FNB Corp (FNB) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to the F.N.B. Corporation third-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. As a reminder, today's conference is being recorded.

And 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, and good morning, everyone. Welcome to our third 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 third 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 Thursday, October 27, 2011 by dialing 877-870-5176 or 858-384-5517. The confirmation number is 4796847. In addition, 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's a pleasure to welcome you to our third-quarter earnings call. Joining me today on the call are Vince Calabrese, our CFO, and Gary Guerrieri, our Chief Credit Officer. Also with me today for the Q&A session are Brian Lilly, our Vice Chairman and Chief Operating Officer; and Vince Delie, President of F.N.B. Corporation and Bank CEO.

Taking a look at our third quarter, we are very pleased to deliver another quarter of solid results. Third-quarter earnings of $0.19 per diluted share exceeds consensus, and continues an upward trend of solid profitability due to the positive performance of our key business drivers. Topline revenue growth was achieved for the eighth consecutive quarter through continued successful loan growth and a stable net interest margin.

To briefly comment on the net interest margin, maintaining a stable margin is a key operating strategy for us. Our margin results during the challenging environment over the last few years reflect a diligent alignment of strategies in the field, with a very active ALCO process. Vince Calabrese will discuss our margin results, strategy, and near-term outlook in further detail during his remarks.

For the past several quarters, I have discussed the importance of maintaining our strong momentum. Our commercial bankers have been successful not only maintaining, but building on momentum -- again, in a very challenging environment. This is evident in the results with linked-quarter average loan growth of nearly 9% annualized for the Pennsylvania commercial portfolio, the 10th consecutive quarter growth for this portfolio, which is a very significant accomplishment.

This growth continues to primarily come from successful marketshare gains as loan utilization remains stable and at historical lows. This concentration on taking market share is focused on the entire client relationship, and benefits us not only with the loan growth but also deposit growth and fee income opportunities. Additionally, our consumer portfolios grew over 7% annualized, driven by successful promotions and marketing efforts that capitalize on consumer preferences for home equity products in the current low rate environment. In total, all of our loan portfolios experienced growth during the third quarter, resulting in nine consecutive quarters of total loan growth.

Turning to deposits, linked-quarter growth in lower cost transaction accounts and customer repurchase agreements continued in the third quarter. The average balances in these accounts grew nearly 6% annualized through new account acquisitions, combined with customers maintaining higher average balances. Asset quality results for the quarter were very good.

And now, to discuss asset quality in greater detail, I'll turn the call over to Gary Guerrieri for his comments. Gary?

Thank you, Steve, and good morning, everyone. The third quarter demonstrated continued solid and consistent asset quality metrics in our Pennsylvania and Regency portfolios, while the activity we had in the Florida portfolio was focused on a few credits. Our portfolio once again exhibited the positive trends that we have been experiencing now for several quarters, with only a few metrics slightly elevated over the prior quarter, due primarily to the impact of an $8 million Florida credit moving to nonaccrual.

Delinquencies stood at 2.57% at the end of the third quarter, an 11 basis point increase over the prior quarter, driven by this credit. Net chargeoffs at 53 basis points annualized were up 11 basis points from the prior quarter, but were still at good levels, as we continue to work through the Florida reappraisal process.

Let's now look at the components of each portfolio. At $6.5 billion, the Pennsylvania portfolio represents 95% of F.N.B.'s total outstanding loans and continues to perform exceptionally well. Quarterly net chargeoffs at 25 basis points represent the lowest level in 10 quarters, with year-to-date net chargeoffs of only 29 basis points. Delinquency improved slightly to 1.78%, and benefited from lower early-stage delinquencies in the C&I portfolio. The level of nonperforming loans plus OREO improved 15 basis points linked-quarter to stand at a very good level of 1.21%, following an $8.4 million net reduction in restructured loans.

