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 June 30, 2006

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ       Accelerated Filer o       Non-accelerated Filer o

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 July 31, 2006
Common Stock, $0.01 Par Value		60,220,896 Shares

 

 

F.N.B. CORPORATION
FORM 10-Q
June 30, 2006
INDEX

				PAGE
PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets			2
		Consolidated Statements of Income			3
		Consolidated Statements of Stockholders’ Equity			4
		Consolidated Statements of Cash Flows			5
		Notes to Consolidated Financial Statements			6
		Report of Independent Registered Public Accounting Firm			21
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			36
Item 4.		Controls and Procedures			37
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			37
Item 1A.		Risk Factors			37
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 3.		Defaults Upon Senior Securities			38
Item 4.		Submission of Matters to a Vote of Security Holders			38
Item 5.		Other Information			38
Item 6.		Exhibits			39
Signatures					40
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

		June 30,				December 31,
		2006				2005
		(Unaudited)
Assets
Cash and due from banks		$	136,748			$	131,604
Interest bearing deposits with banks			362				627
Securities available for sale			291,092				279,219
Securities held to maturity (fair value of $796,504 and $867,122)			824,443				881,139
Mortgage loans held for sale			5,429				4,740
Loans, net of unearned income of $25,618 and $27,595			4,210,525				3,749,047
Allowance for loan losses			(53,041	)			(50,707	)
Net Loans			4,157,484				3,698,340
Premises and equipment, net			89,264				87,013
Goodwill			240,812				196,354
Bank owned life insurance			131,854				122,666
Other assets			195,251				188,624
Total Assets		$	6,072,739			$	5,590,326
Liabilities
Deposits:
Non-interest bearing demand		$	669,838			$	688,391
Savings and NOW			1,939,823				1,675,395
Certificates and other time deposits			1,768,887				1,648,157
Total Deposits			4,378,548				4,011,943
Other liabilities			61,384				59,634
Short-term borrowings			384,736				378,978
Junior subordinated debt owed to unconsolidated subsidiary trusts			151,031				128,866
Long-term debt			562,460				533,703
Total Liabilities			5,538,159				5,113,124
Stockholders’ Equity
Common stock — $0.01 par value
Authorized – 500,000,000 shares
Issued – 60,236,542 and 57,513,586 shares			599				575
Additional paid-in capital			502,490				454,546
Retained earnings			29,366				24,376
Accumulated other comprehensive income			2,898				3,597
Deferred stock compensation			—				(4,154	)
Treasury stock — 45,824 and 94,545 shares at cost			(773	)			(1,738	)
Total Stockholders’ Equity			534,580				477,202
Total Liabilities and Stockholders’ Equity		$	6,072,739			$	5,590,326

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								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Interest Income
Loans, including fees		$	69,867			$	59,827			$	133,887			$	115,892
Securities:
Taxable			12,002				12,705				24,253				24,628
Nontaxable			1,149				1,038				2,261				1,915
Dividends			140				175				312				372
Other			307				4				373				15
Total Interest Income			83,465				73,749				161,086				142,822
Interest Expense
Deposits			25,465				15,923				46,444				30,235
Short-term borrowings			3,624				3,523				7,221				6,340
Junior subordinated debt owed to unconsolidated subsidiary trusts			2,759				2,004				5,190				3,820
Long-term debt			4,924				4,885				9,719				9,430
Total Interest Expense			36,772				26,335				68,574				49,825
Net Interest Income			46,693				47,414				92,512				92,997
Provision for loan losses			2,497				2,686				5,455				5,017
Net Interest Income After Provision for Loan Losses			44,196				44,728				87,057				87,980
Non-Interest Income
Service charges			10,634				9,960				20,804				19,014
Insurance commissions and fees			3,239				3,127				7,339				6,896
Securities commissions and fees			1,308				1,095				2,255				2,499
Trust			1,859				1,756				3,703				3,661
Gain on sale of securities			340				564				887				1,171
Gain on sale of mortgage loans			400				295				698				609
Bank owned life insurance			823				864				1,600				1,727
Other			2,181				1,133				3,607				1,960
Total Non-Interest Income			20,784				18,794				40,893				37,537
Non-Interest Expense
Salaries and employee benefits			21,141				19,735				42,459				40,918
Net occupancy			3,474				3,167				6,840				6,302
Equipment			3,281				3,209				6,593				6,591
Amortization of intangibles			1,029				951				1,960				1,811
Other			12,244				11,157				23,568				22,935
Total Non-Interest Expense			41,169				38,219				81,420				78,557
Income Before Income Taxes			23,811				25,303				46,530				46,960
Income taxes			7,176				7,762				14,093				14,509
Net Income		$	16,635			$	17,541			$	32,437			$	32,451
Net Income per Common Share
Basic		$	.29			$	.31			$	.56			$	.59
Diluted		$	.28			$	.31			$	.56			$	.59
Cash Dividends per Common Share		$	.235			$	.23			$	.47			$	.46

