FNB Corp (FNB) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's F.N.B. Corporation first-quarter 2011 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, Manager of Investor Relations for F.N.B. Corporation. Please go ahead.

Thank you, Dave. Good morning, everyone. Welcome to our first quarter of 2011 earnings call.

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.

For more information about risks and uncertainties which may affect us, please refer to the forward-looking statement disclosure contained in our first quarter of 2011 earnings release and in our reports and registration statements F.N.B. Corporation files with the Securities and Exchange Commission and available on our corporate website. 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 May 3, 2011 by dialing 877-870-5176 or 858-384-5517. The confirmation number is 2152369. A transcript of this call and the webcast link 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, CEO of F.N.B. Corporation. Steve?

Thank you, Cindy. Good morning, everyone. It is a pleasure to welcome you to our first-quarter earnings call. Joining me today on the call are Vince Calabrese, our CFO, and Gary Guerrieri, our Chief Credit Officer. Vince will highlight the quarter's performance and Gary will review our asset quality.

Also with me today for the question-and-answer session are Brian Lilly, our Vice Chairman and Chief Operating Officer, and Vince Delie, our Bank CEO and President of F.N.B. Corporation.

Looking at results for the quarter, earnings were $0.16 per diluted share when excluding merger costs, representing a 94 basis point return on average tangible assets. This is a nice progression from $0.15 last quarter when excluding one-time pension expense credit and $0.14 in a year ago quarter.

Last quarter we discussed our commitment to continue building on the strong momentum created. We are pleased that results for the first quarter reflect this, with solid growth seen for revenue, organic loans and deposits, and expanded net interest margin, very good credit quality results for the Pennsylvania portfolio, and a successful completion and integration of the Community Bank & Trust acquisition.

Looking at our positive loan growth trends, this marks the seventh consecutive quarter of organic growth for total loans and the eighth consecutive quarter of organic growth for our Pennsylvania commercial portfolio.

Organic growth in the Pennsylvania commercial portfolio was nearly 11% annualized this quarter, with positive results seen across all of our core markets. This growth continues to reflect market share gains as line utilization rates remain essentially flat and near historical lows.

We also continue to be successful in attracting new deposit accounts. We remain focused on lower cost relationship-based transaction and customer repurchase agreements, which grew organically over 4% annualized. I mentioned the completion and integration of Community Bank & Trust. The conversion went seamlessly in mid-February and we are now leveraging all of our products and services in this footprint and building staff where needed.

I would like now to turn the call over to Gary for his remarks on first-quarter solid asset quality results.

Thank you, Steve. Good morning, everyone. Overall, assess quality results for the first quarter continued to trend positively, reflecting very solid performance for our Pennsylvania and Regency portfolios. The Florida portfolio continued to perform as expected as we focus on reducing our exposure there.

Steve mentioned that we completed the CB&T acquisition on January 1. As expected, the impact on our credit metrics was minimal and I will walk you through these items where needed.

First, in looking at the Company's reserve position, the total reserve on a GAAP basis stands at 1.64%. As you know, consistent with purchase accounting rules, acquired portfolios are booked at fair market value. The impact of these marks and the corresponding increase in total loans without a reserve held against them effectively reduces F.N.B.'s reserve position by 10 basis points.

Without CB&T, our reserve would have been flat quarter-over-quarter. Including the credits mark on the CB&T acquired portfolio, we have 2.04% set aside against F.N.B.'s total loan portfolio. We are pleased that the credit mark of approximately $27 million after write-downs conducted in late 2010 by CB&T is essentially equal to our estimates communicated last August and validates the effectiveness of the thorough due diligence progress we have in place to identify credit risk.

Looking at NPLs, the ratio of nonperforming loans and OREO to total loans and OREO improved 20 basis points to 2.54% while total delinquency at 2.73% improved slightly over year-end levels. Charge-offs reflect very favorable performance at 42 basis points annualized.

