FNB Corp (FNB) 2003 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the F.N.B. third-quarter earnings conference call. At this time all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments following the presentation. Before I turn the floor over to your host I would like to inform you that this conference call contains forward-looking statements relating to present or future trends or factors affecting the banking industry, and specifically the financial operations, markets and products of F.N.B. Corporation. These forward-looking statements involved certain risks and uncertainties. There are a number of important factors that could cause future results to differ materially from historical performance or those projected. These include but are not limited to, competitive pressures among depository institutions, changes in the interest rate environment, prepayment speeds, loan sales volumes, charge-offs and loan loss provisions, general economic conditions, legislative or regulatory changes, changes in the securities market. F.N.B. undertakes no obligation to release revisions to these forward-looking statements or to effective (indiscernible) circumstances after the date of this presentation.

It is now my pleasure to turn the floor over to your host Gary Tice, President and CEO of F.N.B. Corporation. Sir, the floor is yours.

Thank you, Justin. Good afternoon everyone and thank you for joining us on this conference call. We are pleased to have this opportunity to briefly discuss the third-quarter 2003 financial results but probably more importantly to provide you forward-looking information on the spinoff of the company's Florida operations. As you may tell from the sound of my voice, I'm just a tiny bit under the weather, and so I've asked Kevin Hale, Chief Operating Officer, to start us off with the presentation today. I will be back at the end of the meeting to summarize and take any questions that you may have.

Thanks, Gary. I would like to introduce the other members of our team who are with us today. Steve Gurgovits, Vice Chairman of F.N.B. Corporation, and President and Chief Executive Officer of the First National Bank of Pennsylvania. Tom Fahey, Executive Vice President and Chief Financial Officer; Garrett Richter, Executive Vice President and President and Chief Executive Officer of the First National Bank of Florida. Bob Reichert, Senior Vice President and Treasurer, and a new member of our team, Brian Lilly (ph) Chief Administrative Officer for First National Bank of Pennsylvania, and Brian will become the new Chief Financial Officer of F.N.B. post spin. John Waters, Senior Vice President and Director of Investor Relations and mergers and acquisitions; and Clay Cone, Vice President and Director of Corporate Communications.

We will all be available to address any questions you may have once we have finished our formal presentation. Before we review the financial results, I would like to highlight a couple of accomplishments from the quarter. Recently we added three members to our Board of Directors. They are Robert Goldstein, currently Chairman and formerly Chief Executive Officer of Bay View Capital Corporation. John Ballantine, a private investor and retired banking executive and John Rose, President of McAllen (ph) Capital Partners. These new directors bring extensive experience to our Corporation and will provide solid leadership and guidance to F.N.B. as part of our reorganization into two separate public companies. Also, F.N.B. was once again recognized as a dividend achiever by Mergent Inc. This annual recognition is based on the company's consistently outstanding record of increased dividend performance. Now we realize that dividends remain very popular with our shareholders and we are pleased with this honor. In fact, the company's third-quarter cash dividend of 24 cents per share was up 14 percent over last year's third-quarter dividend.

Each of these recent accomplishments will contribute to our ultimate goal of increasing shareholder value. As all of you have probably read in our press release, third-quarter earnings declined significantly. These results were directly influenced by our previously announced plans to spinoff the Florida banking operations and the prepayment of federal home loan bank advances, as well as continued pressure on our net interest margin. I will now ask Tom to provide you with some details of the results for both the third quarter and for the year-to-date.

Thank you, Kevin. For the three months ended September 30, 2003 net income was $484,000 or 1 cent per diluted share. This compares with 24.1 million or 51 cents per share for the same period a year ago. Earnings for the quarter were reduced by 45 cents per diluted share, primarily as a result of the previously announced restructuring charges and prepayment of federal home loan bank debt associated with the Corporation's plan to spinoff its Florida operations.

