Edgar Filing: FNB CORP/FL/

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

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

For the transition period from to

Commission file number 001-31940

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer x		Accelerated Filer ¨		Non-accelerated Filer ¨		Smaller reporting company ¨

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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 July 31, 2011
Common Stock, $0.01 Par Value		127,024,866 Shares

F.N.B. CORPORATION

FORM 10-Q

June 30, 2011

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

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		43

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		62

Item 4.	Controls and Procedures		62

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		63

Item 1A.	Risk Factors		63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		64

Item 3.	Defaults Upon Senior Securities		64

Item 5.	Other Information		64

Item 6.	Exhibits		64

Signatures			65

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except par value


	June 30,			December 31,
	2011			2010
	(Unaudited)

Assets
Cash and due from banks	$	172,401		$	115,556
Interest bearing deposits with banks		16,732			16,015

Cash and Cash Equivalents		189,133			131,571
Securities available for sale		820,847			738,125
Securities held to maturity (fair value of $1,038,434 and $959,414)		1,010,672			940,481
Residential mortgage loans held for sale		9,922			12,700
Loans, net of unearned income of $45,019 and $42,183		6,702,595			6,088,155
Allowance for loan losses		(109,224	)		(106,120	)

Net Loans		6,593,371			5,982,035
Premises and equipment, net		126,061			115,956
Goodwill		567,378			528,720
Core deposit and other intangible assets, net		34,580			32,428
Bank owned life insurance		208,714			208,051
Other assets		296,485			269,848

Total Assets	$	9,857,163		$	8,959,915


Liabilities
Deposits:
Non-interest bearing demand	$	1,267,554		$	1,093,230
Savings and NOW		3,853,257			3,423,844
Certificates and other time deposits		2,276,408			2,129,069

Total Deposits		7,397,219			6,646,143
Other liabilities		103,492			97,951
Short-term borrowings		728,300			753,603
Long-term debt		221,061			192,058
Junior subordinated debt		203,941			204,036

Total Liabilities		8,654,013			7,893,791
Stockholders’ Equity
Common stock – $0.01 par value
Authorized – 500,000,000 shares
Issued – 127,240,016 and 114,902,454 shares		1,267			1,143
Additional paid-in capital		1,219,663			1,094,713
Retained earnings		16,348			6,564
Accumulated other comprehensive loss		(30,716	)		(33,732	)
Treasury stock – 215,117 and 155,369 shares at cost		(3,412	)		(2,564	)

Total Stockholders’ Equity		1,203,150			1,066,124

Total Liabilities and Stockholders’ Equity	$	9,857,163		$	8,959,915

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Dollars in thousands, except per share data

Unaudited


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011		2010			2011		2010
Interest Income
Loans, including fees	$	85,189	$	81,092		$	169,899	$	160,378
Securities:
Taxable		10,975		11,323			21,489		22,576
Nontaxable		1,882		1,819			3,829		3,710
Dividends		12		18			131		37
Other		97		109			178		206

Total Interest Income		98,155		94,361			195,526		186,907

Interest Expense
Deposits		14,054		16,776			28,649		34,330
Short-term borrowings		1,634		2,031			3,467		4,162
Long-term debt		1,655		2,091			3,283		4,637
Junior subordinated debt		2,118		1,982			4,150		3,892

Total Interest Expense		19,461		22,880			39,549		47,021

Net Interest Income		78,694		71,481			155,977		139,886
Provision for loan losses		8,551		12,239			16,779		24,203

Net Interest Income After Provision for Loan Losses		70,143		59,242			139,198		115,683

Non-Interest Income
Impairment losses on securities		—		(1,313	)		—		(9,539	)
Non-credit related losses on securities not expected to be sold (recognized in other comprehensive income)		—		711			—		7,251

