1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from to --------------------- --------------------- Commission file number 0-8144 F.N.B. CORPORATION - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-1255406 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Hermitage Square Hermitage, Pennsylvania 16148 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 412-981-6000 --------------------------- Securities registered pursuant to Section 12(b) of the Act: NONE ------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $2 per share 7-1/2% Cumulative Convertible Preferred Stock, Series B, par value $10 per share - ------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The registrant estimates that as of February 28, 1997, the aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sale price as reported in the NASDAQ system for such date, was approximately $306,870,180. APPLICABLE ONLY TO CORPORATE REGISTRANTS: ----------------------------------------- As of February 28, 1997, the registrant had outstanding 12,129,920 shares of common stock having a par value of $2 per share. Continued 2 DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K into DOCUMENT which Document is Incorporated -------- ------------------------------ Annual Report to Stockholders for fiscal year ended December 31, 1996 I & II Definitive proxy statement for the 1997 Annual Meeting of Stockholders to be held on April 23, 1997 III 3 FORM 10-K 1996 INDEX PART I PAGE Item 1. Business. General I-2 Statistical Disclosure I-10 Item 2. Properties. I-11 Item 3. Legal Proceedings. I-11 Item 4. Submission of Matters to a Vote of Security Holders. I-11 Executive Officers of the Registrant I-12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. II-1 Item 6. Selected Financial Data. II-1 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. II-1 Item 8. Financial Statements and Supplementary Data. II-1 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. II-1 PART III Item 10. Directors and Executive Officers of the Registrant. III-1 Item 11. Executive Compensation. III-1 Item 12. Security Ownership of Certain Beneficial Owners and Management. III-1 Item 13. Certain Relationships and Related Transactions. III-1 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. IV-1 Signatures IV-2 Index to Exhibits IV-4 I-1 4 PART I ITEM 1. BUSINESS GENERAL F.N.B. Corporation (the Corporation) was formed in 1974 as the holding company of its then sole subsidiary, First National Bank of Mercer County. Since its formation, the Corporation has acquired and, at December 31, 1996, operated four other banks and one consumer finance company in Pennsylvania, eastern Ohio and western New York. During 1992, First National Bank of Mercer County completed an acquisition of ten offices of the former The First National Bank of Pennsylvania and three offices of Marine Bank. At the same time, First National Bank of Mercer County changed its name to First National Bank of Pennsylvania (First National). On January 21, 1997, the Corporation completed its merger with Southwest Banks, Inc. (Southwest). Southwest is a bank holding company which operates two banks in Naples and Cape Coral, Florida. The merger was accounted for as a pooling of interests. On November 15, 1996, the Corporation signed a definitive merger agreement with West Coast Bancorp, Inc. (West Coast), a single-bank holding company located in Cape Coral, Florida. The merger is expected to close during the second quarter of 1997. On November 6, 1996, the Corporation announced an agreement with Sun Bancorp, Inc. (Sun), a bank holding company headquartered in Selinsgrove, Pennsylvania, where Sun will receive 100% ownership of Bucktail Bank and Trust Company (Bucktail), a subsidiary of the Corporation, in exchange for a 13.8% ownership interest in the voting stock of Sun. The Corporation, through its subsidiaries, provides a full range of financial services, principally to consumers and small- to medium-size businesses in its market areas. The Corporation's business strategy has been to focus primarily on providing quality, community-based financial services adapted to the needs of each of the markets it serves. The Corporation has emphasized its community orientation by preserving the names and local boards of directors of its subsidiaries, by allowing its subsidiaries certain autonomy in decision-making and thus enabling them to respond to customer requests more quickly, and by concentrating on transactions within its market areas. However, while the Corporation has sought to preserve the identities and autonomy of its subsidiaries, it has established centralized credit analysis, loan review, accounting, investment, audit and data processing functions. The centralization of these processes has enabled the Corporation to maintain consistent quality of these functions and to achieve certain economies of scale. The Corporation's lending philosophy is to minimize credit losses by following strict credit approval standards (which include independent analysis of realizable collateral value), diversifying its loan portfolio by industry and borrower and conducting ongoing review and management of the loan portfolio. The Corporation is an active residential mortgage lender, and its commercial loans are generally to established local businesses. The Corporation does not have a significant amount of construction loans and has no highly leveraged transaction loans. No material portion of the deposits of the Corporation's bank subsidiaries has been obtained from a single or small group of customers, and the loss of any customer's deposits or a small group of customers' deposits would not have a material adverse effect on the business of the Corporation. The majority of the deposits held by the Corporation's bank subsidiaries have been generated within the respective subsidiary's market area. Following is information as of December 31, 1996 for the Corporation's bank and consumer finance subsidiaries, including Southwest and West Coast (including the year established and location of principal office for each). All subsidiaries are wholly-owned by the Corporation. I-2 5 TOTAL TOTAL NUMBER ASSETS (IN DEPOSITS (IN OF BANK SUBSIDIARIES: THOUSANDS) THOUSANDS) OFFICES ---------- ------------ ------- First National Bank of Pennsylvania (Est. 1864) Hermitage, Pennsylvania........................ $1,015,060 $ 886,688 32 The Metropolitan Savings Bank of Ohio (Est. 1922) Youngstown, Ohio................................ 315,899 287,536 11 Reeves Bank (Est. 1868) Beaver Falls, Pennsylvania...................... 134,642 121,437 9 Bucktail Bank and Trust Company (Est. 1928) Emporium, Pennsylvania.......................... 118,364 106,004 7 First County Bank (Est. 1987) Chardon, Ohio................................... 44,161 39,979 2 ---------- ---------- -- $1,628,126 $1,441,644 61 ========== ========== == CONSUMER FINANCE SUBSIDIARY: Regency Finance Company (Est. 1927) Hermitage, Pennsylvania......................... $ 95,806 34 ========== == CONSUMMATED MERGER: Southwest Bank Subsidiaries: First National Bank of Naples (Est. 1988) Naples, Florida............................... $ 423,366 $ 332,893 5 Cape Coral National Bank (Est. 1994) Cape Coral, Florida........................... 104,673 94,849 2 ---------- ---------- -- $ 528,039 $ 427,742 7 ========== ========== == PENDING MERGER: West Coast Bank Subsidiary: First National Bank of Southwest Florida (Est. 1989) Fort Myers, Florida............... $ 170,066 $ 156,943 5 ========== ========== == The Corporation has four other subsidiaries, Penn-Ohio Life Insurance Company, Est. 1981 (Penn-Ohio), Customer Service Center of F.N.B., L.L.C., Est. 1996 (Customer Service), Mortgage Service Corporation, Est. 1944 (Mortgage Service), and F.N.B. Building Corporation, Est. 1987 (F.N.B. Building). Penn-Ohio underwrites, as a reinsurer, credit life and accident and health insurance sold by the Corporation's subsidiaries. Customer Service provides data processing and other services to the affiliates of the Corporation. Mortgage Service services mortgage loans for unaffiliated financial institutions and F.N.B. Building owns real estate that is leased to certain affiliates. OPERATIONS OF THE BANK SUBSIDIARIES The Corporation's bank subsidiaries offer services traditionally offered by full-service commercial banks, including commercial and individual demand and time deposit accounts, commercial, mortgage and individual installment loans, credit card services through correspondent banks, night depository, automated teller services, computer services, safe deposit boxes, money order services, travelers checks, government savings bonds, food stamp sales and utility bill payments. In addition, First National and Bucktail operate trust departments which offer a broad range of personal and corporate fiduciary services, including the administration of decedent and trust estates. As of December 31, 1996, trust assets under management at First National and Bucktail totaled $275.4 million and $19.3 million, respectively. OPERATIONS OF THE CONSUMER FINANCE SUBSIDIARY The Corporation's consumer finance subsidiary is involved principally in making personal installment loans to individuals and purchasing installment sales finance contracts from retail merchants and automobile dealerships. Such activity is funded by advances from the Corporation which are available from the sale of the Corporation's subordinated notes. I-3 6 REGULATION AND SUPERVISION Bank holding companies, banks and consumer finance companies are extensively regulated under both federal and state law. The following summary information describes statutory or regulatory provisions, it is qualified by reference to the particular statutory and regulatory provisions. Any change in applicable law or regulation may have a material effect on the business and prospects of the Corporation and its subsidiaries. The regulation and examination of the Company and its subsidiaries are designed primarily for the protection of depositors and not the Corporation or its stockholders. BANK HOLDING COMPANIES The Corporation is registered as a bank holding company under the Bank Holding Company Act of 1956 (BHCA) and, as such, is subject to regulation by the Federal Reserve Board (FRB). As a bank holding company, the Corporation is required to file with the FRB an annual report and such additional information as the FRB may require pursuant to the BHCA. The FRB may also make examinations of the Corporation. The BHCA requires the prior approval of the FRB in any case where a bank holding company proposes to acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank (unless it owns a majority of such bank's voting shares) or otherwise to control a bank or to merge or consolidate with any other bank holding company. Effective September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 authorizes the FRB to permit a bank holding company that meets all applicable capital requirements to acquire control, or substantially all of the assets, of a bank located in another state that is not the bank holding company's home state, regardless of whether the other state prohibits such transaction. The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks. Under the BHCA, the FRB is authorized to approve the ownership of shares by a bank holding company in any company, the activities of which the Federal Reserve has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. The FRB has by regulation determined that certain activities are closely related to banking within the meaning of the BHCA. These activities, which are listed in Regulation Y of the FRB regulations, include: operating a mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing investment and finance advice; and acting as an insurance agent