Let's now take a brief look at each portfolio beginning with Pennsylvania. After quarter end, the $6.2 billion Pennsylvania portfolio represented 95% of F.N.B.'s total outstanding loans. Charge-off performance for this portfolio continues to be very good, with annualized net charge-offs of 27 basis points for the first quarter, improving on already solid results.

Total delinquency at the end of the quarter of 1.9% remains at historically good levels with a linked-quarter increase of 10 basis points reflecting the acquisition. Excluding CB&T, total delinquency continues to trend positively and would have improved by 10 basis points on a linked-quarter basis.

The ratio of nonperforming loans and OREO to total loans and OREO improved 5 basis points to 1.39%.

Turning to Regency Finance, this $158 million portfolio represents 2.4% of F.N.B.'s total loan portfolio and continues to demonstrate strong and consistent results. Charge-offs for the quarter remained in line with the prior quarter and the portfolio remains well reserved at 4.2%. Delinquency results are very positive at 3.93%, reflecting the lowest level of delinquency since June 2007.

Moving to Florida, during the quarter we were pleased to have completed the sale of a $3.4 million condominium project held in OREO. This transaction for which we held a 10.5% interest in was sold for $35 million and represents continued investor interest in the Florida real estate market.

The sale of this project resulted in a slight recovery and more importantly eliminates the remaining condo exposure held in the portfolio and contributed to a $4.9 million or 6.4% reduction in Florida-related nonperforming loans in OREO.

As we have previously discussed, our focus in Florida continues to be the land-related portfolio. At quarter end, our exposure here including OREO was $76 million comprised of $22 million in OREO and $54 million in loans. The loan portion represents less than 1% of F.N.B.'s total loan portfolio and a 25% reduction in land-related exposure on a year-over-year basis.

In summary, our Pennsylvania portfolio continues to perform very well with credit metrics that have been trending positively over the last several quarters while the Regency portfolio continues to perform consistently well. Additionally, we are pleased that the impact from CB&T was as expected.

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

Thanks, Gary. Good morning, everyone. The first-quarter results reflect strong performance, an excellent start to 2011. We have addressed many of these details between last night's earnings release, the comments provided by Steve and Gary, and I will focus my remarks on additional highlights of key drivers of our operating results and guidance for the remainder of the year.

First, looking at our expectations for the remainder of the year, with the quarter's results validating and in several cases exceeding our expectations, we are reaffirming our guidance given in January for loans and deposits and offering enhanced guidance for margin, fee income, expenses, and asset quality. I will discuss these throughout my remarks.

Before I touch on the highlights, I would like to note that the acquisition of CB&T obviously contributed to our balance sheet growth during the quarter. With this in mind, I will focus on the organic growth results we delivered in the quarter for balance sheet drivers.

We continue to enjoy success growing both loans and deposits, as Steve discussed earlier. Organic loan growth results reflect the continuation of positive trends with total average loans growing 5.5% annualized in the first quarter, driven by linked-quarter growth in our Pennsylvania commercial portfolio, 10.7% annualized.

Consumer loan balances, which were essentially flat on an organic basis, reflect softer demand and lower volume, which is typical in the first quarter of the year. We're very pleased with the overall organic growth in loans and commercial lending saw a lift across all of our markets. We view these results as a great start to the year.

As mentioned, we reaffirmed expectations, for full-year 2011 organic loan growth in the mid-single digits, excluding any impact of Florida reductions.

On the deposit side, we remain focused on attracting lower cost relationship-based deposits and organic growth for transaction deposits, customer repos was 4.3% annualized in the first quarter. Given this focus on gathering new transaction accounts combined with the liquidity position of our balance sheet, there was a reduction in organic time deposits 6.9% annualized, reflecting pricing decisions for these products.

Again, we reaffirm our guidance of expected low single-digit organic growth in total deposits and customer repos, and mid single-digit organic growth in transaction deposits and customer repos for the full year of 2011 compared to the full year of 2010.

