 2.45
Savings 835,391 19,727 2.36 812,960 24,504 3.01
Other time 1,385,173 77,867 5.62 1,350,906 77,873 5.76
Short-term borrowings 275,852 11,695 4.24 289,978 17,130 5.91
Long-term debt 108,951 7,364 6.76 125,287 8,143 6.50
---------- ---------- ---------- ----------
TOTAL INTEREST BEARING LIABILITIES 3,163,643 125,667 3.97 3,098,243 140,364 4.53
---------- ---------- ---------- ----------
Non-interest bearing demand deposits 493,468 452,759
Other liabilities 74,509 66,657
---------- ----------
3,731,620 3,617,659
---------- ----------
STOCKHOLDERS' EQUITY 353,363 320,913
---------- ----------
$4,084,983 $3,938,572
========== ==========
Excess of interest earning assets
over interest bearing liabilities $ 528,956 $ 477,318
========== ==========
Net interest income $ 173,146 $ 163,651
========== ==========
Net interest spread 4.12% 3.97%
==== ====
Net interest margin (4) 4.69% 4.58%
==== ====
- -----------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year Ended December 31, 1999
- --------------------------------------------------------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
- --------------------------------------------------------------------------------
ASSETS
Interest earning assets:
Interest bearing deposits with banks $ 8,268 $ 475 5.75%
Federal funds sold 35,009 1,734 4.95
Taxable investment securities (1) 466,888 28,557 6.12
Non-taxable investment securities (2) 78,206 4,808 6.15
Loans (2)(3) 2,666,830 228,308 8.56
---------- ----------
TOTAL INTEREST EARNING ASSETS 3,255,201 263,882 8.11
---------- ----------
Cash and due from banks 119,619
Allowance for loan losses (34,999)
Premises and equipment 105,380
Other assets 150,172
----------
$3,595,373
==========
LIABILITIES
Interest bearing liabilities:
Deposits:
Interest bearing demand $ 491,750 9,837 2.00
Savings 821,038 22,179 2.70
Other time 1,197,235 61,060 5.10
Short-term borrowings 237,919 11,282 4.74
Long-term debt 74,717 4,928 6.60
---------- ----------
TOTAL INTEREST BEARING LIABILITIES 2,822,659 109,286 3.87
---------- ----------
Non-interest bearing demand deposits 409,334
Other liabilities 59,151
----------
3,291,144
----------
STOCKHOLDERS' EQUITY 304,229
----------
$3,595,373
==========
Excess of interest earning assets
over interest bearing liabilities $ 432,542
==========
Net interest income $ 154,596
==========
Net interest spread 4.23%
====
Net interest margin (4) 4.75%
====
- --------------------------------------------------------------------------------
(1) The average balances and yields earned on securities are based on
historical cost.
(2) The amounts are reflected on a fully taxable equivalent basis using the
federal statutory tax rate of 35%, adjusted for certain federal tax
preferences.
(3) Average balances include 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.
(4) Net interest margin is calculated by dividing the difference between total
interest earned and total interest paid by total interest earning assets.
F.N.B. Corporation 52
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
During 2001, the Federal Reserve Bank reduced its federal funds rate an
unprecedented 11 times. This monetary policy significantly influenced the
Corporation's asset and liability management. The yield on interest earning
assets decreased by 41 basis points and the rate paid on interest bearing
liabilities decreased by 56basis points. Although the current year margin has
increased, there is a possibility that margin compression could arise, as
further discussed within the "Liquidity and Interest Rate Sensitivity" section
of this report.
Interest income on loans, on a fully taxable equivalent basis, decreased
2.3% from $271.0 million in 2000 to $264.7 million in 2001. This decrease was
despite favorable loan volumes as average loans increased by $54.1 million.
Interest expense on deposits decreased $8.5 million or 7.4% in 2001 while
average interest bearing deposits increased by $95.9 million. The average
balance in interest bearing demand deposits, time deposits and savings deposits
increased $39.2 million, $34.3 million and $22.4 million, respectively. The
Corporation continued to successfully generate non-interest bearing deposits as
such deposits increased by $40.7 million or 9.0% in 2001. Interest expense on
short-term borrowings decreased $5.4 million. The Corporation took advantage of
excess liquidity and paid down average short-term borrowings by $14.1 million
and the interest rate paid decreased by 167 basis points in 2001. Interest
expense on long-term debt decreased $779,000 in 2001 due to a $16.3 million
decrease in average long-term debt.
