FNB 10-Q Quarterly Report March 31, 2011

FNB CORP/PA/

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10-Q 1 l42496e10vq.htm FORM 10-Q e10vq

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, 2011


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 has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 definition 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	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at April 30, 2011

Common Stock, $0.01 Par Value		120,871,169 Shares

F.N.B. CORPORATION
FORM 10-Q
March 31, 2011

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		41

Item 3. Quantitative and Qualitative Disclosures About Market Risk		55

Item 4. Controls and Procedures		55

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		55

Item 1A. Risk Factors		56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		56

Item 3. Defaults Upon Senior Securities		56

Item 5. Other Information		56

Item 6. Exhibits		56

Signatures		57
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except par value


	March 31,			December 31,
	2011			2010
	(Unaudited)
Assets
Cash and due from banks	$	157,568		$	115,556
Interest bearing deposits with banks		132,340			16,015

Cash and Cash Equivalents		289,908			131,571
Securities available for sale		804,242			738,125
Securities held to maturity (fair value of $976,519 and $959,414)		956,693			940,481
Residential mortgage loans held for sale		6,254			12,700
Loans, net of unearned income of $40,009 and $42,183		6,559,952			6,088,155
Allowance for loan losses		(107,612	)		(106,120	)

Net Loans		6,452,340			5,982,035
Premises and equipment, net		125,067			115,956
Goodwill		565,090			528,720
Core deposit and other intangible assets, net		36,385			32,428
Bank owned life insurance		208,720			208,051
Other assets		310,582			269,848

Total Assets	$	9,755,281		$	8,959,915


Liabilities
Deposits:
Non-interest bearing demand	$	1,223,720		$	1,093,230
Savings and NOW		3,831,735			3,423,844
Certificates and other time deposits		2,334,856			2,129,069

Total Deposits		7,390,311			6,646,143
Other liabilities		94,975			97,951
Short-term borrowings		738,520			753,603
Long-term debt		199,134			192,058
Junior subordinated debt		203,927			204,036

Total Liabilities		8,626,867			7,893,791

Stockholders’ Equity
Common stock — $0.01 par value
Authorized — 500,000,000 shares
Issued — 121,085,356 and 114,902,454 shares		1,205			1,143
Additional paid-in capital		1,154,953			1,094,713
Retained earnings		9,336			6,564
Accumulated other comprehensive loss		(33,679	)		(33,732	)
Treasury stock — 213,973 and 155,369 shares at cost		(3,401	)		(2,564	)

Total Stockholders’ Equity		1,128,414			1,066,124

Total Liabilities and Stockholders’ Equity	$	9,755,281		$	8,959,915

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Dollars in thousands, except per share data
Unaudited


	Three Months Ended
	March 31,
	2011		2010
Interest Income
Loans, including fees	$	84,710	$	79,286
Securities:
Taxable		10,514		11,253
Nontaxable		1,947		1,891
Dividends		119		19
Other		81		97

Total Interest Income		97,371		92,546

Interest Expense
Deposits		14,595		17,554
Short-term borrowings		1,833		2,131
Long-term debt		1,628		2,546
Junior subordinated debt		2,032		1,910

Total Interest Expense		20,088		24,141

Net Interest Income		77,283		68,405
Provision for loan losses		8,228		11,964

Net Interest Income After Provision for Loan Losses		69,055		56,441

Non-Interest Income
Impairment losses on securities		—		(8,226	)
Non-credit related losses on securities not expected to be sold (recognized in other comprehensive income)		—		6,540

Net impairment losses on securities		—		(1,686	)
Service charges		14,335		13,722
Insurance commissions and fees		4,146		4,324
Securities commissions and fees		1,972		1,557
Trust fees		3,710		3,158
Gain on sale of securities		54		2,390
Gain on sale of residential mortgage loans		767		567
Bank owned life insurance		1,232		1,065
Other		2,216		5,178

Total Non-Interest Income		28,432		30,275

Non-Interest Expense
Salaries and employee benefits		38,382		33,125
Net occupancy		5,910		5,538
Equipment		4,475		4,533
Amortization of intangibles		1,796		1,687
Outside services		5,200		5,522
FDIC insurance		2,719		2,622
Merger related		4,146		—
Other		11,929		12,416

Total Non-Interest Expense		74,557		65,443

Income Before Income Taxes		22,930		21,273
Income taxes		5,755		5,293

Net Income	$	17,175	$	15,980


Net Income per Share — Basic	$	0.14	$	0.14
Net Income per Share — Diluted		0.14		0.14
Cash Dividends per Share		0.12		0.12

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Dollars in thousands, except per share data
Unaudited


	Compre-				Additional						Accumulated Other
	hensive		Common		Paid-In			Retained			Comprehensive			Treasury
	Income		Stock		Capital			Earnings			Loss			Stock			Total
Balance at January 1, 2011			$	1,143	$	1,094,713		$	6,564		$	(33,732	)	$	(2,564	)	$	1,066,124
Net income	$	17,175							17,175									17,175
Change in other comprehensive income, net of tax		53										53						53

Comprehensive income	$	17,228

Common stock dividends ($0.12/share)									(14,403	)								(14,403	)
Issuance of common stock				62		59,439									(837	)		58,664
Restricted stock compensation						867												867
Tax expense of stock-based compensation						(66	)											(66	)

Balance at March 31, 2011			$	1,205	$	1,154,953		$	9,336		$	(33,679	)	$	(3,401	)	$	1,128,414


Balance at January 1, 2010			$	1,138	$	1,087,369		$	(12,833	)	$	(30,633	)	$	(1,739	)	$	1,043,302
Net income	$	15,980							15,980									15,980
Change in other comprehensive income, net of tax		672										672						672

Comprehensive income	$	16,652

Common stock dividends ($0.12/share)									(13,768	)								(13,768	)
Issuance of common stock				2		1,410									(750	)		662
Restricted stock compensation						752												752
Tax expense of stock-based compensation						(205	)											(205	)

Balance at March 31, 2010			$	1,140	$	1,089,326		$	(10,621	)	$	(29,961	)	$	(2,489	)	$	1,047,395

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands
Unaudited


	Three Months Ended
	March 31,
	2011			2010
Operating Activities
Net income	$	17,175		$	15,980
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion		7,532			9,260
Provision for loan losses		8,228			11,964
Deferred taxes		1,577			(434	)
Gain on sale of securities		(54	)		(2,390	)
Other-than-temporary impairment losses on securities		—			1,686
Tax expense of stock-based compensation		66			205
Net change in:
Interest receivable		(664	)		200
Interest payable		(762	)		(907	)
Trading securities		110,490			—
Residential mortgage loans held for sale		6,446			1,288
Bank owned life insurance		(669	)		(1,068	)
Other, net		3,123			(2,227	)

Net cash flows provided by operating activities		152,488			33,557


Investing Activities
Net change in loans		(79,454	)		(54,546	)
Securities available for sale:
Purchases		(33,446	)		(90,221	)
Sales		10,849			59,266
Maturities		69,890			73,462
Securities held to maturity:
Purchases		(189,984	)		(130,292	)
Maturities		62,355			60,664
Increase in premises and equipment		(2,705	)		(1,346	)
Net cash received in business combinations		23,361			—

Net cash flows used in investing activities		(139,134	)		(83,013	)


Financing Activities
Net change in:
Non-interest bearing deposits, savings and NOW accounts		222,959			86,843
Time deposits		(22,192	)		27,041
Short-term borrowings		(40,194	)		41,564
Increase in long-term debt		8,244			53,043
Decrease in long-term debt		(10,443	)		(127,529	)
Decrease in junior subordinated debt		(108	)		(169	)
Net proceeds from issuance of common stock		1,186			1,414
Tax expense of stock-based compensation		(66	)		(205	)
Cash dividends paid		(14,403	)		(13,768	)

Net cash flows provided by financing activities		144,983			68,234

Net Increase in Cash and Cash Equivalents		158,337			18,778
Cash and cash equivalents at beginning of period		131,571			310,550

Cash and Cash Equivalents at End of Period	$	289,908		$	329,328

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(Unaudited)
March 31, 2011

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 also conducts commercial leasing and merchant banking activities. The Corporation operates its community banking business through a full service branch network in Pennsylvania and Ohio. The Corporation operates its wealth management and insurance businesses within the existing branch network. It also conducts selected consumer finance business in Pennsylvania, Ohio, Tennessee and Kentucky.

BASIS OF PRESENTATION

The Corporation’s accompanying consolidated financial statements and these notes to the financial statements include subsidiaries in which the Corporation has a controlling financial interest. 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 (Regency), F.N.B. Capital Corporation, LLC and Bank Capital Services, LLC, and includes results for each of these entities 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 in accordance with U.S. generally accepted accounting principles (GAAP). All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements through the date of the filing of the consolidated financial statements with the Securities and Exchange Commission (SEC).

Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results the Corporation expects 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 SEC on February 25, 2011.

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 valuations, goodwill and other intangible assets and income taxes.

MERGERS AND ACQUISITIONS

On January 1, 2011, the Corporation completed its acquisition of Comm Bancorp, Inc. (CBI), a bank holding company based in Clarks Summit, Pennsylvania. On the acquisition date, CBI had $625,570 in assets, which included $445,271 in loans, and $561,796 in deposits. The transaction, valued at $75,547, resulted in the Corporation paying $17,202 in cash and issuing 5,940,742 shares of its common stock in exchange for 1,719,820 shares of CBI common stock. The assets and liabilities of CBI were recorded on the Corporation’s balance sheet at their fair values as of January 1, 2011, the acquisition date, and CBI’s results of operations have been included in the Corporation’s consolidated statement of income since that date. CBI’s banking affiliate, Community Bank and Trust Company, was merged into FNBPA on January 1, 2011. Based on a preliminary purchase price allocation, the Corporation recorded $36,369 in goodwill and $4,785 in core deposit intangible as a result of the acquisition. The Corporation has not yet finalized its

determination of the fair values of certain acquired assets and liabilities and will adjust goodwill upon completion of the valuation process. None of the goodwill is deductible for income tax purposes.

Acquired Loans

Loans acquired in acquisitions after December 31, 2010 are recorded at fair value with no carryover of the related allowance for loan losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows require the Corporation to evaluate the need for an allowance for loan losses. Subsequent improvements in expected cash flows result in the reversal of a corresponding amount of the non-accretable discount which the Corporation then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loan using the interest method. The Corporation’s evaluation of the amount of future cash flows that it expects to collect is performed in a similar manner as that used to determine its allowance for loan losses. Charge-offs of the principal amount on acquired loans would be first applied to the non-accretable discount portion of the fair value adjustment.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Corporation can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Corporation expects to fully collect the new carrying value of the loans. As such, the Corporation may no longer consider the loan to be non-accrual or non-performing and may accrue interest on these loans, including the impact of any accretable discount.

NEW ACCOUNTING STANDARDS

Troubled Debt Restructurings

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring, to address diversity in practice concerning determining whether a restructuring constitutes a troubled debt restructuring. This update specifies that in evaluating whether a restructuring is a troubled debt restructuring, a creditor must separately conclude both that a concession has been granted by the creditor and that the debtor is experiencing financial difficulties. Also, ASU No. 2011-02 provides clarifying guidance in determining whether a concession has been granted and whether a debtor is experiencing financial difficulties. In addition, the update precludes a creditor from using the effective interest rate test in the debtor’s guidance on restructuring of payables when evaluating whether a restructuring is a troubled debt restructuring. These requirements are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to restructurings made during the period from the beginning of the annual period of adoption to the date of adoption. Adoption of this standard is not expected to have a material effect on the financial statements, results of operations or liquidity of the Corporation.

Disclosure of Supplementary Pro Forma Information for Business Combinations

In December 2010, the FASB issued ASU No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, to address diversity in practice concerning pro forma revenue and earnings disclosure requirements for business combinations. This update specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination(s) included in the reported pro forma revenue and earnings. These requirements are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Adoption of this standard did not have a material effect on the financial statements, results of operations or liquidity of the Corporation.

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses

In July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to provide financial statement users with greater transparency about credit quality of financing receivables and allowance for credit losses. This update requires additional disclosures as of the end of a reporting period and additional disclosures about activity that occurs during a reporting period that will assist financial statement users in assessing credit risk exposures and evaluating the adequacy of the allowance for credit losses.

The additional disclosures are required to be provided on a disaggregated basis. ASU No. 2010-20 defines two levels of disaggregation and provides additional implementation guidance to determine the appropriate level of disaggregation of information. The disclosures should facilitate evaluation of the nature of the credit risk inherent in a portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses.

The disclosures as of the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010 and are included in this Report. Adoption of this standard did not have a material effect on the financial statements, results of operations or liquidity of the Corporation.

SECURITIES

The amortized cost and fair value of securities are as follows:

Securities Available For Sale:


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
March 31, 2011
U.S. Treasury and other U.S. government agencies and corporations	$	319,890	$	1,060	$	(1,072	)	$	319,878
Residential mortgage-backed securities:
Agency mortgage-backed securities		223,764		6,449		(91	)		230,122
Agency collateralized mortgage obligations		188,366		772		(397	)		188,741
Non-agency collateralized mortgage obligations		36		1		—			37
States of the U.S. and political subdivisions		46,662		810		(5	)		47,467
Collateralized debt obligations		19,288		—		(13,084	)		6,204
Other debt securities		10,938		13		(1,089	)		9,862

Total debt securities		808,944		9,105		(15,738	)		802,311
Equity securities		1,627		365		(61	)		1,931

	$	810,571	$	9,470	$	(15,799	)	$	804,242


December 31, 2010
U.S. Treasury and other U.S. government agencies and corporations	$	299,861	$	1,395	$	(688	)	$	300,568
Residential mortgage-backed securities:
Agency mortgage-backed securities		205,443		6,064		—			211,507
Agency collateralized mortgage obligations		146,977		1,081		(192	)		147,866
Non-agency collateralized mortgage obligations		37		1		—			38
States of the U.S. and political subdivisions		57,830		934		(26	)		58,738
Collateralized debt obligations		19,288		—		(13,314	)		5,974
Other debt securities		12,989		—		(1,744	)		11,245

Total debt securities		742,425		9,475		(15,964	)		735,936
Equity securities		1,867		381		(59	)		2,189

	$	744,292	$	9,856	$	(16,023	)	$	738,125

Securities Held To Maturity:


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
March 31, 2011
U.S. Treasury and other U.S. government agencies and corporations	$	4,740	$	208	$	—		$	4,948
Residential mortgage-backed securities:
Agency mortgage-backed securities		696,546		22,789		(3,578	)		715,757
Agency collateralized mortgage obligations		66,623		457		(802	)		66,278
Non-agency collateralized mortgage obligations		30,936		177		(1,028	)		30,085
States of the U.S. and political subdivisions		153,144		2,703		(416	)		155,431
Collateralized debt obligations		3,118		—		(686	)		2,432
Other debt securities		1,586		17		(15	)		1,588

	$	956,693	$	26,351	$	(6,525	)	$	976,519


December 31, 2010
U.S. Treasury and other U.S. government agencies and corporations	$	4,925	$	212	$	—		$	5,137
Residential mortgage-backed securities:
Agency mortgage-backed securities		688,575		23,878		(3,079	)		709,374
Agency collateralized mortgage obligations		71,102		511		(889	)		70,724
Non-agency collateralized mortgage obligations		33,950		328		(1,331	)		32,947
States of the U.S. and political subdivisions		137,210		1,735		(1,630	)		137,315
Collateralized debt obligations		3,132		—		(778	)		2,354
Other debt securities		1,587		18		(42	)		1,563

	$	940,481	$	26,682	$	(7,749	)	$	959,414

The Corporation classifies securities as trading securities when management intends to sell such securities in the near term. Such securities are carried at fair value, with unrealized gains (losses) reflected through the consolidated statement of income. The Corporation acquired securities in conjunction with the CBI acquisition that the Corporation classified as trading securities. The Corporation both acquired and sold these trading securities during the first quarter of 2011. As of March 31, 2011 and December 31, 2010, the Corporation did not hold any trading securities.