Regarding our funding, core balance sheet strategy for us has been to fund loans [to the] customer relationship balances. It is important when looking at our balance sheet to keep in mind that there are customer-funded items shown as debt consistent with GAAP reporting requirements. In fact, between deposits, commercial customer repose, subordinated notes sold by Regency to their retail outlets to fund their balance sheet, 96% of our total funding is based on customer relationships with only 4% being wholesale funds. This provides us with significant flexibility to fund future loan growth.

Moving to the margin for the first quarter, it expanded 4 basis points to 3.81% through continued enhancements of our funding mix and active pricing management.

Another of our key strategies and one we have been very successful at is maintaining a stable margin. Consistent with this focus, we expect the margin to remain stable at current levels for the remainder of the year, which is higher than our previous guidance.

Noninterest income results for the first quarter were in line with expectations, with the effect of seasonally lower first-quarter customer service fees and lower mortgage-related gains essentially offset by solid increases in other revenue items. Included in the quarter was seasonally higher insurance income reflecting contingency revenue, increased wealth management revenue, continued strong swap fee revenue.

Wealth management results included growth of 14.8% for securities commissions and a 12.8% increase in trust income, reflecting improved market conditions and the successful results of new initiatives in place to generate additional revenues. These initiatives are in the early stages and include a more effective sales management process and realigned incentive programs. We are pleased to see these results at this early stage of the process.

Additionally, in looking at the other noninterest income component, the decrease compared to the prior quarter is a result of $1 million in success fee revenue realized last quarter at F.N.B. Capital Corporation.

Regarding guidance for the remainder of the year, we are targeting a quarterly noninterest income run rate in the $29 million to $30 million range.

Turning to noninterest expense, the first quarter's expenses included $4.1 in merger-related costs, seasonally higher personnel and occupancy costs and the inclusion of CB&T's expense base. Additionally when comparing linked quarter noninterest expense, recall that the fourth quarter included a $10.5 million one-time credit to pension expense for the plan amendment.

As we enter the second quarter, we are beginning to realize the full cost saves from the acquisition, projected to be approximately $1 million per quarter on run rate basis.

Looking forward, we are targeting a quarterly noninterest expense run rate in the $69 million to $70 million range for the second quarter, trending down toward $68 million by year-end, which would transit into an efficiency ratio approaching 60%.

Switching over to credit quality, as Gary discussed, we are pleased with another quarter of solid results for F.N.B. For the remainder of the year, we continue to expect levels of nonperforming assets to gradually decline, consistent with an improving economy.

Given the first-quarter's provision for loan losses, we expect full-year 2011 provision for loan losses to be approximately 25% better than 2010 levels which you may recall is on the better end of our previous guidance. This provision takes into consideration the possible reappraisal risk for Florida land-related properties, assuming a 10% year-over-year reduction in values.

We reaffirm our expectation for a meaningful reduction in net charge-offs driven by improvement in Florida-related charge-offs and continued very good results for the Pennsylvania and Regency portfolios.

Regarding our capital position, capital ratios are expected to continue to exceed well-capitalized thresholds. Capital levels at the end of the first quarter reflect the CB&T acquisition consistent with our original projections. We expect to return to year-end 2010 levels in less than 12 months for the tangible capital ratio and 18 to 24 months for the risk-based ratios.

Steve, that completes my remarks.

Thank you, Vince. As you know, we place a great deal of importance on our bankers being a key driver to delivering successful results and I would like to briefly touch on some of the recent additions to the team.

As part of the strategic revenue-enhancing initiatives and realignments that are under way, we announced the hiring of a new president of the insurance agency. This individual has tremendous insurance industry experience to lead this affiliate in leveraging the bank's delivery channels. Additionally we added a very experienced commercial lender to lead the team in our expanded Scranton, Wilkes-Barre footprint. We have also brought on a banker with syndication experience to assist in managing our larger client relationships.

These are just three examples of F.N.B. continuously attracting highly talented individuals as an employer of choice.