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Dollars in thousands
Unaudited

																		Accumu-
																		lated
																		Other				Deferred
		Compre-																Compre-				Stock
		hensive				Common				Additional				Retained				hensive				Compen-				Treasury
		Income				Stock				Paid-In Capital				Earnings				Income				sation				Stock				Total
Balance at January 1, 2006						$	575			$	454,546			$	24,376			$	3,597			$	(4,154	)		$	(1,738	)		$	477,202
Net income		$	32,437												32,437																32,437
Change in other comprehensive income (loss)			(699	)															(699	)											(699	)
Comprehensive income		$	31,738
Cash dividends declared:
Common stock $0.47/share															(27,022	)															(27,022	)
Purchase of common stock																											(3,188	)			(3,188	)
Issuance of common stock							27				51,257				(425	)											4,153				55,012
Restricted stock compensation											566																				566
Tax benefit of stock-based compensation											272																				272
Reclassification arising from the adoption of FAS 123R							(3	)			(4,151	)											4,154								—
Balance at June 30, 2006						$	599			$	502,490			$	29,366			$	2,898				—			$	(773	)		$	534,580
Balance at January 1, 2005						$	502			$	300,555			$	22,847			$	4,965			$	(1,428	)		$	(3,339	)		$	324,102
Net income		$	32,451												32,451																32,451
Change in other comprehensive income (loss)			(4,436	)															(4,436	)											(4,436	)
Comprehensive income		$	28,015
Cash dividends declared:
Common stock $0.46/share															(25,883	)															(25,883	)
Purchase of common stock																											(6,453	)			(6,453	)
Issuance of common stock							62				133,487				(845	)											8,455				141,159
Change in stock-based compensation																							(1,121	)							(1,121	)
Balance at June 30, 2005						$	564			$	434,042			$	28,570			$	529			$	(2,549	)		$	(1,337	)		$	459,819

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Unaudited

		Six Months Ended
		June 30,
		2006				2005
Operating Activities
Net income		$	32,437			$	32,451
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation, amortization and accretion			7,505				7,164
Provision for loan losses			5,455				5,017
Deferred taxes			720				1,568
Gain on sale of securities			(887	)			(1,171	)
Gain on sale of loans			(698	)			(609	)
Proceeds from sale of loans			46,110				41,625
Loans originated for sale			(46,101	)			(40,917	)
Net change in:
Interest receivable			(978	)			1,065
Interest payable			272				(7,739	)
Other, net			12,297				(22,369	)
Net cash flows provided by operating activities			56,132				16,085
Investing Activities
Net change in:
Interest bearing deposits with banks			265				1,432
Loans			(170,340	)			(57,665	)
Bank owned life insurance			(1,219	)			—
Securities available for sale:
Purchases			(3,551	)			(128,957	)
Sales			23,950				87,681
Maturities			3,618				60,811
Securities held to maturity:
Purchases			—				(79,217	)
Maturities			56,038				56,664
Increase in premises and equipment			(1,981	)			(2,962	)
Net cash (paid) received for mergers and acquisitions			(16,935	)			8,799
Net cash flows used in investing activities			(110,155	)			(53,414	)
Financing Activities
Net change in:
Non-interest bearing deposits, savings and NOW accounts			118,497				(74,877	)
Time deposits			(8,330	)			57,701
Short-term borrowings			(34,259	)			72,735
Proceeds from the issuance of junior subordinated debt owed to unconsolidated subsidiary trusts			22,165				—
Increase in long-term debt			17,957				41,954
Decrease in long-term debt			(27,122	)			(16,509	)
Purchase of common stock			(3,188	)			(6,453	)
Issuance of common stock			197				11,512
Tax benefit of stock-based compensation			272				—
Cash dividends paid			(27,022	)			(25,883	)
Net cash flows provided by financing activities			59,167				60,180
Net Increase in Cash and Due from Banks			5,144				22,851
Cash and due from banks at beginning of period			131,604				100,839
Cash and Due from Banks at End of Period		$	136,748			$	123,690

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2006

BUSINESS

     F.N.B. Corporation (the Corporation) is a diversified financial services company headquartered in Hermitage, Pennsylvania. Its primary businesses include commercial and retail banking, consumer finance, asset management and insurance. The Corporation operates its retail and commercial banking business through a full service branch network in Pennsylvania and Ohio and loan production offices in Florida, and conducts selected consumer finance business in Pennsylvania, Ohio and Tennessee.

