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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 001-31883
FIRST NATIONAL BANKSHARES OF FLORIDA, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 20-0175526
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
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2150 GOODLETTE ROAD NORTH, NAPLES, FLORIDA, 34102
(Address of principal executive offices and zip code)
800-262-7600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT (TITLE OF CLASS):
COMMON STOCK, PAR VALUE $0.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Parts III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]
The Registrant's common stock began trading on the New York Stock Exchange on January 2, 2004, and was not publicly traded prior to that date. On March 1, 2004, 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 by the New York Stock Exchange for such date, was approximately $907,388,566.
As of March 1, 2004, the registrant had outstanding 46,295,335 shares of common stock having a par value of $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its 2004 Annual Meeting of Shareholders are incorporated herein by reference in response to Part III of this Form 10-K.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003
INDEX
PAGE
----
PART I................................................................ 3
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II............................................................... 10
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 28
Item 8. Financial Statements and Supplementary Data................. 28
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 28
Item 9A. Controls and Procedures..................................... 28
PART III.............................................................. 28
Item 10. Directors and Executive Officers of the Registrant.......... 28
Item 11. Executive Compensation...................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 29
Item 13. Certain Relationships and Related Transactions.............. 29
Item 14. Principal Accountant Fees and Services...................... 29
PART IV............................................................... 29
Item 16. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 29
INDEX TO EXHIBITS..................................................... 31
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We base these forward-looking statements on our expectations and projections about future events, which we have derived from the information currently available to us. In addition, forward-looking statements may be included in our filings with the SEC or press releases or oral statements made by or with the approval of one of our executive officers. For each of these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to future events or our future performance, including but not limited to:
- benefits resulting from our spin-off from F.N.B. Corporation;
- possible or assumed future results of operations;
- future revenue and earnings; and
- business and growth strategies.
Forward-looking statements are those that are not historical in nature, particularly those that use terminology such as "may," "could," "will," "should," "likely," "expects," "anticipates," "contemplates," "estimates," "believes," "plans," "projects," "predicts," "potential" or "continue" or the negative of these or similar terms. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, but are not limited to, the following important factors: (1) the uncertainty of general business and economic conditions; (2) the impact of competition, both expected and unexpected; and (3) the risk that underlying assumptions or expectations related to the spin-off prove to be inaccurate or unrealized.
Forward-looking statements are only predictions and speak only as of the date they are made. You should not place undue reliance on forward-looking statements. The forward-looking events discussed in this document and other statements made from time to time by us may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we are not obligated to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document and in other statements that we make from time to time might not occur.
PART I
ITEM 1. BUSINESS
We were incorporated under the laws of the State of Florida on August 12, 2003 as a wholly owned subsidiary of F.N.B. Corporation. We did not have any material assets or activities until our spin-off from F.N.B. on January 1, 2004. After the spin-off, we became an independent public company, and we are no longer affiliated with F.N.B. For additional information on the spin-off, refer to First National Bankshares of Florida, Inc.'s consolidated financial statements included in this document.
We are a financial holding company under the Gramm-Leach-Bliley Act of 1999. We have three reportable business segments: community banking, insurance agencies, and wealth management. For additional information regarding these segments, refer to the Business Segments footnote in the notes to the consolidated financial statements included in this document. We own and operate First National Bank of Florida, a national bank; First National Wealth Management Company, a nationally chartered trust company; and Roger Bouchard Insurance, Inc., an insurance agency.
Through our subsidiaries, we provide a full range of financial services, principally to consumers and small-to medium-size businesses in our market areas. Our business strategy is to focus primarily on providing quality, community-based financial services adapted to the needs of each of the markets we serve. Our results have emphasized a community orientation by preserving local advisory boards of directors and by allowing local management certain autonomy in decision-making, enabling them to respond to customer requests more quickly and concentrate on transactions within their market areas. However, while we preserve some decision-making at a local level, we have centralized our legal, loan review, accounting, investment, audit, loan operations and data processing functions. The centralization of these processes enables us to maintain consistent quality of these functions and to achieve certain economies of scale.
Following is information as of December 31, 2003 regarding our subsidiaries, all of which are wholly owned by us (dollars in thousands).
TOTAL TOTAL TOTAL NUMBER OF
ASSETS DEPOSITS REVENUES(2) OFFICES
---------- ---------- ----------- ---------
First National Bank of Florida(1)
Naples, Florida...................... $3,717,993 $2,719,989 $151,976 59
Roger Bouchard Insurance, Inc.
Clearwater, Florida.................. 36,975 -- 27,323 10
First National Wealth Management
Company
Naples, Florida...................... 2,368 -- 6,565 5
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(1) Includes Southern Exchange Bank, which was acquired on March 31, 2003 and merged into First National Bank of Florida on October 10, 2003 as part of an internal reorganization.
(2) Represents net interest income and non-interest income for the year ended December 31, 2003.
OPERATIONS OF FIRST NATIONAL BANK OF FLORIDA
First National Bank of Florida, offers services traditionally offered by full-service commercial banks, including commercial and individual demand and time deposit accounts and commercial, mortgage and individual installment loans.
No material portion of our deposits 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 our business. The deposits held by the bank have been generated within its market area. The bank does not have any brokered deposits.
Our lending philosophy is to minimize credit losses by following strict credit approval standards (which include independent analysis of realizable collateral value), diversifying our loan portfolio by industry and
borrower and conducting ongoing review and management of the loan portfolio. We do not have any highly leveraged transaction loans.
The following is a description of each of the principal types of loans in our loan portfolio, the relative risk of each type of loan and the steps we take to reduce its risk:
Commercial Loans. These loans are customarily granted to our established local business customers in our market area on a fully collateralized basis to meet their credit needs. The loans can be extended for periods of between one year and five years and are usually structured to fully amortize over the term of the loan or balloon after the third year or fifth year of the loan with an amortization period up to 10 years. The terms and loan structure are dependent on the collateral and strength of the borrower. The loan-to-value ratios range from 50% to 80%. The risks of these types of loans depend on the general business conditions of the local economy and the local business borrower's ability to sell its products and services in order to generate sufficient business profits to repay us under the agreed upon terms and conditions.
Commercial lending generally involves greater credit risk than residential real estate or consumer lending, and involves risks that are different from those associated with commercial real estate lending. Although commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default may represent an insufficient source of repayment because equipment and other business assets may, among other things, be obsolete or of limited use. Accordingly, the repayment of a commercial loan depends primarily on the credit worthiness and projected cash flow of the borrower (and any guarantors), while liquidation of collateral is considered a secondary source of repayment. To manage these risks, our policy is to secure the commercial loans it makes with both the assets of the borrowing business and other additional collateral and guarantees that may be available. In addition, it actively monitor certain measures of the borrower, including advance rate, cash flow, collateral value and other appropriate credit factors.
Commercial Real Estate. We offer commercial real estate loans to developers of both commercial and residential properties. Because payments on these loans are often dependent on the successful development, operation and management of the properties, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. If the estimate of value proves to be inaccurate, the property may not provide the lender with full repayment in the event of default and foreclosure. We seek to minimize risks by limiting the maximum loan-to-value ratio and strictly scrutinizing the financial condition of the borrower, the quality of the collateral and the management of the property securing the loan. We also actively monitors such measures as advance rate, cash flow, collateral value and other appropriate credit factors. We also generally obtain loan guarantees from financially capable parties to the transaction based on a review of personal financial statements.
Residential Real Estate. We are an active residential mortgage lender. We offer both first and second mortgage residential real estate and home equity lines of credit and term loans secured by first and second mortgages on the residences of borrowers for purchases, refinances, home improvements, education and other personal expenditures. Both fixed and variable rate loans are offered with competitive terms and fees. We retain loans for our portfolio when it has sufficient liquidity to fund the needs of its established customers and when rates are favorable to retain the loans. The loans that we retain for our portfolio are usually structured to balloon after the third year or fifth year with an amortization up to 30 years. These loans are priced according to proper index and margin, and should not lag behind funding costs. We also originate certain residential mortgage loans for sale in the secondary loan market. These loans are collateralized by one-to-four family residential real estate and typically sold with servicing rights released. The risk we assume is conditioned upon its internal controls, loan underwriting and market conditions in the national mortgage market. The risk associated with residential real estate loans is minimized by limiting the maximum loan-to-value ratio and strictly scrutinizing the financial condition of the borrower.
Construction Real Estate. Our construction loans represent less than 13% of our total loans. Our construction loan portfolio consists of single family residential properties, multi-family properties and commercial projects. Maturities for construction loans generally range from 6 to 24 months for residential property and from 12 to 24 months for non-residential and multi-family properties. Construction lending
entails significant additional risks compared with residential mortgage lending. Construction loans involve risks in that loan funds are advanced upon the security of property under construction, which is of uncertain value prior to the completion of construction. Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and related loan-to-value ratios. To minimize the risks associated with construction lending, we limit loan-to-value ratios for owner-occupied residential or commercial properties to 85%, and for investor-owned residential or commercial properties to 80% of when-completed appraised values. We expect that these loan-to-value ratios will be sufficient to compensate for fluctuations in the real estate market to minimize the risk of loss.
Installment Loans. These loans are granted to individuals for the purchase of personal goods. These loans are generally granted for periods ranging between one and five years at fixed rates of interest 1% to 5% above prime interest rate quoted in The Wall Street Journal. Loss or decline of income by the borrower due to unplanned occurrences may represent risk of default to us. In the event of default, a shortfall in the value of the collateral may pose a loss to us in this loan category. We assess the applicant's credit history and ability to meet existing and proposed debt obligations. Although the applicant's creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount. We obtain a lien against the item purchased by the consumer and hold title until the loan is repaid in full.
In addition to traditional banking products, we offer various alternative investment products, including mutual funds and annuities.
OPERATIONS OF FIRST NATIONAL WEALTH MANAGEMENT COMPANY
First National Wealth Management Company is a newly formed national trust company to which F.N.B. transferred all of the Florida operations of its First National Trust Company subsidiary. It provides a broad range of personal and corporate fiduciary services, including the administration of decedent and trust estates. As of January 1, 2004, the market value of corporate-wide trust assets under management totaled approximately $910.2 million.
OPERATIONS OF ROGER BOUCHARD INSURANCE, INC.
Roger Bouchard Insurance, Inc., is a full-service insurance agency offering all lines of commercial and personal insurance through major carriers. At January 1, 2004, they operated 10 offices in Southwest and Central Florida.
MARKET AREA AND COMPETITION
Our subsidiaries operate in an area represented by high growth and high median family income. The industries served in this market include diversified mix of tourism, construction, services, light manufacturing, distribution and agriculture. Our market area is southwest and central Florida, with branches located in the key metropolitan areas of Orlando, Tampa, Sarasota, Fort Myers and Naples.
Historically, southwest and central Florida's population has grown at a faster pace than most markets in the country. From 1990 to 2002, the population in this market area grew 44% compared with 15% and 28% for the United States and the state of Florida, respectively. This trend is expected to continue. The projected population growth for 2002 to 2007 in the southwest and central Florida markets is projected to be 14%, compared with 5% and 10% in the United States and the state of Florida, respectively.
In addition, the median household income in the southwest and central Florida markets exceeds other sections of the United States and the state of Florida. The following table depicts the 2002 median household income and the projected growth in median household income from 2002 to 2007 for our market, the United States, the state of Florida, and our base market, Naples, Florida:
PROJECTED
HISTORICAL GROWTH
2002 2002-2007
---------- ---------
Southwest and central Florida............................... $47,850 19%
United States............................................... 47,065 16%
Florida..................................................... 41,258 14%
Naples, Florida............................................. 57,326 23%
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Our subsidiaries compete with a large number of other financial institutions, such as commercial banks, savings banks, savings and loan associations, mortgage banking companies, credit unions and commercial finance and leasing companies. Many of these other financial institutions have greater resources than we do for deposits, loans and service business. Our market share of aggregate deposits in Florida was 4.8% as of December 31, 2002, ranking 6th behind the major financial institutions in the southeastern United States. Collectively, these financial institutions represent aggregate deposit market share of 47% in the state of Florida. In providing wealth and asset management services, our subsidiaries compete with many other financial service firms, brokerage firms, mutual fund complexes, investment management firms, trust and fiduciary service providers and insurance agencies.
The ability to access and use technology is an increasingly important competitive factor in the financial services industry. Technology is not only important with respect to delivery of financial services, but in processing information. Each of our subsidiaries consistently must make technological investments to remain competitive.
EMPLOYEES
As of January 1, 2004, we employed approximately 1,237 full-time and 117 part-time employees.
SUPERVISION AND REGULATION
Sarbanes-Oxley Act. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, a law designed to address, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. The New York Stock Exchange has also recently revised its corporate governance rules to allow shareholders to more easily and efficiently monitor the performance of companies and the qualifications and activities of "insiders."
As directed by Section 302(a) of Sarbanes-Oxley, our chief executive officer and chief financial officer are each required to certify that our Quarterly and Annual Reports do not contain any untrue statement of a material fact. The rules have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls; they have made certain disclosures to auditors and the audit committee of the Board of Directors about our internal controls; and they have included information in our Quarterly and Annual Reports about their evaluation and whether there have been significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.
Banking Activities and Financial Holding Company Regulation. We operate in a highly regulated environment, and our business activities are governed by statute, regulation and administrative policies. Our business activities are closely supervised by a number of regulatory agencies, including the FRB, the OCC and the FDIC.
We are regulated by the FRB under the Federal Bank Holding Company Act of 1956, as amended, which requires every bank holding company to obtain the prior approval of the FRB before acquiring more than 5% of the voting shares of any bank or all or substantially all of the assets of any bank, and before merging or consolidating with another bank holding company. The FRB has maintained that a bank holding company must
serve as a source of financial strength to its subsidiary banks. In adhering to the FRB policy, we may be required to provide financial support to our subsidiary bank at a time when, absent such FRB policy, we may not deem it advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, we or any other bank holding company may acquire a bank located in a state other than the state in which such holding company is located, subject to certain deposit percentage and other restrictions. The legislation also provides that, unless an individual state has elected to prohibit out-of-state banks from operating interstate branches within its territory, adequately capitalized and managed bank holding companies may consolidate their multi-state bank operations into a single bank subsidiary and branch interstate through acquisitions.
As national banks, First National Bank of Florida and First National Wealth Management Company are subject to the supervision of the OCC and, to a limited extent, the FDIC and the FRB. The bank is also subject to state banking and usury laws restricting the amount of interest which may be charged in making loans or other extensions of credit. In addition, First National Bank of Florida, our subsidiary, is subject to restrictions under federal law when dealing with us and our affiliates. These restrictions apply to extensions of credit to an affiliate, investments in the securities of an affiliate and the purchase of assets from an affiliate.
Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999 (GLBA), enables bank holding companies to acquire insurance companies and securities firms and effectively repeals depression-era laws that prohibited the affiliation of banks and these other financial services entities under a single holding company. Bank holding companies, and other types of financial services entities, may elect to become financial holding companies under the new law, allowing them to offer virtually any type of financial service, or services incident to financial services, including banking, securities underwriting, merchant banking and insurance (both underwriting and agency services). We have elected financial holding company status. The new financial services authorized by the GLBA also may be engaged in by a "financial subsidiary" of a national or state bank, with the exception of insurance or annuity underwriting, insurance company portfolio investments, real estate investment and development, and merchant banking, all of which must be conducted under the financial holding company.
The GLBA establishes a system of functional regulation, under which the FRB regulates the banking activities of financial holding companies and other federal banking regulators regulate banks' financial subsidiaries. The SEC regulates securities activities of financial holding companies and state insurance regulators regulate their insurance activities. The GLBA also provides new protections against the transfer and use by financial institutions of consumers' non-public, personal information.
The implementation of the GLBA increases competition in the financial services sector by allowing many different entities, including banks and bank holding companies, to affiliate and/or to merge with other financial services entities and cross-sell their financial products in order to better serve their current and prospective customers.
Capital Adequacy Requirements. We are subject to regulatory capital adequacy guidelines imposed by the FRB and the OCC. These guidelines define a three-tier capital framework. Tier 1 capital includes common shareholders' equity, noncumulative perpetual preferred stock, minority interests in the equity accounts of consolidated subsidiaries and trust preferred securities (limited to 25% of total Tier 1 capital). Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, mandatorily convertible debt, limited amounts of subordinated debt, other qualifying term debt and the allowance for credit losses up to 1.25% of risk-weighted assets. The sum of Tier 1 and Tier 2 capital less investments in unconsolidated subsidiaries represents a bank's qualifying total capital.
Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of risk-weights, based primarily on relative credit risk. The minimum Tier 1 capital ratio is 4.0% and the minimum total capital ratio is 8.0%. On January 1, 2004, our consolidated Tier 1 and total risk-based capital ratios under these guidelines were approximately 8.4% and 10.1%, respectively.
The FRB, FDIC and the OCC have also implemented minimum capital leverage ratios to be used in tandem with the risk-based guidelines in assessing the overall capital adequacy of banks and bank holding companies. These rules provide for a minimum leverage ratio of at least 3.0% Tier 1 capital to total average assets (net of goodwill, certain intangible assets, and certain deferred tax assets) for institutions having the highest regulatory rating, while all other institutions are generally required to maintain a ratio of at least 4.0%. On January 1, 2004, our consolidated leverage ratio was approximately 6.2%.
For additional information regarding our capital ratios, refer to the Regulatory Matters footnote in the notes to our consolidated financial statements, included elsewhere in this document.
Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 (the FDICIA) provided a number of reforms relating to the safety and soundness of the deposit insurance system, supervision of domestic and foreign depository institutions and improvement of accounting standards. One element of the FDICIA provides for the development of a regulatory monitoring system requiring prompt action on the part of banking regulators with regard to certain classes of undercapitalized institutions. The FDICIA created five "capital categories" ("well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized") which are defined in the FDICIA and are used to determine the severity of corrective action the appropriate regulator may take in the event an institution reaches a given level of undercapitalization. For example, an institution which becomes "undercapitalized" must submit a capital restoration plan to the appropriate regulator outlining the steps it will take to become adequately capitalized. Upon approving the plan, the regulator will monitor the institution's compliance. Before a capital restoration plan will be approved, any entity controlling a bank (i.e., a holding company) must guarantee compliance with the plan until the institution has been adequately capitalized for four consecutive calendar quarters. The liability of the holding company is limited to the lesser of 5% of the institution's total assets or the amount which is necessary to bring the institution into compliance with all capital standards. In addition, "undercapitalized" institutions will be restricted from paying management fees, dividends and other capital distributions, are subject to certain asset growth restrictions and are required to obtain prior approval from the appropriate regulator to open new branches or expand into new lines of business. At January 31, 2004, our subsidiary national bank was well capitalized under the FDICIA.
As an institution's capital levels decline, the extent of action to be taken by the appropriate regulator increases, restricting the types of transactions in which the institution may engage and ultimately providing for the appointment of a receiver for certain institutions deemed to be critically undercapitalized.
In addition, the FRB, the OCC and the FDIC have adopted regulations, pursuant to the FDICIA, defining operational and managerial standards relating to internal controls, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. Both the capital standards and the safety and soundness standards which the FDICIA seeks to implement are designed to bolster and protect the deposit insurance fund.
Reporting Requirements. The Bank and the Wealth Management Company are subject to periodic on-site examinations under the supervisory jurisdiction of the OCC. The OCC, at will, can access quarterly reports of condition, as well as such additional reports as may be required by national banking laws and regulations.
We and our subsidiaries are subject to periodic examinations by the FRB. On-site FRB holding company inspections are typically conducted on an annual basis. As a financial holding company, we are required to file with the FRB an annual report of operations at the end of each fiscal year and such additional information as the FRB may require pursuant to the Bank Holding Company Act.
The scope of our regulation and permissible activities are subject to change by future federal and state legislation. In addition, regulators sometimes require higher capital levels on a case-by-case basis based on such factors as the risk characteristics or management of a particular institution. We are not aware of any attributes of our management or operating plans that would cause regulators to impose higher requirements.
Roger Bouchard Insurance, Inc. Roger Bouchard Insurance, Inc. is subject
to licensing requirements and extensive regulation under the laws of the United
States and the State of Florida. These laws and regulations are primarily for
the benefit of clients. In all jurisdictions, the applicable laws and
regulations are subject to
amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licenses and approvals, and to implement regulations. Licenses may be denied or revoked for various reasons, including the violation of such regulations, conviction of crimes and the like. Possible sanctions which may be imposed for violation of regulations include the suspension of individual employees, limitations on engaging in a particular business for a specified period of time, revocation of licenses, censures and fines.
Governmental Policies. Our operations 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 will continue to do so in the future.
AVAILABLE INFORMATION
We maintain a website at www.firstnationalbankshares.com. We will make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K on our website as soon as practicable after such reports are filed with the SEC.
ITEM 2. PROPERTIES
Our banking subsidiary, First National Bank of Florida, owns an eight-story building in Naples, Florida, which serves as our executive and administrative offices. The bank also owns an operations center in Naples, Florida.
Our banking, wealth management and insurance agency offices are located in nine counties in southwestern and central Florida. We own 50 of our 74 offices and lease the remaining 24 offices under operating leases expiring at various dates through the year 2087.
ITEM 3. LEGAL PROCEEDINGS
Our subsidiaries are subject to routine claims and lawsuits incidental to our business. We do not believe that the ultimate liability arising out of these claims and lawsuits will have a material adverse effect on our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the New York Stock Exchange under the symbol "FLB" on January 2, 2004. On that day, our stock price opened at $16.65. On March 1, 2004, our stock price closed at $19.60.
On January 21, 2004, our Board of Directors declared a $.07 per share dividend, payable on February 15, 2004 to our shareholders of record on February 1, 2004. On March 1, 2004, there were 11,124 holders of record of our common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data that have been derived from our consolidated financial statements for each of the five years in the period ended December 31, 2003. The financial data for the years 2000-2003 were derived from our audited consolidated financial statements. The financial data for 1999 were derived from our unaudited financial statements, which were prepared on the same basis as our audited financial statements and reflect all necessary adjustments and reclassifications in accordance with generally accepted accounting principles. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the consolidated financial statements and the notes thereto included elsewhere in this Form 10-K. Our historical financial information may not be indicative of our future performance as an independent company.
