F.N.B. Corporation Reports Second Quarter 2009 Results

PRESS RELEASE

July 23, 2009 - HERMITAGE, PA

F.N.B. Corporation (NYSE: FNB), a diversified financial services company, today reported financial results for the quarter ended June 30, 2009. For the second quarter of 2009, net income available to common shareholders was $9.1 million, or $0.10 per diluted common share, compared to net income of $14.3 million, or $0.16 per diluted common share, in the first quarter of 2009. For the second quarter of 2008, net income totaled $14.5 million, or $0.17 per diluted share.  F.N.B. Corporation’s performance ratios this quarter were as follows: return on average tangible common equity (non-GAAP measure) was 10.84%; return on average equity was 4.05%; return on average tangible assets (non-GAAP measure) was 0.59% and return on average assets was 0.49%. A reconciliation of GAAP measures to non-GAAP measures is included with the tables that accompany this press release.

Results for the second quarter of 2009 included a $4.0 million (pre-tax) FDIC special assessment, which reduced net income available to common shareholders by $2.6 million or $0.03 per diluted common share. “We delivered another successful quarter for F.N.B.,” said Stephen J. Gurgovits, President and Chief Executive Officer of F.N.B. Corporation. “We strengthened our balance sheet with our common stock offering, made solid progress managing our Florida loan portfolio and continued to have success in capturing market share during this period of competitive disruption in our Pennsylvania markets.”

Net Interest Income

Net interest income on a fully taxable equivalent basis for the second quarter of 2009 totaled $66.8 million, representing an increase of $1.2 million, or 7.2% annualized, from the prior quarter. The increase reflects a combination of a 3 basis point increase in the net interest margin, a 1.2% annualized increase in average earning assets and one additional day in the second quarter. The net interest margin equaled 3.73% for the second quarter of 2009, including a 3 basis point net benefit related to certain non-accrual loans, compared to 3.70% in the first quarter of 2009 and 3.92% in the second quarter of 2008. Net interest income for the second quarter of 2009 decreased slightly compared to the second quarter of 2008 as the positive impact of organic growth and the acquisition of Iron and Glass Bancorp were offset by the lower interest rate environment of 2009 which narrowed the net interest margin. 

Average loans totaled $5.8 billion for the second quarter of 2009, representing a decrease of $16.1 million, or 1.1% annualized, compared to the first quarter of 2009. Growth in F.N.B.’s $3.2 billion commercial loan portfolio was offset by declines in its $2.5 billion consumer loan portfolio. Average commercial loans increased $16.1 million, or 2.0% annualized, compared to the first quarter of 2009, with the average Pennsylvania commercial loan portfolio growing $26.0 million, or 3.6% annualized, and the average Florida portfolio decreasing $9.9 million or 13.3% annualized. 

Gurgovits continued, “The close to 4% annualized growth in the Pennsylvania commercial loan portfolio reflects the success of our new business origination initiatives. With the strong team we have on the ground actively calling on our competitors’ customers, we continue to win in the marketplace.” 

Average consumer-related loans declined $36.3 million, or 5.6% annualized, compared to the first quarter of 2009. The second quarter reflected higher levels of refinance activity resulting in declines in average direct installment loans of $34.4 million, or 13.1% annualized, and average residential mortgage loans of $22.0 million, or 13.6% annualized, compared to the prior quarter. Recent customer preferences have been for longer term fixed rate mortgage products which the company generally does not retain in the loan portfolio. These decreases were partially offset by strong growth in consumer lines of credit of $16.5 million, or 19.0% annualized. 

“The momentum in producing strong growth in deposits and treasury management balances continued in the second quarter as average balances increased $177.5 million, or 10.9% annualized, compared to the prior quarter,” said Gurgovits. “We continue to capitalize on the opportunities created by competitor disruption in our marketplace, with ongoing marketing campaigns to attract new customers to the F.N.B. local approach to banking.” Average transaction deposits grew $222.3 million, or 23.7% annualized, compared to the prior quarter, while higher-cost certificates of deposit declined $25.1 million or 4.3% annualized. The decrease in certificates of deposit is by design and reflects the organization’s continuing strategy to focus on new customer acquisition. 

Compared to the second quarter of 2008, average deposits and treasury management balances increased $586.4 million or 38.4%. Adjusting for the effects of the Iron and Glass acquisition, the organic growth rate in average deposits and treasury management balances in the second quarter of 2009 was a strong 5.4% compared to the second quarter of 2008, reflecting growth in all categories of deposits, except for certificates of deposit, and strong growth in treasury management balances. 

Non-Interest Income

Non-interest income totaled $28.5 million for the second quarter of 2009, compared to $28.2 million for the first quarter of 2009 and $27.5 million for the second quarter of 2008. The increase in non-interest income compared to the first quarter of 2009 reflects seasonally higher service charges (up $1.0 million or 29.4% annualized), higher securities commissions and fees (up $0.2 million or 49.2% annualized; including the results of a spring sales campaign), strong growth in residential mortgage origination fee revenue (up $0.6 million) and increased other income (up $0.3 million or 33.3% annualized). These increases were partially offset by seasonally lower contingent insurance revenue (down $1.2 million or 98.2% annualized) and higher impairment losses on securities (up $0.5 million). The impairment losses were offset by a $0.7 million gain, recorded in other income, related to an impaired loan acquired in a previous merger.