Net impairment losses on securities		—		(602	)		—		(2,288	)
Service charges		15,666		14,662			30,001		28,384
Insurance commissions and fees		3,664		3,849			7,810		8,173
Securities commissions and fees		2,130		1,771			4,102		3,328
Trust fees		3,947		3,188			7,657		6,346
Gain on sale of securities		38		47			92		2,437
Gain on sale of residential mortgage loans		376		808			1,143		1,375
Bank owned life insurance		1,372		1,247			2,604		2,312
Other		2,065		3,473			4,281		8,651

Total Non-Interest Income		29,258		28,443			57,690		58,718

Non-Interest Expense
Salaries and employee benefits		36,528		33,392			74,910		66,517
Net occupancy		5,060		4,840			10,970		10,378
Equipment		4,925		4,606			9,400		9,139
Amortization of intangibles		1,805		1,679			3,601		3,366
Outside services		5,377		5,885			10,577		11,407
FDIC insurance		1,870		2,641			4,589		5,263
Merger related		161		—			4,307		—
Other		12,643		10,041			24,572		22,457

Total Non-Interest Expense		68,369		63,084			142,926		128,527

Income Before Income Taxes		31,032		24,601			53,962		45,874
Income taxes		8,670		6,679			14,425		11,972

Net Income	$	22,362	$	17,922		$	39,537	$	33,902

Net Income per Share – Basic	$	0.18	$	0.16		$	0.32	$	0.30
Net Income per Share – Diluted		0.18		0.16			0.32		0.30
Cash Dividends per Share		0.12		0.12			0.24		0.24

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Dollars in thousands, except per share data

Unaudited


	Compre- hensive Income		Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at January 1, 2011			$	1,143	$	1,094,713		$	6,564		$	(33,732	)	$	(2,564	)	$	1,066,124
Net income	$	39,537							39,537									39,537
Change in other comprehensive income, net of tax		3,016										3,016						3,016

Comprehensive income	$	42,553

Common stock dividends ($0.24/share)									(29,753	)								(29,753	)
Issuance of common stock				124		123,180									(848	)		122,456
Restricted stock compensation						1,832												1,832
Tax expense of stock-based compensation						(62	)											(62	)

Balance at June 30, 2011			$	1,267	$	1,219,663		$	16,348		$	(30,716	)	$	(3,412	)	$	1,203,150


Balance at January 1, 2010			$	1,138	$	1,087,369		$	(12,833	)	$	(30,633	)	$	(1,739	)	$	1,043,302
Net income	$	33,902							33,902									33,902
Change in other comprehensive income, net of tax		5,275										5,275						5,275

Comprehensive income	$	39,177

Common stock dividends ($0.24/share)									(27,584	)								(27,584	)
Issuance of common stock				3		2,671									(778	)		1,896
Restricted stock compensation						1,418												1,418
Tax expense of stock-based compensation						(205	)											(205	)

Balance at June 30, 2010			$	1,141	$	1,091,253		$	(6,515	)	$	(25,358	)	$	(2,517	)	$	1,058,004

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands

Unaudited


	Six Months Ended
	June 30,
	2011			2010
Operating Activities
Net income	$	39,537		$	33,902
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion		11,867			15,238
Provision for loan losses		16,779			24,203
Deferred taxes		2,183			(1,457	)
Gain on sale of securities		(92	)		(2,437	)
Other-than-temporary impairment losses on securities		—			2,288
Tax expense of stock-based compensation		62			205
Net change in:
Interest receivable		1,312			866
Interest payable		(620	)		(923	)
Trading securities		110,490			—
Residential mortgage loans held for sale		2,778			5,522
Bank owned life insurance		(638	)		(1,624	)
Other, net		17,588			4,735

Net cash flows provided by operating activities		201,246			80,518


Investing Activities
Net change in loans		(226,196	)		(145,861	)
Securities available for sale:
Purchases		(138,672	)		(261,012	)
Sales		10,883			59,455
Maturities		162,150			163,233
Securities held to maturity:
Purchases		(299,545	)		(195,733	)
Maturities		117,207			116,277
Purchase of bank owned life insurance		(26	)		(22	)
Increase in premises and equipment		(6,843	)		(3,393	)
Net cash received in business combinations		23,375			—

