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 March 31, 2008

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “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 (Do not check if a smaller reporting company)		Smaller reporting company 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

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 April 30, 2008
Common Stock, $0.01 Par Value		86,001,843 Shares

 

 

F.N.B. CORPORATION
FORM 10-Q
March 31, 2008
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			22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			35
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3. Defaults Upon Senior Securities			36
Item 4. Submission of Matters to a Vote of Security Holders			36
Item 5. Other Information			36
Item 6. Exhibits			37
Signatures			38
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands, except par value

		March 31,				December 31,
		2008				2007
		(Unaudited)
Assets
Cash and due from banks		$	108,517			$	130,235
Interest bearing deposits with banks			1,266				482
Securities available for sale			387,936				358,421
Securities held to maturity (fair value of $631,224 and $665,914)			626,946				667,553
Mortgage loans held for sale			9,038				5,637
Loans, net of unearned income of $24,259 and $25,747			4,440,037				4,344,235
Allowance for loan losses			(53,396	)			(52,806	)
Net Loans			4,386,641				4,291,429
Premises and equipment, net			80,922				80,472
Goodwill			242,120				242,120
Core deposit and other intangible assets, net			18,364				19,439
Bank owned life insurance			135,075				133,885
Other assets			167,765				158,348
Total Assets		$	6,164,590			$	6,088,021
Liabilities
Deposits:
Non-interest bearing demand		$	634,831			$	626,141
Savings and NOW			2,058,147				2,037,160
Certificates and other time deposits			1,743,676				1,734,383
Total Deposits			4,436,654				4,397,684
Other liabilities			71,248				63,760
Short-term borrowings			465,590				449,823
Long-term debt			496,445				481,366
Junior subordinated debt owed to unconsolidated subsidiary trusts			151,031				151,031
Total Liabilities			5,620,968				5,543,664
Stockholders’ Equity
Common stock — $0.01 par value
Authorized - 500,000,000 shares
Issued - 60,689,537 and 60,602,218 shares			603				602
Additional paid-in capital			509,593				508,891
Retained earnings			43,727				42,426
Accumulated other comprehensive income			(9,007	)			(6,738	)
Treasury stock — 75,835 and 47,970 shares at cost			(1,294	)			(824	)
Total Stockholders’ Equity			543,622				544,357
Total Liabilities and Stockholders’ Equity		$	6,164,590			$	6,088,021

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands, except per share data

Unaudited

		Three Months Ended
		March 31,
		2008				2007
Interest Income
Loans, including fees		$	76,409			$	77,925
Securities:
Taxable			10,430				11,009
Nontaxable			1,606				1,380
Dividends			67				98
Other			13				75
Total Interest Income			88,525				90,487
Interest Expense
Deposits			27,592				30,246
Short-term borrowings			4,007				4,728
Long-term debt			5,222				4,880
Junior subordinated debt owed to unconsolidated subsidiary trusts			2,739				2,713
Total Interest Expense			39,560				42,567
Net Interest Income			48,965				47,920
Provision for loan losses			3,583				1,847
Net Interest Income After Provision for Loan Losses			45,382				46,073
Non-Interest Income
Service charges			10,186				9,618
Insurance commissions and fees			3,922				4,419
Securities commissions and fees			1,520				1,276
Trust fees			2,224				2,162
Gain on sale of securities			744				740
Gain on sale of mortgage loans			451				367
Bank owned life insurance			1,144				965
Other			1,977				1,369
Total Non-Interest Income			22,168				20,916
Non-Interest Expense
Salaries and employee benefits			25,256				22,266
Net occupancy			3,816				3,804
Equipment			3,115				3,361
Amortization of intangibles			1,073				1,103
Other			11,103				11,362
Total Non-Interest Expense			44,363				41,896
Income Before Income Taxes			23,187				25,093
Income taxes			6,696				7,723
Net Income		$	16,491			$	17,370
Net Income per Common Share
Basic		$	0.27			$	0.29
Diluted			0.27				0.29
Cash Dividends per Common Share			0.24				0.235