Pretax charges in the third quarter consisted of 9.3 million in employee severance, a 20.7 million penalty on the prepayments of 225 million of F.H.L.B. advances and 2.3 million in professional and other costs. Absent these items, diluted earnings per share were 46 cents for the quarter, down approximately 10 percent from the same period a year ago. On a year-to-date basis our diluted earnings per share were $1.03 compared with 83 cents last year. Excluding merger and restructuring charges, fully diluted earnings per share would have been $1.50 compared to $1.47 last year. On this same basis, ROA was 1.1 percent and ROE was 14.1 percent for the quarter. For the year-to-ate the ROA was 1.2 and the ROE was 15.4 percent.

Revenue for the quarter consisting of net interest income on a tax equivalent basis, and noninterest income, was 105.8 million compared to 103.5 million a year ago. While net interest income was flat compared to the same quarter last year, our net interest margin for the quarter ended September 30, 2003 was 3.98 percent. This is down 13 basis points from the second quarter of 2003. The margin compression can be attributed to the acceleration of prepayments and repricing of interest-earning assets. Consistent with the industry, F.N.B. expects to continue to deal with modest margin compression throughout the remainder of the year.

Interest income was 3.1 million lower than the same period last year and 4.5 million on a linked quarter basis. In spite of the decline in dollar amounts, we continue to show growth as average loans grew to 5.6 billion during the third quarter from 5.2 billion a year ago. During the quarter average loans grew at a rate of 4 percent on an annualized basis, mainly in the Florida markets. The yield on earning assets for the quarter was 5.75 percent, down from 6.03 percent on a sequential quarter basis. Interest expense declined 3.1 million from a year ago and 2.6 million on a linked quarter basis. The Corporation's cost of funds decreased 18 basis points during the third quarter to 2 percent. This favorable trend is a continuation of the positive impact of declining market rates of interest experienced during the past year.

Average deposits grew at a rate of 14 percent over the third quarter of last year. A majority of this growth occurred as expected in the Florida market and included 482 million in deposits acquired through the recent acquisition of Southern Exchange Bank in Tampa. On a linked quarter basis average deposits were essentially flat. Noninterest income, which includes revenue from trust, securities and insurance operations, grew 8.5 percent over the third quarter of last year and 13.5 percent for the year-to-date. However, on a linked quarter basis noninterest income declined 2.7 million. This decline can be attributed primarily to a reduction in gains on the sale of mortgage loans as refinancing activity has slowed and rates were more volatile during the three-month period.

Noninterest expense, excluding the previously discussed restructuring charges and the cost of prepaying F.H.L.B. borrowings was 68.1 million in the third quarter versus 62.2 million in the third quarter of last year and 67.8 million during the second quarter of 2003. The increase in noninterest expense over last year is due substantially to the Southern Exchange Bank acquisition. Our performance ratios excluding merger and restructuring expenses are as follows. The efficiency ratio impacted by declining net interest margin and reduction in gains on sale of mortgage loans was 63.6 percent for the third quarter of 2003. This compares to 60.6 for the second quarter of 2003 and 60.1 for the third quarter of 2002.

Net overhead to average assets was 1.72 percent for the three months ended September 30, 2003 compared to 1.59 percent for the second quarter and 1.89 percent for the prior year. Asset quality remains solid in the third quarter. Nonperforming assets represented 0.46 percent of total assets, compared with 0.48 percent for the third quarter of 2002. The allowance for loan losses to total loans was 1.3 percent, which is consistent with prior quarters and prior years.

Net loan charge-offs were flat on a linked quarter basis at 0.35 percent of average loans and below the 0.43 percent of average loans incurred in the first quarter this year. This asset quality continues a long string of favorable results and reflects F.N.B.'s strong asset quality culture. At this time, I will turn the presentation back to Kevin.

Thanks, Tom. The quarterly results absent restructuring charges were disappointing but almost to be expected with the continued slow economy and historically low interest rates. Of course the situation was highlighted by the feds unanticipated rate cut in June. However, we are making progress in our plans to spinoff the Florida operations. We expect to realize some significant cost savings as a result of this transaction. And these savings will provide favorable results in the upcoming year. As I said earlier, everything we do at F.N.B. is aimed at increasing shareholder value, and that is, after all, why the Board voted in July to divide the corporation into two distinct and separate public companies.

