UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the quarterly period ended September 30, 2006

o		Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the transition period from                                          to                                         

F.N.B. CORPORATION

(Exact name of registrant as specified in its charter)

Florida		25-1255406
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One F.N.B. Boulevard, Hermitage, PA		16148
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 724-981-6000

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ Accelerated Filer o Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class				Outstanding at October 31, 2006
Common Stock, $0.01 Par Value				60,271,250 Shares

 

 

F.N.B. CORPORATION
FORM 10-Q
September 30, 2006
INDEX

				PAGE
PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets			2
		Consolidated Statements of Income			3
		Consolidated Statements of Stockholders’ Equity			4
		Consolidated Statements of Cash Flows			5
		Notes to Consolidated Financial Statements			6
		Report of Independent Registered Public Accounting Firm			21
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			36
Item 4.		Controls and Procedures			37
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			37
Item 1A.		Risk Factors			37
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			38
Item 3.		Defaults Upon Senior Securities			38
Item 4.		Submission of Matters to a Vote of Security Holders			38
Item 5.		Other Information			38
Item 6.		Exhibits			38
Signatures					39
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands, except par value

		September 30,				December 31,
		2006				2005
		(Unaudited)
Assets
Cash and due from banks		$	122,875			$	131,604
Interest bearing deposits with banks			1,131				627
Securities available for sale			289,625				279,219
Securities held to maturity (fair value of $782,229 and $867,122)			795,110				881,139
Mortgage loans held for sale			3,707				4,740
Loans, net of unearned income of $25,161 and $27,595			4,244,584				3,749,047
Allowance for loan losses			(53,065	)			(50,707	)
Net Loans			4,191,519				3,698,340
Premises and equipment, net			87,917				87,013
Goodwill			239,207				196,354
Bank owned life insurance			130,295				122,666
Other assets			198,899				188,624
Total Assets		$	6,060,285			$	5,590,326
Liabilities
Deposits:
Non-interest bearing demand		$	665,606			$	688,391
Savings and NOW			1,953,408				1,675,395
Certificates and other time deposits			1,780,910				1,648,157
Total Deposits			4,399,924				4,011,943
Other liabilities			60,200				59,634
Short-term borrowings			372,761				378,978
Junior subordinated debt owed to unconsolidated subsidiary trusts			151,031				128,866
Long-term debt			537,401				533,703
Total Liabilities			5,521,317				5,113,124
Stockholders’ Equity
Common stock — $0.01 par value
Authorized — 500,000,000 shares
Issued — 60,328,058 and 57,513,586 shares			600				575
Additional paid-in capital			503,968				454,546
Retained earnings			32,281				24,376
Accumulated other comprehensive income			2,611				3,597
Deferred stock compensation			—				(4,154	)
Treasury stock — 29,022 and 94,545 shares at cost			(492	)			(1,738	)
Total Stockholders’ Equity			538,968				477,202
Total Liabilities and Stockholders’ Equity		$	6,060,285			$	5,590,326

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands, except per share data

Unaudited

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Interest Income
Loans, including fees		$	76,838			$	61,669			$	210,725			$	177,561
Securities:
Taxable			11,690				12,526				35,943				37,154
Nontaxable			1,231				1,101				3,492				3,016
Dividends			114				162				426				534
Other			703				17				1,076				32
Total Interest Income			90,576				75,475				251,662				218,297
Interest Expense
Deposits			29,862				16,873				76,306				47,108
Short-term borrowings			4,133				4,239				11,354				10,579
Junior subordinated debt owed to unconsolidated subsidiary trusts			2,761				2,153				7,604				5,973
Long-term debt			5,453				5,290				15,519				14,720
Total Interest Expense			42,209				28,555				110,783				78,380
Net Interest Income			48,367				46,920				140,879				139,917
Provision for loan losses			2,428				3,448				7,883				8,465
Net Interest Income After Provision for Loan Losses			45,939				43,472				132,996				131,452
Non-Interest Income
Service charges			10,677				10,528				31,481				29,542
Insurance commissions and fees			3,412				3,090				10,751				9,986
Securities commissions and fees			1,329				1,020				3,584				3,519
Trust			2,013				1,752				5,716				5,413
Gain on sale of securities			510				431				1,397				1,602
Gain on sale of mortgage loans			465				442				1,163				1,051
Bank owned life insurance			889				787				2,489				2,514
Other			1,159				1,184				4,766				3,144
Total Non-Interest Income			20,454				19,234				61,347				56,771
Non-Interest Expense
Salaries and employee benefits			20,991				19,335				63,450				60,253
Net occupancy			3,424				3,115				10,264				9,417
Equipment			3,462				3,238				10,055				9,829
Amortization of intangibles			1,180				918				3,140				2,729
Other			12,010				11,392				35,578				34,327
Total Non-Interest Expense			41,067				37,998				122,487				116,555
Income Before Income Taxes			25,326				24,708				71,856				71,668
Income taxes			7,707				6,622				21,800				21,131
Net Income		$	17,619			$	18,086			$	50,056			$	50,537
Net Income per Common Share
Basic		$	.29			$	.32			$	.86			$	.91
Diluted			.29				.32				.85				.90
Cash Dividends per Common Share			.235				.23				.705				.69