The selected financial data as of and for the year ended December 31, 2003 include Southern Exchange Bank ("SEB"), which was acquired in connection with F.N.B.'s acquisition of SEB's holding company, Charter Banking Corp., on March 31, 2003. Refer to the "Mergers and Acquisitions" footnote in the notes to our consolidated financial statements for further information regarding the acquisition of SEB by F.N.B. and the spin-off of F.N.B.'s Florida operations. SEB increased total assets by $795.6 million, stockholder's equity by $150.2 million and book value per common share by $3.24.
The selected financial data include transactions accounted for as poolings of interests. Selected financial data for the years ended December 31, 2000 and 1999 reflect the historical financial data of Citizens Community Bancorp, Inc. and OneSource Group, Inc., which were acquired in 2001 in transactions accounted for as poolings of interest. The selected financial data for the year ended December 31, 1999 includes the historical financial data of Guaranty Bank & Trust, which was acquired in 1999 and accounted for as poolings of interest. Refer to the "Mergers and Acquisitions" footnote in the notes to our audited consolidated financial statements.
YEAR ENDED DECEMBER 31,
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2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)(UNAUDITED)
Total interest income............ $ 166,294 $ 150,931 $ 148,728 $ 150,196 $ 127,455
Total interest expense........... 42,846 47,299 65,316 74,606 55,896
Net interest income.............. 123,448 103,632 83,412 75,590 71,559
Provision for loan losses........ 7,184 5,470 4,468 5,589 3,881
Total non-interest income........ 62,416 54,728 47,980 36,281 35,140
Total non-interest expense....... 130,298 104,441 93,588 75,964 79,778
Merger and consolidation
expenses....................... 1,235 413 2,714 -- 1,527
Net income....................... 31,751 32,064 21,216 19,755 16,365
AT PERIOD-END
Total assets..................... $3,751,136 $2,735,204 $2,202,004 $2,125,737 $1,936,455
Loans, net of unearned income.... 2,449,382 1,960,895 1,704,831 1,594,729 1,439,260
Deposits......................... 2,719,989 2,122,052 1,760,163 1,686,505 1,506,236
Long-term debt................... 271,000 50,591 65,622 68,822 71,533
Total stockholder's equity....... 365,115 268,081 179,466 170,874 150,389
PER COMMON SHARE
Net income
Basic.......................... $ .69 $ .70 $ .48 $ .44 $ .36
Diluted........................ .68 .68 .47 .43 .35
Book value....................... 7.87 5.79 4.05 3.60 3.32
RATIOS
Return on average assets......... .91% 1.25% 1.00% .97% .96%
Return on average equity......... 7.91 12.63 12.27 12.13 12.46
Average equity to average
assets......................... 11.53 9.89 8.11 7.98 13.01
Allowance for loan losses as a
percentage of total loans...... 1.15 1.09 1.10 1.08 .99
Annualized charge-offs as a
percentage of average loans.... .13 .22 .19 .16 .21
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with "Selected Financial Data," and our consolidated financial statements and the notes thereto included in this Form 10-K. This discussion contains forward-looking statements. Please see "Cautionary Statement Regarding Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.
SEPARATION FROM F.N.B.
We were incorporated under the laws of the State of Florida on August 12, 2003 as a wholly owned subsidiary of F.N.B. Corporation. We did not have any material assets or activities prior to F.N.B.'s contribution to us of its Florida operations, as described in our Form 10 Registration Statement filed with the Securities and Exchange Commission on December 22, 2003. On January 1, 2004, we became an independent public company through a tax-free spin-off from F.N.B., with F.N.B. having no continuing ownership interest in us. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and reflect the historical financial position, results of operations, and cash flows of the businesses transferred to us from F.N.B. prior to the distribution. The financial information included in this document, however, is not necessarily indicative of what our results of operations or financial position would have been had we operated as an independent company during the periods presented, nor is it necessarily indicative of our future performance as an independent company.
All material intercompany transactions between entities included in our consolidated financial statements have been eliminated. We have been allocated certain F.N.B. corporate assets, liabilities and expenses based on an estimate of the proportion of such amounts allocable to us, utilizing such factors as total revenues, employee headcount and other relevant factors. We believe that these allocations have been made on a reasonable basis. We believe that all costs allocated to us are a reasonable representation of the costs that we would have incurred if we had performed these functions as a stand-alone company.
In conjunction with the separation of the F.N.B. businesses, we entered into various agreements with F.N.B. that address the allocation of assets and liabilities, and that define our relationship with F.N.B. after the spin-off, including a Distribution Agreement, a Tax Disaffiliation Agreement, and an Employee Benefits Agreement.
In connection with the separation from F.N.B., our subsidiaries incurred approximately $10.5 million in restructuring expenses. These expenses consisted of $5.3 million of early retirement expenses and involuntary separation costs, $4.2 million in professional fees, and approximately $1.0 million in fixed asset write-off and other expenses connected with the separation.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes the financial statements could reflect different estimates, assumptions and judgments.
Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. The most significant accounting policies that we follow are presented in the notes to our consolidated financial statements.
These policies, along with the disclosures presented in the notes to our consolidated financial statements provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the following accounting areas that require the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.
The allowance for loan losses represents management's estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change.
The loan portfolio represents the largest asset type on the consolidated balance sheet. Leases are carried at the aggregate of the lease payments and the estimated residual value of the leased property, less unearned income.
Loans are classified as held for sale based on management's intent to sell them. At the date a loan is determined to be held for sale, the loan is recorded at the lower of cost or market. Any subsequent adjustment as a result of the lower of cost or market analysis is recognized as a valuation adjustment with changes included in non-interest income. These market value assumptions include but are not limited to the timing of a sale, the market conditions for the particular credit and overall investor demand for these assets. Changes in market conditions, interest rate environment, and actual liquidation experience may result in additional valuation adjustments that could adversely impact earnings in future periods.
Goodwill arising from business acquisitions represents the value attributable to unidentifiable intangible elements in the business acquired. Our goodwill relates to value inherent in our banking and insurance businesses.
The value of this goodwill is dependent upon our ability to provide quality, cost effective services in the face of competition. As such, the value of our goodwill is supported ultimately by revenue which is driven by the volume of business transacted and the market share acquired. A decline in earnings as a result of a lack of growth or our inability to deliver cost effective services over sustained periods can lead to impairment of goodwill which could result in additional expense and adversely impact earnings in future periods.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS
The Company has various financial obligations, including contractual obligations and commitments that may require future cash payments.
The following table represents, as of December 31, 2003, significant fixed and determinable contractual obligations to third parties by payment date:
PAYMENTS DUE IN
-----------------------------------------------------------
ONE YEAR ONE TO THREE TO OVER
OR LESS THREE YEARS FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- ---------- --------
Certificate of deposits and
other time deposits........... $437,168 $403,194 $77,216 $ 3,833 $921,411
Federal funds purchased......... 86,000 -- -- -- 86,000
Securities sold under repurchase
agreements.................... 248,051 -- -- -- 248,051
Federal Home Loan Bank
advances...................... 42,000 148,000 10,000 31,944 231,944
Subordinated debentures and
other long-term debt.......... 57 127 128 58,744 59,056
Operating leases................ 1,056 1,471 745 7,905 11,177
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The following table represents, as of December 31, 2003, the amounts and expected maturities of significant commitments and other off-balance sheet items:
PAYMENTS DUE IN
-----------------------------------------------------------
ONE YEAR ONE TO THREE TO OVER
OR LESS THREE YEARS FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ---------- ---------- --------
Commitments to extend credit:
Commercial.................... $381,249 $167,093 $9,442 $27,820 $585,604
Residential real estate....... 4,547 21,922 32 791 27,292
Revolving home equity lines... 91,518 -- -- -- 91,518
Credit card and other
consumer................... 12,665 -- -- -- 12,665
Standby letters of credit....... 27,180 7,300 46 316 34,842
Commitments to sell mortgage
loans......................... 5,166 -- -- -- 5,166
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Commitments to extend credit and standby letters of credit do not necessarily represent future cash requirements in that the borrower has the ability to draw upon these commitments at any time and these commitments often expire without being drawn upon.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
Overview
Net income was $31.8 million for 2003 compared to net income of $32.1 million for 2002. Basic earnings per share were $.69 and $.70 for 2003 and 2002, respectively, while diluted earnings per share was $.68 for both periods. Common comparative ratios for results of operations include the return on average assets and the return on average equity. Our return on average assets was .91% for 2003 compared to 1.25% for 2002, while our return
on average equity was 7.91% for 2003 and 12.63% for 2002. Results of operations include SEB which was acquired on March 31, 2003.
Full year 2003 diluted earnings per share were reduced $.17 per share due to after-tax merger and restructuring expenses of $8.4 million. Full year 2002 diluted earnings were reduced $.03 per share due to after-tax merger expenses and a prepayment penalty on early termination of FHLB debt totaling $1.3 million.
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,
------------------------------------------------------------------------------------------------
2003 2002 2001
------------------------------ ------------------------------ ------------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
Interest earning
assets:
Interest bearing
deposits with
banks................ $ 1,133 $ 11 .97% $ 3,070 $ 42 1.37% $ 1,168 $ 65 5.57%
Federal funds sold..... 12,967 150 1.16 60,374 989 1.64 69,283 3,174 4.58
Taxable investment
securities(1)........ 651,705 26,043 4.00 302,278 16,042 5.31 225,949 13,514 5.98
Non-taxable investment
securities(2)........ 79,467 5,122 6.45 18,210 1,242 6.82 16,984 1,152 6.78
Loans(3)............... 2,256,771 137,197 6.08 1,876,611 133,027 7.09 1,619,843 131,190 8.10
---------- -------- ---------- -------- ---------- --------
Total interest earning
assets............... 3,002,043 168,523 5.61 2,260,543 151,342 6.69 1,933,227 149,095 7.71
---------- -------- ---------- -------- ---------- --------
Cash and due from
banks................ 100,989 85,998 69,462
Allowance for loan
losses............... (25,287) (20,611) (17,552)
Premises and
equipment............ 109,467 73,715 66,913
Other assets........... 292,717 167,963 81,960
---------- ---------- ----------
$3,479,929 $2,567,608 $2,134,010
========== ========== ==========
LIABILITIES
Interest bearing
liabilities:
Deposits:
Interest bearing
demand............. $ 438,558 2,194 .50 $ 399,038 2,485 .62 $ 354,325 $ 5,270 1.49
Savings.............. 850,980 10,433 1.23 589,289 11,855 2.01 408,911 11,427 2.79
Other time........... 867,856 22,978 2.65 680,358 26,786 3.94 669,028 39,315 5.88
Short-term
borrowings........... 275,147 2,373 .86 193,648 1,994 1.03 160,329 5,067 3.16
Long-term debt......... 158,995 4,868 3.06 65,566 4,179 6.37 65,293 4,237 6.49
---------- -------- ---------- -------- ---------- --------
Total interest
bearing
liabilities...... 2,591,536 42,846 1.65 1,927,899 47,299 2.45 1,657,886 65,316 3.94
---------- -------- ---------- -------- ---------- --------
Non-interest bearing
demand............... 423,544 348,260 279,883
Other liabilities...... 63,524 37,540 23,270
---------- ---------- ----------
3,078,604 2,313,699 1,961,039
---------- ---------- ----------
STOCKHOLDER'S EQUITY... 401,325 253,909 172,971
---------- ---------- ----------
$3,479,929 $2,567,608 $2,134,010
========== ========== ==========
Excess of interest
earning assets over
interest bearing
liabilities.......... $ 410,507 $ 332,644 $ 275,341
========== ========== ==========
Net interest income.... $125,677 $104,043 $ 83,779
======== ======== ========
Net interest spread.... 3.96% 4.24% 3.77%
==== ==== ====
Net interest
margin(4)............ 4.19% 4.60% 4.33%
==== ==== ====
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(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.
Net Interest Income
Net interest income, our primary source of earnings, is the amount by which interest and fees generated by interest earning assets, primarily loans and securities, exceed interest expense on deposits and borrowed funds. Net interest income, on a fully taxable equivalent basis, totaled $125.7 million for 2003, an increase of 20.8% as compared to $104.0 million for 2002. We were able to grow net interest income by increasing interest earning assets and effectively managing interest paid on deposits. With rates at a historical low point, we expect to have limited ability to lower certain deposit rates further. Net interest income consisted of interest income of $168.5 million and interest expense of $42.8 million for 2003 compared to $151.3 million and $47.3 million, respectively, for 2002. The yield on interest earning assets decreased by 108 basis points and the rate paid on interest bearing liabilities decreased by 80 basis points. Net interest margin decreased from 4.60% at December 31, 2002 to 4.19% at December 31, 2003. The decline in the margin can be attributed to SEB, which reduced our margin by 25 basis points, and the acceleration of prepayments and repricing of interest earning assets. We expect to continue to experience margin compression during 2004 due to additional interest expense from the $41.2 million debenture and $17.0 million subordinated note. The impact of future rate changes on our net interest income is discussed further under the "Liquidity and Interest Rate Sensitivity" caption below.
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,
------------------------------------------------------------
2003 2002
---------------------------- -----------------------------
VOLUME RATE NET VOLUME RATE NET
------- -------- ------- ------- -------- --------
Interest Income
Interest bearing deposits with
banks............................. $ (21) $ (10) $ (31) $ 73 $ (96) $ (23)
Federal funds sold................... (611) (228) (839) (365) (1,820) (2,185)
Securities........................... 16,658 (2,777) 13,881 3,866 (1,248) 2,618
Loans................................ 14,050 (9,880) 4,170 8,609 (6,772) 1,837
------- -------- ------- ------- -------- --------
Net Change............................. $30,076 $(12,895) $17,181 $12,183 $ (9,936) $ 2,247
------- -------- ------- ------- -------- --------
Interest Expense
Deposits:
Interest bearing demand........... $ 305 $ (596) $ (291) $ 768 $ (3,553) $ (2,785)
Savings........................... 4,147 (5,569) (1,422) 1,169 (741) 428
Other time........................ 20,250 (24,058) (3,808) 678 (13,207) (12,529)
Short-term borrowings................ 621 (242) 379 1,370 (4,443) (3,073)
Long-term debt....................... 1,084 (395) 689 17 (75) (58)
------- -------- ------- ------- -------- --------
26,407 (30,860) (4,453) 4,002 (22,019) (18,017)
------- -------- ------- ------- -------- --------
Net Change............................. $ 3,669 $ 17,965 $21,634 $ 8,181 $ 12,083 $ 20,264
======= ======== ======= ======= ======== ========
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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.
For 2003, interest income on loans, on a fully taxable equivalent basis, increased 3.1% from $133.0 million to $137.2 million. This increase resulted from favorable loan volumes as average loans increased by $380.2 million. Interest income on investment securities increased $13.9 million to $31.2 million during 2003 as the average balance of investment securities increased $410.7 million to $731.0 million. The increase in the average balance of investment securities was directly attributable to the acquisition of SEB.
Interest expense on deposits decreased $5.5 million or 13.4% in 2003 while average interest bearing deposits increased by $488.7 million. The acquisition of SEB increased interest expense on deposits by $3.1 million and average interest bearing deposits by $278.7 million. Excluding SEB, the average balance in interest bearing demand and savings deposits increased $24.1 million and $202.5 million, respectively, while time deposits decreased $16.6 million. We continued to generate non-interest-bearing deposits successfully as such deposits, excluding SEB, increased by $45.1 million or 2.9% in 2003. Interest expense on short-term borrowings increased by $379,000 and the interest rate paid decreased by 17 basis points in 2003. Interest expense on long-term debt increased $689,000 in 2003 solely from a $93.4 million increase in average long-term debt as the rate paid decreased 331 basis points. SEB's FHLB borrowings increased average long-term debt by $101.2 million.
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 from $5.5 million for 2002 to $7.2 million for the same period in 2003.
Non-Interest Income
Total non-interest income increased 14.0% from $54.7 million for 2002 to $62.4 million in 2003. Service charges on deposit accounts increased 30.3% during 2003 to $18.1 million from $13.9 million. Income from wealth management services increased $1.9 million, or 39.9%, to $6.6 million in 2003 compared to $4.7 million
in 2002. Insurance commissions and fees increased 2.9% from $25.4 million in 2002 to $26.2 million in 2003. These higher levels of fee income are attributable to growth in insurance, expanded banking services and our continued focus on providing a wide array of wealth management services, such as annuities, mutual funds and trust services. Our insurance commissions from workmen's compensation policies, provided specifically to employee leasing companies, have declined and are not expected to return to historical levels as insurance carriers have discontinued providing coverage to this market segment. We did not recognize any insurance commissions in 2003 from this line of business which generated $2.8 million in insurance commissions during 2002. Gains on the sale of mortgage loans for 2003 increased 8.9% to $5.6 million as compared to $5.1 million for the same period in 2002. The increase in gains on the sale of mortgage loans was a direct result of increases in homeowner refinancing driven by mortgage interest rates declining to historical low levels. As mortgage interest rates increase, we anticipate this level of growth in gains to decline.
Non-Interest Expense
Total non-interest expense increased 24.8% from $104.4 million in 2002 to $130.3 million in 2003. We recorded merger costs associated with SEB of $1.2 million in 2003 and with Central Bank Shares, Inc. of $413,000 in 2002. These expenses were primarily involuntary separation costs associated with the terminated employees and early retirement costs. In addition, the Company recorded $10.5 million of restructuring expenses related to the spin-off transaction. These expenses consisted of $5.3 million in early retirement expenses, $4.2 million in professional fees, and approximately $1.0 million in fixed asset write-off and other expenses connected with the separation. For 2003, salary and employee benefits increased $16.2 million from $60.5 million in 2002 to $76.7 million in 2003. The increase is due to increased health care costs, the acquisition of SEB in 2003 and early retirement expenses associated with the spin-off transaction. Excluding professional fees and other expenses incurred in connection with the spin off transaction of $4.8 million, other non-interest expenses totaled $32.1 million for 2003, a $762,000 decrease from 2002.
Our income tax expense was $16.6 million for 2003 compared to $16.4 million for 2002. The 2003 effective tax rate of 34.4% was lower than the 35.0% federal statutory tax rate due to the tax benefits resulting from non-taxable interest and dividend income, offset by non-deductible restructuring expenses.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Overview
Net income was $32.1 million for 2002 compared to net income of $21.2 million in 2001. Basic earnings per share were $.70 and $.48 for 2002 and 2001, while diluted earnings per share were $.68 and $.47 for those same periods. Common comparative ratios for results of operations include the return on average assets and the return on average equity. Our return on average assets was 1.25% for 2002 compared to 1.00% for 2001, while our return on average equity was 12.63% for 2002 and 12.33% for 2001. Full year 2002 diluted earnings were reduced $.03 per share due to after-tax merger expenses and a prepayment penalty on early termination of FHLB debt totaling $1.3 million. Full year 2001 diluted earnings were reduced $.04 per share due to after-tax merger expenses totaling $1.8 million.
Net Interest Income
Net interest income, on a fully taxable equivalent basis, increased by 24.2% to $104.0 million in 2002, as average net interest earning assets increased by $57.3 million. Net interest income, on a fully taxable equivalent basis, was $83.8 million for 2001. Net interest income consisted of interest income of $151.3 million and interest expense of $47.3 million for 2002, compared to $149.1 million and $65.3 million, respectively, in 2001. Our net interest margin increased 27 basis points to 4.60% for 2002 as the yield on interest earning assets decreased by 102 basis points and the rate paid on interest bearing liabilities decreased by 149 basis points.
For 2002, interest income on loans, on a fully taxable equivalent basis, increased 1.4% from $131.2 million to $133.0 million. This increase resulted from favorable loan volumes as average loans increased by $256.8 million.
Interest expense on deposits decreased $14.9 million, or 26.6%, in 2002 while average interest bearing deposits increased by $236.4 million. The average balance in interest bearing demand, savings and time deposits increased $44.7 million, $180.4 million, and $11.3 million, respectively. We continued to generate non-interest bearing deposits successfully as such deposits increased by $68.4 million, or 24.4%, in 2002. Interest expense on short-term borrowings, consisting primarily of repurchase agreements, decreased by $3.1 million and the interest rate paid decreased by 213 basis points in 2002. Interest expense on long-term debt decreased $58,000 in 2002 as a result of a 12 basis point decline in the interest rate.
Non-Interest Income
Total non-interest income increased 14.1% to $54.7 million in 2002 from $48.0 million in 2001. Insurance commissions and fees increased 8.7% from $23.4 million in 2001 to $25.4 million in 2002. Service charges on deposit accounts increased 22.9% during 2002. Income from wealth management services increased $1.3 million, or 37.9%, to $4.7 million in 2002 compared to $3.4 million in 2001.
These higher levels of fee income are attributable to growth in insurance, expanded banking services and our continued focus on providing a wide array of wealth management services, such as annuities, mutual funds and trust services.
Non-Interest Expense
Total non-interest expense increased 11.7% from $93.5 million in 2001 to $104.4 million in 2002. During 2002, we recorded merger costs associated with our acquisition of Central Bank Shares, Inc. of $413,000. These expenses were primarily involuntary separation costs associated with terminated employees, early retirement and other employment-related expenses, professional fees and data processing conversion charges. Salary and employee benefits increased 25.0% to $60.5 million in 2002. The increase is due to the acquisition of Central Bank Shares and increased health care costs in 2002. In addition, we incurred a pre-payment penalty of $1.5 million in connection with the early retirement of $15.0 million of high interest rate debt with the Federal Home Loan Bank. The prepayment penalty is included in other non-interest expense.
Our income tax expense was $16.4 million for the 2002 compared to $12.1 million for the same period in 2001. The 2002 effective tax rate of 33.8% was lower than the 35.0% federal statutory tax rate due to the tax benefits resulting from tax-exempt instruments and excludable dividend income.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Net income increased 7.4% to $21.2 million in 2001 from $19.8 million in 2000. Basic and diluted earnings per share were $.48 and $.47 for 2001 and $.44 and $.43 in 2000, respectively. Full-year 2001 diluted earnings were reduced by $.04 per share due to pre-tax merger and consolidation expenses of $2.7 million. Our return on average assets was 1.00% for 2001 compared to .97% for 2000, while our return on average equity was 12.33% for 2001 and 12.20% for 2000.