for certain types of credit-related insurance. Activities which the FRB has approved by order in connection with specific applications by bank holding companies include the operation of a credit card bank or other non-bank banks, certain expanded student loan servicing activities, the buying and selling of gold and silver bullion and silver coin for the account of customers and for itself, the provision of certain financial office services, the printing and sale of checks and similar documents, underwriting and dealing in commercial paper, certain municipal revenue bonds and one to four family mortgage backed securities, subject to certain conditions, and underwriting and dealing in corporate debt or equity securities, subject to certain conditions. Bank holding companies also are permitted to acquire savings associations subject to the applicable requirements of the BHCA. In approving acquisitions by bank holding companies of banks and companies engaged in banking-related activities, the FRB considers a number of factors, including the expected benefits to the public, such as greater convenience, increased competition or gains in efficiency, as weighed against the risks of possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The FRB is also empowered to differentiate between new activities and activities commenced through acquisition of a going concern. I-4 7 Bank holding companies and their subsidiary banks are also subject to the provisions of the Community Reinvestment Act of 1977 (CRA). Under the terms of the CRA, the FRB (or other appropriate bank regulatory agency) is required, in connection with its examination of a financial institution, to assess the financial institution's record in meeting the credit needs of the communities served by the financial institution, including low and moderate-income neighborhoods. Further, such assessment is also required of any financial institution which has applied to (i) obtain a federally-regulated financial institution charter; (ii) obtain deposit insurance coverage for a newly chartered institution; (iii) establish a new branch office that will accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or acquire the assets or assume the liabilities of, a federally-regulated financial institution. In the case of a bank holding company applying for approval to acquire a bank, savings and loan, or other bank holding company, the FRB will assess the record of each subsidiary of the applicant bank holding company, and such records may be the basis for denying the application or imposing conditions in connection with approval of the application. BANKS The Corporation's bank subsidiaries are supervised and regularly examined by the Office of the Comptroller of Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Pennsylvania Department of Banking and the Ohio Division of Financial Institutions, which consists of the Ohio Division of Banks and the Ohio Division of Savings Banks. The various laws and regulations administered by the regulatory agencies affect corporate practices, such as payment of dividends, incurring debt and acquisition of financial institutions and other companies, and affect business practices, such as payment of interest on deposits, the charging of interest on loans, types of business conducted and location of offices. CONSUMER FINANCE SUBSIDIARY The Corporation's consumer finance subsidiary is subject to regulation under Pennsylvania, Ohio and New York state laws which require, among other things, that it maintain licenses for consumer finance operations in effect for each of its offices. Representatives of the Pennsylvania Department of Banking, the Ohio Division of Consumer Finance and the State of New York Banking Department periodically visit the offices of the consumer finance subsidiary and conduct extensive examinations in order to determine compliance with such laws and regulations. Such examinations include a review of loans and the collateral thereof, as well as a check of the procedures employed for making and collecting loans. Additionally, the consumer finance subsidiary is subject to certain federal laws which require that certain information relating to credit terms be disclosed to customers and afford customers in certain instances the right to rescind transactions. LIFE INSURANCE SUBSIDIARY Penn-Ohio is subject to examination on a triennial basis by the Arizona Department of Insurance. Representatives of the Department of Insurance will periodically determine whether Penn-Ohio has maintained required reserves, established adequate deposits under a reinsurance agreement and complied with reporting requirements under Arizona statutes. GOVERNMENTAL POLICIES The operations of the Corporation and its subsidiaries are affected not only by general economic conditions, but also by the policies of various regulatory authorities. In particular, the FRB regulates money and credit and interest rates in order to influence general economic conditions. These policies have a significant influence on overall growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid for time and savings deposits. FRB monetary policies have had a significant effect on the operating results of all financial institutions in the past and may continue to do so in the future. I-5 8 FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT (FDICIA) FDICIA was designed to bolster the deposit insurance fund, tighten bank regulation and trim the scope of federal deposit insurance as summarized below. FDIC Funding - FDICIA bolstered the bank deposit insurance fund with $70.0 billion in borrowing authority and increased to $30.0 billion from $5.0 billion the amount the FDIC can borrow from the U.S. Treasury to cover the costs of potential bank failures. Bank Regulation - Under FDICIA, regulatory supervision is linked to bank capital. Regulators have set five capital levels at which insured