FNB Corp (FNB) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to today's F.N.B. Corporation second quarter 2010 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 and now I would like to turn the conference over to Cyndy Christopher, Manager of Investor Relations for F.N.B. Corporation.

Thank you. 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 can 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 margins; 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 business in which F.N.B. Corporation is engaged; technological issues which might adversely affect F.N.B. Corporation's financial operations or customers; changes in securities markets or risk factors mentioned in the reports and registration statements F.N.B. 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, August 3 by dialing 888-203-1112 or 719-457-0820. The confirmation number is 412-6662. 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 Steve Gurgovits, President and CEO of F.N.B. Corporation.

Thank you Cyndy. Good morning everyone. It is a pleasure to welcome you to our second 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 second-quarter performance and Gary will review our asset quality. Also with me today for the question and answer session are Brian Lilly, our Chief Operating Officer, and Vincent Delie, our Bank President.

Now to the second quarter. We're very pleased with our second-quarter results. Our earnings for the quarter were $0.16 per diluted share. This is $0.02 per share higher than the consensus Street estimate, a 92 basis point return on an average tangible asset and a dividend payout ratio of 77%.

Our success in generating market share gains continued during the second quarter, with average loan growth of 3.3% annualized and average deposit and treasury management growth of 9.2% annualized. Our core Pennsylvania commercial portfolio grew average loans 4.7% annualized and represents the fourth consecutive quarter of solid growth for this portfolio.

This growth continues to represent mainly new client activity as the commercial team is generated 70 significant new relationships with nearly $260 million in new commitments year to date. We're externally pleased with these results and the growth in our consumer portfolio. Our average consumer loans grew 1.8% annualized on a linked quarter basis, a positive accomplishment given the slow pace of economic recovery and recent industry trends. This growth reflects the success of an increased focus on this portfolio with new products and promotional pricing during the quarter.

We're also very pleased with deposit growth we experienced during the second quarter. As mentioned, total average deposits and treasury management balances grew 9.2% annualized with transaction balances growing 13.3% annualized. This growth is a direct result of new account acquisition combined with customers maintaining higher balances.

We increased our net number of business and personal checking accounts by over 1100 in the second quarter, or 1.3% annualized, and by nearly 3000 accounts or 1.7% annualized year-to-date.

Before I turn the call over to Gary to talk about asset quality, I would be remiss without commenting on Reg E and the recently enacted regulatory reform. First, Reg E. We've had a team focused on implementing and mitigating the impact of Reg E for several months now. We've developed the processes and have the people in place to accomplish this.

We're contacting our customers through a variety of channels to educate them on their choices and provide them the opportunity to opt in. With the implementation date approaching, we're at the height of our efforts. However we will continue our efforts and expect accelerated opt-in rates even after August 15, as our customers begin experiencing the effects of Reg E.

Additionally, we are currently evaluating a number of strategies to mitigate the impact of any lost of revenue. Vincent Calabrese will be discussing the estimated financial impact of Reg E with you later.

Regarding the Dodd-Frank Act, it is the most significant banking legislation since the 1930s. [While] we support financial regulatory reform, the Act is expected to pressure industry revenue and elevate expense. Many elements of the reform are still unknown at this time and will be resolved through future regulation.

We have the team, the products and the infrastructure in place and are ready to address the reform proactively. Additionally, we believe that along with the uncertainty and challenge that the Act will bring, opportunities will occur as well. I would like to now turn the call over to Gary Guerrieri for his remarks on asset quality.

Thank you, Steve, and good morning everyone. Looking at the second quarter, both the Pennsylvania and Regency portfolios continued to perform very well, evidenced by improving and consistent results while exposure in our Florida portfolio was further reduced as is consistent with our plan. Annualized net charge-offs for the quarter were 53 basis points, while total delinquency improved by 22 basis points to stand at 2.97% as both early stage and 90-plus delinquencies were down once again this quarter.

Nonperforming loans plus OREO at 2.88% improved by 16 basis points on a linked quarter basis due to positive movement in both the Pennsylvania and Florida portfolios. Let's now take a look at each portfolio beginning with Florida.