BASIS OF PRESENTATION

     The accompanying consolidated financial statements include the accounts of the Corporation and its subsidiaries. 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 (FNIA), Regency Finance Company and F.N.B. Capital Corporation, LLC.

     The accompanying consolidated financial statements include all adjustments, consisting only of normal recurring accruals 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.

     The Corporation’s consolidated financial statements include subsidiaries in which the Corporation has a controlling financial interest. Investments in companies in which the Corporation controls operating and financing decisions (principally defined as owning a voting or economic interest greater than 50%) are 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).

USE OF ESTIMATES

     The accounting and reporting policies of the Corporation conform with U.S. generally accepted accounting principles (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.

MERGERS AND ACQUISITIONS

     On May 26, 2006, the Corporation completed its acquisition of The Legacy Bank (Legacy), a commercial bank and trust company headquartered in Harrisburg, Pennsylvania, with $375.1 million in assets, including $300.3 million in loans, and $256.5 million in deposits. Consideration paid by the Corporation totaled $72.4 million comprised primarily of 2,682,053 shares of the Corporation’s common stock and $21.1 million in exchange for 3,831,505 shares of Legacy common stock. At the time of the acquisition, Legacy was merged into FNBPA. The Corporation recorded $45.0 million in goodwill and $4.9 million in core deposit intangible as a result of the acquisition. As of June 30, 2006, the purchase price is still subject to final adjustment because certain components of the purchase price were based on preliminary valuation studies and estimates.

     On November 1, 2005, the Corporation’s existing insurance agency, FNIA, acquired the assets of Penn Group Insurance, Inc. (Penn Group), an established life and employee benefits agency located in Pittsburgh, Pennsylvania.

     On October 7, 2005, the Corporation completed its acquisition of North East Bancorp, Inc. (North East) (Pink Sheets: NEBI), a bank holding company headquartered in North East, Pennsylvania, with $68.0 million in assets, including $49.4 million in loans, and $61.2 million in deposits. Consideration paid by the Corporation totaled $15.4 million comprised of 862,611 shares of the Corporation’s common stock and $169,800 in exchange for 145,168 shares

of North East common stock. North East’s banking subsidiary, The National Bank of North East, was merged into FNBPA.

     On February 18, 2005, the Corporation completed its acquisition of NSD Bancorp, Inc. (NSD) (Nasdaq: NSDB), a bank holding company headquartered in Pittsburgh, Pennsylvania, with $503.0 million in assets, including $308.9 million in loans, and $378.8 million in deposits. The acquisition was a stock transaction valued at approximately $127.5 million. The Corporation issued 5,944,343 shares of its common stock in exchange for 3,302,485 shares of NSD common stock. NSD’s banking subsidiary, NorthSide Bank, was merged into FNBPA.

     The assets and liabilities of these acquired entities were recorded on the balance sheet at their estimated fair values as of their respective acquisition dates. The consolidated financial statements include the results of operations of these entities from their respective dates of acquisition.

STOCK-BASED COMPENSATION

     On January 1, 2006, the Corporation adopted Financial Accounting Standards Board Statement (FAS) 123R, Share-Based Payment, which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards, including stock options and restricted stock, made to employees and directors.

     The Corporation adopted FAS 123R using the modified prospective transition method. The consolidated financial statements for 2006 reflect the impact of FAS 123R. In accordance with the modified prospective transition method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of FAS 123R. Share-based compensation expense recognized under FAS 123R related to restricted stock awards was $0.6 million for the six months ended June 30, 2006.

     Prior to the adoption of FAS 123R, the Corporation accounted for share-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, as allowed under FAS 123, Accounting for Stock-Based Compensation. Share-based compensation expense of $0.5 million for the six months ended June 30, 2005 was related to restricted stock awards that the Corporation had been recognizing in its consolidated statement of income in accordance with the provisions set forth above. Because the exercise price of the Corporation’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the grant date, under the intrinsic value method, no share-based compensation expense was recognized in the Corporation’s consolidated statement of income.

     FAS 123R requires companies to estimate the fair value of share-based awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Corporation’s consolidated statement of income over the requisite service periods. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense has been reduced to account for estimated forfeitures. FAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For periods prior to 2006, the Corporation accounted for forfeitures as they occurred in the consolidated financial statements under APB Opinion No. 25 and in the pro forma information under FAS 123. The cumulative effect of the accounting change associated with the adoption of FAS 123R was a reduction in compensation expense of less than $0.1 million.