The following table sets forth certain information regarding changes in net
interest income attributable to changes in the volumes of interest earning
assets and interest bearing liabilities and changes in the rates for the periods
indicated (in thousands):
- -----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
VOLUME RATE NET VOLUME RATE NET
- -----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest bearing deposits with banks $ 327 $ (439) $ (112) $ (734) $ 532 $ (202)
Federal funds sold 2,882 (272) 2,610 (1,403) 1,011 (392)
Securities (442) (1,015) (1,457) (3,052) 1,132 (1,920)
Loans 5,092 (11,335) (6,243) 34,115 8,532 42,647
- -----------------------------------------------------------------------------------------------------------------------
7,859 (13,061) (5,202) 28,926 11,207 40,133
- -----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Interest bearing 1,044 (4,744) (3,700) 570 2,307 2,877
Savings 700 (5,477) (4,777) (218) 2,543 2,325
Other time 1,929 (1,935) (6) 8,372 8,441 16,813
Short-term borrowings (799) (4,636) (5,435) 2,748 3,100 5,848
Long-term debt (1,124) 345 (779) 3,289 (74) 3,215
- -----------------------------------------------------------------------------------------------------------------------
1,750 (16,447) (14,697) 14,761 16,317 31,078
- -----------------------------------------------------------------------------------------------------------------------
NET CHANGE $ 6,109 $ 3,386 $ 9,495 $ 14,165 $ (5,110) $ 9,055
- -----------------------------------------------------------------------------------------------------------------------
The amount of change not solely due to rate or volume changes was allocated
between the change due to rate and the change due to volume based on the net
size of the rate and volume changes.
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to operations is a direct result of
management's analysis of the adequacy of the allowance for loan losses which
takes into consideration factors, including qualitative factors, relevant to the
collectibility of the existing portfolio. The provision for loan losses
increased 8.3% to $12.9 million in 2001. This increase is consistent with the
Corporation's continued strong loan growth. (See the "Non-Performing Loans and
Allowance for Loan Losses" section of this report).
F.N.B. Corporation 53
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
NON-INTEREST INCOME
Total non-interest income increased 30.6% from $63.4 million in 2000 to
$82.8 million in 2001. Exclusive of gains on sale of securities, non-interest
income increased by 29.1%. This increase was primarily attributable to the
Corporation's continued transformation to a diversified financial services
company. The Corporation has dedicated significant resources to expanding
traditional banking services and generating insurance commissions and fees,
investment service charges and trust fees.
Insurance commissions and fees, service charges and trust fees increased
27.0% from $52.0 million in 2000 to $66.0 million in 2001. These higher levels
of fee income are attributable to growth in insurance, expanded banking services
and the Corporation's continued focus on providing a wide array of wealth
management services, such as annuities, mutual funds and trust services. This
increase was accompanied by increases of $981,000 in gains on the sale of
securities and $3.1 million in gains on the sale of loans.
NON-INTEREST EXPENSE
Total non-interest expense increased from $148.5 million in 2000 to $174.8
million in 2001. This increase was primarily attributable to non-recurring items
totaling $11.0 million in 2001. During 2001, the Corporation recorded $4.0
million to cover estimated legal expenses associated with five cases filed
against one of the Corporation's subsidiary banks. The plaintiffs allege that a
third-party independent administrator misappropriated funds from their
individual retirement accounts held by the subsidiary bank. Additionally, the
Corporation recognized $3.8 million in 2001 in merger related costs. These
expenses were primarily data processing termination and conversion costs and
change in control provisions. The Corporation also recognized $3.2 million in
one-time charges relating to its charter consolidation plan.
Excluding these items, non-interest expense totaled $163.8 million for
2001, an increase of 10.3%over 2000. In addition to the non-recurring items,
non-interest expenses increased due to insurance agency purchases during the
second half of 2000 and first half of 2001. Excluding the impact of the
insurance agency purchases, non-interest expense would have increased by $10.8
million or 7.3% on a year over year basis.
INCOME TAXES
The Corporation's income tax expense was $21.5 million for 2001 compared to
$20.5 million for 2000. The 2001 effective tax rate of 32.5% was lower than the
35.0% federal statutory tax rate due to the tax benefits resulting from
tax-exempt instruments and excludable dividend income. Additional information
relating to income taxes is furnished in the Notes to Consolidated Financial
Statements.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation's goal in liquidity management is to meet the cash flow
requirements of depositors and borrowers as well as the operating cash needs of
the Corporation, with cost-effective funding. Liquidity is centrally managed on
a daily basis by treasury personnel. In addition, the Corporate Asset/Liability
Committee (ALCO), which includes members of executive management, reviews
liquidity on a periodic basis and approves significant changes in strategies
which affect balance sheet or cash flow positions. The Board of Directors has
established an Asset/Liability Policy in order to achieve and maintain earnings
performance consistent with long-term goals while maintaining acceptable levels
of interest rate risk, a "well-capitalized" balance sheet and adequate levels of
liquidity. This policy designates the ALCO as the body responsible for meeting
this objective.