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands

Unaudited

																		Accumu-
																		lated
																		Other				Deferred
		Compre-								Additional								Compre-				Stock
		hensive				Common				Paid-In				Retained				hensive				Compen-				Treasury
		Income				Stock				Capital				Earnings				Income				sation				Stock				Total
Balance at January 1, 2006						$	575			$	454,546			$	24,376			$	3,597			$	(4,154	)		$	(1,738	)		$	477,202
Net income		$	50,056												50,056																50,056
Change in other comprehensive income (loss)			(986	)															(986	)											(986	)
Comprehensive income		$	49,070
Cash dividends declared:
Common stock $0.705/share															(41,174	)															(41,174	)
Purchase of common stock																											(6,141	)			(6,141	)
Issuance of common stock							28				52,322				(977	)											7,387				58,760
Restricted stock compensation											882																				882
Tax benefit of stock-based compensation											369																				369
Reclassification arising from the adoption of FAS 123R							(3	)			(4,151	)											4,154								—
Balance at September 30, 2006						$	600			$	503,968			$	32,281			$	2,611				—			$	(492	)		$	538,968
Balance at January 1, 2005						$	502			$	300,555			$	22,847			$	4,965			$	(1,428	)		$	(3,339	)		$	324,102
Net income		$	50,537												50,537																50,537
Change in other comprehensive income (loss)			(6,293	)															(6,293	)											(6,293	)
Comprehensive income		$	44,244
Cash dividends declared:
Common stock $0.69/share															(38,867	)															(38,867	)
Purchase of common stock																											(8,684	)			(8,684	)
Issuance of common stock							64				133,979				495												10,819				145,357
Tax benefit of stock-based compensation											1,766																				1,766
Change in stock-based compensation																							(890	)							(890	)
Balance at September 30, 2005						$	566			$	436,300			$	35,012			$	(1,328	)		$	(2,318	)		$	(1,204	)		$	467,028

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands

Unaudited

		Nine Months Ended
		September 30,
		2006				2005
Operating Activities
Net income		$	50,056			$	50,537
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation, amortization and accretion			11,401				10,967
Provision for loan losses			7,883				8,465
Deferred taxes			479				4,645
Gain on sale of securities			(1,397	)			(1,602	)
Gain on sale of loans			(1,163	)			(1,051	)
Proceeds from sale of loans			77,589				73,426
Loans originated for sale			(75,394	)			(70,928	)
Tax benefit of stock-based compensation			(369	)			1,766
Net change in:
Interest receivable			(4,680	)			1,015
Interest payable			1,389				(8,405	)
Other, net			10,028				(28,801	)
Net cash flows provided by operating activities			75,822				40,034
Investing Activities
Net change in:
Interest bearing deposits with banks			(504	)			1,449
Loans			(207,214	)			(69,760	)
Bank owned life insurance			340				(785	)
Securities available for sale:
Purchases			(3,751	)			(179,405	)
Sales			25,435				89,525
Maturities			5,230				84,478
Securities held to maturity:
Purchases			—				(89,010	)
Maturities			85,095				91,158
Increase in premises and equipment			(3,117	)			(4,246	)
Net cash (paid) received for mergers and acquisitions			(17,079	)			8,799
Net cash flows used in investing activities			(115,565	)			(67,797	)
Financing Activities
Net change in:
Non-interest bearing deposits, savings and NOW accounts			140,181				(121,505	)
Time deposits			4,141				67,230
Short-term borrowings			(58,565	)			105,820
Proceeds from the issuance of junior subordinated debt owed to unconsolidated subsidiary trusts			22,165				—
Increase in long-term debt			23,787				65,990
Decrease in long-term debt			(58,011	)			(41,156	)
Purchase of common stock			(6,141	)			(8,684	)
Issuance of common stock			4,262				15,710
Tax benefit of stock-based compensation			369				—
Cash dividends paid			(41,174	)			(38,867	)
Net cash flows provided by financing activities			31,014				44,538
Net (Decrease) Increase in Cash and Due from Banks			(8,729	)			16,775
Cash and due from banks at beginning of period			131,604				100,839
Cash and Due from Banks at End of Period		$	122,875			$	117,614

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

BUSINESS

     F.N.B. Corporation (the Corporation) is a diversified financial services company headquartered in Hermitage, Pennsylvania. Its primary businesses include commercial and retail banking, consumer finance, asset management and insurance. The Corporation operates its retail and commercial banking business through a full service branch network in Pennsylvania and Ohio and loan production offices in Florida, and conducts selected consumer finance business in Pennsylvania, Ohio and Tennessee.

BASIS OF PRESENTATION

     The accompanying consolidated financial statements include the accounts of the Corporation and its subsidiaries. The Corporation owns and operates First National Bank of Pennsylvania (FNBPA), First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC (FNIA), Regency Finance Company and F.N.B. Capital Corporation, LLC.

     The accompanying consolidated financial statements include all adjustments, consisting only of normal recurring accruals that are necessary, in the opinion of management, to fairly reflect the Corporation’s financial position and results of operations. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation.

     The Corporation’s consolidated financial statements include subsidiaries in which the Corporation has a controlling financial interest. Investments in companies in which the Corporation controls operating and financing decisions (principally defined as owning a voting or economic interest greater than 50%) are consolidated. Variable interest entities are consolidated if the Corporation is exposed to the majority of the variable interest entity’s expected losses and/or residual returns (i.e., the Corporation is considered to be the primary beneficiary).