     FAS 123R also requires that awards be expensed over the shorter of the requisite service period or the period through the date that the employee first becomes eligible to retire. Prior to the adoption of FAS 123R, the Corporation recorded compensation expense for retirement-eligible employees ratably over the vesting period. The impact of applying the provisions of FAS 123R related to retirement-eligible employees would have increased compensation expense by approximately $1.1 million for the year ended December 31, 2005.

     As of June 30, 2006, there was $3.5 million of unrecognized compensation cost related to unvested restricted stock awards granted including $1.5 million that is subject to accelerated vesting under the plan’s immediate vesting upon retirement provision for awards granted prior to the adoption of FAS 123R. This unrecognized compensation expense is expected to be recognized over a weighted-average period of 2.3 years.

     FAS 123R amends FAS 95, Statement of Cash Flows, and requires tax benefits related to stock-based compensation deductions be presented in the statement of cash flows as a financing activity.

     In November 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. FSP 123(R)-3 provides an elective alternative transition method for calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of FAS 123R. Companies may take up to one year from the effective date of FSP 123(R)-3 to evaluate the available transition alternatives and make a one-time election as to which method to adopt. The Corporation is currently in the process of evaluating the alternative methods.

     The following table shows proceeds from stock options exercised, related tax benefits realized from restricted stock vesting and stock option exercises and the intrinsic value of the stock options exercised (in thousands):

Six Months Ended June 30		2006				2005
Proceeds from stock options exercised		$	753			$	2,904
Tax benefit recognized from stock option exercises			259				—
Tax benefit recognized from restricted stock vesting			13				—
Intrinsic value of stock options exercised			738				2,521
Fair value of restricted stock vested			188				213

Restricted Stock

     The Corporation issued 90,921 restricted shares of common stock with a weighted average grant date fair value of $1.8 million for the six months ended June 30, 2005 to key employees of the Corporation under its 2001 Incentive Plan. The Corporation did not issue any restricted shares for the six months ended June 30, 2006. The Corporation has available up to 2,432,634 shares to issue under its 2001 Incentive Plan.

     Under this program, half of the shares awarded to management are earned if the Corporation meets or exceeds certain financial performance results when compared to peers. The remaining service-based portion of the shares are expensed ratably over the three year restricted period while performance-related shares are expensed ratably from the date that the likelihood of meeting the performance measure is probable through the end of the four year restricted period. The Corporation also issues discretionary service-based awards to employees that vest twenty percent each year over five years. All of these awards are subject to accelerated vesting if there is a change of control as defined in the plan. The unvested shares of restricted stock are eligible to receive cash dividends which are used to purchase additional shares of stock. The additional shares of stock are subject to forfeiture if the service period is not completed or the performance criteria are not met.

     The unamortized expense relating to all restricted stock awards, totaling $2.5 million at June 30, 2005 and $4.2 million at December 31, 2005 were reflected as deferred stock compensation in the stockholders’ equity section of the Corporation’s balance sheet. Upon the adoption of FAS 123R in January 2006, unamortized compensation expense was reclassified to additional paid-in capital.

     The following table summarizes information about restricted stock activity:

		2006								2005
						Weighted								Weighted
						Average								Average
						Grant								Grant
Six Months Ended June 30		Shares				Price				Shares				Price
Unvested shares outstanding at beginning of period			296,457			$	18.52				117,667			$	17.86
Granted			—				—				90,921				19.50
Vested			(10,996	)			15.34				(11,151	)			12.55
Forfeited			(1,172	)			18.78				(7,193	)			18.89
Dividend reinvestment			8,247				16.38				4,652				19.15
Unvested shares outstanding at end of period			292,536				18.58				194,896				18.92

     As of June 30, 2006, there were 162,301 unvested service-based shares outstanding with unrecognized compensation expense of $1.6 million, an intrinsic value of $2.6 million and a weighted average remaining life of 2.3 years. As of June 30, 2006, there were also 130,235 unvested performance-based shares outstanding with unrecognized

compensation expense of $1.9 million, an intrinsic value of $2.1 million and a weighted average remaining life of 2.3 years.

Stock Options

     The Corporation also has available up to 7,433,955 shares to issue under its non-qualified stock option plans to key employees and directors of the Corporation. Options have been granted at a price equal to the fair market value at the date of the grant and are primarily exercisable within ten years from the date of the grant. Because the exercise price of the Corporation’s stock options equaled the market price of the underlying stock on the date of grant, no compensation expense was recognized in 2005 in accordance with APB Opinion 25. In the fourth quarter of 2005, the Corporation accelerated the vesting of approximately 186,000 shares of remaining unvested stock options in order to reduce future compensation expense. No shares were issued under these plans for the six months ended June 30, 2006 or 2005. 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 90,185 and 282,465 for the six months ended June 30, 2006 and 2005.