This action is expected to unlock shareholder value by allowing each company to develop and implement a strategic plan that fits its markets and operations. The separation will enable the investment community to better recognize the true value of the two companies. I am pleased to report that we are quickly moving forward in this area. In August we requested a private letter ruling from the IRS, and we have to receive a reply by year end. Earlier this month we filed the necessary documents seeking normal regulatory approvals. A Form 10 information statement regarding the new Florida holding company will be filed later this month, and we anticipate completing the spinoff no later than January of 2004.

The name of the new entity has recently been adopted by the Board of Directors. It is First National Bancshares of Florida Inc. The major subsidiary of the holding company will retain the name First National Bank of Florida. In a separate action, the Board of First National Bancshares of Florida has decided to apply for a listing on the New York Stock Exchange. The formal request will be completed near the end of this month, after the Form 10 filing with the Securities and Exchange Commission.

In preparing the SEC filing and working through our normal budgeting process, the staff has been working diligently and exhaustibly on our post spin financial projections. I am pleased to report that their progress puts us at a point where we feel comfortable sharing these early projections for 2004 with you. Now before I ask Garrett and Steve to give you their respective outlooks for the coming year, let me summarize the most influential assumption, that is the foundation of our plans. The economy and interest rates.

While we do not make rate forecasting our specialty, we believe the basis for economic activity is an important component of any plan. Our treasury area receives data from several sources to evaluate and choose the most likely scenario to utilize on our plans. With that said, and with signs that the recovery has gained some strength over the past few months and with expectations that it will not fizzle, GDP growth may reach 4 percent in 2004.

Capital spending on the part of commercial customers has a good possibility of improving over the next 18 months as pricing is attractive and the tax climate is favorable. However, the unemployment rate probably will not decline rapidly as productivity increases will continue and employers remain reluctant to expand workforces. Healthcare costs are expected to continue their rise and squeeze company and personal budgets at all levels. Finally, inflation is expected to remain under control, allowing the Federal Reserve to keep target interest rates at low levels for the greater part of the year. Taking all these factors into consideration, we have kept our key asset-based interest rates, as well as treasury rates at current levels for most of 2004.

Now with that as a backdrop, I will ask Garrett and Steve to provide some detailed guidance for their respective entities. Garrett, would you like to start first?

Thank you very much. After this bid is completed, our Florida franchise will consist of First National Bank of Florida with 59 offices and assets of $3.7 billion. First National Wealth Management Company which will consist of Florida trust assets under management of approximately $800 million, our retail investment services division which would generate over $4 million of commission revenue and Bouchard Insurance, which today has gross commission revenue of over $30 million per year in Florida.

The reorganization of the Florida company has eliminated approximately 120 positions, resulting in $5.8 million of pre-tax annualized salary and benefits savings. These savings will be fully implemented by December 31. Overall the performance of our Florida operations has been good this year. Just a few days ago we successfully merged Southern Exchange Bank in Tampa into First National Bank of Florida. In our wealth management area the book value of assets under management has grown 28 percent, the sale of new recurring trust fee business is up 65 percent over the same period last year and insurance revenues from bank preferred sources have exceeded prior year results by three times. First National Bancshares of Florida will operate in some of the most exciting and fastest-growing markets in the country. We are well positioned to not only expand in those existing markets, but to also enter new markets that are equally attractive. This financial services franchise should be extremely appealing to growth-oriented investors.

We expect to open three to five new offices per year to capitalize on both new and existing markets throughout the state. This branching strategy is an addition to any mergers or acquisitions. In fact, we recently acquired land for the construction of a full-service financial center in Port Charlotte which is midway between Fort Myers and Sarasota. This new office will be our first in this rapidly growing community. Construction is scheduled to begin early next year with completion anticipated around the middle of 2004. This branch is one of three new offices that we have already identified for construction over the next year. The other locations are in Naples and Fort Myers. We will continue to recognize and take advantage of opportunities for quality growth as our geographic area expands. We will be a formidable competitor in the Florida market, focused on consistently superior customer service and the cross sale of diversified financial products. In this environment we expect continued assets and deposit growth in the 10 to 12 percent range from our present levels. Earnings per share are projected in the range of 90 cents to 1 dollar. Because we will be reinvesting in our company, the dividend payout ratio will be in the range of 20 to 30 percent for the year. This payout ratio is typical of a true growth company.