In closing, all in all we feel we had a great quarter to start 2011 and we look to build on this momentum. Our pipelines are strong and we expect to see continued loan growth, deposit growth, and solid credit quality results.

That concludes our remarks. I would like to now turn the call over to the operator to poll the audience for any questions.

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

Good morning. Just a couple quick questions. First, just on the Florida portfolio, given the sale in the quarter, are you, Gary, do you expect to see that activity pick up distressed sales, bulk sales, things like that?

You know, the activity in that market is continuing from all of those perspectives, Frank. We are continuing to look at all of those angles as we constantly monitor that portfolio and as we are focused on reducing those balances, as we have mentioned to you. So we're looking at all of those angles. Activity is there. There is continued solid interest and we will continue to monitor that and work through that as time goes by.

I guess would you foresee something -- would you foresee a bulk sale or just on a one-by-one basis?

No, we're going to continue with the strategy that we have put in place and continue to maximize the economic value out of each asset, Frank.

And then, Vince, I'm sorry, I missed your comments at the end there on capital. I think you had said where you expect capital to be maybe year-end or --?

Sure. What I said, Frank, is I expect that the tangible common equity ratio will be back up to 6%, which is where it was at the end of 2010 by the end of this year. And then the risk-based ratios 18 to 24 months to fill back up to where they were at the end of 2010.

Okay, but your guys thinking hasn't changed at all on supplementing capital through a common raise, supplementing it any other way other than earnings here?

No. Our capital management strategy continues to be the same, high dividends. You know our investments thesis with 50% from the dividend and 50% from earnings and 60 to 70 dividend payout ratio. So we are continuing to manage capital along those ways and I think as you know from our past, we have been successful in raising capital in conjunction with acquisitions.

So given our focus on efficient use of capital, we are not looking to stockpile capital for potential deals.

Frank, this is Steve. That program is well understood by our regulators and they are in tune with that.

Okay, and when is the last time you have had your regulatory exam, your regular regulatory exam?

We had an OCC exam and a Federal Reserve exam, both concluded in the first quarter this year.

Okay, great. All right, guys. Thank you very much.

Bob Ramsay, Friedman Billings Ramsey.

Good morning, guys. I know you mentioned that the lending pipeline was strong. Could you maybe provide any additional color on sort of where it is today versus entering the first quarter and talk about whether it's picking up market share, if there's any area in particular that you're seeing more activity?

Well, I will address the last part first. In the first quarter, we had pretty good loan growth and we have had that especially in the commercial portfolio now for eight quarters in a row. We're seeing it across all our markets. It's not really coming from any one market, although Pittsburgh being the large market, we are having pretty good success there. That is really because we've got better sales management practices in place and we've got incentive plans focused on new client acquisition, which that has been the case for awhile now and it's paying off. Relative to pipelines.

I would just add that when we look at our overall pipeline levels that we were at the end of the first quarter, really pretty good levels for us, the highest they've been in a couple of years. Looking at total pipeline, it's a couple hundred million dollars higher than what it had been running over the last few quarters. And a 90-day pipeline, it's very strong also. So we feel pretty good about where the pipelines are at this point.

Bob, we are encouraged by that because as I mentioned in my remarks, our line usage remains sluggish and near historical lows. As the economy continues to improve, at some point our customers, when their order books are justifiable to get to build inventories and CapEx spending, and so we should get a pick up from increased line usage. To this point, most of our customers are using inventory, just-in-time inventory rather than building inventory positions.

Okay, that's helpful. Could you talk, too, about the impact if any of the new FDIC deposit insurance assessment calculation will have on you guys? Is the insurance expense going to go up or down and by about how much?

Sure, as you know effective April 1, the new approach is in place. For us it's going to translate into savings, given how core deposit funded we are, very high proportion there. For us the savings quarterly is about $600,000 -- $600,000 to $700,000 a quarter effective April 1. And that is baked into the guidance that I had given earlier.

Okay, great. Thank you, guys.