Liquidity sources from assets include payments from loans and investments
as well as the ability to securitize or sell loans and investment securities.
Liquidity sources from liabilities are generated primarily through growth in
core deposits and, to a lesser extent, the use of wholesale sources which
include federal funds purchased, repurchase agreements and public deposits. In
addition, the banking affiliates have the ability to borrow from the Federal
Home Loan Bank (FHLB). FHLB advances are a competitively priced and reliable
source of funds. The Corporation has made limited use of FHLB advances and has a
large reserve available for contingency funding purposes. As of December 31,
2001, outstanding advances were $65.7 million, or 1.6% of total assets while
FHLB availability was $708.2 million, or 17.2%of total assets.
The principal source of cash for the parent company is dividends from its
subsidiaries. The parent also has approved lines of credit with several major
domestic banks, which were unused as of December 31, 2001. The
F.N.B. Corporation 54
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
Corporation also issues subordinated debt on a regular basis and has access to
the Federal Reserve Bank as well as access to the capital markets.
The ALCO regularly monitors various liquidity ratios and forecasts of cash
position. Management believes the Corporation has sufficient liquidity available
to meet its normal operating and contingency funding cash needs.
Following is the gap analysis as of December 31, 2001 (dollars in
thousands):
- --------------------------------------------------------------------------------------------------------------------
WITHIN 4-12 1-5 OVER
3 MONTHS MONTHS YEARS 5 YEARS TOTAL
- --------------------------------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS
Interest bearing deposits with banks $ 3,435 $ 100 $ 77 $ 3,612
Federal funds sold 4,260 4,260
Securities 65,742 128,752 $ 206,081 64,586 465,161
Loans, net of unearned income 946,436 720,209 1,284,060 253,122 3,203,827
- --------------------------------------------------------------------------------------------------------------------
1,019,873 849,061 1,490,141 317,785 3,676,860
Other assets 452,227 452,227
- --------------------------------------------------------------------------------------------------------------------
$1,019,873 $849,061 $1,490,141 $ 770,012 $4,129,087
- --------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES
Deposits:
Interest checking $ 107,393 $ 476,429 $ 583,822
Savings 364,914 489,756 854,670
Time deposits 265,839 $651,906 $ 424,544 1,342,289
Borrowings 199,491 34,842 44,435 117,626 396,394
- --------------------------------------------------------------------------------------------------------------------
937,637 686,748 468,979 1,083,811 3,177,175
Other liabilities 582,715 582,715
Stockholders' equity 369,197 369,197
- --------------------------------------------------------------------------------------------------------------------
$ 937,637 $686,748 $ 468,979 $ 2,035,723 $4,129,087
- --------------------------------------------------------------------------------------------------------------------
PERIOD GAP $ 82,236 $162,313 $1,021,162 $(1,265,711)
- --------------------------------------------------------------------------------------------------------------------
CUMULATIVE GAP $ 82,236 $244,549 $1,265,711
- --------------------------------------------------------------------------------------------------------------------
CUMULATIVE GAP AS A PERCENT
OF TOTAL ASSETS 1.99% 5.92% 30.65%
- --------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS/
RATE SENSITIVE LIABILITIES (CUMULATIVE) 1.09 1.15 1.60 1.16
- --------------------------------------------------------------------------------------------------------------------
The financial performance of the Corporation is at risk from interest rate
fluctuations. This interest rate risk arises due to differences between the
amount of interest earning assets and interest bearing liabilities subject to
repricing over a period of time, the difference between the change in various
interest rates and the embedded options in certain financial instruments. The
Corporation utilizes an asset/liability model to support its balance sheet
strategies. The Corporation uses gap analysis, net interest income simulations
and the economic value of equity to measure its interest rate risk.
The above gap analysis measures the interest rate risk of the Corporation
by comparing the difference between the amount of interest earning assets and
interest bearing liabilities subject to repricing over a period of time. The
cumulative one-year gap ratio was 1.15 at December 31, 2001 as compared to .90
at December 31, 2000. A ratio of more than one indicates a higher level of
repricing assets over repricing liabilities over the next twelve months,
assuming the current interest rate environment.
Net interest income simulations measure the exposure to short-term earnings
from changes in market rates of interest in a more rigorous and explicit
fashion. The Corporation's current financial position is combined with
assumptions regarding future business to calculate net interest income under
varying hypothetical rate scenarios.
