F.N.B. Corporation Reports Second Quarter 2010 Results

PRESS RELEASE

July 26, 2010 - HERMITAGE, PA

F.N.B. Corporation (NYSE: FNB) today reported financial results for the second quarter of 2010.  Net income for the second quarter of 2010 was $17.9 million, or $0.16 per diluted share, compared to first quarter of 2010 net income of $16.0 million, or $0.14 per diluted share, and net income available to common shareholders in the second quarter of 2009 of $9.1 million, or $0.10 per diluted common share.
  
“We are very pleased to deliver another solid quarter for our shareholders,” said Stephen J. Gurgovits, President and Chief Executive Officer of F.N.B. Corporation.  “Our results for the second quarter again reflect solid loan and deposit growth, stable credit quality and our consistent focus on creating value for our shareholders.”  

F.N.B. Corporation’s performance ratios this quarter were as follows: return on average tangible common equity (non-GAAP measure) was 15.65%; return on average equity was 6.83%; return on average tangible assets (non-GAAP measure) was 0.92% and return on average assets was 0.81%.  A reconciliation of GAAP measures to non-GAAP measures is included in the tables that accompany this press release.
    
Net Interest Income

Net interest income on a taxable equivalent basis (non-GAAP measure) for the second quarter of 2010 totaled $73.1 million, increasing $3.1 million from the first quarter of 2010.  This linked quarter growth reflects a 7.2% annualized increase in average earning assets and a 7 basis point expansion of the net interest margin.  The increase in average earning assets includes growth in both loans and investment securities.  Average investment securities increased over the first quarter by $117 million due to the deployment of funds previously held at the Federal Reserve.  The net interest margin equaled 3.81% for the second quarter and includes a 4 basis point net benefit related to certain non-accrual loans that were paid-off or returned to accrual status.

“We are very pleased with the outstanding results of our commercial and retail bankers in winning new customer relationships and continuing to gain market share throughout this challenging economic cycle,” said Mr. Gurgovits. “Our loan and deposit growth reflects our ongoing success in attracting new customers to the F.N.B. approach to banking.”

Total average loans for the second quarter of 2010 increased on a linked quarter basis by $48.4 million or 3.3% annualized to $5.9 billion, representing the fourth consecutive quarter of growth for total average loans. Average commercial loans led the second quarter growth increasing $29.5 million, or 3.6% annualized. Our Pennsylvania commercial loan portfolio grew $35.9 million, or 4.7% annualized, as we continue to gain market share across our footprint. 

Average consumer loans for the second quarter of 2010 totaled $2.5 billion and grew $11.3 million or 1.8% annualized on a linked quarter basis. The increase was primarily due to $8.7 million or 2.5% annualized growth of average home equity lending balances (comprised of consumer lines of credit and direct installment loans) reflecting promotional initiatives and customer preferences for these products in a low interest rate environment.

Average deposits and treasury management balances grew $161.3 million or 9.2% annualized to $7.2 billion on a linked quarter basis reflecting successes in new account acquisition combined with higher average balances. During the second quarter of 2010, average transaction deposits increased $139.2 million or 13.3% annualized and average treasury management balances grew $21.9 million or 14.7% annualized. 

Non-Interest Income

Non-interest income of $28.4 million for the second quarter of 2010 decreased $1.8 million on a linked quarter basis as the prior quarter included $2.3 million in gains on security sales, $3.3 million in recoveries on acquired impaired loans and $1.7 million in OTTI charges. The current quarter reflected higher levels of fee income, lower other-than-temporary impairment charges and a $1.6 million gain related to the successful harvesting of a mezzanine financing relationship by F.N.B. Capital Corporation. The impairment losses recognized for the second quarter of 2010 of $0.6 million related to one pooled trust preferred security that experienced additional collateral deterioration.

Growth in fee income reflected seasonally higher service charges and securities commissions as well as higher mortgage-related gains due to increased sales volume in the second quarter. In addition, insurance commissions and fees decreased on a linked quarter basis due to seasonally higher contingent fee revenue in the first quarter of 2010. Non-interest income, excluding other-than-temporary impairment charges, securities gains and recoveries on acquired impaired loans, represented 28% of revenue for the second quarter of 2010 compared to 27% for the first quarter of 2010. 

