FNB Corp (FNB) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's F.N.B. Corporation fourth-quarter 2009 earnings conference call.

At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session; instructions will be provided at that time for you to queue up for questions. As a reminder, today's conference is being recorded.

Now, I would like to turn the conference over to Cindy Christopher, Investor Relations contact for F.N.B. Corporation. Please go ahead, ma'am.

Thank you, Alan. Good morning, everyone.

This conference call of F.N.B. Corporation and the reports it files with the Securities and Exchange Commission often contain forward-looking statements relating to present or future trends or factors affecting the banking industry and specifically the financial operations, markets and products of F.N.B. Corporation. These forward-looking statements involve certain risks and uncertainties.

There are a number of important factors that could cause F.N.B. Corporation's future results to differ materially from historical performance or projected performance. These factors include, but are not limited to, a significant increase in competitive pressures among financial institutions; changes in the interest rate environment that may reduce interest margin; changes in prepayment fees, loan sale volumes, charge offs and loan loss provisions; general economic conditions; legislative or regulatory changes that may adversely affect the businesses in which F.N.B. Corporation is engaged; technological issues which may adversely affect F.N.B. Corporation's financial operations or customers; changes in the security markets or risk factors mentioned in the reports and registration statements F.N.B. Corporation files with the Securities and Exchange Commission. F.N.B. Corporation undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date of this call.

As a reminder, a replay of this call will be available until midnight on Tuesday, January 26, 2010 by dialing 1-888-203-1112 or 719-457-0820. The confirmation number is 5204528. A transcript of this call will be posted to the Shareholder and Investor Relations section of F.N.B. Corporation's website at www.fnbCorporation.com.

It is now my pleasure to turn the call over to Mr. Steve Gurgovits, President and CEO of F.N.B. Corporation.

Thank you, Cindy. Good morning, everyone. It's a pleasure to welcome you to our fourth-quarter earnings call.

Joining me today on the call are Vince Calabrese, our CFO, and Gary Guerrieri, our Chief Credit Officer. Vince will highlight our fourth-quarter performance and guidance for 2010, and Gary will provide insight into our asset quality. Also with me today for the question-and-answer session are Brian Lilly, Executive Vice President and Chief Operating Officer, and Vince Delie, Executive Vice President and also our Bank President.

Now, to the fourth quarter. Our earnings for the quarter were $0.04 per diluted share. The quarter included $0.02 related to OTTI charges for trucks and a $0.06 higher provision compared to the third quarter. Later in this presentation, Vince and Gary will elaborate more on the fourth-quarter details.

During the quarter, opportunities created by the disruption in our market caused by mergers, branch sales and other competitor issues continued. We are very pleased to report that F.N.B. continued to execute its organic growth strategy to take maximum advantage of this market disruption. Our calling efforts, combined with increased marketing to build brand awareness, helped produce the following for F.N.B. in 2009.

We generated 115 significant new commercial relationships which delivered over $400 million in new commitments. We increased the net number of business checking accounts by nearly 1800, and we increased the net number of personal checking accounts by nearly 4300. This strategy will continue to benefit us as we enter 2010.

Also during the quarter, we began to see real progress from several earlier initiatives. The asset-based lending team began to build a robust pipeline as they work to build their own book of business as well as making joint calls with commercial lenders as a team approach with new prospects.

Our Private Banking initiative is getting real traction. This group is prospecting an upscale market segment as well as being the recipient of referrals from commercial and retail bankers. Our Small Business Lending unit and the centralization of Small Business underwriting has given us the opportunity for our bankers to focus on this segment of the market more efficiently and effectively while maintaining a consistent underwriting standard.

These initiatives, combined with the efforts of our experienced banking team, produced total average loan growth in the fourth quarter of 4.3% annualized. Average Commercial loans experienced growth of 6.8% annualized. Excluding the Florida portfolio, the commercial loan growth is 9.5% annualized. We are extremely pleased with this, considering line usage and existing customer demand is soft due to current economic conditions. This Commercial growth represents mainly new client activity.