Damon Delmonte, KBW.

Good morning, guys. How are you? I was wondering if you guys could just give us an update on your Regency plans for expansion that you had discussed towards the back end of 2010.

Sure Damon. This is Brian Lilly. As you know, we opened eight offices in the fourth quarter. There were seven in Kentucky and one in Tennessee and we are progressing very well. At the end of the first quarter, our outstandings are right on target for the production that we had. And as you know, there's not a large investment in these offices. We are already getting close to breakeven. We are expecting to be breakeven certainly by the end of this year and progressing well.

One note is that it is the consumers as we're seeing across the banking industry are not anxious to put on debt, but we are seeing that a little bit in your Regency, but still throwing off $2 million, $2.5 million in outstandings by the end of the first quarter with that initiative is driving us close to -- getting us close to breakeven.

Okay, would you expect to grow those branches in similar fashion as the rest of the footprint?

Yes, yes absolutely. Our average branch is close to $3 million in size and so as we go through time we expect that we will be driving those branches to that size.

Okay. Great, thank you. Then Vince, with regards to your securities portfolio, could you talk a little bit about your positioning for the interest rate environment today and kind of what you guys expect going forward?

Sure, as you know, overall we manage our interest-rate risk position to be relatively neutral. I would say as we sit here today, we are slightly asset-sensitive, so we would have some benefit from rising rates.

As far as the investment portfolio itself, it still remains short. Duration is 2.5, which is unchanged from where it was at the end of the year. It continues to throw off quite a bit of cash, about $500 million worth of cash over the next 12 months, that we continue to get an opportunity to reinvest and we are getting closer to the inflection point where our reinvestment rate is getting a lot closer to what's running off.

For example in the second quarter, we have about $150 million of that portfolio that's going to cash flow at $250 million; we are reinvesting at about $235 million right now. That gap was bigger last quarter and the quarter before.

But we are continuing to invest short waiting for when rates do ultimately move up more, we will have that flexibility to invest at those higher rates.

Okay, great. Thank you. Then just lastly maybe, Steve, you could update us on your thoughts on the M&A market now that you have the Community Bank Corp deal done and you are working to integrate that. What do you see for opportunities in the next six to 12 months across your footprint?

Well, as I said before, Damon, Pennsylvania is a very unconsolidated banking state and clearly in talking with bankers across the state, there are some boards that are fatigued. There are some management teams that are fatigued, having come out of the last couple of years, which has been a challenge for the whole entire banking industry.

And then overlay on top of that, Dodd-Frank and more regulation and compliance costs coming out of Washington, I do think you are going to see a lot of opportunities to consolidate and we have looked at a number of them. But we are focused on things that make strategic sense for F.N.B. and I've commented on the markets that we like in previous calls and that would be to build out Pittsburgh would probably be our number one priority. Number two would be Central Pennsylvania and further east in Pennsylvania.

So we continue to work the phone lines. We continue to interact with bankers to make certain that if and when their boards decide to pursue other strategic alternatives that F.N.B. becomes top of mind to them.

Okay, great. Thank you very much.

Mike Shafir, Sterne, Agee.

Good morning, guys. Could I just get -- I'm sorry if I missed this -- can I get an update on the organic growth rates on both loans and deposits in the quarter?

Sure, total loans organically grew 5.5% and then the commercial Pennsylvania subset grew 10.7% annualized first quarter to fourth quarter. Those are both on an organic basis.

Then on the deposit side, our deposits and customer repurchase agreements grew -- well, the transaction piece grew 4.3%. The total was up about 1% annualized total deposits, customer repos with the managed decline in the CDs. But the transaction piece that we focus on was up 4.3% annualized on an organic basis.

Okay, so loans were up 5.5% annualized on an organic basis and deposits were up 4.3% annualized on a sequential basis.

Transaction deposits. Total deposits, Mike, were up 1%.