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands

Unaudited

																		Accumulated
																		Other
																		Compre-
		Compre-								Additional								hensive
		hensive				Common				Paid-In				Retained				Income				Treasury
		Income				Stock				Capital				Earnings				(Loss)				Stock				Total
Balance at January 1, 2008						$	602			$	508,891			$	42,426			$	(6,738	)		$	(824	)		$	544,357
Net income		$	16,491												16,491												16,491
Change in other comprehensive (loss)			(2,269	)															(2,269	)							(2,269	)
Comprehensive income		$	14,222
Cash dividends declared:
Common stock $0.24/share															(14,584	)											(14,584	)
Issuance of common stock							1				183												(470	)			(286	)
Restricted stock compensation											626																626
Tax benefit of stock-based compensation											(107	)															(107	)
Adjustment to initially apply EITF 06-04 and 06-10															(606	)											(606	)
Balance at March 31, 2008						$	603			$	509,593			$	43,727			$	(9,007	)		$	(1,294	)		$	543,622
Balance at January 1, 2007						$	601			$	506,024			$	33,321			$	(1,546	)		$	(1,028	)		$	537,372
Net income		$	17,370												17,370												17,370
Change in other comprehensive (loss)			(1,454	)															(1,454	)							(1,454	)
Comprehensive income		$	15,916
Cash dividends declared:
Common stock $0.235/share															(14,193	)											(14,193	)
Purchase of common stock																							(3,665	)			(3,665	)
Issuance of common stock							1				(43	)			(203	)							3,638				3,393
Restricted stock compensation											340																340
Tax benefit of stock-based compensation											303																303
Cumulative effect of change in accounting for uncertainties in income taxes (FIN 48 - see the “Income Taxes” note)															(1,174	)											(1,174	)
Balance at March 31, 2007						$	602			$	506,624			$	35,121			$	(3,000	)		$	(1,055	)		$	538,292

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands

Unaudited

		Three Months Ended
		March 31,
		2008				2007
Operating Activities
Net income		$	16,491			$	17,370
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion			3,439				3,895
Provision for loan losses			3,583				1,847
Deferred taxes			(360	)			3,241
Gain on sale of securities			(744	)			(740	)
Tax benefit of stock-based compensation			108				(303	)
Net change in:
Interest receivable			522				(249	)
Interest payable			—				(554	)
Mortgage loans held for sale			(3,401	)			572
Bank owned life insurance			(1,190	)			(1,026	)
Other, net			(13	)			1,996
Net cash flows provided by operating activities			18,435				26,049
Investing Activities
Net change in:
Interest bearing deposits with banks			(784	)			947
Loans			(100,323	)			(9,290	)
Securities available for sale:
Purchases			(92,879	)			(110,683	)
Sales			799				2,145
Maturities			60,255				88,205
Securities held to maturity:
Purchases			—				(19,980	)
Maturities			40,506				35,075
Increase in premises and equipment			(2,509	)			(545	)
Net cash flows used in investing activities			(94,935	)			(14,126	)
Financing Activities
Net change in (used in):
Non-interest bearing deposits, savings and NOW accounts			29,677				33,927
Time deposits			9,293				(11,740	)
Short-term borrowings			15,767				348
Increase in long-term debt			57,110				27,381
Decrease in long-term debt			(42,031	)			(46,595	)
Purchase of common stock			—				(3,665	)
Issuance of common stock			(342	)			2,000
Tax benefit of stock-based compensation			(108	)			303
Cash dividends paid			(14,584	)			(14,193	)
Net cash flows provided by (used in) financing activities			54,782				(12,234	)
Net Decrease in Cash and Due from Banks			(21,718	)			(311	)
Cash and due from banks at beginning of period			130,235				122,362
Cash and Due from Banks at End of Period		$	108,517			$	122,051

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

March 31, 2008

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 operates its community banking business through a full service branch network in Pennsylvania and Ohio and loan production offices in Pennsylvania, Ohio, 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 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 and F.N.B. Capital Corporation, LLC, and results for each of these entities are included 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.