Average consumer loans, including residential mortgages, grew slightly in the fourth quarter. We are pleased with this modest growth in our consumer portfolio when one considers that nationally consumer debt outstandings have fallen dramatically.

As a direct result of securing new personal and business relationships, we grew average deposits and treasury management balances 6.1% annualized, compared to the third quarter, with transaction balances growing 4.8% and treasury management balances benefiting from both organic and seasonal growth grew 60.5%. The decline in CD balances is by design and reflects our focus on growing our transaction deposits.

Now, I'd like to turn the call over to Gary for his remarks on asset quality. Gary?

Thank you, Steve. Good morning, everyone.

Taking a look at the fourth quarter, we continued our aggressive management of the Florida portfolio, writing down our impaired positions and providing an incremental $6 million in provision over the third quarter to right-size the portfolio based on current market conditions.

Our Pennsylvania and Regency portfolios continued to perform well in light of the current economic environment with charge offs up only slightly quarter-over-quarter. We were able to strengthen our reserve position in each of these portfolios, which positions us well as we move into 2010.

Delinquency and nonperforming assets are up slightly quarter-over-quarter and continue to be consistent with our expectations.

As in the past, I will break down and review each portfolio with you in detail.

At quarter end, our broader loan portfolio is down $28 million to $242 million, or 4.2% of F.N.B.'s total loan portfolio. Nonperforming assets at $82 million are up $5.9 million over the prior quarter as we moved two land-related credits totaling $25 million to nonaccrual status. This leaves only one significant land-related credit in the amount of $20 million on accrual status at year-end, which we expect will continue to perform.

Charge offs of $20 million were up $16 million over the third quarter and were primarily related to the land portfolio. Included in these write-downs were existing specific reserves totaling $10 million. The difference, which required additional provisioning, reflects devaluations 5% to 10% higher than our heavily discounted assumptions already placed on this portfolio.

As has been our practice, we continue to update the appraisals on all of our non-income-producing properties at least annually, with 92% of them being updated within the last four months, reflecting extremely current collateral valuations at this most difficult time in the Florida economy. As it relates to the Florida portfolio composition, there was some movement since the third quarter. Our land and land development segment has been reduced to 40%, or $98 million, down $52 million since the fourth quarter of 2008, representing a 35% reduction in exposure year-over-year.

Our income-producing segment stands at 35% and continues to perform well. Construction loans represent 21% of the portfolio with the condo piece of that nearly gone. The remaining 4% represents C&I and owner-occupied.

Unfunded commitments continue to decline, now at $13 million, down $3 million over the prior quarter, of which 75% are related to existing construction projects. Year-over-year, our Florida exposure, including unfunded, is down 24%.

Our weighted average loan-to-value ratio for the portfolio increased slightly to 77%, up 4 percentage points from the third quarter, primarily driven by land values which continued to experience pressure in the current environment.

As it specifically relates to the land and land-development portfolio, our current outstanding balances are being carried at an average of 36.5% of the original appraised value post-reserve, better than the 39% for the third quarter. We continue to manage this portfolio very aggressively, conducting formal reviews of each credit on a quarterly basis and meeting with clients regularly to review project status updates, update financial information, obtain new appraisals, and evaluate other options to strengthen the Bank's position and reduce exposure.

Moving to Regency Finance, it continues to deliver credit quality metrics consistent with our expectations and remains well within historical asset quality levels. At quarter end, the portfolio stands at $162 million, representing only 2.8% of our total loan portfolio.

Net charge offs were up 4.3% annualized and the reserve position remains strong at 4.2%.

As we look at 2009 in review, we are pleased with the overall performance that Regency has delivered and the position of the portfolio at this point in the economic cycle.