During the quarter, in the normal course of our analysis of our restructured credits, we took action and returned to performing status $9.6 million in restructured residential mortgages, that have consistently met their modified obligations for an extended period of time, resulting in reduced levels of nonperforming, restructured loans. We continue to track the performance of these loans and assess them on a regular basis.

Moving next to Regency Finance, this $162 million loan book represents 2.4% of F.N.B.'s total loan portfolio, and demonstrated ongoing solid performance. Chargeoffs at 3.42% annualized for the third quarter improved by 20 basis points on a linked-quarter basis, reflecting our best performance since 2007. Delinquency ticked up 17 basis points to stand at 3.79%, as a result of slightly higher early-stage delinquencies, though still remaining at very good levels.

Turning next to Florida -- the land-related portfolio was down nearly $4 million from the prior quarter to stand at $70 million, consisting of $20 million in OREO and $50 million in loans, with the majority of the reduction in exposure during the quarter attributable to the write-down of two properties for $3 million. As mentioned earlier, we moved an $8 million loan to nonaccrual during the quarter, as it was approaching maturity and had fallen into delinquent status.

At this point, we have an interested buyer in the property, and are cautiously optimistic that it will be sold in the fourth quarter. Also during the quarter, we completed the sale of two non-land OREO properties that were being carried at $2.5 million, which yielded a collective gain of $780,000.

As it relates to the reappraisal process in Florida, we have updated 40% of our land-related portfolio, including OREO, through the third quarter. We expect that current reserves and planned provision levels will provide adequate reserves to support the remaining fourth-quarter appraisals.

In summary, our Pennsylvania and Regency portfolios are performing very well. We continue to be very pleased with their performance, a reflection of the strength of our team, and the risk management and underwriting philosophies we've instilled throughout the organization. As the economy presents its challenges, we will continue to rely on these philosophies to support the ongoing performance of these portfolios. Our strategy in Florida remains unchanged. We are pleased with the increased level of discussions we are having with potential investors regarding a number of properties, as we continue our focus on reducing this exposure.

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

Thanks, Gary, and good morning, everyone. As Steve discussed, third-quarter results of $0.19 per diluted share reflect strong performance from our key drivers, building on the first half of the year's solid results. I will focus my remarks this morning on additional highlights of operating results, guidance for the fourth quarter of 2011.

First, regarding our expectations for the fourth quarter, with year-to-date results in line with expectations, we are reaffirming our prior guidance for loans, deposits, fee income, expenses, and asset quality, slightly revising guidance for margin. You will notice that while we have previously provided full-year guidance figures, I will focus guidance on the last quarter of the year.

Turning to the balance sheet. Average earning assets increased 4.5% annualized, with loan growth results reflecting the continuation of positive trends Steve discussed earlier. Total average loans grew 7.6% annualized in the third quarter, and we were pleased to see all portfolios experiencing growth. Strong linked-quarter growth of 8.7% annualized in our Pennsylvania commercial portfolio was again the overall primary driver of positive results seen across our regions.

Total average consumer loan balances increased 7.4% annualized, led by very solid growth of 10.1% annualized in home equity average balances. Demand for these products increased in the third quarter, given the attractive low rate environment, and the effectiveness of our marketing and promotional initiatives. Average indirect auto lending balances experienced an increase of 6.3% annualized, continuing positive trends seen during the first half of 2011.

Looking at the other components of earning assets, average securities increased $38.6 million on a linked-quarter basis, primarily reflecting the full-quarter impact of investing the capital raise proceeds received last quarter. Balances invested on an overnight basis decreased $67 million on the strong loan growth this quarter. We are very pleased with the successful growth trends in loans over the past 10 quarters. Looking ahead to the fourth quarter, we look for loan growth to be in the mid-single digits on an annualized basis.

On the funding side, we remain focused on attracting transaction deposits and customer repos. Growth in these relationship-based accounts, which benefit funding costs and deepen client relations, equaled 5.6% annualized on an average basis, with growth reflecting new account acquisition and higher average balances. Given this focus on gathering new transaction accounts, there was a planned reduction in time deposits.