At quarter end our Florida portfolio stands at $231 million, now only 3.9% of F.N.B.'s total loans, a reduction of $9.2 million on a linked quarter basis. Of that total, let me remind you that the $138 million non-land segment continues to perform as expected. Centering our focus on the $93 million land related portfolio which represents only 1.6% of F.N.B.'s total loans.

As it relates to the $9.2 million reduction during the quarter, a portion included the sale of a $3.5 million performing credit to a Florida-based community bank at par, an indication in our view that secondary markets and lending activity are beginning to open up.

Charge-offs for the quarter totaled $1.9 million while $4.4 million in nonperforming loans were moved into OREO as we work towards ultimate resolution of these credits. We also sold $3 million in OREO in the second quarter with $2.4 million of that being land-related, generating a $250,000 gain on sale. As a result of these events, nonperforming loans plus OREO were down slightly since the first quarter to stand at $76.3 million.

During the second quarter we strengthened our reserve position by 222 basis points to 11.65% of the Florida portfolio, as we remain cautious about the reappraisal risk surrounding land values in Florida which have not fully stabilized. Our process to update these property values on an annual basis continues. These land related loans are being carried at an average of 33.5% of the original appraised value post reserve, an improvement from 36% the prior quarter due to the reserve build. The weighted average loan to value ratio for the portfolio increased slightly to 79%.

Moving to Regency Finance, we're very pleased with the continued strong and consistent performance of this portfolio as evidenced by solid credit quality metrics. At quarter end the portfolio stands at $160 million, representing nearly 3% of our total loan portfolio.

Net charge-offs improved by 23 basis points to 3.73% annualized and the reserve position remained strong at 4.2%. Delinquency was solid at 3.96% and represents the third consecutive linked quarter improvement.

Let's now take a look at the Pennsylvania portfolio. At quarter end this $5.6 billion portfolio represented 93% of F.N.B.'s total loan portfolio and performed very well as second quarter credit metrics improved on our solid first quarter results.

Charge-off performance at 32 basis points annualized remained in line with our historically good results. Additionally, delinquency was down 14 basis points to stand at 1.91%, marking the second consecutive linked quarter decline for the portfolio as early-stage and 90-plus delinquencies both improved.

Nonperforming loans plus OREO at 1.56% improved 9 basis points since last quarter as non-accruals were down $4.6 million, driven by one large relationship paying off during the quarter, accounting for nearly half of this reduction. As it relates to the Pennsylvania nonaccrual loans, $14 million or 22% continue to be paid on a current basis.

Let's now take a look at a few segments of the portfolio. At just over $3 billion, our Pennsylvania commercial portfolio represented 52% of F.N.B.'s total loan portfolio with the composition of loans remaining consistent with the prior quarter. The non-owner occupied portfolio totaled $1 billion at the end of the quarter and has continued to perform well with slightly elevated credit metrics as NPLs plus OREO moved to 2.25%, up 15 basis points over last quarter, while total delinquency stood at 2.33% and was up five basis points both remaining at satisfactory levels.

The consumer related portfolio totaled $2.4 billion and comprised 41% of F.N.B.'s total loan portfolio, with continued consistent credit performance and excellent results for the quarter. Delinquency improved 19 basis points to stand at a very solid 1.21% and was impacted by positive movement across all segments. Consumer portfolio losses remained in line with our historically strong levels at 30 basis points.

As it relates to the mortgage portfolio, delinquency at 2.24% improved by 11 basis points over the first quarter while losses remained low at 9 basis points.

In summary, the second quarter demonstrated continued solid performance for our Pennsylvania and Regency portfolios with improved credit metrics while our Florida portfolio exposure continues to be reduced as planned. We are optimistic that the levels of nonperforming loans plus OREO have reached a cresting point and that we will experience slight declines throughout the end of the year should the economic recovery continue as expected.

We anticipate net charge-off levels and the provision for credit losses to be elevated compared to historic results but to remain lower than 2009 levels. The stability we experienced in our core portfolios throughout the stages of the cycle is a credit to the consistency of our underwriting and risk management practices which have served us well. With many of the economic challenges behind us, we look forward to even stronger credit performance as we move through the recovery.

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

Thanks Gary and good morning everyone. We've addressed many of the second quarter details between last night's earnings release and the comments provided by Steve Gary. Therefore I will focus my remarks on a few additional highlights of our operating results, an update of our guidance and some Reg E status comments.