Now Steve, I like to turn it over to you to address Pennsylvania and Ohio.

Thanks, Garrett. Once the spinoff is completed F.N.B. Corporation will relocate back to (indiscernible) Pennsylvania. It will consist of the current banking franchise of First National Bank of Pennsylvania, the entire operations of Regency Finance Company and the Pennsylvania operations of First National Trust Company and Gelvin, Jackson & Starr, our regional insurance agency. As a first step in branding these operations, we have recently renamed Gelvin, Jackson & Starr to First National Insurance Company. Our company will be a high performing, full-service financial institution with approximately $4.5 billion in total assets and 123 offices located throughout western Pennsylvania and northeastern Ohio. We will have above-average earnings that will benefit shareholders for high dividend payout typical of the value oriented company. The earnings potential will be supported by an extremely lean operation with an efficiency ratio of near 55 percent.

In Pennsylvania and Ohio we are eliminated 163 positions. But those that affect employees 72 percent have left as of September 30th. The rest will leave by year-end. These cuts will result in annualized pre-tax salary and benefits savings of $10.6 million. For 2004 we project that earnings per share for F.N.B. Corporation will be in the range of $1.30 to (technical difficulty) although (indiscernible) growth company we do expect to continue our growth strategy in a nongrowth market. How do we expect to accomplish this? We will do it in several ways. First we will further emphasize superior customer service making First National Bank distinctive in the marketplace versus our major competitors.

Secondly, we will maintain our twofold approach of both acquiring new households and then directly marketing new services to these households, as well as single service households already on our books. This strategy is provided 14 percent growth in deposits, excluding timed deposits, for the first nine months of this year. I would hasten to add that although this strategy has been proven to be successful the 14 percent growth reflects balances in demand, savings or money market accounts that otherwise perhaps in a different rate environment might have been in CDs or even the stock market. Nevertheless, we are pleased with the results so far.

Finally we opened our new (indiscernible) office this week and will begin construction of the new office in Cranberry Township next year. Both of these locations offer excellent demographics and excellent growth potential. Having discussed growth we continue our plan of rationalizing our branch network. This quarter we will consolidate three offices and announce the sale of two others, those offices that we are going to sell will close in the first quarter of next year. This brings to 16 the number of offices sold or consolidated since the (indiscernible) merger. We will continue to look closely at our branch offices as we go into the future. With the desire to be more of a value company, our dividend payout ratio is projected to be in the range of 55 to 65 percent. Gary, I believe you may have some further remarks.

For those of you who are quick with your calculators, these targets aggregate to an earnings per share forecast range of $2.20 to $2.40. In addition, on a combined basis, the cash dividends in the upcoming year will reflect a 25 percent increase over our current levels. A new facet that has been added to the spinoff plan is the issuance of up to $45 million of trust preferred securities by First National Bancshares of Florida. This new issuance is in addition to the 125 million that was issued by F.N.B. Corporation in March of 2003. This issuance will provide a leverage ratio of over 6 percent at each resulting entity. It is expected to be completed at the spinoff date.

As we outlined in our conference call announcing this spinoff, it was anticipated that we would realize $12 million in after-tax savings. The majority of which is in staffing related costs. I am pleased to report that the number has been confirmed, and in fact all affected employees have been notified. Sixty percent were no longer on the payroll as of the end of the third quarter. The remaining savings will be realized by the completion date of the spinoff. I am proud of our ability to execute our strategy with precision. This is a dramatic and exciting time for our company. By spinning off our Florida operations we will truly be creating two great companies from the one company we have. It will give value-oriented shareholders a stake in the established franchise in western Pennsylvania and northeastern Ohio, as well as growth-oriented shareholders a stake in a true growth company operating in the Florida market.