Under new guidance from the Financial Accounting Standards Board, results for the second quarter of 2009 included impairment losses on securities of $1.4 million, with $1.0 million related to pooled trust preferred securities and $0.4 million related to bank stock investments. The $0.7 million non-credit portion of the impairment on pooled trust preferred securities was recorded directly to other comprehensive income and the $0.3 million credit portion was recorded in non-interest income. 

Non-Interest Expense

Non-interest expense totaled $66.3 million for the second quarter of 2009, representing a $5.3 million increase compared to $61.0 million for the first quarter of 2009. The higher expense level was primarily driven by a $4.7 million increase in FDIC insurance due to a $4.0 million special assessment and a higher ongoing FDIC assessment rate. In addition, a $0.9 million seasonal increase in marketing expenses was partially offset by a $0.7 million reduction in weather-related occupancy costs compared to the prior quarter. The Corporation’s efficiency ratio was 67.7% this quarter, including a negative 493 basis point impact from the higher FDIC insurance costs. 

Credit Quality

“We continue to be pleased with the performance of our Pennsylvania and Regency loan portfolios at this point in the economic cycle,” remarked Mr. Gurgovits. “We made some meaningful progress reducing the Florida non-performing assets this quarter in an environment that continues to be challenging. Based on period-end figures, we reduced our Florida exposure by $21.6 million or 7.1% since March 31, 2009 with about half of the reduction coming from the receipt of cash payments and half from charge-offs.” 

Non-performing loans and OREO as a percentage of total loans and OREO at June 30, 2009 improved 39 basis points to 2.42%, compared to the end of the first quarter of 2009, driven mainly by net reductions in Florida non-performing loans. Annualized net charge-offs equaled 1.22% of average loans for the second quarter of 2009, compared to 0.84% for the first quarter of 2009. At June 30, 2009, the ratio of the allowance for loan losses to total loans equaled 1.72%, compared to 1.78% at March 31, 2009, reflecting the release of specific reserves associated with Florida charge-offs this quarter and stable coverage for the Pennsylvania and Regency portfolios. As a percentage of non-performing loans, the allowance for loan losses equaled 81.5% at June 30, 2009, improved from 68.3% at March 31, 2009, reflecting the reductions in Florida non-performing loans. As a result of the above activity, the provision for loan losses totaled $13.9 million for the second quarter of 2009, which was $3.4 million higher than last quarter. 

The Pennsylvania loan portfolio totaled $5.3 billion at June 30, 2009 (92.5% of the total loan portfolio) and continued to deliver good credit quality metrics. Net loan charge-offs totaled $4.9 million or 0.36% annualized of average loans for the second quarter of 2009, increasing over the very good levels of the first quarter of 2009 of $2.3 million or 0.17% annualized of average loans. Results for the second quarter of 2009 included a $2.1 million charge-off on a loan acquired in a prior bank acquisition, which increased the Pennsylvania net charge-off ratio by 0.15% for the quarter. 

The Florida loan portfolio totaled $274 million at June 30, 2009 (4.8% of the total loan portfolio), reflecting a decrease of $27.3 million, and delivered credit quality metrics that showed marked improvement as F.N.B. was successful in resolving several large credits and reducing the organization’s overall exposure to the Florida market. Net loan charge-offs totaled $11.2 million or 15.60% annualized of average loans for the second quarter of 2009, compared to $8.2 million or 11.22% annualized of average loans for the first quarter of 2009. For the second quarter of 2009, $10.5 million of the net charge-offs were taken on two Florida credits. As a result of second quarter activities, non-performing loans and OREO as a percentage of total loans and OREO improved 560 basis points to 26.05% at June 30, 2009. Florida’s non-performing loans and OREO totaled $73.6 million at June 30, 2009, or approximately 52% of the Corporation’s total non-performing loans and OREO. 

The Regency loan portfolio totaled $157 million at June 30, 2009 (2.7% of the total loan portfolio) and continued to deliver credit quality metrics consistent with our expectations. Annualized net loan charge-offs as a percentage of average loans improved 25 basis points to 3.99% for the second quarter of 2009. 

Capital Position

F.N.B. Corporation’s capital position was bolstered by 24.15 million shares issued through its public equity offering completed in June 2009 that raised net proceeds of approximately $125.8 million. As a result of the capital raise, shareholders’ equity increased $124.6 million, or 12.1%, to $1,151.1 million as of June 30, 2009 and tangible book value (non-GAAP measure) increased $0.26 per common share to $4.25 per common share. The Corporation’s tangible common equity ratio (non-GAAP measure) increased 141 basis points to 5.95% at June 30, 2009. At June 30, 2009, the tangible book value per common share and tangible common equity ratio excluding accumulated other comprehensive income (nonGAAP measures) equaled $4.55 and 6.37%, respectively. The Corporation’s capital ratios continue to exceed federal bank regulatory agency “well capitalized” thresholds. The Corporation’s leverage capital ratio was 10.11% at June 30, 2009, compared to 8.67% at March 31, 2009. The estimated tier 1 risk-based capital ratio was 13.22% at June 30, 2009, compared to 11.12% at March 31, 2009. The estimated total risk-based capital ratio was 14.63% at June 30, 2009, compared to 12.53% at March 31, 2009.