First, looking at our performance ratios we're pleased with our second-quarter return on tangible common equity of 15.65% and return on tangible assets of 92 basis points. We consider these very reasonable levels at this stage of the economic recovery. Additionally, we're pleased with the results of the business drivers during the quarter and expanding margin, solid loan and deposit growth, stable fee income, controlled expenses and improving credit quality.

Now turning to the balance sheet, let's begin with loans. As Steve mentioned, we generated solid loan growth in the second quarter as we continue to gain market share. Total average linked quarter commercial loan growth for our Pennsylvania portfolio was 4.7% annualized.

On the consumer loan front our total growth during the quarter of 1.8% annualized was driven by growth in home equity lending, reflecting the success of several promotional initiatives for these loans. Regarding our outlook for total average loans compared to 2009, we're expecting growth for the full-year of 2010 to be in the low to mid-single digits excluding the impact of continued reductions in the Florida portfolio. This is based on consensus forecasts for continuing the economic recovery.

Now, looking at the funding side we're very pleased with the strong second quarter total annualized growth in deposits and treasury management balances of 9.2%. We expect to continue growing both transaction deposits and treasury management balances, further enhancing our funding mix. For the year as a whole, we expect to experience mid-to high single digit growth in total average deposits and treasury management balances.

On a linked quarter basis, the margin expanded by 7 basis points to 3.81% in the second quarter primarily reflecting growth in earning assets and a lower cost of funds. Second quarter margin also included a 4 basis point benefit from successful efforts resolving certain nonaccrual loans that resulted in us being repaid with back interest. In addition to this benefit, the margin widened another 3 basis points compared to the first quarter through a combination of investing excess liquidity and closely managing our cost of funds.

We expect to continue improving our overall funding mix and for our interest rate risk position to remain neutral. We expect the margin to remain stable at current levels for the remainder of the year.

Noninterest income totaled $28.4 million for the second quarter. Excluding securities gains and OTTI charges, noninterest income decreased 1.9% compared to the prior quarter. However, the first quarter included $3.3 million in recoveries on impaired loans acquired through acquisitions and the second quarter includes the $1.6 million gain in F.N.B. Capital Corp related to a successful harvesting of a mezzanine financing relationship. After adjusting for these items noninterest income increased 4.5% during the second quarter, which is primarily due to seasonally higher service charges.

Now on the topic of fee income, similar to every other bank in the country we are busily working to sign up as many customers as we can in response to Regulation E. For us, the amount of revenue at risk on an annualized basis is $11.6 million. From the implementation date of August 15 through the end of the year, our estimated amount of revenue at risk is $4.5 million.

As Steve discussed we're in the midst of our opt-in efforts and expect to reduce the post-implementation date impact for 2010 to under $1.7 million or one penny a share. Our strategy over the next few months will be to continue to focus our efforts on customers who are higher frequency users. While there are a lot of moving parts in noninterest income, we expect a run rate increase in the low single digits for the full-year of 2010 compared to 2009.

Noninterest expense of $63.1 million for the second quarter remained very consistent with the prior quarter when excluding the $2.3 million in FHLB prepayment penalties last quarter. Efficiency ratio for the second quarter was 60.5%. We continue to focus on expense control throughout the organization and reaffirm a projected efficiency ratio in the low 60% level for the remainder of the year.

Gary provided an excellent overview of our credit quality. We are pleased with the second quarter delivering improving credit quality results in line with our expectations. Looking ahead to the second half of the year, we expect the provision to be consistent with levels reported for the first half of the year as we continue to reserve for the reappraisal risk in the Florida land-related portfolio.

Regarding our capital position, we expect our capital ratios for the remainder of the year to be consistent with current levels, continuing to exceed well-capitalized thresholds. Steve, that completes my remarks.

Thank you Vince. With financial reform and increased compliance burden, we believe that the Pennsylvania stage is set for further industry consolidation. We still have the desire to expand eastward in Pennsylvania as well is build out the central Pennsylvania and Pittsburgh regions. Therefore we will be continuing to have conversation with bankers in those geographies throughout the rest of the year.

The topic generating significant interest and one that we're closely monitoring is the Marcellus Shale natural gas repository. The Marcellus Shale formation can be found beneath about 60% of Pennsylvania's total landmass, and once fully developed has the potential to be the second largest natural gas field in the world.