Gross gains and gross losses were realized on sales of securities as follows:


	Three Months Ended
	March 31,
	2011			2010
Gross gains	$	250		$	2,390
Gross losses		(196	)		—

	$	54		$	2,390

The gross gains for the three months ended March 31, 2010 included a gain of $2,291 relating to the sale of a $6,016 U.S. government agency security and $52,625 of mortgage backed securities. These securities were sold to better position the balance sheet.

As of March 31, 2011, the amortized cost and fair value of securities, by contractual maturities, were as follows:


	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	40,445	$	40,965	$	4,776	$	4,806
Due from one to five years		276,916		276,328		20,807		21,623
Due from five to ten years		12,245		12,492		30,542		31,147
Due after ten years		67,172		53,626		106,463		106,823

		396,778		383,411		162,588		164,399
Residential mortgage-backed securities:
Agency mortgage-backed securities		223,764		230,122		696,546		715,757
Agency collateralized mortgage obligations		188,366		188,741		66,623		66,278
Non-agency collateralized mortgage obligations		36		37		30,936		30,085
Equity securities		1,627		1,931		—		—

	$	810,571	$	804,242	$	956,693	$	976,519

Maturities may differ from contractual terms because borrowers may have the right to call or prepay obligations with or without penalties. Periodic payments are received on mortgage-backed securities based on the payment patterns of the underlying collateral.

At March 31, 2011 and December 31, 2010, securities with a carrying value of $659,451 and $651,299, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $631,407 and $676,083 at March 31, 2011 and December 31, 2010, respectively, were pledged as collateral for short-term borrowings.

Following are summaries of the fair values and unrealized losses of securities, segregated by length of impairment:

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, 2011
U.S. Treasury and other U.S. government agencies and corporations	$	161,718	$	(1,072	)	$	—	$	—		$	161,718	$	(1,072	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		14,977		(91	)		—		—			14,977		(91	)
Agency collateralized mortgage obligations		74,926		(397	)		—		—			74,926		(397	)
States of the U.S. and political subdivisions		2,304		(5	)		—		—			2,304		(5	)
Collateralized debt obligations		—		—			6,204		(13,084	)		6,204		(13,084	)
Other debt securities		—		—			5,768		(1,089	)		5,768		(1,089	)
Equity securities		28		(2	)		648		(59	)		676		(61	)

	$	253,953	$	(1,567	)	$	12,620	$	(14,232	)	$	266,573	$	(15,799	)


December 31, 2010
U.S. Treasury and other U.S. government agencies and corporations	$	117,140	$	(688	)	$	—	$	—		$	117,140	$	(688	)
Residential mortgage-backed securities:
Agency collateralized mortgage obligations		22,616		(192	)		—		—			22,616		(192	)
States of the U.S. and political subdivisions		3,322		(26	)		—		—			3,322		(26	)
Collateralized debt obligations		—		—			5,974		(13,314	)		5,974		(13,314	)
Other debt securities		4,024		(62	)		7,221		(1,682	)		11,245		(1,744	)
Equity securities		—		—			648		(59	)		648		(59	)

	$	147,102	$	(968	)	$	13,843	$	(15,055	)	$	160,945	$	(16,023	)

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, 2011
Residential mortgage-backed securities:
Agency mortgage-backed securities	$	165,023	$	(3,578	)	$	—	$	—		$	165,023	$	(3,578	)
Agency collateralized mortgage obligations		38,006		(802	)		—		—			38,006		(802	)
Non-agency collateralized mortgage obligations		9,252		(13	)		10,245		(1,015	)		19,497		(1,028	)
States of the U.S. and political subdivisions		27,511		(294	)		2,411		(122	)		29,922		(416	)
Collateralized debt obligations		—		—			2,432		(686	)		2,432		(686	)
Other debt securities		—		—			1,314		(15	)		1,314		(15	)

	$	239,792	$	(4,687	)	$	16,402	$	(1,838	)	$	256,194	$	(6,525	)


December 31, 2010
Residential mortgage-backed securities:
Agency mortgage-backed securities	$	156,544	$	(3,079	)	$	—	$	—		$	156,544	$	(3,079	)
Agency collateralized mortgage obligations		39,074		(889	)		—		—			39,074		(889	)
Non-agency collateralized mortgage obligations		2,551		(12	)		10,739		(1,319	)		13,290		(1,331	)
States of the U.S. and political subdivisions		47,125		(1,415	)		2,319		(215	)		49,444		(1,630	)
Collateralized debt obligations		—		—			2,354		(778	)		2,354		(778	)
Other debt securities		—		—			1,288		(42	)		1,288		(42	)

	$	245,294	$	(5,395	)	$	16,700	$	(2,354	)	$	261,994	$	(7,749	)

As of March 31, 2011, securities with unrealized losses for less than 12 months include 13 investments in U.S. Treasury and other U.S. government agencies and corporations, 28 investments in residential mortgage-backed securities (16 investments in agency mortgage-backed securities, 9 investments in agency collateralized mortgage obligations (CMOs) and 3 investments in non-agency CMOs), 25 investments in states of the U.S. and political subdivisions and 1 investment in an equity security. Securities with unrealized losses of greater than 12 months include 2 investments in residential mortgage-backed securities (non-agency CMOs), 1 investment in states of the U.S. and political subdivisions, 13 investments in collateralized debt obligations (CDOs), 5 investments in other debt securities and 3 investments in equity securities. The Corporation does not intend to sell the debt securities and it is not more likely than not the Corporation will be required to sell the securities before recovery of their amortized cost basis.

The Corporation’s unrealized losses on CDOs primarily relate to investments in trust preferred securities (TPS). The Corporation’s portfolio of TPS consists of single-issuer and pooled securities. The single-issuer securities are primarily from money-center and large regional banks. The pooled securities consist of securities issued primarily by banks, with some of the pools including a limited number of insurance companies. Investments in pooled securities are all in mezzanine tranches except for one investment in a senior tranche, and are secured by over-collateralization or default protection provided by subordinated tranches. The non-credit portion of unrealized losses on investments in TPS is attributable to temporary illiquidity and the uncertainty affecting these markets, as well as changes in interest rates.

Other-Than-Temporary Impairment

The Corporation evaluates its investment securities portfolio for other-than-temporary impairment (OTTI) on a quarterly basis. Impairment is assessed at the individual security level. The Corporation considers an investment security impaired if the fair value of the security is less than its cost or amortized cost basis.

When impairment of an equity security is considered to be other-than-temporary, the security is written down to its fair value and an impairment loss is recorded as a loss within non-interest income in the consolidated statement of income. When impairment of a debt security is considered to be other-than-temporary, the amount of the OTTI recorded as a loss within non-interest income and thereby recognized in earnings depends on whether the Corporation intends to sell the security or whether it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis.

If the Corporation intends to sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value.

If the Corporation does not intend to sell the debt security and it is not more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis, OTTI shall be separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss shall be recognized in earnings. The amount related to other market factors shall be recognized in other comprehensive income, net of applicable taxes.

The Corporation performs its OTTI evaluation process in a consistent and systematic manner and includes an evaluation of all available evidence. Documentation of the process is as extensive as necessary to support a conclusion as to whether a decline in fair value below cost or amortized cost is temporary or other-than-temporary and includes documentation supporting both observable and unobservable inputs and a rationale for conclusions reached. In making these determinations for pooled TPS, the Corporation consults with third-party advisory firms to provide additional valuation assistance.

This process considers factors such as the severity, length of time and anticipated recovery period of the impairment, recoveries or additional declines in fair value subsequent to the balance sheet date, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions in its industry, and the issuer’s financial condition, repayment capacity, capital strength and near-term prospects.

For debt securities, the Corporation also considers the payment structure of the debt security, the likelihood of the issuer being able to make future payments, failure of the issuer of the security to make scheduled interest and principal payments, whether the Corporation has made a decision to sell the security and whether the Corporation’s cash or working capital requirements or contractual or regulatory obligations indicate that the debt security will be required to be sold before a forecasted recovery occurs. For equity securities, the Corporation also considers its intent and ability to retain the security for a period of time sufficient to allow for a recovery in fair value. Among the factors that the Corporation considers in determining its intent and ability to retain the security is a review of its capital adequacy, interest rate risk position and liquidity. The assessment of a security’s ability to recover any decline in fair value, the ability of the issuer to meet contractual obligations, the Corporation’s intent and ability to retain the security, and whether it is more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis require considerable judgment.

Debt securities with credit ratings below AA at the time of purchase that are repayment-sensitive securities are evaluated using the guidance of ASC Topic 325, Investments - Other. All other securities are required to be evaluated under ASC Topic 320, Investments — Debt Securities .

The Corporation invested in TPS issued by special purpose vehicles (SPVs) which hold pools of collateral consisting of trust preferred and subordinated debt securities issued by banks, bank holding companies and insurance companies. The securities issued by the SPVs are generally segregated into several classes known as tranches. Typically, the structure includes senior, mezzanine and equity tranches. The equity tranche represents the first loss position. The Corporation generally holds interests in mezzanine tranches. Interest and principal collected from the collateral held by the SPVs are distributed with a priority that provides the highest level of protection to the senior-most tranches. In order to provide a high level of protection to the senior tranches, cash flows are diverted to higher-level tranches if the principal and interest coverage tests are not met.

The Corporation prices its holdings of TPS using Level 3 inputs in accordance with ASC Topic 820, Fair Value Measurements and Disclosures , and guidance issued by the SEC. In this regard, the Corporation evaluates current available information in estimating the future cash flows of these securities and determines whether there have been favorable or adverse changes in estimated cash flows from the cash flows previously projected. The Corporation considers the structure and term of the pool and the financial condition of the underlying issuers. Specifically, the evaluation incorporates factors such as over-collateralization and interest coverage tests, interest rates and appropriate risk premiums, the timing and amount of interest and principal payments and the allocation of payments to the various tranches. Current estimates of cash flows are based on the most recent trustee reports, announcements of deferrals or defaults, and assumptions regarding expected future default rates, prepayment and recovery rates and other relevant information. In constructing these assumptions, the Corporation considers the following:

	•		that current defaults would have no recovery;

	•		that some individually analyzed deferrals will cure at rates varying from 10% to 90% after the deferral period ends;

	•		recent historical performance metrics, including profitability, capital ratios, loan charge-offs and loan reserve ratios, for the underlying institutions that would indicate a higher probability of default by the institution;

	•		that institutions identified as possessing a higher probability of default would recover at a rate of 10% for banks and 15% for insurance companies;

	•		that financial performance of the financial sector continues to be affected by the economic environment resulting in an expectation of additional deferrals and defaults in the future;

	•		whether the security is currently deferring interest; and

	•		the external rating of the security and recent changes to its external rating.

The primary evidence utilized by the Corporation is the level of current deferrals and defaults, the level of excess subordination that allows for receipt of full principal and interest, the credit rating for each security and the likelihood that future deferrals and defaults will occur at a level that will fully erode the excess subordination based on an assessment of the underlying collateral. The Corporation combines the results of these factors considered in estimating the future cash flows of these securities to determine whether there has been an adverse change in estimated cash flows from the cash flows previously projected.

The Corporation’s portfolio of trust preferred CDOs consists of 13 pooled issues and six single issue securities. One of the pooled issues is a senior tranche; the remaining 12 are mezzanine tranches. At March 31, 2011, the 13 pooled TPS had an estimated fair value of $8,636 while the single-issuer TPS had an estimated fair value of $11,176. The Corporation has concluded from the analysis performed at March 31, 2011 that it is probable that the Corporation will collect all contractual principal and interest payments on all of its single-issuer and pooled TPS sufficient to recover the amortized cost basis of the securities.

The Corporation did not record any impairment losses on securities for the three months ended March 31, 2011. The Corporation recognized net impairment losses on securities of $1,686 for the three months ended March 31, 2010 due to the write-down of securities that the Corporation deemed to be other-than-temporarily impaired.

At March 31, 2011, all 12 of the pooled trust preferred security investments on which OTTI has been recognized are classified as non-performing investments.

The following table presents a summary of the cumulative credit-related OTTI charges recognized as components of earnings for securities for which a portion of an OTTI is recognized in other comprehensive income:


	March 31,			December 31,
	2011			2010
Beginning balance of the amount related to credit loss for which a portion of OTTI was recognized in other comprehensive income	$	(18,332	)	$	(16,051	)
Additions related to credit loss for securities with previously recognized OTTI		—			(2,235	)
Additions related to credit loss for securities with initial OTTI		—			(46	)

Ending balance of the amount related to credit loss for which a portion of OTTI was recognized in other comprehensive income	$	(18,332	)	$	(18,332	)

TPS continue to experience price volatility as the secondary market for such securities remains limited. Write-downs were based on the individual securities’ credit performance and its ability to make its contractual principal and interest payments. Should credit quality deteriorate to a greater extent than projected, it is possible that additional write-downs may be required. The Corporation monitors actual deferrals and defaults as well as expected future deferrals and defaults to determine if there is a high probability for expected losses and contractual shortfalls of interest or principal, which could warrant further impairment. The Corporation evaluates its entire portfolio each quarter to determine if additional write-downs are warranted.

The following table provides information relating to the Corporation’s TPS as of March 31, 2011:


														Actual			Actual			Projected
												Number of		Defaults (as			Deferrals (as			Recovery
		Current									Lowest	Issuers		a percent of			a percent of			Rates on
		Par		Amortized		Fair		Unrealized			Credit	Currently		original			original			Current			Expected
Deal Name	Class	Value		Cost		Value		Loss			Ratings	Performing		collateral)			collateral)			Deferrals (1)			Defaults (2)

Pooled TPS:
P1	C1	$	5,500	$	2,266	$	1,048	$	(1,218	)	C		43		20	%		18	%		39	%		10	%
P2	C1		4,889		2,746		650		(2,096	)	C		40		14			20			31			12
P3	C1		5,561		4,218		1,387		(2,831	)	C		51		12			6			18			14
P4	C1		3,994		2,852		840		(2,012	)	C		53		15			7			37			14
P5	MEZ		483		358		198		(160	)	C		16		15			18			43			11
P6	MEZ		1,909		1,087		548		(539	)	C		21		17			19			35			9
P7	B3		2,000		726		264		(462	)	C		21		29			9			34			10
P8	B1		3,028		2,386		795		(1,591	)	C		50		14			22			36			13
P9	C		5,048		756		161		(595	)	C		34		14			31			40			14
P10	C		507		461		102		(359	)	C		52		13			11			25			13
P11	C		2,010		787		92		(695	)	C		43		14			15			25			12
P12	A4L		2,000		645		119		(526	)	C		25		16			23			45			12

Total OTTI			36,929		19,288		6,204		(13,084	)			449		16			16			35			12


P13 (3)	SNR		2,989		3,118		2,432		(686	)	BBB		19		13			14			31			9

Total Not OTTI			2,989		3,118		2,432		(686	)			19		13			14			31			9

Total Pooled TPS		$	39,918	$	22,406	$	8,636	$	(13,770	)			468		16	%		16	%		35	%		12	%


Single Issuer TPS:
S1		$	2,000	$	1,947	$	1,512	$	(435	)	BB+		1
S2			2,000		1,910		1,633		(277	)	BBB+		1
S3			2,000		2,000		1,867		(133	)	B+		1
S4			4,000		4,082		4,094		12		Baa1		1
S5			1,000		999		756		(243	)	BB+		1
S6			1,300		1,329		1,314		(15	)	BB+		1

Total Single Issuer TPS		$	12,300	$	12,267	$	11,176	$	(1,091	)			6


Total TPS		$	52,218	$	34,673	$	19,812	$	(14,861	)			474


(1)		Some current deferrals and defaults will cure at a 50% rate after five years, while others are expected to exhibit minimal recovery.

(2)		Expected future defaults as a percent of remaining performing collateral. Future deferrals and defaults are generally assumed to have recovery rates of 10% for banks and 15% for insurance companies.

(3)		Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. The P13 security had excess subordination as a percent of current collateral of 60.71% as of March 31, 2011.