F.N.B. Corporation 55
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
The economic value of equity (EVE) measures the Corporation's long-term earnings
exposure from changes in market rates of interest. EVE is defined as the present
value of assets minus the present value of liabilities at a point in time. A
decrease in EVE due to a specified rate change indicates a decline in the
long-term earnings capacity of the balance sheet assuming that the rate change
remains in effect over the life of the current balance sheet. The following
table presents an analysis of the potential sensitivity of the Corporation's
annual net interest income and EVE to sudden and sustained changes in market
rates:
December 31 2001 2000
---- ----
Net interest income change (12 months):
- 100 basis points ................................... (1.6)% .6%
+ 200 basis points ................................... .6% (3.0)%
Economic value of equity:
- 100 basis points ................................... (.8)% (1.0)%
+ 200 basis points ................................... (5.7)% (2.0)%
The preceding measures assumed no change in asset/liability compositions.
Thus, the measures do not reflect actions the ALCO may undertake in response to
such changes in interest rates. The disclosed measures are within the limits set
forth in the Corporation's Asset/Liability Policy.
The computation of the prospective effects of hypothetical interest changes
requires numerous assumptions regarding characteristics of new business and the
behavior of existing positions. These business assumptions are based upon the
Corporation's experience, business plans and published industry experience. Key
assumptions employed in the model include asset prepayment speeds, the relative
price sensitivity of certain assets and liabilities and the expected life of
nonmaturity deposits. Because these assumptions are inherently uncertain, actual
results will differ from simulated results.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
Net income increased 8.4% to $44.0 million in 2000 from $40.6 million in
1999. Basic earnings per share were $1.72 and $1.59 for 2000 and 1999, while
diluted earnings per share were $1.68 and $1.54, respectively, for those same
periods. The results for 1999 include merger related and other non-recurring
costs of $1.3 million, net of tax. Excluding these items, core operating
earnings were $41.8 million in 1999. The Corporation's return on average assets
was 1.12%for 2000 and 1.13%for 1999, while the Corporation's return on average
equity was 13.71% for 2000 and 13.34% for 1999. Excluding the non-recurring
items in 1999, the Corporation had a return on average assets of 1.16% and a
return on average equity of 13.76%.
Net interest income, on a fully taxable equivalent basis, totaled $163.7
million in 2000. Net interest income consisted of interest income of $304.0
million and interest expense of $140.4 million in 2000, compared to $263.9
million and $109.3 million for each, respectively, in 1999. The Corporation's
net interest margin was 4.58% for 2000. Interest income on loans, on a fully
taxable equivalent basis, increased 18.7% from $228.3 million in 1999 to $271.0
million in 2000. This increase was the result of an increase in average loans of
14.5% as well as an increase in the average yield by 31 basis points. Interest
expense on deposits increased $22.0 million or 23.7% in 2000 while average
interest bearing deposits increased 6.9%. The average balance in time deposits
and interest bearing demand deposits increased $153.7 million and $27.4 million,
respectively, while the average balance in savings deposits decreased by $8.1
million. The average balance in non-interest bearing demand deposits increased
by $43.4 million. Interest expense on short-term borrowings increased $5.8
million or 51.8% in 2000 due to a $52.1 million increase in average short-term
borrowings. Interest expense on long-term debt increased $3.2 million or 65.2%in
2000 due to a $50.6 million increase in average long-term debt.
The provision for loan losses was $11.9 million and represented an increase
of 23.2% from 1999, a reflection of the Corporation's continued strong loan
growth.
Total non-interest income increased 18.3% from $53.6 million in 1999 to
$63.4 million in 2000. Exclusive of gains on sale of securities, non-interest
income increased by 21.8%. This increase was primarily attributable to the
Corporation's transformation to a financial services company focusing resources
dedicated to generating insurance commissions and fees, investment service
charges and trust fees. Insurance commissions and fees, service charges and
trust fees increased 26.3% from $41.2 million in 1999 to $52.0 million in 2000.
These higher levels of fee income are attributable to growth in insurance,
increases in deposits and the Corporation's continued expansion into annuity and
mutual funds sales and trust services.
F.N.B. Corporation 56
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
This increase was partially offset by a decrease of $1.5 million in gains on the
sale of securities.
Total non-interest expense increased from $138.3 million in 1999 to $148.5
million in 2000. The increase was primarily attributable to an increase of $8.4
million in salaries and employee benefits. This increase was mainly due to the
Corporation's continued expansion into non-interest revenue lines of business
along with normal annual salary adjustments and the continued escalation of
certain benefit costs. The Corporation recognized $1.8 million in 1999 in merger
related costs. These expenses were primarily data processing termination and
conversion costs and change in control provisions. Also during 1999, the
Corporation recorded a net insurance recovery of $883,000.
Income tax expense was $20.5 million for 2000 compared to $17.5 million for
1999. The 2000 effective tax rate of 31.8% was below the 35% statutory tax rate
due to the tax benefits resulting from tax-exempt instruments and excludable
dividend income.