USE OF ESTIMATES

     The accounting and reporting policies of the Corporation conform with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

MERGERS AND ACQUISITIONS

     On May 26, 2006, the Corporation completed its acquisition of The Legacy Bank (Legacy), a commercial bank and trust company headquartered in Harrisburg, Pennsylvania, with $375.1 million in assets, including $300.3 million in loans, and $256.5 million in deposits. Consideration paid by the Corporation totaled $72.4 million comprised primarily of 2,682,053 shares of the Corporation’s common stock and $21.1 million in exchange for 3,831,505 shares of Legacy common stock. At the time of the acquisition, Legacy was merged into FNBPA. The Corporation recorded $43.7 million in goodwill and $5.3 million in core deposit intangible as a result of the acquisition. As of September 30, 2006, the purchase price is still subject to final adjustment because certain components of the purchase price were based on preliminary valuation studies and estimates.

     On November 1, 2005, the Corporation’s existing insurance agency, FNIA, acquired the assets of Penn Group Insurance, Inc. (Penn Group), an established life and employee benefits agency located in Pittsburgh, Pennsylvania.

     On October 7, 2005, the Corporation completed its acquisition of North East Bancorp, Inc. (North East) (Pink Sheets: NEBI), a bank holding company headquartered in North East, Pennsylvania, with $68.0 million in assets, including $49.4 million in loans, and $61.2 million in deposits. Consideration paid by the Corporation totaled $15.4 million

comprised of 862,611 shares of the Corporation’s common stock and $169,800 in exchange for 145,168 shares of North East common stock. North East’s banking subsidiary, The National Bank of North East, was merged into FNBPA.

     On February 18, 2005, the Corporation completed its acquisition of NSD Bancorp, Inc. (NSD) (Nasdaq: NSDB), a bank holding company headquartered in Pittsburgh, Pennsylvania, with $503.0 million in assets, including $308.9 million in loans, and $378.8 million in deposits. The acquisition was a stock transaction valued at approximately $127.5 million. The Corporation issued 5,944,343 shares of its common stock in exchange for 3,302,485 shares of NSD common stock. NSD’s banking subsidiary, NorthSide Bank, was merged into FNBPA.

     The assets and liabilities of these acquired entities were recorded on the balance sheet at their estimated fair values as of their respective acquisition dates. The consolidated financial statements include the results of operations of these entities from their respective dates of acquisition.

STOCK-BASED COMPENSATION

     On January 1, 2006, the Corporation adopted Financial Accounting Standards Board Statement (FAS) 123R, Share-Based Payment, which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards, including stock options and restricted stock, made to employees and directors.

     The Corporation adopted FAS 123R using the modified prospective transition method. The consolidated financial statements for 2006 reflect the impact of FAS 123R. In accordance with the modified prospective transition method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of FAS 123R. Share-based compensation expense recognized under FAS 123R related to restricted stock awards was $0.9 million for the nine months ended September 30, 2006.

     Prior to the adoption of FAS 123R, the Corporation accounted for share-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, as allowed under FAS 123, Accounting for Stock-Based Compensation. Share-based compensation expense of $1.1 million for the nine months ended September 30, 2005 was related to restricted stock awards that the Corporation had been recognizing in its consolidated statement of income in accordance with the provisions set forth above. Because the exercise price of the Corporation’s stock options granted to employees and directors equaled the market price of the underlying stock at the grant date, under the intrinsic value method, no share-based compensation expense was recognized in the Corporation’s consolidated statement of income.

     FAS 123R requires companies to estimate the fair value of share-based awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Corporation’s consolidated statement of income over the requisite service periods. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense has been reduced to account for estimated forfeitures. FAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For periods prior to 2006, the Corporation accounted for forfeitures as they occurred in the consolidated financial statements under APB Opinion No. 25 and in the pro forma information under FAS 123. The cumulative effect of the accounting change associated with the adoption of FAS 123R was a reduction in compensation expense of less than $0.1 million.

     FAS 123R also requires that awards be expensed over the shorter of the requisite service period or the period through the date that the employee first becomes eligible to retire. Prior to the adoption of FAS 123R, the Corporation recorded compensation expense for retirement-eligible employees ratably over the vesting period. The impact of applying the provisions of FAS 123R related to retirement-eligible employees would have increased compensation expense by approximately $1.1 million for the year ended December 31, 2005.

     As of September 30, 2006, there was $3.2 million of unrecognized compensation cost related to unvested restricted stock awards granted including $1.3 million that is subject to accelerated vesting under the plan’s immediate vesting upon retirement provision for awards granted prior to the adoption of FAS 123R. This unrecognized compensation expense is expected to be recognized over a weighted-average period of 2.1 years.

     FAS 123R amends FAS 95, Statement of Cash Flows, and requires tax benefits related to stock-based compensation deductions be presented in the statement of cash flows as a financing activity.

     In November 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) 123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. FSP 123(R)-3 provides an elective alternative transition method for calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of FAS 123R. Companies may take up to one year from the effective date of FSP 123(R)-3 to evaluate the available transition alternatives and make a one-time election as to which method to adopt. The Corporation is currently in the process of evaluating the alternative methods.

