Edgar Filing: FNB CORP/FL/

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the quarterly period ended September 30, 2009


o		Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-31940

F.N.B. CORPORATION

(Exact name of registrant as specified in its charter)


Florida		25-1255406

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One F.N.B. Boulevard, Hermitage, PA		16148

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 724-981-6000

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer þ	Accelerated Filer o	Non-accelerated Filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at October 31, 2009

Common Stock, $0.01 Par Value		113,990,095 Shares

F.N.B. CORPORATION
FORM 10-Q
September 30, 2009

INDEX


		PAGE
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets		2
	Consolidated Statements of Income		3
	Consolidated Statements of Stockholders’ Equity		5
	Consolidated Statements of Cash Flows		6
	Notes to Consolidated Financial Statements		7
	Report of Independent Registered Public Accounting Firm		34

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		58

Item 4.	Controls and Procedures		58

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings		59

Item 1A.	Risk Factors		59

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		59

Item 3.	Defaults Upon Senior Securities		60

Item 4.	Submission of Matters to a Vote of Security Holders		60

Item 5.	Other Information		60

Item 6.	Exhibits		60

Signatures			61
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except par value


	September 30,			December 31,
	2009			2008
	(Unaudited)
Assets
Cash and due from banks	$	225,521		$	169,224
Interest bearing deposits with banks		3,293			2,979
Securities available for sale		693,617			482,270
Securities held to maturity (fair value of $828,692 and $851,251)		803,761			843,863
Residential mortgage loans held for sale		19,063			10,708
Loans, net of unearned income of $35,624 and $33,962		5,837,402			5,820,380
Allowance for loan losses		(105,892	)		(104,730	)

Net Loans		5,731,510			5,715,650
Premises and equipment, net		118,650			122,599
Goodwill		528,710			528,278
Core deposit and other intangible assets, net		40,868			46,229
Bank owned life insurance		204,098			217,737
Other assets		226,781			225,274

Total Assets	$	8,595,872		$	8,364,811


Liabilities
Deposits:
Non-interest bearing demand	$	972,859		$	919,539
Savings and NOW		3,072,601			2,816,628
Certificates and other time deposits		2,213,323			2,318,456

Total Deposits		6,258,783			6,054,623
Other liabilities		93,957			92,305
Short-term borrowings		606,406			596,263
Long-term debt		379,257			490,250
Junior subordinated debt owed to unconsolidated subsidiary trusts		204,880			205,386

Total Liabilities		7,543,283			7,438,827

Stockholders’ Equity
Common stock — $0.01 par value
Authorized — 500,000,000 shares
Issued — 114,093,130 and 89,726,592 shares		1,137			894
Additional paid-in capital		1,086,378			953,200
Retained earnings		(3,645	)		(1,143	)
Accumulated other comprehensive loss		(29,529	)		(26,505	)
Treasury stock — 103,035 and 26,440 shares at cost		(1,752	)		(462	)

Total Stockholders’ Equity		1,052,589			925,984

Total Liabilities and Stockholders’ Equity	$	8,595,872		$	8,364,811

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Dollars in thousands, except per share data
Unaudited


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Interest Income
Loans, including fees	$	81,957		$	93,673		$	247,871		$	260,907
Securities:
Taxable		12,765			13,281			38,342			36,210
Nontaxable		1,836			1,717			5,264			4,903
Dividends		33			48			120			227
Other		(58	)		82			72			376

Total Interest Income		96,533			108,801			291,669			302,623

Interest Expense
Deposits		20,290			28,379			67,062			84,190
Short-term borrowings		2,072			3,166			6,369			10,197
Long-term debt		4,210			5,231			13,622			15,889
Junior subordinated debt owed to unconsolidated subsidiary trusts		2,417			3,120			7,658			8,920

Total Interest Expense		28,989			39,896			94,711			119,196

Net Interest Income		67,544			68,905			196,958			183,427
Provision for loan losses		16,455			6,514			40,878			21,073

Net Interest Income After Provision for Loan Losses		51,089			62,391			156,080			162,354

Non-Interest Income
Impairment losses on securities		(14,234	)		(25	)		(15,866	)		(491	)
Non-credit related losses on securities not expected to be sold (recognized in other comprehensive income)		10,943			—			11,632			—

Net impairment losses on securities		(3,291	)		(25	)		(4,234	)		(491	)

Service charges		14,760			15,002			42,955			40,048
Insurance commissions and fees		3,960			3,959			12,878			12,064
Securities commissions and fees		1,451			2,010			5,247			5,628
Trust fees		2,856			3,215			8,786			9,014
Gain on sale of securities		154			34			498			829
Gain on sale of residential mortgage loans		666			477			2,341			1,458
Bank owned life insurance		1,354			1,796			4,400			4,679
Other		2,052			1,765			7,720			4,628

Total Non-Interest Income		23,962			28,233			80,591			77,857

Non-Interest Expense
Salaries and employee benefits		31,377			29,707			95,096			87,283
Net occupancy		4,741			4,494			15,518			13,071
Equipment		4,517			4,278			13,288			11,760
Amortization of intangibles		1,732			2,162			5,360			4,454
Outside services		5,819			5,205			17,638			15,326
FDIC insurance		2,613			239			11,201			624
Other		11,522			11,826			31,457			31,770

Total Non-Interest Expense		62,321			57,911			189,558			164,288

Income Before Income Taxes		12,730			32,713			47,113			75,923
Income taxes		2,424			9,208			10,558			21,422

Net Income		10,306			23,505			36,555			54,501
Preferred stock dividends and discount amortization		5,496			—			8,308			—

Net Income Available to Common Stockholders	$	4,810		$	23,505		$	28,247		$	54,501

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (continued)
Dollars in thousands, except per share data

Unaudited


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Net Income per Common Share
Basic	$	0.04	$	0.27	$	0.29	$	0.70
Diluted		0.04		0.27		0.29		0.70

Cash Dividends per Common Share		0.12		0.24		0.36		0.72

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Dollars in thousands
Unaudited


															Accumulated Other
	Comprehensive Income			Preferred Stock			Common Stock		Additional Paid-In Capital			Retained Earnings			Comprehensive Loss			Treasury Stock			Total
Balance at January 1, 2009				$	—		$	894	$	953,200		$	(1,143	)	$	(26,505	)	$	(462	)	$	925,984
Net income	$	36,555											36,555									36,555
Change in other comprehensive income (loss), net of tax		(3,024	)													(3,024	)					(3,024	)

Comprehensive income	$	33,531

Common stock dividends ($0.36/share)													(35,312	)								(35,312	)
Preferred stock dividends and amortization of discount					4,975								(8,308	)								(3,333	)
Issuance of preferred stock and common stock warrant					95,025					4,723												99,748
Redemption of preferred stock					(100,000	)																(100,000	)
Issuance of common stock								243		126,924									(1,290	)		125,877
Restricted stock compensation										1,689												1,689
Tax expense of stock-based compensation										(158	)											(158	)
Cumulative effect of applying FSP 115-2 and 124-2													4,563									4,563

Balance at September 30, 2009				$	—		$	1,137	$	1,086,378		$	(3,645	)	$	(29,529	)	$	(1,752	)	$	1,052,589


Balance at January 1, 2008					—		$	602	$	508,891		$	42,426		$	(6,738	)	$	(824	)	$	544,357
Net income	$	54,501											54,501									54,501
Change in other comprehensive income (loss), net of tax		(14,196	)													(14,196	)					(14,196	)

Comprehensive income	$	40,305

Common stock dividends ($0.72/share)													(56,718	)								(56,718	)
Issuance of common stock								291		440,874			(218	)					224			441,171
Restricted stock compensation										1,789												1,789
Tax benefit of stock-based compensation										776												776
Initial adjustment to apply EITF 06-04 and 06-10													(606	)								(606	)

Balance at September 30, 2008				$	—		$	893	$	952,330		$	39,385		$	(20,934	)	$	(600	)	$	971,074

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Unaudited


	Nine Months Ended
	September 30,
	2009			2008
Operating Activities
Net income	$	36,555		$	54,501
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion		20,106			15,836
Provision for loan losses		40,878			21,073
Deferred taxes		(19,388	)		(2,703	)
Gain on sale of securities		(498	)		(829	)
Other-than-temporary impairment losses on securities		4,234			491
Tax expense (benefit) of stock-based compensation		158			(776	)
Net change in:
Interest receivable		2,166			2,314
Interest payable		(2,741	)		(137	)
Residential mortgage loans held for sale		(8,355	)		(1,079	)
Trading securities		—			264,416
Bank owned life insurance		(53	)		(3,671	)
Other, net		30,964			(16,141	)

Net cash flows provided by operating activities		104,026			333,295


Investing Activities
Net change in:
Interest bearing deposits with banks		(314	)		3,465
Loans		(72,289	)		(302,606	)
Securities available for sale:
Purchases		(449,945	)		(320,611	)
Sales		758			2,521
Maturities		235,469			173,649
Securities held to maturity:
Purchases		(155,467	)		(256,643	)
Maturities		194,762			117,525
Purchase of bank owned life insurance		(8	)		(22	)
Withdrawal/surrender of bank owned life insurance		13,700			—
Increase in premises and equipment		(5,758	)		(12,588	)
Acquisitions, net of cash acquired		47			57,596

Net cash flows used in investing activities		(239,045	)		(537,714	)


Financing Activities
Net change in:
Non-interest bearing deposits, savings and NOW accounts		309,293			254,390
Time deposits		(105,133	)		(55,359	)
Short-term borrowings		10,144			85,778
Increase in long-term debt		26,502			109,669
Decrease in long-term debt		(137,495	)		(102,385	)
Decrease in junior subordinated debt		(506	)		(337	)
Issuance of preferred stock and common stock warrant		99,748			—
Redemption of preferred stock		(100,000	)		—
Net proceeds from issuance of common stock		127,566			6,946
Tax (expense) benefit of stock-based compensation		(158	)		776
Cash dividends paid		(38,645	)		(56,718	)

Net cash flows provided by financing activities		191,316			242,760

Net Increase in Cash and Due from Banks		56,297			38,341
Cash and due from banks at beginning of period		169,224			130,235

Cash and Due from Banks at End of Period	$	225,521		$	168,576

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2009

BUSINESS

F.N.B. Corporation (the Corporation) is a diversified financial services company headquartered in Hermitage, Pennsylvania. Its primary businesses include community banking, consumer finance, wealth management and insurance. The Corporation also conducts leasing and merchant banking activities. The Corporation operates its community banking business through a full service branch network in Pennsylvania and Ohio and loan production offices in Pennsylvania, Florida and Tennessee. The Corporation operates its wealth management and insurance businesses within the existing branch network. It also conducts selected consumer finance business in Pennsylvania, Ohio and Tennessee.

BASIS OF PRESENTATION

The Corporation’s accompanying consolidated financial statements and these notes to the financial statements include subsidiaries in which the Corporation has a controlling financial interest. Companies in which the Corporation controls operating and financing decisions (principally defined as owning a voting or economic interest greater than 50%) are also consolidated. Variable interest entities are consolidated if the Corporation is exposed to the majority of the variable interest entity’s expected losses and/or residual returns (i.e., the Corporation is considered to be the primary beneficiary). The Corporation owns and operates First National Bank of Pennsylvania (FNBPA), First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, Regency Finance Company (Regency), F.N.B. Capital Corporation, LLC and Bank Capital Services, and includes results for each of these entities in the accompanying consolidated financial statements.

The accompanying consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly reflect the Corporation’s financial position and results of operations. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements through November 9, 2009, the date of the filing of the consolidated financial statements with the Securities and Exchange Commission (SEC).

Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results the Corporation expects for the full year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K filed with the SEC on March 2, 2009.

USE OF ESTIMATES

The accounting and reporting policies of the Corporation conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the allowance for loan losses, securities valuations, goodwill and other intangible assets and income taxes.

CAPITAL

On June 16, 2009, the Corporation completed a public offering of 24,150,000 shares of common stock at a price of $5.50 per share, including 3,150,000 shares of common stock purchased by the underwriters pursuant to an over-allotment option, which the underwriters exercised in full. The net proceeds of the offering after deducting underwriting discounts and commissions and estimated offering expenses were $125.8 million.

On September 9, 2009, the Corporation utilized a portion of the proceeds of its public offering to redeem all of the preferred stock issued to the U.S. Department of the Treasury (UST) under the Troubled Assets Relief Program

Capital Purchase Program (CPP) and to pay the related final accrued dividend. Since receiving the CPP funds on January 9, 2009, the Corporation paid the UST $3.3 million in cash dividends. Upon redemption, the remaining difference of $4.3 million between the preferred stock redemption amount and the recorded amount was charged to retained earnings as non-cash deemed preferred stock dividends. The non-cash deemed preferred stock dividends had no impact on total equity, but reduced earnings per diluted common share by $0.04.

The number of shares of common stock issuable upon exercise of the warrant that was issued to the UST in association with the CPP has been reduced by one-half as a result of the capital raised in the June 2009 offering. The warrant has an exercise price of $11.52 per share.

The remaining offering proceeds were used for general corporate purposes and to enhance capital levels.

MERGERS AND ACQUISITIONS

On August 16, 2008, the Corporation completed its acquisition of Iron and Glass Bancorp, Inc. (IRGB), a bank holding company based in Pittsburgh, Pennsylvania. On the acquisition date, IRGB had $301.7 million in assets, which included $168.8 million in loans and $252.3 million in deposits. The transaction, valued at $83.7 million, resulted in the Corporation paying $36.7 million in cash and issuing 3,176,990 shares of its common stock in exchange for 1,125,026 shares of IRGB common stock. The assets and liabilities of IRGB were recorded on the Corporation’s balance sheet at their fair values as of August 16, 2008, the acquisition date, and IRGB’s results of operations have been included in the Corporation’s consolidated statement of income since then. IRGB’s banking subsidiary, Iron and Glass Bank, was merged into FNBPA on August 16, 2008. Based on the purchase price allocation, the Corporation recorded $47.7 million in goodwill and $3.6 million in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes.

On April 1, 2008, the Corporation completed its acquisition of Omega Financial Corporation (Omega), a diversified financial services company based in State College, Pennsylvania. On the acquisition date, Omega had $1.8 billion in assets, which included $1.1 billion in loans and $1.3 billion in deposits. The all-stock transaction, valued at approximately $388.2 million, resulted in the Corporation issuing 25,362,525 shares of its common stock in exchange for 12,544,150 shares of Omega common stock. The assets and liabilities of Omega were recorded on the Corporation’s balance sheet at their fair values as of April 1, 2008, the acquisition date, and Omega’s results of operations have been included in the Corporation’s consolidated statement of income since then. Omega’s banking subsidiary, Omega Bank, was merged into FNBPA on April 1, 2008. Based on the purchase price allocation, the Corporation recorded $239.2 million in goodwill and $29.7 million in core deposit and other intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes.

NEW ACCOUNTING STANDARDS

Accounting Standards Codification (the Codification or ASC)

In June 2009, the Financial Accounting Standards Board (FASB) issued an accounting standard which established the Codification as the sole source of authoritative GAAP recognized by the FASB to be applied to nongovernmental entities, with the exception of guidance issued by the SEC and its staff. Adoption of this accounting standard as of September 30, 2009 had no impact on the Corporation’s consolidated financial position or results of operations as it does not alter existing GAAP.

Determining Whether Impairment of a Debt Security is Other-Than-Temporary

In January 2009, the FASB issued an accounting standard which aligned other-than-temporary impairment (OTTI) guidance applicable to purchased or retained beneficial interests with guidance pertaining to OTTI on other debt and equity securities.

This accounting standard eliminated key distinctions that existed previously and promotes a more consistent determination of whether OTTI has occurred. The provisions of this accounting standard are effective for interim and annual reporting periods ending after December 15, 2008, and are to be applied prospectively. The Corporation adopted this accounting standard beginning October 1, 2008 and considered this guidance in determining OTTI beginning December 31, 2008. This accounting standard was subsequently codified into FASB ASC Topic 325, Investments-Other.

Recognition and Presentation of Other-Than-Temporary Impairment

In April 2009, the FASB issued an accounting standard which significantly changes requirements for recognizing OTTI on debt securities, presentation of OTTI losses and modifies and expands disclosures about OTTI for debt and equity securities.

Under this accounting standard, a debt security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference defined as the credit loss) or if the fair value of the security is less than the security’s amortized cost basis and the investor intends, or more-likely-than-not will be required, to sell the security before recovery of the security’s amortized cost basis. When OTTI exists, if the investor does not intend to sell the security, and it is more-likely-than-not that it will not be required to sell the security, before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings.

Upon adoption of this accounting standard on April 1, 2009, the Corporation recorded a cumulative effect adjustment of $4.6 million (after-tax) to reclassify from retained earnings to accumulated other comprehensive income the non-credit portion of OTTI loss previously recognized on debt securities it holds that it does not intend to sell, and it is more-likely-than-not it will not be required to sell, before recovery of the security’s amortized cost basis. This accounting standard was subsequently codified into FASB ASC Topic 320, Investments-Debt Securities.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued an accounting standard which amends and expands the disclosure requirements for derivative financial instruments and hedging activities. Expanded disclosures under this accounting standard include (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under GAAP and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The standard also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative instruments. The Corporation adopted this accounting standard effective January 1, 2009. This accounting standard relates to disclosures only and its adoption did not have any effect on the financial condition, results of operations or liquidity of the Corporation. This accounting standard was subsequently codified into FASB ASC Topic 815, Derivatives and Hedging.

Business Combinations

In December 2007, the FASB issued an accounting standard which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The standard also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. This accounting standard is effective for the Corporation for acquisitions made after January 1, 2009 and, accordingly, was not used by the Corporation in recognizing and measuring the Omega and IRGB acquisitions in 2008. This accounting standard was subsequently codified into FASB ASC Topic 805, Business Combinations.

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued an accounting standard which establishes accounting and reporting standards for ownership interests in a subsidiary and for the deconsolidation of a subsidiary. The Corporation adopted this accounting standard effective January 1, 2009. The adoption of this standard did not have a material effect on the financial condition, results of operations or liquidity of the Corporation. This accounting standard was subsequently codified into FASB ASC Topic 810, Consolidation.

Fair Value Measurements

In September 2006, the FASB issued an accounting standard which replaced the different definitions of fair value in then existing accounting literature with a single definition, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The Corporation adopted this accounting standard on January 1, 2008. This accounting standard was subsequently codified into FASB ASC Topic 820, Fair Value Measurements and Disclosures.