Net interest income, on a fully taxable equivalent basis, increased by 10.3% to $83.8 million. Net interest income consisted of interest income of $149.1 million and interest expense of $65.3 million in 2001 compared to $150.6 million and $74.6 million, respectively, in 2000. Our net interest margin increased 21 basis points to 4.33% for 2001.
Interest income on loans, on a fully taxable equivalent basis, decreased 1.0% from $132.5 million in 2000 to $131.2 million in 2001. This decrease was a result of the declining interest rate environment as average loan volumes increased by $58.9 million.
Interest expense on deposits decreased $2.6 million or 4.5% in 2001 while average interest bearing deposits increased $103.0 million. The average balance in interest bearing demand, savings and time deposits increased $33.7 million, $16.2 million and $53.1 million, respectively. Non-interest bearing deposits increased by $26.8 million, or 10.6%, in 2001. Interest expense on short-term borrowings decreased by $6.5 million and the interest rate paid decreased by 269 basis points in 2001. Interest expense on long-term debt decreased $138,000 in 2001 due to a $8.7 million decrease in average long-term debt.
Total non-interest income increased 32.2% from $36.3 million in 2000 to $48.0 million in 2001. Insurance commissions and fees, service charges and trust fees increased 31.9% from $28.9 million in 2000 to $38.1 million in 2001. These higher levels of fee income are attributable to our insurance agency acquisitions, expansion of our banking services and our continued focus on providing a wide array of wealth management services, such as annuities, mutual funds and trust services.
Total non-interest expense increased 23.2% from $75.9 million in 2000 to $93.6 million in 2001. During 2001, we recorded a pre-tax charge of $4.0 million, or $.06 per diluted share on an after-tax basis, to cover estimated legal expenses associated with five lawsuits filed against our subsidiary bank. The plaintiffs allege that a third-party independent administrator misappropriated funds from their individual retirement accounts held by the subsidiary bank. Additionally, we recognized $2.7 million of merger-related costs in connection with the acquisition of several insurance companies during 2001. We also recognized $2.1 million in expenses relating to our charter consolidation plan. In addition, non-interest expense increased due to insurance agency purchases during the second half of 2000 and the first half of 2001.
FINANCIAL CONDITION
LIQUIDITY AND INTEREST RATE SENSITIVITY
Our goal in liquidity management is to meet the cash flow requirements of depositors and borrowers as well as our operating cash needs, with cost-effective funding. Liquidity is centrally managed on a daily basis by treasury personnel. In addition, our 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. Our 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 sell loans and investment securities. Liquidity sources from liabilities are generated 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, our banking subsidiary has the ability to borrow from the Federal Home Loan Bank (FHLB). FHLB advances are a competitively priced and reliable source of funds. As of December 31, 2003, outstanding advances were $231.9 million, or 6.2% of total assets, while FHLB availability was $557.5 million, or 14.9% of total assets. As of December 31, 2002, outstanding advances were $65.4 million, or 2.4% of total assets, while FHLB availability was $351.3 million, or 12.9% of total assets.
The principal source of cash for the parent company is dividends from its subsidiaries. Subsequent to the spin-off, the parent company obtained lines of credit with several major domestic banks. These lines provide the parent company a liquid source of short-term funding.
Core deposits increased $396.2 million during 2003 and increased $384.8 million during 2002, providing the primary source of financing for our lending activities, including origination of mortgage loans held for sale in the secondary market. We continued to expand our activities in originating mortgage loans for resale in the secondary market rather than keeping these loans in portfolio. Mortgage loans originated for sale remained strong in 2003 and 2002. Originations of mortgage loans totaled $341.2 million for 2003, $363.3 million for 2002, and $217.4 million for 2001.
The ALCO regularly monitors various liquidity ratios and forecasts of cash position. Management believes that we have sufficient liquidity available to meet our normal operating and contingency funding cash needs.
Our financial performance 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. We utilize an asset/liability model to measure the impact of our balance sheet strategies. We use net interest income simulations, gap analysis and the economic value of equity to measure interest rate risk.
The following gap analysis measures our interest rate risk by comparing the difference between the amount of interest earning assets and interest bearing liabilities subject to repricing over a period of time. The ratio of rate sensitive assets to rate sensitive liabilities maturing over a one year period was 1.38 at December 31, 2003, as compared to 1.33 at December 31, 2002. A ratio of more than one indicates a higher level of repricing assets over repricing liabilities, assuming the current interest rate environment.
Following is the gap analysis as of December 31, 2003 (dollars in thousands):
WITHIN 4-12 1-5
3 MONTHS MONTHS YEARS OVER 5 YEARS TOTAL
---------- -------- ---------- ------------ ----------
Interest Earning Assets
Interest bearing deposits
with banks.............. $ 5,128 $ -- $ -- $ -- $ 5,128
Federal funds sold........ 866 866
Securities................ 28,548 126,767 434,319 185,700 775,334
Loans, net of unearned
income.................. 1,067,722 500,070 855,533 41,210 2,464,535
---------- -------- ---------- ----------- ----------
$1,102,264 $626,837 $1,289,852 $ 226,910 $3,245,863
Other assets.............. 505,273 505,273
---------- -------- ---------- ----------- ----------
Total................ $1,102,264 $626,837 $1,289,852 $ 732,183 $3,751,136
========== ======== ========== =========== ==========
Interest Bearing
Liabilities
Deposits:
Interest checking....... $ 165,793 $ -- $ -- $ 390,649 $ 556,442
Savings................. 214,843 -- -- 575,456 790,299
Time deposits........... 121,396 321,554 474,594 3,867 921,411
Borrowings................ 396,999 36,594 158,231 33,227 625,051
---------- -------- ---------- ----------- ----------
$ 899,031 $358,148 $ 632,825 $ 1,003,199 $2,893,203
Other liabilities......... 492,818 492,818
Stockholder's equity...... 365,115 365,115
---------- -------- ---------- ----------- ----------
Total................ $ 899,031 $358,148 $ 632,825 $ 1,861,132 $3,751,136
---------- -------- ---------- ----------- ----------
Period Gap................ $ 203,233 $268,689 $ 657,027 $(1,128,949)
========== ======== ========== ===========
Cumulative Gap............ $ 203,233 $471,922 $1,128,949
========== ======== ==========
Cumulative Gap as a
Percent of Total
Assets.................. 5.42% 12.58% 30.10%
========== ======== ==========
Rate Sensitive Assets/Rate
Sensitive Liabilities
(Cumulative)............ 1.23 1.38 1.60 1.12
========== ======== ========== ===========
|
Net interest income simulations measure the short-term earnings exposure from changes in market rates of interest in a more rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. The economic value of equity (EVE) measures our 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 our annual net interest income and EVE to sudden and sustained changes in market rates:
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Net interest income change (12 months):
- 100 basis points.......................................... (7.1)% (2.3)%
+ 200 basis points.......................................... 4.4% 3.6%
Economic value of equity:
- 100 basis points.......................................... (6.4)% (8.3)%
+ 200 basis points.......................................... .4% 10.7%
|
The preceding measures indicate that the balance sheet structure as of December 31, 2003 is somewhat more susceptible to large and immediate rate changes than as of twelve months ago. This is largely a function of higher holdings of mortgage-related assets and, to a lesser extent, a higher level of short-term borrowings. Mortgage-related assets tend to create a higher level of interest rate risk because the assets refinance when rates fall and their effective maturities lengthen when rates rise. Our concentration of these assets increased due to lower demand for commercial loans and due to the acquisition of Charter. The ALCO considers this risk to be manageable and will be enhancing strategies to reduce risk. As the economy recovers, we have begun to increase our holdings of commercial loans which tend to more closely match the structure of our liabilities. We plan to reduce the level of short-term borrowings by using longer term FHLB advances and retail strategies which will promote longer term certificates of deposits and checking deposits (which are less rate-sensitive). The risk of declining rates has also increased as rates are nearly at a historical low point from which there is a limited ability to lower certain deposit rates further. However, from this low point, management does not view a dramatic further decrease in rates as probable.
The preceding measures assume 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 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 our 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 non-maturity deposits. Because these assumptions are inherently uncertain, actual results will differ from simulated results.
Changes in the interest rate environment can cause significant fluctuations in the market value of mortgage loans originated for resale in the secondary market. We began utilizing forward loan commitments on mortgage loans in 2002 to offset the risk of decreases in the market values of the loans as a result of increases in interest rates. At December 31, 2003 and 2002, we had $5.2 million and $31.0 million in forward sales agreements, respectively.
LENDING ACTIVITY
Following is a summary of loans (dollars in thousands):
DECEMBER 31,
--------------------------------------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
Real Estate:
Residential............ $ 810,790 $ 631,531 $ 588,089 $ 547,430 $ 509,754
Commercial............. 1,017,291 744,657 607,855 505,750 458,723
Construction........... 311,266 262,619 184,960 182,034 113,503
Installment loans to
individuals............ 77,660 95,043 88,333 110,101 107,699
Commercial, financial and
agricultural........... 227,117 204,444 178,224 155,455 136,640
Lease financing.......... 6,032 24,311 61,553 104,668 129,488
Unearned income.......... (774) (1,710) (4,183) (10,709) (16,547)
---------- ---------- ---------- ---------- ----------
$2,449,382 $1,960,895 $1,704,831 $1,594,729 $1,439,260
========== ========== ========== ========== ==========
|
We strive to minimize credit losses by utilizing credit approval standards, diversifying our loan portfolio by industry and borrower and conducting ongoing review and management of the loan portfolio. We continued to experience strong loan growth as total loans, excluding SEB, increased $319.0 million to $2.4 billion at December 31, 2003, despite a 75.2%, or $18.3 million, decline in lease financing receivable. The balance of the lease financing receivable has been declining since 2000, when we decided to cease originating automobile leases. This decline was offset by a $500.5 million, or 30.5%, increase in residential, commercial and construction loans secured by real estate and a 11.1%, or $22.7 million, increase in commercial, financial and agricultural loans during 2003.
Our loan portfolio is well-diversified with a significant portion of the portfolio being made up of loans secured by real estate. Residential, commercial and construction loans secured by real estate accounted for 87.3% and 83.6% of the loan portfolio at December 31, 2003 and 2002, respectively.
The loan portfolio consists principally of loans to individuals and small-and medium-sized businesses within our primary market area of southwest and central Florida. With the forecasted growth in our primary market over the upcoming years, we anticipate organic growth in our loan portfolio to continue at historical levels.
As of December 31, 2003, and 2002, no concentrations of loans exceeding 10% of total loans existed which were not disclosed as a separate category of loans.
Following is a summary of the maturity distribution of certain loan categories based on remaining scheduled repayments of principal at December 31, 2003 (in thousands):
WITHIN ONE TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- --------
Commercial, financial and agricultural..... $ 69,566 $ 94,540 $63,011 $227,117
Real Estate -- construction................ 224,174 79,438 7,654 311,266
-------- -------- ------- --------
Total.................................... $293,740 $173,978 $70,665 $538,383
======== ======== ======= ========
|
The total amount of loans due after one year includes $206.0 million with floating or adjustable rates of interest and $38.6 million with fixed rates of interest.
NON-PERFORMING ASSETS
Non-performing assets include non-performing loans and other real estate owned. Non-performing loans include non-accrual loans and restructured loans. Non-accrual loans represent loans on which interest accruals have been discontinued. It is our 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. Payments on non-accrual loans are generally applied to either principal or interest or both, depending on management's evaluation of collectibility. 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. 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.
Non-performing loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The potential risk of loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral or the present value of projected future cash flows. Losses are recognized where appropriate.
Following is a summary of non-performing assets (in thousands):
DECEMBER 31, DECEMBER 31,
2003 2002
------------ ------------
Non-accrual loans........................................... $5,521 $3,965
Restructured loans.......................................... -- --
------ ------
Total Non-Performing Loans................................ 5,521 3,965
Other real estate owned..................................... -- 1,428
------ ------
Total Non-Performing Assets............................... $5,521 $5,393
====== ======
|
NON-PERFORMING LOANS
Following is a summary of non-performing loans (dollars in thousands):
DECEMBER 31,
------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
Non-accrual loans......................... $5,521 $3,965 $4,474 $3,759 $2,805
Restructured loans........................ -- -- -- 137 88
------ ------ ------ ------ ------
$5,521 $3,965 $4,474 $3,896 $2,893
====== ====== ====== ====== ======
Non-performing loans as a percentage of
total loans............................. .23% .20% .26% .24% .20%
|
All loans where information exists about possible credit problems that would cause us to have serious doubts about the borrower's ability to comply with the current terms of the loan have been reflected within the table summarizing non-performing loans.
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,
--------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Gross interest income that would have been
recorded if the loans had been current and in
accordance with their original terms............ $452 $412 $267 $448 $435
Interest income recorded during the year.......... $262 $106 $171 $166 $140
|
Following is a summary of loans 90 days or more past due, on which interest accruals continue (dollars in thousands):
DECEMBER 31,
----------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ------
Loans........................................... $163 $262 $876 $913 $2,216
As a percentage of total loans.................. .01% .01% .05% .06% .15%
|
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses consists of an allocated and an unallocated component. Management's analysis of the allocated portion of the allowance for loan losses includes the evaluation of the loan portfolio based upon our 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, considers current risk factors that may not have yet manifested themselves in our historical loss factors used to determine the allocated component of the allowance, and recognizes that knowledge of the portfolio may be incomplete.
The provision for loan losses charged to operations in each period presented is a direct result of management's assessment of the adequacy of the allowance for loan losses at the end of each period. Factors considered in management's assessment include growth in the loan portfolio, changes in the composition of the loan portfolio, concentrations of credit risk, current trends in net charge-offs, trends in non-performing loans and current economic conditions in the markets in which we operate. The provision for loan losses increased to $7.2 million for 2003 compared with $5.5 million for 2002. Factors considered in the level of the provision during 2003 included the continued decline in the general economy, an increase in non accrual loans, increased loan concentrations, primarily in commercial real estate loans and the integration of consistent credit quality rating processes to acquired entities. For 2002, the provision was $5.5 million, as compared to $4.5 million in 2001. The increase in the provision during 2002 reflects additional concentrations in the loan portfolio, primarily in commercial real estate loans, commercial loans and consumer installment loans and the integration of consistent credit quality rating processes to acquired entities. In addition, during the same period net charge-offs increased by $1.1 million, with the majority of the increase in net charge-offs in commercial loans and consumer installment loans. The provision for loan losses decreased from $5.6 million in 2000 to $4.5 million in 2001. Factors contributing to the reduction in the provision include the discontinuation of auto lease financing in 2000 and a $557,000 reduction in commercial loan net charge-offs.
Charge-offs reflect the realization of losses in the portfolio that were recognized previously through provisions for credit losses. During 2003, charge-offs totaled $4.6 million compared to $5.4 million for 2002. Loans charged off in 2002 increased $1.7 million as compared to 2001. Loans charged off in 2001 increased $833,000 over 2000. Net charge-offs as a percent of average loans were 0.13% in 2003, 0.22% in 2002, and 0.19% in 2001.
Following is a summary of changes in the allowance for loan losses (dollars in thousands):
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2003 2002 2001 2000 1999
------- ------- ------- ------- -------
Balance at beginning of period....... $21,421 $18,714 $17,321 $14,200 $13,120
Addition due to acquisitions......... 2,506 1,389
Charge-offs:
Real estate -- mortgage............ (72) (106) (51) (38) (45)
Installment loans to individuals... (1,589) (1,616) (1,202) (727) (1,074)
Lease financing.................... (2,381) (2,386) (1,829) (927) (360)
Commercial, financial and
agricultural.................... (536) (1,299) (604) (1,161) (1,750)
------- ------- ------- ------- -------
(4,578) (5,407) (3,686) (2,853) (3,229)
------- ------- ------- ------- -------
Recoveries:
Real estate -- mortgage............ 1 79 1 3 7
Installment loans to individuals... 397 420 200 176 153
Lease financing.................... 521 623 237 73 28
Commercial, financial and
agricultural.................... 652 133 173 133 240
------- ------- ------- ------- -------
1,571 1,255 611 385 428
------- ------- ------- ------- -------
Net charge-offs...................... (3,007) (4,152) (3,075) (2,468) (2,801)
Provision for loan losses............ 7,184 5,470 4,468 5,589 3,881
------- ------- ------- ------- -------
Balance at end of period............. $28,104 $21,421 $18,714 $17,321 $14,200
======= ======= ======= ======= =======
Net charge-offs as a percent of
average loans, net of unearned
income............................. .13% .22% .19% .16% .21%
Allowance for loan losses as a
percent of total loans, net of
unearned income.................... 1.15% 1.09% 1.10% 1.08% .99%
Allowance for loan losses as a
percent of non-performing loans.... 509.04% 540.25% 418.28% 444.58% 490.84%
|
Following is a summary of the allocation of the allowance for loan losses (dollars in thousands):
% OF % OF % OF % OF % OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
DEC. 31, TO TOTAL DEC. 31, TO TOTAL DEC. 31, TO TOTAL DEC. 31, TO TOTAL DEC. 31, TO TOTAL
2003 LOANS 2002 LOANS 2001 LOANS 2000 LOANS 1999 LOANS
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Commercial, financial
and agricultural... $ 7,812 9% $ 4,227 10% $ 3,500 10% $ 3,017 10% $ 3,299 9%
Real estate --
construction....... 156 13 92 13 100 11 140 11 149 8
Real estate --
mortgage........... 8,386 75 5,168 71 5,895 70 5,420 66 4,461 67
Installment loans to
individuals........ 7,960 3 6,341 5 5,194 5 4,228 7 3,814 8
Lease financing...... 1,500 -- 916 1 1,690 4 349 6 266 8
Unallocated portion.. 2,290 4,677 2,335 4,167 2,211
------- ------- ------- ------- -------
$28,104 100% $21,421 100% $18,714 100% $17,321 100% $14,200 100%
======= ======= ======= ======= =======
|
We have allocated the allowance according to the amount deemed to be reasonably necessary to provide for the estimated losses being incurred within each of the categories of loans shown in the table above. A portion of the allowance for loan losses was specifically allocated to a commercial real estate loan in which the borrower
filed for protection under Chapter 11 of the U.S. Bankruptcy Code during the fourth quarter of 2003. Based upon issues relating to this bankruptcy filing and the collectibility of our loan, we estimate our loss exposure to be approximately $1.8 million. 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.
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 us and reduces the overall market risk of the portfolio.
During 2003, securities available for sale increased by $394.7 million and securities held to maturity decreased by $4.6 million from December 31, 2002. The net increase in total investments of $390.1 million was primarily attributed to SEB.
The following table indicates the respective maturities and weighted-average yields of securities (dollars in thousands):
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- --------
Obligations of U.S. Treasury and other U.S.
Government agencies:
Maturing within one year................... $ 8,169 5.06% $ 21,102 5.87%
Maturing after one year within five
years................................... 127,853 3.47% 60,553 4.65%
Maturing after five years within ten
years................................... -- -- 20,320 1.74%
Maturing after ten years................... 1,311 3.03% 1,396 3.91%
State and political subdivisions:
Maturing within one year................... 1,350 6.79% 1,647 7.20%
Maturing after one year within five
years................................... 15,529 5.26% 7,548 6.47%
Maturing after five years within ten
years................................... 44,051 5.75% 8,556 6.17%
Maturing after ten years................... 17,958 6.20% 1,464 7.10%
Other securities:
Maturing within one year................... 2,383 4.53% 2,302 4.01%
Maturing after one year within five
years................................... -- -- 2,461 4.71%
Maturing after five years within ten
years................................... -- -- -- --
Maturing after ten years................... 18,104 7.95% 15,290 7.92%
Mortgage-backed securities................... 516,091 4.10% 228,776 5.04%
Equity securities............................ 22,535 4.23% 13,854 4.33%
-------- --------
Total................................. $775,334 4.27% $385,269 5.00%
======== ========
|
The weighted average yields for tax exempt securities are computed on a tax equivalent basis.
DEPOSITS AND SHORT-TERM BORROWINGS
As a commercial bank holding company, our primary source of funds is our deposits. Those deposits are provided by businesses and individuals located within the markets served by our subsidiaries.
For 2003, total deposits increased $597.9 million to $2.7 billion, of which $481.5 million is attributable to SEB. Excluding SEB, interest bearing checking and savings deposits increased $102.2 million, or 9.0%, while non-interest bearing deposit accounts increased $51.2 million, or 142%. Time deposits decreased $37.0 million or 5.9%.
Time deposits of $100,000 or more were $415.8 million, and $214.0 million at December 31, 2003 and 2002, respectively. Following is a summary of these time deposits by remaining maturity at December 31, 2003 (in thousands):
CERTIFICATES OF OTHER TIME
DEPOSIT DEPOSITS TOTAL
--------------- ------------- --------
Three months or less............................. $ 39,415 $1,764 $ 41,179
Three to six months.............................. 57,215 741 57,956
Six to twelve months............................. 79,441 1,534 80,975
Over twelve months............................... 230,857 4,830 235,687
-------- ------ --------
$406,928 $8,869 $415,797
======== ====== ========
|
Short-term borrowings, made up of repurchase agreements, federal funds purchased, FHLB advances and other short-term borrowings, increased by $93.6 million during the year ended December 31, 2003 to $354.1 million. During 2003, securities sold under repurchase agreements and federal funds purchased increased $17.0 million, and $72.0 million, respectively, while short-term FHLB advances increased $4.6 million, as compared to 2002.
Repurchase agreements are the largest component of short-term borrowings. At December 31, 2003 and December 31, 2002, repurchase agreements represented 74.2% and 88.7% of total short-term borrowings, respectively. Following is a summary of selected information on repurchase agreements (dollars in thousands):
DECEMBER 31,
------------------------------
2003 2002 2001
-------- -------- --------
Balance at period-end................................ $248,051 $231,056 $165,842
Maximum month-end balance............................ 253,062 237,094 169,151
Average balance during period........................ 237,792 191,982 146,709
Weighted average interest rate at period-end......... 0.55% 1.02% 3.04%
|
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. We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to current operations and to promote public confidence.