I would like to reiterate that we remain on target with this transaction. While there have been some short-term pain associated with the restructuring of operations, we will be a stronger organization benefiting our shareholders. Once again, I would like to thank everyone for participating in today's conference call and remind you that this call will be available for replay through October 23rd. For those who are interested, a copy of the presentation will also be available on our web site.

I am now going to turn the presentation over to Justin and ask if he would poll the audience for any questions. Thank you.

(OPERATOR INSTRUCTIONS) Jefferson Harralson from KBW.

KBW. Good afternoon. My question on the cash range you gave, the 2.20 to 2.40, the midpoint of that is 2.30. In order to hit the 2.30 you got to average 57.5 cents a quarter, significantly higher than the 46 you announced this quarter. You've got the 25 cents of benefit coming which would add around 6 cents a quarter. So I guess my question is if you get credit for the whole benefit of the restructuring and you are looking at a rate of 52 cents, how do you get from the 52 cents to a 57 cent average per quarter?

We heard the question. We understand all of your calculations. You are putting us in the middle of the range, and again, one of the things that I think is important to understand is that we still have another quarter to go through. We think that we have hit the bottom on our net interest margin. And we see a significant improvement at least in the Florida market in opportunities for loans. So we are going to see some growth on the loan side more in the Florida market than we are in the Pennsylvania market, and I will tell you that not only are we going to have some savings in the earmarked on the employee side, but there are also some additional savings that we think we are now have identified that we are going to pick up going forward on both sides. So we think that the Florida market is going to experience more growth naturally than the Pennsylvania market, but the fact is that we think we are at the bottom of our net interest margin. And we look for some significant growth on the Florida side.

When (indiscernible) the restructuring, the F.H.L.B. restructuring happen in the quarter and did it benefit you this quarter? I was surprised to see a large restructuring and that amount of margin pressure. And in the press release also (indiscernible) commented on you seem to be saying (indiscernible) about your margin, that your margin will actually compress.

I think we said it did compress.

Future guidance you expected to compress from here with the industry, expect to continue to deal with margin compression.

I think we expect to deal with it, but I think we are going to deal with it more on the Pennsylvania side than we are going to deal with it on the Florida side. And so generally --.

If I could jump in, the first part of your question, Jefferson, was we restructured the (indiscernible) home loan bank debt in August, so the fourth quarter will get the full effect of that benefit. And from a margin outlook and speaking only from Pennsylvania at this point, we would expect -- we have had quite a bit of margin compression for the first three quarters. We don't expect that to -- we expect to be more or less flat in the fourth quarter, the margin relative when you compare it to the third quarter. We also get some considered portfolio yield repricing downward, but will have the full effect to help mitigate against that, the full effect of federal home loan bank restructuring and less premium amortization on our mortgage investments. And we still do have some further liability repricing opportunities that we plan to execute in the fourth quarter. So we would expect our fourth quarter margin to be more or less flat with the third quarter.

Stephen Valga (ph).

Cathay Financial. My question is looking at shareholders equity going from second quarter third quarter, I am not sure I understand why there is a significant drop there as you reported.

I can respond to that. There is two pieces of it. First of all, quite frankly we only made a little over $400,000 income so you don't have too much added there. Have a dividend that you payout each quarter. The dividend the cash dividend is approximately $11 million. And the other real big piece is because of the increase in rates that we experienced on long-term rates. Our FAS 115 which is our fair market value analysis done on our investment portfolio significantly dropped during the quarter from the end of the June quarter.

Okay, so that was another 25 million or 24 million?

Yes, it was in that ballpark.

Okay, thank you.

John Pandtle.

Raymond James. I have a few questions if you will, the first, could you update us on the expected financial impact with the charter or Southern Exchange acquisition, relative to your original projections in terms of accretion/any dilution and particularly how that is going to impact the Florida bank in 2004? And if we could start there I have a couple more to follow up.