I would now like to focus your attention on our core portfolio in Pennsylvania. At year end, this portfolio stands at $5.4 billion, which represents 93% of F.N.B.'s total loan portfolio. As mentioned, we continue to be pleased with this performance, in light of the economic conditions, reflecting slightly increasing credit metrics on a linked-quarter basis as evidenced by delinquency at 2.07%, up only 5 basis points; nonperforming loans plus OREO to total loans plus OREO at 1.39%, up 11 basis points; and charge offs of 37 basis points, up 4 basis points from the prior quarter. The $6.5 million increase in nonperforming loans and OREO reflects a $4 million net increase in nonaccrual loans and OREO impacted by one $3 million loan and a $2.5 million increase in restructured mortgages as we continue to work with those customers. Charge off performance continues to reflect strong results with losses of 37 basis points annualized in the fourth quarter and 31 basis points for the year.

During the quarter, we had strengthened our reserve position for the portfolio by 8 basis points, anticipating the effects that the recession may have on commercial borrowers.

Now let me break down our Pennsylvania portfolios for you. At year-end, our Pennsylvania Commercial portfolio, at just under $3 billion or 51% of F.N.B.'s total loan portfolio, continues to be well diversified and remains relatively consistent with prior quarters with our non-owner-occupied portfolio representing 33% of the total. At $980 million, this portfolio remains well diversified both by industry and across our geographic footprint. It continues to perform well and remains in line with last quarter's performance as nonperforming loans totaled $19 million, or 1.97% of the portfolio, up only 6 basis points. Total delinquency, including nonperforming loans, is only slightly higher at 2.2%.

As we've communicated in the past, our Construction and Land Development portfolio is small at $172 million, down $11 million quarter-over-quarter, with only $29 million of that related to residential construction and land development. Nonperforming loans at year-end are 1.45%.

Within the Construction book, our projects are thoroughly underwritten at 75% to 80% LTVs, require upfront borrower equity and focus on permanent financing. As such, we are not facing the refinance risk that is associated with a greatly reduced permanent market.

We continue to be very pleased with the performance of our consumer-related portfolios, which represent approximately $2.4 billion or 41% of F.N.B.'s total loan portfolio. You'll recall that this portfolio is represented by nearly $1.2 billion in branch-originated home equity loans and lines of credit, more than half of which carry first mortgage positions. The remaining consumer categories are consistent with the prior quarter.

Delinquency at 1.67% and losses of 32 basis points continue to reflect solid performance for the fourth quarter, as delinquency is up only slightly with losses being equal to the third quarter, reflecting the consistent performance across this portfolio. As it specifically relates to the mortgage portfolio, delinquency, at 2.9%, has improved 23 basis points over the past two quarters. Losses for the year were only 15 basis points.

In summary, as we look back, 2009 will be remembered as one of the most difficult periods in recent history across the financial services industry. That said, we continue to be very pleased with the performance of our Pennsylvania and Regency portfolios throughout this period. Our continued focus in Florida will be to reduce exposure across the market. We remain confident that our steadfast approach to underwriting, experienced banking team, knowledge of our markets and customers and attentive risk-management practices will serve us well as we look forward to an economic recovery in 2010.

I'd now like to turn the call over to Vince Calabrese, our Chief Financial Officer.

Thanks, Gary. Good morning, everyone.

Since we have addressed many of the fourth-quarter details between last night's earnings release and the comments provided by Steve and Gary, I will focus my remarks on guidance for 2010 with some added color on our fourth-quarter operating results.

First, let's discuss fourth-quarter earnings on a pretax, pre-credit run-rate basis. In order to focus on the fundamental relationship of revenue to expense, we adjusted for provision and OREO expense, as far as credit costs, and litigation costs on the OTTI charges as non-run-rate items. On this basis, run rate net income increased 12% from the third quarter, driven by a 4% increase in revenue and flat expenses. The revenue growth reflected nice increases in both net interest income and fee income.

Now, let me turn to additional fourth-quarter highlights and 2010 guidance. To begin, we entered this year well positioned with solid loan and deposit growth during 2009, an improved funding mix, successful capital raise that strengthened our balance sheet, and strategic planning initiatives in place to capture market share.

In looking to our projected financial performance for this year, I will start with some primary economic assumptions that we used to build our 2010 plan before touching on loans and deposits, income statement drivers, and then finish with capital.

The common consensus is that modest recovery will occur with GDP growth averaging 2.4%. Inflation is expected to remain low, and unemployment is expected to remain near the current level of 10% throughout the year. The Fed is expected to keep short-term interest rates low well into the third quarter.