Although in the very early stages of development, the estimated impact of the Marcellus Shale to the Pennsylvania economy for years to come is substantial. A study released in May of 2010 by researchers at Penn State University estimate that Marcellus Shale contributed to the creation of over 44,000 jobs last year with total job creation of 111,000 expected by the end of this year and 212,000 by the end of 2020.

What does this mean for F.N.B.? While we're not able to state tangible direct benefits in this early stage of development, our banking footprint aligns closely with the Marcellus Shale formation and the Pennsylvania wells started during 2009. In fact, in an industry note recently published, Sterne Agee screened F.N.B as the second best positioned institution in Pennsylvania, based on an overlap of drilling permits issued, wells being dug and our market share in these counties.

Overall the total economic stimulus to the Pennsylvania economy as a whole appears to be very promising.

That concludes our formal remarks. I will now turn the call over to the operator for your questions.

(Operator Instructions) Frank Schiraldi, Sandler O'Neill.

Just a couple of quick questions. I wanted to ask Gary about -- if you could remind us about appraisals in Florida, how often they are done. I think you had mentioned annually; if you could talk about maybe how much of the land portfolio has been appraised in the last three months and expectations for what is going to be appraised in the next three months.

Sure Frank. Through the first part of the year we have appraised about 15% of the land portfolio. You will recall that we do reappraise these annually, on an annual basis, leaving about 80% plus for the remaining part of the year. During the third quarter we've probably got about one-third of that scheduled to be re-appraised and approximately two-thirds of the remaining to be reappraised in the fourth quarter of this year.

Of -- some sort of maybe average you could give of stuff appraised so far in the first half of the year, how much of an additional value, haircut you saw.

Let me walk you through that process a little deeper. As we just mentioned, you understand where we are from a process standpoint. We've been monitoring the movements of these updated appraisals very closely. That being said, each one of these properties has its own characteristics.

We have built a reserve through June 30 based on that analysis of market conditions and the movements we've seen, Frank. And the updates we've received throughout the first part of the year reflect year over year declines that occurred in the latter half of 2009 and during the first six months of 2010. Based on that review and that analysis of that information we're anticipating reductions in the mid-20s to 30% range and we've provided for that through the June 30 period.

So you have effectively already reserved for expected value hits on the stuff that has not been reappraised yet?

That is correct; up through that June 30 period.

This is Steve, if I can make a comment. One of the problems we had is the whole of appraisal process that is occurring in Florida. It's -- there aren't a lot of comparable sales and we think there is a real flaw in the process. But having said that it's the only process we have. So, I think we're being conservative and doing the right thing in anticipating that that market hasn't fully stabilized yet.

Right. So I see your point that you may be seeing -- the comp stuff you may be seeing is sort of distressed and doesn't necessarily reflect the true value of the real estate or land.

We really believe that.

Okay. Given what you saw in the quarter, in the second quarter, would you expect to see a pickup in asset sales in both loan and real estate sales down in Florida from the portfolio?

We have continued to see elevated interest and activity in and around the market place. We mentioned the transaction of the sale of the loan to a community bank. We are exploring those opportunities and we do plan on continuing to reduce the exposure as well as liquidate the assets through the OREO process.

Okay. Finally on deposits, given the great deposit growth you have seen, is there any sense that the deposits are actually coming in a bit faster than -- a bit too fast to deploy them effectively? Is there any sense that if you back off a little bit on bringing those deposits in? Or, no, you're continuing to expect to see transaction accounts come in and the mix continue to improve at a pretty good clip?

Well, Frank, because of the experience we have had now, not only in the last couple of quarters but even in 2009, what we're getting are real core deposits. These are fundamental checking accounts of both consumers and businesses. These are people and businesses who are choosing First National Bank or F.N.B. as their primary bank and we don't want to discourage that.

What we have done, however, on the upper end -- the higher cost CDs especially some of the hot money from government municipalities and so forth, is we have backed off that because of our total deposit growth. But we don't want to turn off people who are, because of some of the disruption in the market place and because of some of the activities on our team is doing on the sales side convincing these people that F.N.B. should be their bank, we don't want to discourage that.