Net cash flows used in investing activities		(357,667	)		(267,056	)


Financing Activities
Net change in:
Non-interest bearing deposits, savings and NOW accounts		288,317			144,500
Time deposits		(79,887	)		9,936
Short-term borrowings		(50,414	)		66,275
Increase in long-term debt		37,592			64,795
Decrease in long-term debt		(17,864	)		(183,838	)
Decrease in junior subordinated debt		(95	)		(338	)
Net proceeds from issuance of common stock		66,148			3,314
Tax expense of stock-based compensation		(62	)		(205	)
Cash dividends paid		(29,752	)		(27,584	)

Net cash flows provided by financing activities		213,983			76,855

Net Increase in Cash and Cash Equivalents		57,562			(109,683	)
Cash and cash equivalents at beginning of period		131,571			310,550

Cash and Cash Equivalents at End of Period	$	189,133		$	200,867

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands, except share data

(Unaudited)

June 30, 2011

BUSINESS

F.N.B. Corporation (the Corporation) is a diversified financial services company headquartered in Hermitage, Pennsylvania. Its primary businesses include community banking, consumer finance, wealth management and insurance. The Corporation also conducts commercial leasing and merchant banking activities. The Corporation operates its community banking business through a full service branch network in Pennsylvania and Ohio and through a loan production office in Pennsylvania. The Corporation operates its wealth management and insurance businesses within the existing branch network. It also conducts selected consumer finance business in Pennsylvania, Ohio, Tennessee and Kentucky.

BASIS OF PRESENTATION

The Corporation’s accompanying consolidated financial statements and these notes to the financial statements include subsidiaries in which the Corporation has a controlling financial interest. 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, Regency Finance Company (Regency), F.N.B. Capital Corporation, LLC and Bank Capital Services, LLC, and includes results for each of these entities in the accompanying consolidated financial statements.

The accompanying consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly reflect the Corporation’s financial position and results of operations in accordance with U.S. generally accepted accounting principles (GAAP). All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements through the date of the filing of the consolidated financial statements with the Securities and Exchange Commission (SEC).

Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results the Corporation expects for the full year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K filed with the SEC on February 25, 2011.

USE OF ESTIMATES

The accounting and reporting policies of the Corporation conform with 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. Material estimates that are particularly susceptible to significant changes include the allowance for loan losses, securities valuations, goodwill and other intangible assets and income taxes.

COMMON STOCK

On May 18, 2011, the Corporation completed a public offering of 6,037,500 shares of common stock at a price of $10.70 per share, including 787,500 shares of common stock purchased by the underwriters pursuant to an over-allotment option, which the underwriters exercised in full. The net proceeds of the offering after deducting underwriting discounts and commissions and estimated offering expenses were $62,803.

MERGERS AND ACQUISITIONS

On January 1, 2011, the Corporation completed its acquisition of Comm Bancorp, Inc. (CBI), a bank holding company based in Clarks Summit, Pennsylvania. On the acquisition date, CBI had $625,570 in assets, which included $445,271 in loans, and $561,796 in deposits. The transaction, valued at $75,547, resulted in the Corporation paying $17,202 in cash and issuing 5,940,742 shares of its common stock in exchange for 1,719,820 shares of CBI common stock. The assets and liabilities of CBI were recorded on the Corporation’s balance sheet at their fair values as of January 1, 2011, the acquisition date, and CBI’s results of operations have been included in the Corporation’s consolidated statement of income since that date. CBI’s banking affiliate, Community Bank and Trust Company, was merged into FNBPA on January 1, 2011. Based on a preliminary purchase price allocation, the Corporation recorded $38,658 in goodwill and $4,785 in core deposit intangible as a result of the acquisition. The Corporation has not yet finalized its determination of the fair values of certain acquired assets and liabilities and will adjust goodwill upon completion of the valuation process. None of the goodwill is deductible for income tax purposes.