I will respond on that as we reported earlier, we expected that this year it would be fairly neutral to earnings and so far it has been neutral to earnings. We said it would be a little dilutive because of the way we have to account for the transaction in the second year. So I think it is less than a penny dilutive in the for the year 2004 and going forward we expect it to be accretive in 2005 and above in excess of 2 percent for 2005.

To what extent has that acquisition driving the margin weakness this quarter and to what extent is it driving rather large, negative adjustment for FAS 115?

Okay, I will let Bob answer the 115.

The FAS 115, their portfolio (indiscernible) because they are about a $750 million institution, we acquired them at about 170 million in loans, that is roughly where they are at today. The bulk of their assets are in investments and those investments, because a big chunk of them were in mortgage-backed security purchased obviously prior to our acquisition but purchased at premium, have fallen pretty significantly. And that portfolio was probably somewhere under water in the range of 3 to $4 million by the end of the quarter.

Okay. What is the level of unamortized premium left on that portfolio and in your entire portfolio?

I don't have that in front of me. I will have to get back to you on that one and we will call you back on that.

And one last question more strategic in nature. Are you going to take the opportunity to perhaps restructure, look at restructuring your securities portfolio before the spin?

I would tell you that I think we are pretty well on target where we need to be. I would tell you that we don't plan on any restructuring other than what our normal transactions would be. If we see an opportunity to take a profit and restructure for future earnings growth, we would consider it. But we do not have any plans at this time to restructure the portfolio general.

Okay, very good. Thank you.

Peyton Green.

FTN Midwest Research. A couple questions. One, why was your mortgage result worse than what others have reported thus far? It was about a 2.4 million dollar linked quarter decrease?

Bob will respond to that one, Peyton.

The majority of the mortgage activity quite frankly for Florida probably put it somewhere about 35 percent of the mortgage activity in Florida, 25 percent in Pennsylvania. One of the things that happened at the end of June we had a pretty significant closed loan pipeline, about $40 million in locked loans which we have forward commitments on to sell at future dates. And the result of that under FAS 133 we could mark to market that whole pipeline and the commitments. That provided us with probably about $1 million of market appreciation (ph) that we recognized in the month of June. Or actually in the second quarter. In the third quarter that pipeline because of increase in long-term rates specifically in the quarter, our pipeline of locked loans decreased significantly by about $11 million, which we had commitments on also. But when we had new fair market value between the two we lost about $870,000 worth of depreciation between the two periods.

Also, can you talk about what you are seeing from commercial customers in terms of their desire to tap lines? Is it still all anecdotal or are customers actually changing their behavior?

I am going to let Steve start with what is happening in Pennsylvania and then Garrett Kevin will respond for Florida.

In Pennsylvania we -- things have been relatively slow the last couple, six to eight quarters economically. But we have noticed a pickup late in the third quarter on commercial borrowers, both on line of credit use but especially additional transactions. In fact, our commercial pipeline is about as strong as it has been all year and hopefully this is a sign that the economy is recovering and will continue to do so.

Okay, thank you.

In Florida we continue to see good demand within the commercial real estate opportunities throughout the West Coast of Florida and quite frankly over into our Orlando market. We've got the pipeline right now is topping out basically the demand continues. We see an increase actually with deals coming into the bank for us to review and participate in even more so than we did in the last 60 days. So we are seeing a pickup and we think we are going to have a real strong fourth quarter with commercial loan funding.

Okay. Thank you very much.

Eric Connelly (ph).

Boston Partners. The $25 million in unrealized securities losses, is that a pre or post tax figure?

After-tax figure.

So the loss in the portfolio was roughly 2 percent after pretax?

Yes.

Given the rates are up another 50 to 60 basis points, would your option adjusted (ph) duration on that portfolio be longer or shorter than it was during the third quarter?

We saw because of the increase in the rate we will have an increase in the duration probably in the range of 1.5 to 2 years.

Again you had a four to five year duration before, it is probably (indiscernible) five to six now?

That's correct.