Non-Interest Expense

Non-interest expense totaled $63.1 million in the second quarter of 2010 and was flat with the first quarter of 2010 after considering the $2.3 million in pre-payment charges recorded in the first quarter associated with the repayment of FHLB debt. In addition, on a linked quarter basis, the second quarter of 2010 occupancy costs decreased $0.6 million due to seasonal weather-related factors. The efficiency ratio for the second quarter of 2010 improved to 60.5% compared to 63.6% in the first quarter of 2010 demonstrating continued effective expense control. 

Credit Quality

“Our Pennsylvania and Regency loan portfolios continue to perform very well with improvements reflecting the early stages of the economic recovery. The Florida portfolio, representing only 3.9% of total loans at quarter-end, showed signs of stabilization and slight improvement in the non-land related segments, while the land-related segment of this portfolio remains subject to a challenging environment. We continue to reduce our exposure in the Florida portfolio,” remarked Mr. Gurgovits.

Credit quality metrics for the second quarter of 2010 improved with lower levels of problem credits and delinquencies at quarter-end as non-performing loans and OREO as a percentage of total loans and OREO improved 16 basis points to 2.88% and total delinquency improved 22 basis points to 2.97%. Annualized net charge-offs increased slightly by 5 basis points to 0.53% of average loans for the second quarter of 2010 reflecting a modest increase in Florida-related charge-offs in the second quarter.

During the second quarter of 2010, the ratio of the allowance for loan losses to total loans increased 5 basis points to 1.91%. The provision for loan losses totaled $12.2 million for the second quarter of 2010, consistent with $12.0 million in the first quarter of 2010, and exceeded net charge-offs as we supported loan growth and provided additional reserves for the Florida land-related portfolio.

The Pennsylvania loan portfolio totaled $5.6 billion at June 30, 2010 (93.4% of the total loan portfolio) and delivered good credit quality metrics characterized by the reduction of total past due loans, non-performing loans and charge-offs on a linked quarter basis. Net loan charge-offs totaled $4.4 million or 0.32% annualized of average loans for the second quarter of 2010 representing a slight improvement on a linked quarter basis. Total past dues and non-accrual loans improved 14 basis points to 1.91% of total loans at June 30, 2010 and nonperforming loans and OREO decreased slightly to $87.3 million or 1.56% of total loans and OREO. 

The Florida loan portfolio totaled $231.2 million at June 30, 2010 (3.9% of the total loan portfolio), reflecting a decrease of $9.2 million or 3.8% compared to March 31, 2010. The land-related portion of the portfolio totaled $93.2 million at quarter-end or 1.6% of the total loan portfolio. Florida non-performing loans and OREO decreased slightly to $76.3 million or 31.3% of total loans and OREO at June 30, 2010. Net loan charge-offs for the second quarter of 2010 totaled $1.9 million, compared to $0.9 million in net loan charge-offs for the first quarter of 2010. Activity for the quarter in the Florida portfolio included the disposition of $3.0 million in OREO, the sale of $3.5 million in performing credits to a Florida-based community bank, continued payments on performing credits and continued movement of problem loans into OREO. At June 30, 2010, the ratio of the allowance for loan losses to total loans for this portfolio equaled 11.65%, a 222 basis point increase compared to 9.43% at March 31, 2010. The increased reserve position reflects reappraisal risk associated with the Florida land-related portfolio. 

The Regency loan portfolio totaled $159.6 million at June 30, 2010 (2.7% of the total loan portfolio) and continues to deliver solid credit quality metrics for a consumer finance company. Total past dues and non-accrual loans improved by 4 basis points during the second quarter to 3.96% of total loans at June 30, 2010.

Capital Position

The Corporation’s capital ratios continue to exceed federal bank regulatory agency “well capitalized” thresholds. As of June 30, 2010, the Corporation’s regulatory capital ratios remained consistent with the first quarter as the equity increase in retained earnings supported the asset growth this quarter. The tangible common equity to tangible assets ratio (non-GAAP measure) increased 13 basis points to 5.97% at June 30, 2010. The tangible book value per share (non-GAAP measure) increased 10 cents during the quarter to $4.31 and the dividend payout ratio for the quarter was 77%. The improvement in tangible common equity during the second quarter is primarily attributable to earnings retention and improvement in accumulated other comprehensive income related to securities appreciation. 

Year-to-Date Results

For the six months ended June 30, 2010, F.N.B. Corporation’s net income available to common shareholders totaled $33.9 million, or $0.30 per diluted share, compared to $23.4 million, or $0.26 per diluted common share for the six months ended June 30, 2009. For the 2010 year-to-date period, return on average tangible common equity (non-GAAP measure) totaled 15.05%, return on average equity was 6.51%, return on average tangible assets (non-GAAP measure) was 0.88% and return on average assets was 0.78%.