FINANCIAL CONDITION
LENDING ACTIVITY
Following is a summary of loans (in thousands):
- -------------------------------------------------------------------------------------------------------------------
December 31 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Real estate:
Residential $1,219,502 $1,157,753 $1,084,353 $1,008,728 $ 956,977
Commercial 984,973 849,276 790,122 654,124 551,674
Construction 206,269 204,267 119,398 103,672 70,093
Installment loans to individuals 284,233 341,755 342,513 296,245 304,172
Commercial, financial and agricultural 423,198 401,866 355,729 304,075 280,319
Lease financing 128,712 204,187 254,252 132,266 59,852
Unearned income (44,383) (62,271) (61,719) (30,840) (20,580)
- -------------------------------------------------------------------------------------------------------------------
$3,202,504 $3,096,833 $2,884,648 $2,468,270 $2,202,507
- -------------------------------------------------------------------------------------------------------------------
The Corporation strives to minimize credit losses by utilizing credit
approval standards, diversifying its loan portfolio by industry and borrower and
conducting ongoing review and management of the loan portfolio.
During 2001, 2000 and 1999, the Corporation sold $19.5 million, $23.5
million and $49.8 million, respectively, in fixed rate residential mortgages.
These sales allowed the Corporation to avoid the potential interest rate risk of
those fixed rate loans in a rising rate environment. Additionally, it created
liquidity for the Corporation to continue to offer credit availability to the
markets it serves.
The loan portfolio consists principally of loans to individuals and small-
and medium-sized businesses within the Corporation's primary market area of
southwest Florida, western Pennsylvania, central Tennessee, and eastern Ohio.
As of December 31, 2001, no concentrations of loans exceeding 10% of total
loans existed which were not disclosed as a separate category of loans. During
2000, the Corporation curtailed offering lease financing.
Following is a summary of the maturity distribution of certain loan
categories based on remaining scheduled repayments of principal (in thousands):
- --------------------------------------------------------------------------------------------------
WITHIN ONE TO AFTER
December 31, 2001 ONE YEAR FIVE YEARS FIVE YEARS TOTAL
- --------------------------------------------------------------------------------------------------
Commercial, financial and agricultural $192,298 $171,037 $59,863 $423,198
Real estate - construction 137,019 50,594 18,656 206,269
- --------------------------------------------------------------------------------------------------
Total $329,317 $221,631 $78,519 $629,467
- --------------------------------------------------------------------------------------------------
The total amount of loans due after one year includes $178.0 million with
floating or adjustable rates of interest and $122.2 million with fixed rates of
interest.
F.N.B. Corporation 57
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
NON-PERFORMING LOANS
Non-performing loans include non-accrual loans and restructured loans.
Non-accrual loans represent loans on which interest accruals have been
discontinued. Restructured loans are loans in which the borrower has been
granted a concession on the interest rate or the original repayment terms due to
financial distress.
Following is a summary of non-performing loans (dollars in thousands):
- ------------------------------------------------------------------------------------------------
December 31 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Non-accrual loans $14,488 $10,397 $ 9,321 $12,250 $8,365
Restructured loans 4,697 2,810 3,560 1,770 1,345
$19,185 $13,207 $12,881 $14,020 $9,710
- ------------------------------------------------------------------------------------------------
Non-performing loans as a
percentage of total loans .60% .43% .45% .57% .44%
- ------------------------------------------------------------------------------------------------
Following is a table showing the amounts of contractual interest income and
actual interest income recorded on non-accrual and restructured loans (in
thousands):
- -----------------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
Gross interest income that would have been
recorded if the loans had been current and in
accordance with their original terms $1,635 $1,647 $1,445 $1,563 $1,068
Interest income recorded during the year 771 545 503 863 477
- -----------------------------------------------------------------------------------------------------
Following is a summary of loans 90 days or more past due, on which interest
accruals continue (dollars in thousands):
- ------------------------------------------------------------------------------------------------
December 31 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Loans 90 days or more past due $4,768 $4,533 $4,863 $2,943 $3,220
Loans 90 days or more past due as a
percentage of total loans .15% .15% .17% .12% .15%
- ------------------------------------------------------------------------------------------------
ALLOWANCES FOR LOAN LOSSES
Management considers the accounting policy for the allowance for loan
losses to be a critical accounting policy. For a full description of this policy
refer to the Summary of Significant Accounting Policies in the Notes to
Consolidated Financial Statements. Management's analysis of the allocated
portion of the allowance for loan losses includes the evaluation of the loan
portfolio based upon the Corporation's internal loan grading system, evaluation
of portfolio industry concentrations and the historical loss experience of the
remaining balances of the various homogeneous loan pools which comprise the loan
portfolio. Specific factors used in the internal loan grading system include the
previous loan loss experience with the customer, the status of past due interest
and principal payments on the loan, the collateral position and residual value
of the loan, the quality of financial information supplied by the borrower and
the general financial condition of the borrower.