States of the U.S. and Political Subdivisions

The Corporation’s municipal bond portfolio of $200,611 as of March 31, 2011 is highly rated with an average rating of AA. Ninety-eight percent of the portfolio is rated A or better. General obligation bonds comprise 100.0% of the portfolio. Geographically, these support the Corporation’s footprint as 77.0% of the securities are from municipalities located throughout Pennsylvania. The average holding size of the securities in the municipal bond portfolio is $924. Finally, this portfolio is supported by underlying insurance as 84.0% of the securities have credit support.

Non-Agency CMOs

The Corporation purchased $161,151 of non-agency CMOs from 2003 through 2005. These securities, which are classified as held to maturity, have a book value of $30,936 at March 31, 2011. Paydowns during the first three months of 2011 amounted to $3,013, an annualized paydown rate of 35.5%. At the time of purchase, these securities were all rated AAA, with an original average loan-to-value (LTV) ratio of 66.1% and original credit score of 724. At origination, the credit support, or the amount of loss the collateral pool could absorb before the AAA securities would incur a credit loss, ranged from 2.0% to 7.0%. This credit support has grown to a range of 4.0% to 19.9%, due to paydowns and good credit performance through the first half of 2008. Beginning in the second half of 2008, national delinquencies, an early warning sign of potential default, began to accelerate on the collateral pools. The slight upward trend of the rate of delinquencies throughout 2010 continued into the first quarter of 2011. All CMO holdings are current with regards to principal and interest.

The rating agencies monitor the underlying collateral performance of these non-agency CMOs for delinquencies, foreclosures and defaults. They also factor in trends in bankruptcies and housing values to ultimately arrive at an expected loss for a given piece of defaulted collateral. Based on deteriorating performance of the collateral, many of these types of securities have been downgraded by the rating agencies. For the Corporation’s portfolio, five of the ten non-agency CMOs have been downgraded with one being downgraded this quarter.

The Corporation determines its credit related losses by running scenario analysis on the underlying collateral. This analysis applies default assumptions to delinquencies already in the pipeline, projects future defaults based in part on the historical trends for the collateral, applies a rate of severity and estimates prepayment rates. Because of the limited historical trends for the collateral, multiple default scenarios were analyzed including scenarios that significantly elevate defaults over the next 12 — 18 months. Based on the results of the analysis, the Corporation’s management has concluded that there are currently no credit-related losses in its non-agency CMO portfolio.

The following table provides information relating to the Corporation’s non-agency CMOs as of March 31, 2011:


											Subordination Data
					Credit Rating		Credit Support %				Delinquency %												%
	Original		Book														%		%		%		Total		%		Credit
Security	Year		Value		S&P	Moody’s	Original		Current		30 Day		60 Day		90 Day		Foreclosure		OREO		Bankruptcy		Delinquency		LTV		Score
1		2003	$	3,590	AAA	n/a		2.5		5.6		0.7		0.3		1.0		0.4		0.0		0.2		2.7		52.3		738
2		2003		2,401	AAA	n/a		4.3		16.1		3.3		1.5		4.4		2.8		0.1		1.2		13.2		56.3		711
3		2003		1,727	AAA	n/a		2.0		6.3		1.5		0.0		1.6		1.6		0.0		0.6		5.2		47.7		742
4		2003		1,647	AAA	n/a		2.7		17.6		1.6		0.0		1.2		1.6		0.0		1.0		5.4		50.6		n/a
5		2004		4,005	AAA	Baa2		7.0		19.9		0.8		0.9		3.3		5.8		1.2		0.8		12.9		56.1		690
6		2004		2,859	AA+	n/a		5.3		10.4		0.2		0.0		2.1		2.3		0.0		1.7		6.3		46.9		734
7		2004		1,437	n/a	Aaa		2.5		8.1		2.0		0.0		1.4		3.1		0.0		0.0		6.5		55.7		739
8		2004		2,010	AAA	Baa2		4.4		9.2		1.3		0.7		0.8		2.6		0.5		0.9		6.8		55.4		733
9		2005		6,960	CCC	Caa1		5.1		5.1		6.1		1.8		11.5		5.4		0.2		1.8		26.7		65.6		706
10		2005		4,300	CCC	B3		4.7		4.0		3.7		1.9		4.3		9.5		1.3		1.3		21.9		66.1		727

			$	30,936				4.1		9.4																57.5		720

FEDERAL HOME LOAN BANK STOCK

The Corporation is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh. The FHLB requires members to purchase and hold a specified minimum level of FHLB stock based upon their level of borrowings, collateral balances and participation in other programs offered by the FHLB. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Both cash and stock dividends on FHLB stock are reported as income.

Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the low-cost products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value.

At both March 31, 2011 and December 31, 2010, the Corporation’s FHLB stock totaled $27,428 and $26,564, respectively, and is included in other assets on the balance sheet. The Corporation accounts for the stock in accordance with ASC Topic 325, which requires the investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.

The Corporation periodically evaluates its FHLB investment for possible impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. The Federal Housing Finance Agency, the regulator of the FHLB, requires it to maintain a total capital-to-assets ratio of at least 4.0%. At December 31, 2010, the FHLB’s capital ratio of 8.3% exceeded the regulatory requirement. Failure by the FHLB to meet this regulatory capital requirement would require an in-depth analysis of other factors including:

	•		the member’s ability to access liquidity from the FHLB;

	•		the member’s funding cost advantage with the FHLB compared to alternative sources of funds;

	•		a decline in the market value of FHLB’s net assets relative to book value which may or may not affect future financial performance or cash flow;

	•		the FHLB’s ability to obtain credit and source liquidity, for which one indicator is the credit rating of the FHLB;

	•		the FHLB’s commitment to make payments taking into account its ability to meet statutory and regulatory payment obligations and the level of such payments in relation to the FHLB’s operating performance; and

	•		the prospects of amendments to laws that affect the rights and obligations of the FHLB.

At March 31, 2011, the Corporation believes its holdings in the stock are ultimately recoverable at par value and, therefore, determined that FHLB stock was not other-than-temporarily impaired. In addition, the Corporation has ample liquidity and does not require redemption of its FHLB stock in the foreseeable future.

LOANS

Following is a summary of loans, net of unearned income:


	March 31,		December 31,
	2011		2010
Commercial	$	3,689,667	$	3,337,992
Direct installment		1,036,213		1,002,725
Residential mortgages		673,152		622,242
Indirect installment		522,634		514,369
Consumer lines of credit		511,329		493,881
Commercial leases		87,916		79,429
Other		39,041		37,517

	$	6,559,952	$	6,088,155

Commercial is comprised of both commercial real estate loans and commercial and industrial loans. Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans. Residential mortgages consist of conventional mortgage loans for non-commercial properties. Indirect installment is comprised of loans written by third parties, primarily automobile loans. Consumer lines of credit includes home equity lines of credit (HELOC) and consumer lines of credit that are either unsecured or secured by collateral other than home equity. Commercial leases consist of loans for new or used equipment. Other is primarily comprised of mezzanine loans and student loans.

Unearned income on loans was $40,009 and $42,183 at March 31, 2011 and December 31, 2010, respectively.

The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within the Corporation’s primary market area of Pennsylvania and northeastern Ohio. The portfolio also includes commercial loans in Florida, which totaled $185,148 or 2.8% of total loans as of March 31, 2011 compared to $195,281 or 3.2% of total loans as of December 31, 2010. In addition, the portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky, which totaled $157,835 or 2.4% of total loans as of March 31, 2011 compared to $162,805 or 2.7% of total loans as of December 31, 2010.

The composition of the Corporation’s commercial loan portfolio in Florida consisted of the following as of March 31, 2011: unimproved residential land (7.7%), unimproved commercial land (18.4%), improved land (3.2%), income producing commercial real estate (50.1%), residential construction (6.1%), commercial construction (11.9%), commercial and industrial (0.9%) and owner-occupied (1.7%). The weighted average loan-to-value ratio for this portfolio was 81.6% as of March 31, 2011.

The majority of the Corporation’s loan portfolio consists of commercial loans. As of March 31, 2011 and December 31, 2010, commercial real estate loans were $2,317,947 and $2,115,492, or 35.3% and 34.7% of total loans, respectively. As of March 31, 2011, approximately 48.0% of the commercial real estate loans were owner-occupied, while the remaining 52.0% were non-owner-occupied. As of March 31, 2011 and December 31, 2010, the Corporation had commercial construction loans of $216,915 and $202,018, respectively, representing 3.3% of total loans for both periods.

CREDIT QUALITY

Management monitors the credit quality of the Corporation’s loan portfolio on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.

Non-performing loans include non-accrual and restructured loans. Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. The Corporation places a loan on non-accrual status and discontinues interest accruals when principal or interest is due and has remained unpaid for 90 to 180 days depending on the loan type. When a loan is placed on non-accrual status, all unpaid interest recognized in the current year is reversed and interest accrued in prior years is charged to the allowance for loan losses. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate collectibility of the remaining principal and interest is reasonably assured. Restructured loans are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Non-performing assets also include debt securities on which OTTI has been taken in the current or prior periods.

Following is a summary of non-performing assets:


	March 31,		December 31,
	2011		2010
Non-accrual loans	$	108,080	$	115,589
Restructured loans		21,577		19,705

Total non-performing loans		129,657		135,294
Other real estate owned (OREO)		38,101		32,702

Total non-performing loans and OREO		167,758		167,996
Non-performing investments		6,204		5,974

Total non-performing assets	$	173,962	$	173,970


	March 31,			December 31,
	2011			2010
Asset quality ratios:
Non-performing loans as a percent of total loans		1.98	%		2.22	%
Non-performing loans + OREO as a percent of total loans + OREO		2.54	%		2.74	%
Non-performing assets as a percent of total assets		1.78	%		1.94	%

Following is an age analysis of the Corporation’s past due loans, by class:


			>90 Days Past
	30-89 Days		Due and				Total				Total
	Past Due		Still Accruing		Non-Accrual		Past Due		Current		Loans
March 31, 2011
Commercial	$	27,096	$	10,685	$	98,142	$	135,923	$	3,553,744	$	3,689,667
Direct installment		8,433		2,280		3,536		14,249		1,021,964		1,036,213
Residential mortgages		12,855		2,410		3,644		18,909		654,243		673,152
Indirect installment		3,920		429		684		5,033		517,601		522,634
Consumer lines of credit		1,646		266		990		2,902		508,427		511,329
Commercial leases		1,199		—		1,084		2,283		85,633		87,916
Other		48		9		—		57		38,984		39,041

	$	55,197	$	16,079	$	108,080	$	179,356	$	6,380,596	$	6,559,952


December 31, 2010
Commercial	$	17,101	$	3,020	$	106,724	$	126,845	$	3,211,147	$	3,337,992
Direct installment		8,603		2,496		3,285		14,384		988,341		1,002,725
Residential mortgages		9,127		2,144		3,272		14,543		607,699		622,242
Indirect installment		5,659		394		750		6,803		507,566		514,369
Consumer lines of credit		1,581		571		589		2,740		491,141		493,881
Commercial leases		1,551		9		970		2,530		76,899		79,429
Other		—		—		—		—		37,517		37,517

	$	43,622	$	8,634	$	115,589	$	167,845	$	5,920,310	$	6,088,155

The Corporation utilizes the following categories to monitor credit quality within its commercial loan portfolio:


Pass		in general, the condition of the borrower and the performance of the loan is satisfactory or better

Special Mention		in general, the condition of the borrower has deteriorated although the loan performs as agreed

Substandard		in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected

Doubtful		in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable

The use of these internally assigned credit quality categories within the commercial loan portfolio permits management’s use of migration and roll rate analysis to estimate a quantitative portion of credit risk. The Corporation’s internal credit risk grading system is based on past experiences with similarly graded loans and conforms with regulatory categories. In general, loan risk ratings within each category are reviewed on an ongoing basis according to the Corporation’s policy for each class of loans. Each quarter, management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the commercial loan portfolio. Loans that migrate toward the Pass credit category or within the Pass credit category generally have a lower risk of loss and therefore a lower risk factor compared to loans that migrate toward the Substandard or Doubtful credit categories which generally have a higher risk of loss and therefore a higher risk factor applied to those related loan balances.

Following is a table showing commercial loans by credit quality category:


	Commercial Loan Credit Quality Categories
			Special
	Pass		Mention		Substandard		Doubtful		Total
March 31, 2011
Commercial — PA	$	3,197,915	$	87,390	$	217,206	$	2,008	$	3,504,519
Commercial — FL		92,213		27,183		65,752		—		185,148
Commercial leases		86,455		377		1,084		—		87,916

	$	3,376,583	$	114,950	$	284,042	$	2,008	$	3,777,583


December 31, 2010
Commercial — PA	$	2,887,682	$	80,409	$	170,714	$	3,906	$	3,142,711
Commercial — FL		83,444		38,664		73,173		—		195,281
Commercial leases		77,945		505		979		—		79,429

	$	3,049,071	$	119,578	$	244,866	$	3,906	$	3,417,421

The Corporation uses payment status and delinquency migration analysis within the consumer and other loan classes to enable management to estimate a quantitative portion of credit risk. Each month, management analyzes payment activity, as well as other external statistics and factors such as volume, to determine how consumer loans are performing.

Following is a table showing consumer and other loans by payment activity:


	Consumer Loan Credit Quality by Payment Status
			Non-
	Performing		Performing		Total
March 31, 2011
Direct installment	$	1,024,733	$	11,480	$	1,036,213
Residential mortgages		657,794		15,358		673,152
Indirect installment		521,881		753		522,634
Consumer lines of credit		510,122		1,207		511,329
Other		39,041		—		39,041

December 31, 2010
Direct installment	$	991,921	$	10,804	$	1,002,725
Residential mortgages		608,642		13,600		622,242
Indirect installment		513,619		750		514,369
Consumer lines of credit		493,075		806		493,881
Other		37,517		—		37,517

Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, the Corporation does not consider loans for impairment unless a sustained period of delinquency (i.e. 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, imminent foreclosure proceedings, etc.). Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Consistent with the Corporation’s existing method of income recognition for loans, interest on impaired loans, except those classified as non-accrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Following is a summary of information pertaining to loans considered to be impaired or restructured, by class of loans:


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
At or For the Three Months Ended March 31, 2011
With no specific allowance recorded:
Commercial	$	62,535	$	82,344	$	—	$	66,683	$	24
Direct installment		4,671		4,891		—		5,253		4
Residential mortgages		8,941		9,107		—		11,863		50
Indirect installment		754		2,176		—		35,826		—
Consumer lines of credit		990		990		—		35,911		—
Commercial leases		1,084		1,084		—		1,027		—
Other		—		—		—		—		—

With a specific allowance recorded:
Commercial		37,292		39,122		9,965		37,412		10
Direct installment		6,809		6,887		681		6,536		48
Residential mortgages		6,417		6,417		642		5,993		59
Indirect installment		—		—		—		—		—
Consumer lines of credit		217		217		22		217		2
Commercial leases		—		—		—		—		—
Other		—		—		—		—		—

Total:
Commercial		99,827		121,466		9,965		104,095		34
Direct installment		11,480		11,778		681		11,789		52
Residential mortgages		15,358		15,524		642		17,856		109
Indirect installment		754		2,176		—		35,826		—
Consumer lines of credit		1,207		1,207		22		36,128		2
Commercial leases		1,084		1,084		—		1,027		—
Other		—		—		—		—		—


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
At or For the Year Ended December 31, 2010
With no specific allowance recorded:
Commercial	$	70,832	$	95,725	$	—	$	81,394	$	98
Direct installment		4,542		4,669		—		5,613		77
Residential mortgages		8,032		8,055		—		8,233		260
Indirect installment		750		1,930		—		833		—
Consumer lines of credit		589		604		—		584		—
Commercial leases		979		979		—		749		—
Other		—		—		—		—		—

With a specific allowance recorded:
Commercial		37,532		39,250		10,313		38,070		—
Direct installment		6,262		6,340		626		4,503		275
Residential mortgages		5,568		5,568		557		4,252		246
Indirect installment		—		—		—		—		—
Consumer lines of credit		217		217		22		138		9
Commercial leases		—		—		—		—		—
Other		—		—		—		—		—

Total:
Commercial		108,364		134,975		10,313		119,464		98
Direct installment		10,804		11,009		626		10,116		352
Residential mortgages		13,600		13,623		557		12,485		506
Indirect installment		750		1,930		—		833		—
Consumer lines of credit		806		821		22		722		9
Commercial leases		979		979		—		749		—
Other		—		—		—		—		—

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio at a specific point in time. This estimate includes losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio. Additions are made to the allowance through both periodic provisions charged to income and recoveries of losses previously incurred. Reductions to the allowance occur as loans are charged off. Management evaluates the adequacy of the allowance at least quarterly, and in doing so relies on various factors including, but not limited to, assessment of historical loss experience, delinquency and non-accrual trends, portfolio growth, underlying collateral coverage and current economic conditions. This evaluation is subjective and requires material estimates that may change over time.