Now, turning to the balance sheet, let's begin with loans. As Steve mentioned, we are very pleased with the loan growth we generated in the fourth quarter of 2009. We enter this year with healthy Commercial pipelines. We look to build on the momentum we generated in the $3.2 billion Commercial portfolio, which represents 55% of our total loan portfolio.

On the consumer loan front, we expect to see continued good growth in home equity products and some growth in residential mortgages, which is counter to our normal trends, as we expect both our new private banking initiatives to contribute both residential mortgages and home-equity loans.

For 2010, we are forecasting total loan growth in the mid-single digits, driven by gains in new F.N.B. relationships and a deepening of established relationships. This growth is based on consensus forecasts for an economic recovery occurring later in the year and an expectation that line utilization amongst existing customers will begin to trend upward, while the continued exiting of Florida credits will somewhat temper overall loan growth.

Looking ahead on the funding side, we expect to continue our momentum in growing transaction deposits, treasury management balances, further enhancing our deposit mix. Given our successes in deposit growth during 2009 and market disruption expected to continue this year, we are forecasting growth in total deposits and treasury management balances to be in the mid-single digits. The loans deposit and treasury management balances ratio is projected to remain in the mid '80s, which provides ample capacity to lend.

We were pleased to expand the net interest margin to 3.85% for this quarter, a 7 basis point widening compared to the third quarter and our third consecutive quarterly expansion. The net interest margin has expanded 15 basis points since the first quarter of 2009. Our success in improving our overall funding mix and generating the solid loan and deposit growth contributed to the improved margin. For 2010, we are looking for the margin to be stable at current levels, given our relatively neutral interest rate risk position.

Noninterest income for the fourth quarter, excluding the impairment charges, saw a $1.8 million overall increase compared to the prior quarter. We saw increases in Wealth Management revenue due to improved market conditions in our Trust business and a successful fall sales campaign in our Securities business during the fourth quarter. We also realized increased swap fee revenue from our Commercial business.

The OTTI impairment charges that we had this quarter included in noninterest income were almost entirely due to pool trust preferred securities with the $70,000 related to bank stock holdings. The remaining bank stock portfolio is comprised of 23 holdings totaling $3 million. After taking this quarter's impairment charge, the remaining portfolio was slightly above cost at the end of the year, the single largest unrealized loss of only $36,000.

Regarding the impairment charges on pool trust preferred securities, 94% of the charge was related to three securities. For these securities, the amount of projected deferrals and defaults for the 488 banks to collateralize these securities again pushed past the prior-quarter assumptions to trigger the additional credit impairment charges. We have 13 pools with an original cost of $41 million, a book value of $25 million, and a fair value of $8 million which is reflected in equity at year-end.

For this year, we are targeting a run rate increase in noninterest income in the low single digits as we anticipate an increase in Wealth Management revenue due to improved market conditions and higher service charge income resulting from continued growth in new business and consumer deposit accounts.

Fee income generally is an area of risk for all banks, as we know, given the continued attention from Washington. We currently have a group studying the rules that go into effect on July 1 for point-of-sale overdraft transactions. For us, the amount of fees attributable to these transactions is approximately $9 million. As with other banks, we are looking at different implementation approaches to maximize customer opt-in, potential changes in fee structures to substantially mitigate the effect of these rules.

Noninterest expense for the fourth quarter, excluding the increased OREO costs related to Florida and the net litigation costs, is relatively flat compared to the third quarter as we continue to focus on expense control.

For the full year of 2010, we project an efficiency ratio in the low 60% level, with the typically higher first-quarter ratio closer the mid-60% level as the beginning of the year involves resetting employee benefits such as payroll taxes at seasonally higher utilities costs.

Gary provided a comprehensive overview of our credit quality. Our 2009 results were affected by elevated credit costs, primarily due to our Florida portfolio.

As we look ahead to this year, assuming continued improvement in the economy, we expect the levels of nonperforming assets, net charge offs and provisioning for credit losses to be lower than 2009 but still elevated compared to historical levels.