Year-to-Date Results

For the six months ended June 30, 2009, F.N.B. Corporation’s net income available to common shareholders totaled $23.4 million, or $0.26 per diluted share, compared to $31.0 million, or $0.42 per diluted share, for the six months ended June 30, 2008. For the 2009 year-to-date period, F.N.B. Corporation’s return on average tangible common equity (nonGAAP measure) totaled 14.04%, its return on average equity was 5.11%, its return on average tangible assets (non-GAAP measure) was 0.73% and its return on average assets was 0.62%. 

Net interest income on a fully taxable equivalent basis totaled $132.5 million for the first six months of 2009 and increased 12.8% over the same period of 2008, reflecting 16.3% growth in average loans resulting from organic growth and the acquisition of Omega and Iron and Glass in 2008, partially offset by a lower net interest margin. On a year-to-date 2009 basis, average deposits and treasury management balances grew 22.5%, with low-cost treasury management accounts up 34.4% and core transaction deposits up 25.3% compared to the same period of 2008, reflecting organic growth and the acquisition of Omega and Iron and Glass. The net interest margin for the six months ended June 30, 2009, equaled 3.71%, compared to 3.83% in the same period of 2008. The narrower margin is primarily driven by the lower interest rate environment of 2009 versus 2008.

 Non-interest income totaled $56.6 million for the first half of 2009, compared to $49.6 million for the same period of 2008. Service charges, insurance commissions and gain on sale of residential mortgage loans increased 12.6%, 10.0% and 70.8%, respectively. Non-interest expense totaled $127.2 million for the first half of 2009, an increase of 19.6% over the same period of 2008. Higher non-interest income and expense reflect the acquisitions of Omega and Iron and Glass in 2008, combined with higher FDIC insurance and pension costs. On a year-to-date basis, F.N.B. Corporation’s efficiency ratio was 65.4% for 2009, compared to 62.3% for 2008. 

The provision for loan losses for the first six months of 2009 totaled $24.4 million, compared to $14.6 million for the same period of 2008. The increased provision reflects higher net charge-offs in the first half of 2009 and higher allocations to the allowance for loan losses given increased levels of non-performing loans compared to the same period in 2008. 

Conference Call

F.N.B. Corporation will host its quarterly conference call to discuss the Company’s financial results for the second quarter of 2009 on Friday, July 24, 2009, at 8:00 AM Eastern Time. Participating in the call will be Stephen Gurgovits, President and Chief Executive Officer, Brian Lilly, Executive Vice President and Chief Operating Officer and Gary Guerrieri, Chief Credit Officer. The call can be accessed by dialing (888) 656-7432 or (913) 312-1499 for international callers; the confirmation number is 3068754.

A replay of the call will be available from 11:00 AM Eastern Time on the day of the call until midnight Eastern Time on Friday, July 31, 2009. The replay can be accessed by dialing (888) 203-1112 or (719) 457-0820 for international callers; the confirmation number is 3068754. A transcript of the call will be posted to the “Shareholder and Investor Relations” section of F.N.B. Corporation’s Web site at www.fnbcorporation.com.

About F.N.B. Corporation

F.N.B. Corporation, headquartered in Hermitage, PA, is a diversified financial services company with total assets of $8.7 billion as of June 30, 2009. F.N.B. Corporation is a leading provider of commercial and retail banking, leasing, wealth management, insurance, merchant banking and consumer finance services in Pennsylvania and Ohio, where it owns and operates First National Bank of Pennsylvania, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, F.N.B. Capital Corporation, LLC, Regency Finance Company and Bank Capital Services. It also operates consumer finance offices in Tennessee and loan production offices in Pennsylvania, Tennessee and Florida.

Forward-looking Statements

This press release of F.N.B. Corporation and the reports F.N.B. Corporation files with the Securities and Exchange Commission often contain “forward-looking statements” relating to present or future trends or factors affecting the banking industry and, specifically, the financial operations, markets and products of F.N.B. Corporation. These forward-looking statements involve certain risks and uncertainties. There are a number of important factors that could cause F.N.B. Corporation’s future results to differ materially from historical performance or projected performance. These factors include, but are not limited to: (1) a significant increase in competitive pressures among financial institutions; (2) changes in the interest rate environment that may reduce interest margins; (3) changes in prepayment speeds, loan sale volumes, charge-offs and loan loss provisions; (4) general economic conditions; (5) legislative or regulatory changes that may adversely affect the businesses in which F.N.B. Corporation is engaged; (6) technological issues which may adversely affect F.N.B. Corporation’s financial operations or customers; (7) changes in the securities markets or (8) risk factors mentioned in the reports and registration statements F.N.B. Corporation files with the Securities and Exchange Commission. F.N.B. Corporation undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date of this press release. 

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