For the fourth quarter, we look for a slight decline in total deposits and customer repos, reflecting normal seasonal trends and efforts to manage the overall size of the balance sheet. We expect the year-end balance sheet to be consistent with the end of the third quarter, and slightly below $10 billion.

To comment briefly on our funding sources, we remain primarily funded with customer relationship balances. Between deposits, commercial customer repos, and consumer subordinated notes, total funding based on customer relationships remains consistent with the prior quarter and 96%. This provides us with significant flexibility to fund our balance sheet.

The margin was stable, expanding 1 basis point to 379 for the third quarter. As Steve mentioned, maintaining a stable margin is one of our key operating strategies. We have been successful maintaining the margin in the 377 to 381 range for the past six quarters. Our strategy has consistently been to manage to a relatively neutral interest rate risk position. We execute that strategy through very active outgoing pricing committees, combined with the focus in the field on growth in lower-cost, relationship-based deposits, disciplined pricing practices, and generating quality loan growth. As we look ahead to the fourth quarter, we expect the margin to be stable at current levels, based on our loan and deposit growth expectations.

Non-interest income increased 5% annualized for the third quarter, with positive results seen in most of the fee categories. The quarter included seasonally higher service charge revenue and insurance commissions. Additionally, swap fee revenue, included in other non-interest income, remained historically strong, given the level of commercial lending activity during the quarter. Improvements were also seen in gain on sale of residential mortgage loans, due to the overall volume increase we experienced, with the low rates spurring additional activity.

Conversely, security commissions and trust income declined, given the unfavorable stock market conditions. For the fourth quarter, we reaffirm a targeted non-interest income run rate in the $29 million range.

Turning to expenses, total non-interest expense increased $848,000 or 4.9% annualized from the prior quarter, due to higher personnel costs and other expense items, partially offset by lower OREO expense. Additionally, nearly half of the total increase is a result of higher, one-time merger-related costs; and $270,000 in additional occupancy expense due to flood restoration costs. Aside from these two items, personnel costs increased due to several reasons, including seasonally higher part-time salary expense, and increased profitability and performance-based accruals for incentive compensation. OREO costs decreased due to lower Florida valuation adjustments, including realized gains and losses.

The other expense line item increased, primarily due to higher loan-related expenses incurred in conjunction with home equity promotional offering. Looking forward, we are reaffirming a targeted quarterly non-interest expense run rate in the $68 million range for the fourth quarter. This would translate into an efficiency ratio of near 58%.

Switching over to credit quality, as Gary discussed, we remain pleased with the solid results for F.N.B. These results are trending within our expectations, and we reaffirm our prior guidance for the fourth quarter. This includes our expectation for levels of nonperforming loans in OREO that continue to gradually decline, and for provision for loan losses to be around $9 million for the fourth quarter. This provision takes into consideration expected decreases in Florida land valuations from fourth quarter reappraisals.

Next, let's take a look at the effective tax rate for the third quarter and expectations for the fourth quarter. The third-quarter effective rate on a GAAP basis is lower than expected, due to net adjustments of $460,000, with the primary driver related to a recent IRS directive, providing a Safe Harbor deduction for certain merger-related costs. This net benefit to third quarter results was largely offset by the after-tax $360,000 impacts of merger and flood-related costs I discussed earlier.

For the fourth quarter tax rate, we expect the GAAP basis effective rate to be in the 27% to 28% range. Lastly, looking ahead to our capital position at year-end, we expect to continue to exceed well-capitalized thresholds and remain at levels consistent with the third quarter.

Steve, that completes my remarks.

Thank you, Vince. In summary, the third quarter was another positive quarter for F.N.B., with revenue growth, loan and deposit growth, a stable net interest margin, good asset quality results, and continued expense control. We are pleased that these fundamental key drivers delivered a strong 106 basis point return on average tangible assets.