The unallocated portion of the allowance is determined based on
management's assessment of historical loss on the remaining portfolio segments
in conjunction with the current status of economic conditions, loan loss trends,
delinquency and non-accrual trends, credit administration, portfolio growth,
concentrations of credit risk and other factors, including regulatory guidance.
This determination inherently involves a higher degree of uncertainty and
considers current risk factors that may not have yet manifested themselves in
the Corporation's historical loss factors used to determine the allocated
component of the allowance, and it recognizes that knowledge of the portfolio
may be incomplete.
F.N.B. Corporation 58
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
Following is a summary of changes in the allowance for loan losses (dollars
in thousands):
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 40,373 $ 37,197 $ 32,761 $ 31,353 $ 31,344
Addition from acquisitions 767 2,813 1,167
Reduction due to the sale of subsidiary and loans (3,828)
Charge-offs:
Real estate - mortgage (976) (592) (964) (322) (888)
Installment loans to individuals (8,373) (6,933) (5,514) (5,900) (6,978)
Lease financing (3,270) (1,867) (632) (300) (106)
Commercial, financial and agricultural (2,067) (1,859) (2,516) (1,119) (2,309)
- ------------------------------------------------------------------------------------------------------------------
(14,686) (11,251) (9,626) (7,641) (10,281)
- ------------------------------------------------------------------------------------------------------------------
Recoveries:
Real estate - mortgage 105 112 50 43 100
Installment loans to individuals 1,472 1,089 1,108 914 804
Lease financing 448 220 80 38 32
Commercial, financial and agricultural 218 317 334 320 359
- ------------------------------------------------------------------------------------------------------------------
2,243 1,738 1,572 1,315 1,295
- ------------------------------------------------------------------------------------------------------------------
Net charge-offs (12,443) (9,513) (8,054) (6,326) (8,986)
Provision for loan losses 12,915 11,922 9,677 7,734 11,656
- ------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 40,845 $ 40,373 $ 37,197 $ 32,761 $ 31,353
- ------------------------------------------------------------------------------------------------------------------
Net charge-offs as a percent of
average loans, net of unearned income .40% .31% .30% .27% .43%
Allowance for loan losses as a percent of
average loans, net of unearned income 1.31 1.32 1.39 1.40 1.50
Allowance for loan losses as a
percent of non-performing loans 212.90 305.69 288.77 233.67 322.89
- ------------------------------------------------------------------------------------------------------------------
Following is a summary of the allocation of the allowance for loan losses
(dollars in thousands):
- ------------------------------------------------------------------------------------------------------------------------------------
% OF % OF % OF % OF % OF
LOANS LOANS LOANS LOANS LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
YEAR ENDED DECEMBER 31 2001 LOANS 2000 LOANS 1999 LOANS 1998 LOANS 1997 LOANS
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural $ 7,173 13% $ 6,777 13% $ 7,190 12% $ 6,086 12% $ 5,734 13%
Real estate - construction 316 6 437 7 475 5 271 4 284 3
Real estate - mortgage 10,411 69 11,316 65 9,289 64 6,900 67 6,399 68
Installment loans to
individuals 8,822 9 8,016 11 7,826 12 7,591 12 5,283 14
Lease financing 5,319 3 1,093 4 847 7 812 5 359 2
Unallocated portion 8,804 12,734 11,570 11,101 13,294
- ------------------------------------------------------------------------------------------------------------------------------------
$40,845 100% $40,373 100% $37,197 100% $32,761 100% $31,353 100%
- ------------------------------------------------------------------------------------------------------------------------------------
F.N.B. Corporation 59
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
Due to this methodology, the Corporation has allocated the allowance
according to the amount deemed to be reasonably necessary to provide for the
possibility of losses being incurred within each of the categories of loans
shown in the table above. Management's allocation considers amounts necessary
for concentrations and changes in portfolio mix and volume. The allocation of
the allowance should not be interpreted as an indication that loan losses in
future years will occur in the same proportions or that the allocation indicates
future loan loss trends. Furthermore, the portion allocated to each loan
category is not the sole amount available for future losses within such
categories since the total allowance is a general allowance applicable to the
entire portfolio. During 2001, the Corporation allocated approximately $4.2
million of the allowance to leases and lease residuals. The Corporation
determined the need to provide a more refined allocation based upon recent
reductions in lease residual values and loss experience in the lease portfolio.