The components of the allowance for loan losses represent estimates based upon ASC Topic 450, Contingencies, and ASC Topic 310, Receivables . ASC Topic 450 applies to homogeneous loan pools such as consumer installment, residential mortgages and consumer lines of credit, as well as commercial loans that are not individually evaluated for impairment under ASC Topic 310. ASC Topic 310 is applied to commercial loans that are individually evaluated for impairment.

Under ASC Topic 310, a loan is impaired when, based upon current information and events, it is probable that the loan will not be repaid according to its original contractual terms, including both principal and interest. Management performs individual assessments of impaired loans to determine the existence of loss exposure and, where applicable, the extent of loss exposure based upon the present value of expected future cash flows available to pay the loan, or based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent.

In estimating loan loss contingencies, management considers numerous factors, including historical charge-off rates and subsequent recoveries. Management also considers, but is not limited to, qualitative factors that influence the Corporation’s credit quality, such as delinquency and non-performing loan trends, changes in loan underwriting guidelines and credit policies, as well as the results of internal loan reviews. Finally, management considers the impact of changes in current local and regional economic conditions in the markets that the Corporation serves. Assessment of relevant economic factors indicates that the Corporation’s primary markets historically tend to lag the national economy, with local economies in the Corporation’s primary market areas also improving or weakening, as the case may be, but at a more measured rate than the national trends. Regional economic factors influencing management’s estimate of reserves include uncertainty of the labor markets in the regions the Corporation serves as well as the impact of unemployment trends in these areas, which have fluctuated in response to the recent economic cycle. Homogeneous loan pools are evaluated using similar criteria that are based upon historical loss rates for various loan types. Historical loss rates are adjusted to incorporate changes in existing conditions that may impact, both positively or negatively, the degree to which these loss histories may vary. This determination inherently involves a high degree of uncertainty and considers current risk factors that may not have occurred in the Corporation’s historical loan loss experience.

At March 31, 2011 and December 31, 2010, there were $18.7 million and $3.6 million of loans, respectively, that were impaired loans acquired with no associated allowance for loan losses as they were accounted for in accordance with ASC Topic 310-30, Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality.

Following is a summary of changes in the allowance for loan losses:


	Three Months Ended
	March 31,
	2011			2010
Balance at beginning of period	$	106,120		$	104,655
Charge-offs		(7,333	)		(7,649	)
Recoveries		597			622

Net charge-offs		(6,736	)		(7,027	)
Provision for loan losses		8,228			11,964

Balance at end of period	$	107,612		$	109,592


Allowance for loan losses to:
Total loans, net of unearned income		1.64	%		1.86	%
Non-performing loans		83.00	%		69.60	%

Following is a summary of changes in the allowance for loan losses by loan class for the three months ended March 31, 2011:


	Balance at									Balance at
	December 31,									March 31,
	2010		Charge-Offs			Recoveries		Provision		2011
Commercial	$	74,606	$	(3,289	)	$	140	$	4,951	$	76,408
Direct installment		14,941		(2,228	)		229		1,825		14,767
Residential mortgages		4,578		(238	)		8		166		4,514
Indirect installment		5,941		(933	)		138		615		5,761
Consumer lines of credit		4,743		(396	)		43		222		4,612
Commercial leases		1,070		(85	)		17		252		1,254
Other		241		(164	)		22		197		296

	$	106,120	$	(7,333	)	$	597	$	8,228	$	107,612

Following is a summary of the individual and collective allowance for loan losses and corresponding loan balances by class as of March 31, 2011:


	Allowance				Loans Outstanding
	Individually		Collectively				Individually		Collectively
	Evaluated for		Evaluated for				Evaluated for		Evaluated for
	Impairment		Impairment		Loans		Impairment		Impairment
Commercial	$	9,965	$	66,443	$	3,689,667	$	118,378	$	3,571,289
Direct installment		681		14,086		1,036,213		6,809		1,029,404
Residential mortgages		642		3,872		673,152		6,417		666,735
Indirect installment		—		5,761		522,634		—		522,634
Consumer lines of credit		22		4,590		511,329		217		511,112
Commercial leases		—		1,254		87,916		—		87,916
Other		—		296		39,041		—		39,041

	$	11,310	$	96,302	$	6,559,952	$	131,821	$	6,428,131

BORROWINGS

Following is a summary of short-term borrowings:


	March 31,		December 31,
	2011		2010
Securities sold under repurchase agreements	$	592,643	$	611,902
Subordinated notes		135,877		131,458
Other short-term borrowings		10,000		10,243

	$	738,520	$	753,603

Securities sold under repurchase agreements is comprised of customer repurchase agreements, which are borrowings from commercial customers of FNBPA which are generally renewable on a daily basis. Securities are pledged to these customers in an amount equal to the outstanding balance.

Following is a summary of long-term debt:


	March 31,		December 31,
	2011		2010
Federal Home Loan Bank advances	$	117,053	$	118,700
Subordinated notes		72,251		72,745
Other subordinated debt		9,222		—
Convertible debt		608		613

	$	199,134	$	192,058

The Corporation’s banking affiliate has available credit with the FHLB of $1,931,406 of which $117,053 was used as of March 31, 2011. 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 2019. Effective interest rates paid on these advances range from 0.99% to 4.79% for the three months ended March 31, 2011 and for the year ended December 31, 2010. During the first three months of 2010, the Corporation prepaid $59,000 of FHLB advances yielding 3.93% and incurred a prepayment penalty of $2,269 that was recorded in other non-interest expense.

JUNIOR SUBORDINATED DEBT

The Corporation has four unconsolidated subsidiary trusts (collectively, the Trusts): F.N.B. Statutory Trust I, F.N.B. Statutory Trust II, Omega Financial Capital Trust I and Sun Bancorp Statutory Trust I. One hundred percent of the common equity of each Trust is owned by the Corporation. The Trusts were formed for the purpose of issuing Corporation-obligated mandatorily redeemable capital securities (TPS) to third-party investors. The proceeds from the sale of TPS 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. Since third-party investors are the primary beneficiaries, the Trusts are not consolidated in the Corporation’s financial statements. The Trusts pay dividends on the TPS at the same rate as the distributions paid by the Corporation on the junior subordinated debt held by the Trusts. Omega Financial Capital Trust I and Sun Bancorp Statutory Trust I were acquired as a result of a previous acquisition.

Distributions on the subordinated debt issued to the Trusts are recorded as interest expense by the Corporation. The TPS 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 (FRB) guidelines subject to certain limitations beginning March 31, 2011. The Corporation has entered into agreements which, when taken collectively, fully and unconditionally guarantee the obligations under the TPS subject to the terms of each of the guarantees.

The following table provides information relating to the Trusts as of March 31, 2011:


	F.N.B.			F.N.B.			Omega			Sun Bancorp
	Statutory			Statutory			Financial			Statutory
	Trust I			Trust II			Capital Trust I			Trust I
Trust preferred securities	$	125,000		$	21,500		$	36,000		$	16,500
Common securities		3,866			665			1,114			511
Junior subordinated debt		128,866			22,165			35,885			17,011
Stated maturity date		3/31/33			6/15/36			10/18/34			2/22/31
Optional redemption date		3/31/08			6/15/11			10/18/09			2/22/11
Interest rate		3.55	%		7.17	%		2.49	%		10.20	%
	variable;			fixed until			variable;
	LIBOR plus				6/15/11;		LIBOR plus
	325 basis points			then LIBOR plus			219 basis points
				165 basis points

DERIVATIVE INSTRUMENTS

The Corporation is exposed to certain risks arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. The Corporation’s existing interest rate derivatives result from a service provided to certain qualifying customers. The Corporation manages its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

The Corporation periodically enters into interest rate swap agreements to meet the financing, interest rate and equity risk management needs of its commercial loan customers. These agreements provide the customer the ability to convert from variable to fixed interest rates. The Corporation then enters into positions with a derivative counterparty in order to offset its exposure on the fixed components of the customer agreements. These agreements meet the definition of derivatives, but are not designated as hedging instruments under ASC Topic 815, Derivatives and Hedging . The interest rate swap agreement with the loan customer and with the counterparty are reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period earnings as other income.

At March 31, 2011, the Corporation was party to 158 swaps with customers with notional amounts totaling approximately $545,064, and 158 swaps with derivative counterparties with notional amounts totaling approximately $545,064. The following table presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the balance sheet:


	Balance
	Sheet	March 31,		December 31,
	Location	2011		2010
Interest Rate Products:
Asset derivatives	Other assets	$	22,856	$	25,631
Liability derivatives	Other liabilities		22,421		25,043

The following table presents the effect of the Corporation’s derivative financial instruments on the income statement:


	Income	Three Months Ended
	Statement	March 31,
	Location	2011			2010
Interest rate products	Other income	$	(153	)	$	(162	)

The Corporation has agreements with each of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. The Corporation also has agreements with certain of its derivative counterparties that contain a provision if the Corporation fails to maintain its status as a well capitalized institution, then the counterparty could terminate the derivative positions and the Corporation would be required to settle its obligations under the agreements. Certain of the Corporation’s agreements with its derivative counterparties contain provisions where if a material or adverse change occurs that materially changes the Corporation’s creditworthiness in an adverse manner the Corporation may be required to fully collateralize its obligations under the derivative instrument.

Interest rate swap agreements generally require posting of collateral by either party under certain conditions. As of March 31, 2011, the fair value of counterparty derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk related to these agreements, was $21,332. At March 31, 2011, the Corporation has posted collateral with derivative counterparties with a fair value of $12,644, of which none is cash collateral. Additionally, if the Corporation had breached its agreements with its derivative counterparties it would be required to settle its obligations under the agreements at the termination value and would be required to pay an additional $8,544 in excess of amounts previously posted as collateral with the respective counterparty.

The Corporation has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans to secondary market investors. These arrangements are considered derivative instruments. The fair values of the Corporation’s rate lock commitments to customers and commitments with investors at March 31, 2011 are not material.

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:


	March 31,		December 31,
	2011		2010
Commitments to extend credit	$	1,651,874	$	1,550,256
Standby letters of credit		109,939		101,185

At March 31, 2011, funding of 79.4% 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 quantified on a quarterly basis, through the review of historical performance of the Corporation’s portfolios and allocated as a liability on the Corporation’s balance sheet.

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 or a subsidiary 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.

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, 2011 and 2010, the Corporation issued 384,372 and 500,707 restricted stock awards with aggregate weighted average grant date fair values of $3,882 and $3,890, respectively, under these Plans. As of March 31, 2011, the Corporation had available up to 2,444,914 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 or dividend equivalents which are ultimately used to purchase additional shares of stock. Any additional shares of stock 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 $940 and $752 for the three months ended March 31, 2011 and 2010, the tax benefit of which was $329 and $263, respectively.

The following table summarizes certain information concerning restricted stock awards:


	Three Months Ended March 31,
	2011					2010
				Weighted					Weighted
				Average					Average
				Grant					Grant
	Awards			Price		Awards			Price
Unvested awards outstanding at beginning of period		1,309,489		$	8.52		854,440		$	10.57
Granted		384,372			10.10		500,707			7.77
Vested		(170,247	)		13.63		(94,231	)		15.13
Forfeited		(671	)		7.71		(24,103	)		9.71
Dividend reinvestment		13,913			10.04		15,040			7.91

Unvested awards outstanding at end of period		1,536,856			8.37		1,251,853			9.09

The total fair value of awards vested was $1,748 and $689 for the three months ended March 31, 2011 and 2010, respectively.

As of March 31, 2011, there was $7,784 of unrecognized compensation cost related to unvested restricted stock awards including $239 that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement provision for awards granted prior to the adoption of ASC Topic 718, Compensation — Stock Compensation, on January 1, 2006. The components of the restricted stock awards as of March 31, 2011 are as follows:


	Service-		Performance-
	Based		Based
	Awards		Awards		Total
Unvested awards		558,674		978,182		1,536,856
Unrecognized compensation expense	$	2,676	$	5,108	$	7,784
Intrinsic value	$	5,888	$	10,310	$	16,198
Weighted average remaining life (in years)		2.39		2.89		2.71

Stock Options

The Corporation did not grant stock options during the three months ended March 31, 2011 or 2010. 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 options exercised. Shares issued upon the exercise of stock options were 8,389 for the three months ended March 31, 2011. No stock options were exercised during the three months ended March 31, 2010.

The following table summarizes certain information concerning stock option awards:


	Three Months Ended March 31,
	2011					2010
				Weighted					Weighted
				Average					Average
				Exercise					Exercise
	Shares			Price		Shares			Price
Options outstanding at beginning of period		770,610		$	14.28		968,090		$	13.67
Exercised		(8,389	)		2.68		—			—
Forfeited		(120,207	)		11.65		(142,491	)		11.45

Options outstanding and exercisable at end of period		642,014			14.93		825,599			14.05

The intrinsic value of outstanding and exercisable stock options at March 31, 2011 was $(2,923), since the fair value of the stock subject to the options was less than the exercise price.

Warrants

In conjunction with its participation in the U.S. Department of the Treasury (UST) Capital Purchase Program (CPP), the Corporation issued to the UST a warrant to purchase up to 1,302,083 shares of the Corporation’s common stock. Pursuant to Section 13(H) of the Warrant to Purchase Common Stock, the number of shares of common stock issuable upon exercise of the warrant has been reduced in half to 651,042 shares as of June 16, 2009, the date the Corporation completed a public offering. The warrant, which expires in 2019, has an exercise price of $11.52 per share.

RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS

The Corporation sponsors the 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 $14,079, which had been amortized over the average period of future service of active employees of 13.5 years. 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. The Corporation amended the RIP on October 20, 2010 to be frozen effective December 31, 2010, at which time the Corporation recognized the remaining previously unrecognized prior service credit of $10,543 as a reduction to expense.

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 whom the Board of Directors designates. 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 was reduced by the monthly benefit the participant receives from Social Security, the 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 BRP was frozen as of December 31, 2008. The ERISA Excess Retirement Plan was frozen as of December 31, 2010.

The net periodic benefit cost for the defined benefit plans includes the following components:


	Three Months Ended
	March 31,
	2011			2010
Service cost	$	7		$	888
Interest cost		1,699			1,768
Expected return on plan assets		(1,891	)		(1,872	)
Amortization:
Unrecognized net transition asset		(23	)		(23	)
Unrecognized prior service cost (credit)		2			(299	)
Unrecognized loss		294			696

Net periodic pension benefit cost	$	88		$	1,158

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 matched 50 percent of an eligible employee’s contribution on the first 6 percent that the employee deferred through December 31, 2010. Beginning in 2011, the Corporation matches 100% of the first four percent that the employee defers. Employees are eligible to participate upon their first day of employment or having attained age 21, whichever is later. Beginning with 2007, in light of the change to the RIP benefit, 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. Effective January 1, 2008, in lieu of the RIP benefit, the automatic contribution for substantially all new full-time employees was increased from two percent to four percent. Beginning in 2011, substantially all employees will receive an automatic contribution of three percent of compensation at the end of the year. The Corporation’s contribution expense was $2,142 and $1,274 for the three months ended March 31, 2011 and 2010, 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 were age 60 or older as of January 1, 2007 are eligible for employer paid coverage. The Corporation has no plan assets attributable to this plan and funds the benefits as claims arise. Benefit costs related to this plan are recognized in the periods in which employees provide service for such benefits. The Corporation reserves the right to terminate the plan or make plan changes at any time.