depository institutions will be "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized." FDICIA established a framework for supervisory actions regarding insured institutions and their holding companies that are not well or adequately capitalized. FDICIA requires increased supervision for banks not rated in one of the two highest categories under the "CAMELS" composite bank rating system. The FDIC is authorized to charge banks for regular and special examinations. Further, FDICIA mandates certain limits on real estate lending by banks and tightens bank auditing requirements. The federal bank regulatory agencies are required by FDICIA to adopt uniform capital and accounting rules. The accounting rules require supplemental disclosure in reports to the banking agencies of all assets and liabilities, including contingent assets and liabilities and, to the extent feasible, of the estimated fair market valuation of assets and liabilities. As mandated by Section 132 of FDICIA, the federal bank regulatory agencies issued regulations which prescribe minimum safety and soundness standards with respect to internal control, internal audit, loan documentation, credit underwriting, interest rate exposure, asset growth and quality, earnings, compensation arrangements and stock valuation. Institutions failing to meet these safety and soundness standards will be required to submit corrective plans and will be subject to sanctions for failure to submit or comply with a plan. The Community Development and Regulatory Improvement Act of 1994 amended section 132 of FDICIA to permit the regulatory agencies to implement the safety and soundness standards relative to asset quality, earnings and stock valuation by regulation or guidelines. The agencies will now be permitted to decide whether or not to compel institutions that fail to meet these standards to submit a compliance plan. Finally, depository institution holding companies are no longer covered under Section 132 of FDICIA. FDICIA also provided for certain consumer and low and moderate income lending and deposit programs. Deposit Insurance - The legislation also reduced the scope of federal deposit insurance. The FDIC's ability to reimburse uninsured deposits (those over $100,000 and foreign deposits) was sharply limited beginning January 1995. The FRB's ability to finance banks with extended loans from its discount window was restricted, beginning December 1993. In addition, only the best capitalized banks will be able to offer insured broker deposits or to insure accounts established under employee pension plans. I-6 9 LIMITS ON DIVIDENDS AND OTHER PAYMENTS The parent company is a legal entity separate and distinct from its subsidiaries. Most of the parent company's revenues result from dividends paid to the parent company by the subsidiaries. The right of the parent company, and consequently the right of creditors and stockholders of the Corporation, to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of the subsidiary, except to the extent that claims of the parent company in its capacity as a creditor may be recognized. Moreover, there are various legal limitations applicable to the payment of dividends by the subsidiaries as well as by the Corporation to its stockholders. Under federal law, the subsidiaries may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, the Corporation or take securities of the Corporation as collateral for loans to any borrower. The subsidiaries are also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions. The subsidiaries are subject to various statutory and regulatory restrictions on their ability to pay dividends to the parent company. Under applicable federal and state statutes and regulations, the dividends that may be paid to the parent company by its subsidiaries without prior regulatory approval are subject to limitations. In the case of First National, a national bank, prior approval of the OCC is required if the total of all dividends declared in any calendar year will exceed net profits (as defined and interpreted by the OCC) for that year combined with retained net profits (as defined) for the two preceding calendar years. As Pennsylvania state-chartered institutions, Bucktail and Reeves may pay dividends only if they are solvent and would not be rendered insolvent by the dividend payments, and only from unrestricted and unreserved earned surplus and, under certain circumstances, capital surplus. Each must also maintain a leverage ratio of 6.00% after paying dividends. First County and Metropolitan, both Ohio state-chartered institutions, may not pay dividends without approval of the superintendent of banks if the total of all dividends declared in any year will exceed net profits (as defined by statute) for that year combined with retained net profits (as defined) for the two preceding years. In addition, after payment of any dividend, First County's surplus must be at least 20 percent of its capital. All subsidiaries are subject to the capital requirements described below. Dividends may not be paid by these subsidiaries if the payment of the dividend would cause the subsidiary to fall below these minimum capital requirements. In addition, the OCC, in the case of First National, and the FDIC, in the case of the Corporation's other bank subsidiaries, have authority to prohibit banks from engaging in unsafe and unsound banking practices. The payment of a dividend by a bank could, depending on the financial condition of such bank and other factors, be considered an unsafe and unsound banking practice. The OCC has indicated its view that it generally would be an unsafe and unsound practice to pay dividends except out of current operating earnings. The ability of the subsidiaries to pay dividends is, and is expected to continue to be, influenced by regulatory policies and capital guidelines. (See also "Stockholders' Equity" footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's Annual Report to Stockholders). CAPITAL REQUIREMENTS The FRB has adopted risk-based capital guidelines applicable to bank holding companies. The primary indicators relied on by the FRB and other bank regulators in measuring strength of capital position are the core capital, total risk-based capital and leverage ratios. I-7 10 Core capital consists of common and qualifying preferred stockholders' equity less non-qualifying intangibles. Total capital consists of core capital, qualifying subordinated debt and a portion of the allowance for loan losses. Risk-based capital ratios are calculated with reference to risk-weighted assets which consist of both on- and off- balance sheet risks. The regulatory minimums are 4.00% for the core capital ratio and 8.00% for the total risk-based capital ratio. The Corporation's core capital and total risk-based capital to risk-weighted assets ratios as of December 31, 1996 were 11.99% and 14.06%, respectively. (See also "Regulatory Matters" footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's Annual Report to Stockholders). In addition, the FRB has established minimum leverage ratio (core capital to quarterly average assets less non-qualifying intangibles) guidelines for bank holding companies. These guidelines provide for a minimum ratio of 3.00% for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. All other bank holding companies are required to maintain a leverage ratio of 3.00% plus an additional cushion of at least 100 to 200 basis points. The Corporation's leverage ratio as of December 31, 1996 was 8.58%. The guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Each bank subsidiary is subject to similar capital requirements adopted by its primary federal regulator. Bank regulators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. However, management is unable to predict whether higher capital ratios would be imposed and, if so, at what levels and on what schedule. Under FRB policy, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the FRB's policy that, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity, in circumstances where it might not do so absent such policy, and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. The failure of a bank holding company to serve as a source of strength to its subsidiary banks would generally be considered by the FRB to be an unsafe and unsound banking practice, a violation of FRB regulations, or both. FDIC INSURANCE ASSESSMENTS The Corporation's banking subsidiaries are subject to FDIC deposit insurance assessments for the Bank Insurance Fund (BIF) and Savings Association Insurance Fund (SAIF). Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) authorized the FDIC to set the annual premium for banks and savings associations as high as determined to be necessary to assure stability of the insurance funds. FDIC deposit insurance premium rates have been determined through a risk-based assessment which takes into consideration the capital rating (i.e. "undercapitalized", "adequately capitalized" or "well capitalized") assigned to the institution by the federal regulators. Each of the banking affiliates have been assigned a capital rating of "well capitalized." During 1996, Congress mandated a one-time assessment to recapitalize the SAIF. The legislation, passed by Congress during the third quarter of 1996, included a one-time assessment for all deposits insured by the SAIF, including those held by chartered commercial banks as a result of previous acquisitions. The legislation also included provisions that will result in a modest reduction in future annual deposit insurance for the Corporation. I-8 11 FIRREA As a result of the enactment of the FIRREA on August 9, 1989, a depository institution insured by the FDIC can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC after August 9, 1989 in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. Liability of any subsidiary under this "cross-guarantee" provision could have a material adverse effect on the financial condition of any assessed subsidiary and the Corporation. OMNIBUS CONSOLIDATED APPROPRIATIONS ACT, FOR FISCAL YEAR 1997 (OMNIBUS ACT) The Omnibus Act became effective on September 30, 1996. In addition to requiring commercial banks to make contributions to the SAIF, the Omnibus Act amended the Bank Holding Company Act to simplify certain nonbank application procedures for "well capitalized" banking organizations. Additionally, the Omnibus Act amended certain banking laws governing the operations of insured depository institutions to provide relief to commercial banks with respect to lender liability, environmental liability, loans to executive officers, officer and director interlocks and composition of bank audit committees. MARKET AREA AND COMPETITION The Corporation, through its subsidiaries, operated 95 offices in 33 counties in Pennsylvania, eastern Ohio and western New York at December 31, 1996. The economies of the primary market areas in which the Corporation and its subsidiaries operate have evolved during the past decade from ones dominated by heavy industry to ones which have a more diversified mix of light manufacturing, service and distribution industries. This area is served by Interstate Routes 90, 76, 79 and 80, and is located at the approximate midpoint between New York City and Chicago. The area is also close to the Great Lakes shipping port of Erie and the Greater Pittsburgh International Airport. The Corporation's recent merger with Southwest Banks, Inc. provides a meaningful presence in two attractive Gulf Coast counties (Lee and Collier). These counties represent two of the highest growth and median family income levels in the state of Florida. The Corporation's subsidiaries compete with a large number of other financial institutions, such as commercial banks, savings banks, savings and loan