In April 2009, the FASB issued an accounting standard which provided guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and on identifying circumstances that indicate a transaction is not orderly. The standard provides additional guidance on when multiple valuation techniques may be warranted and considerations for determining the weight that should be applied to the various techniques. The Corporation applied this accounting standard prospectively beginning on April 1, 2009. Application of this accounting standard did not result in significant changes to the Corporation’s valuation techniques. This accounting standard was subsequently codified into FASB ASC Topic 820.

In April 2009, the FASB extended disclosures about the fair value of financial instruments to interim financial statements of publicly traded companies that were previously only required to be disclosed in annual financial statements. The Corporation adopted this accounting standard as of June 30, 2009. As this accounting standard amended only the disclosure requirements about the fair value of financial instruments in interim periods, the adoption did not have any effect on the financial condition, results of operations or liquidity of the Corporation. This accounting standard was subsequently codified into FASB ASC Topic 825, Financial Instruments.

Subsequent Events

In May 2009, the FASB issued an accounting standard which establishes standards under which an entity shall recognize and disclose events that occur after a balance sheet date but before the related financial statements are issued or are available to be issued. This standard is effective for fiscal years and interim periods ending after June 15, 2009. Adoption of this accounting standard, subsequently codified into FASB ASC Topic 855, Subsequent Events, as of June 30, 2009, had no impact on the Corporation’s consolidated financial condition, results of operations or liquidity.

Future Application of Accounting Pronouncements

In June 2009, the FASB issued an accounting standard which amends current GAAP related to the accounting for transfers and servicing of financial assets and extinguishments of liabilities, including the removal of the concept of a qualifying special-purpose entity from GAAP. This accounting standard also clarifies that a transferor must evaluate whether it has maintained effective control of a financial asset by considering its continuing involvement with the transferred financial asset. This accounting standard is effective for interim and annual reporting periods that begin after November 15, 2009. The Corporation does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

In June 2009, the FASB issued an accounting standard which will require a qualitative rather than a quantitative analysis to establish the primary beneficiary for determining whether the consolidation of a variable interest entity (VIE) is required. The primary beneficiary of a VIE is the enterprise that has: (a) the power to direct the activities of the VIE that most significantly impact its economic performance, and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits of the VIE that could potentially be significant to the VIE. This accounting standard is effective for interim and annual reporting periods that begin after November 15, 2009. The Corporation does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

In December 2008, the FASB issued an accounting standard to require more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets. This accounting standard is effective for fiscal years ending after December 15, 2009. Adoption of this accounting standard will not have a material impact on the Corporation’s consolidated financial statements.

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
September 30, 2009
U.S. Treasury and other U.S. government agencies and corporations	$	251,498	$	2,466	$	(50	)	$	253,914
Residential mortgage-backed securities		338,592		6,158		(615	)		344,135
States of the U.S. and political subdivisions		74,681		2,257		(20	)		76,918
Collateralized debt obligations (CDOs)		25,170		—		(19,412	)		5,758
Other debt securities		13,001		—		(2,935	)		10,066

Total debt securities		702,942		10,881		(23,032	)		690,791
Equity securities		2,780		168		(122	)		2,826

	$	705,722	$	11,049	$	(23,154	)	$	693,617


December 31, 2008
U.S. Treasury and other U.S. government agencies and corporations	$	249,370	$	3,925	$	—		$	253,295
Residential mortgage-backed securities		131,390		1,972		(306	)		133,056
States of the U.S. and political subdivisions		71,065		254		(2,138	)		69,181
Collateralized debt obligations		20,869		—		(6,242	)		14,627
Other debt securities		13,350		—		(4,737	)		8,613

Total debt securities		486,044		6,151		(13,423	)		478,772
Equity securities		3,609		157		(268	)		3,498

	$	489,653	$	6,308	$	(13,691	)	$	482,270

Securities Held To Maturity:


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
September 30, 2009
U.S. Treasury and other U.S. government agencies and corporations	$	5,455	$	109	$	—		$	5,564
Residential mortgage-backed securities		675,404		28,123		(5,500	)		698,027
States of the U.S. and political subdivisions		117,576		3,491		(318	)		120,749
Collateralized debt obligations		3,707		—		(834	)		2,873
Other debt securities		1,619		11		(151	)		1,479

	$	803,761	$	31,734	$	(6,803	)	$	828,692


December 31, 2008
U.S. Treasury and other U.S. government agencies and corporations	$	506	$	154	$	—		$	660
Residential mortgage-backed securities		721,682		15,915		(7,442	)		730,155
States of the U.S. and political subdivisions		115,766		376		(928	)		115,214
Collateralized debt obligations		3,785		—		(572	)		3,213
Other debt securities		2,124		—		(115	)		2,009

	$	843,863	$	16,445	$	(9,057	)	$	851,251

The Corporation classifies securities as trading securities when management intends to resell such securities in the near term and are carried at fair value, with unrealized gains (losses) reflected through the consolidated statement of income. The Corporation acquired securities in conjunction with the Omega acquisition that the Corporation classified

as trading securities. The Corporation both acquired and sold these trading securities during the second quarter of 2008. As of September 30, 2009 and December 31, 2008, the Corporation did not hold any trading securities.

The Corporation recognized a gain of $0.2 million for the nine months ended September 30, 2009 relating to the acquisition of a company in which the Corporation owned stock. Also, the Corporation sold $0.8 million of securities at a gain of $0.1 million for the nine months ended September 30, 2009 and sold $2.5 million of securities at a gain of $0.1 million during the first nine months of 2008. The Corporation also recognized a gain of $0.2 million relating to called securities during the first nine months of 2009. Additionally, the Corporation recognized a gain of $0.7 million relating to the VISA, Inc. initial public offering during the first nine months of 2008. No security sales were at a loss.

As of September 30, 2009, the amortized cost and fair value of securities, by contractual maturities, were as follows (in thousands):


	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	5,229	$	5,214	$	1,074	$	1,085
Due from one to five years		250,049		252,664		35,151		36,019
Due from five to ten years		15,201		15,902		23,317		24,038
Due after ten years		93,871		72,876		68,815		69,523

		364,350		346,656		128,357		130,665
Residential mortgage-backed securities		338,592		344,135		675,404		698,027
Equity securities		2,780		2,826		—		—

	$	705,722	$	693,617	$	803,761	$	828,692

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.

At September 30, 2009 and December 31, 2008, securities with a carrying value of $638.7 million and $670.2 million, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $564.1 million and $585.0 million at September 30, 2009 and December 31, 2008, respectively, were pledged as collateral for short-term borrowings.

Following are summaries of the fair values and unrealized losses of securities, segregated by length of impairment (in thousands):

Securities available for sale:


	Less than 12 Months					Greater than 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
September 30, 2009
U.S. Treasury and other U.S. government agencies and corporations	$	16,850	$	(50	)	$	—	$	—		$	16,850	$	(50	)
Residential mortgage-backed securities		98,277		(615	)		—		—			98,277		(615	)
States of the U.S. and political subdivisions		6,404		(20	)		—		—			6,404		(20	)
Collateralized debt obligations		4,189		(12,338	)		1,569		(7,074	)		5,758		(19,412	)
Other debt securities		—		—			10,066		(2,935	)		10,066		(2,935	)
Equity securities		1,381		(113	)		72		(9	)		1,453		(122	)

	$	127,101	$	(13,136	)	$	11,707	$	(10,018	)	$	138,808	$	(23,154	)


	Less than 12 Months					Greater than 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2008
Residential mortgage-backed securities	$	33,856	$	(306	)	$	—	$	—		$	33,856	$	(306	)
States of the U.S. and political subdivisions		54,230		(2,138	)		—		—			54,230		(2,138	)
Collateralized debt obligations		—		—			4,181		(6,242	)		4,181		(6,242	)
Other debt securities		4,797		(1,375	)		3,678		(3,362	)		8,475		(4,737	)
Equity securities		1,053		(258	)		32		(10	)		1,085		(268	)

	$	93,936	$	(4,077	)	$	7,891	$	(9,614	)	$	101,827	$	(13,691	)

Securities held to maturity:


	Less than 12 Months					Greater than 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
September 30, 2009
Residential mortgage-backed securities	$	2,895	$	(39	)	$	44,273	$	(5,461	)	$	47,168	$	(5,500	)
States of the U.S. and political subdivisions		4,070		(314	)		2,001		(4	)		6,071		(318	)
Collateralized debt obligations		—		—			2,873		(834	)		2,873		(834	)
Other debt securities		—		—			1,185		(151	)		1,185		(151	)

	$	6,965	$	(353	)	$	50,332	$	(6,450	)	$	57,297	$	(6,803	)


December 31, 2008
Residential mortgage-backed securities	$	96,213	$	(6,531	)	$	7,832	$	(911	)	$	104,045	$	(7,442	)
States of the U.S. and political subdivisions		44,555		(928	)		—		—			44,555		(928	)
Collateralized debt obligations		—		—			3,213		(572	)		3,213		(572	)
Other debt securities		277		(7	)		1,232		(108	)		1,509		(115	)

	$	141,045	$	(7,466	)	$	12,277	$	(1,591	)	$	153,322	$	(9,057	)

As of September 30, 2009, securities with unrealized losses for less than 12 months include 2 investments in U.S. Treasury and other U.S. government agencies and corporations, 13 investments in residential mortgage-backed securities, 5 investments in states of the U.S. and political subdivision securities, 11 investments in collateralized debt obligations and 13 investments in equity securities. Securities with unrealized losses of greater than 12 months include 11 investments in residential mortgage-backed securities, 3 investments in states of the U.S. and political subdivisions, 5 investments in collateralized debt obligations, 8 investments in other debt securities and 1 investment in an equity security.

The Corporation’s unrealized losses on CDOs primarily relate to investments in trust preferred securities. The Corporation’s portfolio of trust preferred securities consists of single-issuer and pooled securities. The single-issuer securities are primarily from money-center and large regional banks. The pooled securities consist of securities issued primarily by banks, with some of the pools including a limited number of insurance companies. Investments in pooled securities are all in mezzanine tranches except for one investment in a senior tranche, and are secured by over-collateralization or default protection provided by subordinated tranches. The non-credit portion of unrealized losses on investments in trust preferred securities are attributable to temporary illiquidity and the uncertainty affecting these markets, as well as changes in interest rates.

Other-Than-Temporary Impairment

The Corporation evaluates its investment securities portfolio for OTTI on a quarterly basis. Impairment is assessed at the individual security level. The Corporation considers an investment security impaired if the fair value of the security is less than its cost or amortized cost basis.

When impairment of an equity security is considered to be other-than-temporary, the security is written down to its fair value and an impairment loss is recorded as a loss within non-interest income in the consolidated statement of income. When impairment of a debt security is considered to be other-than-temporary, the amount of the OTTI recorded as a loss within non-interest income and thereby recognized in earnings depends on whether the entity intends to sell the security or whether it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis.

If the Corporation intends to (has decided to) sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value.

If the Corporation does not intend to sell the debt security and it is not more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis, OTTI shall be separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss shall be recognized in earnings. The amount related to other market factors shall be recognized in other comprehensive income, net of applicable taxes.

The Corporation performs its OTTI evaluation process in a consistent and systematic manner and includes an evaluation of all available evidence. Documentation of the process is as extensive as necessary to support a conclusion as to whether a decline in fair value below cost or amortized cost is other-than- temporary and includes documentation supporting both observable and unobservable inputs and a rationale for conclusions reached. In making these determinations for pooled trust preferred securities, the Corporation consults with third-party advisory firms to provide additional valuation assistance.

This process considers factors such as the severity, length of time and anticipated recovery period of the impairment, recoveries or additional declines in fair value subsequent to the balance sheet date, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and the issuer’s financial condition, repayment capacity, capital strength and near-term prospects.

For debt securities, the Corporation also considers the payment structure of the debt security, the likelihood of the issuer being able to make future payments, failure of the issuer of the security to make scheduled interest and principal payments, whether the Corporation has made a decision to sell the security and whether the Corporation’s cash or working capital requirements or contractual or regulatory obligations indicate that the debt security will be required to be sold before a forecasted recovery occurs. For equity securities, the Corporation also considers its intent and ability to retain the security for a period of time sufficient to allow for a recovery in fair value. Among the factors that are considered in determining the Corporation’s intent and ability to retain the security is a review of its capital adequacy, interest rate risk position and liquidity. The assessment of a security’s ability to recover any decline in fair value, the ability of the issuer to meet contractual obligations, the Corporation’s intent and ability to retain the security, and whether it is more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis require considerable judgment.

Debt securities with credit ratings below AA at the time of purchase that are repayment-sensitive securities are evaluated using the guidance of FASB ASC Topic 325, Investments-Other. All other securities are required to be evaluated under FASB ASC Topic 320, Investments-Debt and Equity Securities

The Corporation invested in trust preferred securities issued by special purpose vehicles (SPVs) which hold pools of collateral consisting of trust preferred and subordinated debt securities issued by banks, bank holding companies and insurance companies. The securities issued by the SPVs are generally segregated into several classes known as tranches. Typically, the structure includes senior, mezzanine and equity tranches. The equity tranche represents the first loss position. The Corporation generally holds interests in mezzanine tranches. Interest and principal collected from the collateral held by the SPVs are distributed with a priority that provides the highest level of protection to the senior-most tranches. In order to provide a high level of protection to the senior tranches, cash flows are diverted to higher-level tranches if certain tests are not met.

The Corporation prices its holdings of trust preferred securities using Level 3 inputs in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures and guidance issued by the SEC. In this regard, the Corporation evaluates current available information in estimating the future cash flows of these securities and determines whether there have been favorable or adverse changes in estimated cash flows from the cash flows previously projected. The Corporation considers the structure and term of the pool and the financial condition of the underlying issuers. Specifically, the evaluation incorporates factors such as over-collateralization and interest coverage tests, interest rates and appropriate risk premiums, the timing and amount of interest and principal payments and the allocation of payments to the various tranches. Current estimates of cash flows are based on the most recent trustee reports, announcements of deferrals or defaults, and assumptions regarding expected future default rates, prepayment

and recovery rates and other relevant information. In constructing these assumptions, the Corporation considers the following:

	•		that current defaults would have no recovery,

	•		that some individually analyzed deferrals will cure at a 50% rate after five years, while others are expected to exhibit minimal recovery,

	•		recent historical performance metrics, including profitability, capital ratios, loan charge-offs and loan reserve ratios, for the underlying institutions that would indicate a higher probability of default by the institution,

	•		that institutions identified as possessing a higher probability of default would recover at a rate of 10% for banks and 15% for insurance companies,

	•		that financial performance of the financial sector continues to be affected by the economic environment resulting in an expectation of additional deferrals and defaults in the future,

	•		whether the security is currently deferring interest, and

	•		the external rating of the security and recent changes to its external rating.

The primary evidence utilized by the Corporation is the level of current deferrals and defaults, the level of excess subordination that allows for receipt of full principal and interest, the credit rating for each security and the likelihood that future deferrals and defaults will occur at a level that will fully erode the excess subordination based on an assessment of the underlying collateral. The Corporation combines the results of these factors considered in estimating the future cash flows of these securities to determine whether there has been an adverse change in estimated cash flows from the cash flows previously projected.

The Corporation’s portfolio of trust preferred collateralized debt obligations consists of 13 pooled issues and seven single issue securities. One of the pooled issues is a senior tranche; the remaining 12 are mezzanine tranches. At September 30, 2009, the 13 pooled trust preferred securities had an estimated fair value of $8.6 million while the single-issuer trust preferred securities had an estimated fair value of $11.3 million. The Corporation has concluded from the analysis performed at September 30, 2009 that it is probable that the Corporation will collect all contractual principal and interest payments on all of its single-issuer and pooled trust preferred securities, except for those on which OTTI was recognized.

In 2008, the Corporation concluded that it was probable that there had been an adverse change in estimated cash flows for eight of the 13 pooled trust preferred security investments. Accordingly, the Corporation recognized OTTI on these securities of $15.9 million at December 31, 2008. Upon adoption of FASB ASC Topic 320, the Corporation determined that $7.0 million of those OTTI charges were non-credit related. As such, a $4.6 million (net of $2.4 million of taxes) increase to retained earnings and a corresponding decrease to accumulated other comprehensive income were recorded as the cumulative effect of adopting FASB ASC Topic 320 as of April 1, 2009.

At September 30, 2009, the Corporation concluded that it was probable that there had been an adverse change in estimated cash flows for two additional pooled trust preferred security investments. Accordingly, the Corporation recognized impairment losses on these securities of $6.9 million, $5.0 million of which is non-credit related. A credit loss of $1.9 million on these securities is included in net impairment losses on securities of $3.2 million for quarter ended September 30, 2009.

The Corporation recognized impairment losses on securities of $15.9 million and $0.5 million during the nine months ended September 30, 2009 and 2008, respectively, due to the write-down to fair value of securities that the Corporation deemed to be other-than-temporarily impaired. Impairment losses related to bank stocks for the nine months ended September 30, 2009 and 2008 amounted to $0.7 million and $0.5 million, respectively. For the nine months ended September 30, 2009, impairment losses on pooled trust preferred securities amounted to $15.2 million, which includes $11.6 million ($7.6 million, net of tax) for non-credit related impairment losses recognized directly in other comprehensive income and $3.6 million of credit related impairment losses recognized in earnings.

The $0.7 million impairment losses on bank stocks relate to securities that have been in an unrealized loss position for an extended period of time or the percentage of unrealized loss is such that management believes it will be unlikely to recover in the near term. In accordance with GAAP, management has deemed these impairments to be other-than-temporary given the low likelihood that they will recover in value in the foreseeable future. At September 30, 2009, the Corporation held 24 bank stocks with an adjusted cost basis and fair value of $2.8 million.

At September 30, 2009, all 10 of the pooled trust preferred security investments on which OTTI has been recognized are classified as non-performing investments.

The following table presents a summary of the cumulative credit related OTTI charges recognized as components of earnings for securities for which a portion of an OTTI is recognized in other comprehensive income at September 30, 2009 (in thousands):


	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2009			2009
Beginning balance of the amount related to credit loss for which a portion of OTTI was recognized in other comprehensive income	$	(9,265	)	$	—
Amount of OTTI related to credit loss on April 1, 2009 (1)		—			(8,953	)
Additions related to credit loss for securities with previously recognized OTTI		(1,255	)		(1,567	)
Additions related to credit loss for securities with initial OTTI		(1,943	)		(1,943	)

Ending balance of the amount related to credit loss for which a portion of OTTI was recognized in other comprehensive income	$	(12,463	)	$	(12,463	)


(1)		Amount represents the OTTI charges recorded during the year ended December 31, 2008 for pooled trust preferred securities, net of the Corporation’s cumulative effect adjustment upon adoption of FASB ASC Topic 320, effective April 1, 2009.