     The following table summarizes information about stock option activity:

		2006								2005
						Weighted								Weighted
						Average								Average
						Exercise								Exercise
Six Months Ended June 30		Shares				Price				Shares				Price
Options outstanding at beginning of period			1,622,864			$	11.54				2,108,333			$	11.35
Assumed in acquisitions			224,350				11.63				149,009				10.84
Exercised			(96,639	)			9.87				(373,992	)			10.72
Forfeited			—				—				(6,046	)			13.04
Options outstanding at end of period			1,750,575				11.64				1,877,304				11.43
Options exercisable at end of period			1,750,575								1,676,136

     The following table summarizes information about stock options outstanding at June 30, 2006:

						Weighted
		Options				Average				Weighted
		Outstanding				Remaining				Average
		and				Contractual				Exercise
Range of Exercise Prices		Exercisable				Years				Price
$2.68 — $4.02			25,168				6.71			$	2.68
4.03 —   6.05			—				—				—
6.06 —   9.09			45,824				3.36				8.93
9.10 — 13.65			1,283,321				4.26				11.24
13.66 — 15.43			396,262				4.42				13.85
			1,750,575

     The intrinsic value of outstanding and exercisable stock options at June 30, 2006 was $7.6 million.

Warrants

     The Corporation assumed warrants to issue common stock at an exercise price of $10.00 in conjunction with the Legacy acquisition. Such warrants are exercisable and will expire on various dates in 2009. The Corporation has reserved 123,394 shares of common stock for issuance upon exercise of these warrants.

Pro Forma Stock-Based Payments Prior to the Adoption of FAS 123R

     Prior to the adoption of FAS 123R, the Corporation provided disclosures required under FAS 123. Stock-based compensation expense recognized under FAS 123R has not been reflected in the statement of income for the three or six months ended June 30, 2005 for employee stock option awards as the options were granted with an exercise price equal to the market value of common stock on the grant date. The following table shows pro forma net income and earnings per share assuming the stock-based compensation expense had been recognized in the statement of income (dollars in thousands, except per share data):

		Three				Six
		Months				Months
		Ended				Ended
		June 30,				June 30,
		2005				2005
Net income		$	17,541			$	32,451
Stock-based employee compensation cost included in net income, net of tax			190				524
Stock-based employee compensation cost determined if the fair value method had been applied to all awards, net of tax			(332	)			(832	)
Pro forma net income		$	17,399			$	32,143
Basic Earnings per Common Share:
As reported		$	.31			$	.59
Pro forma		$	.31			$	.59
Diluted Earnings per Common Share:
As reported		$	.31			$	.59
Pro forma		$	.31			$	.58

     The fair value of stock options outstanding was determined at the grant date using a Black-Scholes option pricing model and the following weighted average assumptions:

Risk-free interest rate			4.31	%			4.31	%
Dividend yield			2.89	%			2.89	%
Expected stock price volatility			.21	%			.21	%
Expected life (years)			5.00				5.00
Fair value of options granted		$	4.57			$	4.57

     The option valuation model requires the input of highly subjective assumptions including the expected stock price volatility. Changes in theses subjective input assumptions can materially affect the fair value estimate.

NEW ACCOUNTING STANDARDS

Accounting Changes and Error Corrections

     In May 2005, the FASB issued FAS 154, Accounting Charges and Error Corrections, which changes the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior period consolidated financial statements of changes in accounting principle, unless it is impractical to determine either the period-specific or cumulative effects of the change. FAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. The adoption of the standard did not have a material effect on the financial condition, results of operations or liquidity of the Corporation.

Accounting for Servicing of Financial Assets

     In March 2006, the FASB issued FAS 156, Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140 (FAS 140). FAS 140 established, among other things, the accounting for all separately recognized servicing assets and servicing liabilities. FAS 156 amends FAS 140 to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. FAS 156 also permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. Under FAS 156, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. Adoption of FAS 156 is required as of the beginning of the first fiscal year beginning after September 15, 2006. Upon adoption, the Corporation will apply the requirements for recognition and initial measurement of servicing assets and servicing liabilities prospectively to all transactions. The Corporation will adopt FAS 156 for the year beginning January 1, 2007 and currently has not determined if it will adopt FAS 156 using the fair value election.

Accounting for Uncertainty in Income Taxes

     In July 2006, the FASB issued FAS Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Corporation will adopt FIN 48 for the year beginning January 1, 2007 and is evaluating the impact on its financial statements.