Regarding our capital position, capital ratios are expected to continue to exceed well-capitalized thresholds throughout the year. We ended 2009 at much higher levels than we started the year, which positions us well for 2010.

Lastly, our effective tax rate this quarter is not representative of our normal operating levels, due to the absolute low level of pretax income. As we look ahead to this year, we expect the effective tax rate to be more in the 26% to 27% area.

As for diluted shares, we are looking to end the year slightly higher than fourth-quarter 2009 levels.

Steve, that completes my remarks.

Thanks, Vince.

As we look ahead to 2010, we are more optimistic than we were at this time last year. We believe the economy has begun to recover, although unemployment will remain high. We have right-sized our Florida portfolio based upon very current appraisals. We would expect nonperforming loans to crest near midsummer and begin to decline thereafter. We are keeping a watchful eye on Washington and monitoring events. We would expect to react quickly to any changing regulatory environment.

We believe that the momentum we have established will continue into this year, and we will continue to have organic growth opportunities. For instance, many commercial credit facilities of our competitors will mature during 2010. For the first time, they will be renewed by a new bank. We expect that, in a number of instances, pricing or structural terms of the credit could be changing. This will provide F.N.B. the opportunity to look at new business. An improving economy should cause loan demand and line usage to increase this year.

Finally and importantly, our entire staff is experienced, trained and certainly focused on customer service and new client acquisition. Nothing breeds success like success, and our staff certainly experienced significant wins last year. Based upon a recent employee corporate culture survey, we continue to build a very strong, positive corporate culture. All of this bodes well for F.N.B., and we would certainly expect this will lead to improved performance in 2010.

I will now ask the operator to poll the audience for any questions.

Thank you, sir. The question-and-answer session will be conducted electronically. (Operator Instructions). Frank Schiraldi, Sandler O'Neill.

Good morning, guys. Just a few questions -- I wondered, on the growth in cash management accounts, I know some of it was seasonal, some of it was new business wins or new accounts. Would you be able to sort of estimate how much was breakdown, how much was seasonal and how much was new account growth?

I guess, in looking at the pieces, you know it is -- the treasury management business is a business that we continue to focus on growing and are continuing to add new accounts. If I had to guess, I would probably say it is probably about 50-50, because we continue to have significant new clients that we are bringing into the mix.

Okay. When you gave the core deposit or deposit growth outlook for 2010 in the mid-single digits, is that taking into account a continued improved mix, you know, CDs continuing to run off and core deposits continuing to grow?

It's looking for CDs to be kind of stable at these levels, and then to continue to have the growth in the transaction components.

Okay. In terms of the loan loss provision in the quarter, is there an extra conservatism there, given the year-end and then you want to sort of clean stuff up for 2010, or does that not really come into play? I'm just trying to get a sense. It's always hard to get a sense quarter-over-quarter of what the provisioning is going to do. Is there any sense in 1Q? Do you think we'll most likely be off -- down from these levels given the extra conservatism end the year?

Yes, I would say that guidance that I had given on provision -- we do expect to be lower in 2010 than we were in 2009.

I think, to Gary's comments earlier regarding appraisals that came in, we have updated really within the last four months, values came down significantly. So there's definitely a good piece of the provision that is right-sizing that, the allowance for that portfolio as we sit here today. So as you look ahead to the first and second quarter, we definitely expect to be lower than where we were in the fourth quarter.

Then for the Pennsylvania portfolio, I think the credit metrics that Gary talked about for nonperformers and charge offs are still at very healthy levels. There's some continued migration that has been occurring in Pennsylvania, and we did put some additional reserves into that portfolio.

Okay. Finally, is it possible just to get what's the total charge offs to date over the last, let's say, 2008 and 2009 in the Florida book?

It is right at just under $60 million charged off to date.

Okay, thank you.

Andy Stapp, B. Riley & Co.

Good morning. From your comments, is it fair to say that, as far as reserve build, you expect really little or no reserve build in the first half of this year, and then, in the second half with NPLs cresting, your reserve coverage of loans could start to trend downwards?