Trust preferred securities continue to experience price declines due to uncertainties surrounding these securities in the current market environment and the currently limited secondary market for such securities, in addition to issue-specific credit deterioration. Write-downs were based on the individual securities’ credit performance and its ability to make its contractual principal and interest payments. Should credit quality deteriorate worse than projected, it is possible that additional write-downs may be required. The Corporation monitors actual deferrals and defaults as well as expected future deferrals and defaults to determine if there is a high probability for expected losses and contractual shortfalls of interest or principal, which could warrant further impairment. The Corporation evaluates its entire portfolio each quarter to determine if additional write-downs are warranted.

The following table provides information relating to the Corporation’s trust preferred securities as of September 30, 2009 (dollars in thousands):


																		Expected
															Actual			Deferrals/			Excess
													Number of		Deferrals/			Defaults (as a %			Subordination
												Lowest	Issuers		Defaults (as			remaining			(as a % of
			Original		Amortized		Fair		Unrealized			Credit	Currently		a % of original			of performing			current
Deal Name	Type	Class	Cost		Cost		Value		Loss			Ratings	Performing		collateral)			collateral) (1)			collateral) (2)

Pooled Trust Preferred Securities:
P1	Pooled	C1	$	5,530	$	2,792	$	606	$	(2,186	)	Ca		51		28.21	%		21.37	%		0.00	%
P2	Pooled	C1		5,000		3,604		910		(2,694	)	Ca		54		21.75	%		25.85	%		0.00	%
P3	Pooled	C1		5,507		4,218		1,085		(3,133	)	Ca		56		18.19	%		18.53	%		0.00	%
P4	Pooled	C1		3,992		2,852		474		(2,378	)	C		57		20.17	%		20.23	%		0.00	%
P5	Pooled	MEZ		524		381		261		(120	)	CC		28		17.82	%		19.55	%		0.62	%
P6	Pooled	MEZ		2,061		1,280		450		(830	)	Ca		24		30.37	%		20.03	%		0.00	%
P7	Pooled	B3		1,992		755		180		(575	)	Ca		24		35.79	%		19.04	%		0.00	%
P8	Pooled	B1		3,053		2,472		629		(1,843	)	Ca		58		21.99	%		22.17	%		0.00	%
P9	Pooled	C		5,090		3,665		532		(3,133	)	Ca		46		25.93	%		25.67	%		0.00	%
P10	Pooled	A4L		2,035		645		223		(422	)	Ca		34		25.22	%		25.89	%		0.00	%

Total Other-Than-Temporarily Impaired			$	34,784	$	22,664	$	5,350	$	(17,314	)			432		23.98	%		21.76	%


P11	Pooled	C	$	500	$	503	$	134	$	(369	)	Ca		61		14.70	%		17.44	%		7.13	%
P12	Pooled	C		2,000		2,003		274		(1,729	)	Ca		56		17.38	%		21.68	%		2.68	%
P13	Pooled	SNR		4,227		3,707		2,873		(834	)	A3		26		8.78	%		18.60	%		44.29	%

Total Not Other-Than-Temporarily Impaired			$	6,727	$	6,213	$	3,281	$	(2,932	)			143		14.66	%		19.23	%


Total Pooled Trust Preferred Securities			$	41,511	$	28,877	$	8,631	$	(20,246	)			575		21.93	%		21.13	%


Single Issuer Trust Preferred Securities:
S1	Single		$	1,935	$	1,943	$	1,267	$	(676	)	B		1		0.0	%		0.0	%
S2	Single			1,881		1,903		1,267		(636	)	BBB+		1		0.0	%		0.0	%
S3	Single			2,116		2,058		1,790		(268	)	B+		1		0.0	%		0.0	%
S4	Single			2,000		2,000		1,421		(579	)	B+		1		0.0	%		0.0	%
S5	Single			4,156		4,098		3,654		(444	)	A-		1		0.0	%		0.0	%
S6	Single			997		999		667		(332	)	B		1		0.0	%		0.0	%
S7	Single			1,371		1,336		1,185		(151	)	B		1		0.0	%		0.0	%

Total Single Issuer Trust Preferred Securities			$	14,456	$	14,337	$	11,251	$	(3,086	)			7		0.0	%		0.0	%


Total Trust Preferred Securities			$	55,967	$	43,214	$	19,882	$	(23,332	)			582


(1)		Some current deferrals and defaults will cure at a 50% rate after five years, while others are excepted to exhibit minimal recovery. Future deferrals and defaults are assumed to have recovery rates of 10% for banks and 15% for insurance companies.

(2)		Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment.

FEDERAL HOME LOAN BANK STOCK

The Corporation is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh. The FHLB requires members to purchase and hold a specified minimum level of FHLB stock based upon their level of borrowings, collateral balances and participation in other programs offered by the FHLB. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Both cash and stock dividends are reported as income.

Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the low-cost products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value.

At both September 30, 2009 and December 31, 2008, the Corporation’s FHLB stock totaled $28.0 million and is included in other assets on the balance sheet. The Corporation accounts for the stock in accordance with FASB ASC Topic 325, Investments-Other, which requires the investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.

The Corporation periodically evaluates its FHLB investment for possible impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. The Federal Housing Finance Agency, the regulator of the FHLB, requires it to maintain a total capital-to-assets ratio of at least 4.0%. At June 30, 2009, the FHLB’s capital ratio of 5.8% exceeded the regulatory requirement. Failure by the FHLB to meet this regulatory capital requirement would require an in-depth analysis of other factors including:

	•		the member’s ability to access liquidity from the FHLB;

	•		the member’s funding cost advantage with the FHLB compared to alternative sources of funds;

	•		a decline in the market value of FHLB’s net assets relative to book value which may or may not affect future financial performance or cash flow;

	•		the FHLB’s ability to obtain credit and source liquidity, for which one indicator is the credit rating of the FHLB;

	•		the FHLB’s commitment to make payments taking into account its ability to meet statutory and regulatory payment obligations and the level of such payments in relation to the FHLB’s operating performance; and

	•		the prospects of amendments to laws that affect the rights and obligations of the FHLB.

The Corporation believes its holdings in the stock are ultimately recoverable at par value at September 30, 2009 and, therefore, determined that FHLB stock was not other-than-temporarily impaired. In addition, the Corporation has ample liquidity and does not require redemption of its FHLB stock in the foreseeable future.

BORROWINGS

Following is a summary of short-term borrowings (in thousands):


	September 30,		December 31,
	2009		2008
Securities sold under repurchase agreements	$	478,315	$	414,705
Subordinated notes		117,871		95,032
Federal funds purchased		—		86,000
Other short-term borrowings		10,220		526

	$	606,406	$	596,263

Following is a summary of long-term debt (in thousands):


	September 30,		December 31,
	2009		2008
Federal Home Loan Bank advances	$	312,541	$	431,398
Subordinated notes		66,103		58,028
Convertible debt		613		613
Other long-term debt		—		211

	$	379,257	$	490,250

The Corporation’s banking affiliate has available credit with the FHLB of $1.5 billion, of which $312.5 million was used as of September 30, 2009. These advances are secured by loans and FHLB stock and are scheduled to mature in various amounts periodically through the year 2019. Effective interest rates paid on these advances range from 2.28% to 5.54% for the nine months ended September 30, 2009 and 2.12% to 5.54% for the year ended December 31, 2008.

JUNIOR SUBORDINATED DEBT OWED TO UNCONSOLIDATED SUBSIDIARY TRUSTS

The Corporation has four unconsolidated subsidiary trusts (collectively, the Trusts): F.N.B. Statutory Trust I, F.N.B. Statutory Trust II, Omega Financial Capital Trust I and Sun Bancorp Statutory Trust I. One hundred percent of the common equity of each Trust is owned by the Corporation. The Trusts are not consolidated because the Corporation is not the primary beneficiary. The Trusts were formed for the purpose of issuing Corporation-obligated mandatorily redeemable capital securities (trust preferred securities) to third-party investors. The proceeds from the sale of trust preferred securities and the issuance of common equity by the Trusts were invested in junior subordinated debt securities (subordinated debt) issued by the Corporation, which are the sole assets of each Trust. The Trusts pay dividends on the trust preferred securities at the same rate as the distributions paid by the Corporation on the junior subordinated debt held by the Trusts. Omega Financial Capital Trust I and Sun Bancorp Statutory Trust I were acquired as a result of the Omega acquisition.

Distributions on the subordinated debt issued to the Trusts are recorded as interest expense by the Corporation. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated debt. The subordinated debt, net of the Corporation’s investment in the Trusts, qualifies as Tier 1 capital under the Board of Governors of the Federal Reserve System (FRB) guidelines subject to certain limitations beginning March 31, 2011. The Corporation has entered into agreements which, when taken collectively, fully and unconditionally guarantee the obligations under the trust preferred securities subject to the terms of each of the guarantees.

The following table provides information relating to the Trusts as of September 30, 2009 (dollars in thousands):


	F.N.B.			F.N.B.						Sun Bancorp
	Statutory			Statutory			Omega Financial			Statutory
	Trust I			Trust II			Capital Trust I			Trust I
Trust preferred securities	$	125,000		$	21,500		$	36,000		$	16,500
Common securities		3,866			665			1,114			511
Junior subordinated debt		128,866			22,165			35,807			18,042
Stated maturity date		3/31/33			6/15/36			10/18/34			2/22/31
Optional redemption date		3/31/08			6/15/11			10/18/09			2/22/11
Interest rate		3.85	%		7.17	%		5.98	%		10.20	%
	variable;			fixed until 6/15/11;			fixed until 10/09;
	LIBOR plus			then LIBOR plus			then LIBOR plus
	325 basis points			165 basis points			219 basis points

DERIVATIVE INSTRUMENTS

The Corporation is exposed to certain risks arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. The Corporation’s existing interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities. The Corporation manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

The Corporation periodically enters into interest rate swap agreements to meet the financing, interest rate and equity risk management needs of its commercial loan customers. These agreements provide the customer the ability to convert from variable to fixed interest rates. The Corporation then enters into positions with a derivative counterparty in order to offset its exposure on the variable and fixed components of the customer agreements. These agreements meet the definition of derivatives, but are not designated as hedging instruments under FASB ASC Topic 815, Derivatives and Hedging. These instruments and their offsetting positions are reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period earnings as other income.

At September 30, 2009, the Corporation was party to 84 swaps with notional amounts totaling approximately $335.7 million with customers, and 84 swaps with notional amounts totaling approximately $335.7 million with derivative counterparties. The asset and liability associated with these interest rate swaps were $16.6 million included in other assets and $15.8 million included in other liabilities, respectively. During the nine months ended September 30, 2009, the Corporation recognized a net gain of $0.2 million included in other non-interest income related to changes in fair value.

Interest rate swap agreements generally require posting of collateral by either party under certain conditions. At September 30, 2009, the Corporation has posted collateral with derivative counterparties with a fair value of $5.6 million. Additionally, if the Corporation breaches its agreements with its derivative counterparties it would be required to settle its obligations under the agreements at the termination value and would be required to pay an additional $10.2 million in excess of amounts previously posted as collateral with the counterparty.

The Corporation has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans to secondary market investors. These arrangements are considered derivative instruments. The fair values of the Corporation’s rate lock commitments to customers and commitments with investors at September 30, 2009 were not material.

COMMITMENTS, CREDIT RISK AND CONTINGENCIES

The Corporation has commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the consolidated balance sheet. The Corporation’s exposure to credit loss in

the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with loan commitments and standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

Following is a summary of off-balance sheet credit risk information (in thousands):


	September 30,		December 31,
	2009		2008
Commitments to extend credit	$	1,431,635	$	1,254,470
Standby letters of credit		77,756		97,016

At September 30, 2009, funding of approximately 75.0% of the commitments to extend credit was dependent on the financial condition of the customer. The Corporation has the ability to withdraw such commitments at its discretion. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Based on management’s credit evaluation of the customer, collateral may be deemed necessary. Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Corporation that may require payment at a future date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The obligations are not recorded in the Corporation’s consolidated financial statements. The Corporation’s exposure to credit loss in the event the customer does not satisfy the terms of the agreement equals the notional amount of the obligation less the value of any collateral.

The Corporation and its subsidiaries are involved in various pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. These actions include claims brought against the Corporation and its subsidiaries where the Corporation or a subsidiary acted as one or more of the following: a depository bank, lender, underwriter, fiduciary, financial advisor, broker or was engaged in other business activities. Although the ultimate outcome for any asserted claim cannot be predicted with certainty, the Corporation believes that it and its subsidiaries have valid defenses for all asserted claims. Reserves are established for legal claims when losses associated with the claims are judged to be probable and the amount of the loss can be reasonably estimated.

The Corporation and its subsidiaries, FNBPA and Regency, are defending a class action lawsuit in which the plaintiffs seek certain statutory damages and other equitable relief. The plaintiffs allege that FNBPA and Regency violated the Pennsylvania commercial code by failing to provide accurate and complete notices of repossession and demands for payment to certain Pennsylvania customers whose motor vehicles were repossessed and later sold at public or private sales. On November 13, 2008, the court issued an order certifying two classes and one subclass of Pennsylvania customers proposed by plaintiffs. On September 25, 2009, the court issued an order narrowing its prior order and more specifically identifying those persons to whom class notice should be sent by plaintiffs. The Corporation and its subsidiaries are vigorously defending the plaintiffs’ claims. In addition, FNBPA and Regency will assert counterclaims against certain customers that could reduce, eliminate or offset certain claimed statutory damages. The plaintiffs have not made any formal or specific financial demand and any possible loss cannot be reasonably estimated at this time.

Based on information currently available, advice of counsel, available insurance coverage and established reserves, the Corporation does not anticipate, at the present time, that the aggregate liability, if any, arising out of such legal proceedings will have a material adverse effect on the Corporation’s consolidated financial position. However, the Corporation cannot determine whether or not any claims asserted against it will have a material adverse effect on its consolidated results of operations in any future reporting period.

INCOME TAXES

The Corporation bases its provision for income taxes upon income before income taxes, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, the Corporation reports certain items of income and expense in different periods for financial reporting and tax return purposes. The Corporation recognizes the tax effects of these temporary differences currently in the deferred income tax provision or benefit. The Corporation

computes deferred tax assets or liabilities based upon the differences between the financial statement and income tax bases of assets and liabilities using the applicable marginal tax rate.

The Corporation must evaluate the probability that it will ultimately realize the full value of its deferred tax assets. Realization of the Corporation’s deferred tax assets is dependent upon a number of factors including the existence of any cumulative losses in prior periods, the amount of taxes paid in available carry-back periods, expectations for future earnings, applicable tax planning strategies and assessment of current and future economic and business conditions. The Corporation establishes a valuation allowance when it is “more likely than not” that the Corporation will not be able to realize a benefit from its deferred tax assets, or when future deductibility is uncertain.

At September 30, 2009, the Corporation anticipates that it will not utilize state net operating loss carryforwards and other net deferred tax assets at certain of its subsidiaries and has recorded a valuation allowance against the deferred tax assets. The Corporation believes that, except for the portion which is covered by the valuation allowance, it is more likely than not to realize the benefits of its deferred tax assets, net of the valuation allowance, at September 30, 2009 based on the level of historical taxable income and taxes paid in available carry-back periods.

EARNINGS PER COMMON SHARE

Earnings per common share is computed using net income available to common stockholders, which is net income adjusted for the preferred stock dividend and discount amortization.

Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding net of unvested shares of restricted stock.

Diluted earnings per common share is calculated by dividing net income available to common stockholders adjusted for interest expense on convertible debt by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options, warrants, restricted shares and convertible debt, as calculated using the treasury stock method. Adjustments to the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.

The following table sets forth the computation of basic and diluted earnings per common share (dollars in thousands, except per share data):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Net income available to common stockholders — basic earnings per share	$	4,809	$	23,505	$	28,246	$	54,501
Interest expense on convertible debt		5		5		15		15

Net income available to common stockholders after assumed conversion — diluted earnings per share	$	4,814	$	23,510	$	28,261	$	54,516


Basic weighted average common shares outstanding		113,571,703		87,291,008		98,869,326		77,749,543
Net effect of dilutive stock options, warrants, restricted stock and convertible debt		299,234		284,146		235,683		362,527

Diluted weighted average common shares outstanding		113,870,937		87,575,154		99,105,009		78,112,070


Basic earnings per common share	$	0.04	$	0.27	$	0.29	$	0.70

Diluted earnings per common share	$	0.04	$	0.27	$	0.29	$	0.70

For the three months ended September 30, 2009 and 2008, 1,437,326 and 255,221 shares of common stock, respectively, related to stock options and warrants were outstanding but not included in the computation of diluted earnings per share because they were antidilutive. For the nine months ended September 30, 2009 and 2008, 1,559,725 and 90,638 shares of common stock, respectively, related to stock options and warrants were outstanding but not included in the computation of diluted earnings per share because they were antidilutive.

STOCK INCENTIVE PLANS

Restricted Stock

The Corporation issues restricted stock awards, consisting of both restricted stock and restricted stock units, to key employees under its Incentive Compensation Plans (Plans). The grant date fair value of the restricted stock awards is equal to the price of the Corporation’s common stock on the grant date. For the nine months ended September 30, 2009 and 2008, the Corporation issued 469,346 and 245,255 restricted stock awards with aggregate weighted average grant date fair values of $2.8 million and $3.3 million, respectively. The Corporation has available up to 2,859,743 shares of common stock to issue under these Plans.

Under the Plans, more than half of the restricted stock awards granted to management are earned if the Corporation meets or exceeds certain financial performance results when compared to its peers. These performance-related awards are expensed ratably from the date that the likelihood of meeting the performance measure is probable through the end of a four-year vesting period. The service-based awards are expensed ratably over a three-year vesting period. The Corporation also issues discretionary service-based awards to certain employees that vest over five years.

The unvested restricted stock awards are eligible to receive cash dividends which are ultimately used to purchase additional shares of stock. Any additional shares of stock ultimately received as a result of cash dividends are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met. These awards are subject to certain accelerated vesting provisions upon retirement, death, disability or in the event of a change of control as defined in the award agreements.

Share-based compensation expense related to restricted stock awards was $1.7 million and $1.9 million for the nine months ended September 30, 2009 and 2008, the tax benefit of which was $0.6 million and $0.7 million, respectively.

The following table summarizes certain information concerning restricted stock awards:


	Nine Months Ended September 30,
	2009					2008
				Weighted					Weighted
				Average					Average
				Grant					Grant
	Awards			Price		Awards			Price
Unvested awards outstanding at beginning of period		527,101		$	15.34		387,064		$	17.59
Granted		469,346			5.99		245,255			13.51
Vested		(99,369	)		17.59		(114,675	)		18.58
Forfeited		(90,705	)		13.04		(27,441	)		14.67
Dividend reinvestment		33,446			6.64		26,756			14.24

Unvested awards outstanding at end of period		839,819			9.75		516,959			15.41

The total fair value of awards vested was $1.0 million and $1.5 million for the nine months ended September 30, 2009 and 2008, respectively.