The net periodic postretirement benefit cost includes the following components:


	Three Months Ended
	March 31,
	2011		2010
Interest cost	$	14	$	17
Amortization of unrecognized loss		1		—

Net periodic postretirement benefit cost	$	15	$	17

INCOME TAXES

The Corporation bases its provision for income taxes upon income before income taxes, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, the Corporation reports certain items of income and expense in different periods for financial reporting and tax return purposes. The Corporation recognizes the tax effects of these temporary differences currently in the deferred income tax provision or benefit. The Corporation computes deferred tax assets or liabilities based upon the differences between the financial statement and income tax bases of assets and liabilities using the applicable marginal tax rate.

The Corporation must evaluate the probability that it will ultimately realize the full value of its deferred tax assets. Realization of the Corporation’s deferred tax assets is dependent upon a number of factors including the existence of any cumulative losses in prior periods, the amount of taxes paid in available carry-back periods, expectations for future earnings, applicable tax planning strategies and assessment of current and future economic and business conditions. The Corporation establishes a valuation allowance when it is “more likely than not” that the Corporation will not be able to realize a benefit from its deferred tax assets, or when future deductibility is uncertain.

At March 31, 2011, the Corporation anticipates that it will not utilize state net operating loss carryforwards and other net deferred tax assets at certain of its subsidiaries and has recorded a valuation allowance against the state deferred tax assets. The Corporation believes that, except for the portion which is covered by the valuation allowance, it is more likely than not the Corporation will realize the benefits of its deferred tax assets, net of the valuation allowance, at March 31, 2011 based on the level of historical taxable income and taxes paid in available carry-back periods.

COMPREHENSIVE INCOME

The components of comprehensive income, net of related tax, are as follows:


	Three Months Ended
	March 31,
	2011			2010
Net income	$	17,175		$	15,980
Other comprehensive income:
Unrealized (losses) gains on securities:
Arising during the period, net of tax (benefit) expense of $(48) and $477		(89	)		886
Less: reclassification adjustment for gains included in net income, net of tax expense of $19 and $246		(35	)		(457	)
Pension and postretirement amortization, net of tax expense of $96 and $131		177			243

Other comprehensive income		53			672

Comprehensive income	$	17,228		$	16,652

The accumulated balances related to each component of other comprehensive income (loss), net of tax are as follows:


March 31	2011			2010
Non-credit related loss on debt securities not expected to be sold	$	(8,505	)	$	(10,099	)
Unrealized net gain (loss) on other available for sale securities		4,494			3,508
Unrecognized pension and postretirement obligations		(29,668	)		(23,370	)

Accumulated other comprehensive loss	$	(33,679	)	$	(29,961	)

EARNINGS PER SHARE

Basic earnings per 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 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. 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:


	Three Months Ended
	March 31,
	2011		2010
Net income — basic earnings per share	$	17,175	$	15,980
Interest expense on convertible debt		5		5

Net income after assumed conversion – diluted earnings per share	$	17,180	$	15,985


Basic weighted average common shares outstanding		120,193,233		113,750,330
Net effect of dilutive stock options, warrants, restricted stock and convertible debt		759,740		314,234

Diluted weighted average common shares outstanding		120,952,973		114,064,564


Basic earnings per share	$	0.14	$	0.14

Diluted earnings per share	$	0.14	$	0.14

For the three months ended March 31, 2011 and 2010, 377,153 and 1,091,477 shares of common stock, respectively, related to stock options and warrants were excluded from the computation of diluted earnings per share because the exercise price of the shares was greater than the average market price of the common shares and therefore, the effect would be antidilutive.

CASH FLOW INFORMATION

Following is a summary of supplemental cash flow information:


Three Months Ended March 31	2011		2010
Interest paid on deposits and other borrowings	$	19,809	$	25,047
Income taxes paid		—		850
Transfers of loans to other real estate owned		13,054		3,647
Financing of other real estate owned sold		84		411

BUSINESS SEGMENTS

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

	•		The Community Banking segment provides 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 primarily makes installment loans to individuals and purchases 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. 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 reconciliation to the consolidated amounts.


At or for the Three Months	Community		Wealth				Consumer		Parent and
Ended March 31, 2011	Banking		Management		Insurance		Finance		Other			Consolidated
Interest income	$	87,783	$	3	$	33	$	8,070	$	1,482		$	97,371
Interest expense		16,394		—		—		1,117		2,577			20,088
Net interest income		71,389		3		33		6,953		(1,095	)		77,283
Provision for loan losses		6,836		—		—		1,328		64			8,228
Non-interest income		20,081		5,938		3,558		522		(1,667	)		28,432
Non-interest expense		60,057		4,933		3,291		4,324		156			72,761
Intangible amortization		1,606		84		106		—		—			1,796
Income tax expense (benefit)		5,836		333		70		683		(1,167	)		5,755
Net income (loss)		17,135		591		124		1,140		(1,815	)		17,175
Total assets		9,553,213		19,518		18,718		168,643		(4,811	)		9,755,281
Total intangibles		576,112		11,883		11,671		1,809		—			601,475

At or for the Three Months Ended March 30, 2010
Interest income	$	83,464	$	3	$	55	$	8,002	$	1,022		$	92,546
Interest expense		20,477		—		—		1,257		2,407			24,141
Net interest income		62,987		3		55		6,745		(1,385	)		68,405
Provision for loan losses		10,507		—		—		1,320		137			11,964
Non-interest income		22,648		4,985		3,683		574		(1,615	)		30,275
Non-interest expense		52,665		3,989		2,937		4,038		127			63,756
Intangible amortization		1,492		88		107		—		—			1,687
Income tax expense (benefit)		5,232		327		246		709		(1,221	)		5,293
Net income (loss)		15,739		584		448		1,252		(2,043	)		15,980
Total assets		8,606,581		20,100		20,388		163,545		(11,080	)		8,799,534
Total intangibles		540,038		12,230		12,098		1,809		—			566,175

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, 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. ASC Topic 820, Fair Value Measurements and Disclosures , 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, which are 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, which are 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 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 or can be corroborated by market data.

Level 3		valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

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

Securities Available For Sale

Securities available for sale consists of both debt and equity securities. These securities are recorded at fair value on a recurring basis. At March 31, 2011, approximately 97.9% of these securities used valuation methodologies involving market-based or market-derived information, collectively Level 1 and Level 2 measurements, to measure fair value. The remaining 2.1% of these securities were measured using model-based techniques, with primarily unobservable (Level 3) inputs.

The Corporation closely monitors market conditions involving assets that have become less actively traded. If the fair value measurement is based upon recent observable market activity of such assets or comparable assets (other than forced or distressed transactions) that occur in sufficient volume, and do not require significant adjustment using unobservable inputs, those assets are classified as Level 1 or Level 2; if not, they are classified as Level 3. Making this assessment requires significant judgment.

The Corporation uses prices from independent pricing services and, to a lesser extent, indicative (non-binding) quotes from independent brokers, to measure the fair value of investment securities. The Corporation validates prices received from pricing services or brokers using a variety of methods, including, but not limited to, comparison to secondary pricing services, corroboration of pricing by reference to other independent market data such as secondary broker quotes and relevant benchmark indices, and review of pricing by Corporate personnel familiar with market liquidity and other market-related conditions.

The Corporation determines the valuation of its investments in trust preferred debt securities with the assistance of a third-party independent financial consulting firm that specializes in advisory services related to illiquid financial investments. The consulting firm provides the Corporation appropriate valuation methodology, performance assumptions, modeling techniques, discounted cash flows, discount rates and sensitivity analyses with respect to levels of defaults and deferrals necessary to produce losses. Additionally, the Corporation utilizes the firm’s expertise to reassess assumptions to reflect actual conditions. See the Securities footnote for information on how the Corporation reassesses assumptions to determine the valuation of its trust preferred debt securities. Accessing the services of a financial consulting firm with a focus on financial instruments assists the Corporation in accurately valuing these complex financial instruments and facilitates informed decision-making with respect to such instruments.

Derivative Financial Instruments

The Corporation determines its fair value for derivatives 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.

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 considers 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, 2011, 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.

Residential 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

The Corporation reserves for commercial and commercial real estate loans that the Corporation considers impaired as defined in ASC Topic 310 at the time the Corporation identifies the loan as impaired based upon the present value of expected future cash flows available to pay the loan, or based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent. Collateral may be real estate and/or business assets including equipment, inventory and accounts receivable.

The Corporation determines the value of real estate based on appraisals by licensed or certified appraisers. The value of business assets is generally based on amounts reported on the business’s financial statements. Management must rely on the financial statements prepared and certified by the borrower or its accountants in determining the value of these business assets on an ongoing basis which may be subject to significant change over time. Based on the quality of information or statements provided, management may require the use of business asset appraisals and site-inspections to better value these assets. The Corporation may discount appraised and reported values based on management’s historical knowledge, changes in market conditions from the time of valuation or management’s knowledge of the

borrower and the borrower’s business. Since not all valuation inputs are observable, the Corporation classifies these nonrecurring fair value determinations as Level 2 or Level 3 based on the lowest level of input that is significant to the fair value measurement.

The Corporation reviews and evaluates impaired loans no less frequently than quarterly for additional impairment 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 plus some bank owned real estate. 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 is generally based upon appraisals by licensed or certified appraisers and other market information and is classified as Level 2 or Level 3.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:


	Level 1		Level 2		Level 3		Total
March 31, 2011
Assets measured at fair value:
Available for sale debt securities:
U.S. Treasury and other U.S. government agencies and corporations	$	—	$	319,878	$	—	$	319,878
Residential mortgage-backed securities:
Agency mortgage-backed securities		—		230,122		—		230,122
Agency collateralized mortgage obligations		—		188,741		—		188,741
Non-agency collateralized mortgage obligations		—		37		—		37
States of the U.S. and political subdivisions		—		47,467		—		47,467
Collateralized debt obligations		—		—		6,204		6,204
Other debt securities		—		—		9,862		9,862

		—		786,245		16,066		802,311


Available for sale equity securities:
Financial services industry		425		1,006		466		1,897
Insurance services industry		34		—		—		34

		459		1,006		466		1,931

		459		787,251		16,532		804,242
Derivative financial instruments		—		22,856		—		22,856

	$	459	$	810,107	$	16,532	$	827,098


Liabilities measured at fair value:
Derivative financial instruments		—	$	22,421		—	$	22,421

		—	$	22,421		—	$	22,421


	Level 1		Level 2		Level 3		Total
December 31, 2010
Assets measured at fair value:
Available for sale debt securities:
U.S. Treasury and other U.S. government agencies and corporations	$	—	$	300,568	$	—	$	300,568
Residential mortgage-backed securities:
Agency mortgage-backed securities		—		211,507		—		211,507
Agency collateralized mortgage obligations		—		147,866		—		147,866
Non-agency collateralized mortgage obligations		—		38		—		38
States of the U.S. and political subdivisions		—		58,738		—		58,738
Collateralized debt obligations		—		—		5,974		5,974
Other debt securities		—		—		11,245		11,245

		—		718,717		17,219		735,936


Available for sale equity securities:
Financial services industry		470		1,313		375		2,158
Insurance services industry		31		—		—		31

		501		1,313		375		2,189

		501		720,030		17,594		738,125
Derivative financial instruments		—		25,631		—		25,631

	$	501	$	745,661	$	17,594	$	763,756


Liabilities measured at fair value:
Derivative financial instruments		—	$	25,043		—	$	25,043

		—	$	25,043		—	$	25,043

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:


	Collateralized		Other
	Debt		Debt			Equity
	Obligations		Securities			Securities		Total
Three Months Ended March 31, 2011
Balance at beginning of period	$	5,974	$	11,245		$	375	$	17,594
Total gains (losses) — realized/unrealized:
Included in earnings		—		(48	)		—		(48	)
Included in other comprehensive income		230		665			91		986
Redemptions		—		(2,000	)		—		(2,000	)
Transfers in and/or (out) of Level 3		—		—			—

Balance at end of period	$	6,204	$	9,862		$	466	$	16,532


	Collateralized			Other
	Debt			Debt		Equity
	Obligations			Securities		Securities		Total
Twelve Months Ended December 31, 2010
Balance at beginning of period	$	4,824		$	10,430	$	333	$	15,587
Total gains (losses) — realized/unrealized:
Included in earnings		(2,281	)		—		—		(2,281	)
Included in other comprehensive income		3,431			815		42		4,288
Purchases, issuances, and settlements		—			—		—		—
Transfers in and/or (out) of Level 3		—			—		—		—

Balance at end of period	$	5,974		$	11,245	$	375	$	17,594

The Corporation reviews fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur.

The amount of total losses included in earnings for the three months ended March 31, 2011 and 2010 and for the year 2010 attributable to the change in unrealized gains or losses relating to assets still held as of those dates was $0, $1,686 and $2,281, respectively. These losses are included in net impairment losses on securities reported as a component of non-interest income.

In accordance with GAAP, from time to time, the Corporation measures certain assets at fair value on a nonrecurring basis. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were previously described. For assets measured at fair value on a nonrecurring basis still held in the balance sheet, the following table provides the hierarchy level and the fair value of the related assets or portfolios:


	Level 1		Level 2		Level 3		Total
March 31, 2011
Impaired loans		—	$	1,399	$	7,247	$	8,646
Other real estate owned		—		300		9,873		10,173

December 31, 2010
Impaired loans		—		1,157		26,082		27,239
Other real estate owned		—		18,429		12,337		30,766

Impaired loans measured or re-measured at fair value on a non-recurring basis during the three months ended March 31, 2011 had a carrying amount of $11,829 and an allocated allowance for loan losses of $4,117 at March 31, 2011. The allocated allowance is based on fair value of $8,646 less estimated costs to sell of $934. The allowance for loan losses includes a provision applicable to the current period fair value measurements of $4,016 which was included in the provision for loan losses for the three months ended March 31, 2011.

OREO with a carrying amount of $11,609 was written down to $8,888 (fair value of $10,173 less estimated costs to sell of $1,285), resulting in a loss of $2,721, which was included in earnings for the three months ended March 31, 2011.

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each financial instrument:

Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable. For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities. For both securities available for sale and securities held to maturity, fair value equals the quoted market price from an active market, if available, and is classified within Level 1. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or pricing models, and is classified as Level 2. Where there is limited market activity or significant valuation inputs are unobservable, securities are classified within Level 3. Under current market conditions, assumptions used to determine the fair value of Level 3 securities have greater subjectivity due to the lack of observable market transactions.

Loans. The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of variable and adjustable rate loans approximates the carrying amount.

Bank Owned Life Insurance. The Corporation owns both general account and separate account bank owned life insurance (BOLI). The fair value of general account BOLI is based on the insurance contract cash surrender value. The fair value of separate account BOLI equals the quoted market price of the underlying securities, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. In connection with the separate account BOLI, the Corporation has purchased a stable value protection product that mitigates the impact of market value fluctuations of the underlying separate account assets.

Deposits. The estimated fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date because of the customers’ ability to withdraw funds immediately. The fair value of fixed-maturity deposits is estimated by discounting future cash flows using rates currently offered for deposits of similar remaining maturities.

Short-Term Borrowings. The carrying amounts for short-term borrowings approximate fair value for amounts that mature in 90 days or less. The fair value of subordinated notes is estimated by discounting future cash flows using rates currently offered.

Long-Term and Junior Subordinated Debt. The fair value of long-term and junior subordinated debt is estimated by discounting future cash flows based on the market prices for the same or similar issues or on the current rates offered to the Corporation for debt of the same remaining maturities.

Loan Commitments and Standby Letters of Credit. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties. Also, unfunded loan commitments relate principally to variable rate commercial loans, typically non-binding, and fees are not normally assessed on these balances.

Nature of Estimates . Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable to other financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Further, because the disclosed fair value amounts were estimated as of the balance sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.