We are cognizant of the industry-wide challenges presented, particularly with the expected prolonged low-rate environment and the current elevated unemployment situation. With that said, we have a substantial momentum built; our pipelines remain robust; and we have an experienced team in position, delivering solid results. Additionally, we continue to see positive benefits from the Marcellus Shale and Utica shale in our footprint.

Before questions, I would like to take the opportunity to provide an update on the Parkvale acquisition and comment on a recent employer award received.

First, regarding Parkvale -- with significant key events accomplished, we continue to target a closing in early January 2012. As you will recall, in May of this year, we completed the capital raise that will be deployed for this acquisition. And during the third quarter, we filed Form S-4 and regulatory approval applications. The Parkvale shareholder meeting is scheduled for December 15, and we expect to provide updates as significant events occur.

On a final note, First National Bank was recently named one of the top places to work in Pittsburgh by the Pittsburgh Post-Gazette. We are extremely honored to have received this distinction, as positive employee morale is an integral part of F.N.B.'s success. As another proof point, we have just recently received the results of an internal corporate culture survey. These results show that company-wide, F.N.B. continues to build a strong, positive culture with excellent employee morale.

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

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

Just a couple of quick questions. I wondered if you could just talk a little bit more about the customer repo accounts. Is that basically just a sweep account?

Yes.

And what is the interest -- what's the average cost [they pay in this]?

Probably around 50, 55 basis points.

Okay, thanks. And then on the home equity side, just wondering if you can give us a little more color there. Is that mostly new customers? And what specifically is the promotion you've been running?

Well, it's primarily -- it's a combination of both new customers and existing customers. And the promotion basically just provided them with a lower rate for a shorter period of time, and then it kicked in to a more market-based rate. But I would say that growth is related to the Bank just achieving its pro rata share of the market opportunity, where we probably haven't focused on that area in the past. So, that's primarily what's driving the increase.

Yes, Frank, and just to add onto that, in some ways, we're starting to get the home equity business that we probably deserve in terms of market share.

And I'm sorry if I missed it in the comments, but you're expecting continued growth there at these levels?

We would expect to continue to achieve success there. We recently put a new sales management tool in place on the retail side of the Bank. And we believe that by putting this measurement system in place, we're able to sustain the current run rate on our growth. So, at least, that's the plan. We obviously are subjected to what the market bears; but that is our plan.

Okay, great. Thanks, Vince. And then just a quick question for Gary. In terms of the loan sales in Florida, I think you mentioned a couple that were in the quarter, and there was a gain involved. So if you take basically all of the sales, the land sales in Florida, and I guess add or loan -- just whole loan sales in Florida in the quarter, was it just those two? And is that -- was it a gain of $800,000?

It was just those two during the quarter, Frank, and the gain, the net position came in right at $780,000.

Do you happen to recall where those were marked down -- either where they sold or where they were marked down to prior versus par?

You know, Frank, I do not recall those individual two transactions.

Okay. All right. Thank you.

Damon DelMonte, KBW.

I was wondering if you guys could -- this is probably more directed towards Vince -- but if you could talk a little bit about your margin expectation. I know you said you expect to be stable at current levels, but could you kind of walk us through some of the drivers on both sides of the equation as to how you can sustain that? And I think, generally speaking, we've seen a lot of banks so far this earnings season just guiding down margins substantially. You guys are one of the outliers on the positive side.

Yes, I think there's a few things. I mean, we -- our overall posture for our interest rate risk management is really to manage to neutral, because right now, we're slightly asset-sensitive. When you go through our balance sheet, some of the key levers that we have is we still have a significant amount of time deposits that are maturing every quarter. I have $400 million of CDs repricing this quarter and well into next year, per quarter, where we're picking up anywhere from 70 to 85 basis points on those CDs.