So the recent backup of 50 basis points in rates would equate to something like a 2.5 to 3 percent additional loss in the portfolio?

Approximately, yes, today.

Thank you very much.

Stephen Valga. (ph)

This question is for I guess it's Gary. When talking about the head count reductions it sounded as if the total was larger than what was expected initially. If I did the calculation correctly, you were going to save $10 million, 2 million additionally coming from the refinancing of the F.H.L.B. debt, with a 5 to 7 percent headcount reduction. But I think it sounded as if the headcount reduction was more like 8 or 9 percent. Are you (indiscernible) that the savings might be more than what was originally anticipated or?

I think the difference was that one number is pretax, the other number is after-tax. I think when we mentioned that we gave a pretax number and an after-tax number, and we think we are right on with the after-tax number of approximately $11 million.

Right, but I guess what I don't understand is the original indication that that was 5 to 7 percent of your headcount that was a part of the reduction, and then the number of people that you talked about today is more than that 5 to 10 percent.

The number that we gave, I think we said was between five and six percent, and with 3000 employees that would have been about 150, so I can tell you that the number that we knew we were going to come up with was a dollar figure, and there must have been a miscalculation on the percentage of workforce.

Up here we ended up with 163. We were something like about 9 percent up here.

I think the difference is we are giving you -- we weren't giving you full-time equivalent because we did eliminate a substantial number of part-time employees also.

But I think, Gary, the other point is we are right on target for the total salary and benefit reduction we expected to achieve.

And we focused, wouldn't you agree, Tom, that we focused on accomplishing the dollar savings not so much the headcount?

That's correct.

Okay, thank you.

Kelly Hinkle.

McConnell, Budd & Romano. I have a follow-up question on the margin, I was a bit confused. The answers you gave in terms of, I guess it sounded like you thought that PAs margin will be flat and I wasn't clear on what the direction of Florida's margin was expected to be in the fourth quarter.

We expect, Kelly, that we think Pennsylvania will be flat and we think that Florida's will improve a little bit over this quarter but not significantly. We're not looking for a 5 to 10 percent increase or five or ten basis points. But we see that -- we think it will improve somewhat. The other impact that I think you have to understand with the Florida market is that we are also -- if you look at the third quarter of every year at the Florida bank, you will see that our deposits are always at our lowest point at the end of September, and as deposits continue to increase in the fourth quarter it enables us to pick up on the net interest margin, as well as loan demand. So that's why we believe that we will see an improvement but not a significant improvement in the Florida market. Garrett, do you have anything you want to add to it?

I would add, Kelly, that this year we spent a lot of time and energy managing our liability costs, and we've taken some action steps to drive that down to a point that we feel is as low as we can get it. And with my comments my prior comments on the commercial loan market we see our margin in 2004 actually pretty flat compared to the tremendous compression that we had on it in 2003. So we've kind of turned the ship on the cost of funds down here and will reap those rewards throughout the calendar year 2004 with great, with greater lending opportunities to increase the dollar volume on the margin in the coming year.

Okay, thank you.

John Pandtle.

I apologize, I missed the number earlier on how much capital you plan to raise before the spin. Was that another trust preferred offering?

Yes, that is through another trust preferred and it is up to $45 million and it will be the responsibility of First National Bancshares, the new company that we are creating for Florida.

Okay. What kind of mark to market is that predicated on by the end of the quarter? In other words, if rates stay where they are, you are facing another substantial negative mark, would that change your capital need?

No.

And then just a quick follow-up, Gary, going forward as a stand-alone entity in Florida, can you update us on your appetite for acquisitions, and do you expect the strategy for the company to be a little more stable than it has been relative to the past three or four years?

John, you know my appetite, I am always salivating, and I love to acquire as many good banks as we possibly can. But I would tell you that going forward we're going to continue our philosophy of only acquiring high-quality institutions. They have to have a very high or one rated asset quality, and their management has to be highly rated. We think that by the separation of those two companies that we will have more of an interest in the Florida banks, and we will try to acquire as many as two or three financial institutions a year, but we will only get the right ones. The point is if they are cash deals, we're going to be limited. So we anticipate that we are going to have currency that is strong enough that the potential sellers will want to have our currency going forward. So that's the direction that we would expect to move on the acquisition side.

