FNB

Business Context and Reporting Period

F.N.B. Corporation is a diversified financial services company headquartered in Hermitage, Pennsylvania, operating through community banking, consumer finance, wealth management, and insurance segments. This Form 10-Q covers the quarterly and six-month periods ended June 30, 2009.

During the period, the Corporation completed a public offering of 24.15 million shares of common stock on June 16, 2009, raising net proceeds of $125.8 million. Additionally, the company participated in the U.S. Treasury's Capital Purchase Program (CPP) in January 2009, issuing $100 million of preferred stock.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Decline: Net income decreased 15.3% year-over-year, driven primarily by a $9.9 million increase in the provision for loan losses and higher non-interest expenses.
• Loan Loss Provisions: The provision for loan losses rose to $24.4 million (from $14.6 million in 2008) due to higher net charge-offs ($29.8 million vs. $7.1 million) and increased allocations for a weaker economic environment, particularly in the Florida portfolio.
• Net Interest Income Growth: Net interest income increased 12.8% to $129.4 million, fueled by a 16.5% increase in average interest-earning assets due to acquisitions (Omega and IRGB) and organic growth. However, the net interest margin compressed slightly to 3.71% from 3.83% as loan yields declined faster than deposit rates.
• Capital Strengthening: Stockholders' equity increased significantly to $1.15 billion, bolstered by the $100 million CPP preferred stock issuance and the $125.8 million common stock offering.
• Non-Performing Assets: Total non-performing assets decreased to $148.7 million from $163.1 million at year-end 2008, largely due to aggressive reduction of exposure in the Florida portfolio.

Guidance, Outlook, Risks, and Unusual Items

• Outlook: Management does not provide specific forward-looking earnings guidance but notes that interim results are not necessarily indicative of full-year results. The company plans to redeem the UST investment as quickly as prudently possible.
• Florida Portfolio Risk: The Florida loan portfolio remains a significant risk factor. While non-performing assets in Florida decreased by 24.0% in the quarter, the allowance for loan losses for this portfolio stands at 8.49% of total loans. Management continues to aggressively reduce exposure in this region.
• Securities Impairment: The company recognized $0.9 million in net impairment losses on securities for the six months ended June 30, 2009, related to bank stocks and pooled trust preferred securities. Significant unrealized losses exist in the investment portfolio, particularly in collateralized debt obligations (CDOs).
• FDIC Assessment: Non-interest expenses included a one-time special FDIC assessment of $4.0 million paid in the second quarter of 2009.
• Goodwill: Management performed an impairment test as of June 30, 2009, concluding that the fair value of the Community Banking reporting unit exceeded its carrying value by approximately 36%, indicating no impairment.

Investor Verification Checklist

• Florida Asset Quality: Verify the trajectory of non-performing loans and charge-offs specifically within the Florida portfolio, which accounts for a disproportionate share of credit losses.
• Securities Portfolio Valuation: Review the composition of unrealized losses in the "Available for Sale" and "Held to Maturity" securities, specifically the exposure to trust preferred securities and CDOs.
• Capital Adequacy: Confirm that the recent capital raises (CPP and common offering) have sufficiently improved regulatory capital ratios to absorb potential future credit deterioration.
• Net Interest Margin Pressure: Monitor the spread between loan yields and deposit costs, as the low-interest-rate environment continues to compress margins.
• FDIC Costs: Assess the impact of the one-time special assessment and potential future increases in insurance premiums on non-interest expenses.