     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 rules and regulations of the Securities and Exchange Commission (Commission). The interim operating results are not necessarily indicative of operating results 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 Commission on February 29, 2008.

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 valuation, goodwill and other intangible assets and income taxes.

MERGERS AND ACQUISITIONS

     On April 1, 2008, the Corporation completed its acquisition of Omega Financial Corporation (Omega), a diversified financial services company with $1.8 billion in assets based in State College, Pennsylvania. The all-stock transaction, valued at approximately $393.0 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. As of March 31, 2008, Omega had total loans and deposits of $1.1 billion and $1.3 billion, respectively. Omega’s banking subsidiary, Omega Bank, was merged into FNBPA on April 1, 2008.

Pending Acquisition

     On February 15, 2008, the Corporation announced the signing of a definitive merger agreement to acquire Iron and Glass Bancorp, Inc. (IRGB), a bank holding company with approximately $300.0 million in assets based in Pittsburgh, Pennsylvania. The transaction is valued at approximately $86.1 million. Under the terms of the merger agreement, IRGB shareholders will be entitled to receive either $75.00 cash or 5.00 shares of F.N.B. Corporation common stock, or a combination of cash and shares, for each share of IRGB common stock, subject to a proration of 45% cash and 55% stock, if either cash or stock is oversubscribed. The transaction is expected to be completed in the third quarter of 2008, pending regulatory approvals, the approval of shareholders of IRGB and the satisfaction of other closing conditions.

NEW ACCOUNTING STANDARDS

Disclosures about Derivative Instruments and Hedging Activities

     In March 2008, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards Board Statement (FAS) 161, Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133, which enhances disclosures about derivatives and hedging activities and thereby improves the transparency of financial reporting. FAS 161 is effective for the Corporation on January 1, 2009. The Corporation has not yet determined the impact that the adoption of FAS 161 will have on its consolidated financial statements.

Business Combinations

     In December 2007, the FASB issued FAS 141R, Business Combinations, 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. FAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. FAS 141R is effective for the Corporation for acquisitions made after January 1, 2009. The Corporation has not yet determined the impact that the adoption of FAS 141R will have on its consolidated financial statements.

Noncontrolling Interests in Consolidated Financial Statements

     In December 2007, the FASB issued FAS 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin (ARB) No. 51. FAS 160 establishes accounting and reporting standards for ownership interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 is effective for the Corporation on January 1, 2009. Earlier adoption is prohibited. The Corporation has not yet determined the impact that the adoption of FAS 160 will have on its consolidated financial statements.

Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards

     In June 2007, the FASB ratified the consensus reached in Emerging Issues Task Force (EITF) 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. EITF 06-11 applies to companies that have share-based payment arrangements that entitle employees to receive dividends or dividend equivalents on equity-classified nonvested shares when those dividends or dividend equivalents are charged to retained earnings and result in an income tax deduction. Companies that have share-based payment arrangements that fall within the scope of EITF 06-11 will be required to increase capital surplus for any realized income tax benefit associated with dividend or dividend equivalents paid to employees for equity classified nonvested equity awards. Any increase recorded to capital surplus is required to be included in a company’s pool of excess tax benefits that are available to absorb potential future tax deficiencies on share-based payment awards. The application of this guidance did not impact the Corporation’s consolidated financial statements since dividends accrued on its unvested awards are subject to forfeiture.

Accounting for Collateral Assignment Split Dollar Life Insurance

     In March 2007, the FASB ratified EITF 06-10, Accounting for Collateral Assignment Split Dollar Life Insurance. EITF 06-10 concludes that an employer should recognize a liability for the postretirement benefit related to a collateral assignment split dollar life insurance arrangement in accordance with either FAS 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, or APB Opinion No. 12, Ominbus Opinion — 1967, if the employer has agreed to maintain a life insurance policy during the employee’s retirement or to provide the employee

with a death benefit based on the substantive arrangement with the employee. EITF 06-10 also concludes that an employer should recognize and measure an asset based on the nature and substance of the collateral assignment split dollar life insurance arrangement. The determination of the nature and substance of the arrangement should involve an evaluation of all available information, including an assessment of the future cash flows to which the employer is entitled and the employee’s obligation and ability to repay the employer. The Corporation adopted EITF 06-10 on January 1, 2008 resulting in a decrease of $0.7 million in retained earnings and an increase of $0.7 million in accrued bank owned life insurance.

Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements

     In September 2006, the FASB ratified EITF 06-04, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements. EITF 06-04 concludes that an employer should recognize a liability for the future benefits related to an endorsement split dollar life insurance arrangement in accordance with either FAS 106 or APB Opinion No. 12, Ominbus Opinion — 1967. The Corporation adopted EITF 06-04 on January 1, 2008 resulting in an increase of $0.1 million in retained earnings and a decrease of $0.1 million in accrued bank owned life insurance.

The Fair Value Option for Financial Assets and Financial Liabilities

     In February 2007, the FASB issued FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, which allows companies to report certain financial assets and liabilities at fair value with the changes in fair value included in earnings. In general, a company may elect the fair value option for an eligible financial asset or financial liability when it first recognizes the instrument on its balance sheet or enters into an eligible firm commitment. A company may also elect the fair value option for eligible items that exist on the effective date of FAS 159. A company’s decision to elect the fair value option for an eligible item is irrevocable. The Corporation was required to apply the new guidance prospectively beginning January 1, 2008. The Corporation did not elect the fair value option for eligible financial assets or financial liabilities upon adoption.

Fair Value Measurements

     In September 2006, the FASB issued FAS 157, Fair Value Measurements, which replaces the different definitions of fair value in existing accounting literature with a single definition, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. The statement 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 the provisions of FAS 157 on January 1, 2008. For additional information regarding FAS 157, see the Fair Value Measurements footnote included in this Report.

     In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, which delays the effective date of FAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of FSP 157-2 are effective for the Corporation on January 1, 2009.

SECURITIES

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

		March 31,				December 31,
		2008				2007
U.S. Treasury and other U.S. government agencies and corporations		$	153,762			$	162,839
Mortgage-backed securities of U.S. government agencies			115,406				72,267
States of the U.S. and political subdivisions			72,236				71,490
Corporate debt securities			39,389				46,207
Total debt securities			380,793				352,803
Equity securities			7,143				5,618
		$	387,936			$	358,421

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

		March 31,				December 31,
		2008				2007
U.S. Treasury and other U.S. government agencies and corporations		$	1,007			$	11,004
Mortgage-backed securities of U.S. government agencies			520,056				547,046
States of the U.S. and political subdivisions			98,822				102,179
Corporate and other debt securities			7,061				7,324
		$	626,946			$	667,553

     The Corporation sold $0.1 million of equity securities at a gain of less than $0.1 million for the three months ended March 31, 2008 and sold $2.1 million of equity securities at a gain of $0.6 million for the three months ended March 31, 2007. Additionally, the Corporation recognized a one-time gain of $0.7 million relating to the VISA, Inc. initial public offering during the three months ended March 31, 2008. The Corporation also recognized a gain of $0.1 million relating to $6.1 million of called securities during the three months ended March 31, 2007. None of the security sales or calls were at a loss.

     Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including, but not limited to, the length of time and extent to which the market value has been less than cost, the financial condition of the underlying issuer, the ability of the issuer to meet contractual obligations, the 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 a recovery in market value or maturity. Among the factors that are considered in determining management’s 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 require 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 consolidated 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
March 31, 2008
Mortgage-backed securities of U.S. government agencies		$	10,438			$	—			$	—			$	—			$	10,438			$	—
States of the U.S. and political subdivisions			9,256				(173	)			—				—				9,256				(173	)
Corporate debt securities			36,536				(9,861	)			2,853				(1,161	)			39,389				(11,022	)
Equity securities			1,419				(431	)			—				—				1,419				(431	)
		$	57,649			$	(10,465	)		$	2,853			$	(1,161	)		$	60,502			$	(11,626	)