Great, and then I think I just might've missed the number. Vince, you spoke about Reg E and I believe you said the amount of revenue at risk -- well, actually the amount that you expected or I guess expected revenue lost was $1.7 million I think or a penny a share. Is that right?

Yes.

And is that for the remainder of the year or that's for a full year?

That's from August 15 through the end of the year, so for the period when the regulation kicks in for existing customers.

Andy Stapp, B. Riley & Co.

Good morning and nice quarter. With NPAs cresting, do you believe that you are at or near the end of the reserve building process?

Actually, Andy, in the Pennsylvania portfolio we moved the reserve down two basis points. So we did see that movement downward during the quarter and we've already discussed increase and the purpose of the increase in the Florida reserve bill for you.

Okay. In your earnings release you talked about deployment of funds previously held by the Fed. Could you elaborate on this?

This is Vince. In April we had -- well, during the first quarter we had been building up some traditional liquidity at the Fed I think to the point that Steve had talked about as deposits were growing. So we took $100 million of that beginning of the second quarter and just invested that at about 150 basis points instead of just earning 25 basis points at the Fed, so we have some benefit that came through in the second quarter [vesting] short-term investments.

We've invested those with a duration of about two years. So still staying short but put them to work instead of just leaving them at the Fed.

And could you talk about the loan pipeline, how it compares to last quarter at this time as well as any change in the mood of customers regarding their business prospects and willing to invest in business? Just trying to get a sense -- I know you've had some nice market share gains; I just wanted to get a better feel on organic loan prospects.

This is Vince Delie. We've seen -- we're still seeing many clients looking to make a change because of what has gone on in the market place and because of the fact that we have the majority of the solid bankers in the market who have long-term relationships commercially, we are seeing a little bit of lift. There is a little bit of capital investment going on. But it is still much, much smaller than it has been. So the majority of the growth is coming from market shares [deal].

Andy we view that as positive because we're getting gains, and I'm sure you're seeing a lot of other bank second quarter results where they are not producing loan gains. As the economy continues to improve, at some point in time what we're looking for is for existing customers who have been relatively quiet. There are some exceptions for that. When they start rebuilding inventories and doing CapEx, that bodes well for F.N.B. in terms of future loan gains as well.

Good job guys. Thanks.

Jason O'Donnell, Boenning & Scattergood.

Can you just give us some more color on the mezzanine investment that generated a gain this quarter and whether that investment was liquidated?

Yes. It was a company out in Eastern Pennsylvania in Horsham, Pennsylvania. It was the transaction where the management purchased the company from the prior owner, which was a corporation, but we provided some mezzanine financing to facilitate that. The credit was on our books I'm going to say approximately 2 years. And MorningStar came along and offered a cash purchase for the company, which was accepted by the board and management of that company.

And the result of that was, roughly, we took a little bit of a gain in the fourth quarter because of the financial performance of the company and then obviously had the gain in the second quarter this year from the outright sale the company. But all in all, it was approximately about a $2 million pretax gain in total for F.N.B.

Great. And I'm just wondering at this point how big is the mezzanine portfolio and do you think regulatory reform is going to impact that F.N.B. Capital Corp. business.

The mezzanine portfolio at the end of the quarter was right at $18 million and there were nine investments comprising that amount.

Jason, I will add, and then I will answer your question about the new regulation, but just another comment on that. As the credit markets tightened over the last couple of years, what we have found we were at the right place at the right time because a lot of the quality of the applicants improved dramatically over the last couple of years for our Capital Corp folks. As well as the regulation -- as far as the regulation goes there are some minor tweaks we have to make in our operation, but we'll still be in business pretty much as we are today.

Okay, that's perfect. And finally I'm wondering, aside from the $1.6 million gain what else is in other noninterest income this quarter? And are there any recoveries on impaired loans that were acquired or any other lumpy items we should be looking at?

This is Vincent Calabrese. This quarter, other than the gain on that one transaction of $1.6 million, the other kind of larger components -- we have income on our Bank Owned Life Insurance which is about $1.3 million for the quarter; swap fees; dividend on nonmarket securities; nothing unusual. The 3-3 gains were only a couple hundred thousand dollars this quarter. You may recall last quarter it was $3.5 million, so really just standard items other than the gain on the Capital Corp.