As of September 30, 2009, there was $4.8 million of unrecognized compensation cost related to unvested restricted stock awards including $0.1 million that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement provision for awards granted prior to the adoption of FASB ASC Topic 718, Compensation — Stock Compensation, on January 1, 2006. The components of the restricted stock awards as of September 30, 2009 are as follows (dollars in thousands):


	Service-		Performance-
	Based		Based
	Awards		Awards		Total
Unvested awards		311,225		528,594		839,819
Unrecognized compensation expense	$	1,581	$	3,240	$	4,821
Intrinsic value	$	2,213	$	3,758	$	5,971
Weighted average remaining life (in years)		2.16		2.74		2.53

Stock Options

No stock options were granted during the nine months ended September 30, 2009 or 2008. All outstanding stock options were granted at prices equal to the fair market value at the date of the grant, are primarily exercisable within ten years from the date of the grant and were fully vested as of January 1, 2006. The Corporation issues shares of treasury stock or authorized but unissued shares to satisfy stock option exercises. Shares issued upon the exercise of stock options were 1,624 and 485,607 for the nine months ended September 30, 2009 and 2008, respectively.

The following table summarizes certain information concerning stock option awards:


	Nine Months Ended September 30,
	2009					2008
				Weighted					Weighted
				Average					Average
				Exercise					Exercise
	Shares			Price		Shares			Price
Options outstanding at beginning of period		1,299,318		$	14.00		1,139,845		$	11.75
Assumed in acquisitions		—			—		845,969			16.00
Exercised		(1,624	)		15.53		(485,607	)		11.74
Forfeited		(291,911	)		14.90		(99,217	)		17.68

Options outstanding and exercisable at end of period		1,005,783			13.74		1,400,990			13.90

The intrinsic value of outstanding and exercisable stock options at September 30, 2009 was $(6.5) million, since the fair value of the stock subject to the options was less than the exercise price.

Warrants

The Corporation assumed warrants to issue 123,394 shares of common stock at an exercise price of $10.00 in conjunction with a previous acquisition. Such warrants are exercisable and will expire on various dates in 2009. The Corporation has reserved shares of common stock for issuance in the event these warrants are exercised. As of September 30, 2009, warrants to purchase 28,604 shares of common stock remain outstanding.

In conjunction with its participation in the CPP, the Corporation issued to the UST a warrant to purchase up to 1,302,083 shares of the Corporation’s common stock. Pursuant to Section 13(H) of the Warrant to Purchase Common Stock, the number of shares of common stock issuable upon exercise of the warrant has been reduced in half to 651,041.5 shares as of June 16, 2009, the date the Corporation completed a public offering. The warrant has an exercise price of $11.52 per share.

RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS

The Corporation sponsors the Retirement Income Plan (RIP), a qualified noncontributory defined benefit pension plan covering substantially all salaried employees hired prior to January 1, 2008. The RIP covers employees who satisfy minimum age and length of service requirements. During 2006, the Corporation amended the RIP such that effective January 1, 2007 benefits are earned based on the employee’s compensation each year. The plan amendment

resulted in a remeasurement that produced a net unrecognized service credit of $14.0 million, which is being amortized over the average period of future service of active employees of 13.5 years. Benefits of the RIP for service provided prior to December 31, 2006 are generally based on years of service and the employee’s highest compensation for five consecutive years during their last ten years of employment. During 2007, the Corporation amended the RIP such that it is closed to participants who commence employment with the Corporation on or after January 1, 2008. The Corporation’s funding guideline has been to make annual contributions to the RIP each year, if necessary, such that minimum funding requirements have been met. Based on the funded status of the plan, the Corporation does not expect to make a contribution to the RIP in 2009.

The Corporation also sponsors two supplemental non-qualified retirement plans. The ERISA Excess Retirement Plan provides retirement benefits equal to the difference, if any, between the maximum benefit allowable under the Internal Revenue Code and the amount that would be provided under the RIP, if no limits were applied. The Basic Retirement Plan (BRP) is applicable to certain officers whom the Board of Directors designates. Officers participating in the BRP receive a benefit based on a target benefit percentage based on years of service at retirement and a designated tier as determined by the Board of Directors. When a participant retires, the basic benefit under the BRP is a monthly benefit equal to the target benefit percentage times the participant’s highest average monthly cash compensation during five consecutive calendar years within the last ten calendar years of employment. This monthly benefit is reduced by the monthly benefit the participant receives from Social Security, the RIP, the ERISA Excess Retirement Plan and the annuity equivalent of the two percent automatic contributions to the qualified 401(k) defined contribution plan and the ERISA Excess Lost Match Plan. The BRP was frozen as of December 31, 2008, at which time the Corporation recognized a one-time charge of $0.8 million. The Corporation expects an annual savings of approximately $0.3 million as a result of freezing the BRP.

The net periodic benefit cost for the defined benefit plans includes the following components (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Service cost	$	772		$	935		$	2,580		$	2,518
Interest cost		1,770			1,794			5,244			5,090
Expected return on plan assets		(1,798	)		(2,409	)		(5,388	)		(6,780	)
Amortization:
Unrecognized net transition asset		(23	)		(26	)		(70	)		(72	)
Unrecognized prior service credit		(299	)		(303	)		(896	)		(849	)
Unrecognized loss		781			210			2,159			579
One-time charge		—			—			—			358

Net periodic pension benefit cost	$	1,203		$	201		$	3,629		$	844

The Corporation’s subsidiaries participate in a qualified 401(k) defined contribution plan under which eligible employees may contribute a percentage of their salary. The Corporation matches 50 percent of an eligible employee’s contribution on the first 6 percent that the employee defers. Employees are generally eligible to participate upon completing 90 days of service and having attained age 21. Beginning with 2007, in light of the change to the RIP benefit, the Corporation began making an automatic two percent contribution and may make an additional contribution of up to two percent depending on the Corporation achieving its performance goals for the plan year. Effective January 1, 2008, in lieu of the RIP benefit, the automatic contribution for substantially all new full-time employees was increased from two percent to four percent. The Corporation’s contribution expense was $3.2 million and $3.1 million for the nine months ended September 30, 2009 and 2008, respectively.

The Corporation also sponsors an ERISA Excess Lost Match Plan for certain officers. This plan provides retirement benefits equal to the difference, if any, between the maximum benefit allowable under the Internal Revenue Code and the amount that would have been provided under the qualified 401(k) defined contribution plan, if no limits were applied.

The Corporation sponsors a pre-Medicare eligible postretirement medical insurance plan for retirees of certain affiliates between the ages of 62 and 65. During 2006, the Corporation amended the plan such that only employees who were age 60 or older as of January 1, 2007 are eligible for employer-paid coverage. The Corporation has no plan assets attributable to this plan and funds the benefits as claims arise. Benefit costs related to this plan are recognized in the

periods in which employees provide the service for such benefits. The Corporation reserves the right to terminate the plan or make plan changes at any time.

The net periodic postretirement benefit cost includes the following components (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009		2008
Service cost	$	—		$	(3	)	$	—	$	27
Interest cost		20			32			70		89
Amortization:
Unrecognized prior service credit		—			—			—		—
Unrecognized loss		(1	)		1			1		2

Net periodic postretirement benefit cost	$	19		$	30		$	71	$	118

COMPREHENSIVE INCOME

The components of comprehensive income, net of related tax, are as follows (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Net income	$	10,306		$	23,505		$	36,555		$	54,501
Other comprehensive loss:
Unrealized gains (losses) on securities:
Arising during the period, net of tax expense (benefit) of $1,860, $(2,054), $(3,046) and $(7,321)		3,454			(3,816	)		(5,657	)		(13,596	)
Less: reclassification adjustment for losses (gains) included in net income, net of tax (benefit) expense of $(1,098), $13, $(1,307) and $131		2,039			(25	)		2,428			(244	)
Unrealized loss on swap, net of tax benefit of $(69)		—			—			—			(128	)
Pension and postretirement amortization, net of tax (benefit) expense of $(147), $(43), $110 and $(123)		(274	)		(80	)		205			(228	)

Other comprehensive loss		5,219			(3,921	)		(3,024	)		(14,196	)

Comprehensive income	$	15,525		$	19,584		$	33,531		$	40,305

The accumulated balances related to each component of other comprehensive income (loss), net of tax are as follows (in thousands):


September 30	2009			2008
Unrealized net gain (loss) on other available for sale securities	$	3,685		$	(14,460	)
Non-credit related unrealized loss on other-than-temporarily impaired debt securities		(11,252	)		—
Unrecognized pension and postretirement obligations		(21,962	)		(6,474	)

Accumulated other comprehensive loss	$	(29,529	)	$	(20,934	)

CASH FLOW INFORMATION

Following is a summary of supplemental cash flow information (in thousands):


	2009		2008
Nine Months Ended September 30
Interest paid on deposits and other borrowings	$	97,452	$	114,150
Income taxes paid		4,000		16,500
Transfers of loans to other real estate owned		13,431		10,750
Financing of other real estate owned sold		489		807

BUSINESS SEGMENTS

The Corporation operates in four reportable segments: Community Banking, Wealth Management, Insurance and Consumer Finance.

	•		The Community Banking segment provides services traditionally offered by full-service commercial banks, including commercial and individual demand, savings and time deposit accounts and commercial, mortgage and individual installment loans.

	•		The Wealth Management segment provides a broad range of personal and corporate fiduciary services including the administration of decedent and trust estates. In addition, it offers various alternative products, including securities brokerage and investment advisory services, mutual funds and annuities.

	•		The Insurance segment includes a full-service insurance agency offering all lines of commercial and personal insurance through major carriers. The Insurance segment also includes a reinsurer.

	•		The Consumer Finance segment primarily makes installment loans to individuals and purchases installment sales finance contracts from retail merchants. The Consumer Finance segment activity is funded through the sale of the Corporation’s subordinated notes at the finance company’s branch offices.

The following tables provide financial information for these segments of the Corporation (in thousands). The information provided under the caption “Parent and Other” represents operations not considered to be reportable segments and/or general operating expenses of the Corporation, and includes the parent company, other non-bank subsidiaries and eliminations and adjustments which are necessary for purposes of reconciliation to the consolidated amounts.


At or for the Three	Community		Wealth
Months Ended September 30, 2009	Banking		Management		Insurance		Consumer Finance		Parent and Other			Consolidated
Interest income	$	87,644	$	3	$	64	$	8,154	$	668		$	96,533
Interest expense		24,763		—		—		1,353		2,873			28,989
Net interest income		62,881		3		64		6,801		(2,205	)		67,544
Provision for loan losses		14,693		—		—		1,521		241			16,455
Non-interest income		17,047		4,583		3,321		533		(1,522	)		23,962
Non-interest expense		49,512		3,672		3,140		4,027		238			60,589
Intangible amortization		1,533		92		107		—		—			1,732
Income tax expense (benefit)		2,975		297		51		650		(1,549	)		2,424
Net income (loss)		11,215		525		87		1,136		(2,657	)		10,306
Total assets		8,398,925		19,881		21,152		167,720		(11,806	)		8,595,872
Total intangibles		543,058		12,409		12,302		1,809		—			569,578


At or for the Three Months	Community		Wealth
Ended September 30, 2008	Banking		Management		Insurance		Consumer Finance		Parent and Other			Consolidated
Interest income	$	99,975	$	17	$	87	$	8,232	$	490			$108,801
Interest expense		35,566		2		—		1,409		2,919			39,896
Net interest income		64,409		15		87		6,823		(2,429	)		68,905
Provision for loan losses		4,940		—		—		1,464		110			6,514
Non-interest income		19,710		5,489		3,329		521		(816	)		28,233
Non-interest expense		44,985		3,754		2,965		3,960		85			55,749
Intangible amortization		1,953		83		126		—		—			2,162
Income tax expense (benefit)		9,073		595		125		699		(1,284	)		9,208
Net income (loss)		23,168		1,072		200		1,221		(2,156	)		23,505
Total assets		8,281,235		19,964		23,925		164,779		(32,552	)		8,457,351
Total intangibles		549,628		12,827		13,054		1,809		—			577,318


At or for the Nine Months	Community		Wealth
Ended September 30, 2009	Banking		Management		Insurance		Consumer Finance		Parent and Other			Consolidated
Interest income	$	265,653	$	10	$	218	$	24,006	$	1,782		$	291,669
Interest expense		81,735		—		—		4,256		8,720			94,711
Net interest income		183,918		10		218		19,750		(6,938	)		196,958
Provision for loan losses		35,726		—		—		4,626		526			40,878
Non-interest income		58,136		14,856		10,749		1,636		(4,786	)		80,591
Non-interest expense		149,998		11,875		9,203		11,680		1,442			184,198
Intangible amortization		4,764		275		321		—		—			5,360
Income tax expense (benefit)		12,213		976		513		1,847		(4,991	)		10,558
Net income (loss)		39,353		1,740		930		3,233		(8,701	)		36,555
Total assets		8,398,925		19,881		21,152		167,720		(11,806	)		8,595,872
Total intangibles		543,058		12,409		12,302		1,809		—			569,578


At or for the Nine Months	Community		Wealth
Ended September 30, 2008	Banking		Management		Insurance		Consumer Finance		Parent and Other			Consolidated
Interest income	$	277,452	$	48	$	329	$	23,938	$	856		$	302,623
Interest expense		106,449		5		—		4,273		8,469			119,196
Net interest income		171,003		43		329		19,665		(7,613	)		183,427
Provision for loan losses		16,593		—		—		3,911		569			21,073
Non-interest income		54,693		15,427		10,271		1,663		(4,197	)		77,857
Non-interest expense		128,772		10,811		8,597		11,402		252			159,834
Intangible amortization		3,908		179		367		—		—			4,454
Income tax expense (benefit)		21,751		1,594		604		2,171		(4,698	)		21,422
Net income (loss)		54,672		2,886		1,032		3,844		(7,933	)		54,501
Total assets		8,281,235		19,964		23,925		164,779		(32,552	)		8,457,351
Total intangibles		549,628		12,827		13,054		1,809		—			577,318

FAIR VALUE MEASUREMENTS

The Corporation uses fair value measurements to record fair value adjustments to certain financial assets and liabilities and to determine fair value disclosures. Securities available for sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record at fair value other assets on a nonrecurring basis, such as mortgage loans held for sale, certain impaired loans, other real estate owned (OREO) and certain other assets.

Fair value is defined as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value

measurements are not adjusted for transaction costs. Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure.

In determining fair value, the Corporation uses various valuation approaches, including market, income and cost approaches. FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, which are developed based on market data obtained from sources independent of the Corporation. Unobservable inputs reflect the Corporation’s assumptions about the assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

	Level 1		valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.

	Level 2		valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.

	Level 3		valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Following is a description of the valuation methodologies the Corporation uses for financial instruments recorded at fair value on either a recurring or nonrecurring basis:

Securities Available For Sale

Securities available-for-sale consists of both debt and equity securities. These securities are recorded at fair value on a recurring basis. At September 30, 2009, approximately 95.5% of these securities used valuation methodologies involving market-based or market-derived information, collectively Level 1 and Level 2 measurements, to measure fair value. The remaining 4.5% of these securities were measured using model-based techniques, with primarily unobservable (Level 3) inputs.

The Corporation closely monitors market conditions involving assets that have become less actively traded. If the fair value measurement is based upon recent observable market activity of such assets or comparable assets (other than forced or distressed transactions) that occur in sufficient volume, and do not require significant adjustment using unobservable inputs, those assets are classified as Level 1 or Level 2; if not, they are classified as Level 3. Making this assessment requires significant judgment.

The Corporation uses prices from independent pricing services and, to a lesser extent, indicative (non-binding) quotes from independent brokers, to measure the fair value of investment securities. The Corporation validates prices received from pricing services or brokers using a variety of methods, including, but not limited to, comparison to secondary pricing services, corroboration of pricing by reference to other independent market data such as secondary broker quotes and relevant benchmark indices, and review of pricing by Corporate personnel familiar with market liquidity and other market related conditions.

The Corporation determines the valuation of its investments in trust preferred debt securities with the assistance of a third-party independent financial consulting firm that specializes in advisory services related to illiquid financial investments. The consulting firm provides the Corporation appropriate valuation methodology, performance assumptions, modeling techniques, discounted cash flows, discount rates and sensitivity analyses with respect to levels of defaults and deferrals necessary to produce losses. Additionally, the Corporation utilizes the firm’s expertise to reassess assumptions to reflect actual conditions. Accessing the services of a financial consulting firm with a focus on financial instruments assists the Corporation in accurately valuing these complex financial instruments and facilitates informed decision-making with respect to such instruments.

Derivative Financial Instruments

The Corporation determines its fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects contractual terms of the derivative, including the period to maturity and uses observable market based inputs, including interest rate curves and implied volatilities.

The Corporation incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of non-performance risk, the Corporation has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although the Corporation has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2009, the Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Corporation has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Residential Mortgage Loans Held For Sale

These loans are carried at the lower of cost or fair value. Under lower-of-cost-or-fair value accounting, it periodically may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is generally based on independent quoted market prices and is classified as Level 2.

Impaired Loans

The Corporation reserves for commercial and commercial real estate loans that the Corporation considers impaired as defined in FASB ASC Topic 310, Receivables, at the time the Corporation identifies the loan as impaired based upon the present value of expected future cash flows available to pay the loan, or based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent. Collateral may be real estate and/or business assets including equipment, inventory and accounts receivable.

The Corporation determines the value of real estate based on appraisals by licensed or certified appraisers. The value of business assets is generally based on amounts reported on the business’s financial statements. Management must rely on the financial statements prepared and certified by the borrower or its accountants in determining the value of these business assets on an ongoing basis which may be subject to significant change over time. Based on the quality of information or statements provided, management may require the use of business asset appraisals and site-inspections to better value these assets. The Corporation may discount appraised and reported values based on management’s historical knowledge, changes in market conditions from the time of valuation or management’s knowledge of the borrower and the borrower’s business. Since not all valuation inputs are observable, the Corporation classifies these nonrecurring fair value determinations as Level 2 or Level 3 based on the lowest level of input that is significant to the fair value measurement.

The Corporation reviews and evaluates impaired loans no less frequently than quarterly for additional impairment based on the same factors identified above.