     The following table shows proceeds from stock options exercised, related tax benefits realized from restricted stock vesting and stock option exercises and the intrinsic value of the stock options exercised (in thousands):

Nine Months Ended September 30		2006				2005
Proceeds from stock options exercised		$	2,309			$	5,471
Tax benefit recognized from stock option exercises			356				1,766
Tax benefit recognized from restricted stock vesting			13				—
Intrinsic value of stock options exercised			1,016				5,045
Fair value of restricted stock vested			188				213

Restricted Stock

     The Corporation issued 94,767 restricted shares of common stock with a weighted average grant date fair value of $1.8 million for the nine months ended September 30, 2005 to key employees of the Corporation under its 2001 Incentive Plan. The Corporation did not issue any restricted shares of common stock for the nine months ended September 30, 2006. The Corporation has available up to 2,432,027 shares to issue under its 2001 Incentive Plan.

     Under this plan, half of the shares awarded to management are earned if the Corporation meets or exceeds certain financial performance results when compared to peers. The remaining service-based portion of the shares are expensed ratably over a three year restricted period while performance-related shares are expensed ratably from the date that the likelihood of meeting the performance measure is probable through the end of a four year restricted period. The Corporation also issues discretionary service-based awards to employees that vest twenty percent each year over five years. All of these awards are subject to accelerated vesting if there is a change of control as defined in the plan. The unvested shares of restricted stock are eligible to receive cash dividends which are used to purchase additional shares of stock. The additional shares of stock are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met.

     The unamortized expense relating to all restricted stock awards, totaling $2.3 million at September 30, 2005 and $4.2 million at December 31, 2005 were reflected as deferred stock compensation in the stockholders’ equity section of the Corporation’s balance sheet. Upon the adoption of FAS 123R in January 2006, unamortized compensation expense was reclassified to additional paid-in capital.

     The following table summarizes certain information concerning restricted stock awards:

		2006								2005
						Weighted								Weighted
						Average								Average
						Grant								Grant
Nine Months Ended September 30		Shares				Price				Shares				Price
Unvested shares outstanding at beginning of period			296,457			$	18.52				117,667			$	17.86
Granted			—				—				94,767				19.52
Vested			(10,996	)			15.34				(11,151	)			12.55
Forfeited			(1,398	)			18.87				(7,589	)			18.77
Dividend reinvestment			12,363				16.49				7,190				18.74
Unvested shares outstanding at end of period			296,426				18.55				200,884				18.93

     As of September 30, 2006, there were 164,358 unvested service-based shares outstanding with unrecognized compensation expense of $1.4 million, an intrinsic value of $2.7 million and a weighted average remaining life of 2.2 years. As of September 30, 2006, there were also 132,068 unvested performance-based shares outstanding with

     unrecognized compensation expense of $1.8 million, an intrinsic value of $2.2 million and a weighted average remaining life of 2.1 years.

Stock Options

     The Corporation also has available up to 7,433,955 shares to issue under its non-qualified stock option plans to key employees and directors of the Corporation. Options have been granted at a price equal to the fair market value at the date of the grant and are primarily exercisable within ten years from the date of the grant. Because the exercise price of the Corporation’s stock options equaled the market price of the underlying stock on the date of grant, no compensation expense was recognized in 2005 in accordance with APB Opinion No. 25. In the fourth quarter of 2005, the Corporation accelerated the vesting of approximately 186,000 shares of remaining unvested stock options in order to reduce future compensation expense. No shares were issued under these plans for the nine months ended September 30, 2006 or 2005. The Corporation issues shares of treasury stock or authorized but unissued shares to satisfy stock option exercises. Shares issued upon the exercise of stock options were 232,604 and 529,752 for the nine months ended September 30, 2006 and 2005.

     The following table summarizes certain information concerning stock option awards:

		2006								2005
						Weighted								Weighted
						Average								Average
						Exercise								Exercise
Nine Months Ended September 30		Shares				Price				Shares				Price
Options outstanding at beginning of period			1,622,864			$	11.54				2,108,333			$	11.35
Assumed in acquisitions			224,351				11.63				149,009				10.84
Exercised			(221,769	)			10.57				(623,898	)			10.73
Forfeited			—				—				(6,046	)			13.04
Options outstanding at end of period			1,625,446				11.69				1,627,398				11.54
Options exercisable at end of period			1,625,446								1,426,230

     The following table summarizes information about stock options outstanding at September 30, 2006:

						Weighted
		Options				Average				Weighted
		Outstanding				Remaining				Average
		and				Contractual				Exercise
Range of Exercise Prices		Exercisable				Years				Price
$   2.68 —  $4.02			25,168				6.45			$	2.68
4.03 —    6.05			—				—				—
6.06 —    9.09			45,824				3.11				8.93
9.10 —  13.65			1,173,192				4.01				11.29
13.66 —  15.43			381,262				4.17				13.82
			1,625,446

     The intrinsic value of outstanding and exercisable stock options at September 30, 2006 was $8.0 million.

Warrants

     The Corporation assumed warrants to issue 123,394 shares of common stock at an exercise price of $10.00 in conjunction with the Legacy acquisition. Such warrants are exercisable and will expire on various dates in 2009. The Corporation has reserved shares of common stock for issuance in the event these warrants are exercised.