Net interest income on a fully taxable equivalent basis totaled $143.2 million for the first six months of 2010, an increase of $10.6 million or 8.0% over the same period of 2009, reflecting growth in average earning assets and an expanded net interest margin. On a year-over-year basis, average earning assets increased 3.8% reflecting an 11.7% increase in investments as increased liquidity was invested and growth in average loans of $97.2 million or 1.7%. The loan growth was driven by average commercial loan growth of $111.2 million or 3.5%. For the first six months of 2010, average deposits and treasury management balances increased $463.7 million or 7.0%, with average transaction balances growing $384.0 million or 9.9% and average treasury management balances growing $163.6 million or 36.8%, compared to same period in 2009. The strong loan and deposit growth reflects our success in expanding market share. The net interest margin for the first half of 2010 equaled 3.77%, an expansion of 15 basis points from the same period of 2009. This margin expansion reflects lower deposit and borrowing costs driven by an improved funding mix and the low interest rate environment partially offset by lower yields on earning assets.

Non-interest income totaled $58.7 million for the first half of 2010, an increase of 4.0% compared to $56.5 million for the same period of 2009. The first half of 2010 included higher gains on the sale of securities, higher recoveries on impaired loans acquired through acquisitions and the gain related to the successful harvesting of a mezzanine financing relationship by F.N.B. Capital Corporation, partially offset by higher other-than-temporary impairment charges. Fee income on a year-over-year basis reflects a 7% increase in trust-related revenue reflecting improved market conditions and a slight increase in total service charges on deposit accounts as reduced overdraft charges were offset by other deposit-related fee income. Partially offsetting these increases, insurance commissions and fees declined 8.4% because of lower contingent revenues and lower commission revenues, and securities commissions and fees declined 12.3% reflecting lower sales of annuities in a low interest rate environment. 

Non-interest expense totaled $128.5 million for the first half of 2010, a slight increase of 1.0% compared to $127.2 million for the same period of 2009, primarily a result of pre-payment charges associated with the repayment of FHLB debt in 2010 partially offset by lower FDIC insurance premiums due to the special assessment in 2009. On a year-to-date basis, F.N.B. Corporation’s efficiency ratio improved to 62.0% for 2010, compared to 65.4% for the six month period ended 2009 reflecting our continued focus on expense control.

The provision for loan losses for the first half of 2010 totaled $24.2 million compared to $24.4 million for the same period of 2009. At June 30, 2010, the ratio of the allowance for loan losses to total loans equaled 1.91%, a 19 basis point increase compared to 1.72% at June 30, 2009, reflecting an increased reserve position in the Florida land-related portfolio at June 30, 2010. Net loan charge-offs were 0.51% annualized of total loans for the first half of 2010 representing an improvement from the 1.03% annualized of total loans for the first half of 2009 as higher charge-offs in the Florida portfolio were incurred during the first half of 2009. 

Conference Call

F.N.B. Corporation will host its quarterly conference call to discuss its financial results for the second quarter of 2010 on Tuesday, July 27, 2010, at 8:00 AM EDT. Participating callers may access the call by dialing (888) 677-8749 or (913) 312-1462 for international callers; the confirmation number is 4126662. The listen-only audio Webcast may be accessed through the “Shareholders and Investor Relations” section of the Corporation’s Web site at www.fnbcorporation.com.

A replay of the call will be available from 11:00 AM EDT on the day of the call until midnight EDT on Tuesday, August 3, 2010. The replay can be accessed by dialing (888) 203-1112 or (719) 457-0820 for international callers; the confirmation number is 4126662. 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 $8.8 billion as of June 30, 2010. 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 F.N.B. Commercial Leasing. It also operates consumer finance offices in Tennessee and loan production offices in 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 net interest margins; (3) changes in prepayment speeds, loan sale volumes, charge-offs and loan loss provisions; (4) general economic conditions; (5) various monetary and fiscal policies and regulations of the U.S. Government 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; (8) risk factors mentioned in the reports and registration statements F.N.B. Corporation files with the Securities and Exchange Commission; (9) housing prices; (10) job market; (11) consumer confidence and spending habits or (12) estimates of fair value of certain F.N.B. Corporation assets and liabilities. 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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