Okay, great. Thanks very much.

David Darst, Guggenheim Securities.

Good morning. Steve, I was just looking through the press release again. Have you given a number for the unfunded commitment growth or line growth kind of related to some of the successful marketshare that you're moving and the potential upside you could have once the economy recovers?

That will be in our 10-Q when we report that. I don't have that figure handy right now.

Okay. Looking at your net charge-offs for Pennsylvania trending around $4.5 million, do you consider that to be relatively close to a normalized number or a number that you are comfortable with?

David, that number has been very consistent throughout 2010. It is slightly elevated from our normal run rate. So as we move through the cycle, we would expect that that would gradually move closer to that normal run rate once we get through the economic soft period.

What do you consider the normal run rate for Pennsylvania charge-offs?

Well, as I just indicated, if you look at those historical levels and where we are today, that is really where we feel it is going to approximate.

Okay, just looking at the overall company number, then, for the prior six years or so; is that fair?

Yes, that's fair.

Mac Hodgson, SunTrust.

Good morning. I was curious if we could get a little bit more color on the sale of the performing loan in Florida. I thought that was interesting. I'm just curious to know the motivation of the buyer, if it was a relationship they had a piece of that they wanted to give more exposure to, things like that, if there is any way you could speak to that.

Yes, Mac, it is a relationship that they were familiar with. And essentially we're seeing some community banks in that market place start to reenter the lending market. So they are looking to put assets on the books. And as I indicated earlier, we are continuing those discussions at this point.

Mac it helps us, one, overall reduce our total exposure in Florida. But secondly, we have fairly robust pipelines remaining up here, especially on the commercial side. And frankly, we can get probably better pricing in a relationship up here with those same funds versus something that is purely transactional in Florida.

Great. And I wanted to go through the Reg E again just to be sure I understand it. I believe you mentioned that originally it was kind of $11.6 million of revenue was identified to be at risk. And is it through the opt-in processes you have decreased it to $4.5 million and the hope is to reduce it to only $1.7 million risk for the back half of the year, is that right?

Well, Mac, the $11.6 million is an annual figure; so that would be for full-year based on how we are running today. The $4.5 million would be the portion of that that would relate from the August 15 through the end of the year date. And through our opt-in efforts, we are driving to reduce that down to $1.7 million; [from] the $4.5 million down to $1.7 million or less.

Got you. Any plans, kind of long-term strategy with deposit pricing, instituting or eliminating free checking? Any kind of plans the company plans to make on deposit products to adjust for -- $1.7 million is not a lot, but just any plans long-term the company has on deposit products?

Well, what we're looking at, Mac, first of all we're focused on this opt-in process. And as I mentioned in my remarks we'll continue to do so probably for the remainder of the year, because when we discuss customers who have used this service in the past we're getting a 90%-some penetration rate opting in. So clearly the customers who use it want to continue to have it.

In the meantime, though, because of the whole financial reform snowball and Reg E maybe in particular, we are looking at all of our pricing across our services including perhaps restructuring some of them. But at this point in time, our primary focus is to work on the opt-in. But clearly, this Reform Act is going to pressure bank earnings I think, and so we are reacting to that and anticipating that.

We may have some things in the future, but right now we're just working all angles to be honest with you.

On the loan growth, the good loan growth in the quarter, geographically where is that predominately coming from in Pennsylvania? What markets? Is it Pittsburgh?

Commercially we're seeing -- this is Vince Delie again -- commercially the Pittsburgh market is driving a disproportionate share of the growth, but we're seeing lift in other markets as well. So particularly in the Hermitage, Youngstown, Erie markets; so pretty much across the footprint that overlapped with some of our competitors that aren't in existence anymore.

And Mac, on that point, what we continue to experience -- and I'm very pleased we are experiencing it -- we're becoming the employer of choice for some of these more seasoned commercial lenders in our footprint. And they like the way we do business and they are coming over and that continues to build the strength of our team. Oftentimes they're able to bring over books of business with them.

Okay, great. One final one, Steve, I think you referenced consolidation potentially happening in the state. I wanted to see if you could give an update on dialogue. Does it appear as though companies are searching for buyers more at this point? Have conversations picked up at all on the M&A front?