		Less than 12 Months								Greater than 12 Months								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2007
Mortgage-backed securities of U.S. government agencies		$	—			$	—			$	14,673			$	(138	)		$	14,673			$	(138	)
States of the U.S. and political subdivisions			23,806				(155	)			11,934				(200	)			35,740				(355	)
Corporate debt securities			34,407				(3,879	)			3,568				(451	)			37,975				(4,330	)
Equity securities			636				(302	)			13				(10	)			649				(312	)
		$	58,849			$	(4,336	)		$	30,188			$	(799	)		$	89,037			$	(5,135	)

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
March 31, 2008
Mortgage-backed securities of U.S. government agencies		$	67,322			$	(3,677	)		$	12,917			$	(1,002	)		$	80,239			$	(4,679	)
States of the U.S. and political subdivisions			4,099				(13	)			40				(1	)			4,139				(14	)
Corporate debt securities			4,929				(335	)			100				—				5,029				(335	)
		$	76,350			$	(4,025	)		$	13,057			$	(1,003	)		$	89,407			$	(5,028	)

		Less than 12 Months								Greater than 12 Months								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2007
Mortgage-backed securities of U.S. government agencies		$	47,051			$	(432	)		$	280,433			$	(3,433	)		$	327,484			$	(3,865	)
States of the U.S. and political subdivisions			1,030				—				37,206				(134	)			38,236				(134	)
Corporate debt securities			5,726				(101	)			120				—				5,846				(101	)
		$	53,807			$	(533	)		$	317,759			$	(3,567	)		$	371,566			$	(4,100	)

     As of March 31, 2008, securities with unrealized losses for less than 12 months include 11 investments in mortgage-backed securities of U.S. government agencies, 18 investments in states of the U.S. and political subdivision securities, 24 investments in corporate debt securities and 14 investments in equity securities. As of March 31, 2008, securities with unrealized losses of greater than 12 months include 3 investments in mortgage-backed securities of U.S. government agencies, 1 investment in states of the U.S. and political subdivision securities and 3 investments in corporate debt securities. The Corporation has concluded that it has both the intent and ability to hold these securities for the time necessary to recover the amortized cost or until maturity.

     As of March 31, 2008, management does not believe any unrealized loss individually or in the aggregate represents an other-than-temporary impairment. The unrealized losses at March 31, 2008 were primarily the result of changes in interest rates.

BORROWINGS

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

		March 31,				December 31,
		2008				2007
Securities sold under repurchase agreements		$	292,244			$	276,552
Federal funds purchased			57,800				60,000
Subordinated notes			115,299				112,779
Other short-term borrowings			247				492
		$	465,590			$	449,823

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

		March 31,				December 31,
		2008				2007
Federal Home Loan Bank advances		$	439,029			$	427,099
Subordinated notes			56,555				53,404
Convertible debt			655				658
Other long-term debt			206				205
		$	496,445			$	481,366

     The Corporation’s banking affiliate has available credit with the Federal Home Loan Bank (FHLB) of $1.7 billion, of which $439.0 million was used as of March 31, 2008. These advances are secured by loans collateralized by 1-4 family mortgages and FHLB stock and are scheduled to mature in various amounts periodically through the year 2012. Effective interest rates paid on these advances range from 2.12% to 5.75% for the three months ended March 31, 2008 and 2.79% to 5.75% for the year ended December 31, 2007. Additionally, the Corporation’s banking affiliate has a $25.0 million letter of credit from the FHLB, which was in use as of March 31, 2008.

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 FAS Interpretation (FIN) 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. 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.