INVESTMENT ACTIVITY
Investment activities serve to enhance overall yield on earning assets
while supporting interest rate sensitivity and liquidity positions. Securities
purchased with the intent and ability to retain until maturity are categorized
as securities held to maturity and carried at amortized cost. All other
securities are categorized as securities available for sale and are recorded at
fair market value. The relatively short average maturity of all securities
provides a source of liquidity to the Corporation and reduces the overall market
risk of the portfolio.
During 2001, securities available for sale decreased by $27.7 million and
securities held to maturity decreased by $22.2 million from December 31, 2000.
The majority of this decrease was used to fund loan demand and increase the
Corporation's investment in bank owned life insurance.
The following table indicates the respective maturities and weighted
average yields of securities as of December 31, 2001 (dollars in thousands):
- -----------------------------------------------------------------------------------------------------
WEIGHTED
AMOUNT AVERAGE YIELD
- -----------------------------------------------------------------------------------------------------
U.S. Treasury and other U.S. Government agencies and corporations:
Maturing within one year $ 48,134 6.41%
Maturing after one year within five years 133,995 5.84%
Maturing after five years within ten years 10,347 5.12%
States of the U.S. and political subdivisions:
Maturing within one year 4,697 6.57%
Maturing after one year within five years 20,864 6.36%
Maturing after five years within ten years 19,334 6.07%
Maturing after ten years 1,052 6.60%
Other debt securities:
Maturing after one year within five years 417 5.07%
Maturing after five within ten years 917 5.93%
Maturing after ten years 1,509 9.18%
Mortgage-backed securities of U.S. Government agencies 200,769 5.88%
Equity securities 23,126 6.99%
- -----------------------------------------------------------------------------------------------------
TOTAL $465,161 6.01%
- -----------------------------------------------------------------------------------------------------
The weighted average yields for tax exempt securities are computed on a tax
equivalent basis.
F.N.B. Corporation 60
F.N.B. CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION
DEPOSITS AND SHORT-TERM BORROWINGS
As a commercial bank holding company, the Corporation's primary source of
funds is its deposits. Those deposits are provided by businesses and individuals
located within the markets served by the Corporation's subsidiaries.
Total deposits increased 1.4% to $3.3 billion in 2001. This increase was
due to a $39.4 million or 2.8% increase in savings and interest checking
accounts and a $33.4 million or 7.0% increase in non-interest bearing deposit
accounts, partially offset by a decrease of $28.4 million or 2.1% in time
deposits.
Short-term borrowings, made up of repurchase agreements, federal funds
purchased, Federal Home Loan Bank advances, subordinated notes and other
short-term borrowings, increased by $7.5 million in 2001 to $293.4 million. The
composition of short-term borrowings shifted during 2001 as increases in
securities sold under repurchase agreements and subordinated notes of $37.4
million and $31.5 million, respectively, were offset by decreases in Federal
Home Loan Bank advances and other short-term borrowings, of $42.4 million and
$25.0 million, respectively.
Repurchase agreements are the largest component of short-term borrowings.
At December 31, 2001, repurchase agreements represented 62.8% of total
short-term borrowings. Following is a summary of selected information on
repurchase agreements (dollars in thousands):
- --------------------------------------------------------------------------------
December 31 2001 2000 1999
- --------------------------------------------------------------------------------
Balance at end of year $184,348 $146,996 $134,808
Maximum month-end balance 185,349 166,672 134,808
Average balance during the year 165,746 153,510 120,698
Weighted average interest rates:
At end of year 1.17% 5.41% 4.16%
During the year 3.07% 5.24% 4.17%
- --------------------------------------------------------------------------------
CAPITAL RESOURCES
The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, changing competitive conditions
and economic forces. The Corporation seeks to maintain a strong capital base to
support its growth and expansion activities, to provide stability to current
operations and to promote public confidence.
Capital management is a continuous process. Since December 31, 2000,
stockholders' equity has increased $25.3 million as a result of earnings
retention. Total cash dividends declared represented 37.2% of core operating
income for 2001 compared to 37.9% for 2000. Book value per share was $14.22 at
December 31, 2001, compared to $13.17 at December 31, 2000.
RETURN ON AVERAGE EQUITY
(BASED ON CORE OPERATING EARNINGS)
1997 13.3%
1998 13.2%
1999 13.8%
2000 13.7%
2001 14.7%
F.N.B. Corporation 61
F.N.B. CORPORATION AND SUBSIDIARIES
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
INFORMATION AS TO STOCK PRICES AND DIVIDENDS
The Corporation's common stock trades on The Nasdaq Stock Market under the
symbol "FBAN." The accompanying table shows the range of the high and low bid
prices per share of the common stock as reported by Nasdaq. Also included in the
table are dividends per share paid on the outstanding common stock.