Accounting for Defined Benefit Pension and Other Postretirement Plans

     In March 2006, the FASB released an Exposure Draft of a proposed interpretation, Employers’ Acccounting for Defined Benefit Pension and Other Post Retirement Plans, an amendment of FAS 87, 88, 106 and 132R. The Exposure Draft contains a proposed provision to recognize in the balance sheet the overfunded or underfunded status of pension and postretirement plans, which is measured as the difference between the fair value of plan assets and the benefit obligation. The Exposure Draft also proposes recognizing actuarial gains and losses and prior service costs as a component of accumulated other comprehensive income, net of tax within equity with costs and credits that arise in each period included in comprehensive income. Under existing pension and postretirement accounting standards, the funded status of plans as well as actuarial gains and losses and prior service cost and credit amounts are not recognized in the balance sheet.

     A final interpretation is expected to be issued during the third quarter of 2006, and the standard is expected to be effective for fiscal years ending after December 15, 2006. The Corporation has not yet completed its evaluation of the potential impact of the Exposure Draft on its consolidated financial statements. However, the recognition of its unamortized actuarial losses and prior service costs in accumulated other comprehensive income within equity would result in a reduction to stockholders’ equity.

SECURITIES

     Following is a summary of the fair value of securities available for sale (in thousands):

		June 30,				December 31,
		2006				2005
U.S. Treasury and other U.S. government agencies and corporations		$	188,700			$	190,301
Mortgage-backed securities of U.S. government agencies			29,626				32,496
States of the U.S. and political subdivisions			21,464				5,385
Corporate debt securities			39,961				36,741
Total debt securities			279,751				264,923
Equity securities			11,341				14,296
		$	291,092			$	279,219

     Following is a summary of the amortized cost of securities held to maturity (in thousands):

		June 30,				December 31,
		2006				2005
U.S. Treasury and other U.S. government agencies and corporations		$	105,466			$	105,355
Mortgage-backed securities of U.S. government agencies			580,640				631,160
States of the U.S. and political subdivisions			118,834				124,649
Corporate and other debt securities			19,503				19,975
		$	824,443			$	881,139

     The Corporation sold $24.0 million of securities at a gain of $0.9 million for the six months ended June 30, 2006. None of the security sales were at a loss.

     Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including but not limited to, length of time and extent to which the market value has been less than cost, financial condition of the underlying issuer, ability of the issuer to meet contractual obligations, likelihood of the security’s ability to recover any decline in its market value and management’s intent and ability to retain the security for a period of time sufficient to allow for recovery in market value or maturity. Among the factors that are considered in determining intent and ability is a review of the Corporation’s capital adequacy, interest rate risk position and liquidity. The assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations and management’s intent and ability requires considerable judgment. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the statement of income.

     Following are summaries of the age of unrealized losses and the associated fair value (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
June 30, 2006
U.S. Treasury and other U.S. government agencies and corporations		$	188,700			$	(1,022	)			—				—			$	188,700			$	(1,022	)
Mortgage-backed securities of U.S. government agencies			21,496				(669	)		$	8,050			$	(324	)			29,546				(993	)
States of the U.S. and political subdivisions			16,768				(225	)			706				(8	)			17,474				(233	)
Corporate debt securities			14,820				(243	)			—				—				14,820				(243	)
Equity securities			228				(7	)			148				(10	)			376				(17	)
		$	242,012			$	(2,166	)		$	8,904			$	(342	)		$	250,916			$	(2,508	)

		Less than 12 Months								Greater than 12 Months								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2005
U.S. Treasury and other U.S. government agencies and corporations		$	153,201			$	(112	)			—				—			$	153,201			$	(112	)
Mortgage-backed securities of U.S. government agencies			26,269				(413	)		$	5,735			$	(132	)			32,004				(545	)
States of the U.S. and political subdivisions			4,649				(59	)			—				—				4,649				(59	)
Corporate debt securities			17,053				(58	)			—				—				17,053				(58	)
Equity securities			372				(21	)			—				—				372				(21	)
		$	201,544			$	(663	)		$	5,735			$	(132	)		$	207,279			$	(795	)

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
June 30, 2006
U.S. Treasury and other U.S. government agencies and corporations		$	102,657			$	(1,107	)		$	1,662			$	(40	)		$	104,319			$	(1,147	)
Mortgage-backed securities of U.S. government agencies			203,670				(5,709	)			353,331				(17,648	)			557,001				(23,357	)
States of the U.S. and political subdivisions			45,194				(1,112	)			61,763				(1,946	)			106,957				(3,058	)
Corporate debt securities			5,292				(72	)			11,988				(331	)			17,280				(403	)
		$	356,813			$	(8,000	)		$	428,744			$	(19,965	)		$	785,557			$	(27,965	)