     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 guidelines. 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 March 31, 2008 (dollars in thousands):

		Statutory				Statutory
		Trust I				Trust II
Trust preferred securities		$	125,000			$	21,500
Common securities			3,866				665
Junior subordinated debt			128,866				22,665
Stated maturity date			3/31/33				6/15/36
Optional redemption date			3/31/08				6/15/11
Interest rate			8.08	%			7.17	%
	variable;				fixed until 6/15/11;
	LIBOR plus				then LIBOR plus
	325 basis points				165 basis points

INTEREST RATE SWAPS

     In February 2005, the Corporation entered into an interest rate swap with a notional amount of $125.0 million, whereby it paid a fixed rate of interest and received a variable rate based on the London Inter-Bank Offered Rate (LIBOR). The effective date of the swap was January 3, 2006 and the maturity date of the swap was March 31, 2008. The interest rate swap was 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 was considered to be highly effective and assessment of the hedging relationship was evaluated under Derivative Implementation Group Issue No. G7 using the hypothetical derivative method.

     The Corporation’s interest rate swap program for commercial loans provides the customer with fixed rate loans while creating a variable rate asset for the Corporation. The notional amount of swaps under this program totalled $98.2 million as of March 31, 2008.

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):

		March 31,				December 31,
		2008				2007
Commitments to extend credit		$	987,602			$	938,277
Standby letters of credit			62,481				76,708

     At March 31, 2008, funding of approximately 74.4% 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 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.

     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. It is possible, in the event of unexpected future developments, that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation’s consolidated 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, as calculated using the treasury stock method. 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
		March 31,
		2008				2007
Net income — basic earnings per share		$	16,491			$	17,370
Interest expense on convertible debt			6				6
Net income after assumed conversion — diluted earnings per share		$	16,497			$	17,376
Basic weighted average common shares outstanding			60,219,800				60,105,023
Net effect of dilutive stock options, warrants, restricted stock and convertible debt			372,372				528,880
Diluted weighted average common shares outstanding			60,592,172				60,633,903
Basic earnings per share		$	0.27			$	0.29
Diluted earnings per share		$	0.27			$	0.29

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 three months ended March 31, 2008, the Corporation issued 245,255 restricted stock awards with a weighted average grant date fair value of $3.3 million. The Corporation did not issue any restricted stock awards for the three months ended March 31, 2007. The Corporation has available up to 2,992,790 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 $0.6 million and $0.3 million for the three months ended March 31, 2008 and 2007, the tax benefit of which was $0.2 million and $0.1 million, respectively.

     The following table summarizes certain information concerning restricted stock awards:

		Three Months Ended March 31,
		2008								2007
						Weighted								Weighted
						Average								Average
						Grant								Grant
		Awards				Price				Awards				Price
Unvested awards outstanding at beginning of period			387,064			$	17.59				302,264			$	18.54
Granted			245,255				13.51				—				—
Vested			(96,707	)			18.79				(54,448	)			18.56
Forfeited			(374	)			18.24				(442	)			16.91
Dividend reinvestment			8,426				15.24				3,452				16.89
Unvested awards outstanding at end of period			543,664				15.50				250,826				18.52

     The total fair value of awards vested was $1.3 million and $1.0 million for the three months ended March 31, 2008 and 2007, respectively.

     As of March 31, 2008, there was $5.6 million of unrecognized compensation cost related to unvested restricted stock awards granted including $0.6 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, Share-Based Payment, on January 1, 2006. The components of the restricted stock awards as of March 31, 2008 are as follows (dollars in thousands):

		Service-				Performance-
		Based				Based
		Awards				Awards				Total
Unvested awards			212,210				331,454				543,664
Unrecognized compensation expense		$	2,019			$	3,595			$	5,614
Intrinsic value		$	3,313			$	5,174			$	8,487
Weighted average remaining life (in years)			2.49				2.91				2.74

Stock Options

     There were no stock options granted during the three months ended March 31, 2008 or 2007. 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 5,257 and 128,981 for the three months ended March 31, 2008 and 2007, respectively.