Andy, this is Vince. I would say that, as we think about 2010 and where we end the year, Steve mentioned NPAs cresting during the year, but cresting and then kind of gradually declining from there. So from an allowance coverage standpoint, I would think the end of the year probably looks pretty stable from where we ended 2009 just because of the pace of the change in the nonperformers.

Okay. I had been under the impression that real estate values in Florida have shown some signs of stabilization, so I was a little surprised when you talked about the real estate values declining. Is it just contained in just raw land?

Andy, the land values continued to see pressure all through the year. When you look at that piece of the portfolio, they came down, on average, about 40% over the past 12 months, so there has been continued pressure there. We do feel that those values are reaching very, very close to rock-bottom levels at this point, and the appraisal process has continued to be a bit difficult in that the appraisers are being quite conservative from that perspective, based on the environment.

Okay, got you. You guided to a stable net interest margin. As the Fed begins to raise interest rates, what do you foresee happening to your margin, including the initial impact of interest rate floors on loans?

Well, Andy, I guess, as we think about the margin, if you step back and we talk about our interest rate risk management process, we really manage to a neutral net interest margin. Our goal is to target so that when you see big moves up or down that our margin is not to move significantly. I think, over time, if you look at our margin, it has been in a pretty tight band. This year, with the benefit of deposit repricing and the growth that we've had, we have been able to expand the market.

So as the Fed starts to move, which is expected to be pretty late in 2010, we really don't expect to see significant impact on that from our margin, which is why we've really giving the guidance of stable around the current levels that we at $385 million, which is a healthy level for us.

Okay. I have some other questions, but I will get back in the queue.

Damon DelMonte, KBW.

Good morning, guys. Could you guys put a little framework around the expected run off in the Florida portfolio this year?

In terms of that portfolio, Damon, we are projecting about another 20% run off as we look out over the next 12-month period, so those are the numbers that we are looking at, at this point. We are hopeful we can be a little more successful than that even, but based on the portfolio structure at this point, that is what we are projecting.

Okay, great. Vince, could you quantify what the expenses included in noninterest expense were related to OREO and Florida-related loans? Just from a modeling perspective basically? So we know what to not include as a reoccurring expense.

Yes, the increase was $2.6 million related to the floor OREO expense. If we think about it in total, total OREO expense for the quarter was $3.6 million, so $2.6 million of that -- of an increase was related to Florida.

Okay, perfect. Regarding the tax benefit, what drove that this quarter?

Well, it's really just a matter of the level of tax deferred items that we have. We have a certain amount of tax-deferred interest or tax preferred interests on our securities. The absolute level of that was pretty consistent with the prior quarter, and then pretax income came down, so the piece taxed at 35% is stable, but it's just really the absolute level of it relative to those tax preferred items.

So as you look ahead to 2010, our effective tax rate would really be more to the 26% to 27% that I mentioned. So there's nothing really unusual in there; it's just the absolute low level of the pretax income.

Okay, great. Then one last question -- are there any restructured loans that are not included in nonperforming loans?

There are not.

Okay, great. Thank you.

Matt Hodgson, SunTrust.

Good morning. Just a couple of questions, Vince -- you mentioned guidance on mid-single digit deposit loan growth for the year. D o you expect the balance sheet to kind of grow at the same rate, or will you kind of shrink the securities book a bit, maybe pay down borrowings or something like that?

I would expect the securities portfolio would probably be pretty stable at where we ended the year and then growing the balance sheet. So the overall balance sheet should grow a little bit less than the mid-single digits that I mentioned.

Got you. The overdraft, that $9 million of overdraft income, that's obviously a quarterly number, right?

No, that's a full-year figure, so that's the amount of fees that kind of are targeted by the new rules that go into place in the middle of the year. Then we looked, as I mentioned, between customers, getting customers to opt in. For a good portion of our customers, they are going to want to have that service so that they can continue to have their transactions honored at the point-of-sale. So we think there is an ability to really mitigate the vast majority of that figure as we go forward, and that's even before we look at changing any fee structures. So that's a full-year figure.