The estimated fair values of the Corporation’s financial instruments are as follows:


	March 31, 2011				December 31, 2010
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial Assets
Cash and cash equivalents	$	289,908	$	289,908	$	131,571	$	131,571
Securities available for sale		804,242		804,242		738,125		738,125
Securities held to maturity		956,693		976,519		940,481		959,414
Net loans, including loans held for sale		6,458,594		6,511,320		5,994,735		6,035,129
Bank owned life insurance		208,720		208,720		208,051		208,051
Accrued interest receivable		28,010		28,010		25,345		25,345

Financial Liabilities
Deposits		7,390,311		7,418,936		6,646,143		6,677,301
Short-term borrowings		738,520		738,520		753,603		754,211
Long-term debt		199,134		203,046		192,058		197,397
Junior subordinated debt		203,927		150,620		204,036		141,061
Accrued interest payable		7,144		7,144		6,866		6,866

PART I.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis represents an overview of the consolidated results of operations and financial condition of the Corporation and highlights material changes to the financial condition and results of operations at and for the three-month period ended March 31, 2011. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto. The Corporation’s results of operations for the three months ended March 31, 2011 are not necessarily indicative of results to be expected for the year ending December 31, 2011.

IMPORTANT CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this Report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act, relating to present or future trends or factors affecting the banking industry and, specifically, the financial operations, markets and products of the Corporation. Forward-looking statements are typically identified by words such as “believe”, “plan”, “expect”, “anticipate”, “intend”, “outlook”, “estimate”, “forecast”, “will”, “should”, “project”, “goal”, and other similar words and expressions. These forward-looking statements involve certain risks and uncertainties. There are a number of important factors that could cause the 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 the Corporation is engaged; (6) technological issues which may adversely affect the Corporation’s financial operations or customers; (7) changes in the securities markets; (8) risk factors mentioned in the reports and registration statements the Corporation files with the SEC which are on file with the SEC, and are available on the Corporation’s website at www.fnbcorporation.com and on the SEC website at www.sec.gov ; (9) housing prices; (10) job market; (11) consumer confidence and spending habits or (12) estimates of fair value of certain the Corporation’s assets and liabilities. All information provided in this Report is based on information presently available and the Corporation undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date this Report is filed with the SEC.

CRITICAL ACCOUNTING POLICIES

A description of the Corporation’s critical accounting policies is included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Corporation’s 2010 Annual Report on Form 10-K under the heading “Application of Critical Accounting Policies.” There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since the year ended December 31, 2010.

OVERVIEW

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 also conducts leasing and merchant banking activities. The Corporation operates its community banking business through a full service branch network with offices in Pennsylvania and Ohio. The Corporation operates its wealth management and insurance businesses within the community banking branch network. It also conducts selected consumer finance business in Pennsylvania, Ohio, Tennessee and Kentucky.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010

Net income for the three months ended March 31, 2011 was $17.2 million or $0.14 per diluted share, compared to net income for the three months ended March 31, 2010 of $16.0 million or $0.14 per diluted share. For the three months ended March 31, 2011, the Corporation’s return on average equity was 6.17% and its return on average assets was 0.72%, compared to 6.19% and 0.74%, respectively, for the three months ended March 31, 2010.

In addition to evaluating its results of operations in accordance with GAAP, the Corporation routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as return on average tangible equity and return on average tangible assets. The Corporation believes these non-GAAP financial measures provide information useful to investors in understanding the Corporation’s operating performance and trends, and facilitates comparisons with the performance of the Corporation’s peers. The non-GAAP financial measures used by the Corporation may differ from the non-GAAP financial measures other financial institutions use to measure their results of operations. The following tables summarize the Corporation’s non-GAAP financial measures for the quarterly periods indicated derived from amounts reported in the Corporation’s financial statements (dollars in thousands):


	Three Months Ended
	March 31,
	2011			2010
Return on average tangible equity:
Net income (annualized)	$	69,653		$	64,810
Amortization of intangibles, net of tax (annualized)		4,734			4,447

	$	74,387		$	69,257


Average total stockholders’ equity	$	1,129,622		$	1,047,094
Less: Average intangibles		(595,436	)		(566,983	)

	$	534,186		$	480,111


Return on average tangible equity		13.93	%		14.43	%


Return on average tangible assets:
Net income (annualized)	$	69,653		$	64,810
Amortization of intangibles, net of tax (annualized)		4,734			4,447

	$	74,387		$	69,257


Average total assets	$	9,695,015		$	8,745,138
Less: Average intangibles		(595,436	)		(566,983	)

	$	9,099,579		$	8,178,155


Return on average tangible assets		0.82	%		0.85	%

The following table provides information regarding the average balances and yields earned on interest earning assets and the average balances and rates paid on interest bearing liabilities (dollars in thousands):


	Three Months Ended March 31,
	2011								2010
				Interest								Interest
	Average			Income/		Yield/			Average			Income/			Yield/
	Balance			Expense		Rate			Balance			Expense			Rate
Assets
Interest earning assets:
Interest bearing deposits with banks	$	137,281		$	81		0.24	%	$	189,474		$	97			0.20	%
Taxable investment securities (1)		1,525,483			10,620		2.73			1,284,554			11,253			3.45
Non-taxable investment securities (2)		206,231			2,968		5.76			197,784			2,877			5.82
Loans (2) (3)		6,540,217			85,667		5.30			5,889,694			79,957			5.50

Total interest earning assets (2)		8,409,212			99,336		4.77			7,561,506			94,184			5.03

Cash and due from banks		142,557								143,492
Allowance for loan losses		(108,259	)							(108,256	)
Premises and equipment		127,307								117,337
Other assets		1,124,198								1,031,059

	$	9,695,015							$	8,745,138


Liabilities
Interest bearing liabilities:
Deposits:
Interest bearing demand	$	2,783,693			2,681		0.39		$	2,374,764			2,948			0.50
Savings		970,245			478		0.20			842,291			413			0.20
Certificates and other time		2,340,149			11,436		1.98			2,218,933			14,193			2.59
Customer repurchase agreements		645,928			919		0.57			596,680			1,188			0.80
Other short-term borrowings		143,531			914		2.55			132,737			943			2.84
Long-term debt		199,047			1,628		3.22			262,920			2,546			3.93
Junior subordinated debt		203,961			2,032		4.04			204,625			1,910			3.79

Total interest bearing liabilities (2)		7,286,554			20,088		1.12			6,632,950			24,141			1.47

Non-interest bearing demand		1,176,031								969,926
Other liabilities		102,808								95,168

		8,565,393								7,698,044
Stockholders’ equity		1,129,622								1,047,094

	$	9,695,015							$	8,745,138

Excess of interest earning assets over interest bearing liabilities	$	1,122,658							$	928,556


Fully tax-equivalent net interest income					79,248								70,043
Tax-equivalent adjustment					1,965								(1,638	)

Net interest income				$	77,283							$	68,405


Net interest spread							3.66	%								3.56	%


Net interest margin (2)							3.81	%								3.74	%


(1)		The average balances and yields earned on taxable investment securities are based on historical cost.

(2)		The interest income amounts are reflected on a fully taxable equivalent (FTE) basis, a non-GAAP measure, which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. The yields on earning assets and the net interest margin are presented on an FTE and annualized basis. The rates paid on interest bearing liabilities are also presented on an annualized basis. The Corporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

(3)		Average balances include non-accrual loans. Loans consist of average total loans less average unearned income. The amount of loan fees included in interest income on loans is immaterial.

Net Interest Income

Net interest income, which is the Corporation’s principal source of revenue, is the difference between interest income from earning assets (loans, securities, interest bearing deposits with banks and federal funds sold) and interest expense paid on liabilities (deposits, customer repurchase agreements and short- and long-term borrowings). For the three months ended March 31, 2011, net interest income, which comprised 73.1% of net revenue (net interest income plus non-interest income) compared to 69.3% for the same period in 2010, was affected by the general level of interest rates, changes in interest rates, the shape of the yield curve, the level of non-accrual loans and changes in the amount and mix of interest earning assets and interest bearing liabilities.

Net interest income, on an FTE basis, increased $9.2 million or 13.1% from $70.0 million for the three months ended March 31, 2010 to $79.2 million for the same period of 2011. Average earning assets increased $847.7 million or 11.2% and average interest bearing liabilities increased $653.6 million or 9.9% from the three months ended March 31, 2010 due to organic growth in investments, loans, deposits and customer repurchase agreements combined with the acquisition of CBI. The Corporation’s net interest margin increased from 3.74% for the first quarter of 2010 to 3.81% for the first quarter of 2011 as deposit rates declined faster than loan yields along with an improved funding mix with higher transaction account balances and lower long-term debt. Details on changes in tax equivalent net interest income attributed to changes in interest earning assets, interest bearing liabilities, yields and cost of funds are set forth in the preceding table.

The following table sets forth certain information regarding changes in net interest income attributable to changes in the volumes of interest earning assets and interest bearing liabilities and changes in the rates for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 (in thousands):


	Volume			Rate			Net
Interest Income
Interest bearing deposits with banks	$	(33	)	$	17		$	(16	)
Securities		1,709			(2,251	)		(542	)
Loans		7,675			(1,965	)		5,710

		9,351			(4,199	)		5,152


Interest Expense
Deposits:
Interest bearing demand		348			(615	)		(267	)
Savings		68			(3	)		65
Certificates and other time		755			(3,512	)		(2,757	)
Customer repurchase agreements		92			(361	)		(269	)
Other short-term borrowings		73			(102	)		(29	)
Long-term debt		(560	)		(358	)		(918	)
Junior subordinated debt		(6	)		128			122

		770			(4,823	)		(4,053	)

Net Change	$	8,581		$	624		$	9,205

	(1)		The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the net size of the rate and volume changes.

	(2)		Interest income amounts are reflected on an FTE basis which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. The Corporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

Interest income, on an FTE basis, of $99.3 million for the first quarter of 2011 increased by $5.2 million or 5.5% from the same period of 2010 primarily due to increased earning assets resulting from a combination of organic growth and the CBI acquisition, partially offset by lower yields. Average earning assets of $8.4 billion for the first quarter of 2011 grew $847.7 million or 11.2% from the same period of 2010 primarily due to organic growth in investments and loans combined with the acquisition of CBI. The yield on earning assets decreased 26 basis points from the three months ended March 31, 2010 to 4.77% for the three months ended March 31, 2011, reflecting the decreases in market interest rates.

Interest expense of $20.1 million for the three months ended March 31, 2011 decreased $4.1 million or 16.8% from the same period of 2010 due to lower rates paid partially offset by growth in interest bearing liabilities resulting from a combination of organic growth and the acquisition of CBI . The rate paid on interest bearing liabilities decreased 35 basis points to 1.12% during the first quarter of 2011 compared to the first quarter of 2010, reflecting changes in interest rates and a favorable shift in mix. Average interest bearing liabilities increased $653.6 million or 9.9% to average $7.3 billion for the first quarter of 2011. This growth was primarily attributable to growth in deposits and customer repurchase agreements, which increased by $913.5 million or 13.0% for the first quarter of 2011, compared to the same period of 2010, driven by success with ongoing marketing campaigns designed to attract new customers combined with customer preferences to keep funds in banks due to uncertainties in the market and the acquisition of CBI. This growth was partially offset by a $63.9 million or 24.3% reduction in long-term debt associated with the pre-payment and maturities of certain higher cost borrowings during the first quarter of 2010.

Provision for Loan Losses

The provision for loan losses is determined based on management’s estimates of the appropriate level of allowance for loan losses needed to absorb probable losses inherent in the existing loan portfolio, after giving consideration to charge-offs and recoveries for the period.

The provision for loan losses of $8.2 million during the first quarter of 2011 decreased $3.7 million from the same period in 2010. During the first quarter of 2011, net charge-offs decreased $0.3 million from the same period of 2010 as the Corporation recognized lower net charge-offs in its Pennsylvania portfolio, which decreased $0.5 million compared to the first quarter of 2011. The allowance for loan losses increased $2.0 million to $107.6 million at March 31, 2011 from March 31, 2010. While the economy is recovering from the recession, the duration of the slow economic environment remains a challenge for borrowers, particularly in the Corporation’s Florida portfolio. The $8.2 million provision for loan losses for the first quarter of 2011 was comprised of $1.6 million relating to FNBPA’s Florida region, $1.3 million relating to Regency and $5.3 million relating to the remainder of the Corporation’s portfolio, which is predominantly in Pennsylvania. During the first quarter of 2011, net charge-offs were $6.7 million or 0.42% (annualized) of average loans compared to $7.0 million or 0.48% (annualized) of average loans for the same period in 2010. The net charge-offs for the first quarter of 2011 were comprised of $1.1 million or 2.45% (annualized) of average loans relating to FNBPA’s Florida region, $1.5 million or 3.90% (annualized) of average loans relating to Regency and $4.1 million or 0.27% (annualized) of average loans relating to the remainder of the Corporation’s portfolio. For additional information relating to the allowance and provision for loan losses, refer to the Allowance and Provision for Loan Losses section of this Management’s Discussion and Analysis.

Non-Interest Income

Total non-interest income of $28.4 million for the first quarter of 2011 decreased $1.8 million or 6.1% from the same period of 2010. Increases in service charges, securities commissions and fees, trust income, gain on sale of loans and income from BOLI combined with lower OTTI charges were more than offset by decreases in insurance commissions and fees, gain on sale of securities and other non-interest income. The variances in these non-interest income items are further explained in the following paragraphs.

There were no net impairment losses on securities for the three months ended March 31, 2011, compared to losses of $1.7 million from the same period of 2010.

Service charges on loans and deposits of $14.3 million for the first quarter of 2011 increased $0.6 million or 4.5% from the same period of 2010, reflecting increases of $0.7 million in income from interchange fees and $0.3 million in other service charges. These increases were partially offset by a decrease of $0.4 million in overdraft fees resulting from changes in the pattern of consumer behavior and the implementation of Regulation E, which was effective for new accounts on July 1, 2010 and existing accounts on August 15, 2010.

Insurance commissions and fees of $4.1 million for the three months ended March 31, 2011 decreased by $0.2 million or 4.1% from the same period of 2010 primarily as a result of lower contingent and commission revenues.

Securities commissions of $2.0 million for the first quarter of 2011 increased by $0.4 million or 26.7% from the same period of 2010 primarily due to higher revenue generated from financial consultant activity.

Trust fees of $3.7 million for the first quarter of 2011 increased by $0.6 million or 17.5% from the same period of 2010 due to the effect of improved market conditions on assets under management compared to 2010. Assets under management increased by $129.2 million or 5.7% to $2.4 billion over this same period.

Gain on sale of securities of $0.1 million for the first quarter of 2011 decreased $2.3 million or 97.7% from the same period of 2010 primarily as a result of the Corporation selling a $6.0 million U.S. government agency security and $53.8 million of mortgage-backed securities during the first quarter of 2010 to better position the balance sheet.

Gain on the sale of residential mortgage loans of $0.8 million for the first quarter of 2011 increased from $0.6 million for the same period of 2010. For the first quarter of 2011, the Corporation sold $42.6 million of residential mortgage loans compared to $37.5 million for the same period of 2010 as part of its ongoing strategy of generally selling 30-year residential mortgage loans.

Income from BOLI of $1.2 million for the three months ended March 31, 2011 increased by $0.2 million or 15.7% from the same period of 2010.

Other income of $2.2 million for the first quarter of 2011 decreased $3.0 million or 57.2% from the same period of 2010. The primary item contributing to this decrease was $3.5 million less in recoveries on impaired loans acquired in previous acquisitions. Partially offsetting this decrease was an increase of $0.6 million in fees earned through an interest rate swap program for larger commercial customers who desire fixed rate loans while the Corporation benefits from a variable rate asset, thereby helping to reduce volatility in its net interest income.

Non-Interest Expense

Total non-interest expense of $74.6 million for the first quarter of 2011 increased $9.1 million or 13.9% from the same period of 2010. This increase was primarily attributable to increases in salaries and employee benefits, combined net occupancy and equipment, amortization of intangibles, Federal Deposit Insurance Corporation (FDIC) insurance and merger-related expenses partially offset by decreases in outside services and other non-interest expense. These variances in non-interest expense items are further explained in the following paragraphs.