In connection with the spin-off, we issued a $41.2 million debenture to First National Bankshares Statutory Trust I, an unconsolidated subsidiary trust. This trust transferred to us shares of its common stock and exchanged the proceeds from the issuance of $40 million of preferred securities to third-party investors for our issuance to the trust of a $41.2 million debenture. We transferred the $40.0 million, along with 46.3 million shares of our common stock, to F.N.B. Corporation in consideration of the net assets of F.N.B.'s Florida operations. The debenture and preferred securities bear an interest rate equal to the three-month LIBOR plus 290 basis points. FASB Interpretation No. 46 raised questions about whether preferred securities issued by unconsolidated subsidiary trusts could be treated as Tier I capital. On July 2, 2003, the Federal Reserve Board issued a letter stating that trust preferred securities will continue to be included in Tier 1 capital until notice is given to the contrary. As such the debenture we issued to First National Bankshares Statutory Trust I currently qualifies as Tier 1 capital under present Federal Reserve Board guidance. Refer to the "New Accounting Standards" footnote of the consolidated financial statements for further discussion regarding impact on capital qualification of the debenture due to the adoption of FASB Interpretation No. 46.
In addition, First National Bank of Florida entered into a $17.0 million subordinated loan commitment with a correspondent bank. The subordinated loan has a seven-year maturity and bears interest at a rate based on LIBOR plus 170 basis points. The subordinated loan qualifies as Tier 2 capital.
Our subsidiaries paid $37.5 million in dividends to F.N.B. Corporation in connection with the spin-off. The purpose of the dividends and the $40.0 million payment to F.N.B. was to maintain desired capital levels for us and F.N.B. following the spin-off.
Capital management is a continuous process. We and our subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. (See the "Regulatory Matters" section in the notes to our consolidated financial statements for a discussion of these requirements).
Stockholders' equity increased through earnings retention by $7.5 million and $1.1 million in 2002 and 2001, respectively. Book value per share was $7.87 at December 31, 2003, $5.79 at December 31, 2002 and $4.05 at December 31, 2001.
Following are the capital ratios as of December 31, 2003 for our banking subsidiary, First National Bank of Florida:
WELL CAPITALIZED MINIMUM CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
-------------- ---------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- --------- ------ --------- ------
Total Capital (to risk-weighted
assets)............................ $269,042 10.4% $259,913 10.0% $207,930 8.0%
Tier 1 Capital (to risk-weighted
assets)............................ 223,938 8.6 155,948 6.0 103,965 4.0
Tier 1 Capital (to average
assets)............................ 223,938 6.4 175,277 5.0 140,222 4.0
|
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information relating to Item 7A is provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," filed herewith.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is provided in Exhibit 99.1 filed herewith and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Corporation's management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2003.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is provided under the captions "Executive Officers," "Proposals to be Voted On -- Election of Directors," "Corporate Governance Matters," and "Ownership of Common Stock -- Section 16(a) Beneficial Ownership Reporting Compliance," in our definitive proxy statement filed with the SEC in connection with our annual meeting of shareholders to be held April 19, 2004 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is provided under the caption "Executive Compensation" in our definitive proxy statement filed with the SEC in connection with our annual meeting of shareholders to be held April 19, 2004 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is provided under the captions "Ownership of Common Stock" and "Equity Compensation Plan Information" in our definitive proxy statement filed with the SEC in connection with our annual meeting of shareholders to be held April 19, 2004 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is provided under the caption "Related Party Transactions" in our definitive proxy statement filed with the SEC in connection with our annual meeting of shareholders to be held April 19, 2004 and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is provided under the caption "Principal Accountant Fees And Services" in our definitive proxy statement filed with the SEC in connection with our annual meeting of shareholders to be held April 19, 2004 and is incorporated herein by reference.
PART IV
ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and report of independent auditors are filed herewith as Exhibit 99.1:
Management's Report on Internal Control Over Financial Reporting................................................. F-1 Consolidated Balance Sheets................................. F-3 Consolidated Income Statements.............................. F-4 Consolidated Statements of Stockholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7 Report of Independent Auditors.............................. F-2 Quarterly Earnings Summary.................................. F-34 |
(A) 2. FINANCIAL STATEMENT SCHEDULES
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 immediately following the signature pages of this Form 10-K and is incorporated herein by reference.
(B) REPORTS ON FORM 8-K
On December 24, 2003, we filed a report on Form 8-K announcing all regulatory approvals for the spin-off had been obtained and confirmed the record date and distribution date for the spin-off.
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, on the 12th day of March, 2004.
FIRST NATIONAL BANKSHARES OF FLORIDA,
INC.
By: /s/ GARY L. TICE
------------------------------------
Gary L. Tice,
Chairman and Chief Executive Officer
(principal executive officer)
By: /s/ ROBERT T. REICHERT
------------------------------------
Robert T. Reichert,
Senior Vice President, Chief
Financial
Officer and Treasurer
(principal financial and accounting
officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ GARY L. TICE Chairman, Chief Executive March 12, 2004
-------------------------------------- Officer and Director
Gary L. Tice
/s/ G. SCOTT BATON Director February 19, 2004
--------------------------------------
G. Scott Baton
/s/ ALAN C. BOMSTEIN Director February 22, 2004
--------------------------------------
Alan C. Bomstein
/s/ CHARLES T. CRICKS Director February 26, 2004
--------------------------------------
Charles T. Cricks
/s/ JAMES S. LINDSAY Director February 26, 2004
--------------------------------------
James S. Lindsay
/s/ EDWARD J. MACE Director February 26, 2004
--------------------------------------
Edward J. Mace
/s/ LEE ROY SELMON Director February 22, 2004
--------------------------------------
Lee Roy Selmon
/s/ DAVID A. STRAZ, JR. Director March 5, 2004
--------------------------------------
David A. Straz, Jr.
|
INDEX TO EXHIBITS
The following exhibits are filed or incorporated by reference as part of this report:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's Form 10 filed on
October 31, 2003).
3.2 By-laws of the Company (incorporated by reference to Exhibit
3.2 of the Company's Form 10 filed on October 31, 2003).
10.1 Form of Agreement and Plan of Distribution between the
Company and F.N.B. Corporation (incorporated by reference to
Exhibit 2.1 of Amendment No. 2 to the Company's Form 10
filed on December 22, 2003).
10.2 Form of Tax Disaffiliation Agreement between the Company and
F.N.B. Corporation (incorporated by reference to Exhibit
10.2 of Amendment No. 1 to the Company's Form 10 filed on
December 5, 2003).
10.3 Form of Employee Benefits Agreement between the Company and
F.N.B. Corporation (incorporated by reference to Exhibit
10.3 of Amendment No. 2 to the Company's Form 10 filed on
December 22, 2003).
10.4 Form of Trademark Joint Ownership Agreement between the
Company and F.N.B. Corporation (incorporated by reference to
Exhibit 10.5 of Amendment No. 1 to the Company's Form 10
filed on December 5, 2003).
10.5 Employment Agreement between the Company and Gary L. Tice
(incorporated by reference to Exhibit 10.6 of the Company's
Form 10 filed on October 31, 2003).
10.6 Amendment No. 1 to Employment Agreement between the Company
and Gary L. Tice (incorporated by reference to Exhibit
10.6.1 of the Company's Form 10 filed on October 31, 2003).
10.7 Employment Agreement between the Company and Kevin C. Hale
(incorporated by reference to Exhibit 10.7 of the Company's
Form 10 filed on October 31, 2003).
10.8 Employment Agreement between the Company and Garrett S.
Richter (incorporated by reference to Exhibit 10.8 of the
Company's Form 10 filed on October 31, 2003).
10.9 Employment Agreement between the Company and C.C. Coghill
(incorporated by reference to Exhibit 10.9 of the Company's
Form 10 filed on October 31, 2003).
10.10 Amended and Restated 2003 Incentive Plan (filed herewith).
21.1 List of subsidiaries (filed herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certifications pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
99.1 Consolidated financial statement of First National
Bankshares of Florida, Inc. and subsidiaries for the year
ended December 31, 2003 (filed herewith).
|
Copies of any exhibits will be furnished to shareholders upon request and payment of a fee of ten cents per page covering our costs. Requests should be directed to Shareholder Services, P.O. Box 11929, Naples, Florida 34108.
EXHIBIT 10.10
AMENDED AND RESTATED
FIRST NATIONAL BANKSHARES OF FLORIDA, INC.
2003 INCENTIVE PLAN
The purposes of the 2003 Incentive Plan are to encourage Eligible Individuals to increase their efforts to make First National Bankshares of Florida, Inc. and each of its Subsidiaries more successful, to provide an additional inducement for such Eligible Individuals to continue to provide services to the Corporation or a Subsidiary as an employee, consultant, non-employee director, or independent contractor, to reward such Eligible Individuals by providing an opportunity to acquire incentive awards on favorable terms and to provide a means through which the Corporation may attract able persons to enter the employment of or engagement with the Corporation or one of its Subsidiaries. Such incentive awards may, in the discretion of the Board or Committee, consist of Stock (subject to such restrictions as the Board or Committee may determine or as provided herein), Performance Units, Stock Appreciation Rights, Incentive Stock Options, Non-Qualified Stock Options, Phantom Stock, or any combination of the foregoing, all as the Board or Committee, in each case, may determine.
ARTICLE 1
DEFINITIONS
"Award" means an Incentive Stock Option, a Non-Qualified Stock Option, Restricted Stock Award, Stock Appreciation Rights, Performance Units, or Phantom Stock granted hereunder.
"Award Agreement" means an agreement entered into between the Corporation and the applicable Participant, setting forth the terms and provisions applicable to the Award then being granted under this Plan, as further described in Section 2.5 of the Plan.
"Board" means the Board of Directors of the Corporation.
"Code" means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.
"Committee" means the Compensation Committee, if any, appointed by the Board. If no Committee is appointed by the Board, the Board shall function in place of the Committee.
"Corporation" means First National Bankshares of Florida, Inc.
"Disabled Participant" means a Participant becoming disabled within the meaning of Section 422(c)(6) of the Code.
"Eligible Employee" means any employee of the Corporation or one of its Subsidiaries.
"Eligible Individual" means any Eligible Employee and any consultant, non-employee director, or independent contractor of the Corporation or one of its Subsidiaries.
"Fair Market Value" shall mean, as applicable, (i) the closing sales price of the Corporation's Stock on the date in question on the New York Stock Exchange; (ii) if the Corporation's Stock is not traded on the New York Stock Exchange but is registered on another national securities exchange or any other nationally recognized quotation system, the closing sales price of the Corporation's Stock on such national securities exchange or nationally recognized quotation system; or (iii) if the Corporation's shares of Common Stock are not traded on a national securities exchange or through any other nationally recognized quotation service, the fair market value of the Corporation's Stock as determined by the Board or the Committee, acting in good faith, under any method consistent with the Code, or Treasury Regulations thereunder, as the Board or the Committee shall in its discretion select and apply at the time of the grant of the Award concerned. Subject to the foregoing, the Board or the Committee, in fixing the Fair Market Value, shall have full authority and discretion and be fully protected in doing so.
"Incentive Stock Option" means an option that is intended to qualify as an "Incentive Stock Option" within the meaning of section 422 of the Code. Any Option which does not qualify under section 422 of the Code shall be treated as a Non-Qualified Stock Option.
"Non-Qualified Stock Option" means an option that is not an Incentive Stock Option.
"Option" means an option to purchase Stock, including Restricted Stock, if the Committee so determines, subject to the applicable provisions of Article 3, awarded in accordance with the terms of the Plan and which may be an Incentive Stock Option or a Non-Qualified Stock Option.
"Participant" means an Eligible Individual who has been selected by the Committee to participate in the Plan in accordance with Section 2.2 of the Plan.
"Performance Unit" means a performance unit subject to the requirements of Article 4 and awarded in accordance with the terms of the Plan.
"Phantom Stock" means a deferred compensation award subject to the requirements of Article 6.
"Plan" means the First National Bankshares of Florida, Inc. 2003 Incentive Plan, as Amended and Restated effective February 27, 2004 and as the same may be amended, administered or interpreted from time to time.
"Qualifying Performance Adjustments" shall mean those adjustments to reported financial results required to optimally account for: a) the impact of intangible assets and related amortization expense, b) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, c) special charges in connection with mergers and acquisitions, d) losses from discontinued operations, e) any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management's discussion and analysis of financial condition and results of operation appearing or incorporated by reference in the Company's Annual Report on Form 10-K filed with the SEC for the applicable year. Such adjustments will be at the Committee's sole discretion in a manner that is equitable, consistent with generally accepted accounting principles, and in accordance with the Company's accounting practices and conventions as applied in the past.
"Qualifying Performance Goals" shall mean any one or more of the following performance criteria: net income, earnings per share, return on equity, return on assets, operating income and/or total
shareholder return. Such criteria may be absolute in their terms, measured against prior year(s) results, or measured against or in relationship to other companies. In all cases, such measures will be on a reported basis, adjusted at the Committee's sole discretion, as permitted by the terms of this Plan.
"Restricted Stock" means Stock delivered under the Plan subject to the requirements of Article 5 and such other restrictions as the Committee deems appropriate or desirable.
"Stock" means the common stock of the Corporation.
"Stock Appreciation Right" means a right granted under Article 3 either on a stand-alone basis or in conjunction with the grant of an Option that entitles the holder to receive a cash payment or an award of Stock, to be determined in the discretion of the Committee at the time the applicable Stock Appreciation Right is granted, in an amount equal to the excess of the Fair Market Value of one share of Stock on such date of exercise over, (i) in the case of a Stock Appreciation Right granted on a stand-alone basis, the Fair Market Value of one share of Stock as of the date of grant (as set forth in the applicable Award Agreement), or (ii) in the case of a Stock Appreciation Right granted in conjunction with the grant of an Option, the Option Price per share multiplied by the number of shares covered by the right.
"Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Corporation, if each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing more than fifty percent (50%) of the total combined voting power of all classes of stock in one of the other corporations in the chain.
"Termination" means the termination of employment with the Corporation or any of its Subsidiaries or the cessation of the provision of services to the Corporation or any of its Subsidiaries by a non-employee director, consultant or independent contractor.
ARTICLE 2
GENERAL PROVISIONS
Section 2.1 Administration. The Plan shall be administered by the Committee. The Committee shall interpret the Plan and prescribe such rules, regulations and procedures in connection with the operation of the Plan as it shall deem to be necessary and advisable for the administration of the Plan consistent with the purposes of the Plan. Without limiting the foregoing, the Committee shall have the authority and complete discretion to:
(i) Prescribe, amend and rescind rules and regulations relating to the Plan;
(ii) Select Eligible Individuals to receive Awards under the Plan as provided in Section 2.2 of the Plan;
(iii) Determine the form and terms of Awards;
(iv) Determine the number of shares or other consideration subject to Awards under the Plan as provided in Articles 3, 4, 5 and 6 of the Plan;
(v) Determine whether Awards will be granted singly, in combination or in tandem with, in replacement of, or as alternatives to, other Awards under the Plan or grants or awards under any other incentive or compensation plan of the Corporation;
(vi) Construe and interpret the Plan, any Award Agreement in connection with an Award and any other agreement or document executed pursuant to the Plan;
(vii) Correct any defect or omission, or reconcile any inconsistency in the Plan, any Award or any Award Agreement;
(viii) Determine whether a Participant is a Disabled Participant;
(ix) Accelerate or, with the consent of the Participant, defer the vesting of any Award and/or the exercise date of any Award;
(x) Determine whether a Participant's Termination from the Corporation or its Subsidiaries is voluntary and with the written consent of the Corporation or its Subsidiaries;
(xi) Authorize any person to execute on behalf of the Corporation any instrument required to effectuate the grant of an Award;
(xii) With the consent of the Participant, adjust the terms of an Award previously granted to the Participant;
(xiii) Determine when a Participant's period of employment is deemed to be continued during an approved leave of absence, or whether a Participant has engaged in the operation or management of a business that is in competition with the Corporation or any of its Subsidiaries;
(xiv) Determine, upon review of relevant information, the Fair Market Value of the Stock; and
(xv) Make all other determinations deemed necessary or advisable for the administration of the Plan.
The Committee may delegate to officers of the Corporation or any Subsidiary the authority to perform administrative functions under the Plan subject to any legal requirements that the Committee as a whole take action with respect to such function.
The Committee shall keep records of action taken at its meetings. A majority of the Committee shall constitute a quorum at any meeting, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee, shall be the acts of the Committee.
Section 2.2 Eligibility. Those Eligible Individuals who share the responsibility for the management, growth or protection of the business of the Corporation or any Subsidiary or who, in the
opinion of the Committee, provide services yielding significant benefits to the Corporation or any Subsidiary shall be eligible to receive Awards as described herein.
Subject to the provisions of the Plan, the Committee shall have full and final authority, in its discretion, to grant Awards as described herein and to determine the Eligible Individuals to whom Awards shall be granted. In determining the eligibility of any Eligible Individual, as well as in determining the Award, the Committee shall consider the position and the responsibilities of the Eligible Individual being considered, the nature and value to the Corporation or a Subsidiary of his or her services, his or her present and/or potential contribution to the success of the Corporation or a Subsidiary and such other factors as the Committee may deem relevant.
Section 2.3 Shares Available under the Plan. Subject to adjustment as set forth in Section 2.6, the maximum number of shares of Stock that may be issued or delivered and as to which Awards may be granted under the Plan shall be 6,000,000, which includes 4,064,385 shares subject to Options and Restricted Stock Awards granted by the Corporation pursuant to the Employee Benefits Agreement dated January 1, 2004, between the Corporation and F.N.B. Corporation entered into in connection with the distribution by F.N.B. Corporation to its shareholders of all of the outstanding shares of Stock of the Corporation. Subject to adjustment as set forth in Section 2.6, the maximum number of shares of Stock (and in the case of Performance Units, the maximum dollar value) with respect to which Awards may be granted in any calendar year (or in the case of Performance Units, in any Performance Period) to any Participant under the Plan shall be as follows: Options: 200,000 shares; Stock Appreciation Rights: 200,000 shares; Restricted Stock: 100,000 shares; Phantom Stock: 200,000 shares; and Performance Units: 100,000 shares or $2,000,000.
If any Award, other than Performance Units, granted under the Plan is canceled by mutual consent or terminates or expires for any reason without having been exercised in full, or, if and to the extent that an award of Phantom Stock is paid in cash rather than the issuance of shares of Stock, the number of shares subject to such Award (or in the case of Phantom Stock the number of shares of Stock for which payment was made in cash) shall again be available for purposes of the Plan, except that, to the extent that Stock Appreciation Rights granted in conjunction with an Option under the Plan are exercised and the related Option surrendered, the number of shares available for purposes of the Plan shall be reduced by the number of shares, if any, of Stock issued or delivered upon exercise of such Stock Appreciation Rights. If the Option Price of any Option granted under the Plan is satisfied by tendering shares of Stock to the Corporation (by either actual delivery or by attestation) or if shares of Stock are tendered or are withheld upon the exercise of the Option to satisfy any applicable tax withholding, only the number of shares of Stock issued net of the shares of Stock tendered or withheld shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.
The shares that may be issued or delivered under the Plan may be either authorized but unissued shares or repurchased shares or partly each.
Section 2.4 Corporation's Obligation to Deliver Stock. The obligation of the Corporation to issue or deliver shares of Stock under the Plan shall be subject to (i) the effectiveness of a registration statement under the Securities Act of 1933, as amended, with respect to such shares, if deemed necessary or appropriate by counsel for the Corporation; (ii) the condition that the shares shall have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange on which such shares may then be listed; and (iii) all other applicable laws, regulations, rules and orders which may then be in effect.
Section 2.5 Award Agreement. Each Award granted under the Plan shall be evidenced by a written Award Agreement, in a form approved by the Committee. Such Award Agreement shall be subject to and incorporate the express terms and conditions, if any, required under the Plan or as required by the Committee for the form of Award granted and such other terms and conditions as the Committee may specify and shall be executed by the Chief Executive Officer, the President (if other than the Chief Executive Officer) or any Vice President on behalf of the Corporation and by the Participant to whom such Award is granted. With the consent of the Participant to whom such Award is granted, the Board may at any time and from time to time amend an outstanding Award Agreement in a manner consistent with the Plan. Without consent of the Participant, the Board of Directors may at any time and from time to time modify or amend Award Agreements with respect to Options intended as of the date of grant to be Incentive Stock Options in such respects as it deems necessary in order that Incentive Stock Options granted under the Plan shall comply with the appropriate provisions of the Code and regulations thereunder which are in effect from time to time with respect to Incentive Stock Options.
Section 2.6 Adjustment and Substitution of Shares. If a dividend or other distribution shall be declared upon the Stock payable in shares of Stock, the number of shares of Stock then subject to any outstanding Option or by reference to which the amount of any other Award is determined and the number of shares which may be issued or delivered under the Plan shall be adjusted by adding thereto the number of shares which would have been distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend or distribution.
If the outstanding shares of Stock shall be changed into or exchangeable for a different number or kind of shares of Stock or other securities of the Corporation or another corporation, whether through reorganization, reclassification, recapitalization, stock split-up, spin-off, combination of shares, merger or consolidation, then there shall be substituted for each share of Stock subject to any then outstanding Award and for each share of Stock, which may be issued or delivered under the Plan but is not then subject to an outstanding Award, the number and kind of shares of Stock or other securities into which each outstanding share of Stock shall be so changed or for which each such share shall be exchangeable.
In the case of any adjustment or substitution as provided for in this
Section 2.6, the aggregate Option Price for all shares subject to each then
outstanding Option prior to such adjustment or substitution shall be the
aggregate option price for all shares of Stock or other securities (including
any fraction) to which such shares shall have been adjusted or which shall have
been substituted for such shares. Any new option price per share shall be
carried to at least three decimal places with the last decimal place rounded
upwards to the nearest whole number.
No adjustment or substitution provided for in this Section 2.6 shall require the Corporation to issue or sell a fraction of a share or other security. Accordingly, all fractional shares or other securities that result from any such adjustment or substitution shall be eliminated and not carried forward to any subsequent adjustment or substitution.