Other Real Estate Owned

OREO is comprised of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations plus some bank owned real estate. OREO acquired in settlement of indebtedness is recorded at the lower of carrying amount of the loan or fair value less costs to sell. Subsequently, these assets are carried at the lower of carrying value or fair value less costs to sell. Accordingly, it may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is generally based upon appraisals by licensed or certified appraisers and is classified as Level 2.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of September 30, 2009 (in thousands):


	Level 1		Level 2		Level 3		Total
Assets measured at fair value:
Securities available for sale	$	1,027	$	661,733	$	30,857	$	693,617
Derivative financial instruments		—		16,559		—		16,559

	$	1,027	$	678,292	$	30,857	$	710,176


Liabilities measured at fair value:
Derivative financial instruments		—	$	15,774		—	$	15,774

		—	$	15,774		—	$	15,774

The following table presents additional information about assets measured at fair value on a recurring basis and for which the Corporation has utilized Level 3 inputs to determine fair value (in thousands):


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2009			2009
Balance at beginning of period	$	17,026		$	23,394
Total gains (losses) — realized/unrealized:
Included in earnings		(3,198	)		(3,510	)
Included in other comprehensive income		2,564			(3,439	)
Purchases, issuances, and settlements		14,465			14,465
Transfers in and/or (out) of Level 3		—			(53	)

Balance at end of period	$	30,857		$	30,857

The Corporation reviews fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur.

The amount of total losses included in earnings for the three and nine months ended September 30, 2009 attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2009 are $3.2 million and $3.5 million, respectively. These losses are included in net impairment losses on securities reported as a component of non-interest income.

In accordance with GAAP, from time to time, the Corporation measures certain assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were previously described. For assets measured at fair value on a nonrecurring basis during the first nine months of 2009 that were still held at September 30, 2009, the following table provides the hierarchy level and the fair value of the related assets or portfolios (in thousands):


									Total Losses for
									the Nine Months
	Fair Value at September 30, 2009								Ended September 30,
	Level 1		Level 2		Level 3		Total		2009
Impaired loans		—	$	27,203	$	11,282	$	38,485	$	8,851
Other real estate owned		—		3,791		4,005		7,796		2,700

		—	$	30,994	$	15,287	$	46,281	$	11,551

Impaired loans measured or re-measured at fair value on a non-recurring basis during the first nine months of 2009 had a carrying amount of $46.4 million and an allocated allowance for loan losses of $13.2 million at September 30, 2009. The allocated allowance is based on fair value of $38.5 million less estimated costs to sell of $5.3 million. The allowance for loan losses includes a provision applicable to the current period fair value measurements of $8.9 million which was included in the provision for loan losses for the nine months ended September 30, 2009.

OREO with a carrying amount of $10.5 million were written down to $7.8 million (fair value of $9.0 million less estimated costs to sell of $1.2 million), resulting in a loss of $2.7 million, which was included in earnings for the nine months ended September 30, 2009.

Fair Value of Financial Instruments

The estimated fair values of the Corporation’s financial instruments are as follows (in thousands):


	September 30, 2009				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets
Cash and short-term investments	$	228,814	$	228,814	$	172,203	$	172,203
Securities available for sale		693,617		693,617		482,270		482,270
Securities held to maturity		803,761		828,692		843,863		851,251
Net loans, including loans held for sale		5,750,573		5,776,978		5,726,358		5,733,157
Bank owned life insurance		204,098		204,098		217,737		217,737
Accrued interest receivable		27,672		27,672		29,838		29,838

Financial Liabilities
Deposits		6,258,783		6,306,876		6,054,623		6,089,424
Short-term borrowings		606,406		607,172		596,263		596,263
Long-term debt		379,257		390,054		490,250		502,713
Junior subordinated debt owed to unconsolidated subsidiary trusts		204,880		84,352		205,386		107,062
Accrued interest payable		9,992		9,992		12,732		12,732

The following methods and assumptions were used to estimate the fair value of each financial instrument:

Cash and Due from Banks, Accrued Interest Receivable and Accrued Interest Payable. 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 the quoted market price from an active market, if available, and is classified within Level 1. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or pricing models, and is classified as Level 2. Where there is limited market activity or significant valuation inputs are unobservable, securities are classified within Level 3. Under current market conditions, assumptions used to determine the fair value of Level 3 securities have greater subjectivity due to the lack of observable market transactions.

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 variable and adjustable rate loans approximates the carrying amount.

Bank Owned Life Insurance. The Corporation owns both general account and separate account bank owned life insurance (BOLI). The fair value of general account BOLI is based on the insurance contract cash surrender value. The fair value of separate account BOLI equals the quoted market price of the underlying securities, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. In connection with the separate account BOLI, the Corporation has purchased a stable value protection product that mitigates the impact of market value fluctuations of the underlying separate account assets.

Deposits. The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity deposits is estimated by discounting future cash flows using rates currently offered for deposits of similar remaining maturities.

Short-Term Borrowings. The carrying amounts for short-term borrowings approximate fair value for amounts that mature in 90 days or less. The fair value of subordinated notes is estimated by discounting future cash flows using rates currently offered.

Long-Term and Junior Subordinated Debt. The fair value of long-term and junior subordinated debt is estimated by discounting future cash flows based on the market prices for the same or similar issues or on the current rates offered to the Corporation for debt of the same remaining maturities.

Loan Commitments and Standby Letters of Credit. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties. Also, unfunded loan commitments relate principally to variable rate commercial loans, typically non-binding, and fees are not normally assessed on these balances.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
F.N.B. Corporation

We have reviewed the condensed consolidated balance sheet of F.N.B. Corporation and subsidiaries (F.N.B. Corporation) as of September 30, 2009, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2009 and 2008 and the consolidated statements of stockholders’ equity and cash flows for the nine-month periods ended September 30, 2009 and 2008. These financial statements are the responsibility of F.N.B. Corporation’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of F.N.B. Corporation as of December 31, 2008, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended (not presented herein) and in our report dated February 25, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/Ernst & Young LLP
Pittsburgh, Pennsylvania

November 9, 2009

PART I.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis represents an overview of the consolidated results of operations and financial condition of the Corporation and highlights material changes to the financial condition and results of operations at and for the three- and nine-month periods ended September 30, 2009. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto. The Corporation’s results of operations for the nine months ended September 30, 2009 are not necessarily indicative of results to be expected for the year ending December 31, 2009.

IMPORTANT NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995, which statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “target,” “plan,” “project” or “continue” or the negatives thereof or other variations thereon or similar terminology, and are made on the basis of management’s current plans and analyses of the Corporation, its business and the industry as a whole. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, economic conditions, competition, interest rate sensitivity and exposure to regulatory and legislative changes. The above factors in some cases could affect the Corporation’s financial performance and could cause actual results to differ materially from those expressed or implied in such forward-looking statements. The Corporation does not undertake to update or revise its forward-looking statements even if experience or future changes make it clear that the Corporation will not realize any projected results expressed or implied therein.

CRITICAL ACCOUNTING POLICIES

A description of the Corporation’s critical accounting policies is included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Corporation’s 2008 Annual Report on Form 10-K under the heading “Application of Critical Accounting Policies.” There have been no significant changes in critical accounting policies since the year ended December 31, 2008, other than Goodwill, which is summarized below.

Goodwill

Goodwill is subject to impairment testing, which must be conducted at least annually. The Corporation performs goodwill impairment testing in the fourth quarter of each year. Due to ongoing uncertainty regarding market conditions surrounding the banking industry, the Corporation continues to monitor goodwill for impairment and to evaluate its carrying amount, as necessary. Based on the results of testing performed, the Corporation concluded that no impairment existed at December 31, 2008, March 31, 2009, June 30, 2009 or September 30, 2009.

At September 30, 2009, total goodwill amounted to $528.7 million, of which $510.0 million relates to the Corporation’s Community Banking segment. Because of uncertain market conditions during the third quarter of 2009, the Corporation updated its review for goodwill impairment for its Community Banking segment at September 30, 2009. To determine the fair value of the Community Banking reporting unit, the Corporation utilized an income approach. This approach is based on discounted cash flows derived from assumptions of balance sheet and income statement activity. It also factors in costs of equity and weighted-average costs of capital to determine an appropriate discount rate. Applying this methodology, the degree by which the fair value of the Community Banking reporting unit exceeded its carrying value at September 30, 2009 was approximately 21%.

The financial services industry and securities markets continue to be adversely affected by declining values of nearly all asset classes. If current economic conditions continue to result in a prolonged period of economic weakness, the Corporation’s business segments, including the Community Banking segment, may be adversely affected, which may result in impairment of goodwill and other intangibles in the future. Any resulting impairment loss could have a material adverse impact on the Corporation’s financial condition and its results of operations.

OVERVIEW

The Corporation is a diversified financial services company headquartered in Hermitage, Pennsylvania. Its primary businesses include community banking, consumer finance, wealth management and insurance. The Corporation also conducts leasing and merchant banking activities. The Corporation operates its community banking business through a full service branch network with offices in Pennsylvania and Ohio and loan production offices in Pennsylvania, Florida and Tennessee. The Corporation operates its wealth management and insurance businesses within the community banking branch network. It also conducts selected consumer finance business in Pennsylvania, Ohio and Tennessee.

On June 16, 2009, the Corporation completed its public offering of 24,150,000 shares of common stock at a price of $5.50 per share, including 3,150,000 shares of common stock purchased by the underwriters pursuant to an over-allotment option, which the underwriters exercised in full. The net proceeds of the offering after deducting underwriting discounts and commissions and estimated offering expenses were $125.8 million.

On September 9, 2009, the Corporation redeemed all of the 100,000 outstanding shares of its preferred stock originally issued to the UST in conjunction with the CPP. Since receiving the CPP funds on January 9, 2009, the Corporation paid the UST $3.3 million in cash dividends. Upon redemption, the difference of $4.3 million between the preferred stock redemption amount and the recorded amount was charged to retained earnings as a non-cash deemed preferred stock dividend. This non-cash deemed preferred stock dividend had no impact on total equity, but reduced earnings per diluted common share by $0.04. In total, CPP costs reduced earnings per diluted common share by $0.05.

Because the Corporation issued preferred stock to the UST in January 2009, the Corporation is required to report net income available to common stockholders for the periods in which the preferred stock was outstanding. Net income available to common stockholders is calculated by subtracting the preferred stock dividends and discount amortization from net income.

On April 1, 2008, the Corporation completed the acquisition of Omega, a diversified financial services company with $1.8 billion in assets, and on August 16, 2008, the Corporation completed the acquisition of IRGB, a bank holding company with $301.7 million in assets. The assets and liabilities of each of these acquired companies were recorded on the Corporation’s balance sheet at their fair values as of each of the acquisition dates, and their results of operations have been included in the Corporation’s consolidated statement of income since the respective acquisition dates.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

Net income for the nine months ended September 30, 2009 was $36.6 million, compared to net income for the same period of 2008 of $54.5 million. Net income available to common stockholders for the nine months ended September 30, 2009 was $28.2 million or $0.29 per diluted share, compared to net income available to common stockholders for the same period of 2008 of $54.5 million or $0.70 per diluted share. Net income available to common stockholders for the nine months ended September 30, 2009 included $8.3 million related to preferred stock dividends and discount amortization associated with the Corporation’s participation in the CPP. For the nine months ended September 30, 2009, the Corporation’s return on average equity was 4.58% and its return on average assets was 0.57%, compared to 9.04% and 0.98%, respectively, for the nine months ended September 30, 2008.

In addition to evaluating its results of operations in accordance with GAAP, the Corporation routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as return on average tangible equity, return on average tangible common equity and return on average tangible assets. The Corporation believes these non-GAAP financial measures provide information useful to investors in understanding the Corporation’s operating performance and trends, and facilitates comparisons with the performance of the Corporation’s peers. The non-GAAP financial measures used by the Corporation may differ from the non-GAAP financial measures other financial institutions use to measure their results of operations. The following tables summarize the Corporation’s non-GAAP financial measures for the year-to-date periods indicated derived from amounts reported in the Corporation’s financial statements (dollars in thousands):


	Nine Months Ended
	September 30,
	2009			2008
Return on average tangible equity:
Net income (annualized)	$	48,874		$	72,800
Amortization of intangibles, net of tax (annualized)		4,658			3,867

	$	53,532		$	76,667


Average total stockholders’ equity	$	1,066,683		$	805,540
Less: Average intangibles		(572,444	)		(438,832	)

	$	494,239		$	366,708


Return on average tangible equity		10.83	%		20.91	%


Return on average tangible common equity:
Net income available to common stockholders (annualized)	$	37,764		$	72,800
Amortization of intangibles, net of tax (annualized)		4,658			3,867

	$	42,422		$	76,667


Average total stockholders’ equity	$	1,066,683		$	805,540
Less: Average preferred stockholders’ equity		(85,035	)		—
Less: Average intangibles		(572,444	)		(438,832	)

	$	409,204		$	366,708


Return on average tangible common equity		10.37	%		20.91	%


Return on average tangible assets:
Net income (annualized)	$	48,874		$	72,800
Amortization of intangibles, net of tax (annualized)		4,658			3,867

	$	53,532		$	76,667


Average total assets	$	8,580,798		$	7,455,911
Less: Average intangibles		(572,444	)		(438,832	)

	$	8,008,354		$	7,017,079


Return on average tangible assets		0.67	%		1.09	%

The following table provides information regarding the average balances and yields earned on interest earning assets and the average balances and rates paid on interest bearing liabilities (dollars in thousands):


	Nine Months Ended September 30,
	2009								2008
				Interest								Interest
				Income/		Yield/			Average			Income/		Yield/
	Average Balance			Expense		Rate			Balance			Expense		Rate
Assets
Interest earning assets:
Interest bearing deposits with banks	$	2,335		$	4		0.20	%	$	4,360		$	75		2.31	%
Federal funds sold		18,864			69		0.48			19,293			301		2.05
Taxable investment securities (1)		1,183,115			38,366		4.28			1,003,960			36,235		4.79
Non-taxable investment securities (2)		185,944			8,013		5.75			179,907			7,519		5.57
Loans (2) (3)		5,815,899			249,906		5.73			5,258,390			262,933		6.68

Total interest earning assets (2)		7,206,157			296,358		5.48			6,465,910			307,063		6.34

Cash and due from banks		357,230								138,944
Allowance for loan losses		(105,681	)							(65,129	)
Premises and equipment		121,519								103,990
Other assets		1,001,573								812,196

	$	8,580,798							$	7,455,911


Liabilities
Interest bearing liabilities:
Deposits:
Interest bearing demand	$	2,157,008			11,179		0.69		$	1,786,874			19,821		1.48
Savings		848,157			2,412		0.38			725,143			5,254		0.97
Certificates and other time		2,276,079			53,471		3.14			2,072,524			59,115		3.81
Treasury management accounts		451,208			3,418		1.00			353,377			6,070		2.26
Other short-term borrowings		108,919			2,951		3.57			148,215			4,127		3.66
Long-term debt		444,087			13,622		4.10			499,671			15,889		4.25
Junior subordinated debt		205,130			7,658		4.99			187,558			8,920		6.35

Total interest bearing liabilities (2)		6,490,588			94,711		1.95			5,773,362			119,196		2.75

Non-interest bearing demand		928,238								793,836
Other liabilities		95,289								83,173

		7,514,115								6,650,371
Stockholders’ equity		1,066,683								805,540

	$	8,580,798							$	7,455,911

Excess of interest earning assets over interest bearing liabilities	$	715,569							$	692,548


Fully tax-equivalent net interest income					201,647								187,867
Tax-equivalent adjustment					4,689								4,440

Net interest income				$	196,958							$	183,427


Net interest spread							3.53	%							3.59	%


Net interest margin (2)							3.72	%							3.88	%


(1)		The average balances and yields earned on securities are based on historical cost.

(2)		The interest income amounts are reflected on a fully taxable equivalent (FTE) basis, a non-GAAP measure, which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. The yields on earning assets and the net interest margin are presented on an FTE and annualized basis. The rates paid on interest bearing liabilities are also presented on an annualized basis. The Corporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

(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.

Net Interest Income

Net interest income, which is the Corporation’s principal source of revenue, is the difference between interest income from earning assets (loans, securities and federal funds sold) and interest expense paid on liabilities (deposits, treasury management accounts and short- and long-term borrowings). For the nine months ended September 30, 2009, net interest income, which comprised 71.0% of net revenue (net interest income plus non-interest income) compared to 70.2% for the same period in 2008, was affected by the general level of interest rates, changes in interest rates, the shape of the yield curve, the level of non-accrual loans and changes in the amount and mix of interest earning assets and interest bearing liabilities.

Net interest income, on an FTE basis, increased $13.8 million or 7.3% from $187.9 million for the nine months ended September 30, 2008 to $201.6 million for the same period of 2009. Average interest earning assets increased $740.2 million or 11.4% and average interest bearing liabilities increased $717.2 million or 12.4% from the nine months ended September 30, 2008 due to organic loan and deposit growth and the Omega and IRGB acquisitions. The Corporation’s net interest margin decreased from 3.88% for the first nine months of 2008 to 3.72% for the first nine months of 2009 as loan yields declined faster than deposit rates, reflecting the actions taken by the FRB to lower interest rates during the fourth quarter of 2008 combined with competitive pressures on deposit rates. Details on changes in tax equivalent net interest income attributed to changes in interest earning assets, interest bearing liabilities, yields and cost of funds are set forth in the preceding table.

The following table sets forth certain information regarding changes in net interest income attributable to changes in the volumes of interest earning assets and interest bearing liabilities and changes in the rates for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 (in thousands):


	Volume			Rate			Net
Interest Income
Interest bearing deposits with banks	$	(24	)	$	(48	)	$	(72	)
Federal funds sold		(7	)		(225	)		(232	)
Securities		5,765			(3,140	)		2,625
Loans		24,163			(37,189	)		(13,026	)

		29,897			(40,602	)		(10,705	)


Interest Expense
Deposits:
Interest bearing demand		3,677			(12,319	)		(8,642	)
Savings		784			(3,626	)		(2,842	)
Certificates and other time		5,656			(11,300	)		(5,644	)
Treasury management accounts		1,359			(4,011	)		(2,652	)
Other short-term borrowings		(623	)		(553	)		(1,176	)
Long-term debt		(1,730	)		(537	)		(2,267	)
Junior subordinated debt		779			(2,041	)		(1,262	)

		9,902			(34,387	)		(24,485	)

Net Change	$	19,995		$	(6,215	)	$	13,780


(1)		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.