Because we're running off the higher (multiple speakers)

Then maybe you could just give us an update on kind of the effects of the Marcellus shale and how you guys are potentially positioning yourselves to capitalize on that and where you are going to see that kind of moving forward.

We've spent a lot of time educating ourselves on the Marcellus shale operation and as I have commented before, we are not really focused on the drilling companies as such, although some of them have opened deposit accounts with us for convenience to their operation. What we really are focused on are two other segments. One is the consumer, the landowners who are getting upfront money for the drilling rights, and then thereafter will continue to get revenues from the gas production. And we have products designed especially in our wealth management area and our wealth management people are out and about making contact with these folks to offer them and make them aware of this product.

Also in connection with that segment, we have developed a pretty good referral network of attorneys and accountants who in fact have referred business to us from those consumers.

The other segment we are focused on is the supply chain to the drilling companies. Trucking companies hauling pipe, warehousing, manufacturing of pipe, threading of pipe, construction companies, hotels, motels, and so forth, all the other ancillary economic benefit that comes from this activity.

So those are the two areas that we have been concentrating on and those are the two areas we want to concentrate on on a go forward basis.

Thanks a lot. I appreciate that detail, guys.

Andy Stapp, B. Riley & Co.

Good morning. Nice quarter. The loan guidance strikes me as being conservative given the success you had in Q1 which tends to be the weakest quarter. The possibility that loan demand could increase in the back half of the year along with your pilot line being robust. Can you just comment on that?

Sure, this is Vince Delie. The pipelines that we had going into the end of the year and into the fourth quarter were pretty strong and we had quite a bit of momentum that carried us over. There were changes -- there were estimated changes in tax laws which really drove some of the transactions that were concluded by the end of the year -- by the end of the fourth quarter. And also we had a number of transactions that carried over into Q1 despite the fact that that's typically a slower period commercially.

The guidance that we gave I think is good guidance. There's not a lot of clarity on the third and fourth quarter of this year. We still are not seeing robust capital expenditures taking place in the field and we are not seeing expansion of inventory yet. There's been a little bit of a pickup, but that's why we remain cautiously optimistic.

I would also add to Brian's comment earlier about the consumer not borrowing maybe as much, that's part of our -- the consumer and commercial pieces in our total loan guidance, so you have items going different ways, dynamics that are in there. So that's also part of the overall guidance on the loan side.

Got you. And could you provide a little bit more color on the Marcellus shale play, especially what the impact it's having on the local economy? Do you think it's going to be a real game changer or just what's your thoughts there?

Andy, I think it is a game changer for Pennsylvania. I had the opportunity to meet with a number of other of people with the governor about a month ago now and I will tell you that both the Senate, the House, and the Administration support some Marcel Shale activity. And as you know, the Governor does not want to tax any of the outflow, which would be unique in the United States, I guess. But Pennsylvania is looking at this as the chance of a lifetime to really have an economic boom in the state.

And when you overlay our branch locations with the well permits and the well drilling, we match up really, really well. Before the acquisition of Community Bank & Trust, we were the second most impacted bank in the state and of course Community Bank & Trust in the northeast part of the state is right in the heart of that activity up there.

So certain of our footprints are going to benefit substantially from this. I think I might have mentioned in our fourth-quarter call that one of our offices had a land office growth in deposits I think in the month of January. When we double checked on what was going on up there, it was really all attributed to consumers bringing in money that they are receiving from drilling companies for drilling rights.

So clearly some of our customers especially in the supply chain are looking at equipment and so forth because they need more capacity. Warehouses are renting up. Jobs have been created, no doubt about that. And so although we don't measure it separately, certain of our markets have really been impacted by this activity and I think it is for real. The best thing they say about it is this production should continue for decades. This is not a one and done type thing.

Right. Okay, thanks for the color. Do you have classified assets at quarter end?

Yes, in terms of that information, Andy, the classified assets at the end of the quarter were improved by approximately $35 million over the prior quarter.

Okay, great.

David Darst, Guggenheim Securities.