If any such adjustment or substitution provided for in this Section 2.6 requires the approval of stockholders in order to enable the Corporation to grant Incentive Stock Options, then no such adjustment or substitution shall be made without prior stockholder approval. Notwithstanding the foregoing, in the case of Incentive Stock Options, if the effect of any such adjustment or substitution would be to cause the Option to fail to continue to qualify as an Incentive Stock Option or to cause a modification, extension or renewal of such Option within the meaning of Section 424 of the Code, the Committee may elect that such adjustment or substitution not be made but rather shall use reasonable efforts to effect such other adjustment of each then outstanding Option as the Committee in its sole discretion shall deem equitable and which will not result in any disqualification, modification, extension or renewal (within the meaning of Section 424 of the Code) of such Incentive Stock Option.
ARTICLE 3
OPTIONS AND STOCK APPRECIATION RIGHTS
Section 3.1 Grant of Stock Options and Stock Appreciation Rights. The Committee shall have authority, in its discretion, to grant Incentive Stock Options, Non-Qualified Stock Options or to grant both types of Options (but not in tandem). Notwithstanding the above, Incentive Stock Options may only be granted to employees of the Corporation or any of its Subsidiaries. The Committee also shall have the authority, in its discretion, to grant Stock Appreciation Rights either on a stand-alone basis or in conjunction with Incentive Stock Options or Non-Qualified Stock Options with the effect provided in Section 3.2(D). Stock Appreciation Rights granted in conjunction with an Incentive Stock Option may only be granted at the time such Incentive Stock Option is granted. Stock Appreciation Rights granted in conjunction with a Non-Qualified Stock Option may be granted either at the time such Non-Qualified Stock Option is granted or at any time thereafter during the term of such Non-Qualified Stock Option.
Section 3.2 Terms and Conditions of Stock Options and Stock Appreciation Rights. Options and Stock Appreciation Rights granted under the Plan shall be subject to the following terms and conditions:
(A) The purchase price at which each Option may be exercised (the "Option Price") shall be such price as the Committee, in its discretion, shall determine except that, in the case of an Incentive Stock Option, the Option Price shall not be less than one hundred percent (100%) of the Fair Market Value per share of Stock covered by the Option on the date of grant (or in the case of an Incentive Stock Option granted to an Eligible Employee who, immediately prior to such grant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or any Subsidiary (a "Ten Percent Employee"), shall not be less than 110% of such Fair Market Value on the date of grant). For purposes of this Section 3.2(A), a Participant (i) shall be considered as owning not only shares of the Stock owned individually, but also all shares that are at the time owned, directly or indirectly, by or for the spouse, ancestors, lineal descendants and brothers and sisters (whether by the whole or half blood) of such individual and (ii) shall be considered as owning proportionately any shares of Stock owned, directly or indirectly, by or for any corporation, partnership, estate or trust in which such individual shall be a stockholder, partner or beneficiary.
(B) The Option Price shall be payable in full in any one or more of the following ways, as shall be determined by the Committee to be applicable to, and as set forth in, any such Award:
(i) in cash; or
(ii) by tendering, either by actual delivery or by attestation, shares of Stock (which have been owned by the Participant for more than six months, which are free and clear of all liens and other encumbrances and which are not subject to the restrictions set forth in Article 5) having an aggregate Fair Market Value on the date of exercise of the Option equal to the Option Price for the shares being purchased; or
(iii) by requesting that the Corporation withhold such number of shares of Stock then issuable upon exercise of the Option as shall have an aggregate Fair Market Value equal to the Option Price for the shares being acquired upon exercise of the Option; or
(iv) by waiver of compensation due or accrued to the Participant for services rendered; or
(v) provided that a public market for the Corporation's stock exists:
(a) Through a "same day sale" commitment from the Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay the purchase price (or a larger number of the shares so purchased), and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the purchase price directly to the Corporation (and any excess to the Participant); or
(b) Through a "margin" commitment from the Participant and an NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the purchase price, and whereby the NASD
Dealer irrevocably commits upon receipt of such shares to forward the purchase price directly to the Corporation; or
(vi) by any combination of the foregoing; or
(vii) by such other method as may be determined by the Committee and set forth in the applicable Award Agreement.
If the Option Price is paid in whole or in part in shares of Stock, any portion of the Option Price representing a fraction of a share shall be paid in cash. The date of exercise of an Option shall be determined under procedures established by the Committee, and the Option Price shall be payable at such time or times as the Committee, in its discretion, shall determine. No shares shall be issued or delivered upon exercise of an Option until full payment of the Option Price has been made. When full payment of the Option Price has been made and subject to the restrictions set forth in Article 5, the Participant shall be considered for all purposes to be the owner of the shares with respect to which payment has been made.
(C) An Option may be exercised at such time as the Option vests or at any time thereafter prior to the time the Option expires in accordance with its terms or otherwise ceases to be outstanding. No Incentive Stock Option shall be exercisable after the expiration of ten years (five years in the case of a Ten Percent Employee) from the date of grant. No Non-Qualified Stock Option shall be exercisable after the expiration of ten years and six months from the date of grant. Subject to this Section 3.2(C), and 2.5, Options may be exercised at such times, in such amounts and subject to such restrictions as shall be determined by the Committee, in its discretion.
(D) Stock Appreciation Rights granted on a stand-alone basis shall be exercisable as and to the extent set forth in the applicable Award Agreement. Stock Appreciation Rights granted in conjunction with an Option shall be exercisable to the extent that the related Option is exercisable and only by the same person or persons who are entitled to exercise the related Option. Stock Appreciation Rights granted on a stand-alone basis shall entitle the Participant to receive from the Corporation on exercise that number of shares of Stock having an aggregate Fair Market Value equal to the excess of the Fair Market Value of one share of Stock on such date of exercise over the Fair Market Value of one share of Stock on the date of grant (as set forth in the applicable Award Agreement) multiplied by the number of shares of Stock covered by the Stock Appreciation Right exercised. Stock Appreciation Rights granted in conjunction with an Option shall entitle the Participant to surrender the related Option, or any portion thereof, and to receive from the Corporation in exchange therefor that number of shares of Stock having an aggregate Fair Market Value equal to the excess of the Fair Market Value of one share of Stock on such date of exercise over the Option Price per share, multiplied by the number of shares covered by the Option, or portion thereof, which is surrendered. Cash shall be paid in lieu of any fractional shares. The Committee shall have the authority, in its discretion, to determine at the time the applicable Stock Appreciation Right is granted that the obligation of the Corporation shall be paid in cash, in shares of Stock, or part in cash and part in shares of Stock, and the Award Agreement for such Stock Appreciation Right shall set forth the payment medium determined by the Committee. The date of exercise of Stock Appreciation Rights shall be determined under procedures established by the Committee, and payment under this Section 3.2(D) shall be made by the Corporation as soon as practicable after the date of exercise. To the extent that an Option
as to which Stock Appreciation Rights have been granted in conjunction therewith is exercised, the Stock Appreciation Rights shall be canceled.
(E) No Option or Stock Appreciation Rights shall be transferable by a Participant other than by will, or if a Participant dies intestate, by the laws of descent and distribution of the state of domicile of the Participant at the time of death, and all Options and Stock Appreciation Rights shall be exercisable during the lifetime of a Participant only by the Participant.
(F) Unless otherwise determined by the Committee and set forth in the Award Agreement referred to in Section 2.5 or an amendment thereto, following the Termination of a Participant for any reason, such Participant must exercise any outstanding Option within one year from the date of Termination.
ARTICLE 4
PERFORMANCE UNITS
Section 4.1 Performance Period and Objectives. The Committee shall determine a performance period (the "Performance Period") of one or more years and shall determine the Qualifying Performance Goals to be applicable to grants of Performance Units. The applicable Qualifying Performance Goals may vary from Participant to Participant. Performance Periods may overlap and Participants may participate simultaneously with respect to Performance Units for which different Performance Periods are prescribed.
Section 4.2 Eligibility. At the beginning of a Performance Period, the Committee shall determine for each Participant or group of Participants eligible for Performance Units with respect to that Performance Period the range of dollar values, if any, which may be fixed or may vary in accordance with the Qualifying Performance Goals specified by the Committee, which shall be paid to a Participant as an Award if the relevant Qualifying Performance Goal for the Performance Period is met.
Section 4.3 Significant Event. If during the course of a Performance Period the Committee determines, in its discretion, that (i) a significant event (or events) has occurred (such as, but not limited to, a reorganization of the Corporation) which the Committee expects to have a substantial effect on a Qualifying Performance Goal applicable to a Performance Unit during such period (a "Significant Event") or (ii) circumstances make it appropriate that Qualifying Performance Adjustments be made, the Committee may revise such Qualifying Performance Goals and make such Qualifying Performance Adjustments as appropriate; provided that the Committee shall not be required to determine that a reorganization involving the Corporation constitutes a Significant Event.
Section 4.4 Termination. If an Eligible Individual terminates service with the Corporation or any of its Subsidiaries during a Performance Period because of death, Participant Disability, retirement on or after age 62, or at an earlier age with the consent of the Corporation, or a Significant Event, as determined by the Committee, that Eligible Individual shall be entitled to payment in settlement of each Performance Unit for which the Performance Period was prescribed (i) based upon the Qualifying Performance Goals satisfied at the end of such period; and (ii) prorated for the portion of the Performance Period during which the Eligible Individual was employed or retained by the Corporation or any of its Subsidiaries; provided, however, the Committee may provide for an earlier payment in settlement of such Performance Unit in such amount or amounts and under such terms and conditions as the Committee
deems appropriate or desirable with the consent of the Eligible Individual. If an Eligible Individual terminates service with the Corporation or any of its Subsidiaries during a Performance Period for any other reason, such Eligible Individual shall not be entitled to any payment with respect to that Performance Period unless the Committee shall otherwise determine.
Section 4.5 Award. The Committee shall have the authority, in its discretion, to determine at the time the applicable Performance Unit is granted that the obligation of the Corporation shall be paid in cash, in shares of Stock, or part in cash and part in shares of Stock, and the Award Agreement for such Performance Unit shall set forth the payment medium determined by the Committee. Each Performance Unit shall be paid either as a lump sum payment or in annual installments, as the Committee shall determine, at the time of grant of the Performance Unit or otherwise, commencing as soon as practicable after the end of the relevant Performance Period.
ARTICLE 5
RESTRICTED STOCK
Section 5.1 Award. Restricted Stock may be received by an Eligible Individual as an Award. Restricted Stock may but need not be subject to a restriction period (after which restrictions shall lapse) which shall mean a period commencing on the date the Award is granted and ending on such date or upon the achievement of such Qualifying Performance Goals or other criteria as the Committee shall determine (the "Restriction Period"). The Committee may provide for the lapse of restrictions in installments where deemed appropriate.
Section 5.2 Restriction Period. Except as otherwise provided in this Article 5, no shares of Restricted Stock received by an Eligible Individual shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of during the Restriction Period; provided, however, that the Restriction Period for any recipient of Restricted Stock shall expire and all restrictions on shares of Restricted Stock shall lapse upon death, Disability, retirement on or after age 62 or an earlier age with the consent of the Corporation, or, if such Restricted Stock constitutes all or a portion of a Performance Unit with vesting dependent upon the achievement of a Qualifying Performance Goal, upon the determination by the Committee that a Significant Event affecting such Qualifying Performance Goal has occurred.
Section 5.3 Termination. Except as otherwise provided in Section 5.2 above, if an Eligible Individual terminates employment or service with the Corporation or any of its Subsidiaries for any reason before the expiration of the Restriction Period, all shares of Restricted Stock still subject to restriction shall, unless the Committee otherwise determines, be forfeited by the recipient and shall be reacquired by the Corporation. Upon such forfeiture, such forfeited shares of Restricted Stock shall again become available for award under the Plan.
Section 5.4 Restricted Stock Certificates. The Committee may require, under such terms and conditions as it deems appropriate or desirable, that the certificates for Restricted Stock delivered under the Plan be held in custody by a bank or other institution, or that the Corporation may itself hold such shares in custody until the Restriction Period expires or until restrictions thereon otherwise lapse, and may require, as a condition of any receipt of Restricted Stock, that the recipient shall have delivered a stock power endorsed in blank relating to the Restricted Stock.
Section 5.5 Exchange of Shares. Nothing in this Article 5 shall preclude a recipient of Restricted Stock from exchanging any shares of Restricted Stock subject to the restrictions contained herein for any other shares of Stock that are similarly restricted.
ARTICLE 6
PHANTOM STOCK
Section 6.1 Award. The Committee shall have authority, in its discretion, to grant deferred compensation to an Eligible Individual by the award of Phantom Stock, the value of which is related to the value of the Stock of the Company.
Section 6.2 Value. An Award of Phantom Stock shall entitle the Participant to receive from the Corporation cash and/or shares of Stock having an aggregate fair market value equal to the Fair Market Value of a share of Stock on such date, or upon the occurrence of one or more events, as may be specified in the Award Agreement for any Phantom Stock.
Section 6.3 Termination. If the Participant is Terminated for any reason prior to the vesting of the Phantom Stock Award, the Participant's rights with respect to the Phantom Stock will terminate and be forfeited, and neither the Participant nor his or her heirs, personal representatives, successors or assigns shall have any future rights with respect to any such Phantom Stock.
ARTICLE 7
CERTIFICATES FOR AWARDS OF STOCK
Section 7.1 Stock Certificates. Subject to Section 5.4 and except as otherwise provided in this Section 7.1, each Participant entitled to receive shares of Stock under the Plan shall be issued a certificate for such shares. Such certificate shall be registered in the name of the Eligible Individual and shall bear an appropriate legend reciting the terms, conditions and restrictions, if any, applicable to such shares and shall be subject to appropriate stop-transfer orders. To the extent that the Plan provides for issuance of stock certificates to reflect the issuance of shares of Stock, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange. If the issuance of shares under the Plan is effected on a non-certificated basis, the issuance of shares to a Participant shall be reflected by crediting (by means of a book entry) the applicable number of shares of Stock to an account maintained by the Corporation in the name of such Participant, which account may be an account maintained by the Corporation for such Participant under any dividend reinvestment program offered by the Corporation.
Section 7.2 Compliance with Laws and Regulations. The Corporation shall not be required to issue or deliver any certificates for shares of Stock, or to effect the issuance of any non-certificated shares as provided in Section 7.1, prior to (i) the listing of such shares on any stock exchange or quotation system on which the Stock may then be listed; and (ii) the completion of any registration or qualification of such shares under any Federal or state law, or any ruling or regulation of any government body which the Corporation shall, in its sole discretion, determine to be necessary or advisable.
Section 7.3 Restrictions. All certificates for shares of Stock delivered under the Plan (and all non-certificated shares credited to a Participant's account as provided in Section 7.1) shall also be subject
to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or quotation system upon which the Stock is then listed and any applicable Federal or state securities laws; and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. The foregoing provisions of this Section 7.3 shall not be effective if and to the extent that the shares of Stock delivered under the Plan are covered by an effective and current registration statement under the Securities Act of 1933, or if and so long as the Committee determines that application of such provisions is no longer required or desirable. In making such determination, the Committee may rely upon an opinion of counsel for the Company.
Section 7.4 Rights of Stockholders. Except for the restrictions on Restricted Stock under Article 5, each Participant who receives an award of Stock shall have all of the rights of a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions. No Eligible Individual awarded an Option, a Stock Appreciation Right or Phantom Stock shall have any right as a stockholder with respect to any shares subject to such Award prior to the date of issuance to him or her of a certificate or certificates for such shares, or if applicable, the crediting of non-certificated shares to an account maintained by the Corporation in the name of such Eligible Individual.
ARTICLE 8
CHANGE OF CONTROL
Section 8.1 The following acceleration provisions shall apply in the event of a Change of Control as defined in this Section 8.1:
(a) In the event of a Change of Control as defined in paragraph (b) of this Section 8.1:
(i) any Stock Appreciation Rights and any Options awarded under the Plan, if not previously exercisable and vested, shall become fully exercisable and vested; and
(ii) the restrictions and deferral limitations applicable to any Restricted Stock Award under the Plan shall lapse and such shares and awards shall be deemed fully vested.
(b) For purposes of paragraph (a) of this Section 8.1, a "Change of Control" means the happening of any of the following:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or more of either (a) the then-outstanding
shares of Stock of the Corporation (the "Outstanding Corporation Stock")
or (b) the combined voting power of the then-outstanding voting securities
of the Corporation entitled to vote generally in the election of directors
(the "Outstanding Corporation Voting Securities"); provided, however, that
for purposes of this subsection (1), the following acquisitions shall not
constitute a Change of Control: (x) any acquisition by the Corporation,
(y) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation controlled
by the Corporation, or, (z) any acquisition by any corporation pursuant to
a transaction which complies with clauses (a), (b) and (c) of subsection
(3) of this Section 8.1; or
(2) The individuals who, as of the date this Plan is approved by the Board, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that, if the election, or nomination for election by the Corporation's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered and defined as a member of the Incumbent Board; and provided further, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
(3) Consummation by the Corporation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation or the acquisition of assets of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 25% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Corporation Stock and Outstanding Corporation Voting Securities, as the case may be, (b) no Person (excluding any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(4) Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Effect of the Plan on the Rights of Employees and Employer. Neither the adoption of the Plan nor any action of the Board or the Committee pursuant to the Plan shall be deemed to give any Eligible Individual any right to be granted an Award under the Plan and nothing in the Plan, in any Award granted under the Plan or in any Award Agreement shall confer any right to any Participant to continue in the employment of the Corporation or any Subsidiary or to continue to be retained to provide services to the Corporation or any Subsidiary as a non-employee director, consultant or independent contractor or interfere in any way with the rights of the Corporation or any Subsidiary to terminate a Participant at any time.
Section 9.2 Amendment. The right to alter and amend the Plan at any time and from time to time and the right to revoke or terminate the Plan or to suspend the granting of Awards pursuant to the Plan are hereby specifically reserved to the Board; provided always that no such revocation, termination, alteration or suspension of any Award shall terminate any outstanding Award theretofore granted under the Plan, unless there is a liquidation or a dissolution of the Corporation; and provided further that no such alteration or amendment of the Plan shall, without prior stockholder approval (i) increase the total number of shares which may be issued or delivered under the Plan; (ii) make any changes in the class of Eligible Individuals; (iii) extend the period set forth in the Plan during which Awards may be granted; or (iv) or make any changes that require shareholder approval under the rules and regulations of any securities exchange or market on which the Common Stock is traded. No alteration, amendment, revocation or termination of the Plan or suspension of any Award shall, without the written consent of the holder of an Award theretofore granted under the Plan, adversely affect the rights of such holder with respect to such Award.
Section 9.3 Effective Date and Duration of Plan. The effective date and date of adoption of the Plan shall be November 17, 2003 (the "Effective Date"), the date of adoption of the Plan by the Board. No Award granted under the Plan prior to such shareholder approval may be exercised until after such approval. No Award may be granted under the Plan subsequent to November 17, 2013. The amendments contained in the Amended and Restated Plan, as set forth herein, are effective February 27, 2004, provided that such Amended and Restated Plan is approved by the Corporation's shareholders at a meeting of such holders duly called, convened and held within one year of the Effective Date.
Section 9.4 Unfunded Status of Plan. The Plan shall be unfunded. The Corporation shall not be required to establish any special or separate fund nor to make any other segregation of assets to assume the payment of any benefits under the Plan. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general unsecured creditor of the Corporation; provided, however, that the Committee may authorize the creation of trusts or make other arrangements to meet the Corporation's obligations under the Plan to deliver cash, shares or other property pursuant to any Award, which trusts or other arrangements shall be consistent with the "unfunded" status of the Plan unless the Committee otherwise determines.
Section 9.5 Employee Status. For purposes of determining questions of termination and exercise of an Option or Stock Appreciation Right after a Participant's Termination, a leave of absence for military or government service, illness, temporary disability or other reasons approved by a duly authorized officer of the Company shall not be treated as Termination or interruption of employment or engagement; provided, however, that, with respect to an Incentive Stock Option, if such leave of absence exceeds 90 days, such Option shall be deemed a Non-Qualified Stock Option unless the Eligible Individual's right to reemployment with the Company or a Subsidiary following such leave of absence is guaranteed by statute or by contract; provided, however, that no Award may be granted to an employee while he or she is absent on leave.
Section 9.6 Tax Withholding. Whenever the Corporation proposes or is required to distribute Stock under the Plan, the Corporation may require the recipient to remit to the Corporation an amount sufficient to satisfy any Federal, state and local tax withholding requirements prior to the delivery of any certificate for such shares or, in the discretion of the Committee, the Corporation may withhold from the shares to be delivered shares sufficient to satisfy all or a portion of such tax withholding requirements. Whenever under the Plan payments are to be made in cash, such payments may be net of an amount sufficient to satisfy any Federal, state and local tax withholding requirements.
Section 9.7 Benefits. Amounts received under the Plan are not to be taken into account for purposes of computing benefits under other plans unless the Corporation determines to do so.
Section 9.8 Successors and Assigns. The terms of the Plan shall be binding upon the Corporation and its successors and assigns.
Section 9.9 Headings. Captions preceding the sections hereof are inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provision hereof.
Section 9.10 Federal and State Laws, Rules and Regulations. The Plan and the grant of Awards shall be subject to all applicable federal and state laws, rules and regulations and to such approval by any government or regulatory agency as may be required.
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Following lists the significant subsidiaries of the registrant and the state or jurisdiction of incorporation of each:
NAME INCORPORATED ---- ------------ First National Bank of Florida United States First National Wealth Management Company United States Roger Bouchard Insurance, Inc. Florida |
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated February 24, 2004 with respect to the consolidated financial statements of First National Bankshares of Florida, Inc. and subsidiaries included in this Annual Report (Form 10-K) for the year ended December 31, 2003 in the following Registration Statements and Prospectus:
1. Pre-effective Amendment to the Registration Statement on Form S-3 relating to the Dividend Reinvestment and Stock Purchase Plan (File #333-111867).
2. Registration Statement on Form S-8 relating to the 2003 Incentive Plan and 2003 Director's Stock Option Plan (File #333-111936).
3. Registration Statement on Form S-8 relating to the Salary Savings Plan and the Roger Bouchard Insurance, Inc. 401(k) Plan (File #333-111937).