     The following table summarizes certain information concerning stock option awards:

		Three Months Ended March 31,
		2008								2007
						Weighted								Weighted
						Average								Average
						Exercise								Exercise
		Shares				Price				Shares				Price
Options outstanding at beginning of period			1,139,845			$	11.75				1,450,225			$	11.69
Exercised			(5,258	)			12.90				(134,814	)			11.72
Forfeited			(25,423	)			13.78				—				—
Options outstanding and exercisable at end of period			1,109,164				11.70				1,315,411				11.69

     The intrinsic value of outstanding and exercisable stock options at March 31, 2008 was $3.5 million.

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 March 31, 2008, warrants to purchase 55,919 shares of common stock remain outstanding.

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 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 new 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 2008.

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

		Three Months Ended
		March 31,
		2008				2007
Service cost		$	792			$	849
Interest cost			1,648				1,544
Expected return on plan assets			(2,186	)			(2,143	)
Amortization of unrecognized net transition asset			(23	)			(23	)
Amortization of unrecognized prior service (credit) cost			(273	)			(272	)
Amortization of unrecognized loss			184				215
Net periodic pension benefit cost		$	142			$	170

     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. As an offset to the decrease in RIP benefits, beginning with 2007, 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. The Corporation’s contribution expense was $0.9 million and $0.8 million for the three months ended March 31, 2008 and 2007, 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 are age 60 or older as of January 1, 2007 are eligible for employer paid coverage. The postretirement plan amendment resulted in a remeasurement that produced a net unrecognized service credit of $2.7 million, which has been amortized over the remaining service period of eligible employees of 1.3 years and was fully recognized during 2007. 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
		March 31,
		2008				2007
Service cost		$	15			$	14
Interest cost			28				33
Amortization of unrecognized prior service credit			—				(421	)
Amortization of unrecognized loss			1				—
Net periodic postretirement benefit cost		$	44			$	(374	)

     The net periodic postretirement benefit cost increased for the three months ended March 31, 2008 compared to the same period in 2007 due to the amortization of the unrecognized service credit resulting from the postretirement plan amendment effective January 1, 2007.

COMPREHENSIVE INCOME

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

		Three Months Ended
		March 31,
		2008				2007
Net income		$	16,491			$	17,370
Other comprehensive (loss) income:
Unrealized (losses) gains on securities:
Arising during the period			(1,581	)			(421	)
Less: reclassification adjustment for gains included in net income			(484	)			(481	)
Unrealized (loss) gain on swap			(128	)			(226	)
Pension and postretirement amortization			(76	)			(326	)
Other comprehensive (loss) income			(2,269	)			(1,454	)
Comprehensive income		$	14,222			$	15,916

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

March 31		2008				2007
Unrealized (losses) gains on securities		$	(2,686	)		$	1,721
Unrealized gain on swap			—				747
Unrecognized pension and postretirement obligations			(6,321	)			(5,468	)
Accumulated other comprehensive income (loss)		$	(9,007	)		$	(3,000	)

CASH FLOW INFORMATION

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

Three Months Ended March 31		2008				2007
Interest paid on deposits and other borrowings		$	39,560			$	43,121
Income taxes paid			2,500				—
Transfers of loans to other real estate owned			1,240				760
Transfers of other real estate owned to loans			39				—

BUSINESS SEGMENTS

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

	•		The Community Banking segment offers 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 is primarily involved in making installment loans to individuals and purchasing 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 reconciling to the consolidated amounts.

		Community				Wealth								Consumer				Parent and
		Banking				Management				Insurance				Finance				Other				Consolidated
At or for the Three Months Ended March 31, 2008
Interest income		$	80,668			$	18			$	105			$	7,853			$	(119	)		$	88,525
Interest expense			35,523				2				—				1,509				2,526				39,560
Net interest income			45,145				16				105				6,344				(2,645	)			48,965
Provision for loan losses			2,530				—				—				1,053				—				3,583
Non-interest income			15,492				4,005				3,362				625				(1,316	)			22,168
Non-interest expense			34,257				3,062				2,646				3,584				(259	)			43,290
Intangible amortization			956				6				111				—				—				1,073
Income tax expense (benefit)			6,638				339				258				836				(1,375	)			6,696
Net income (loss)			16,256				614				452				1,496				(2,327	)			16,491
Total assets			5,978,644				7,172				22,588				155,192				994				6,164,590
Total intangibles			246,661				1,246				10,768				1,809				—				260,484