Good morning. As you discuss the pipeline, you are not considering in that number additions of new lines of credit that may be unused, are you?

In our pipeline reporting? (multiple speakers)

Yes, yes, correct.

We consider our pipeline -- we break it down into two components. One, we look at total commitments. The second is actual fundings. We try to forecast what the fundings will be. Obviously that has the impact to the balance sheet. So I would suggest that it would be -- our focus would be obviously to drive funded balances.

But overall, there are companies that are out there with larger unfunded commitments because they have driven down their inventory levels and they are sitting on more cash, so that is a factor. They are out there. But in our process, we don't just go after the loan transactions separately. We try to focus on capturing the entire relationship, which includes the treasury management balances, treasury management fees, wealth management opportunities, and the like.

I guess that -- I guess my question is is that an area where there could be a somewhat of a positive surprise in the new business generation?

Sure. I think as the economic activity builds, I think there's a great opportunity for us to capitalize on those lower -- those larger unfunded commitments that are out there. They certainly are linked directly to the working capital needs of the companies that we finance, so there is upside in the event that the economy starts to come back a little stronger.

David, we've commented in the past that with our line utilization rates where they are compared to kind of normal, there's about $200 million worth of loan capacity there once you get back up to that normal level of -- in the low 50s compared to being in the low 40s. So there is some natural capacity.

Really, that was part of our -- that's a strategy that we pursue. That's why Steve mentioned -- we emphasize new client acquisitions through the cycle.

Okay. Vince, on the margin, are you getting a better experience from CD repricing and retaining accounts or did you see a benefit from Community Bank this quarter?

I would say that the Community Bank impact overall is really not that significant. It's probably about 1 basis point of subtraction from the margin. Really the increase in the margin is just coming from -- we do continue to have CDs that are maturing. We have $350 million to $400 million a quarter of CDs that are maturing and we're picking up some benefit there as well as just active management of the balance sheet.

We are always looking at our pricing in the various deposit products relative to loan spreads and we are really managing that relationship. The success we have had in having that stable margin takes a lot of work behind it to accomplish that. So really it's really a combination of those factors.

And as we look ahead, CD maturities, we still have a good 350 or so a quarter and we are picking up 70 to 80 basis points on those as we look to the end of the year.

Okay, is the $1.8 million for intangible amortization the final number per quarter?

Yes. With CB&T in there.

Andy, I've got some additional information for you in reference to the classified categories. We have four continued linked-quarter improvements in those metrics. With the addition of the CB&T portfolio, we are right at $289 million at the end of the first quarter and that was impacted by approximately $40 million in CB&T classifications. That's coming in at about 4% of total loans. And as I said, that's on a four-quarter linked-quarter declining trend -- improving trend from that perspective.

Jason O'Donnell, Boenning & Scattergood.

Good morning, guys. With respect to the Community acquisition, can you just tell us what your core deposit retention has been year-to-date and kind of how that stacks up to your original expectations?

Sure, I would say the performance that we've had year-to-date has been very good. Very pleased with the level of attrition. It's been low. I think the integration Steve mentioned earlier went seamlessly, so that helps. It's a new market for us and we're getting some good traction in that market. So the performance to date -- it's early, but the performance to date has been very good.

Okay, so attrition likely on core deposits has been in the low single digits?

Yes, there are several large depositors that had special pricing that may not continue as we address the pricing in the portfolio. But I would say the answer is yes.

Okay, great. Then I guess we are hearing more banks announce initiatives to effectively downsize their branch networks due to I guess a change in the way customers are banking these days. Can you just talk little bit about your assessment of the footprint and whether we could see some rationalization at some point in select areas?

We have a program in place -- we've had it in place for about two years, where we continuously look in our delivery channel and we pick and choose where we want to go from a de novo standpoint and where there are consolidation opportunities for us to increase efficiency. So we have had a project underway and we would expect that to continue. We like to do it on a steady pace, so we are constantly looking at those opportunities.