/s/ Ernst & Young LLP Birmingham, Alabama March 8, 2004 |
EXHIBIT 31.1
CERTIFICATION
I, Gary L. Tice, certify that:
1. I have reviewed this annual report on Form 10-K of First National Bankshares of Florida, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 12, 2004
/s/ Gary L. Tice
------------------------------------
Gary L. Tice
Chairman and Chief Executive Officer
|
EXHIBIT 31.2
CERTIFICATION
I, Robert T. Reichert, certify that:
1. I have reviewed this annual report on Form 10-K of First National Bankshares of Florida, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 12, 2004
/s/ Robert T. Reichert
---------------------------------------
Robert T. Reichert
Senior Vice President, Chief Financial
Officer and Treasurer
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of First National Bankshares of Florida, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Gary L. Tice, Chairman and Chief Executive Officer of the Company, and Robert T. Reichert, Senior Vice President, Chief Financial Officer and Treasurer do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: /s/ Gary L. Tice
--------------------------------------
Gary L. Tice
President and Chief Executive Officer
March 12, 2004
/s/ Robert T. Reichert
--------------------------------------
Robert T. Reichert
Senior Vice President, Chief Financial
Officer and Treasurer
March 12, 2004
|
Exhibit 99.1
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
First National Bankshares of Florida, Inc. is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements and related notes included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with accounting principles generally accepted in the United States and necessarily include some amounts that are based on management's best estimates and judgments. The consolidated financial statements have been audited and reported on by our independent auditors, Ernst & Young LLP, who were given free access to all financial records and related data, including minutes of the meetings of the Board of Directors and Committees of the Board. We believe that the representations made to the independent auditors were valid and appropriate.
We, along with all other members of management, are responsible for establishing and maintaining effective internal controls over financial reporting that are designed to produce reliable financial statements in conformity with accounting principles generally accepted in the United States. We have also established disclosure controls and procedures to ensure that all information which would be relevant to the shareholder is disclosed in a timely and forthright manner. The system of internal and disclosure controls over financial reporting as it relates to the financial statements contains self-monitoring mechanisms, and compliance is tested and evaluated through a program of internal audits. Our internal audit function monitors the operation of the internal and disclosure control system and reports findings and recommendations to management and to the Audit Committee of the Board of Directors. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that controls can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in condition, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.
The Audit Committee, consisting entirely of outside directors, meets regularly with management, internal auditors and independent auditors, and reviews audit plans and results, as well as management's actions taken in discharging responsibilities for accounting, financial reporting, and internal controls. The independent auditors and the internal auditors have full and complete access to the Audit Committee at all times, with no member of management present, to discuss the results of their examinations.
We believe that our long-standing emphasis on the highest standards of conduct and ethics, embodied in comprehensive written policies, also serves to reinforce its system of internal controls. Ongoing communications and review programs are designed to help ensure compliance with this code.
Management assessed First National Bankshares of Florida, Inc.'s system of internal control over financial reporting as of December 31, 2003, in relation to criteria for effective internal control over financial reporting as described in "Internal Control -- Integrated Framework," issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2003, our system of internal control over financial reporting met those criteria.
/s/ GARY L. TICE /s/ ROBERT T. REICHERT
--------------------------------------------- ---------------------------------------------
Gary L. Tice Robert T. Reichert
Chairman and Chief Executive Officer Senior Vice President, Chief Financial
Officer and Treasurer
|
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
First National Bankshares of Florida, Inc.
We have audited the accompanying consolidated balance sheets of First National Bankshares of Florida, Inc. and subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. 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 First National Bankshares of Florida, Inc. and subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.
/s/ ERNST AND YOUNG LLP
Birmingham, Alabama
February 24, 2004
|
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
2003 2002
---------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and due from banks..................................... $ 99,664 $ 117,359
Interest bearing deposits with banks........................ 5,128 960
Federal funds sold.......................................... 866 8,981
Mortgage loans held for sale................................ 15,153 24,400
Securities available for sale............................... 763,305 368,644
Securities held to maturity (fair value of $12,531 and
$17,229).................................................. 12,029 16,625
Loans, net of unearned income of $774 and $1,710............ 2,449,382 1,960,895
Allowance for loan losses................................... (28,104) (21,421)
---------- ----------
NET LOANS.............................................. 2,421,278 1,939,474
Premises and equipment...................................... 120,117 75,611
Goodwill.................................................... 173,729 62,678
Other assets................................................ 139,867 120,472
---------- ----------
$3,751,136 $2,735,204
========== ==========
LIABILITIES
Deposits
Non-interest bearing...................................... $ 451,837 $ 360,917
Interest bearing.......................................... 2,268,152 1,761,135
---------- ----------
TOTAL DEPOSITS......................................... 2,719,989 2,122,052
Short-term borrowings....................................... 354,051 260,410
Long-term debt.............................................. 271,000 50,591
Other liabilities........................................... 40,981 34,070
---------- ----------
TOTAL LIABILITIES...................................... 3,386,021 2,467,123
STOCKHOLDER'S EQUITY
Common stock -- $0.01 par value
Authorized -- 500,000,000 shares
Issued and outstanding -- 46,317,300 shares............... 463 --
Additional paid-in capital.................................. 341,615 --
Retained earnings........................................... 21,139 --
Subsidiary equity........................................... -- 263,032
Accumulated other comprehensive income...................... 1,898 5,049
---------- ----------
TOTAL STOCKHOLDER'S EQUITY............................. 365,115 268,081
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............. $3,751,136 $2,735,204
========== ==========
|
See accompanying Notes to Consolidated Financial Statements
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
YEAR ENDED DECEMBER 31,
------------------------------
2003 2002 2001
-------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
INTEREST INCOME
Loans, including fees....................................... $137,197 $133,027 $131,190
Securities:
Taxable................................................... 24,933 15,283 12,849
Nontaxable................................................ 2,893 831 785
Dividends................................................. 1,110 759 665
Other....................................................... 161 1,031 3,239
-------- -------- --------
TOTAL INTEREST INCOME.................................. 166,294 150,931 148,728
INTEREST EXPENSE
Deposits.................................................... 35,605 41,126 56,012
Short-term borrowings....................................... 2,373 1,994 5,067
Long-term debt.............................................. 4,868 4,179 4,237
-------- -------- --------
TOTAL INTEREST EXPENSE................................. 42,846 47,299 65,316
-------- -------- --------
NET INTEREST INCOME.................................... 123,448 103,632 83,412
Provision for loan losses................................... 7,184 5,470 4,468
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.... 116,264 98,162 78,944
NON-INTEREST INCOME
Insurance premiums, commissions and fees.................... 26,182 25,444 23,405
Service charges............................................. 18,115 13,900 11,314
Securities commissions and fees............................. 3,791 2,607 1,838
Trust....................................................... 2,768 2,082 1,563
Gain (loss) on sale of securities........................... 443 (28) 5
Gain on sale of mortgage loans.............................. 5,590 5,133 5,059
Other....................................................... 5,527 5,590 4,796
-------- -------- --------
TOTAL NON-INTEREST INCOME.............................. 62,416 54,728 47,980
-------- -------- --------
178,680 152,890 126,924
NON-INTEREST EXPENSE
Salaries and employee benefits.............................. 76,652 60,487 48,403
Net occupancy............................................... 10,138 7,500 5,718
Equipment................................................... 8,913 7,014 5,989
Amortization of intangibles................................. 1,266 998 1,314
Merger and consolidation related............................ 1,235 413 2,714
Other....................................................... 32,094 28,029 29,450
-------- -------- --------
TOTAL NON-INTEREST EXPENSE............................. 130,298 104,441 93,588
-------- -------- --------
INCOME BEFORE INCOME TAXES............................. 48,382 48,449 33,336
Income taxes................................................ 16,631 16,385 12,120
-------- -------- --------
NET INCOME............................................. $ 31,751 $ 32,064 $ 21,216
======== ======== ========
EARNINGS PER COMMON SHARE
Basic..................................................... $ .69 $ .70 $ .48
======== ======== ========
Diluted................................................... $ .68 $ .68 $ .47
======== ======== ========
|
See accompanying Notes to Consolidated Financial Statements
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE
INCOME STOCK CAPITAL EARNINGS INCOME TOTAL
------------- -------- ---------- -------- ------------- --------
(DOLLARS IN THOUSANDS)
BALANCE AT JANUARY 1, 2001.... $ 40,489 $ 83,290 $ 46,894 $ 201 $170,874
Net Income.................... $21,216 21,216
Change in other comprehensive
income...................... 2,145 2,145
-------
Comprehensive income.......... $23,361
=======
Dividends paid................ (20,118)
Capital contribution from
F.N.B. Corporation.......... 5,349
Consolidation of subsidiary
charters.................... (15,184) 15,184
-------- -------- -------- ------- --------
BALANCE AT DECEMBER 31,
2001........................ 25,305 103,823 47,992 2,346 179,466
Net Income.................... $32,064 32,064
Change in other comprehensive
income...................... 2,703 2,703
-------
Comprehensive income.......... $34,767
=======
Dividends paid................ (24,516)
Capital contribution from
F.N.B. Corporation.......... 78,364
-------- -------- -------- ------- --------
BALANCE AT DECEMBER 31,
2002........................ 25,305 182,187 55,540 5,049 268,081
Net Income.................... $31,751 31,751
Change in other comprehensive
income...................... (3,151) (3,151)
-------
Comprehensive income.......... $28,600
=======
Dividends paid................ (66,152)
Capital contribution from
F.N.B. Corporation.......... 174,586
Cash paid in connection with
the spin-off of the Florida
operations of F.N.B.
Corporation................. (40,000)
Exchange of common stock in
connection with the spin-off
of the Florida operations of
F.N.B. Corporation.......... (24,842) 24,842
-------- -------- -------- ------- --------
BALANCE AT DECEMBER 31,
2003........................ $ 463 $341,615 $ 21,139 $ 1,898 $365,115
======== ======== ======== ======= ========
|
See accompanying Notes to Consolidated Financial Statements.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------
2003 2002 2001
--------- --------- ---------
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES
Net income................................................. $ 31,751 $ 32,064 $ 21,216
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization............................ 16,826 7,712 7,202
Provision for loan losses................................ 7,184 5,470 4,468
Deferred taxes........................................... (6,539) (7,373) (3,195)
(Gain) loss on sale of securities........................ (443) 28 (5)
Gain on sale of mortgage loans........................... (5,590) (5,133) (5,059)
Proceeds from sale of mortgage loans..................... 356,037 345,386 222,188
Mortgage loans originated for sale....................... (341,200) (363,331) (217,410)
Net change in:
Interest receivable................................... (2,019) (1,164) 2,100
Interest payable...................................... (1,521) 1,635 (1,789)
Other, net............................................... 20,643 (5,872) 6,833
--------- --------- ---------
Net cash flows from operating Activities.............. 75,129 9,422 36,549
--------- --------- ---------
INVESTING ACTIVITIES
Net change in:
Interest bearing deposits with banks..................... (4,168) (603) 908
Federal funds sold....................................... 9,361 45,039 28,522
Loans.................................................... (320,665) (152,798) (113,764)
Bank owned life insurance................................ (8,267) (4,766) (20,424)
Securities available for sale:
Purchases................................................ (585,508) (229,108) (112,432)
Sales.................................................... 330,978 41,947 13,042
Maturities............................................... 310,787 131,163 103,257
Securities held to maturity:
Purchases................................................ -- (2,523) (2,530)
Maturities............................................... 4,591 5,579 33,698
Increase in premises and equipment......................... (16,161) (12,435) (6,439)
Net cash paid for mergers and acquisitions................. (9,347) (64,761) (2,678)
--------- --------- ---------
Net cash flows from investing activities.............. (288,399) (243,266) (78,840)
--------- --------- ---------
FINANCING ACTIVITIES
Net change in:
Non-interest bearing deposits, savings, and NOW
accounts.............................................. 153,409 267,880 53,832
Time deposits............................................ (36,973) (108,225) 19,826
Short-term borrowings.................................... 86,453 69,453 (14,319)
Increase in long-term debt................................. 114,346 -- --
Decrease in long-term debt................................. (48,387) (15,031) (3,200)
Capital contributions...................................... 32,879 78,364 5,349
Cash paid in connection with the spin-off of the Florida
operations of F.N.B. Corporation......................... (40,000) -- --
Cash dividends paid........................................ (66,152) (24,516) (20,118)
--------- --------- ---------
Net cash flows from financing activities................. 195,575 267,925 41,370
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (17,695) 34,081 (921)
Cash and cash equivalents at beginning of year............. 117,359 83,278 84,199
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 99,664 $ 117,359 $ 83,278
========= ========= =========
|
See accompanying Notes to Consolidated Financial Statements.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SPIN-OFF TRANSACTION
On January 1, 2004, First National Bankshares of Florida, Inc. (the "Company") was spun off from F.N.B. Corporation (F.N.B.) through a tax-free distribution to the shareholders of F.N.B. On December 31, 2003, F.N.B. completed the transfer of all of its Florida operations to the Company. In connection with the transfer of the net assets of the Florida operations (all of the capital stock of First National Bank of Florida, Roger Bouchard Insurance, Inc. and First National Wealth Management Company), the Company paid $40.0 million in cash on December 30, 2003 to F.N.B. and issued 46,317,300 shares of its common stock on December 31, 2003. On the date of the spin-off, F.N.B. distributed one share of the Company's common stock to its shareholders for each share of F.N.B. common stock owned on the record date of December 26, 2003.
The spin-off resulted in the division of certain existing corporate support functions between the two resulting entities. Corporate expenses included in the Company's financial results represent an allocation of F.N.B.'s corporate expense to the Company's subsidiaries. This allocation is based on a specific review to identify costs incurred for the benefit of the subsidiaries of the Company and in management's judgment results in a reasonable allocation of such costs. The Company was allocated $10.1 million, $8.0 million, and $5.5 million of overhead costs related to shared administrative and support functions for the years 2003, 2002 and 2001, respectively.
The consolidated financial statements included herein may not necessarily be indicative of the results of operations, financial position and cash flows of the Company in the future or had it operated as a separate, independent company during the periods presented. The consolidated financial statements included herein do not reflect any changes that may occur in the financial condition and results of operations of the Company or its subsidiaries as a result of the distribution.
The Company incurred approximately $10.5 million in restructuring expense directly attributable to the distribution. These expenses consisted of $5.3 million of early retirement expenses and involuntary separation costs, $4.2 million in professional fees, and approximately $1.0 million in fixed asset write-off and other expenses connected with the separation. At December 31, 2003, a liability of approximately $5.2 million remained in connection with these expenses. This liability consists primarily of early retirements expenses and will be paid out upon certain individuals reaching retirement age.
BUSINESS
The Company was incorporated under the laws of the state of Florida on August 12, 2003. The Company is a diversified financial services company headquartered in Naples, Florida. The Company owns and operates First National Bank of Florida, (a community bank); Roger Bouchard Insurance, Inc. (an insurance agency); and First National Wealth Management Company (a national trust company). The Company has full-service offices located throughout southwest and central Florida.
BASIS OF PRESENTATION
The consolidated financial statements include accounts of First National Bank of Florida, Southern Exchange Bank, Roger Bouchard Insurance, Inc., and First National Wealth Management Company, all of which are wholly owned by the Company. All significant inter-company balances and transactions have been eliminated. Prior years' financial statements include transactions accounted for as poolings-of-interests during 2001. The financial condition and results of operations of acquisitions accounted for as a purchase are included in the Company's financial statements from the date the acquisition is completed. (See the "Mergers and Acquisitions" section of this report).
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
CASH EQUIVALENTS
The Company considers cash and due from banks as cash and cash equivalents.
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 Company has no intention of establishing a trading securities classification.
Securities are periodically reviewed for impairment based upon a number of factors, including but not limited to, length of time and extent to which the market value has been less than cost, financial condition of the underlying issuer, ability of the issuer to meet contractual obligations, the likelihood of the security's ability to recover any decline in its market value, and the intent and ability to retain the security for a period of time sufficient to allow for recovery in market value.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party.
MORTGAGE LOANS HELD FOR SALE
Certain residential mortgage loans are originated for sale in the secondary mortgage loan market on a non-recourse basis and typically sold with servicing rights released. These loans are classified as loans held for sale and are carried at the lower of aggregate cost or estimated market value. Market value is determined on the basis of rates obtained in the respective secondary market for the type of loan held for sale. Loans are generally sold at a premium or discount from the carrying amount of the loan. Such premium or discount is recognized at the date of sale. Gain or loss on the sale of loans is recorded in non-interest income at the time consideration is received and all other criteria for sales treatment have been met.
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 Company'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. Payments on non-accrual loans are generally applied
to either principal or
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest or both, depending on management's evaluation of collectibility. 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 maintained at a level that, in management's judgment, is adequate to absorb probable losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio at the balance sheet date. 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.
The allowance for loan losses consists of an allocated and unallocated component. The components of the allowance for loan losses represent an estimation completed pursuant to Financial Accounting Standards Statement (FAS)5, Accounting for Contingencies, or FAS 114, Accounting by Creditors for Impairment of a Loan. The allocated component reflects expected losses resulting from analysis developed through specific credit allocations for individual loans and historical loss experience for each loan category. The specific credit allocations are based on a regular analysis of all commercial loans over a fixed-dollar amount where the internal credit rating is at or below a predetermined classification. The historical loan loss element is determined statistically based on regularly updated loan loss experience.
The unallocated portion of the allowance is determined based on management's assessment of historical losses 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, involves a consideration of current risk factors that may not have yet occurred in the Company's historical loss factors used to determine the allocated component of the allowance, and recognizes that knowledge of the portfolio may be incomplete. 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.
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-homogeneous loans, which based on the evaluation of current information and events, management has determined that it is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company 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 3 to 40 years.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. On January 1, 2002, the Company adopted FAS 142, Goodwill and Other Intangible Assets. Under the provisions of FAS 142, goodwill is no longer amortized into the income statement over an estimated life, but rather is tested at least annually for impairment. Intangible assets which have finite lives are recorded in "Other assets" on the balance sheet and are amortized over their estimated useful lives, not to exceed 10 years.
PREFERRED SECURITIES OF UNCONSOLIDATED SUBSIDIARY TRUST
On December 30, 2003, the Company acquired the common stock of First National Bankshares Statutory Trust I (Issuer Trust), an unconsolidated subsidiary trust. The Issuer Trust used the proceeds from the issuance of $40 million of its preferred securities to third-party investors and common stock to acquire a $41.2 million debenture issued by the Company. This debenture and certain capitalized costs associated with the issuance of the preferred stock comprise the Issuer Trust's only assets and the interest payments from the debentures finance the distributions paid on the preferred securities. The Company recorded the debenture in "Long-term debt" and its equity interest in the business trusts in "Other assets" on the balance sheet. The debenture and preferred securities bear interest at a floating rate equal to the 3-month LIBOR plus 290 basis points.
The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the preferred securities of the Issuer Trust subject to the terms of the guarantee.
The debenture held by the Issuer Trust currently qualifies as Tier I capital under Federal Reserve Board guidelines.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into various forward sales agreements to protect against changes in interest rates and prices on its mortgage loan commitments. These transactions do not qualify for hedge accounting under FAS 133, Accounting for Derivative Instruments and Hedging Activities. Therefore, both the forward agreements and the mortgage loan commitments are marked to market through earnings. The market values of forward sales agreements and mortgage loan commitments are based on current market values, obtained in the open market from mortgage accumulators. These market values reflect current values of forward sales agreements and mortgage loan commitments having similar terms and characteristics to those entered into by the Company. Gains and losses arising from the valuation of forward sales agreements and mortgage loan commitments are reflected within "Gains on the sale of mortgage loans." At December 31, 2003, the Company had $5.2 million in forward sales agreements.
INSURANCE AGENCY REVENUES
The Company's insurance agency is a full-service insurance agency offering all lines of commercial and personal insurance through major third party carriers. Commissions and fees are recognized when earned based on contractual terms and conditions of insurance policies with the insurance carriers. Contingency fee income paid by the insurance carriers is recognized upon receipt.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WEALTH MANAGEMENT REVENUES
The Company's wealth management subsidiary offers trust services as well as various alternative investment products, including mutual funds and annuities. Trust revenues are recognized on the accrual basis in accordance with the contractual terms of the trust. Commissions and fees from the sale of mutual funds and annuities are recognized when earned based on contractual terms with the third party broker dealer.
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
Basic earnings per common share are calculated by dividing net income 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 F.N.B.'s outstanding convertible preferred stock from the beginning of the year and the exercise of stock options. 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.
F.N.B. redeemed its outstanding preferred stock in exchange for F.N.B. Corporation common stock during the second quarter of 2003. Therefore, the dilutive effect of F.N.B.'s preferred stock on the Company's prior periods weighted average shares outstanding is assumed by applying the exchange ratio to the dilutive effect of such securities of F.N.B.
On the date of distribution, F.N.B. stock options held by employees of the Company were converted into stock options of the Company. Since the stock options were converted after year end, it is not possible to estimate the dilutive impact to the Company. The conversion of the stock options provided the employees with a benefit similar to that provided by the F.N.B. options. Therefore, the dilutive effect of the stock options on the Company's prior period's weighted average shares outstanding is assumed by applying the exchange ratio to the dilutive effect of such stock options of F.N.B.
NEW ACCOUNTING STANDARDS
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" was issued in November 2002. Interpretation 45 requires certain guarantees to be recorded at fair value and applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or an equity security of the guaranteed party. In connection with the adoption of Interpretation 45, the Company began recording a liability for the fair value of any standby letters of credit it issued in 2003. The impact of the adoption of this new accounting standard was not material to the financial condition or results of operations of the Company.
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" was issued in January 2003 and subsequently revised in December 2003. Interpretation 46 addresses consolidation by business enterprises of variable interest entities which have certain characteristics. Interpretation 46 applies immediately to variable interest entities created after January 31, 2003. It applies in the first fiscal year or interim period beginning after December 15, 2003, to variable interest entities in which an enterprise holds a variable interest that is acquired before February 1, 2003.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 30, 2003, the Company acquired the common stock of a business trust that issued trust preferred securities to third party investors. The trust's sole asset is a $41.2 million debenture issued by the Company that was acquired by the trust using proceeds from the issuance of preferred securities and common stock. The Company determined that it is not the primary beneficiary of this trust and, therefore, has not consolidated the financial condition and results of operations of the trust in the Company's consolidated financial statements. Instead, the Company recorded the debenture in "long-term debt" and its equity interest in the business trusts in "other assets" on the balance sheet. For regulatory reporting purposes, the Federal Reserve Board has advised that such preferred securities will continue to constitute Tier 1 capital until further notice is given to the contrary. In the event of disallowance, absent other factors there would be a reduction in the Company's consolidated capital ratios. However, the Company believes that it would remain "well-capitalized" under Federal Reserve Board guidelines.
FAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity" was issued in May of 2003. The standard established how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify certain financial instruments that would previously have been classified as equity as liabilities (or as assets in some circumstances). Specifically this statement requires that a mandatorily redeemable financial instrument be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity. This accounting guidance was effective for financial instruments entered into or modified after May 31, 2003, and otherwise became effective on July 1, 2003 and did not have a material impact on the Company's results of operations or financial condition.
Statement of Financial Accounting Standards (FAS) No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure" was issued in December 2002. It provides alternative methods of accounting for stock-based employee compensation. In addition, it amends disclosure requirements in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The Company will account for its stock-based compensation plans under Opinion 25. Therefore, FAS 148 is not expected to have a material impact on the Company's financial results.
FAS 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued in June 2002 and was adopted by the Company on January 1, 2003. This statement requires a cost associated with an exit or disposal activity to be recorded as a liability at fair value when it becomes probable the cost will be incurred and no future economic benefit will be gained by the company for such cost. Applicable costs include employee termination benefits, contract termination costs and costs to relocate employees. FAS 146 superseded EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, which in some cases required certain costs to be recognized before a liability was actually incurred. The costs incurred in connection with the spin-off transaction from F.N.B. were accounted for in accordance with the provisions of FAS 146.
FAS 144 was issued in October 2001 and addresses how and when to measure impairment on long-lived assets that an entity plans to dispose of either through sale, abandonment, exchange, or distribution to owners. The statement supersedes FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. The provision of FAS 144 became effective for the Company on January 1, 2002, and did not have a material impact on its results of operations or financial condition.
In December 2003, the AICPA issued Statement of Position (SOP) 03-3 "Accounting for Certain Loans and Debt Securities Acquired in a Transfer". SOP 03-3 prohibits the carryover of an allowance for loan losses on loans acquired in a purchase business combination. Increases in expected cash flows to be collected from the contractual cash flows will be recognized as an adjustment of the loan's yield over its remaining life, while decreases in expected cash flows will be recognized as an impairment. This accounting guidance will be effective for loans acquired subsequent to December 15, 2004. The Company does not anticipate this new accounting standard to have a material impact on its financial condition or results of operations.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 1, 2002, the Company adopted FAS 142, which addresses the accounting and reporting for acquired goodwill and other intangible assets. Further detail on the accounting for goodwill and intangible assets under FAS 142 and the impact of the adoption on the financial statements is included in the "Goodwill and Other Intangible Assets" Sections of this report.
MERGERS AND ACQUISITIONS
On July 1, 2003, Roger Bouchard Insurance, Inc. completed its acquisition of Lupfer-Frakes, Inc. (Lupfer) an independent insurance agency located in Central Florida. Roger Bouchard Insurance, Inc. paid $10.2 million in exchange for all of the outstanding common stock of Lupfer. The transaction, which was accounted for as a purchase, resulted in the recognition of $8.5 million in goodwill and $1.3 million in customer and renewal lists. The value assigned to the customer and renewal lists will be amortized over a ten-year period. Lupfer's results of operations have been reflected in the Company's results beginning in the third quarter of 2003.
On March 31, 2003, F.N.B. completed its acquisition of Charter Banking Corp. (Charter), a bank holding company headquartered in Tampa, Florida, with assets having a fair value of $795.6 million. As a result, Charter became a wholly-owned subsidiary of F.N.B. The acquisition of Charter allowed F.N.B. to access the Hillsborough county market and to expand its presence in the Pinellas county market. Charter's only subsidiary was Southern Exchange Bank ("SEB"). In exchange for all of the outstanding common stock of Charter, F.N.B. paid $150.2 million. F.N.B. funded this acquisition through the issuance of $125.0 million of trust preferred securities and $25.2 million from F.N.B's existing lines of credit with several major domestic banks. The transaction, which was accounted for as a purchase, resulted in the recognition of approximately $103.0 million in nondeductible goodwill and $1.1 million in core deposit intangibles. The core deposit intangible will be amortized over a ten year period. The fair market value assigned to loans, investments, fixed assets, deposits and long-term debt was $169.8 million, $461.5 million, $40.8 million, $481.5 million and $154.5 million, respectively. The fair market value of interest earning assets and interest bearing liabilities was based on either quoted market values or discounting future cash flows using market rates as of March 31, 2003. These purchase adjustments will be amortized or accreted in future periods over the estimated lives of the interest earning assets and interest bearing liabilities. Current third party independent appraisals were used to value the land and buildings included in fixed assets. Merger related costs totaling $1.2 million were incurred in connection with this acquisition, which were related to employment obligations. Charter was merged into F.N.B. Corporation on August 22, 2003.
SEB's results of operations have been reflected in the Company's results since the acquisition date of March 31, 2003. Southern Exchange Bank was merged into First National Bank of Florida on October 10, 2003 as part of an internal reorganization.
On January 31, 2002, the Company completed its business combination with Central Bank Shares, Inc. (Central), a bank holding company headquartered in Orlando, Florida, with assets of approximately $251.4 million. In exchange for all of the outstanding common stock of Central, the Company paid $80 million in cash. The transaction, which was accounted for as a purchase, resulted in the recognition of approximately $47.0 million of goodwill and $8.1 million in core deposit intangibles. Central's banking subsidiary, Bank of Central Florida, was merged into First National Bank of Florida on October 14, 2003.
On April 30, 2001, the Company completed its business combination 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 Company's common stock. A total of 1,775,224 shares of the Company's common stock were issued. The transaction was accounted for as a pooling-of-interests. Citizens' banking subsidiary, Citizens Community Bank of Florida, was merged into First National Bank of Florida.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 2001, the Company completed its business combination 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. The Company also completed its business combination 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. These agencies are operating as divisions of Bouchard.
The Company regularly evaluates the potential acquisition of, and holds discussions with, various acquisition candidates and as a general rule the Company publicly announces such acquisitions only after a definitive merger agreement has been reached.
CHARTER CONSOLIDATION
During the first quarter of 2001, the Company reduced its number of bank charters from five to one by merging its five Florida banks under First National Bank of Florida.
SECURITIES
The amortized cost and fair value of securities are as follows (in thousands):
SECURITIES AVAILABLE FOR SALE:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
DECEMBER 31, 2003
U.S. Treasury and other U.S. government
agencies and corporations................ $135,550 $2,083 $ (300) $137,333
Mortgage-backed securities of U.S.
government agencies...................... 515,784 3,647 (4,031) 515,400
States of the U.S. and political
subdivisions............................. 65,184 2,370 (4) 67,550
Other debt securities...................... 19,636 851 -- 20,487
-------- ------ ------- --------
Total debt securities.................... 736,154 8,951 (4,335) 740,770
Equity securities.......................... 22,530 13 (8) 22,535
-------- ------ ------- --------
$758,684 $8,964 $(4,343) $763,305
======== ====== ======= ========
DECEMBER 31, 2002
U.S. Treasury and other U.S. government
agencies and corporations................ $ 99,068 $3,303 $ -- $102,371
Mortgage-backed securities of U.S.
government agencies...................... 222,360 5,368 (68) 227,660
States of the U.S. and political
subdivisions............................. 4,598 110 (2) 4,706
Other debt securities...................... 19,968 211 (126) 20,053
-------- ------ ------- --------
Total debt securities.................... 345,994 8,992 (196) 354,790
Equity securities.......................... 13,865 -- (11) 13,854
-------- ------ ------- --------
$359,859 $8,992 $ (207) $368,644
======== ====== ======= ========
|
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
DECEMBER 31, 2001
U.S. Treasury and other U.S. government
agencies and corporations................ $ 98,269 $2,284 $ (105) $100,448
Mortgage-backed securities of U.S.
government agencies...................... 101,396 1,546 (93) 102,849
States of the U.S. and political
subdivisions............................. 2,466 32 (44) 2,454
-------- ------ ------- --------
Total debt securities.................... 202,131 3,862 (242) 205,751
Equity securities.......................... 8,768 -- (60) 8,708
-------- ------ ------- --------
$210,899 $3,862 $ (302) $214,459
======== ====== ======= ========
|
The equity securities portfolio consists primarily of Federal Reserve and Federal Home Loan Bank stock.
SECURITIES HELD TO MATURITY:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
DECEMBER 31, 2003
Mortgage-backed securities of U.S.
government agencies...................... $ 691 $ 15 $ -- $ 706
States of the U.S. and political
subdivisions............................. 11,338 492 (5) 11,825
------- ---- ---- -------
$12,029 $507 $ (5) $12,531
======= ==== ==== =======
DECEMBER 31, 2002
U.S. Treasury and other U.S. government
agencies and corporations................ $ 1,000 $ 18 $ -- $ 1,018
Mortgage-backed securities of U.S.
government agencies...................... 1,116 32 -- 1,148
States of the U.S. and political
subdivisions............................. 14,509 565 (11) 15,063
------- ---- ---- -------
$16,625 $615 $(11) $17,229
======= ==== ==== =======
DECEMBER 31, 2001
U.S. Treasury and other U.S. government
agencies and corporations................ $ 1,190 $ 47 $ -- $ 1,237
Mortgage-backed securities of U.S.
government agencies...................... 2,347 38 -- 2,385
States of the U.S. and political
subdivisions............................. 16,144 313 (33) 16,424
------- ---- ---- -------
$19,681 $398 $(33) $20,046
======= ==== ==== =======
|
At December 31, 2003, 2002 and 2001, securities with a carrying value of $161.9 million, $41.3 million and $44.7 million, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $270.6 million, $265.9 million and $174.6 million at December 31, 2003, 2002 and 2001, respectively, were pledged as collateral for short-term borrowings.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The age of gross unrealized losses and fair value of available for sale securities by investment category as of December 31, 2003 were as follows:
GREATER THAN
LESS THAN 12 MONTHS 12 MONTHS TOTAL
--------------------- ------------------ ---------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE LOSSES VALUE LOSSES VALUE LOSSES
-------- ---------- ----- ---------- -------- ----------
U.S. Treasury and other
U.S. government agencies
and corporations........ $ 34,752 $ (300) $ -- $ -- $ 34,752 $ (300)
Mortgage-backed securities
of U.S. government
agencies................ 253,632 (4,031) -- -- 253,632 (4,031)
States of the U.S. and
political
subdivisions............ 417 (4) -- -- 417 (4)
Equity securities......... 51 (8) -- -- 51 (8)
-------- ------- ----- ----- -------- -------
Total................... $288,852 $(4,343) $ -- $ -- $288,852 $(4,343)
======== ======= ===== ===== ======== =======
|
The Company does not believe unrealized losses, individually or in the aggregate, as of December 31, 2003 represents an other-than-temporary impairment. The unrealized losses are primarily a result of changes in interest rates and will not prohibit the Company from receiving its contractual interest and principal payments. The Company has the ability and intent to hold these securities for a period necessary to recover the amortized cost.
As of December 31, 2003, 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
COST VALUE COST VALUE
--------- ------- --------- --------
Due in one year or less..................... $ 1,350 $ 1,367 $ 10,384 $ 10,552
Due from one to five years.................. 7,454 7,808 133,917 135,928
Due from five to ten years.................. 2,534 2,650 40,052 41,517
Due after ten years......................... -- -- 36,017 37,373
------- ------- -------- --------
11,338 11,825 220,370 225,370
Mortgage-backed securities of U.S.
government agencies....................... 691 706 515,784 515,400
Equity securities........................... -- -- 22,530 22,535
------- ------- -------- --------
$12,029 $12,531 $758,684 $763,305
======= ======= ======== ========
|
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.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Proceeds from sales of securities available for sale for the years ended December 31, 2003, 2002 and 2001 were $331.0 million, $41.9 million, and $13.0 million, respectively. Gross gains and gross losses were realized on those sales as follows (in thousands):
2003 2002 2001
---- ---- ----
Gross gains................................................. $453 $ 23 $12
Gross losses................................................ (10) (51) (7)
---- ---- ---
$443 $(28) $ 5
==== ==== ===
|
LOANS
Following is a summary of loans (in thousands):
DECEMBER 31,
-----------------------
2003 2002
---------- ----------
Real Estate:
Residential............................................... $ 810,790 $ 631,531
Commercial................................................ 1,017,291 744,657
Construction.............................................. 311,266 262,619
Installment loans to individuals............................ 77,660 95,043
Commercial, financial and agricultural...................... 227,117 204,444
Lease financing............................................. 6,032 24,311
Unearned income............................................. (774) (1,710)
---------- ----------
$2,449,382 $1,960,895
========== ==========
|
The loan portfolio consists principally of loans to individuals and small-and medium-sized businesses within the Company's primary market area of southwest and central Florida.
As of December 31, 2003, 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 Company and its significant subsidiaries, as well as associates of such persons, were loan customers during 2003. 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, 2002............................ $17,612
New loans................................................... 10,682
Repayments.................................................. (4,144)
Other....................................................... 72
-------
Total loans at December 31, 2003............................ $24,222
=======
|
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NON-PERFORMING ASSETS
Following is a summary of non-performing assets at December 31, 2003 and 2002 (in thousands):
DECEMBER 31,
---------------
2003 2002
------ ------
Non-accrual loans........................................... $5,521 $3,965
Restructured loans.......................................... -- --
------ ------
TOTAL NON-PERFORMING LOANS................................ 5,521 3,965
Other real estate owned..................................... -- 1,428
------ ------
TOTAL NON-PERFORMING ASSETS............................... $5,521 $5,393
====== ======
|
For the years ended December 31, 2003, and 2002, income recognized on non-accrual and restructured loans was $262,000, and $106,000, respectively. Income that would have been recognized for the years ended December 31, 2003, and 2002 on such loans if they were in accordance with their original terms was $452,000, and $412,000, respectively. Loans past due 90 days or more were $163,000, and $262,000, at December 31, 2003, and 2002, respectively.
Following is a summary of information pertaining to loans considered to be impaired (in thousands):
DECEMBER 31,
------------------------
2003 2002 2001
------ ------ ------
Impaired loans with an allocated allowance................. $2,296 $3,170 $1,197
Impaired loans without an allocated allowance.............. 1,972 1,131 75
------ ------ ------
Total impaired loans..................................... $4,268 $4,301 $1,272
====== ====== ======
Allocated allowance on impaired loans...................... $2,291 $ 666 $ 355
====== ====== ======
Portion of impaired loans on non-accrual................... $4,268 $3,170 $ 711
====== ====== ======
Average impaired loans..................................... $4,285 $2,786 $1,832
====== ====== ======
Income recognized on impaired loans........................ $ 216 $ 42 $ 40
====== ====== ======
|
ALLOWANCE FOR LOAN LOSSES
Following is an analysis of changes in the allowance for loan losses (in thousands)
DECEMBER 31,
---------------------------
2003 2002 2001
------- ------- -------
Balance at beginning of year............................ $21,421 $18,714 $17,321
Additional from acquisitions............................ 2,506 1,389 --
Charge-offs............................................. (4,578) (5,407) (3,686)
Recoveries.............................................. 1,571 1,255 611
------- ------- -------
NET CHARGE-OFFS....................................... (3,007) (4,152) (3,075)
Provision for loan losses............................... 7,184 5,470 4,468
------- ------- -------
Balance at end of year................................ $28,104 $21,421 $18,714
======= ======= =======
|
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREMISES AND EQUIPMENT
Following is a summary of premises and equipment (in thousands):
DECEMBER 31,
-------------------
2003 2002
-------- --------
Land........................................................ $ 36,954 $ 19,606
Premises.................................................... 81,675 57,280
Equipment................................................... 52,601 40,057
-------- --------
171,230 116,943
Accumulated Depreciation.................................... 51,113 41,332
-------- --------
$120,117 $ 75,611
======== ========
|
Depreciation expense was $7.5 million for the year ended December 31, 2003, and $6.0 million for 2002.
The Company 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 $1.4 million, $1.7 million and $1.4 million for 2003, 2002 and 2001, respectively. Total minimum rental commitments under such leases were $11.2 at December 31, 2003. Following is a summary of future minimum lease payments for years following December 31, 2003 (in thousands):
2004........................................................ $1,056 2005........................................................ 916 2006........................................................ 555 2007........................................................ 465 2008........................................................ 280 Later years................................................. 7,905 |
GOODWILL AND OTHER INTANGIBLE ASSETS
Upon adoption of FAS 142 on January 1, 2002, the Company ceased amortizing its goodwill, which decreased non-interest expense and increased net income in 2003 and 2002 as compared to 2001. Rather than amortizing goodwill, the Company is required to test goodwill at least annually for impairment. The Company completed its impairment testing and concluded that goodwill is not impaired. The following table shows the pro forma effects of applying non-amortization provisions of FAS 142 for the year ended December 31, 2001 (in thousands, except per share data):
BASIC EARNINGS DILUTED EARNINGS
PER COMMON PER COMMON
NET INCOME SHARE SHARE
---------- -------------- ----------------
As reported.................................. $21,216 $.48 $.47
Goodwill amortization, net of tax............ 758 .02 .01
------- ---- ----
Pro forma.................................... $21,974 $.50 $.48
======= ==== ====
|
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table shows a summary of goodwill by line of business as of December 31, 2003 (in thousands):
COMMUNITY INSURANCE
BANK AGENCY TOTAL
--------- --------- --------
Goodwill, December 31, 2002.......................... $ 51,813 $10,865 $ 62,678
Goodwill acquired.................................... 103,036 8,015 111,051
-------- ------- --------
Goodwill, December 31, 2003.......................... $154,849 $18,880 $173,729
======== ======= ========
|
The following table shows a summary of core deposit intangibles, customer and renewal lists, and other intangible assets (in thousands):
OTHER TOTAL
CORE DEPOSIT CUSTOMER AND INTANGIBLE FINITE-LIVED
INTANGIBLES RENEWAL LISTS ASSETS INTANGIBLES
------------ ------------- ---------- ------------
Gross carrying amount.................. $ 9,786 $3,229 $ 464 $13,479
Accumulated amortization............... (2,159) (608) (195) (2,962)
------- ------ ----- -------
NET DECEMBER 31, 2003................ $ 7,627 $2,621 $ 269 $10,517
======= ====== ===== =======
Gross carrying amount.................. $ 8,682 $1,753 $ 464 $10,899
Accumulated amortization............... (1,190) (325) (104) (1,619)
------- ------ ----- -------
NET DECEMBER 31, 2002................ $ 7,492 $1,428 $ 360 $ 9,280
======= ====== ===== =======
|
Amortization expense on finite-lived intangible assets totaled $1.3 million, $998,000, and $176,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Amortization expense on finite-lived intangible assets is expected to total $1.5 million, $1.4 million, $1.3 million, $1.3 million and $1.3 million in 2004, 2005, 2006, 2007 and 2008, respectively.
DEPOSITS
Following is a summary of deposits as of December 31, 2003 and 2002 (in thousands):
2003 2002
---------- ----------
Non-interest bearing........................................ $ 451,837 $ 360,917
Savings and NOW............................................. 1,346,741 1,132,816
Certificates of deposit and other time deposits............. 921,411 628,319
---------- ----------
$2,719,989 $2,122,052
========== ==========
|
Following is a summary of the scheduled maturities of certificates of deposits and other time deposits for each of the five years following December 31, 2002 (in thousands):
2004........................................................ $437,168 2005........................................................ 324,241 2006........................................................ 78,953 2007........................................................ 54,998 2008........................................................ 22,218 Later years................................................. 3,833 |
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Time deposits of $100,000 or more were $415.8 million, and $214.0 million at December 31, 2003 and 2002, respectively. Following is a summary of these time deposits by remaining maturity at December 31, 2003 (in thousands):
CERTIFICATES OTHER TIME
OF DEPOSIT DEPOSITS TOTAL
------------ ---------- --------
Three months or less................................ $ 39,415 $1,764 $ 41,179
Three to six months................................. 57,215 741 57,956
Six to twelve months................................ 79,441 1,534 80,975
Over twelve months.................................. 230,857 4,830 235,687
-------- ------ --------
$406,928 $8,869 $415,797
======== ====== ========
|
SHORT-TERM BORROWINGS
Following is a summary of short-term borrowings as of December 31, 2003 and 2002 (in thousands):
DECEMBER 31,
-------------------
2003 2002
-------- --------
Securities sold under repurchase agreements................. $248,051 $231,056
Federal funds purchased..................................... 86,000 14,000
Federal Home Loan Bank advances............................. 20,000 15,354
-------- --------
$354,051 $260,410
======== ========
|
LONG-TERM DEBT
Following is a summary of long-term debt as of December 31, 2003 and 2002 (in thousands):
DECEMBER 31,
------------------
2003 2002
-------- -------
Federal Home Loan Bank advances............................. $211,944 $50,000
Subordinated debentures..................................... 58,238 --
Other long-term debt........................................ 818 591
-------- -------
$271,000 $50,591
======== =======
|
As of December 31, 2003, First National Bank of Florida had available credit with the Federal Home Loan Bank of $557.5 million, of which $231.9 million was used. 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 1.18% to 6.40% in 2003 and 5.46% to 6.40% in 2002.
On December 30, 2003, the Company issued a $41.2 million debenture to an unconsolidated subsidiary trust. The debenture has a term of 30 years and bears interest at a floating rate equal to the three-month LIBOR plus 290 basis points. At December 31, 2003, the rate on the debenture was 4.07%.
In addition, First National Bank of Florida entered into a $17.0 million subordinated loan with a correspondent bank on December 30, 2003. The subordinated loan has a seven-year maturity and bears interest at a floating rate equal to the three-month LIBOR plus 170 basis points. At December 31, 2003, the rate on the subordinated loan was 2.87%.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled annual maturities for all of the long-term debt for each of the five years following December 31, 2003 are as follows (in thousands):
2004........................................................ $ 22,347 2005........................................................ 128,061 2006........................................................ 20,066 2007........................................................ 65 2008........................................................ 10,063 Later years................................................. 90,398 |
COMMITMENTS, CREDIT RISK AND CONTINGENCIES
The Company 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 Company'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 Company for both on- and off-balance sheet items.