(2)		Interest income amounts are reflected on an FTE basis which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. The Corporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

Interest income, on an FTE basis, of $296.4 million for the first nine months of 2009 decreased by $10.7 million or 3.5% from the same period of 2008. Average interest earning assets of $7.2 billion for the first nine months of 2009 grew $740.2 million or 11.4% from the same period of 2008 primarily driven by the Omega and IRGB acquisitions which increased loans by $1.1 billion and $160.2 million, respectively, at the time of acquisition. Organic loan growth was flat for the first nine months of 2009 compared to the same period of 2008. The yield on interest earning assets decreased 86 basis points from the nine months ended September 30, 2008 to 5.48% for the nine months

ended September 30, 2009, reflecting changes in interest rates as the FRB has lowered its federal funds target rate from 4.25% at the beginning of 2008 to a current range of 0.00% to 0.25%.

Interest expense of $94.7 million for the nine months ended September 30, 2009 decreased by $24.5 million or 20.5% from the same period of 2008. The rate paid on interest bearing liabilities decreased 80 basis points to 1.95% during the first nine months of 2009 compared to the first nine months of 2008, reflecting changes in interest rates and a favorable shift in mix. Average interest bearing liabilities increased $717.2 million or 12.4% to average $6.5 billion for the first nine months of 2009. This growth was primarily attributable to the Omega and IRGB acquisitions combined with organic growth. The Omega and IRGB acquisitions increased deposits by $1.3 billion and $256.8 million, respectively, at the time of acquisition. The Corporation also recognized organic average deposit and treasury management account growth of $0.3 million or 4.7% for the first nine months of 2009, compared to the first nine months of 2008 driven by success with ongoing marketing campaigns designed to attract new customers to the Corporation’s local approach to banking combined with customer preferences to keep funds in banks due to uncertainties in the market.

Provision for Loan Losses

The provision for loan losses is determined based on management’s estimates of the appropriate level of allowance for loan losses needed to absorb probable losses inherent in the existing loan portfolio, after giving consideration to charge-offs and recoveries for the period.

The provision for loan losses of $40.9 million during the first nine months of 2009 increased $19.8 million from the same period in 2008 due to higher net charge-offs and increased allocations for a weaker economic environment. The significant increases primarily reflect continued weakness in the Corporation’s Florida portfolio, and, to a much lesser extent, the slowing economy in Pennsylvania. The $40.9 million provision for loan losses for the first nine months of 2009 was comprised of $21.7 million relating to FNBPA’s Florida region, $4.6 million relating to Regency and $14.6 million relating to the remainder of the Corporation’s portfolio, which is predominantly in Pennsylvania. During the first nine months of 2009, net charge-offs were $39.7 million or 0.91% (annualized) of average loans compared to $11.4 million or 0.29% (annualized) of average loans for the same period in 2008. The net charge-offs for the first nine months of 2009 were comprised of $23.5 million or 11.12% (annualized) of average loans relating to FNBPA’s Florida region, $4.6 million or 3.94% (annualized) of average loans relating to Regency and $11.6 million or 0.29% (annualized) of average loans relating to the remainder of the Corporation’s portfolio. For additional information relating to the allowance and provision for loan losses, refer to the Allowance and Provision for Loan Losses section of this Management’s Discussion and Analysis.

Non-Interest Income

Total non-interest income of $80.6 million for the first nine months of 2009 increased $2.7 million or 3.5% from the same period of 2008. This increase resulted primarily from increases in both service charges and insurance commissions and fees reflecting organic growth and the impact of acquisitions combined with a gain on the sale of a building acquired in a previous acquisition and gains on the sale of residential mortgage loans. These items were partially offset by decreases in securities commissions and fees, trust fees, income from bank owned life insurance and gain on the sale of securities and higher OTTI charges. These items are further explained in the following paragraphs.

Service charges on loans and deposits of $43.0 million for the first nine months of 2009 increased $2.9 million or 7.3% from the same period of 2008, reflecting organic growth and the expansion of the Corporation’s customer base as a result of the Omega and IRGB acquisitions during 2008.

Insurance commissions and fees of $12.9 million for the nine months ended September 30, 2009 increased $0.8 million or 6.7% from the same period of 2008 primarily as a result of the acquisition of Omega during 2008.

Securities commissions of $5.2 million for the first nine months of 2009 decreased by $0.4 million or 6.8% from the same period of 2008 primarily due to lower activity due to market conditions, partially offset by the acquisition of Omega during 2008.

Trust fees of $8.8 million for the first nine months of 2009 decreased by $0.2 million or 2.5% from the same period of 2008 due to the negative effect of market conditions on assets under management, partially offset by growth in assets under management resulting from the Omega acquisition during 2008.

Income from bank owned life insurance of $4.4 million for the nine months ended September 30, 2009 decreased by $0.3 million or 6.0% from the same period of 2008. This decrease was primarily attributable to death claims, lower yields and a $13.7 million withdrawal from the policy due to the unfavorable market conditions during the second quarter of 2009.

Gain on the sale of residential mortgage loans of $2.3 million for the first nine months of 2009 increased by $0.9 million or 60.6% from the same period of 2008 due to a higher volume of loan sales resulting from higher loan refinancing due to the lower interest rate environment. For the first nine months of 2009, the Corporation sold $158.9 million of residential mortgage loans compared to $96.5 million for the same period of 2008.

Gain on the sale of securities of $0.5 million for the first nine months of 2009 decreased $0.3 million or 39.9% from the same period of 2008 as management did not sell as many equity securities during 2009 due to unfavorable market prices for the bank stock portfolio. During 2008, most of the gain related to the Visa, Inc. initial public offering. The Corporation is a member of Visa USA since it issues Visa debit cards. As such, a portion of the Corporation’s ownership interest in Visa was redeemed in the first quarter of 2008 in exchange for $0.7 million. This entire amount was recorded as gain on sale of securities since the Corporation’s cost basis in Visa is zero.

Net impairment losses on securities of $4.2 million for the nine months ended September 30, 2009 increased by $3.7 million from the same period of 2008 due to impairment losses during 2009 of $3.5 million related to investments in pooled trust preferred securities and $0.7 million related to investments in bank stocks.

Other income of $7.7 million for the first nine months of 2009 increased $3.1 million or 66.8% from the same period of 2008. The primary items contributing to this increase were $1.1 million more in gains relating to payments received on impaired loans acquired in previous acquisitions, a gain of $0.8 million on the sale of a building acquired in a previous acquisition and an increase of $0.7 million in fees earned through an interest rate swap program for larger commercial customers who desire fixed rate loans while the Corporation benefits from a variable rate asset, thereby helping to reduce volatility in its net interest income. These items were partially offset by a decrease of $0.4 million on the dividends received on non-marketable equity securities.

Non-Interest Expense

Total non-interest expense of $189.6 million for the first nine months of 2009 increased $25.3 million or 15.4% from the same period of 2008. This increase was primarily attributable to operating expenses resulting from the Omega and IRGB acquisitions in 2008 combined with increases in salaries and employee benefits and Federal Deposit Insurance Corporation (FDIC) insurance.

Salaries and employee benefits of $95.1 million for the nine months ended September 30, 2009 increased $7.8 million or 9.0% from the same period of 2008. This increase was primarily attributable to the acquisitions of Omega and IRGB during 2008 combined with $1.1 million in additional pension expense during the first nine months of 2009 as a result of an increase in the actuarial valuation amount.

Combined net occupancy and equipment expense of $28.8 million for the first nine months of 2009 increased $4.0 million or 16.0% from the combined level for the same period in 2008, primarily due to the Omega and IRGB acquisitions during 2008.

Amortization of intangibles expense of $5.4 million for the first nine months of 2009 increased $0.9 million or 20.4% from the same period of 2008 due to higher intangible balances resulting from the Omega and IRGB acquisitions during 2008.

Outside services expense of $17.6 million for the nine months ended September 30, 2009 increased $2.3 million or 15.1% from the same period in 2008 primarily due to the Omega and IRGB acquisitions during 2008, combined with higher fees for professional services, including legal fees incurred for loan workout efforts.

FDIC insurance of $11.2 million for the first nine months of 2009 increased $10.6 million from the same period of 2008 due to a one-time special assessment of $4.0 million paid during the second quarter of 2009, combined with an increase in FDIC insurance premium rates for 2009 and FNBPA having utilized its FDIC insurance premium credits in prior periods.

Other non-interest expense decreased slightly to $31.5 million for the first nine months of 2009 from $31.8 million for the first nine months of 2008. During the first nine months of 2008, the Corporation recorded merger-related expenses of $3.6 million relating to the acquisition of Omega. Additional operating costs during the first nine months of 2009 associated with the Corporation’s acquisitions of Omega and IRGB in 2008 were offset by the decrease in merger-related expense.

Income Taxes

The Corporation’s income tax expense of $10.6 million for the first nine months of 2009 decreased $10.9 million or 50.7% from the same period of 2008. The effective tax rate of 22.4% for the first nine months of 2009 declined from 28.2% for the same period of 2008, primarily due to lower taxable income for the first nine months of 2009. Income taxes and the effective tax rate for the nine months ended September 30, 2009 and 2008 were favorably impacted by $0.4 million and $0.5 million, respectively, due to the resolution of previously uncertain tax positions. The lower effective tax rate reflects benefits resulting from tax-exempt income on investments, loans and bank owned life insurance. Both periods’ tax rates are lower than the 35.0% federal statutory tax rate due to the tax benefits primarily resulting from tax-exempt instruments and excludable dividend income.

Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

Net income for the quarter ended September 30, 2009 was $10.3 million, compared to net income for the same period of 2008 of $23.5 million. Net income available to common stockholders for the three months ended September 30, 2009 was $4.8 million or $0.04 per diluted share, compared to net income available to common stockholders for the same period of 2008 of $23.5 million or $0.27 per diluted share. Net income available to common stockholders for the three months ended September 30, 2009 included $5.5 million related to preferred stock dividends and discount amortization associated with the Corporation’s participation in the CPP. For the three months ended September 30, 2009, the Corporation’s return on average equity was 3.62% and return on average assets was 0.47%, compared to 9.99% and 1.13%, respectively, for the three months ended September 30, 2008.

The following tables summarize the Corporation’s non-GAAP financial measures for the quarterly periods indicated derived from amounts reported in the Corporation’s financial statements (dollars in thousands):


	Three Months Ended
	September 30,
	2009			2008
Return on average tangible equity:
Net income (annualized)	$	40,887		$	93,507
Amortization of intangibles, net of tax (annualized)		4,467			5,591

	$	45,354		$	99,098


Average total stockholders’ equity	$	1,128,898		$	936,452
Less: Average intangibles		(570,705	)		(550,673	)

	$	558,193		$	385,779


Return on average tangible equity		8.13	%		25.69	%


Return on average tangible common equity:
Net income available to common stockholders (annualized)	$	19,081		$	93,507
Amortization of intangibles, net of tax (annualized)		4,467			5,591

	$	23,548		$	99,098


Average total stockholders’ equity	$	1,128,898		$	936,452
Less: Average preferred stockholders’ equity		(72,727	)		—
Less: Average intangibles		(570,705	)		(550,673	)

	$	485,466		$	385,779


Return on average tangible common equity		4.85	%		25.69	%


	Three Months Ended
	September 30,
	2009			2008
Return on average tangible assets:
Net income (annualized)	$	40,887		$	93,507
Amortization of intangibles, net of tax (annualized)		4,467			5,591

	$	45,354		$	99,098


Average total assets	$	8,701,854		$	8,265,506
Less: Average intangibles		(570,705	)		(550,673	)

	$	8,131,149		$	7,714,833


Return on average tangible assets		0.56	%		1.28	%


	Three Months Ended September 30,
	2009									2008
													Interest
				Interest Income/			Yield/			Average			Income/		Yield/
	Average Balance			Expense			Rate			Balance			Expense		Rate
Assets
Interest earning assets:
Interest bearing deposits with banks	$	1,520		$	—			0.06	%	$	5,224		$	14		1.08	%
Federal funds sold		—			(58	)		—			13,463			68		1.98
Taxable investment securities (1)		1,272,091			12,771			3.97			1,119,980			13,291		4.71
Non-taxable investment securities (2)		194,086			2,792			5.75			184,055			2,601		5.65
Loans (2) (3)		5,814,013			82,672			5.65			5,766,959			94,395		6.52

Total interest earning assets (2)		7,281,710			98,177			5.36			7,089,681			110,369		6.20

Cash and due from banks		411,615									158,491
Allowance for loan losses		(103,249	)								(73,656	)
Premises and equipment		119,786									120,806
Other assets		991,992									970,184

	$	8,701,854								$	8,265,506


Liabilities
Interest bearing liabilities:
Deposits:
Interest bearing demand	$	2,256,086			3,530			0.62		$	2,018,070			6,900		1.36
Savings		845,082			560			0.26			808,135			1,721		0.85
Certificates and other time		2,223,126			16,200			2.89			2,250,043			19,758		3.49
Treasury management accounts		465,250			1,095			0.92			398,575			1,914		1.88
Other short-term borrowings		118,274			977			3.23			145,960			1,252		3.36
Long-term debt		412,411			4,210			4.05			501,500			5,231		4.15
Junior subordinated debt		204,962			2,417			4.68			205,637			3,120		6.04

Total interest bearing liabilities (2)		6,525,191			28,989			1.76			6,327,920			39,896		2.50

Non-interest bearing demand		951,113									907,146
Other liabilities		96,652									93,988

		7,572,956									7,329,054
Stockholders’ equity		1,128,898									936,452

	$	8,701,854								$	8,265,506

Excess of interest earning assets over interest bearing liabilities	$	756,519								$	761,761

Fully tax-equivalent net interest income					69,188									70,473
Tax-equivalent adjustment					1,644									1,568

Net interest income				$	67,544								$	68,905


Net interest spread								3.60	%							3.70	%


Net interest margin (2)								3.78	%							3.97	%


(1)		The average balances and yields earned on securities are based on historical cost.

(2)		The interest income amounts are reflected on a FTE basis, a non-GAAP measure, which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. The yields on earning assets and the net interest margin are presented on an FTE and annualized basis. The rates paid on interest bearing liabilities are also presented on an annualized basis. The Corporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

(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.

Net Interest Income

Net interest income, which is the Corporation’s principal source of revenue, is the difference between interest income from earning assets and interest expense paid on liabilities. For the three months ended September 30, 2009, net interest income, which comprised 73.8% of net revenue (net interest income plus non-interest income) compared to 70.9% for the same period in 2008, was affected by the general level of interest rates, changes in interest rates, the shape of the yield curve, the level of non-accrual loans and changes in the amount and mix of interest earning assets and interest bearing liabilities.

Net interest income, on an FTE basis, decreased $1.3 million from $70.5 million for the three months ended September 30, 2008 to $69.2 million for the same period of 2009. Average interest earning assets increased $192.0 million or 2.7% and average interest bearing liabilities increased $197.3 million or 3.1% from the three months ended September 30, 2008 due to organic loan and deposit growth and the IRGB acquisition. The Corporation’s net interest margin decreased from 3.97% for the third quarter of 2008 to 3.78% for the third quarter of 2009 as loan yields declined faster than deposit rates, reflecting the actions taken by the FRB to lower interest rates during the fourth quarter of 2008 combined with competitive pressures on deposit rates. Details on changes in tax equivalent net interest income attributed to changes in interest earning assets, interest bearing liabilities, yields and cost of funds are set forth in the preceding table.

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 three months ended September 30, 2009 compared to the three months ended September 30, 2008 (in thousands):


	Volume			Rate			Net
Interest Income
Interest bearing deposits with banks	$	(6	)	$	(8	)	$	(14	)
Federal funds sold		(63	)		(63	)		(126	)
Securities		1,763			(2,092	)		(329	)
Loans		94			(11,817	)		(11,723	)

		1,788			(13,980	)		(12,192	)


Interest Expense
Deposits:
Interest bearing demand		844			(4,214	)		(3,370	)
Savings		99			(1,260	)		(1,161	)
Certificates and other time		(200	)		(3,358	)		(3,558	)
Treasury management accounts		280			(1,099	)		(819	)
Other short-term borrowings		(103	)		(172	)		(275	)
Long-term debt		(899	)		(122	)		(1,021	)
Junior subordinated debt		(10	)		(693	)		(703	)

		11			(10,918	)		(10,907	)

Net Change	$	1,777		$	(3,062	)	$	(1,285	)


(1)		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.

(2)		Interest income amounts are reflected on an FTE basis which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. The Corporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

Interest income, on an FTE basis, of $98.2 million for the third quarter of 2009 decreased by $12.2 million or 11.0% from the same period of 2008 as growth on average interest earning assets was offset by a lower rate environment. Average interest earning assets of $7.3 billion for the third quarter of 2009 grew $192.0 million or 2.7% from the same period of 2008 primarily driven by the IRGB acquisition which increased loans by $160.2 million at the time of acquisition. The yield on interest earning assets decreased 84 basis points from the three months ended September 30, 2008 to 5.36% for the three months ended September 30, 2009, reflecting changes in interest rates as the

FRB has lowered its federal funds target rate from 4.25% at the beginning of 2008 to a current range of 0.00% to 0.25%.

Interest expense of $29.0 million for the three months ended September 30, 2009 decreased by $10.9 million or 27.3% from the same period of 2008. The rate paid on interest bearing liabilities decreased 74 basis points to 1.76% during the third quarter of 2009 compared to the third quarter of 2008, reflecting changes in interest rates and a favorable shift in mix. Average interest bearing liabilities increased $197.3 million or 3.1% to average $6.5 billion for the third quarter of 2009. This growth was primarily attributable to the IRGB acquisition combined with organic growth. The IRGB acquisition increased deposits by $256.8 million at the time of acquisition. The Corporation also recognized organic average deposit and treasury management account growth of $229.6 million or 3.6% for the third quarter of 2009, compared to the third quarter of 2008 driven by success with ongoing marketing campaigns designed to attract new customers to the Corporation’s local approach to banking combined with customer preferences to keep funds in banks due to uncertainties in the market.

Provision for Loan Losses

The provision for loan losses of $16.5 million during the third quarter of 2009 increased $9.9 million from the same period in 2008 due to higher net charge-offs and increased allocations for a weaker economic environment. The increase primarily reflects continued weakness in the Corporation’s Florida portfolio, and, to a lesser extent, the slowing economy in Pennsylvania. The $16.5 million provision for loan losses for the third quarter of 2009 was comprised of $7.4 million relating to FNBPA’s Florida region, $1.5 million relating to Regency and $7.6 million relating to the remainder of the Corporation’s portfolio, which is predominantly in Pennsylvania. During the third quarter of 2009, net charge-offs were $10.0 million or 0.68% (annualized) of average loans compared to $4.3 million or 0.30% (annualized) of average loans for the same period in 2008. The net charge-offs for the third quarter of 2009 were comprised of $4.1 million or 5.90% (annualized) of average loans relating to FNBPA’s Florida region, $1.5 million or 3.64% (annualized) of average loans relating to Regency and $4.4 million or 0.33% (annualized) of average loans relating to the remainder of the Corporation’s portfolio. For additional information relating to the allowance and provision for loan losses, refer to the Allowance and Provision for Loan Losses section of this Management’s Discussion and Analysis.