		Less than 12 Months								Greater than 12 Months								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2005
U.S. Treasury and other U.S. government agencies and corporations		$	72,707			$	(24	)		$	1,666			$	(40	)		$	74,373			$	(64	)
Mortgage-backed securities of U.S. government agencies			441,423				(9,194	)			86,834				(2,892	)			528,257				(12,086	)
States of the U.S. and political subdivisions			82,489				(1,411	)			20,726				(602	)			103,215				(2,013	)
Corporate debt securities			13,563				(270	)			3,508				(88	)			17,071				(358	)
		$	610,182			$	(10,899	)		$	112,734			$	(3,622	)		$	722,916			$	(14,521	)

     As of June 30, 2006, securities with unrealized losses for less than 12 months include 20 investments in U.S. government agency securities, 30 investments in mortgage-backed securities of U.S. government agencies, 107 investments in states of the U.S. and political subdivision securities, 13 investments in corporate debt securities and 2 investments in equity securities. As of June 30, 2006, securities with unrealized losses of greater than 12 months include 4 investments in U.S. government agency securities, 68 investments in mortgage-backed securities of U.S. government agencies, 90 investments in states of the U.S. and political subdivision securities, 9 investments in corporate debt securities and 1 investment in an equity security. The unrealized losses at June 30, 2006 are reflective of changes in interest rates as none of the securities in an unrealized loss position at June 30, 2006 had experienced deterioration in credit quality. Therefore, the Corporation has concluded that it has both the intent and ability to hold these securities for the period of time necessary to recover the amortized cost or until maturity.

BORROWINGS

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

		June 30,				December 31,
		2006				2005
Securities sold under repurchase agreements		$	188,784			$	182,517
Federal funds purchased			75,000				30,000
Federal Home Loan Bank advances			10,000				40,000
Subordinated notes			110,592				125,673
Other short-term borrowings			360				788
		$	384,736			$	378,978

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

		June 30,				December 31,
		2006				2005
Federal Home Loan Bank advances		$	516,618			$	499,963
Subordinated notes			44,159				33,437
Convertible debt			1,375				—
Other long-term debt			308				303
		$	562,460			$	533,703

     The Corporation’s banking affiliate has available credit with the Federal Home Loan Bank (FHLB) of $2.0 billion, of which $526.6 million was used as of June 30, 2006. These advances are secured by loans collateralized by 1-4 family mortgages and the security portfolio and are scheduled to mature in various amounts periodically through the year 2012. Effective interest rates on these advances range from 2.10% to 5.75% for the six months ended June 30, 2006 and 2005.

JUNIOR SUBORDINATED DEBT OWED TO UNCONSOLIDATED SUBSIDIARY TRUSTS

     The Corporation has two unconsolidated subsidiary trusts (collectively, the Trusts), F.N.B. Statutory Trust I (Statutory Trust I) and F.N.B. Statutory Trust II (Statutory Trust II), of which 100% of the common equity of each is owned by the Corporation. The Trusts are not consolidated because the Corporation is not the primary beneficiary, as evaluated under FIN 46. 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 stock 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.

     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 (Federal Reserve Board) guidelines. The Corporation has entered into agreements which, taken collectively, fully and unconditionally guarantee the trust preferred securities subject to the terms of each of the guarantees.

     The trust preferred securities of Statutory Trust I bear interest at a floating rate per annum equal to the three-month London Inter-Bank Offered Rate (LIBOR) plus 325 basis points. The interest rate in effect at June 30, 2006 was 8.23%. The subordinated debt of $128.9 million issued to Statutory Trust I is first redeemable, in whole or in part, by the Corporation on or after March 31, 2008 and matures on March 31, 2033.

     The trust preferred securities of Statutory Trust II, which were issued in the second quarter of 2006, bear interest at a fixed rate per annum equal to 7.17% through June 15, 2011, at which time the issue converts to a floating rate of the three-month LIBOR plus 165 basis points. The subordinated debt of $22.2 million issued to Statutory Trust II is first redeemable, in whole or in part, by the Corporation on or after June 15, 2011 and matures on June 15, 2036.

INTEREST RATE SWAP

     In February 2005, the Corporation entered into an interest rate swap with a notional amount of $125.0 million, whereby it will pay a fixed rate of interest and receive a variable rate based on LIBOR. The effective date of the swap was January 3, 2006 and the maturity date of the swap is March 31, 2008. The interest rate swap is a designated cash flow hedge designed to convert the variable interest rate to a fixed rate on $125.0 million of subordinated debentures. The swap is considered to be highly effective and assessment of the hedging relationship is evaluated under the critical terms match method. At June 30, 2006, the swap had a fair value of $2.8 million which has been recorded in other assets, and other comprehensive income, net of tax. The Corporation accounts for the swap in accordance with FAS 133, Accounting for Derivative Instruments and Hedging Activities.