Following is a summary of off-balance sheet credit risk information as of December 31, 2003 and 2002 (in thousands):
DECEMBER 31,
-------------------
2003 2002
-------- --------
Commitments to extend credit................................ $717,079 $448,073
Standby letters of credit................................... 34,842 27,012
|
At December 31, 2003, funding of approximately 79% of the commitments to extend credit was dependent on the financial condition of the customer. The Company 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 Company 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.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the years ended December 31, 2003, 2002 and 2001 are as follows (in thousands):
DECEMBER 31,
--------------------------------
2003 2002 2001
------- ------------ -------
Net income........................................... $31,751 $32,064 $21,216
Other comprehensive income:
Unrealized gains (losses) on securities:
Arising during the period, net of tax expense
(benefit) of $(1,744), $1,884 and $1,147...... (2,096) 3,493 2,130
Less: reclassification adjustment for (gains)
losses included as an unrealized gain, net of
tax expense (benefit) of $294, $66 and $(8)..... (546) (122) 15
Minimum benefit plan liability adjustment, net of tax
benefit of $274 and $360........................... (509) (668) --
------- ------- -------
Other comprehensive income........................... (3,151) 2,703 2,145
------- ------- -------
Comprehensive income................................. $28,600 $34,767 $23,361
======= ======= =======
|
STOCK INCENTIVE PLANS
Prior to the spin-off, key employees of the Company were issued stock options under both incentive and non-qualified stock option plans of F.N.B. The options vest in equal installments over periods ranging from three to ten years and are exercisable within ten years from the date of grant. The options were granted at a price equal to the fair market value of the underlying stock at the date of grant and, in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, no compensation expense was recognized.
Effective on the date of the spin-off, all outstanding F.N.B. options held by the Company's employees were automatically converted to options to purchase the Company's common stock. The amount and exercise price of the converted options were determined pursuant to a formula designed to cause: (i) the intrinsic value of the converted options immediately after the distribution to be the same as the intrinsic value of the F.N.B. Corporation options immediately prior to the distribution, and (ii) the financial position of the option holders (fair market value of the underlying stock) remained the same immediately prior and immediately after the distribution. No compensation expense was recognized as a result of the conversion. All other terms and conditions of the options remained the same. The options vest in equal installments over periods ranging from three to ten years and are exercisable within ten years from the date of grant. The options were originally granted by F.N.B. at a price equal to the fair market value of the underlying stock at the date of grant and no compensation expense was recognized in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize information about the stock options outstanding immediately prior and immediately following the conversion on the distribution date:
STOCK OPTIONS ISSUED BY F.N.B. CORPORATION HELD BY THE COMPANY'S EMPLOYEES PRIOR TO CONVERSION
--------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------------ ----------- ---------------- -------------- ----------- --------------
$ 4.74 - $ 7.63....... 24,264 7.29 $ 4.98 24,264 $ 4.98
7.64 - 11.45....... 56,299 1.07 9.92 56,299 9.92
11.46 - 18.63....... 124,415 3.83 15.29 107,398 15.29
18.64 - 28.81....... 1,675,050 6.80 22.31 775,947 22.31
28.82 - 29.10....... 9,027 8.38 28.99 4,828 28.99
--------- -------
1,889,055 968,736
========= =======
|
STOCK OPTIONS ISSUED BY THE COMPANY HELDBY THE COMPANY'S EMPLOYEES FOLLOWING THE CONVERSION
--------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------------ ----------- ---------------- -------------- ----------- --------------
$ 2.23 - $ 3.58....... 51,661 7.29 $ 2.34 51,661 $ 2.34
3.59 - 5.37....... 119,868 1.07 4.66 119,868 4.66
5.38 - 8.75....... 264,895 3.83 7.18 228,665 7.18
8.76 - 13.53....... 3,566,398 6.80 10.48 1,652,092 10.48
13.54 - 13.67....... 19,220 8.38 13.62 10,278 13.62
--------- ---------
4,022,042 2,062,564
========= =========
|
In addition to stock options, F.N.B. awarded restricted stock to certain key employees. Shares awarded to these employees vest in equal installments over a five-year period on each anniversary of the date of grant. These awards were converted to restricted stock of the Company in a manner similar to the stock options. As a result, 19,925 shares of F.N.B. Corporation restricted stock were converted to 42,343 shares of the Company's restricted stock.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RETIREMENT PLAN
NONQUALIFIED BENEFIT PLAN
Following are reconciliations of the change in benefit obligation and funded status of the nonqualified benefit plan (in thousands):
DECEMBER 31,
----------------
2003 2002
------- ------
Benefit obligation at beginning of year..................... $ 7,618 $5,296
Service cost................................................ 861 648
Interest cost............................................... 683 471
Plan amendments............................................. 672 77
Actuarial loss.............................................. 1,825 1,126
Benefits paid............................................... (64) --
Special termination benefits................................ 737 --
Curtailment gain............................................ (90) --
------- ------
Benefit obligation at end of year........................... $12,242 $7,618
======= ======
|
DECEMBER 31,
------------------
2003 2002
-------- -------
Funded status of plan....................................... $(12,242) $(7,618)
Unrecognized actuarial loss (gain).......................... 3,523 1,901
Unrecognized prior service cost............................. 2,769 2,741
-------- -------
Accrued pension cost........................................ $ (5,950) $(2,976)
======== =======
|
The amounts recognized in the Company's consolidated financial statements include the following (in thousands):
DECEMBER 31,
-----------------
2003 2002
------- -------
Accrued pension cost........................................ $(5,950) $(2,976)
Additional minimum liability................................ (4,580) (3,409)
Accumulated other comprehensive loss........................ 1,811 668
Intangible asset............................................ 2,769 2,741
------- -------
Net amount recognized on balance sheet...................... $(5,950) $(2,976)
======= =======
|
The plan expense for the non qualified benefit plan included the following components (in thousands):
DECEMBER 31,
------------------------------
2003 2002 2001
------ ------------ ------
Service costs.......................................... $ 861 $ 648 $ 594
Interest cost.......................................... 683 471 353
Net amortization....................................... 454 282 313
------ ------ ------
Net benefit expense.................................... $1,998 $1,401 $1,260
====== ====== ======
|
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ASSUMPTIONS AS OF
DECEMBER 31,
------------------
2003 2002 2001
---- ---- ----
Weighted average discount rate.............................. 6.8% 7.3% 7.5%
Rates of increase in compensation levels.................... 4.0% 4.0% 4.0%
|
SALARY SAVINGS 401(k) PLAN
Eligible employees of the Company may contribute a percentage of their salary to the Company's Salary Savings 401(k) Plan. The Company matches 50 percent of an eligible employee's contribution on the first 6% that the employee defers, and may make a discretionary contribution payable either in cash or the Company's common stock based upon the Company's profitability. In addition, the Company makes an additional annual contribution in an amount equal to 5% of an eligible employee's annual compensation. Employees are generally eligible to participate upon completing 90 days of service and having attained age 21. Employer contributions become 20 percent vested when an employee has completed one year of service, and vest at a rate of 20 percent per year thereafter. The Company recognized expense of $3.3 million in 2003, $2.9 million in 2002 and $2.2 million in 2001 related to the Salary Savings 401(k) Plan.
INCOME TAXES
Income tax expense consists of the following (in thousands):
2003 2002 2001
------- ------- -------
Current income taxes
Federal taxes......................................... $20,074 $22,195 $13,939
State taxes........................................... 1,350 1,486 1,605
------- ------- -------
21,424 23,681 15,544
Deferred income taxes:
Federal taxes......................................... (4,654) (6,307) (2,959)
State taxes........................................... (139) (989) (465)
------- ------- -------
$16,631 $16,385 $12,120
======= ======= =======
|
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are presented below (in thousands):
DECEMBER 31,
-----------------
2003 2002
------- -------
Deferred tax assets:
Allowance for loan losses................................. $10,982 $ 8,362
Deferred compensation..................................... 1,400 1,477
Deferred benefits......................................... 1,956 65
Loan fees................................................. 255 585
Minimum benefit plan liability............................ 634 360
Other..................................................... 1,100 246
------- -------
TOTAL GROSS DEFERRED TAX ASSETS........................ 16,327 11,095
======= =======
Deferred tax liabilities:
Depreciation.............................................. (1,922) (881)
Net unrealized securities gains........................... (1,617) (3,075)
Leasing................................................... (1,544) (2,239)
Other..................................................... (670) (851)
------- -------
TOTAL GROSS DEFERRED TAX LIABILITIES................... (5,753) (7,046)
------- -------
NET DEFERRED TAX ASSETS................................ $10,574 $ 4,049
======= =======
|
Following is a reconciliation between tax expense using federal statutory tax and actual effective tax:
2003 2002 2001
---- ---- ----
Federal statutory tax....................................... 35.0% 35.0% 35.0%
Effect of nontaxable interest and dividend income........... (4.8) (2.4) (2.5)
State taxes................................................. 1.6 0.7 2.2
Goodwill.................................................... 0.1 0.1 0.5
Merger and consolidation related costs...................... 2.0 -- 0.5
Other items................................................. 0.5 0.4 0.6
---- ---- ----
Actual effective taxes...................................... 34.4% 33.8% 36.3%
==== ==== ====
|
Income tax (benefit) expense related to gains on the sale of securities was $155,050, $(9,800) and $1,750 for 2003, 2002 and 2001, respectively.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per share (in thousands except for share data):
BASIC
YEAR ENDED DECEMBER 31,
---------------------------------------
2003 2002 2001
----------- ----------- -----------
Net income applicable to basic earnings per
share....................................... $ 31,751 $ 32,064 $ 21,216
=========== =========== ===========
Average common shares outstanding............. 46,080,966 46,010,997 44,369,915
=========== =========== ===========
Earnings per share............................ $ .69 $ .70 $ .48
=========== =========== ===========
|
DILUTED
DECEMBER 31,
---------------------------------------
2003 2002 2001
----------- ----------- -----------
Net income applicable to diluted earnings per
share....................................... $ 31,751 $ 32,064 $ 21,216
=========== =========== ===========
Average common shares outstanding............. 46,080,966 46,010,997 44,369,915
F.N.B. Corporation's convertible preferred
stock....................................... 63,927 341,886 418,862
Net effect of dilutive stock options based on
the treasury stock method using the average
market price................................ 827,970 718,991 677,041
----------- ----------- -----------
46,972,863 47,071,874 45,465,818
=========== =========== ===========
Earnings per share............................ $ .68 $ .68 $ .47
=========== =========== ===========
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REGULATORY MATTERS
Quantitative measures established by regulators to ensure capital adequacy require the Company's banking subsidiary 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, 2003, that the Company's banking subsidiary meets all capital adequacy requirements to which it is subject.
As of December 31, 2003, the Company's banking subsidiary has been categorized by the various regulators as "well capitalized" under the regulatory framework for prompt corrective action.
The Company's banking subsidiary is 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 Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company's banking subsidiary 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 Company's banking subsidiary capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following are the capital ratios as of December 31, 2003 for the Company's banking subsidiary, First National Bank of Florida (dollars in thousands):
WELL CAPITALIZED MINIMUM CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
---------------- ---------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
Total Capital (to risk-weighted
assets)........................ $269,042 10.4% $259,913 10.0% $207,930 8.0%
Tier 1 Capital (to risk-weighted
assets)........................ 223,938 8.6 155,948 6.0 103,965 4.0
Tier 1 Capital (to average
assets)........................ 223,938 6.4 175,277 5.0 140,222 4.0
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The Company's banking subsidiary is not currently required to maintain aggregate cash reserves with the Federal Reserve Bank. However, the Company's banking subsidiary may maintain deposits with the Federal Reserve Bank 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. In connection with the spin-off, First National Bank of Florida paid a $25 million special dividend to F.N.B. Corporation. As a result of the special dividend, First National Bank of Florida is required to obtain regulatory approval prior to paying a dividend until its earnings retained for the current year combined with the retained earnings of the two previous years exceed dividends paid over the same period.
Under current Federal Reserve regulations, the Company's banking subsidiary is limited in the amount it may lend to non-bank affiliates, including the Company. Such loans must be secured by specified collateral. In addition, any such loans to a non-bank affiliate may not exceed 10% of the banking subsidiary's capital and surplus and the aggregate of loans to all such affiliates may not exceed 20%.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BUSINESS SEGMENTS
The Company operates in three reportable segments: a community bank, an insurance agency and a wealth management company. The Company's community bank offers services traditionally offered by full-service commercial banks, including commercial and individual demand and time deposit accounts and commercial, mortgage and individual installment loans. The Company's wealth management subsidiary offers trust services as well as various alternative investment products, including mutual funds and annuities. The Company's insurance agency is a full-service insurance agency offering all lines of commercial and personal insurance through major carriers. Other items shown in the following table represents eliminations, which are necessary for purposes of reconciling to the consolidated amounts. The following tables provide financial information for these segments (in thousands).
COMMUNITY INSURANCE WEALTH
BANK AGENCY MANAGEMENT OTHER CONSOLIDATED
---------- --------- ---------- ------- ------------
AT OR FOR THE YEAR ENDED DECEMBER 31,
2003
Interest income....................... $ 166,131 $ 190 $ 2 $ (29) $ 166,294
Interest expense...................... 42,780 87 8 (29) 42,846
Provision for loan losses............. 7,184 -- -- -- 7,184
Non-interest income................... 28,625 27,220 6,571 -- 62,416
Non-interest expense.................. 101,195 22,563 6,540 -- 130,298
Intangible amortization............... 982 282 2 -- 1,266
Income tax expense.................... 14,616 1,906 109 -- 16,631
Net income (loss)..................... 28,981 2,854 (84) -- 31,751
Total assets.......................... 3,717,993 36,975 2,368 (6,200) 3,751,136
Goodwill.............................. 154,849 18,880 -- -- 173,729
AT OR FOR THE YEAR ENDED DECEMBER 31,
2002
Interest income....................... $ 150,834 $ 154 $ -- $ (57) $ 150,931
Interest expense...................... 47,301 55 -- (57) 47,299
Provision for loan losses............. 5,470 -- -- -- 5,470
Non-interest income................... 24,228 25,810 4,690 -- 54,728
Non-interest expense.................. 78,875 20,262 5,304 -- 104,441
Intangible amortization............... 832 161 5 -- 998
Merger and consolidation related...... 413 -- -- -- 413
Income tax expense.................... 14,344 2,228 (187) -- 16,385
Net income (loss)..................... 29,072 3,419 (427) -- 32,064
Total assets.......................... 2,707,556 25,656 1,992 -- 2,735,204
Goodwill.............................. 51,813 10,865 -- -- 62,678
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FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMUNITY INSURANCE WEALTH
BANK AGENCY MANAGEMENT OTHER CONSOLIDATED
---------- --------- ---------- ------- ------------
AT OR FOR THE YEAR ENDED DECEMBER 31,
2001
Interest income....................... $ 148,650 $ 141 $ -- $ (63) $ 148,728
Interest expense...................... 65,215 164 -- (63) 65,316
Provision for loan losses............. 4,468 -- -- -- 4,468
Non-interest income................... 22,732 23,662 1,586 -- 47,980
Non-interest expense.................. 71,876 18,853 2,859 -- 93,588
Intangible amortization............... 2,518 -- 196 -- 2,714
Merger and consolidation related...... 603 680 31 -- 1,314
Income tax expense.................... 10,573 1,992 (445) -- 12,120
Net income (loss)..................... 19,250 2,794 (828) -- 21,216
Total assets.......................... 2,176,028 24,859 1,117 -- 2,202,004
Goodwill.............................. 4,963 10,865 -- -- 15,828
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CASH FLOW INFORMATION
Following is a summary of cash flow information (in thousands):
DECEMBER 31,
----------------------------
2003 2002 2001
-------- ------- -------
Cash paid during year for:
Interest............................................. $ 44,367 $45,664 $67,106
Income taxes......................................... 26,877 16,603 9,343
Non-cash Investing and Financing Activities:
Acquisition of real estate in settlement of loans.... 254 1,773 1,801
Loans granted in the sale of other real estate....... -- 82 1,214
Contribution from F.N.B. Corporation of net assets of
acquired company..................................... 141,707 -- --
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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 fixed rate 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 for the same remaining maturities. The fair value of adjustable rate loans approximates the carrying amount.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 Company for debt of the same remaining maturities.
The estimated fair values of the Company's financial instruments as of December 31, 2003 and 2002 are as follows (in thousands):
DECEMBER 31,
-------------------------------------------------
2003 2002
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
FINANCIAL ASSETS
Cash and short term investments...... $ 105,658 $ 105,658 $ 127,300 $ 127,300
Securities available for sale........ 763,305 763,305 368,644 368,644
Securities held to maturity.......... 12,029 12,531 16,625 17,229
Net loans, including loans held for
sale............................... 2,436,431 2,477,305 1,963,874 2,006,244
FINANCIAL LIABILITIES
Deposits............................. $2,719,989 $2,729,942 $2,122,052 $2,134,795
Short-term borrowings................ 354,051 354,051 260,410 260,410
Long-term debt....................... 271,000 275,549 50,591 58,586
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PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed consolidated financial statements should be read in conjunction with our historical consolidated financial statements and notes thereto contained in this document. The pro forma condensed consolidated financial information is presented for informational purposes and is intended to depict our combined operations after the spin-off. The pro forma condensed consolidated statement of income assumes that the spin-off occurred on January 1, 2003. This financial information does not purport to reflect our results of operations or financial position that would have occurred had we operated as a separate, independent company. The pro forma adjustments to the accompanying historical consolidated statements of income and consolidated balance sheet are set forth below.
Also included are the pro forma results of operations for the acquisitions of Southern Exchange Bank and Lupfer Frakes, Inc. which were accounted for under the purchase method. These business combinations have been reflected in the pro forma condensed consolidated statement of income as if these acquisitions occurred on January 1, 2003. The pro forma condensed consolidated statement of income reflects all yield adjustments and amortization of identified intangibles resulting from these purchase transactions.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
DECEMBER 31, 2003
FIRST NATIONAL
FIRST NATIONAL SOUTHERN BANKSHARES OF
BANKSHARES OF EXCHANGE LUPFER- FLORIDA, INC.
FLORIDA, INC. BANK FRAKES, INC. ADJUSTMENTS PRO FORMA
-------------- -------- ------------ ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Total interest income............ $ 166,294 $7,183 $ 14 $ 173,491
Total interest expense........... 42,846 2,653 47 $ 2,203(A) 47,749
----------- ------ ------ ------- -----------
Net interest income.............. 123,448 4,530 (33) (2,203) 125,742
Provision for loan losses........ 7,184 658 7,842
----------- ------ ------ ------- -----------
Net interest income after
provision for loan losses...... 116,264 3,872 (33) (2,203) 117,900
Total non-interest income........ 62,416 1,379 3,317 67,112
Merger-related expenses.......... 1,235 1,441 2,676
Total other non-interest
expenses....................... 129,063 3,459 3,463 1,444(B) 137,429
----------- ------ ------ ------- -----------
Income (loss) before income
taxes.......................... 48,382 351 (179) (3,647) 44,907
Income tax expense (benefit)..... 16,631 136 (69) (1,407)(C) 15,291
----------- ------ ------ ------- -----------
Net income (loss).............. $ 31,751 $ 215 $ (110) $(2,240) $ 29,616
=========== ====== ====== ======= ===========
Earnings per share:
Basic.......................... $ .69 $ .64
Diluted........................ $ .68 $ .63
Average shares outstanding:
Basic.......................... 46,080,966 46,080,966
Diluted........................ 46,972,863 46,972,863
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NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
(A) To record additional interest expense related to the $41.2 million debenture between the Company and First National Bankshares Statutory Trust I and the $17.0 million of subordinated borrowings. The $41.2 million debenture has a term of 30 years with interest accruing at a rate of the three-month libor plus 290 basis points. The $17.0 million of subordinated borrowings will have a term of seven years with interest accruing at a rate of the three-month libor plus 170 basis points.
(B) To record the additional incremental expenses we expect to incur as a separate publicly traded company. Examples of such expenses include: legal fees, investor relations costs, internal and external audit costs, shareholder services, director fees, salary and benefits associated with additions to staff functions and other miscellaneous expenses. The more significant annual costs components include the following (in thousands):
Director fees............................................... $395 Shareholder services........................................ 325 Staff additions -- audit, risk management, legal............ 400 Third party services for legal, accounting and auditing..... 175 Investor relations.......................................... 75 |
(C) To record the income tax impact of the pro forma adjustments at our statutory income tax rate of 38.6%.
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIRST NATIONAL BANKSHARES OF FLORIDA, INC. AND SUBSIDIARIES
QUARTERLY EARNINGS SUMMARY
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTER ENDED 2003
Total interest income.................................. $37,963 $43,895 $41,617 $42,819
Total interest expense................................. 9,979 12,068 10,636 10,163
Net interest income.................................... 27,984 31,827 30,981 32,656
Provision for loan losses.............................. 1,732 1,828 952 2,672
Total non-interest income.............................. 15,104 17,523 15,041 14,748
Merger expenses........................................ 1,014 -- -- 221
Total non-interest expenses*........................... 28,249 31,532 33,022 37,495
Net income............................................. 8,719 10,586 8,299 4,147
PER COMMON SHARE
Earnings
Basic................................................ $ .19 $ .23 $ .18 $ .09
Diluted.............................................. $ .18 $ .23 $ .18 $ .09
QUARTER ENDED 2002
Total interest income.................................. $36,384 $37,760 $38,577 $38,210
Total interest expense................................. 12,117 11,949 12,058 11,175
Net interest income.................................... 24,267 25,811 26,519 27,035
Provision for loan losses.............................. 1,265 1,347 1,403 1,455
Total non-interest income.............................. 13,792 13,621 13,136 14,179
Merger expenses........................................ 413 -- -- --
Total non-interest expenses............................ 26,401 23,898 25,416 28,726
Net income............................................. 6,931 9,287 8,326 7,520
PER COMMON SHARE
Earnings
Basic................................................ $ .15 $ .20 $ .18 $ .17
Diluted.............................................. $ .14 $ .20 $ .18 $ .16
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* Total non-interest expenses for the quarters ended September 30 and December 31, 2003 include restructuring expenses of $1.9 million and $8.6 million, respectively.