Pro Forma Stock-Based Payments Prior to the Adoption of FAS 123R

     Prior to the adoption of FAS 123R by the Corporation on January 1, 2006, the Corporation provided disclosures required under FAS 123. Stock-based compensation expense recognized under FAS 123R has not been reflected in the statement of income for the three or nine months ended September 30, 2005 for employee stock option awards as the options were granted with an exercise price equal to the market price of the underlying common stock on the grant date. The following table shows pro forma net income and earnings per share assuming the stock-based compensation expense had been recognized in the statement of income (dollars in thousands, except per share data):

		Three Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2005				2005
Net income		$	18,086			$	50,537
Stock-based employee compensation cost included in net income, net of tax			181				705
Stock-based employee compensation cost determined if the fair value method had been applied to all awards, net of tax			(323	)			(1,155	)
Pro forma net income		$	17,944			$	50,087
Basic Earnings per Common Share:
As reported		$	.32			$	.91
Pro forma		$	.32			$	.91
Diluted Earnings per Common Share:
As reported		$	.32			$	.90
Pro forma		$	.31			$	.89

     The fair value of stock options outstanding was determined at the grant date using a Black-Scholes option pricing model and the following weighted average assumptions:

Risk-free interest rate			4.31				4.31
Dividend yield			2.89				2.89
Expected stock price volatility			.21				.21
Expected life (years)			5.00				5.00
Fair value of options granted		$	4.57			$	4.57

     The option valuation model requires the input of highly subjective assumptions including the expected stock price volatility. Changes in these subjective input assumptions can materially affect the fair value estimate.

NEW ACCOUNTING STANDARDS

Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans

     In September 2006, the FASB issued FAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, which amends FAS 87 and FAS 106 to require recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under FAS 158, gains and losses, prior service costs and credits, and any remaining transition amounts under FAS 87 and FAS 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of taxes, until they are amortized as a component of net periodic cost. The Corporation already complies with the requirement under FAS 158 to measure plan assets and benefit obligations as of the date of the year-end balance sheet. FAS 158 is effective for fiscal years ending after December 15, 2006. The Corporation will adopt the balance sheet recognition provisions of FAS 158 at December 31, 2006. Although the Corporation continues to evaluate the effect that the recognition of the funded status of its plans will have on the Corporation’s consolidated financial position, the Corporation estimates the adoption will decrease accumulated other comprehensive income, a component of stockholders’ equity, by a net after-tax amount of

approximately $8.0 million, based on its current assumptions of discount rate and return on plan assets. This statement is not expected to have a material impact on the Corporation’s results of operations.

Fair Value Measurements

     In September 2006, the FASB issued FAS 157, Fair Value Measurements, which defines fair value, establishes a framework for consistently measuring fair value under GAAP and expands disclosures about fair value measurements. FAS 157 is effective beginning January 1, 2008, and the provisions of FAS 157 will be applied prospectively as of that date. The Corporation is currently evaluating the effect that adoption of FAS 157 will have on the Corporation’s financial position and results of operations.

Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements

     In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. SAB 108 is effective for fiscal years ending on or after November 15, 2006. The adoption of SAB 108 is not expected to have a material impact on the Corporation’s financial statements.

Accounting for Uncertainty in Income Taxes

     In July 2006, the FASB issued FAS Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Corporation will adopt FIN 48 for the year beginning January 1, 2007 and is evaluating the impact on its financial statements.

Accounting for Servicing of Financial Assets

     In March 2006, the FASB issued FAS 156, Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140 (FAS 140). FAS 140 established, among other things, the accounting for all separately recognized servicing assets and servicing liabilities. FAS 156 amends FAS 140 to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. FAS 156 also permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. Under FAS 156, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. Adoption of FAS 156 is required as of the beginning of the first fiscal year beginning after September 15, 2006. Upon adoption, the Corporation will apply the requirements for recognition and initial measurement of servicing assets and servicing liabilities prospectively to all transactions. The Corporation will adopt FAS 156 for the year beginning January 1, 2007 and the adoption is not expected to have a significant impact on its financial statements.

SECURITIES

     Following is a summary of the fair value of securities available for sale (in thousands):

		September 30,				December 31,
		2006				2005
U.S. Treasury and other U.S. government agencies and corporations		$	189,402			$	190,301
Mortgage-backed securities of U.S. government agencies			28,381				32,496
States of the U.S. and political subdivisions			22,074				5,385
Corporate debt securities			40,052				36,741
Total debt securities			279,909				264,923
Equity securities			9,716				14,296
		$	289,625			$	279,219

     Following is a summary of the amortized cost of securities held to maturity (in thousands):

		September 30,				December 31,
		2006				2005
U.S. Treasury and other U.S. government agencies and corporations		$	105,519			$	105,355
Mortgage-backed securities of U.S. government agencies			555,775				631,160
States of the U.S. and political subdivisions			114,375				124,649
Corporate and other debt securities			19,441				19,975
		$	795,110			$	881,139

     The Corporation sold $25.4 million of securities at a gain of $1.4 million for the nine months ended September 30, 2006. None of the security sales were at a loss.

     Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors, including but not limited to, length of time and extent to which the market value has been less than cost, financial condition of the underlying issuer, ability of the issuer to meet contractual obligations, likelihood of the security’s ability to recover any decline in its market value and management’s intent and ability to retain the security for a period of time sufficient to allow for recovery in market value or maturity. Among the factors that are considered in determining intent and ability is a review of the Corporation’s capital adequacy, interest rate risk position and liquidity. The assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations and management’s intent and ability requires considerable judgment. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the statement of income.

     Following are summaries of the age of unrealized losses and the associated fair value (in thousands):

Securities available for sale:

		Less than 12 Months								Greater than 12 Months								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
September 30, 2006
U.S. Treasury and other U.S. government agencies and corporations		$	189,402			$	(429	)			—				—			$	189,402			$	(429	)
Mortgage-backed securities of U.S. government agencies			1,578				(28	)		$	26,290			$	(513	)			27,868				(541	)
States of the U.S. and political subdivisions			1,307				(6	)			709				(3	)			2,016				(9	)
Corporate debt securities			16,974				(115	)			—				—				16,974				(115	)
Equity securities			279				(8	)			142				(16	)			421				(24	)
		$	209,540			$	(586	)		$	27,141			$	(532	)		$	236,681			$	(1,118	)

		Less than 12 Months								Greater than 12 Months								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2005
U.S. Treasury and other U.S. government agencies and corporations		$	153,201			$	(112	)			—				—			$	153,201			$	(112	)
Mortgage-backed securities of U.S. government agencies			26,269				(413	)		$	5,735			$	(132	)			32,004				(545	)
States of the U.S. and political subdivisions			4,649				(59	)			—				—				4,649				(59	)
Corporate debt securities			17,053				(58	)			—				—				17,053				(58	)
Equity securities			372				(21	)			—				—				372				(21	)
		$	201,544			$	(663	)		$	5,735			$	(132	)		$	207,279			$	(795	)

Securities held to maturity:

		Less than 12 Months								Greater than 12 Months								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
September 30, 2006
U.S. Treasury and other U.S. government agencies and corporations		$	102,944			$	(366	)		$	1,676			$	(25	)		$	104,620			$	(391	)
Mortgage-backed securities of U.S. government agencies			134,972				(1,000	)			381,733				(10,224	)			516,705				(11,224	)
States of the U.S. and political subdivisions			23,854				(148	)			69,314				(1,128	)			93,168				(1,276	)
Corporate debt securities			550				—				16,182				(418	)			16,732				(418	)
		$	262,320			$	(1,514	)		$	468,905			$	(11,795	)		$	731,225			$	(13,309	)

		Less than 12 Months								Greater than 12 Months								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2005
U.S. Treasury and other U.S. government agencies and corporations		$	72,707			$	(24	)		$	1,666			$	(40	)		$	74,373			$	(64	)
Mortgage-backed securities of U.S. government agencies			441,423				(9,194	)			86,834				(2,892	)			528,257				(12,086	)
States of the U.S. and political Subdivisions			82,489				(1,411	)			20,726				(602	)			103,215				(2,013	)
Corporate debt securities			13,563				(270	)			3,508				(88	)			17,071				(358	)
		$	610,182			$	(10,899	)		$	112,734			$	(3,622	)		$	722,916			$	(14,521	)

     As of September 30, 2006, securities with unrealized losses for less than 12 months include 19 investments in U.S. Treasury and other U.S. government agencies and corporations securities, 16 investments in mortgage-backed securities of U.S. government agencies, 36 investments in states of the U.S. and political subdivision securities, 10 investments in corporate debt securities and 3 investments in equity securities. As of September 30, 2006, securities with unrealized losses of greater than 12 months include 4 investments in U.S. Treasury and other U.S. government agencies and corporations securities, 77 investments in mortgage-backed securities of U.S. government agencies, 92 investments in states of the U.S. and political subdivision securities, 11 investments in corporate debt securities and 1 investment in an equity security. The unrealized losses at September 30, 2006 are reflective of changes in interest rates as none of the securities in an unrealized loss position at September 30, 2006 had experienced deterioration in credit quality. The Corporation has concluded that it has both the intent and ability to hold these securities for the period of time necessary to recover the amortized cost or until maturity.

BORROWINGS

     Following is a summary of short-term borrowings (in thousands):

		September 30,				December 31,
		2006				2005
Securities sold under repurchase agreements		$	217,613			$	182,517
Federal funds purchased			47,000				30,000
Federal Home Loan Bank advances			—				40,000
Subordinated notes			107,891				125,673
Other short-term borrowings			257				788
		$	372,761			$	378,978

     Following is a summary of long-term debt (in thousands):

		September 30,				December 31,
		2006				2005
Federal Home Loan Bank advances		$	488,922			$	499,963
Subordinated notes			47,271				33,437
Convertible debt			898				—
Other long-term debt			310				303
		$	537,401			$	533,703

     The Corporation’s banking affiliate has available credit with the Federal Home Loan Bank (FHLB) of $1.9 billion, of which $488.9 million was used as of September 30, 2006. These advances are secured by loans collateralized by 1-4 family mortgages and the security portfolio and are scheduled to mature in various amounts periodically through the year 2017. Effective interest rates on these advances range from 2.79% to 5.75% for the nine months ended September 30, 2006 and 2.10% to 5.75% for the nine months ended September 30, 2005.