Non-Interest Income

Total non-interest income of $24.0 million for the third quarter of 2009 decreased $4.3 million or 15.1% from the same period of 2008. This decrease resulted from declines in all major fee business reflecting the current economic conditions. These items are further explained in the following paragraphs.

Service charges on loans and deposits of $14.8 million for the third quarter of 2009 decreased $0.2 million or 1.6% from the same period of 2008, reflecting customer behavior changes in a slow economic environment.

Insurance commissions and fees of $4.0 million for the three months ended September 30, 2009 was flat compared to the same period of 2008 due to the current economic environment.

Securities commissions of $1.5 million for the third quarter of 2009 decreased by $0.6 million or 27.8% from the same period of 2008 primarily due to lower activity given the market conditions.

Trust fees of $2.9 million for the third quarter of 2009 decreased by $0.4 million or 11.2% from the same period of 2008 primarily due to the negative effect of market conditions on assets under management.

Income from bank owned life insurance of $1.4 million for the three months ended September 30, 2009 decreased by $0.4 million or 24.6% from the same period of 2008. This decrease was primarily attributable to death claims, lower yields and a $13.7 million withdrawal from the policy due to the unfavorable market conditions during the second quarter of 2009.

Gain on the sale of residential mortgage loans of $0.7 million for the third quarter of 2009 increased by $0.2 million or 39.6% from the same period of 2008 due to a higher volume of loan sales given increased refinancing activity

as a result of the lower rate environment. For the third quarter of 2009, the Corporation sold $44.0 million of residential mortgage loans compared to $35.0 million for the same period of 2008.

Net impairment losses on securities of $3.3 million for the three months ended September 30, 2009 increased by $3.3 million from the same period of 2008 due to impairment losses during the third quarter of 2009 of $3.2 million related to investments in pooled trust preferred securities and $0.1 million related to investments in bank stocks.

Other income of $2.1 million for the third quarter of 2009 increased $0.3 million or 16.3% from the same period of 2008. The primary reason for this increase was an increase of $0.4 million in gains relating to payments received on impaired loans acquired in previous acquisitions, partially offset by a decrease of $0.2 million in dividends on non-marketable equity securities.

Non-Interest Expense

Total non-interest expense of $62.3 million for the third quarter of 2009 increased $4.4 million or 7.6% from the same period of 2008. This increase was primarily attributable to a $2.4 million increase in FDIC insurance, combined with a $1.7 million increase in salaries and employee benefits and a $0.5 million increase in combined net occupancy and equipment. These items are further explained in the following paragraphs.

Salaries and employee benefits of $31.4 million for the three months ended September 30, 2009 increased $1.7 million or 5.6% from the same period of 2008 reflecting higher pension costs resulting from an the impact of 2008 market performance, combined with the effect of the IRGB acquisition.

Combined net occupancy and equipment expense of $9.3 million for the third quarter of 2009 increased $0.5 million or 5.6% from the combined level for the same period in 2008, primarily due to the IRGB acquisition during 2008.

Amortization of intangibles expense of $1.7 million for the third quarter of 2009 decreased $0.4 million or 19.9% from the same period of 2008 as a result of certain intangibles becoming completely amortized during 2009, partially offset by the impact of the IRGB acquisition.

Outside services expense of $5.8 million for the three months ended September 30, 2009 increased $0.6 million or 11.8% from the same period in 2008 primarily due to the IRGB acquisition during 2008, combined with higher fees for professional services, including legal fees related to loan workout efforts.

FDIC insurance of $2.6 million for the three months ended September 30, 2009 increased $2.4 million from the same period of 2008 due to an increase in FDIC insurance premium rates for 2009 and FNBPA having utilized its FDIC insurance premium credits in prior periods.

Other non-interest expenses of $11.5 million for the third quarter of 2009 decreased $0.3 million or 2.6% from the same period of 2008. This decrease is primarily the result of merger-related expenses of $0.9 million relating to the acquisitions of Omega and IRGB recorded by the Corporation during the third quarter of 2008, partially offset by an increase of $0.6 million in loan related fees, relating primarily to taxes and condominium fees associated with the Florida loan market.

Income Taxes

The Corporation’s income tax expense of $2.4 million for the third quarter of 2009 decreased $6.8 million or 73.7% from the same period of 2008. The effective tax rate of 19.0% for the third quarter of 2009 declined from 28.1% for the same period of 2008, primarily due to lower taxable income for the third quarter of 2009. Income taxes and the effective tax rate for the three months ended September 30, 2009 and 2008 were favorably impacted by $0.2 million and $0.3 million, respectively, due to the resolution of previously uncertain tax positions. The lower effective tax rate reflects benefits resulting from tax-exempt income on investments, loans and bank owned life insurance. Both periods’ tax rates are lower than the 35.0% federal statutory tax rate due to the tax benefits primarily resulting from tax-exempt instruments and excludable dividend income.

LIQUIDITY

The Corporation’s goal in liquidity management is to satisfy the cash flow requirements of depositors and borrowers as well as the operating cash needs of the Corporation with cost-effective funding. The Board of Directors of the Corporation 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. The Board of Directors of the Corporation has also established a Contingency Funding Policy to address liquidity crisis conditions. These policies designate the Corporate Asset/Liability Committee (ALCO) as the body responsible for meeting these objectives. The ALCO, which includes members of executive management, reviews liquidity on a periodic basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Liquidity is centrally managed on a daily basis by the Corporation’s Treasury Department.

The principal sources of the parent company’s liquidity are its strong existing cash resources plus dividends it receives from its subsidiaries. These dividends may be impacted by the parent’s or its subsidiaries’ capital needs, statutory laws and regulations, corporate policies, contractual restrictions and other factors. Cash on hand at the parent at September 30, 2009 was $81.1 million, up from $66.8 million at December 31, 2008, as the Corporation took a number of actions to bolster its cash position. On January 9, 2009, the Corporation completed the sale of 100,000 shares of newly issued preferred stock valued at $100.0 million as part of the UST’s CPP. The Corporation redeemed the preferred stock on September 9, 2009. Additionally, on January 21, 2009, the Corporation’s Board of Directors elected to reduce the common stock dividend rate from $0.24 to $0.12 per quarter, thus reducing 2009’s liquidity needs by approximately $43.1 million. Finally, on June 16, 2009, the Corporation completed a common stock offering that raised $125.8 million in total capital, $98.0 million of which has been invested in FNBPA. The parent also may draw on an approved guidance line of credit with a major domestic bank. This line was unused and totaled $25.0 million as of September 30, 2009 and December 31, 2008. In addition, the Corporation also issues subordinated notes on a regular basis. Subordinated note growth for 2009 to-date was $30.9 million or 20.2%. One customer accounted for $17.7 million of that growth.

FNBPA generates liquidity from its normal business operations. Liquidity sources from assets include payments from loans and investments as well as the ability to securitize, pledge or sell loans, investment securities and other assets. Liquidity sources from liabilities are generated primarily through the 224 banking offices of FNBPA in the form of deposits and treasury management accounts. The Corporation also has access to reliable and cost-effective wholesale sources of liquidity. Short-term and long-term funds can be acquired to help fund normal business operations as well as serve as contingency funding in the event that the Corporation would be faced with a liquidity crisis.

The recent financial market crisis, which began in 2007, escalated in the second half of 2008 and resulted in the UST, FRB and FDIC intervening with a number of programs designed to provide liquidity, capital and increased deposit insurance to the U.S. financial system. The Corporation has voluntarily elected to participate in a number of these programs, including the previously mentioned UST’s CPP program and the FDIC’s Temporary Liquidity Guarantee Program (TLGP). The Corporation has not issued any debt under the TLGP, which expires April 30, 2010.

The liquidity position of the Corporation continues to be strong as evidenced by its ability to generate strong growth in deposits and treasury management accounts. As a result, the Corporation is less reliant on capital markets funding as witnessed by its ratio of total deposits and treasury management accounts to total assets of 78.4% and 77.3% as of September 30, 2009 and December 31, 2008, respectively. Over this time period, growth in deposits and treasury management accounts was $267.8 million or 4.1%. The Corporation had unused wholesale credit availability of $2.7 billion or 31.3% of total assets at September 30, 2009 and $2.7 billion or 32.9% of total assets at December 31, 2008. These sources include the availability to borrow from the FHLB, the FRB, correspondent bank lines and access to certificates of deposit issued through brokers. During the first nine months of 2009, the Corporation expanded its borrowing capacity at the FRB by approximately $400.0 million by pledging additional loans as collateral. The Corporation also took a number of actions to bolster liquidity throughout 2008. These actions included a $200.0 million increase in federal fund lines, increased brokered CD capacity and becoming a participant in the Certificate of Deposit Account Registry Services (CDARS) program operated by the Promontory Interfinancial Network, LLC. Further, the Corporation’s election not to opt out of the FDIC’s TLGP resulted in $140.0 million of increased funding availability.

In addition, the ALCO regularly monitors various liquidity ratios and forecasts of the Corporation’s liquidity position. Management believes the Corporation has sufficient liquidity available to meet its normal operating and contingency funding cash needs.

MARKET RISK

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices. The Corporation is susceptible to current and future impairment charges on holdings in its investment portfolio. The Securities footnote discusses the impairment charges taken during both 2009 and 2008 relating to the pooled trust preferred securities and bank stock portfolios. The Securities footnote also discusses the ongoing process management utilizes to determine whether impairment exists.

The Corporation is primarily exposed to interest rate risk inherent in its lending and deposit-taking activities as a financial intermediary. To succeed in this capacity, the Corporation offers an extensive variety of financial products to meet the diverse needs of its customers. These products sometimes contribute to interest rate risk for the Corporation when product groups do not complement one another. For example, depositors may want short-term deposits while borrowers desire long-term loans.

Changes in market interest rates may result in changes in the fair value of the Corporation’s financial instruments, cash flows and net interest income. The ALCO is responsible for market risk management which involves devising policy guidelines, risk measures and limits, and managing the amount of interest rate risk and its effect on net interest income and capital. The Corporation uses derivative financial instruments for interest rate risk management purposes and not for trading or speculative purposes.

Interest rate risk is comprised of repricing risk, basis risk, yield curve risk and options risk. Repricing risk arises from differences in the cash flow or repricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are related to different market rate indexes, which do not always change by the same amount. Yield curve risk arises when asset and liability portfolios are related to different maturities on a given yield curve; when the yield curve changes shape, the risk position is altered. Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their loans when rates fall while certain depositors can redeem their certificates of deposit early when rates rise.

The Corporation uses a sophisticated asset/liability model to measure its interest rate risk. Interest rate risk measures utilized by the Corporation include earnings simulation, economic value of equity (EVE) and gap analysis.

Gap analysis and EVE are static measures that do not incorporate assumptions regarding future business. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single rate environment. EVE’s long-term horizon helps identify changes in optionality and longer-term positions. However, EVE’s liquidation perspective does not translate into the earnings-based measures that are the focus of managing and valuing a going concern. Net interest income simulations explicitly measure the exposure to earnings from changes in market rates of interest. In these simulations, the Corporation’s current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. The ALCO reviews earnings simulations over multiple years under various interest rate scenarios on a periodic basis. Reviewing these various measures provides the Corporation with a comprehensive view of its interest rate profile.

The following gap analysis compares the difference between the amount of interest earning assets (IEA) and interest bearing liabilities (IBL) subject to repricing over a period of time. A ratio of more than one indicates a higher level of repricing assets over repricing liabilities for the time period. Conversely, a ratio of less than one indicates a higher level of repricing liabilities over repricing assets for the time period.

The following table presents the amounts of IEA and IBL as of September 30, 2009 that are subject to repricing within the periods indicated (dollars in thousands):


	Within			2-3			4-6			7-12			Total
	1 Month			Months			Months			Months			1 Year
Interest Earning Assets (IEA)
Loans	$	1,757,453		$	395,257		$	346,203		$	586,544		$	3,085,457
Investments		228,849			80,017			222,575			297,435			828,876

		1,986,302			475,274			568,778			883,979			3,914,333

Interest Bearing Liabilities (IBL)
Non-maturity deposits		1,645,032			—			—			—			1,645,032
Time deposits		142,343			229,092			331,053			517,890			1,220,378
Borrowings		429,096			216,127			66,064			127,292			838,579

		2,216,471			445,219			397,117			645,182			3,703,989

Period Gap	$	(230,169	)	$	30,055		$	171,661		$	238,797		$	210,344

Cumulative Gap	$	(230,169	)	$	(200,114	)	$	(28,453	)	$	210,344


IEA/IBL (Cumulative)		0.90			0.92			0.99			1.06


Cumulative Gap to IEA		(3.1	)%		(2.7	)%		(0.4	)%		2.8	%

The cumulative twelve-month IEA to IBL ratio changed slightly to 1.06 for September 30, 2009 from 1.08 for December 31, 2008.

The allocation of non-maturity deposits to the one-month maturity category is based on the estimated sensitivity of each product to changes in market rates. For example, if a product’s rate is estimated to increase by 50% as much as the market rates, then 50% of the account balance was placed in this category. The current allocation is representative of the estimated sensitivities for a +/- 100 basis point change in market rates.

The measures were calculated using rate shocks, representing immediate rate changes that move all market rates by the same amount. The variance percentages represent the change between the net interest income or EVE calculated under the particular rate shock versus the net interest income or EVE that was calculated assuming market rates as of September 30, 2009.

The following table presents an analysis of the potential sensitivity of the Corporation’s net interest income and EVE to changes in interest rates:


	September 30,			December 31,			ALCO
	2009			2008			Guidelines
Net interest income change (12 months):
+ 200 basis points		(0.2	)%		(0.3	)%		+/-5.0	%
+ 100 basis points		0.1	%		0.2	%		+/-5.0	%
- 100 basis points		(1.1	)%		(2.4	)%		+/-5.0	%

Economic value of equity:
+ 200 basis points		(5.6	)%		(0.1	)%		—
+ 100 basis points		(2.2	)%		1.1	%		—
- 100 basis points		(0.2	)%		6.3	%		—

The Corporation has a relatively neutral interest rate risk position. The Corporation bases its conclusion on its relatively stable net interest margin despite the recent market rate volatility.

During the first nine months of 2009, the ALCO utilized several strategies to maintain the Corporation’s interest rate risk position at a relatively neutral level. For example, the Corporation successfully achieved growth in longer-term certificates of deposit. On the lending side, the Corporation regularly sells long-term fixed-rate residential

mortgages to the secondary market and has been successful in the origination of commercial loans with short-term repricing characteristics. Total variable and adjustable-rate loans increased from 54.6% of total loans as of December 31, 2008 to 56.5% of total loans as of September 30, 2009. The investment portfolio is used, in part, to improve the Corporation’s interest rate risk position. The average life of the investment portfolio is relatively low at 2.5 years for September 30, 2009 versus 2.7 years for December 31, 2008. Finally, the Corporation has made use of interest rate swaps to lessen its interest rate risk position. For additional information regarding interest rate swaps, see the Derivative Instruments footnote.

The Corporation recognizes that asset/liability models such as those used by the Corporation to measure its interest rate risk are based on methodologies that may have inherent shortcomings. Furthermore, asset/liability models require certain assumptions to be made, such as prepayment rates on interest earning assets and pricing impact on non-maturity deposits, which may differ from actual experience. These business assumptions are based upon the Corporation’s experience, business plans and published industry experience. While management believes such assumptions to be reasonable, there can be no assurance that modeled results will be achieved.

DEPOSITS AND TREASURY MANAGEMENT ACCOUNTS

Following is a summary of deposits and treasury management accounts (in thousands):


	September 30,		December 31,
	2009		2008
Non-interest bearing	$	972,859	$	919,539
Savings and NOW		3,072,601		2,816,628
Certificates of deposit and other time deposits		2,213,323		2,318,456

Total deposits		6,258,783		6,054,623
Treasury management accounts		478,315		414,705

Total deposits and treasury management accounts	$	6,737,098	$	6,469,328

Total deposits and treasury management accounts increased by $267.8 million or 4.1% to $6.7 billion at September 30, 2009 compared to December 31, 2008, primarily as a result of an increase in transaction accounts, which is comprised of non-interest bearing, savings and NOW accounts, which was partially offset by a decline in certificates of deposit. The increase in transaction accounts is a result of the Corporation’s ability to capitalize on competitor disruption in the marketplace, with ongoing marketing campaigns designed to attract new customers to the Corporation’s local approach to banking. Certificates of deposit are down by design reflecting the Corporation’s continuing strategy to focus on growing core transaction accounts.

LOANS

The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within the Corporation’s primary market area of Pennsylvania and northeastern Ohio. The portfolio also consists of commercial loans in Florida, which totaled $271.6 million or 4.7% of total loans as of September 30, 2009 compared to $294.2 million or 5.1% of total loans as of December 31, 2008. In addition, the portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio and Tennessee, which totaled $158.6 million or 2.7% of total loans as of September 30, 2009. The Corporation also operates a mortgage loan production office in Tennessee.

Following is a summary of loans, net of unearned income (in thousands):


	September 30,		December 31,
	2009		2008
Commercial	$	3,226,720	$	3,173,941
Direct installment		993,863		1,070,791
Residential mortgages		594,586		638,356
Indirect installment		544,579		531,430
Consumer lines of credit		395,366		340,750
Other		82,288		65,112

	$	5,837,402	$	5,820,380

Commercial is comprised of both commercial real estate loans and commercial and industrial loans. Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans. Residential mortgages consist of conventional mortgage loans for non-commercial properties. Indirect installment is comprised of loans written by third parties, primarily automobile loans. Consumer lines of credit includes home equity lines of credit (HELOC) and consumer lines of credit that are either unsecured or secured by collateral other than home equity. Other is primarily comprised of commercial leases, mezzanine loans and student loans.

Unearned income on loans was $35.6 million and $34.0 million at September 30, 2009 and December 31, 2008, respectively.

Total loans were essentially unchanged at $5.8 billion for both the periods ended September 30, 2009 and December 31, 2008. However, the Corporation saw a favorable shift in the loan mix as commercial, consumer lines of credit and indirect installment loans increased by 1.7%, 16.0% and 2.5%, respectively, while direct installment and residential mortgages declined 7.2% and 6.9%, respectively.

The composition of the Corporation’s commercial loan portfolio in Florida remains generally consistent with December 31, 2008 and was comprised of the following as of September 30, 2009: unimproved residential land (14.5%), unimproved commercial land (26.3%), improved land (4.1%), income producing commercial real estate (31.8%), residential construction (8.3%), commercial construction (11.6%), commercial and industrial (2.2%) and owner-occupied (1.2%). The weighted average loan-to-value ratio for this portfolio is 73.0% as of September 30, 2009.