Okay, great. Do you by any chance have the estimated Tier 1 risk-based and total risk-based ratios for the Company?

Just give me one second. The estimated ratios at the end of the year, total risk-based is 12.7%, Tier 1, 11.3%, and leverage at 8.7%.

Great. Gary, just a credit-related question -- you mentioned about $25 million in land-related Florida loans moved to nonperforming in the quarter. It's obviously not surprising to see pressure still in Florida, but I'm curious maybe what drove the move to nonaccrual, if those borrowers had lasted this long. Then maybe what that remaining land credit -- could you give us some more color, the $20 million that is still on accrual (multiple speakers) it's still good?

Sure. The two that we moved to nonaccrual received pressure from a valuation standpoint, Matt. The borrowers also are getting tight from a liquidity standpoint. Actually, one of those continues to perform at this point, but we are being cautious with that in moving it to nonaccrual status.

The one that we anticipate will continue to perform, even with the most recent valuation updates, we have loan to value in the 60% range. As well the borrower is in process of posting a payment for the next year to 18 months with us. We have good properties there and expect that situation will continue to perform through the cycle.

Okay, great. Of the Florida land-related nonperforming loans, what is generally the disposition process? Are you all, in most cases, going through the foreclosure process and will look to take over the asset and try to sell it, or will it just be kind of a long, drawn-out reduction in balances?

Matt, we continue to look at all options, including trying to move those assets in every way that we possibly can. That includes negotiating sales with the customer, which we have been successful with. It also includes consideration of the secondary market. Those prices continue to be lower than where we would want to move values at this point, so we are not -- we've not taken that approach but we will continue to analyze that as the market moves and then just continuing to work with the borrowers to try to keep them going where we can. If we can't, we are in the foreclosure process on those assets.

Okay, great. I appreciate the detail. Thanks.

(Operator Instructions). Jason O'Donnell, Boenning and Scattergood.

Good morning. I apologize if I missed it, but can you just give us some color around the composition of Pennsylvania net charge offs?

The Pennsylvania net charge offs totaled $5 million for the quarter. It was pretty much a normal quarter across all of the portfolios, really nothing out of the ordinary, Jason, pretty much a diverse charge against the book of business in the normal course, in the normal course, so really nothing standing out there.

Okay, so it wasn't just one portfolio kind of driving the bulk of those losses?

It was not.

Then in terms of, just switching real quick, in terms of the steps you've taken to manage interest rate risk recently, could you just give us an update on the Securities portfolio and what the average duration is on that portfolio?

Sure. The average duration on the portfolio was 2.8 at the end of the year, 2.7 at the end of September. As far as the securities portfolio, the cash we are reinvesting we are reinvesting short. As we look ahead to 2010, we have close to $0.5 billion worth of investments that we will be paying off, and we look to continue to put that in shorter-term investments, given where we are in the rating cycle.

Then as far as the remaining parts of the balance sheet, we continue to have a focus on growing loans with variable rate, adjustable rate type profiles to help sensitivity in the balance sheet as you go forward.

Okay, but the longer-term goal is to keep the balance sheet relatively neutral. Is that correct?

Yes.

Okay. And then just can you give us an update on your single-issue trust-preferred positions? Specifically, have there been any downgrades since the last quarter?

The single-issued trusts as we sit here today, there's $14 million related to them. There's basically in four names. I think one was upgraded, one was downgraded a little bit but they are all in good ratings. There is no impairment in that portfolio at all. In fact, the pricing has been improving for the second consecutive quarter. They are at $0.81 on the dollar; they were $0.79 on the dollar at the end of the third quarter. So that portfolio, we feel good about where it stands today.

Great, thanks a lot.

Thomas Alonso, Macquarie.

Good morning, guys. Most of my questions have been answered. Just real quickly, given that you guys have that merchant banking operation and sort of what's going on in Washington, is there any concern about maybe you guys not being able to continue that or thoughts about potentially being forced or somehow to divest that? I'm just curious how you guys are thinking about that now at this early stage.