Jason, you won't see an announcement from us where we are going to take a charge because we are closing offices or consolidating. As Vince said, we are just going normally through our process and looking for opportunities to do de novo branches, consolidate branches, relocate branches, or in some cases close branches. But to date, we have just done it routinely as part of the normal operation of the bank.

Okay, that makes sense. Then just a couple of housekeeping items. How should we be thinking about the tax rate in the second quarter? Should we expect any M&A expenses to spill over into the second quarter?

Sure, Jason. The tax rate I would use is that 27% to 28% is really a normal run rate for us. It's a little bit lower this quarter because we have the one-time merger costs bringing down the pretax income that is taxed at the 35%. So that's just a dynamic working through this quarter. But I would use 27% to 28% as a good range for us. And then as far as the -- (multiple speakers) I'm sorry?

No, I was going to say on the M&A.

As far as the M&A, there really shouldn't be anything of any significance. Sometimes you get some little things that carry over, but there shouldn't be anything of any significant spilling over into the second quarter.

So our total costs would've been slightly less than what we had originally projected.

Great. Thanks a lot, guys.

(Operator Instructions) Gerard Cassidy, Royal Bank of Canada.

Thank you. Good morning, guys. The question I have, Steve, as you guys approach the $10 billion in asset size, some of the Dodd-Frank rules I believe change. For example, I think the Durbin Amendment kicks in for banks over $10 billion in assets. How are you guys looking at that as you go forward because it seems to us that you will clearly exceed $10 billion in assets over the next 12 months.

Well, we are -- I like the position we are in, frankly, because as of today, we are still under $10 billion. So it gets us the opportunity to look at the competition, study the markets, and see what pricing changes are being made out there and what type of product design is being created. And we are doing that.

In the meantime, we have what I will call a counterpunch strategy. We are not going to lead the market in any changes like that, but we are prepared to react to changes that occur in the market. So for the moment we are not affected by that, but to your point, we know that in the not too distant future we will be over the $10 billion threshold and we are prepared to react to that accordingly.

Maybe Vince, in your outlook for fee revenue, does that include some effect on interchange fees possibly declining later this year should you surpass the $10 billion in assets this year?

Gerard, the guidance that we have excludes any impact from Durbin, because as you are probably aware, the way it works is you have to be above $10 billion for four consecutive quarters. So even if we were over $10 billion next quarter, it wouldn't impact this year at all. So there is no impact from interchange in my guidance.

Good. Steve, you mentioned the large depositors that you haven't repriced from the acquisition -- that is haven't repriced all those deposits yet. When do you think that repricing will be completed and how big are you talking in terms of the cumulative amount of those largest depositors coming over from the acquisition?

That was Vince Delie's comment (multiple speakers)

It was my comment and actually what I was referring to is in relation to attrition rates. You will find a depositor here and there that have a couple million dollars where they've got a fixed contractual fixed rate that adjusts. That's what we are seeing. That's what I was trying to address that you may see some variability because of that.

Gerard, though, this is Brian Lilly. From our financial statement standpoint, though, it won't matter because we have already marked those rates to current market as of the transaction date. So our net interest income is impacted. It's just the decisions we are making as to the type of business we want. (multiple speakers) And then it's an attrition issue more than anything.

Okay, regarding the loan loss provision outlook, I think, Vince, you said that the provision should be about 25% below last year's number and when we look at what you have put up in the first quarter and we do the math, would it suggest that the loan loss provision for the rest of the year could average about $9 million a quarter based upon that outlook?

Yes, you got the math right there, Gerard. So that's -- that would be the run rate to get you to that 25%. We are coming off a base of $47 million in total provision for last year, so --

Thank you. Great, thank you.

We have no further questions at this time. I would like to turn the conference back to the presenters for any further or closing comments.

Thank you, David. I would just like to thank everyone for joining us on today's call and for your continued interest in F.N.B. Corporation. Thanks for participating and I hope you have a great day.

That does conclude today's presentation. Thank you for your participation.