The majority of the Corporation’s loan portfolio consists of commercial loans, which is comprised of both commercial real estate loans and commercial and industrial loans. As of September 30, 2009 and December 31, 2008, commercial real estate loans were $2.0 billion at each date, or 34.5% and 34.3% of total loans, respectively. Approximately 46.0% of the commercial real estate loans are owner-occupied, while the remaining 54.0% are non-owner-occupied. As of September 30, 2009 and December 31, 2008, the Corporation had construction loans of $197.6 million and $176.7 million, respectively, representing 3.4% and 3.0% of total loans, respectively.

NON-PERFORMING ASSETS

Non-performing loans include non-accrual loans and restructured loans. Non-accrual loans represent loans for which interest accruals have been discontinued. Restructured loans are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Non-performing assets also include debt securities on which OTTI has been taken in the current or prior periods.

The Corporation discontinues interest accruals when principal or interest is due and has remained unpaid for 90 to 180 days depending on the loan type. When a loan is placed on non-accrual status, all unpaid interest is reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest has been paid and doubt about the ultimate collectibility of principal and interest no longer exists.

Non-performing loans are closely monitored on an ongoing basis as part of the Corporation’s 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):


	September 30,			December 31,
	2009			2008
Non-accrual loans	$	125,630		$	139,607
Restructured loans		8,282			3,872

Total non-performing loans		133,912			143,479
Other real estate owned (OREO)		19,741			9,177

Total non-performing loans and OREO		153,653			152,656
Non-performing investments		5,758			10,456

Total non-performing assets	$	159,411		$	163,112


Asset quality ratios:
Non-performing loans as a percent of total loans		2.29	%		2.47	%
Non-performing loans + OREO as a percent of total loans + OREO		2.62	%		2.62	%
Non-performing assets as a percent of total assets		1.85	%		1.95	%

During the third quarter of 2009, non-performing loans and OREO increased $12.8 million from $140.9 million at June 30, 2009 to $153.7 million at September 30, 2009. This increase in non-performing loans and OREO reflects a $6.0 million increase in non-accrual loans associated with the Corporation’s Pennsylvania loan portfolio resulting from two local shared national credits which the Corporation obtained through acquisitions and a $2.5 million increase in non-accrual loans relating to the Corporation’s Florida loan portfolio, combined with a $2.0 million increase in restructured mortgages and a $1.0 million increase in OREO.

Following is a summary of loans 90 days or more past due on which interest accruals continue (dollars in thousands):


	September 30,			December 31,
	2009			2008
Loans 90 days or more past due	$	13,215		$	13,677
As a percentage of total loans		0.23	%		0.23	%

Following is a summary of information pertaining to loans considered to be impaired (in thousands):


	September 30,		December 31,
	2009		2008
Impaired loans with an allocated allowance	$	70,659	$	78,823
Impaired loans without an allocated allowance		68,788		59,323

Total impaired loans	$	139,447	$	138,146

Allocated allowance on impaired loans	$	17,878	$	20,505

The majority of the loans deemed impaired were evaluated using the fair value of the collateral as the measurement method.

The following tables provide additional information relating to non-performing loans for the Corporation’s core portfolios (dollars in thousands):


	FNBPA (PA)			FNBPA (FL)			Regency			Total
September 30, 2009
Non-performing loans	$	59,104		$	68,073		$	6,735		$	133,912
Other real estate owned (OREO)		10,380			8,067			1,294			19,741
Total past due loans		54,057			2,700			5,151			61,908
Non-performing loans/total loans		1.09	%		25.06	%		4.25	%		2.29	%
Non-performing loans + OREO/ total loans + OREO		1.28	%		27.22	%		5.02	%		2.62	%

December 31, 2008
Non-performing loans	$	45,458		$	93,116		$	4,905		$	143,479
Other real estate owned (OREO)		7,054			1,138			985			9,177
Total past due loans		51,458			—			5,613			57,071
Non-performing loans/total loans		0.85	%		31.65	%		3.10	%		2.47	%
Non-performing loans + OREO/ total loans + OREO		0.98	%		31.91	%		3.70	%		2.62	%

FNBPA (PA) reflects FNBPA’s total portfolio excluding the Florida portfolio which is presented separately.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio at a specific point in time. This estimate includes losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio. Additions are made to the allowance through both periodic provisions charged to income and recoveries of losses previously incurred. Reductions to the allowance occur as loans are charged off. Management evaluates the adequacy of the allowance at least quarterly, and in doing so relies on various factors including, but not limited to, assessment of historical loss experience, delinquency and non-accrual trends, portfolio growth, underlying collateral coverage and current economic conditions. This evaluation is subjective and requires material estimates that may change over time.

The components of the allowance for loan losses represent estimates based upon FASB ASC Topic 450, Contingencies,and FASB ASC Topic 310, Receivables. FASB ASC Topic 450 applies to homogeneous loan pools such as consumer installment, residential mortgages and consumer lines of credit, as well as commercial loans that are not individually evaluated for impairment under FASB ASC Topic 310. FASB ASC Topic 310 is applied to commercial loans that are individually evaluated for impairment.

Under FASB ASC Topic 310, a loan is impaired when, based upon current information and events, it is probable that the loan will not be repaid according to its original contractual terms, including both principal and interest. Management performs individual assessments of impaired loans to determine the existence of loss exposure and, where applicable, the extent of loss exposure based upon the present value of expected future cash flows available to pay the loan, or based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent.

In estimating loan loss contingencies, management considers numerous factors, including historical charge-off rates and subsequent recoveries. Management also considers, but is not limited to, qualitative factors that influence the Corporation’s credit quality, such as delinquency and non-performing loan trends, changes in loan underwriting guidelines and credit policies, as well as the results of internal loan reviews. Finally, management considers the impact of changes in current local and regional economic conditions in the markets that the Corporation serves. Assessment of relevant economic factors indicates that the Corporation’s primary markets historically tend to lag the national economy, with local economies in the Corporation’s primary market areas also improving or weakening, as the case may be, but at a more measured rate than the national trends. Regional economic factors influencing management’s estimate of reserves include uncertainty of the labor markets in the regions the Corporation serves and a contracting labor force due, in part, to productivity growth and industry consolidations. Homogeneous loan pools are evaluated using similar criteria that are based upon historical loss rates of various loan types. Historical loss rates are adjusted to

incorporate changes in existing conditions that may impact, both positively or negatively, the degree to which these loss histories may vary. This determination inherently involves a high degree of uncertainty and considers current risk factors that may not have occurred in the Corporation’s historical loan loss experience.

During the fourth quarter of 2008, the Corporation began applying its methodology for establishing the allowance for loan losses to the Pennsylvania and Florida loan portfolios separately instead of continuing to evaluate the portfolios on a combined basis. This decision was based on the fact that the two loan portfolios have different risk characteristics and that the Florida economic environment was deteriorating at an accelerated rate in the fourth quarter of 2008.

In evaluating its Florida loan portfolio at that time, the Corporation increased the allowance to address the heightened level of inherent risk in that portfolio given the significant deterioration in that market. In applying the methodology to this portfolio, the Corporation utilized quantitative loss factors provided by the Office of the Comptroller of the Currency (OCC) based on a prior recession. The OCC supplied rates are more appropriate than historical loss history due to the limited age and relatively small size of the portfolio; furthermore, all non-performing loans within this pool have been evaluated for impairment under FASB ASC Topic 310 requirements. The combined impact of the significant deterioration in the Florida market and separately evaluating the Florida loan portfolio utilizing these quantitative factors was a $12.3 million increase in the Corporation’s allowance for loan losses for the Florida loan portfolio at December 31, 2008, with the predominant factor being the impact of the significant deterioration in the Florida market.

The Corporation also increased qualitative allocations to address increased inherent risk associated with its Florida loans including, but not limited to, current levels and trends of the Florida portfolio, collateral valuations, charge-offs, non-performing assets, delinquency, risk rating migration, competition, legal and regulatory issues and local economic trends. The combined impact of the significant deterioration in the Florida market and separately evaluating the Florida loan portfolio utilizing these qualitative factors was a $2.3 million increase in the Corporation’s allowance for loan losses for the Florida loan portfolio at December 31, 2008.

Following is a summary of changes in the allowance for loan losses (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Balance at beginning of period	$	99,415		$	71,484		$	104,730		$	52,806
Addition from acquisitions		—			1,080			15			12,324
Charge-offs		(10,617	)		(4,942	)		(41,855	)		(13,778	)
Recoveries		639			619			2,124			2,330

Net charge-offs		(9,978	)		(4,323	)		(39,731	)		(11,448	)
Provision for loan losses		16,455			6,514			40,878			21,073

Balance at end of period	$	105,892		$	74,755		$	105,892		$	74,755


Allowance for loan losses to:
Total loans, net of unearned income								1.72	%		1.27	%
Non-performing loans								81.49	%		95.97	%

The national trends in the economy and real estate market deteriorated during 2008, and the deterioration accelerated significantly in the fourth quarter of 2008. These trends were particularly evident in the Florida market where excess inventory built up, new construction slowed dramatically and credit markets stopped functioning normally. With economic activity turning negative across all sectors of the economy, sales activity in the Florida real estate market virtually ceased during the fourth quarter of 2008. The significant deterioration in the Florida market during the fourth quarter of 2008 also reflected increased stress on borrowers’ cash flow streams and increased stress on guarantors characterized by significant reductions in their liquidity positions.

During the first nine months of 2009, activity throughout the Florida marketplace increased across various asset classes as price points had been reduced to levels that generated interest from buyers. The Corporation experienced increased activity and levels of interest in condominiums and developed residential lots. In addition, the

Corporation also experienced increased interest in land as a number of clients pursued sales opportunities for further development.

During the first nine months of 2009, the Corporation was able to reduce its Florida land related portfolio including OREO by $21.2 million or 14.1%, reducing total land related exposure to $128.9 million. On a year-over-year basis, the land related portfolio has been reduced $38.6 million or 23.0%. In addition, the condominium portfolio exposure was reduced by $11.6 million or 67.7% since December 31, 2008 to stand at $5.6 million at September 30, 2009. The year-over-year reduction is $14.8 million or 72.8% since September 30, 2008. These reductions are consistent with the Corporation’s objective to reduce this exposure in the Florida portfolio.

The allowance for loan losses at September 30, 2009 increased $31.1 million from September 30, 2008 representing a 41.7% increase in reserves for loan losses between those periods, due to higher net charge-offs, additional specific reserves related to increases in non-accrual loans and increased allocations for a weaker economic environment. The significant increase reflects deterioration in Florida that accelerated in the fourth quarter of 2008, and to some extent, the slowing economy in Pennsylvania. For the nine months ended September 30, 2009, net charge-offs totaled $39.7 million compared to $11.4 million during the first nine months of 2008, an increase of $28.3 million due to the weaker economic environment. The total charge-offs for the nine months ended September 30, 2009 include $17.5 million related to three Florida loans, of which nearly $7.0 million relates to a performing land loan whereby the Corporation reached an agreement with the borrower to restructure the loan at $16.3 million based upon the borrowers capacity and commitment to support the project. In doing so, the borrower posted contractual payments for one year in conjunction with a remargining of the collateral position supporting the performing status of the loan. Additionally, during the first nine months of 2009, the Corporation provided $21.6 million to the reserve related to Florida, bringing the total allowance for loan losses for the Florida portfolio to $26.6 million or 9.80% of total loans in that portfolio.

The allowance for loan losses as a percentage of non-performing loans decreased from 96.97% as of September 30, 2008 to 79.08% as of September 30, 2009. While the allowance for loan losses increased $31.1 million or 41.7% on a year-over-year basis, non-performing loans increased $56.8 million or 73.7% over the same period. The reduction in the allowance coverage of non-performing loans relates to the nature of the loans that were added to non- performing status which were supported to a large extent by real estate collateral at current valuations and therefore did not require a 100% reserve allocation given the estimated loss exposure on the loans.

The following tables provide additional information relating to the provision and allowance for loan losses for the Corporation’s core portfolios (dollars in thousands):


	FNBPA (PA)			FNBPA (FL)			Regency			Total
At or for the Three Months Ended September 30, 2009
Provision for loan losses	$	7,555		$	7,379		$	1,521		$	16,455
Allowance for loan losses		72,764			26,627			6,501			105,892
Net loan charge-offs		4,469			4,059			1,450			9,978
Net loan charge-offs (annualized)/average loans		0.33	%		5.90	%		3.64	%		0.68	%
Allowance for loan losses/total loans		1.35	%		9.80	%		4.10	%		1.81	%
Allowance for loan losses/non-performing loans		123.11	%		39.12	%		96.53	%		79.08	%

At or for the Three Months Ended December 31, 2008
Provision for loan losses	$	17,532		$	32,035		$	1,731		$	51,298
Allowance for loan losses		69,745			28,506			6,479			104,730
Net loan charge-offs		5,759			13,745			1,644			21,148
Net loan charge-offs (annualized)/average loans		0.45	%		18.59	%		4.15	%		1.44	%
Allowance for loan losses/total loans		1.30	%		9.69	%		4.10	%		1.80	%
Allowance for loan losses/non-performing loans		153.43	%		30.61	%		132.09	%		72.99	%

At September 30, 2009 and 2008, the Corporation had $9.6 million and $15.3 million of loans, respectively, that were impaired loans acquired and have no associated allowance for loan losses as they were accounted for in accordance with FASB ASC Topic 310-30, Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality.

CAPITAL RESOURCES AND REGULATORY MATTERS

The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions and economic forces. The Corporation seeks to maintain a strong capital base to support its growth and expansion activities, to provide stability to current operations and to promote public confidence.

The Corporation has an effective shelf registration statement filed with the Securities and Exchange Commission. Pursuant to this registration statement, the Corporation may, from time to time, issue and sell in one or more offerings any combination of common stock, preferred stock, debt securities or trust preferred securities. As of September 30, 2009, the Corporation has issued 24,150,000 common shares in a public equity offering.

The Corporation and FNBPA are subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulators to ensure capital adequacy require the Corporation and FNBPA 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 leverage ratio (as defined). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on the Corporation’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and FNBPA must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s and FNBPA’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Corporation’s management believes that, as of September 30, 2009 and December 31, 2008, the Corporation and FNBPA met all capital adequacy requirements to which either of them was subject.

As of September 30, 2009, the most recent notification from the federal banking agencies categorized the Corporation and FNBPA as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification which management believes have changed this categorization.

Following are the capital ratios as of September 30, 2009 and December 31, 2008 for the Corporation and FNBPA (dollars in thousands):


						Well-Capitalized					Minimum Capital
	Actual					Requirements					Requirements
September 30, 2009	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk-weighted assets):
F.N.B. Corporation	$	799,937		13.0	%	$	616,561		10.0	%	$	493,249		8.0	%
FNBPA		740,717		12.4			597,786		10.0			478,229		8.0

Tier 1 Capital (to risk-weighted assets):
F.N.B. Corporation		711,663		11.5			369,937		6.0			246,624		4.0
FNBPA		665,678		11.1			358,672		6.0			239,114		4.0

Leverage Ratio:
F.N.B. Corporation		711,663		8.7			407,540		5.0			326,032		4.0
FNBPA		665,678		8.4			397,498		5.0			317,998		4.0


						Well-Capitalized					Minimum Capital
	Actual					Requirements					Requirements
December 31, 2008	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk-weighted assets):
F.N.B. Corporation	$	662,600		11.1	%	$	595,569		10.0	%	$	476,455		8.0	%
FNBPA		624,976		10.7			583,070		10.0			466,456		8.0

Tier 1 Capital (to risk-weighted assets):
F.N.B. Corporation		577,317		9.7			357,342		6.0			238,228		4.0
FNBPA		551,931		9.5			349,842		6.0			233,228		4.0

Leverage Ratio:
F.N.B. Corporation		577,317		7.3			393,141		5.0			314,513		4.0
FNBPA		551,931		7.2			385,201		5.0			308,161		4.0

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is provided under the caption Market Risk in Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations. There are no material changes in the information provided under “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” included in the Corporation’s 2008 Annual Report on Form 10-K, filed with the SEC on March 2, 2009.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Corporation’s management, with the participation of the Corporation’s principal executive and financial officers, evaluated the Corporation’s disclosure controls and procedures (as defined in Rule 13(a)—15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Corporation’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that, as of the end of the period covered by this quarterly report, the Corporation’s disclosure controls and procedures were effective as of such date at the reasonable assurance level as discussed below to ensure that information required to be disclosed by the Corporation in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Corporation’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. The Corporation’s management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that the Corporation’s disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

CHANGES IN INTERNAL CONTROLS. The Chief Executive Officer and the Chief Financial Officer have evaluated the changes to the Corporation’s internal controls over financial reporting that occurred during the Corporation’s fiscal quarter ended September 30, 2009, as required by paragraph (d) of Rules 13a—15(e) and 15d—15(e) under the Securities Exchange Act of 1934, as amended, and have concluded that there were no such changes that materially affected, or are reasonably likely to materially affect, the Corporation’s internal controls over financial reporting.

PART II


ITEM 1.		LEGAL PROCEEDINGS


ITEM 1A.		RISK FACTORS

There are no material changes in the risk factors previously disclosed in the Corporation’s 2008 Annual Report on Form 10-K filed with the SEC on March 2, 2009 and in the Corporation’s Prospectus Supplement filed with the SEC on June 10, 2009.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

NONE


ITEM 3.		DEFAULTS UPON SENIOR SECURITIES

NONE


ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE


ITEM 5.		OTHER INFORMATION

NONE


ITEM 6.		EXHIBITS


11		Computation of Per Share Earnings *

15		Letter Re: Unaudited Interim Financial Information. (filed herewith).

31.1.		Certification of Chief Executive Officer Sarbanes-Oxley Act Section 302. (filed herewith).

31.2.		Certification of Chief Financial Officer Sarbanes-Oxley Act Section 302. (filed herewith).

32.1.		Certification of Chief Executive Officer Sarbanes-Oxley Act Section 906. (filed herewith).

32.2.		Certification of Chief Financial Officer Sarbanes-Oxley Act Section 906. (filed herewith).


*		This information is provided under the heading “Earnings Per Share” in Item 1, Part I, in this Report on Form 10-Q.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	F.N.B. Corporation
	(Registrant)
Dated: November 9, 2009	/s/Stephen J. Gurgovits
	Stephen J. Gurgovits
	President and Chief Executive Officer (Principal Executive Officer)


Dated: November 9, 2009	/s/Vincent J. Calabrese
	Vincent J. Calabrese
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)