So, that's definitely a key driver that's helping to manage the overall margin. There's still some room on the deposit pricing in some of our products. And then when we go to the asset side, we have $50 million of our investment portfolio that's cash flowing every month. And we make a decision as to where we're going to reinvest that.

And in our loan portfolio, just as far as kind of part of how do we manage to neutral, 60% of our loan portfolio is adjustable or a variable rate, and half of that within a year. So those are some of the key levers that we have at our disposal as we're managing the overall margin. And we really focus on growing net interest income by building the loan portfolio. So that's really the key drivers to the story there.

And Damon, if I could just add onto that, what I'm very pleased about is the alignment that we have that starts with ALCO and then pricing, and then goes all the way to our sales and production people in the field. So they're not only trying to build a loan portfolio, but in a relationship process, we're looking to attract low-cost transaction accounts. So it's really a combination of everything that Vince said, plus the alignment in the field. And the proof point is it seems to be working.

And what kind of cash flows are you generating from your securities portfolio each quarter?

It's about $50 million a month.

Okay. So $150 million a quarter or so. And I mean, what are you seeing as far as when they're rolling off with their yielding versus what your reinvestment rate would be?

Well, you know, they're coming off right now in the low 2's. We're investing in high 1's to around 2% depending on the different asset classes. On balance, we're investing at about 2%. So there's a little bit of -- our overall [marked] yield on investment portfolio is coming down about 5 basis points a quarter in the environment that we're in right now. But it's not all that far between the rate it's coming off and the new rates that we're putting on.

Okay. All right. That's helpful. And then I guess just lastly, probably for Steve, could you just kind of update us on your thoughts on M&A? I know you have the Parkvale deal closing early January. But as you look at the Pennsylvania landscape, do you see opportunities arising in 2012? I know we've had a bit of a stall-out here on M&A activity lately, but just kind of want to get your thoughts on that.

Sure. Well, Damon, our number one priority is obviously Parkvale. We've been working on that since that was announced early summer. We're pleased with the progress we've made. We have every expectation of being able to close this very early on in January, and then do the data conversion in February. So there's an awful lot of work and focus on that particular transaction.

That aside, as I've said in many calls previously, we do think Pennsylvania, especially, is very unconsolidated. And given what's happening in the world and the environment with increased costs of regulation, and compliance is likely to come -- certainly will come -- perhaps our capital requirements, everything from fatigue boards, fatigue management, to a lot of bankers I've talked to in smaller banks especially, are really concerned about whether their model even works anymore.

We do expect to have opportunities. And frankly, we do continue to see opportunities, but we're very selective. It has to make sense to us strategically, and it has to make sense to us financially, and benefit our shareholders. So we will continue to talk. We will continue to keep our ears to the ground. It's hard to project -- and I can't project in 2012, whether anything will happen, but I can tell you we had CB&T last year, and we're fortunate enough to have Parkvale this year. If it makes sense for us, we're certainly willing to sit down and talk about it.

Okay. Great. Thank you very much, guys.

Mike Shafir, Sterne, Agee.

I was just wondering, as we think about the margin kind of moving forward inclusive of Parkvale, I know with the purchase accounting work, certainly their margin will tick up, but just doing the basic math, your margin should come in from current levels, especially in the first quarter. Is that fair?

Yes. Yes, it is fair. And then over time, our plan when we look at what we'll do with Parkvale's balance sheet going forward, we would expect that to migrate to be the same margin as the overall Company. That will take a little bit of time to get there. But the initial impact, yes.

Okay. And do you know or have a rough idea of how long those purchase accounting marks will flow through the balance sheet? -- I mean, I'm sorry, will flow through the NIM, close the deal?

I think, Mike, as we sit here today, we're in the midst of our -- doing all of our 2012 planning. And we'll go through a process here where we'll finalize that in December. We'll give full guidance for next year in January, as we typically do, so -- including the details on how all the purchase accounting will roll out.