Salaries and employee benefits of $38.4 million for the three months ended March 31, 2011 increased $5.3 million or 15.9% from the same period of 2010. This increase was primarily attributable to higher salary expense due to the CBI acquisition, merit increases and more full-time employees in 2011 combined with higher deferred compensation and restricted stock expense.

Combined net occupancy and equipment expense of $10.4 million for the first quarter of 2011 increased $0.3 million or 3.1% from the same period of 2010.

Amortization of intangibles expense of $1.8 million for the first quarter of 2011 increased $0.1 million or 6.5% from the same period of 2010 due to higher intangible balances due to the CBI acquisition.

Outside services expense of $5.2 million for the three months ended March 31, 2011 decreased $0.3 million or 5.8% from the same period of 2010, primarily resulting from decreases in legal, consulting and courier expenses, partially offset by an increase in fees associated with ATM services.

FDIC insurance of $2.7 million for the first quarter of 2011 increased $0.1 million or 3.7% from the same period of 2010 due to the deposits acquired in the CBI acquisition.

The Corporation recorded $4.1 million in merger-related costs associated with the CBI acquisition during the first quarter of 2011. No merger-related costs were recorded during the same period of 2010.

Other non-interest expense decreased to $11.9 million for the first quarter of 2011 from $12.4 million for the first quarter of 2010. During the first quarter of 2010, the Corporation recorded charges of $2.3 million associated with the prepayment of certain higher cost borrowings to better position the balance sheet. During the first quarter of 2011, increased other expenses included higher supplies, loan related and OREO expenses totaling $1.1 million.

Income Taxes

The Corporation’s income tax expense of $5.8 million for the first quarter of 2011 increased $0.5 million or 8.7% from the same period of 2010. The effective tax rate of 25.10% for the first quarter of 2011 increased from 24.88% for the same period of 2010 primarily due to higher taxable income for the first quarter of 2011. Both periods’ tax rates are lower than the 35.0% federal statutory tax rate due to the tax benefits primarily resulting from tax-exempt instruments and excludable dividend income.

LIQUIDITY

The Corporation’s goal in liquidity management is to satisfy the cash flow requirements of customers and the operating cash needs of the Corporation with cost-effective funding. The Board of Directors of the Corporation has established an Asset/Liability Management Policy in order to achieve and maintain earnings performance consistent with long-term goals while maintaining acceptable levels of interest rate risk, a “well-capitalized” balance sheet and adequate levels of liquidity. The Board of Directors of the Corporation has also established a Contingency Funding Policy to address liquidity crisis conditions. These policies designate the Corporate Asset/Liability Committee (ALCO) as the body responsible for meeting these objectives. The ALCO, which includes members of executive management, reviews liquidity on a periodic basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Liquidity is centrally managed on a daily basis by the Corporation’s Treasury Department.

FNBPA generates liquidity from its normal business operations. Liquidity sources from assets include payments from loans and investments as well as the ability to securitize, pledge or sell loans, investment securities and other assets. Liquidity sources from liabilities are generated primarily through the 238 banking offices of FNBPA in the form of deposits and customer repurchase agreements. The Corporation also has access to reliable and cost-effective wholesale sources of liquidity. Short-term and long-term funds can be acquired to help fund normal business operations as well as serve as contingency funding in the event that the Corporation would be faced with a liquidity crisis.

The principal sources of the parent company’s liquidity are its strong existing cash resources plus dividends it receives from its subsidiaries. These dividends may be impacted by the parent’s or its subsidiaries’ capital needs, statutory laws and regulations, corporate policies, contractual restrictions, profitability and other factors. Cash on hand at the parent at March 31, 2011 was $76.4 million, down from $91.6 million at December 31, 2010 due to certain intercompany transactions being executed during the second quarter instead of the first quarter, as originally planned. Management believes these are appropriate levels of cash for the Corporation given the current environment. Two metrics that are used to gauge the adequacy of the parent company’s cash position are the Liquidity Coverage Ratio (LCR) and Months of Cash on Hand (MCH). The LCR is defined as the sum of cash on hand plus cash inflows over the next 12 months divided by cash outflows over the next 12 months. The LCR was 1.9x on March 31, 2011 and 2.0x on December 31, 2010 versus a policy guideline of >= 1.0x. The MCH is defined as the number of months of corporate expenses that can be covered by the cash on hand. The MCH was 9.8 months on March 31, 2011 and 12 months on December 31, 2010 versus a policy guideline of >= 3 months. The parent also may draw on an approved line of credit with a major domestic bank. This unused line was $15.0 million as of March 31, 2011 and December 31, 2010. Regency also has a $25.0 million committed line of credit with a major domestic bank. As of March 31, 2011 and December 31, 2010, $10.0 million was outstanding. In addition, the Corporation also issues subordinated notes through Regency on a regular basis. Subordinated notes increased $3.9 million or 1.9% during the first three months of 2011 to $208.1 million at March 31, 2011.

The liquidity position of the Corporation continues to be strong as evidenced by its ability to generate strong growth in deposits and customer repurchase agreements. As a result, the Corporation is less reliant on capital markets funding as witnessed by its ratio of total deposits and customer repurchase agreements to total assets of 81.8% and 81.0% as of March 31, 2011 and December 31, 2010, respectively. Over this time period, organic growth in average deposits and customer repurchase agreements was $55.1 million or 4.3% annualized which funded organic average loan growth of $81.6 million or 5.5% annualized. The deposit growth was net of a continued managed decline in higher-cost time deposits given the Corporation’s overall liquidity position. FNBPA had unused wholesale credit availability of $3.0 billion or 31.5% of bank assets at March 31, 2011 and $2.9 billion or 33.1% of bank assets at December 31, 2010. These sources include the availability to borrow from the FHLB, the FRB, correspondent bank lines and access to certificates of deposit issued through brokers. FNBPA has identified certain liquid assets, including overnight cash, unpledged securities and loans, which could be sold to meet funding needs. Included in these liquid assets are overnight balances and unpledged government and agency securities which totaled 6.4% and 4.6% of bank assets as of March 31, 2011 and December 31, 2010, respectively. FNBPA also offers an offshore, non-collateralized, interest-bearing

savings account. This account has reduced the security pledging requirements of FNBPA as customers move from repurchase agreements to this account. Consequently, the lower pledging requirements will result in a higher level of unpledged government and agency securities available for contingency funding needs. The account balance was $105.0 million and $30.4 million as of March 31, 2011 and December 31, 2010, respectively.

Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis (in thousands) for the Corporation as of March 31, 2011 compares the difference between cash flows from existing assets and liabilities over future time intervals. Management seeks to limit the size of the liquidity gaps so that sources and uses of funds are reasonably matched in the normal course of business. A matched position lays a better foundation for dealing with the additional funding needs during a potential liquidity crisis. The twelve-month cumulative gap to total assets of 1.8% and (1.1)% as of March 31, 2011 and December 31, 2010, respectively, compares to an internal guideline of between (5.0)% and 5.0%.


	Within			2-3			4-6			7-12			Total
	1 Month			Months			Months			Months			1 Year
Assets
Loans	$	151,654		$	329,375		$	417,279		$	756,178		$	1,654,486
Investments		167,318			107,549			154,510			223,888			653,265

		318,972			436,924			571,789			980,066			2,307,751

Liabilities
Non-maturity deposits		46,885			93,769			140,654			231,308			562,616
Time deposits		176,981			253,466			363,088			582,831			1,376,366
Borrowings		25,441			32,556			47,470			92,007			197,474

		249,307			379,791			551,212			956,146			2,136,456

Period Gap (Assets — Liabilities)	$	69,665		$	57,133		$	20,577		$	23,920		$	171,295


Cumulative Gap	$	69,665		$	126,798		$	147,375		$	171,295


Cumulative Gap to Total Assets		0.7	%		1.3	%		1.5	%		1.8	%

In addition, the ALCO regularly monitors various liquidity ratios and stress scenarios of the Corporation’s liquidity position. Management believes the Corporation has sufficient liquidity available to meet its normal operating and contingency funding cash needs.

MARKET RISK

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices. The Securities footnote discusses impairment charges the Corporation has taken on its investment portfolio during 2010 relating to the pooled TPS. The Securities footnote also discusses the ongoing process management utilizes to determine whether impairment exists.

The Corporation is primarily exposed to interest rate risk inherent in its lending and deposit-taking activities as a financial intermediary. To succeed in this capacity, the Corporation offers an extensive variety of financial products to meet the diverse needs of its customers. These products sometimes contribute to interest rate risk for the Corporation when product groups do not complement one another. For example, depositors may want short-term deposits while borrowers desire long-term loans.

Changes in market interest rates may result in changes in the fair value of the Corporation’s financial instruments, cash flows and net interest income. The ALCO is responsible for market risk management which involves devising policy guidelines, risk measures and limits, and managing the amount of interest rate risk and its effect on net interest income and capital. The Corporation uses derivative financial instruments for interest rate risk management purposes and not for trading or speculative purposes.

Interest rate risk is comprised of repricing risk, basis risk, yield curve risk and options risk. Repricing risk arises from differences in the cash flow or repricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are related to different market rate indexes, which do not always change by the same amount. Yield curve risk arises when asset and liability portfolios are related to different maturities on a given yield curve; when

the yield curve changes shape, the risk position is altered. Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their loans when rates fall while certain depositors can redeem their certificates of deposit early when rates rise.

The Corporation uses a sophisticated asset/liability model to measure its interest rate risk. Interest rate risk measures utilized by the Corporation include earnings simulation, economic value of equity (EVE) and gap analysis.

Gap analysis and EVE are static measures that do not incorporate assumptions regarding future business. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single rate environment. EVE’s long-term horizon helps identify changes in optionality and longer-term positions. However, EVE’s liquidation perspective does not translate into the earnings-based measures that are the focus of managing and valuing a going concern. Net interest income simulations explicitly measure the exposure to earnings from changes in market rates of interest. In these simulations, the Corporation’s current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. The ALCO reviews earnings simulations over multiple years under various interest rate scenarios on a periodic basis. Reviewing these various measures provides the Corporation with a comprehensive view of its interest rate profile.

The following repricing gap analysis (in thousands) as of March 31, 2011 compares the difference between the amount of interest earning assets (IEA) and interest bearing liabilities (IBL) subject to repricing over a period of time. A ratio of more than one indicates a higher level of repricing assets over repricing liabilities for the time period. Conversely, a ratio of less than one indicates a higher level of repricing liabilities over repricing assets for the time period.


	Within			2-3			4-6			7-12			Total
	1 Month			Months			Months			Months			1 Year
Interest Earning Assets (IEA)
Loans	$	2,153,682		$	521,702		$	377,339		$	612,137		$	3,664,860
Investments		179,723			121,652			211,738			279,659			792,772

		2,333,405			643,354			589,077			891,796			4,457,632

Interest Bearing Liabilities (IBL)
Non-maturity deposits		1,877,550			—			—			—			1,877,550
Time deposits		190,833			254,248			362,723			581,873			1,389,677
Borrowings		656,563			30,296			11,829			20,726			719,414

		2,724,946			284,544			374,552			602,599			3,986,641

Period Gap	$	(391,541	)	$	358,810		$	214,525		$	289,197		$	470,991

Cumulative Gap	$	(391,541	)	$	(32,731	)	$	181,794		$	470,991


IEA/IBL (Cumulative)		0.86			0.99			1.05			1.12


Cumulative Gap to IEA		(4.6	)%		(0.4	)%		2.1	%		5.6	%

The cumulative twelve-month IEA to IBL ratio changed to 1.12 for March 31, 2011 from 1.13 for December 31, 2010.

The allocation of non-maturity deposits to the one-month maturity category is based on the estimated sensitivity of each product to changes in market rates. For example, if a product’s rate is estimated to increase by 50% as much as the market rates, then 50% of the account balance was placed in this category.

The following net interest income metrics were calculated using rate ramps which move market rates in a parallel fashion gradually over 12 months, whereas the EVE metrics utilized rate shocks which represent immediate rate changes that move all market rates by the same amount. The variance percentages represent the change between the net interest income or EVE calculated under the particular rate scenario versus the net interest income or EVE that was calculated assuming market rates as of March 31, 2011.

The Corporation recently completed a core deposit study in which a statistical analysis of the behavior of these funds was conducted using data over nearly six years. The study provided historical behaviors of pricing elasticity, in terms of both rate change magnitude (beta) and the time lag in response to a change in market rates, for various core deposit categories. The study also provided estimates of the average lives of these categories. The ALCO reviewed the

study extensively and made changes to its modeling assumptions for the betas, lags and average lives of deposits and repurchase agreements. In all cases, the revised assumptions were more conservative than those values indicated by the historical study. That is, while rate lag and life assumptions were increased, they were still less than those implied by the study. The beta assumptions, in aggregate, were largely unchanged from prior quarter and were more than those implied by the study.

The following table presents an analysis of the potential sensitivity of the Corporation’s net interest income and EVE to changes in interest rates. The March 31, 2011 metrics were presented both using the old core deposit assumptions and well as the new assumptions. The Corporation’s position did become slightly asset-sensitive, excluding any assumption changes, due to an increase in short-term repricing assets (see discussion below). The new assumptions added additional asset-sensitivity as the core deposits are being modeled to be more “sticky” in terms of both rate changes and balance runoff.


	March 31,			March 31,
	2011			2011
	New			Prior			December 31,			ALCO
	Assumptions			Assumptions			2010			Guidelines
Net interest income change (12 months):
+ 300 basis points		2.5	%		0.5	%		0.1	%		+/-5.0	%
+ 200 basis points		1.6	%		0.2	%		0.0	%		+/-5.0	%
+ 100 basis points		0.7	%		0.0	%		(0.1	)%		+/-5.0	%
- 100 basis points		0.4	%		0.8	%		0.2	%		+/-5.0	%

Economic value of equity:
+ 300 basis points		(1.6	)%		(7.5	)%		(8.5	)%		—
+ 200 basis points		(0.6	)%		(4.7	)%		(5.2	)%		—
+ 100 basis points		0.0	%		(2.1	)%		(2.2	)%		—
- 100 basis points		(4.2	)%		(1.9	)%		1.4	%		—

The Corporation’s strategy is to manage to a relatively neutral interest rate risk position. In the short term, rising rates have a modest positive effect on net interest income. The Corporation has maintained a relatively stable net interest margin over the last five years despite market rate volatility.

During the first three months of 2011, the ALCO utilized several strategies to maintain the Corporation’s interest rate risk position at a relatively neutral level. For example, the Corporation successfully achieved growth in longer-term certificates of deposit. The average life of the certificates of deposit portfolio increased to 16.1 months as of March 31, 2011 from 14.6 months as of December 31, 2010. This was due to the CBI acquisition and also due to the fact that new volumes of certificates of deposit in the first quarter had an average original term of 19 months. On the lending side, the Corporation regularly sells long-term fixed-rate residential mortgages to the secondary market and has been successful in the origination of consumer and commercial loans with short-term repricing characteristics. Total variable and adjustable-rate loans increased from 58.4% of total loans as of December 31, 2010 to 58.6% of total loans as of March 31, 2011. The investment portfolio is used, in part, to manage the Corporation’s interest rate risk position. The duration of the investment portfolio is relatively low at 2.5 years at both March 31, 2011 and December 31, 2010. The investment portfolio is expected to generate approximately $397.0 million in cash flow over the remainder of 2011. Finally, the Corporation has made use of interest rate swaps to lessen its interest rate risk position. The $70 million in notional swap principal originated during the first three months of 2011 contributed to the increase in adjustable loans and has brought the total to $545 million under this program. For additional information regarding interest rate swaps, see the Derivative Instruments footnote.

OCC Bulletin 2000-16 mandates that banks have their asset/liability models independently validated on a periodic basis. The Corporation’s Asset/Liability Management Policy states that the model will be validated at least every three years. A leading asset/liability consulting firm issued a report as of December 31, 2009 after conducting a validation of the model for FNBPA. The model was given an “Excellent” rating, which according to the consultant, indicates that the overall model implementation meets FNBPA’s earnings performance assessment and interest rate risk analysis needs.