associations, insurance companies, mortgage banking companies, consumer finance companies, credit unions and commercial finance and leasing companies, many of which have greater resources than the Corporation, for deposits, loans and service business. Money market mutual funds, brokerage houses and similar institutions currently provide many of the financial services offered by the Corporation's subsidiaries. In the consumer finance subsidiary's market areas, the active competitors include banks, credit unions and national, regional and local consumer finance companies, some of which have substantially greater resources than that of the consumer finance subsidiary. The ready availability of consumer credit through charge accounts and credit cards constitutes additional competition. The principal methods of competition include the rates of interest charged for loans, the rates of interest paid to obtain funds and the availability of customer services. With reciprocal interstate banking, the Corporation also faces the prospect of additional competitors entering its markets as well as additional competition in its efforts to acquire other subsidiaries and branches throughout Pennsylvania and in neighboring states. (See "Regulation and Supervision.") I-9 12 EMPLOYEES As of February 28, 1997, the Corporation and its subsidiaries, including Southwest, had 985 full-time and 244 part-time employees. Management of the Corporation considers its relationship with its employees to be satisfactory. MERGERS, ACQUISITIONS AND DIVESTITURE See "Mergers, Acquisitions and Divestiture" footnote in the Notes to Consolidated Financial Statements, which is incorporated by reference to the Corporation's Annual Report to Stockholders. STATISTICAL DISCLOSURE Statistical disclosure information regarding the Corporation is included in the Management's Discussion and Analysis, which is incorporated by reference to the Corporation's Annual Report to Stockholders (see Part II, Item 7 below). The following information is contained therein: I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential II. Investment Portfolio III. Loan Portfolio IV. Summary of Loan Loss Experience V. Deposits VI. Return on Equity and Assets VII. Short-Term Borrowings I-10 13 ITEM 2. PROPERTIES The Corporation is constructing a new six-story building in Hermitage, Pennsylvania to serve as its corporate headquarters and share with its lead banking affiliate, First National. The operations of the Corporation and First National are currently conducted at two primary locations owned by First National: Hermitage Square and a data processing facility, both located in Hermitage, Pennsylvania. Operations for Metropolitan are conducted at a 17-story facility owned by Metropolitan at One Federal Plaza West, Youngstown, Ohio. At December 31, 1996, Metropolitan occupied approximately 44% of the rentable space, with the remaining rentable space being subleased to third parties. The banking and consumer finance subsidiaries' branch offices are located in 26 counties in Pennsylvania, 6 counties in eastern Ohio and 1 county in western New York. At December 31, 1996, the Corporation's subsidiaries owned 43 of the Corporation's 95 branch locations and leased the remaining 52 branch locations under operating leases expiring at various dates through the year 2010. For additional information regarding the lease commitments and locations of the 95 offices of the Corporation, see the Premises and Equipment footnote and the Market Area map in the Annual Report to Shareholders. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Corporation or any of its subsidiaries is a party, or of which any of their property is the subject, except ordinary routine proceedings which are incidental to the ordinary conduct of business. In the opinion of management, pending legal proceedings will not have a material adverse effect on the consolidated financial position of the Corporation and its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 1996. I-11 14 EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and positions of the executive officers of the Corporation, as of February 28, 1997, are as follows: NAME AGE POSITION HELD Peter Mortensen 61 Chairman, President and Director Stephen J. Gurgovits 53 Executive Vice President and Director John W. Rose 47 Executive Vice President William J. Rundorff 48 Executive Vice President Gary L. Tice 49 Executive Vice President and Director Samuel K. Sollenberger 59 Vice President and Director John D. Waters 50 Vice President and Chief Financial Officer Officers are elected annually by the Board of Directors immediately following the annual meeting of stockholders. The term of office for all of the above executive officers is for the period ending with the next annual meeting. PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS Mr. Peter Mortensen is Chairman of the Corporation (1987 to the present), President of the Corporation (1974 to the present) and Chairman of the Board of First National (1987 to the present). Since 1959, Mr. Mortensen has held various other executive positions with First National including President (1972 to 1988) and Chief Executive Officer (1979 to 1988). Mr. Stephen J. Gurgovits is Executive Vice President of the Corporation (1995 to the present), Senior Vice President of the Corporation (1986 to 1995) and President and Chief Executive Officer of First National (1988 to the present). Mr. Gurgovits has served in various positions with First National since 1961 and with the Corporation since 1974 including Executive Vice President and Senior Loan Officer of First National (1979 to 1988). Mr. John W. Rose is Executive Vice President of the Corporation (1995 to the present). He previously served as President of McAllen Capital Partners, Inc. (1992 to 1995) and President of Livingston Financial Group (1988 to 1992). Mr. William J. Rundorff is Executive