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):

		June 30,				December 31,
		2006				2005
Commitments to extend credit		$	904,329			$	729,892
Standby letters of credit			86,361				61,659

     At June 30, 2006, 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 a number of legal proceedings arising from the conduct of their business activities. These actions include claims brought against the Corporation and its subsidiaries where the Corporation acted as a depository bank, lender, underwriter, fiduciary, financial advisor, broker or engaged in other business activities. Although the ultimate outcome cannot be predicted with certainty, the Corporation believes that it has 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 loss can be reasonably estimated.

     Based on information currently available, advice of counsel, available insurance coverage and established reserves, the Corporation believes that the eventual outcome of all claims against the Corporation and its subsidiaries will not, individually or in the aggregate, have a material adverse effect on the Corporation’s consolidated financial position or results of operations. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation’s results of operations for a particular period.

EARNINGS PER SHARE

     Basic earnings per common share is calculated by dividing net income 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 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. Such 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 share (dollars in thousands, except per share data):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net income — basic earnings per share		$	16,635			$	17,541			$	32,437			$	32,451
Interest expense on convertible debt			4				—				4				—
Net income after assumed conversion — diluted earnings per share		$	16,639			$	17,541			$	32,441			$	32,451
Basic weighted average common shares outstanding			58,237,880				56,275,414				57,710,830				54,667,431
Net effect of dilutive stock options, warrants, restricted stock and convertible debt			471,495				726,990				441,260				746,468
Diluted weighted average common shares outstanding			58,709,375				57,002,404				58,152,090				55,413,899
Basic earnings per share		$	.29			$	.31			$	.56			$	.59
Diluted earnings per share		$	.28			$	.31			$	.56			$	.59

RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS

     The Corporation sponsors the F.N.B. Corporation Retirement Income Plan (RIP), a qualified noncontributory defined benefit pension plan covering substantially all salaried employees. The RIP covers employees who satisfy minimum age and length of service requirements. During the second quarter of 2006 the Corporation amended the RIP such that effective January 1, 2007, benefits will be earned based on the employee’s compensation each year. Benefits of the RIP for service provided prior to December 31, 2006 are generally based on years of service and the employee’s compensation for five consecutive years during their last ten years of employment. The RIP’s funding policy is to make annual contributions to the RIP each year equal to the maximum tax deductible amount. The Corporation made a contribution of $3.0 million to the RIP in the first six months of 2006.

     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 who are designated by the Board of Directors. Officers participating in the BRP receive a benefit based on a target benefit percentage based on years of service at retirement and 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 and the qualified RIP.

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Service cost		$	1,194			$	1,039			$	2,409			$	2,280
Interest cost			1,688				1,627				3,467				3,270
Expected return on plan assets			(2,013	)			(1,942	)			(4,020	)			(3,774	)
Net amortization			389				260				773				565
Net periodic pension cost		$	1,258			$	984			$	2,629			$	2,341

     The Corporation sponsors a pre-Medicare eligible postretirement medical insurance plan for retirees between the ages of 62 and 65 of certain affiliates. During the second quarter of 2006 the Corporation amended the plan such that only employees who are age 60 or older as of January 1, 2007 will be eligible for 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 service for such benefits. The Corporation reserves the right to terminate the plan or make additional plan changes at any time.

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Service cost		$	94			$	80			$	188			$	186
Interest cost			85				80				170				158
Net amortization			16				16				32				33
Net periodic postretirement benefit cost		$	195			$	176			$	390			$	377

     The Corporation also sponsors 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. Employer contributions become 20 percent vested when an employee has completed one year of service, and vest at a rate of 20 percent per year thereafter. The Corporation’s contribution expense was $0.8 million and $0.7 million for the six months ended June 30, 2006 and 2005, respectively.

CASH FLOW INFORMATION

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

Six Months Ended June 30		2006				2005
Interest paid on deposits and other borrowings		$	67,900			$	52,986
Income taxes paid			5,500				19,543
Transfers of loans to other real estate owned			2,511				2,037
Transfers of other real estate owned to loans			199				64
Summary of business acquisitions:
Fair value of tangible assets acquired		$	355,049			$	478,466
Fair value of core deposit and other intangible assets acquired			5,200				8,888
Fair value of liabilities assumed			(336,545	)			(473,872	)
Fair value of stock issued and stock options and warrants assumed			(51,227	)			(127,516	)
Cash received in the acquisition			(16,935	)			8,799
Goodwill recognized		$	(44,458	)		$	(105,235	)