JUNIOR SUBORDINATED DEBT OWED TO UNCONSOLIDATED SUBSIDIARY TRUSTS

     The Corporation has two unconsolidated subsidiary trusts (collectively, the Trusts), F.N.B. Statutory Trust I (Statutory Trust I) and F.N.B. Statutory Trust II (Statutory Trust II), of which 100% of the common equity of each is owned by the Corporation. The Trusts are not consolidated because the Corporation is not the primary beneficiary, as evaluated under FIN 46. The Trusts were formed for the purpose of issuing Corporation-obligated mandatorily redeemable capital securities (trust preferred securities) to third-party investors. The proceeds from the sale of trust preferred securities and the issuance of common equity by the Trusts were invested in junior subordinated debt securities (subordinated debt) issued by the Corporation, which are the sole assets of each Trust. The Trusts pay dividends on the trust preferred securities at the same rate as the distributions paid by the Corporation on the junior subordinated debt held by the Trusts.

     Distributions on the subordinated debt issued to the Trusts are recorded as interest expense by the Corporation. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated debt. The subordinated debt, net of the Corporation’s investment in the Trusts, qualifies as Tier 1 capital under the Board of Governors of the Federal Reserve System (Federal Reserve Board) guidelines. The Corporation has entered into agreements which, taken collectively, fully and unconditionally guarantee the trust preferred securities subject to the terms of each of the guarantees.

     The trust preferred securities of Statutory Trust I bear interest at a floating rate per annum equal to the three-month London Inter-Bank Offered Rate (LIBOR) plus 325 basis points. The interest rate in effect at September 30, 2006 was 8.75%. The subordinated debt of $128.9 million issued to Statutory Trust I is first redeemable, in whole or in part, by the Corporation on or after March 31, 2008 and matures on March 31, 2033.

     The trust preferred securities of Statutory Trust II, which were issued in the second quarter of 2006, bear interest at a fixed rate per annum equal to 7.17% through June 15, 2011, at which time the issue converts to a floating rate of the

three-month LIBOR plus 165 basis points. The subordinated debt of $22.2 million issued to Statutory Trust II is first redeemable, in whole or in part, by the Corporation on or after June 15, 2011 and matures on June 15, 2036.

INTEREST RATE SWAP

     In February 2005, the Corporation entered into an interest rate swap with a notional amount of $125.0 million, whereby it will pay a fixed rate of interest and receive a variable rate based on LIBOR. The effective date of the swap was January 3, 2006 and the maturity date of the swap is March 31, 2008. The interest rate swap is a designated cash flow hedge designed to convert the variable interest rate to a fixed rate on $125.0 million of subordinated debentures. The swap is considered to be highly effective and assessment of the hedging relationship is evaluated under Derivative Implementation Group Issue No. G7 using the hypothetical derivative method. At September 30, 2006, the swap had a fair value of $1.6 million which has been recorded in other assets, and other comprehensive income, net of tax. The Corporation accounts for the swap in accordance with FAS 133, Accounting for Derivative Instruments and Hedging Activities.

COMMITMENTS, CREDIT RISK AND CONTINGENCIES

     The Corporation has commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the consolidated balance sheet. The Corporation’s exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with loan commitments and standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

     Following is a summary of off-balance sheet credit risk information (in thousands):

		September 30,				December 31,
		2006				2005
Commitments to extend credit		$	941,512			$	729,892
Standby letters of credit			98,945				61,659

     At September 30, 2006, funding of approximately 75.0% of the commitments to extend credit was dependent on the financial condition of the customer. The Corporation has the ability to withdraw such commitments at its discretion. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Based on management’s credit evaluation of the customer, collateral may be deemed necessary. Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

     Standby letters of credit are conditional commitments issued by the Corporation that may require payment at a future date. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The obligations are not recorded in the Corporation’s consolidated financial statements. The Corporation’s exposure to credit loss in the event the customer does not satisfy the terms of the agreement equals the notional amount of the obligation less the value of any collateral.

     The Corporation and its subsidiaries are involved in various legal proceedings arising from the conduct of their business activities. These actions include claims brought against the Corporation and its subsidiaries where the Corporation acted as a depository bank, lender, underwriter, fiduciary, financial advisor or broker or in connection with other business activities of the Corporation and its subsidiaries. Although the ultimate outcome cannot be predicted with certainty, the Corporation believes that it has valid defenses for all asserted claims. Reserves are established for legal claims when losses associated with the claims are judged to be probable and the loss can be reasonably estimated.

     Based on information currently available, advice of counsel, available insurance coverage and established reserves, the Corporation believes that the eventual outcome of all claims against the Corporation and its subsidiaries will not, individually or in the aggregate, have a material adverse effect on the Corporation’s consolidated financial position or results of operations. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation’s results of operations for a particular period.

EARNINGS PER SHARE

     Basic earnings per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding net of unvested shares of restricted stock.

     Diluted earnings per common share is calculated by dividing net income adjusted for interest expense on convertible debt by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options, warrants, restricted shares and convertible debt. Such adjustments to the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.