Okay. And then just current yield on your C&I portfolio, the stuff that's coming on, what kind of yield are you seeing on that?

On the new volume? On the new (multiple speakers) --?

(multiple speakers) Yes, on the new product that's coming on.

Yes. I mean, it's all over the board, depending on the segment. I mean, obviously, the larger transactions that we play in -- I see the margin coming in a little bit. Over the course of the last year, we've probably seen about one-quarter of a point reduction in spread.

As you move throughout the market, the investment real estate arena, the pricing still seems to be holding. It's come off a little bit from where it was. Small business, I think, is pretty much where we were last year; haven't seen it tick up in competition yet there. But I would say in the upper middle market to middle market, there's some margin compression, but we try to balance it by playing in a number of different arenas.

Mike, if I can add onto that, yes, we're dealing largely with non-public companies. And especially the smaller end of that scale, price obviously is one component that they think about, but what we're -- what I'm honestly seeing, and I think what we're all seeing, is probably 10 or 15 years ago, there wasn't a lot of distinction or differentiation between banks. And I know when you called on somebody and asked them to move their relationship -- I mean, you had to really work at it.

Today, what we're experiencing is, there is a distinction between banks. There could be a healthy bank versus one that's having some problems and doesn't want to expand their balance sheet because of capital issues; or larger-sized banks that are more complex to deal with. And I like our position in the marketplace. Because at about $10 billion in assets, we're certainly big enough to have sophisticated products and staff. We have good, broad coverage in the marketplace.

Commercial lending is our core competency. I think it's one of our specialties; we do it really well. And we're starting to find companies recognizing that. And that's part of the reason -- it's not the only reason -- but that's part of the reason that we're putting on so many new relationships on our balance sheet. So, price is one factor, but it's not the only factor.

And we try to balance out the pricing on the asset side with securing the deposits. So we're not in the business of running our balance sheet for the sake of running our balance sheet. We have certain return hurdles that we hold our people accountable to achieving.

Yes, I guess what I'm just trying to get at is the current yield on interest earning assets is [4.63%]. And you guys are cash flowing $150 million a quarter in that securities portfolio, and putting that stuff back out at kind of a short duration at 2%. So I have to assume that the new home equity product that's coming on, and the C&I product, is a lower rate than the [4.63%] that you're currently averaging on earning assets.

That's fair.

Yes, that's a fair assessment. (multiple speakers) And that's been that way for a couple of years.

Sure. So I'm trying to figure out -- I mean, you guys have done an excellent job of sustaining that NIM, but with the cost of funds at 99 basis points, I just -- it seems like, at some point, you're going to reach an inflection point where it's going to be very difficult to continue to do that.

Yes, I think, Mike, my comment earlier on, for instance, the CD portfolio, that level of maturities that $400 million -- $350 million to $400 million goes well into next year and that could continue to create opportunities. I think Vince's point about the spreads on the loans -- but we're bringing in significant DDA balances as we're bringing those new customers into F.N.B. -- that obviously has a nice impact of the margin.

So yes, at some point, that stuff will run out. But as we look ahead well into next year, there's still opportunities on the liability side.

Okay.

When we provided guidance, it was for the fourth quarter. We know we've got Parkvale. You write about some of those challenges. And every year, we step back and we manage that from here. And just as we looked at 2011, we had the same challenges that we were facing in 2011. And we've looked at the repricing of our balance sheet and the activities we could do in the flows of our loans. And that really gave us much more of our focus on the transaction deposits as a way to mitigate some of that margin compression. And we'll be looking at a number of those same strategies again for 2012.

All right, guys, thank you very much. I appreciate all that detail.

Andy Stapp, B. Riley & Co.

What are your thoughts regarding the securities portfolio? Do you plan to simply reinvest? Is that the $1 million per month that it's drawn off? Do you plan to build or shrink it?