		Community				Wealth								Consumer				Parent and
		Banking				Management				Insurance				Finance				Other				Consolidated
At or for the Three Months Ended March 31, 2007
Interest income		$	83,214			$	36			$	129			$	7,772			$	(664	)		$	90,487
Interest expense			38,775				2				—				1,583				2,207				42,567
Net interest income			44,439				34				129				6,189				(2,871	)			47,920
Provision for loan losses			871				—				—				976				—				1,847
Non-interest income			13,578				3,705				3,690				577				(634	)			20,916
Non-interest expense			31,900				2,851				2,496				3,843				(297	)			40,793
Intangible amortization			985				7				111				—				—				1,103
Income tax expense (benefit)			7,478				314				433				702				(1,204	)			7,723
Net income (loss)			16,783				567				779				1,245				(2,004	)			17,370
Total assets			5,848,147				6,611				24,980				152,598				(16,532	)			6,015,804
Total intangibles			250,979				1,271				11,213				1,809				—				265,272

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. FAS 157 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 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 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 under FAS 157 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
Level 3		valuation techniques that require inputs that are both significant to the fair value measurement and unobservable

     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 valuation methodologies used for financial instruments recorded at fair value on either a recurring or nonrecurring basis:

Securities Available For Sale

     Securities available for sale are recorded at fair value on a recurring basis using a market approach. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are obtained from an independent pricing service. The pricing service uses a variety of techniques to arrive at fair value including market maker bids and quotes of significantly similar securities and matrix pricing. Matrix pricing is a mathematical technique used principally to value certain securities without relying exclusively on quoted prices for specific securities but comparing the securities to benchmark or comparable securities.

     Fair values for investment securities based on quoted market prices on an active exchange are classified as Level 1. Level 2 fair values include substantially all of the Corporation’s fixed income investments. These fair values are obtained through third-party data service providers who use alternative approaches to determine fair value when market quotes are not readily accessible or available. Securities classified as Level 3 are not listed on any exchange, are based on unobservable inputs and include situations where there is limited market activity.

Derivative Financial Instruments

     Fair value for derivatives is determined 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.

     To comply with the provisions of FAS 157, 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 March 31, 2008, 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.

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, periodically, it may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is based on independent quoted market prices and is classified as Level 2.

Impaired Loans

     Certain commercial and commercial real estate loans considered impaired as defined in FAS 114 are reserved for at the time the loan is identified as impaired according to the fair value of the collateral less estimated selling costs. Collateral may be real estate and/or business assets including equipment, inventory and accounts receivable.

     The value of real estate is determined based on appraisals by qualified licensed appraisers. The value of business assets is generally based on amounts reported on the business’s financial statements. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation and/or management’s knowledge of the client and the client’s business. Since not all valuation inputs are observable, these nonrecurring fair value determinations are classified as Level 2 or Level 3 based on the lowest level of input that is significant to the fair value measurement.

     Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, 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. 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 qualified licensed 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 March 31, 2008 (in thousands):

		Level 1				Level 2				Level 3				Total
Assets measured at fair value:
Securities available for sale		$	5,406			$	382,334			$	196			$	387,936
Other assets (interest rate swaps)			—				4,601				—				4,601
		$	5,406			$	386,935			$	196			$	392,537
Liabilities measured at fair value:
Other liabilities (Interest rate swaps)			—			$	4,422				—			$	4,422
			—			$	4,422				—			$	4,422

     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):

Balance at December 31, 2007		$	14,338
Total gains (losses) – realized/unrealized:
Included in earnings			—
Included in other comprehensive income			(1,755	)
Purchases, issuances and settlements			—
Transfers in and/or (out) of Level 3			(12,387	)
Balance at March 31, 2008		$	196