Okay. Thanks again.

Jefferson Harralson.

Just a question on the spin in Florida, do you expect to have from (indiscernible) balance sheet adjustments effective after (indiscernible) because of the spin, if so, are you looking to whether you would take impairments on the charter (ph) acquisition or any other acquisitions?

Bob or Tom, which of the two --?

We evaluated that as part of our spin planning in the transaction, we do not anticipate any impairments in any of the banking acquisitions. We might have a modest impairment on one of the insurance acquisitions, but that has all been factored into our plan.

Thank you.

(OPERATOR INSTRUCTIONS) Nick Adams (ph).

Wellington Management (ph). Quick question on the balance sheet and leverage with the tangible common equity ratio under 5 percent and well below industry averages, and in probably other markets you mentioned on the securities portfolio coming unless rates fall, what is your comfort level on leverage? And then what was tangible book value per share at the end of the quarter?

Do you have the tangible book value per share filed at the end of the quarter?

I just have the book value, under 13 percent. And as far as the fair market value on FAS 115 adjustment on your capital calculations, keep in mind that capital calculations do not factor in the 115 adjustments. So you do not consider that as part of the 6 percent in the leverage calculation.

So going forward we would expect that -- we have a practice and a policy that we would follow in this corporation and our tolerance for the leverage ratio lowest is 6 percent. And that is one of the reasons that we decided that we wanted to add some additional capital going forward. And then the range at which we like to operate our companies are at about 7 percent. But depending upon acquisitions, depending upon other situations, we will let that leverage ratio get down to 6 percent. We will have over 6 percent at all of the entities going forward as of January 1. But we really like to operate at about 7 percent leverage capital.

Thank you.

The tangible book value per common share, I do have that, it's a little over 8 percent.

Eric Connelly.

Just doing a back of the envelope calculation, if there's another 50 basis point increase in the level of rates, you drop below 4 percent tangible equity assets. Would that be approximately correct?

If there is how much?

Another 50 basis points, similar to the 50 basis points we have had in the last two weeks.

I have to take a look at that. I will get back to you, I would really have to take a look and see what it would do to (indiscernible) portfolio.

(OPERATOR INSTRUCTIONS) Peyton Green.

FTN Midwest. I think everyone is getting at the tangible equity issue, what happens to net interest income if rates go up 50 or 100 or even 200?

We don't have those numbers right at the tip of our tongue, but we can always calculate them and get back to you. We just don't have them in front of us.

That will be part of our filing on our Q, you will see that --.

We do look at that and we don't expect unmanageable situations based on rising rate will obviously have an impact, and that will be completely laid out in our MD&A in the Form 10 and in our 10-Q for F.N.B. Corporation. We just don't have it right in front of us right now.

Any kind of a sense as to asset sensitivity or liability sensitivity?

Asset sensitive.

More or less than it would have been a quarter or two quarters ago?

Its relatively consistent.

Okay, thank you.

There appears to be no further questions in queue at this time. Do you have any closing comments you would like to finish with?

I would just like to thank everybody for listening to our conference call. Again, I'll remind you that it is on the Web, you can pull that up and get any information that you can out of there. We are very, very excited about this spinoff. I think we are going to be happy that we can get back to the business at hand. A lot of our folks are spending a lot of time working on the spin instead of quite frankly on the growth of our company. And that should cease around beginning of January. And I think all shareholders will be happy with both companies as we progress into the year 2004.

So thank you for listening, and this may be the last time that I will be involved in a F.N.B. Corporation conference call. We will probably have a conference calls about the same time in January, but those of you that listen to our conference calls I hope you are satisfied with the information that we provide you. We have always tried to provide as much information as we possibly can, and we would look forward to doing the same thing as both of these companies are spun off in the early part of January. So with that, I hope everybody has a great afternoon, and again thanks forlistening.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.