I would say at this point, Andy, really just looking to reinvest the cash flows that would come off. I commented that between now and the end of the year, as I've commented on earlier, we're looking to manage the overall size of the ballot sheet. So the securities portfolio at the end of the year may be a little bit smaller, depending on the volume of new loan growth that comes in.

We'll trade loans, investment securities for loans, between now and the end of the year. So the securities portfolio, where typically, we're just re-investing, may actually shrink some between now and the end of the year.

Okay. And can you provide some color as to what extent the Marcellus Shale play was a driver of results?

Well, I think, Andy, it's just -- it's brought some incremental business to us. It's not, obviously, the only reason that we're having the success we have. But what we're seeing at, I would say in a couple of areas. We did finance some equipment for drillers. These are not Wildcatters; these are drillers who are drilling under contract to the likes of Chevron and Chesapeake Energy and so forth. So we feel very comfortable with that.

But where we're really seeing some pickup on the loan side would be with our vendors who -- they're either warehousing, pipe companies, trucking companies, fabricators, construction companies, who are servicing the well drilling activities as suppliers in the supply chain. And then, obviously, on the consumer side, we have land owners receiving money for drilling rights, and ultimately receiving royalties from the production over time that is expected to be pretty substantial.

And then generally overriding all that is just the general job creation that this creates. Not only in the actual drilling activities, but the spin-off of that in restaurants and hotels, and other services that these workers need. So it's generally just an uplift to our economy. And I think we're very early in the ballgame, personally. I think there's a lot more of this to come.

Okay. And what is your loan pipeline compared to three months ago?

I'd say it's relatively stable going into the last quarter of the year. So, obviously, we've had -- we had a good quarter last quarter, so we moved some of those loans off the pipeline onto the books. But I would say that our pipeline is stable. We're seeing a lot of good opportunities.

Okay.

Andy, I'll add it's been pretty stable the last three quarters. We keep filling up. Even though we're having strong originations, we've been filling it back up.

And again, we have a very structured sales management process. So we manage that all the way down to the individual banker.

All right. Thanks. Nice quarter.

David Darst, Guggenheim Securities.

I've got two questions on Parkvale. One, do you think that you can actually bring over a smaller balance sheet in January, given accelerating prepayment speeds, and maybe considering that some of their CDs that are higher cost could roll off as you re-mark those to your pricing?

Yes, I think, David, that will be part of the strategies we're looking at for next year. And there's definitely some opportunities to deleverage their balance sheet; definitely something we're going to look hard at.

Any dollar amount at this time that you could think about?

I mean, it's really going to be kind of wrapped up in what the whole Company looks like. So, I mean, we'll be able to guide more to that in January when we get together with you. But there's definitely some opportunity there to have a smaller balance sheet, and we will -- than where it is. It's just a matter of the magnitude.

Okay. And then just with rates lower, has anything changed the way you're thinking about accretion for the deal?

No, I wouldn't say so.

Okay. So a 5%, 6% rate is still good?

Yes. No, that's what we'll be managing to.

Okay. Great, thank you.

Bob Ramsey, FBR.

This is [Tom Drake] for Bob. I just had one quick question. Last quarter, you guys commented on that you had $8 million of interchange revenues with exposure to the Durbin Amendment. I was wondering if you could comment on any mitigation strategies that you might have in place today?

Well, I think the main focus, if you recall Vince Calabrese's remarks, when we look forward to the fourth quarter, we're expecting our balance sheet to be below $10 billion at year-end -- which means that, for 2012, that really won't impact us significantly. And it certainly will at the end of 2012, because we'll certainly, with Parkvale, if for no other reason, be over $10 billion. And then we'd have six months after that to comply. So, we're probably expecting compliance more like the middle of 2013.

Okay, great. Thanks, that's all I had.

And there are no further questions at this time.

Okay, if there are no further questions, I want to thank everybody for your participation and for joining us this morning, and for your continued interest in F.N.B. And hope you have a good day. Thank you for joining us.

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