Stock prices and dividend figures have been adjusted to reflect the 5%
stock dividends declared on April 23, 2001 and April 17, 2000. As of January 31,
2002, there were 12,356 holders of record of common stock.
Quarter Ended 2001 LOW HIGH DIVIDENDS
--- ---- ---------
March 31 $20.36 $22.86 $ .17
June 30 22.09 26.90 .18
September 30 23.16 28.20 .20
December 31 23.90 27.95 .20
Quarter Ended 2000 LOW HIGH DIVIDENDS
--- ---- ---------
March 31 $16.55 $21.49 $ .16
June 30 16.67 19.64 .17
September 30 18.33 21.67 .17
December 31 18.21 20.95 .17
CASH DIVIDENDS PAID PER COMMON SHARE
1997 $.52
1998 $.61
1999 $.64
2000 $.67
2001 $.75
The Corporation has paid cash dividends every quarter since it was
incorporated in 1974. The payment and amount of future dividends on the common
stock will be determined by the Board of Directors and will depend on, among
other things, earnings, financial condition and cash requirements of the
Corporation at the time such payment is considered, and on the ability of the
Corporation to receive dividends from its subsidiaries, the amount of which is
subject to regulatory limitations.
F.N.B. Corporation 62
CORPORATE HEADQUARTERS
F.N.B. Corporate Center
2150 Goodlette Road N.
Naples, FL 34102
(941)262-7600
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on May 6, 2002 at 4 p.m. at the
Naples Beach Hotel, 851 Gulf Shore Blvd. N., Naples, FL 34102
INTERNET INFORMATION
Information on F.N.B. Corporation's financial results, acquisitions, and its
products and services is available on the Internet at www.fnbcorporation.com
FORM 10-K AND 10-Q AVAILABILITY
Copies of F.N.B. Corporation's Annual Report on Form 10-K and Quarterly Reports
on 10-Q filed with the Securities & Exchange Commission will be furnished to any
shareholder, free of charge, upon request. Forms also are available over the
Internet at www.sec.gov/index.html.
QUARTERLY REPORTS
Quarterly earnings release dates for 2002 are January 15, April 16, July 16 and
October 15. Results are released to the press and then posted on F.N.B.
Corporation's Web site. Quarterly reports also are mailed to shareholders on
request. Shareholders may request reports at any time.
DIVIDEND PAYMENT DATES
F.N.B. Corporation pays regular quarterly cash dividends in March, June,
September and December.
ANNUAL REPORT
To order additional copies of the 2001 Annual Report, please contact the F.N.B.
Corporation Corporate Affairs Department at 2150 Goodlette Road N., Third Floor,
Naples, FL 34102. Telephone: (941)436-1676 Fax: (941)436-1677
COMMON STOCK INFORMATION AT DECEMBER 31, 2001
Shares issued 25,774,491
Shares outstanding 25,711,313
Treasury shares 63,178
Number of shareholders of record 6,958
Closing market price per share $26.35
Book value per share $14.22
Stock exchange NASDAQ
Stock symbol FBAN
DIVIDEND REINVESTMENT PLAN
F.N.B. Corporation offers a Dividend Reinvestment Plan that allows shareholders
to reinvest their F.N.B. dividends in additional company common stock at the
prevailing market price. A prospectus and an enrollment form may be obtained
upon request to the F.N.B. Shareholder Services Department at (888)441-4362, or
by writing to F.N.B. Shareholder Services, P.O. Box 11929, Naples, FL
34101-1929.
INSTITUTIONAL INVESTMENT AND ANALYST INQUIRIES
Institutional investors, analysts or individuals desiring financial information
or reports may contact: John D. Waters, Vice President and Chief Financial
Officer, F.N.B. Corporation, One F.N.B. Boulevard, Hermitage, PA 16148.
Telephone: (724)983-3440.
NEWS MEDIA INQUIRIES
Media representatives and others with inquiries may contact: Clay W. Cone, Vice
President-Corporate Affairs, F.N.B. Corporation, 2150 Goodlette Road N., Naples,
FL 34102. Telephone: (941)436-1676.
PRINCIPAL SUBSIDIARIES
First National Bank of Florida
First National Bank of Pennsylvania
Metropolitan National Bank
First National Trust Company
First National Investment Services Company
F.N.B. Investment Advisors Inc.
Roger Bouchard Insurance Inc.
Gelvin, Jackson & Starr Inc.
Regency Finance Company
Customer Service Center of F.N.B.
[F.N.B CORPORATION LOGO]
F.N.B. Corporate Center
2150 Goodlette Road N.
Naples, FL 34102
www.fnbcorporation.com