Vice President of the Corporation (1995 to the present), Vice President of the Corporation (1991 to 1995) and Vice President of First National (1991 to the present). Mr. Gary L. Tice is Executive Vice President of the Corporation (1997 to the present), Chairman of the Board, President and Chief Executive Officer of Southwest Banks, Inc. (1988 to the present) and Chairman of the Board of First National Bank of Naples (1988 to the present). Mr. Samuel K. Sollenberger is Vice President of the Corporation (1989 to the present), Chairman of Metropolitan (1996 to the present), President of Metropolitan (1989 to 1996) and Chief Executive Officer of Metropolitan (1990 to the present). Mr. John D. Waters is Vice President and Chief Financial Officer of the Corporation (1994 to the present) and Senior Vice President and Chief Financial Officer of First National (1994 to the present). He previously served as Executive Vice President and Chief Financial Officer of WSFS Financial Corporation (1988 to 1993). I-12 15 PART II Information relating to Items 5, 6, 7 and 8 is provided in the Corporation's 1996 Annual Report to Stockholders under the captions and on the pages indicated below, and is incorporated herein by reference: PAGES IN 1996 ANNUAL REPORT CAPTION IN 1996 ANNUAL REPORT TO STOCKHOLDERS TO STOCKHOLDERS ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 51 ITEM 6. SELECTED FINANCIAL DATA 39 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 40 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None II-1 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to directors of the Corporation is provided in the Corporation's definitive proxy statement filed with the Securities and Exchange Commission in connection with its annual meeting of stockholders to be held April 23, 1997. Such information is incorporated herein by reference. Information relating to executive officers of the Corporation is provided in Part I. ITEM 11. EXECUTIVE COMPENSATION Information relating to this item is provided in the Corporation's definitive proxy statement filed with the Securities and Exchange Commission in connection with its annual meeting of stockholders to be held April 23, 1997. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to this item is provided in the Corporation's definitive proxy statement filed with the Securities and Exchange Commission in connection with its annual meeting of stockholders to be held April 23, 1997. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. III-1 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS The following consolidated financial statements and report of independent auditors of F.N.B. Corporation and subsidiaries, included in the Corporation's 1996 Annual Report to Stockholders, are incorporated herein by reference to Item 8: PAGES IN 1996 ANNUAL REPORT TO STOCKHOLDERS Consolidated Balance Sheet 14 Consolidated Income Statement 15 Consolidated Statement of Stockholders' Equity 16 Consolidated Statement of Cash Flows 17 Notes to Consolidated Financial Statements 18 Report of Independent Auditors 38 Quarterly Earnings Summary 32 (A) 2. FINANCIAL STATEMENT SCHEDULES All Schedules are omitted because they are not applicable. (A) 3. EXHIBITS The exhibits filed or incorporated by reference as a part of this report are listed in the Index to Exhibits which appears at page IV-4 and are incorporated by reference. (B) REPORTS ON FORM 8-K A report on Form 8-K , dated November 13, 1996, was filed by the Corporation. The Form 8-K disclosed pro forma financial information for the period ended September 30, 1996, relating to the merger agreement between F.N.B. Corporation and Southwest Banks, Inc. and consolidated financial information for Southwest Banks, Inc. A report on Form 8-K, dated November 15, 1996, was filed by the Corporation. The Form 8-K disclosed information relating to the definitive merger agreement between F.N.B. Corporation and West Coast Bancorp, Inc. A report on Form 8-K, dated January 24, 1997, was filed by the Corporation. The Form 8-K disclosed information relating to the consummation of the merger with Southwest Banks, Inc. A report on Form 8-K, dated March 5, 1997, was filed by the Corporation. The Form 8-K included Audited Supplemental Consolidated Financial Statements for the years ended December 31, 1995, 1994 and 1993 with Report of Independent Auditors and Management's Discussion and Analysis. IV-1 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. F.N.B. CORPORATION By /s/ Peter Mortensen --------------------------------------- Peter Mortensen, Chairman and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Peter Mortensen Chairman, President and February 25, 1997 - --------------------------- Director (Principal Peter Mortensen Executive Officer) /s/ Stephen J. Gurgovits Executive Vice President February 25, 1997 - --------------------------- and Director Stephen J. Gurgovits Executive Vice President - --------------------------- and Director Gary L. Tice Vice President and Director - --------------------------- Samuel K. Sollenberger /s/ John D. Waters Vice President and Chief February 25, 1997 - --------------------------- Financial Officer (Principal John D. Waters Accounting Officer) Director - --------------------------- W. Richard Blackwood /s/ William B. Campbell Director February 25, 1997 - --------------------------- William B. Campbell /s/ Charles T. Cricks Director February 25, 1997 - --------------------------- Charles T. Cricks /s/ Henry M. Ekker Director February 25, 1997 - --------------------------- Henry M. Ekker Director - --------------------------- Thomas C. Elliott /s/ Thomas W. Hodge Director February 25, 1997 - --------------------------- Thomas W. Hodge IV-2 19 Director - --------------------------- James S. Lindsay /s/ George E. Lowe Director February 25, 1997 - --------------------------- George E. Lowe /s/ Paul P. Lynch Director February 