The Corporation recognizes that all asset/liability models have some inherent shortcomings. Asset/liability models require certain assumptions to be made, such as prepayment rates on interest earning assets and pricing impact

on non-maturity deposits, which may differ from actual experience. These business assumptions are based upon the Corporation’s experience, business plans and available industry data. While management believes such assumptions to be reasonable, there can be no assurance that modeled results will be achieved. Furthermore, the metrics are based upon the balance sheet structure as of the valuation data and do not reflect the planned growth or management actions which could be taken.

RISK MANAGEMENT

The key to effective risk management is to be proactive in identifying, measuring, evaluating and monitoring risk on an ongoing basis. Risk management practices support decision-making, improve the success rate for new initiatives, and strengthen the market’s confidence in the Corporation and its affiliates.

The Corporation supports its risk management process through a governance structure involving its Board of Directors and senior management. The Corporation’s Risk Committee, which is comprised of various members of the Board of Directors, oversees management execution of business decisions within the Corporation’s desired risk profile. The Risk Committee has the following key roles:

	•		assist management with the identification, assessment and evaluation of the types of risk to which the Corporation is exposed;

	•		monitor the effectiveness of risk functions throughout the Corporation’s business and operations; and

	•		assist management with identifying and implementing risk management best practices, as appropriate, and review strategies, policies and procedures that are designed to identify and mitigate risks to the Corporation.

FNBPA has a Risk Management Committee comprised of senior management to provide day-to-day oversight to specific areas of risk with respect to the level of risk and risk management structure. FNBPA’s Risk Management Committee reports on a regular basis to the Corporation’s Risk Committee regarding the enterprise risk profile of the Corporation and other relevant risk management issues.

The Corporation’s audit function performs an independent assessment of the internal control environment. Moreover, the Corporation’s audit function plays a critical role in risk management, testing the operation of internal control systems and reporting findings to management and to the Corporation’s Audit Committee. Both the Corporation’s Risk Committee and FNBPA’s Risk Management Committee regularly assess the Corporation’s enterprise-wide risk profile and provide guidance to senior management on actions needed to address key risk issues.

DEPOSITS AND CUSTOMER REPURCHASE AGREEMENTS

Following is a summary of deposits and customer repurchase agreements (in thousands):


	March 31,
	2011		December 31, 2010
Non-interest bearing	$	1,223,720	$	1,093,230
Savings and NOW		3,831,735		3,423,844
Certificates of deposit and other time deposits		2,334,856		2,129,069

Total deposits		7,390,311		6,646,143
Customer repurchase agreements		592,643		611,902

Total deposits and customer repurchase agreements	$	7,982,954	$	7,258,045

Total deposits and customer repurchase agreements increased by $724.9 million or 10.0% to $8.0 billion at March 31, 2011 compared to December 31, 2010, primarily as a result of the CBI acquisition combined with organic growth in transaction accounts, which are comprised of non-interest bearing, savings and NOW accounts (which includes money market deposit accounts) and customer repurchase agreements. The increase in transaction accounts is a result of the Corporation’s ongoing marketing campaigns designed to attract new customers to the Corporation’s local approach to banking.

NON-PERFORMING ASSETS

Non-performing assets, which is comprised of non-performing loans and OREO, were $167.8 million at March 31, 2011, a slight decrease from $168.0 million at December 31, 2010. The composition of non-performing loans and OREO changed during the first three months of 2011 as non-accrual loans decreased $7.5 million while restructured loans and OREO increased $1.9 million and $5.4 million, respectively. The decrease in non-accrual loans was driven by an $8.5 million decrease in non-performing loans in the Corporation’s Florida portfolio, partially offset by a $0.8 million increase in non-performing loans in the Corporation’s Pennsylvania portfolio. The increase in restructured loans was primarily the result of an increase of $1.5 million relating to the Corporation’s Pennsylvania portfolio from modifying residential loans to help homeowners retain their residences. Additionally, OREO associated with the Corporation’s Florida portfolio increased $3.6 million primarily the result of one property transferring to OREO, partially offset by the sale of a $3.4 million property that had been in OREO for a slight gain.

The following tables provide additional information relating to non-performing loans for the Corporation’s loan portfolios (dollars in thousands):


	FNBPA (PA)			FNBPA (FL)			Regency			Total
March 31, 2011
Non-performing loans	$	74,292		$	46,701		$	8,664		$	129,657
Other real estate owned (OREO)		12,044			24,502			1,555			38,101
Total past due loans		117,952			55,204			6,200			179,356
Non-performing loans/total loans		1.19	%		25.22	%		5.49	%		1.98	%
Non-performing loans + OREO/ total loans + OREO		1.39	%		33.96	%		6.41	%		2.54	%

December 31, 2010
Non-performing loans	$	71,961		$	55,222		$	8,111		$	135,294
Other real estate owned (OREO)		10,520			20,860			1,322			32,702
Total past due loans		103,255			57,721			6,869			167,845
Non-performing loans/total loans		1.26	%		28.28	%		4.98	%		2.22	%
Non-performing loans + OREO/ total loans + OREO		1.44	%		35.20	%		5.75	%		2.74	%

FNBPA (PA) reflects FNBPA’s total portfolio excluding the Florida portfolio which is presented separately.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses at March 31, 2011 increased $1.5 million or 1.4% from December 31, 2010 as the provision for loan losses during the three months ended March 31, 2011 of $8.2 million exceeded net charge-offs of $6.7 million. The increased lending activity in the Corporation’s Pennsylvania portfolio resulted in a $1.2 million increase in the allowance for loan losses for this portfolio over this same time period. Meanwhile, the duration of the slow economic environment in the Corporation’s Florida portfolio continues to be a challenge as the allowance for loan losses for the Florida portfolio was $17.9 million or 9.69% of total loans in that portfolio at March 31, 2011 compared to $17.5 million or 8.95% of that portfolio at December 31, 2010. Based on data collected from reappraisals during 2010 on certain properties in the Florida portfolio, along with Florida market data, the information suggests that Florida land valuations have not yet fully stabilized. The allowance for the Florida land-related portfolio at March 31, 2011 was $8.5 million or 15.72% of the land-related portfolio compared to $7.6 million or 12.12% of the land-related portfolio at December 31, 2010.

During the first three months of 2011, the Corporation reduced its Florida land-related portfolio including OREO by $2.2 million or 2.8%, reducing total land-related exposure including OREO to $75.9 million. In addition, the condominium portfolio including OREO has been reduced to zero as the Corporation sold the remaining property that made up this category during the first quarter of 2011.

The allowance for loan losses as a percentage of non-performing loans increased from 78.44% as of December 31, 2010 to 83.00% as of March 31, 2011. While the allowance for loan losses increased $1.5 million or 1.4% since December 31, 2010, non-performing loans decreased $5.6 million or 4.2% over the same period. Additionally, loans acquired from CBI were reduced by a credit mark of $26.9 million.

The following tables provide additional information relating to the provision and allowance for loan losses for the Corporation’s loan portfolios (dollars in thousands):


	FNBPA (PA)			FNBPA (FL)			Regency			Total
At or for the Three Months Ended March 31, 2011
Provision for loan losses	$	5,300		$	1,600		$	1,328		$	8,228
Allowance for loan losses		83,044			17,938			6,630			107,612
Net loan charge-offs		4,053			1,147			1,536			6,736
Net loan charge-offs (annualized)/ average loans		0.27	%		2.45	%		3.90	%		0.42	%
Allowance for loan losses/total loans		1.34	%		9.69	%		4.20	%		1.64	%
Allowance for loan losses/ non-performing loans		111.78	%		38.41	%		76.52	%		83.00	%

At or for the Three Months Ended December 31, 2010
Provision for loan losses	$	7,939		$	1,271		$	1,597		$	10,807
Allowance for loan losses		81,797			17,485			6,838			106,120
Net loan charge-offs		6,870			12,901			1,543			21,314
Net loan charge-offs (annualized)/ average loans		0.48	%		25.05	%		3.78	%		1.40	%
Allowance for loan losses/total loans		1.43	%		8.95	%		4.20	%		1.74	%
Allowance for loan losses/ non-performing loans		113.67	%		31.66	%		84.30	%		78.44	%

CAPITAL RESOURCES AND REGULATORY MATTERS

The access to, and cost of, funding for new business initiatives, including acquisitions, the ability to engage in expanded business activities, the ability to pay dividends, the level of deposit insurance costs and the level and nature of regulatory oversight depend, in part, on the Corporation’s capital position.

The assessment of capital adequacy depends on a number of factors such as asset quality, liquidity, earnings performance, changing competitive conditions and economic forces. The Corporation seeks to maintain a strong capital base to support its growth and expansion activities, to provide stability to current operations and to promote public confidence.

The Corporation has an effective shelf registration statement filed with the SEC. Pursuant to this registration statement, the Corporation may, from time to time, issue and sell in one or more offerings any combination of common stock, preferred stock, debt securities or TPS. As of March 31, 2011, the Corporation has issued 24,150,000 common shares in a public equity offering.

Capital management is a continuous process with capital plans for the Corporation and FNBPA updated annually. Both the Corporation and FNBPA are subject to various regulatory capital requirements administered by federal banking agencies. From time to time, the Corporation issues shares initially acquired by the Corporation as treasury stock under its various benefit plans. The Corporation may continue to grow through acquisitions, which can potentially impact its capital position. The Corporation may issue additional common stock in order maintain its well-capitalized status.

The Corporation and FNBPA are subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulators to ensure capital adequacy require the Corporation and FNBPA to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of leverage ratio (as defined). Failure to meet minimum capital requirements can

initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on the Corporation’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and FNBPA must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s and FNBPA’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Corporation’s management believes that, as of March 31, 2011 and December 31, 2010, the Corporation and FNBPA met all capital adequacy requirements to which either of them was subject.

As of March 31, 2011, the most recent notification from the federal banking agencies categorized the Corporation and FNBPA as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the notification which management believes have changed this categorization.

Following are the capital ratios as of March 31, 2011 and December 31, 2010 for the Corporation and FNBPA (dollars in thousands):


						Well-Capitalized					Minimum Capital
	Actual					Requirements					Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2011
Total Capital (to risk-weighted assets):
F.N.B. Corporation	$	866,687		12.4	%	$	699,409		10.0	%	$	559,527		8.0	%
FNBPA		819,938		12.0			686,080		10.0			548,864		8.0

Tier 1 Capital (to risk-weighted assets):
F.N.B. Corporation		760,506		10.9			419,645		6.0			279,764		4.0
FNBPA		724,755		10.6			411,648		6.0			274,432		4.0

Leverage Ratio:
F.N.B. Corporation		760,506		8.4			455,025		5.0			364,020		4.0
FNBPA		724,755		8.1			445,098		5.0			356,078		4.0

December 31, 2010
Total Capital (to risk-weighted assets):
F.N.B. Corporation	$	836,228		12.9	%	$	648,244		10.0	%	$	518,595		8.0	%
FNBPA		768,040		12.3			626,183		10.0			500,946		8.0

Tier 1 Capital (to risk-weighted assets):
F.N.B. Corporation		737,755		11.4			388,946		6.0			259,297		4.0
FNBPA		689,495		11.0			375,710		6.0			250,473		4.0

Leverage Ratio:
F.N.B. Corporation		737,755		8.7			424,362		5.0			339,490		4.0
FNBPA		689,495		8.3			414,734		5.0			331,787		4.0

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT OF 2010

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) became law. The Dodd-Frank Act broadly affects the financial services industry by establishing a framework for systemic risk oversight, creating a resolution authority for institutions determined to be systemically important, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies and containing numerous other provisions aimed at strengthening the sound operation of the financial services sector and will fundamentally change the system of regulatory oversight as is described in more detail under Part I, Item 1, “Business — Government Supervision and Regulation” included in the Corporation’s 2010 Annual Report on Form 10-K as filed with the SEC. Many aspects of the Dodd-Frank Act are subject to further rulemaking and will take effect over

several years, making it difficult to anticipate the overall financial impact to the Corporation or across the financial services industry.


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is provided under the caption Market Risk in Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations. There are no material changes in the information provided under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” included in the Corporation’s 2010 Annual Report on Form 10-K as filed with the SEC.


ITEM 4.		CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Corporation’s management, with the participation of the Corporation’s principal executive and financial officers, evaluated the Corporation’s disclosure controls and procedures (as defined in Rule 13(a)—15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Corporation’s management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), concluded that, as of the end of the period covered by this quarterly report, the Corporation’s disclosure controls and procedures were effective as of such date at the reasonable assurance level as discussed below to ensure that information required to be disclosed by the Corporation in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Corporation’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. The Corporation’s management, including the CEO and the CFO, does not expect that the Corporation’s disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

CHANGES IN INTERNAL CONTROLS. The CEO and the CFO have evaluated the changes to the Corporation’s internal controls over financial reporting that occurred during the Corporation’s fiscal quarter ended March 31, 2011, as required by paragraph (d) of Rules 13a—15(e) and 15d—15(e) under the Securities Exchange Act of 1934, as amended, and have concluded that there were no such changes that materially affected, or are reasonably likely to materially affect, the Corporation’s internal controls over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

The Corporation, like other financial companies, is subject to a number of risks that may adversely affect its financial condition or results of operations, many of which are outside of the Corporation’s direct control, though efforts are made to manage those risks while optimizing returns. Among the principal risks assumed are:

	•		Credit Risk, which is the risk of loss due to loan and lease customers or other counter-parties not being able to meet their financial obligations under agreed upon terms;

	•		Market Risk, which is the risk of loss due to changes in the market value of assets and liabilities due to changes in market interest rates, equity prices and credit spreads;

	•		Liquidity Risk, which is the risk of loss due to the possibility that funds may not be available to satisfy current or future obligations resulting from external macro market issues, investor and customer perception of financial strength, and events unrelated to the company such as war, terrorism or financial institution markets specific issues; and

	•		Operational Risk, which is the risk of loss due to human error, inadequate or failed internal systems and controls, violations, or non-compliance with, law, rules, regulations, prescribed best practices, or ethical standards, external influences, fraudulent activities, disasters and securities risks.

More information on risk is set forth in Part I, Item 1A, “Risk Factors” included in the Corporation’s 2010 Annual Report on Form 10-K as filed with the SEC. Additional information regarding Risk Factors can also be found in the “Liquidity,” “Market Risk” and “Risk Management” discussions in this Quarterly Report on Form 10-Q.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

NONE


ITEM 3.		DEFAULTS UPON SENIOR SECURITIES

NONE


ITEM 5.		OTHER INFORMATION

NONE


ITEM 6.		EXHIBITS


31.1			Certification of Chief Executive Officer Sarbanes-Oxley Act Section 302. (filed herewith).

31.2			Certification of Chief Financial Officer Sarbanes-Oxley Act Section 302. (filed herewith).

32.1			Certification of Chief Executive Officer Sarbanes-Oxley Act Section 906. (filed herewith).

32.2			Certification of Chief Financial Officer Sarbanes-Oxley Act Section 906. (filed herewith).

101			The following materials from F.N.B. Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2011, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements tagged as blocks of text. *


*		This information is deemed furnished, not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		F.N.B. Corporation

Dated:	May 6, 2011	/s/ Stephen J. Gurgovits
		Stephen J. Gurgovits
		Chief Executive Officer
		(Principal Executive Officer)

Dated:	May 6, 2011	/s/ Vincent J. Calabrese
		Vincent J. Calabrese
		Chief Financial Officer
		(Principal Financial Officer)

Dated:	May 6, 2011	/s/ Timothy G. Rubritz
		Timothy G. Rubritz
		Corporate Controller
		(Principal Accounting Officer)

TABLE OF CONTENTS

Part I Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 5. Other Information Item 6. Exhibits

Exhibits

EX-31.1 EX-31.2 EX-32.1 EX-32.2

FNB 10-Q Quarter ended March 31, 2011

Exhibits