Well, my sense of it, Mac, we're out there obviously. For the last two years we've been focused on this organic opportunity and we continue to focus on that. But recently, we started to renew our relationships and acquaintances with bankers in these markets that we target.

I can't tell you -- and we're talking to bankers all over the state. Obviously there was a lot of concern about the financial reform regulation, and now that is history, except that now we have to deal with it. I think you're going to find banks that have a number of issues (technical difficulty) succession problems. [There] could be increased regulatory scrutiny on them. Maybe it's a challenge to build earning assets in a very competitive environment.

This business is very, very difficult and I think you're going to find banks saying maybe our best option is to find somebody to partner with. You're starting to hear that kind of conversation. I'm not sure 2010 is going to be necessarily the peak year. I think it's going to start building in 2010. I would expect 2011 maybe even 2012 to be pretty active on an M&A front (inaudible).

Great, thanks for the color. I appreciate it.

Tom Alonso, Macquarie.

Most of my questions have already been answered. I just had a couple of quick follow-ups. You guys have -- so I assume that line usage is either stable or down on your commercial lines.

I would say it is stable for sure. With some exceptions, you are getting a little bit more activity but generally it is stable. We have not seen the real bounce back that maybe you would expect in an economic recovery, but then again the economic recovery has been slower than some of the past recoveries.

Have you quantified that usage as a percentage?

I would say today we're running in the high 30s. Typically that would be more in the mid 40s to high 40s when things are -- the economy is cranking along in a normal fashion.

And you guys think you -- (multiple speakers) I was going to say you think you would get back to that level as the economy improves?

We've seen very few requests for large CapEx spend coming out of the commercial portfolio. So one would expect that there would be increased demand as we move through the cycle, but there've been very few. So, most of the increase has been related to market share.

We'll probably work our way back up into the 50s again once things are really fully moving along as far as the economy.

If you've looked at past recessions, it's almost like a checkmark. The bounce back is pretty sharp.

I mean and to that (multiple speakers)

This one's not happening that way.

No checkmark for this one.

No checkmark for this one.

Do you think there is -- speaking to that sort of that checkmark bounce back, do think there's a delay in that given the deposit flows you guys have seen? And maybe some of these projects, some of the stuff gets funded out of cash on hand at these banks and you don't get the bounce back? I know it is kind of a bigger picture question, but I'm just curious of your thoughts.

I think you'll see companies funding their inventory purchases using that cash first for working capital. The larger -- because of the rate environment, the larger CapEx projects, provided that the rates remain relatively low, will be financed over a longer-term period. So, what we're seeing is really tight inventory control which is keeping the balances down and no CapEx spend.

Fair enough. And then if -- just on the loan you sold, was that you guys marketing a credit, or was that a bank coming to you saying, hey, we would like to take you out of that?

It is a bank we are familiar with and it is, from our perspective, offering some assets for sale. As they have indicated they're back in the lending business and looking to grow some assets. So it was a win-win from both perspectives.

So sort of a meeting of the minds?

Yes.

Okay and then just lastly, what percent of your loan book is variable rate?

I would say if you look at the overall loan book, about 60% of the total loan portfolio is variable or adjustable rate, and about half of that is all within one year.

Okay, and of those, how many have -- what percentage has floors?

We don't have that in front of us, but I can tell you we started some time ago trying to negotiate floors in the pricing where we could.

Maybe we'll just have to follow-up on that off-line. That's all I had. Thank you guys.

Mike Shafir, Sterne, Agee.

I was just wondering -- most of my questions have been answered as well, but if I could just get a little bit of clarity on the NIM. When you said it was going to stay relatively consistent, did you mean consistent at the 3.81% level or ex the 4 basis point gain for the recuperation of some back interest?

More the ex 4 basis point gain, so the 3.77% level.

Okay and then as far as the tax rate, are we going to stay right around here at 27%?

That's a good run rate for the next couple of quarters.

Thanks a lot guys.

Gerard Cassidy, RBC Capital Markets. No response; I will turn the call back over to our speakers for any closing or additional remarks.

Thank you. We would like to thank everyone for your interest in F.N.B. Corporation and for joining us on our call today. I hope you have a good day. Thank you for joining us on the call.

Once again ladies and gentlemen, that concludes our conference. Thank you all for your participation.