Well, Tom, we are watching that. So far, most of their activity has been on direct lending of subordinated debt. We would expect that to be able to continue, but as to whether or not the full powers that merchant banking have can continue will be a question. But right now, all I can tell you is that we are studying that, and most of what we're talking about in our pipeline is strictly sub-debt lending.

Okay, so it wouldn't fall into that purview. That's great. (multiple speakers) Okay, and then just sort of on the Florida book, I know you've kind of discussed this, but just judging from the way you're speaking, there really hasn't been a change in sort of how you're going to go about the disposition of this portfolio. You haven't decided -- because I remember last quarter you mentioned that there was some improvement in liquidity in that market, and maybe that wouldn't lead to potentially more sales as bids started to come in, but it doesn't seem like that's the case. It seems like you're just going to continue to do what you've been doing.

Well, we're going to continue to do what we've been doing, but we are watching the market, obviously. We have seen a little more interest from certain people kicking the tires than we have been able to get an agreement on some small transactions. But we're pursuing everything, as Gary said. We are staying the course with our strategy but in the meantime, we are investigating other opportunities. Right now, we don't think those make sense to F.N.B. We don't need to panic, so we are being very methodical in our approach. But as the market conditions change -- and I believe over time certainly they will -- that may lead to different strategies than the one we are following today.

Okay, terrific. Thank you. That's all I had.

(Operator Instructions). Mike Shafir, Sterne, Agee.

As we kind of think about the Pennsylvania portfolio, I would say certainly credit has held up pretty well, and I know that the bulk of your portfolio is really in western Pennsylvania. I was wondering how much exposure, if any, do you guys have towards central and eastern PA, and what kind of -- have you seen in terms of, from a credit standpoint, the differences between those two markets?

In terms of the breakdown, Mike, we do have a sizable book of business in the central part of Pennsylvania as well as the eastern-central part of Pennsylvania. Those portfolios total probably just shy of about a third of that Pennsylvania book in terms of footings. The performance has pretty much mirrored the western part of the state with the western part of the state holding probably slightly better than that eastern part. The central part has held very, very, very well, as has the western part and the eastern part probably just a little under that.

Just if I can add onto that, the unemployment rates in our markets are slightly below the state of Pennsylvania, which the state of Pennsylvania is below the national average.

So when you get out -- I think, to Gary's point, some of the far eastern markets of Pennsylvania have had some issues around real estate and construction and development type loans. That's not something we do a lot of in Pennsylvania, hardly at all to be honest with you. And the unemployment in the State College area where Omega is based with our acquisition of Omega a couple of years ago has some of the lowest unemployment in the entire state. It is mid-single digits.

Then kind of moving forward, especially on the C&I and non-owner occupied CRE portfolios, what are you guys seeing in terms of valuation and cap rates and so forth?

In terms of Florida, Mike?

No, no. In the Pennsylvania portfolio?

In the Pennsylvania portfolio, the credit tenants cap rates are in the 7.5% range. When you look at a normal strip center, you're talking about 9.5%, pushing 10% these days, but 9.5% is probably a pretty good average across the footprint.

All right, thanks a lot, guys. I appreciate that detail.

Andy Stapp, B. Riley & Co.

Your Securities commission was very strong in the quarter. Do you think you can build upon that going into Q1 of this year?

I would say, Andy, as we look that, there's definitely some seasonality in that business, and the fourth quarter tends to be our stronger quarter because of the fall campaign that we run. So I would expect us to come down from that level, be more like it looked at the first quarter of last year. It probably looks a lot more like the first quarter of last year than it would this quarter, but not by a significant amount. Year-over-year it will look -- will have some level of kind of mid-single digit increase -- kind of first quarter to first quarter is what I would look for -- a little bit lower than the fourth quarter but a good increase year-over-year.

Okay, sounds good. Thank you.

That does conclude today's Q&A session. I will turn it back over to management for any closing remarks.

Okay, thank you. I'd like to thank everybody for your participation in our call today and your interest in F.N.B. Corporation. I hope everyone has a good day. Again, thank you for participating this morning.

That does conclude today's conference. We thank everyone for their participation.