25, 1997 - --------------------------- Paul P. Lynch Director - --------------------------- Edward J. Mace Director - --------------------------- Robert S. Moss Director - --------------------------- Richard C. Myers Director - --------------------------- John R. Perkins /s/ William A. Quinn Director February 25, 1997 - --------------------------- William A. Quinn Director - --------------------------- George A. Seeds /s/ William J. Strimbu Director February 25, 1997 - --------------------------- William J. Strimbu /s/ Archie O. Wallace Director February 25, 1997 - --------------------------- Archie O. Wallace /s/ Joseph M. Walton Director February 25, 1997 - --------------------------- Joseph M. Walton /s/ James T. Weller Director February 25, 1997 - --------------------------- James T. Weller Director - --------------------------- Eric J. Werner Director - --------------------------- Donna C. Winner IV-3 20 INDEX TO EXHIBITS The following exhibits are filed or incorporated by reference as part of this report: 3.1. Restated Articles of Incorporation of the Corporation as currently in effect and any amendments thereto. (filed herewith). 3.2. By-laws of the Corporation as currently in effect. (incorporated by reference to Exhibit 4 of the Corporation's Form 10-Q for the quarter ended June 30, 1994). 4 The rights of holders of equity securities are defined in portions of the Restated Articles of Incorporation and By-laws. The Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1. of the registrant's Form 10-K for the year ended December 31, 1996. The By-laws are incorporated by reference to Exhibit 4 of the registrant's Form 10-Q for the quarter ended June 30, 1994. A designation statement defining the rights of F.N.B. Corporation Series A - Cumulative Convertible Preferred Stock is incorporated by reference to Form S-14, Registration Statement of F.N.B. Corporation, File No. 2-96404. A designation statement defining the rights of F.N.B. Corporation Series B - Cumulative Convertible Preferred Stock is incorporated by reference to Exhibit 4 of the registrant's Form 10- Q for the quarter ended June 30, 1992. The Corporation agrees to furnish to the Commission upon request copies of all instruments not filed herewith defining the rights of holders of long-term debt of the Corporation and its subsidiaries. 10.1. Form of agreement regarding deferred payment of directors' fees by First National Bank of Pennsylvania. (incorporated by reference to Exhibit 10.1. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.2. Form of agreement regarding deferred payment of directors' fees by F.N.B. Corporation. (incorporated by reference to Exhibit 10.2. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.3. Form of Deferred Compensation Agreement by and between First National Bank of Pennsylvania and four of its executive officers. (incorporated by reference to Exhibit 10.3. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.4. Employment Agreement between The Metropolitan Savings Bank of Youngstown and Samuel K. Sollenberger. (incorporated by reference to Exhibit 10.4. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.5. Revised and Restated Amendment No. 2 to Employment Agreement between F.N.B. Corporation and Peter Mortensen. (incorporated by reference to Exhibit 10.5. of the Corporation's Form 10-Q for the quarter ended September 30, 1996). 10.6. Employment Agreement between F.N.B. Corporation and Stephen J. Gurgovits. (incorporated by reference to exhibit 10.6 of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.7. Employment Agreement between F.N.B. Corporation and Samuel K. Sollenberger. (incorporated by reference to exhibit 10.7 of the Corporation's Form 10-Q for the quarter ended March 31, 1994). 10.8. Employment Agreement between F.N.B. Corporation and William J. Rundorff. (incorporated by reference to exhibit 10.9 of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1991). Amendment No. 2 to Employment Agreement. (incorporated by reference to Exhibit 10.8. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). IV-4 21 10.9. Basic Retirement Plan (formerly the Supplemental Executive Retirement Plan) of F.N.B. Corporation effective January 1, 1992. (incorporated by reference to Exhibit 10.9. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.10. F.N.B. Corporation 1990 Stock Option Plan as amended effective February 2, 1996. (incorporated by reference to Exhibit 10.10. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.11. F.N.B. Corporation Restricted Stock Bonus Plan dated January 1, 1994. (incorporated by reference to Exhibit 10.11. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.12. Employment Agreement between F.N.B. Corporation and John W. Rose (incorporated by reference to Exhibit 10.12. of the Corporation's Form 10-Q for the quarter ended September 30, 1995). Amendment No. 1 to Employment Agreement. (incorporated by reference to Exhibit 10.12. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.13. Employment Agreement between F.N.B. Corporation and John D. Waters. (incorporated by reference to Exhibit 10.13. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.14. F.N.B. Corporation Restricted Stock and Incentive Bonus Plan. (incorporated by reference to Exhibit 10.13. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.15. F.N.B. Corporation 1996 Stock Option Plan. (incorporated by reference to Exhibit 10.13. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.16. F.N.B. Corporation Director's Compensation Plan. (incorporated by reference to Exhibit 10.13. of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 11 Statement re computation of per share earnings. (filed herewith). 13 Annual Report to Stockholders. (filed herewith). 21 Subsidiaries of the Registrant. (filed herewith). 23 Consent of Ernst & Young LLP, Independent Auditors. (filed herewith). 27 Financial Data Schedule. (filed herewith). IV-5