     The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Net income — basic earnings per share		$	17,619			$	18,086			$	50,056			$	50,537
Interest expense on convertible debt			10				—				14				—
Net income after assumed conversion — Diluted earnings per share		$	17,629			$	18,086			$	50,070			$	50,537
Basic weighted average common shares Outstanding			59,923,906				56,426,087				58,456,628				55,260,092
Net effect of dilutive stock options, warrants, restricted stock and convertible debt			603,882				674,289				496,175				721,580
Diluted weighted average common shares Outstanding			60,527,788				57,100,376				58,952,803				55,981,672
Basic earnings per share		$	.29			$	.32			$	.86			$	.91
Diluted earnings per share		$	.29			$	.32			$	.85			$	.90

RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS

     The Corporation sponsors the F.N.B. Corporation Retirement Income Plan (RIP), a qualified noncontributory defined benefit pension plan covering substantially all salaried employees. The RIP covers employees who satisfy minimum age and length of service requirements. At the end of the second quarter of 2006, the Corporation amended the RIP such that effective January 1, 2007, benefits will be earned based on the employee’s compensation each year. The plan amendment resulted in a remeasurement that produced a net unrecognized service credit of $14.0 million, which is being amortized over the average period of future service of active employees of 13.5 years. Benefits of the RIP for service provided prior to December 31, 2006 are generally based on years of service and the employee’s compensation for five consecutive years during their last ten years of employment. The RIP’s funding policy is to make annual contributions to the RIP each year equal to the maximum tax deductible amount. The Corporation made contributions of $5.8 million to the RIP in the first nine months of 2006.

     The Corporation also sponsors two supplemental non-qualified retirement plans. The ERISA Excess Retirement Plan provides retirement benefits equal to the difference, if any, between the maximum benefit allowable under the Internal Revenue Code and the amount that would be provided under the RIP, if no limits were applied. The Basic Retirement Plan (BRP) is applicable to certain officers who are designated by the Board of Directors. Officers participating in the BRP receive a benefit based on a target benefit percentage based on years of service at retirement and designated tier as determined by the Board of Directors. When a participant retires, the basic benefit under the BRP is a monthly benefit equal to the target benefit percentage times the participant’s highest average monthly cash compensation during five consecutive calendar years within the last ten calendar years of employment. This monthly benefit is reduced by the monthly benefit the participant receives from Social Security and the qualified RIP.

     The net periodic benefit cost for the defined benefit plans includes the following components (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Service cost		$	851			$	1,040			$	3,260			$	3,320
Interest cost			1,411				1,617				4,878				4,887
Expected return on plan assets			(1,911	)			(1,942	)			(5,931	)			(5,716	)
Net amortization			(58	)			249				715				814
Net periodic pension benefit cost		$	293			$	964			$	2,922			$	3,305

     The net periodic pension cost decreased for the three and nine months ended September 30, 2006 compared to the same periods in 2005 primarily due to the amortization of the unrecognized service credit resulting from the RIP amendment in 2006.

     The Corporation sponsors a pre-Medicare eligible postretirement medical insurance plan for retirees between the ages of 62 and 65 of certain affiliates. At the end of the second quarter of 2006, the Corporation amended the plan such that only employees who are age 60 or older as of January 1, 2007 will be eligible for coverage. The postretirement plan amendment resulted in a remeasurement that produced a net unrecognized service credit of $2.7 million which is being amortized over the remaining service period of eligible employees of 1.3 years. The Corporation has no plan assets attributable to this plan and funds the benefits as claims arise. Benefit costs related to this plan are recognized in the periods in which employees provide service for such benefits. The Corporation reserves the right to terminate the plan or make additional plan changes at any time.

     The net periodic postretirement benefit cost includes the following components (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Service cost		$	17			$	80			$	205			$	266
Interest cost			41				80				211				238
Net amortization			(533	)			16				(501	)			48
Net periodic postretirement benefit cost		$	(475	)		$	176			$	(85	)		$	552

     The net periodic postretirement benefit cost decreased for the three and nine months ended September 30, 2006 compared to the same periods in 2005 due to the amortization of the unrecognized service credit resulting from the postretirement plan amendment in 2006.

     The Corporation also sponsors a qualified 401(k) defined contribution plan under which eligible employees may contribute a percentage of their salary. The Corporation matches 50 percent of an eligible employee’s contribution on the first 6 percent that the employee defers. Employees are generally eligible to participate upon completing 90 days of service and having attained age 21. Employer contributions become 20 percent vested when an employee has completed one year of service, and vest at a rate of 20 percent per year thereafter. The Corporation’s contribution expense was $1.2 million and $1.1 million for the nine months ended September 30, 2006 and 2005, respectively.

CASH FLOW INFORMATION

     Following is a summary of supplemental cash flow information (in thousands):

Nine Months Ended September 30		2006				2005
Interest paid on deposits and other borrowings		$	108,993			$	82,207
Income taxes paid			13,500				25,943
Transfers of loans to other real estate owned			3,231				2,547
Transfers of other real estate owned to loans			199				108
Summary of business acquisitions:
Fair value of tangible assets acquired		$	356,838			$	483,700
Fair value of core deposit and other intangible assets acquired			5,559				8,434
Fair value of liabilities assumed			(336,944	)			(473,872	)
Fair value of stock issued and stock options and warrants assumed			(51,227	)			(127,516	)
Cash (paid) received in the acquisition			(17,079	)			8,799
Goodwill recognized		$	(42,853	)		$	(100,455	)