Pending Acquisition

On June 15, 2011, the Corporation announced the signing of a definitive merger agreement to acquire Parkvale Financial Corporation (PFC), a savings and loan holding company with approximately $1,800,000 in assets based in Monroeville, Pennsylvania. The transaction is valued at approximately $130,000. Under the terms of the merger agreement, PFC shareholders will be entitled to receive 2.178 shares of F.N.B. Corporation common stock for each share of PFC common stock. PFC’s banking affiliate, Parkvale Savings Bank, will be merged into FNBPA. The transaction is expected to be completed in the first quarter of 2012, pending regulatory approvals, the approval of shareholders of PFC and the satisfaction of other closing conditions.

Acquired Loans

Loans acquired in acquisitions after December 31, 2010 are recorded at fair value with no carryover of the related allowance for loan losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of expected cash flows at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the expected cash flows to be collected at acquisition is referred to as the non-accretable yield. The non-accretable yield represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases in expected cash flows that are attributable, at least in part, to credit quality are recognized as impairments through a charge to the provision for loan losses resulting in an increase in the allowance for loan losses. Subsequent improvements in expected cash flows result in an increase to the accretable yield that is recognized into interest income over the remaining life of the loan using the interest method. The Corporation’s evaluation of the amount of future cash flows that it expects to collect is performed in a similar manner as that used to determine its allowance for loan losses. Charge-offs of the principal amount on acquired loans would be first applied to the non-accretable discount portion of the fair value adjustment.

Acquired loans that met the criteria for non-accrual of interest prior to acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Corporation can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Corporation expects to fully collect the new carrying value of the loans. As such, the Corporation may no longer consider the loan to be non-accrual or non-performing and may accrue interest on these loans, including the impact of any accretable discount.

NEW ACCOUNTING STANDARDS

Comprehensive Income

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income, with the intention of increasing the prominence of other comprehensive income in the financial statements. The FASB has eliminated the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and will require it be presented either in a single continuous

statement of comprehensive income or in two separate but consecutive statements. The single statement format would include the traditional income statement and the components and total other comprehensive income as well as total comprehensive income. In the two statement approach, the first statement would be the traditional income statement which would immediately be followed by a separate statement which includes the components of other comprehensive income, total other comprehensive income and total comprehensive income. These requirements should be applied retrospectively and are effective for the first interim or annual period beginning after December 15, 2011. Adoption of this standard is not expected to have a material effect on the financial statements, results of operations or liquidity of the Corporation.

Amendments to Fair Value Measurements

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurements, to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with GAAP and International Financial Reporting Standards (IFRSs). The amendments explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices. The amendments result in common fair value measurement and disclosure requirements in GAAP and IFRSs. Some of the amendments clarify the application of existing fair value measurement requirements and others change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. Many of the previous fair value requirements are not changed by this standard. The amendments in this standard are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011. Adoption of this standard is not expected to have a material effect on the financial statements, results of operations or liquidity of the Corporation.

Troubled Debt Restructurings

In April 2011, the FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring, to address diversity in practice concerning determining whether a restructuring constitutes a troubled debt restructuring. This update specifies that in evaluating whether a restructuring is a troubled debt restructuring, a creditor must separately conclude both that a concession has been granted by the creditor and that the debtor is experiencing financial difficulties. Also, ASU No. 2011-02 provides clarifying guidance in determining whether a concession has been granted and whether a debtor is experiencing financial difficulties. In addition, the update precludes a creditor from using the effective interest rate test in the debtor’s guidance on restructuring of payables when evaluating whether a restructuring is a troubled debt restructuring. These requirements are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to restructurings made during the period from the beginning of the annual period of adoption to the date of adoption. Adoption of this standard is not expected to have a material effect on the financial statements, results of operations or liquidity of the Corporation.

Disclosure of Supplementary Pro Forma Information for Business Combinations

In December 2010, the FASB issued ASU No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, to address diversity in practice concerning pro forma revenue and earnings disclosure requirements for business combinations. This update specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination(s) included in the reported pro forma revenue and earnings. These requirements are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Adoption of this standard did not have a material effect on the financial statements, results of operations or liquidity of the Corporation.

Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses

In July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to provide financial statement users with greater transparency about credit quality of financing receivables and allowance for credit losses. This update requires additional disclosures as of the end of a reporting period and additional disclosures about activity that occurs during a reporting period that will assist financial statement users in assessing credit risk exposures and evaluating the adequacy of the allowance for credit losses.

The additional disclosures are required to be provided on a disaggregated basis. ASU No. 2010-20 defines two levels of disaggregation and provides additional implementation guidance to determine the appropriate level of disaggregation of information. The disclosures should facilitate evaluation of the nature of the credit risk inherent in a portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses.

The disclosures as of the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010 and are included in this Report. Adoption of this standard did not have a material effect on the financial statements, results of operations or liquidity of the Corporation.

SECURITIES

The amortized cost and fair value of securities are as follows:

Securities Available For Sale:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2011
U.S. Treasury and other U.S. government agencies and corporations	$	332,046	$	1,329	$	(91	)	$	333,284
Residential mortgage-backed securities:
Agency mortgage-backed securities		234,465		6,683		—			241,148
Agency collateralized mortgage obligations		184,665		2,320		—			186,985
Non-agency collateralized mortgage obligations		34		1		—			35
States of the U.S. and political subdivisions		43,910		1,048		(1	)		44,957
Collateralized debt obligations		19,288		—		(12,683	)		6,605
Other debt securities		6,859		—		(913	)		5,946

Total debt securities		821,267		11,381		(13,688	)		818,960
Equity securities		1,593		332		(38	)		1,887

	$	822,860	$	11,713	$	(13,726	)	$	820,847

December 31, 2010
U.S. Treasury and other U.S. government agencies and corporations	$	299,861	$	1,395	$	(688	)	$	300,568
Residential mortgage-backed securities:
Agency mortgage-backed securities		205,443		6,064		—			211,507
Agency collateralized mortgage obligations		146,977		1,081		(192	)		147,866
Non-agency collateralized mortgage obligations		37		1		—			38
States of the U.S. and political subdivisions		57,830		934		(26	)		58,738
Collateralized debt obligations		19,288		—		(13,314	)		5,974
Other debt securities		12,989		—		(1,744	)		11,245

Total debt securities		742,425		9,475		(15,964	)		735,936
Equity securities		1,867		381		(59	)		2,189

	$	744,292	$	9,856	$	(16,023	)	$	738,125

Securities Held To Maturity:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2011
U.S. Treasury and other U.S. government agencies and corporations	$	4,666	$	229	$	—		$	4,895
Residential mortgage-backed securities:
Agency mortgage-backed securities		758,325		26,724		(1,556	)		783,493
Agency collateralized mortgage obligations		62,673		609		(164	)		63,118
Non-agency collateralized mortgage obligations		28,347		243		(908	)		27,682
States of the U.S. and political subdivisions		152,574		3,383		(311	)		155,646
Collateralized debt obligations		2,502		—		(508	)		1,994
Other debt securities		1,585		25		(4	)		1,606

	$	1,010,672	$	31,213	$	(3,451	)	$	1,038,434

December 31, 2010
U.S. Treasury and other U.S. government agencies and corporations	$	4,925	$	212	$	—		$	5,137
Residential mortgage-backed securities:
Agency mortgage-backed securities		688,575		23,878		(3,079	)		709,374
Agency collateralized mortgage obligations		71,102		511		(889	)		70,724
Non-agency collateralized mortgage obligations		33,950		328		(1,331	)		32,947
States of the U.S. and political subdivisions		137,210		1,735		(1,630	)		137,315
Collateralized debt obligations		3,132		—		(778	)		2,354
Other debt securities		1,587		18		(42	)		1,563

	$	940,481	$	26,682	$	(7,749	)	$	959,414

The Corporation classifies securities as trading securities when management intends to sell such securities in the near term. Such securities are carried at fair value, with unrealized gains (losses) reflected through the consolidated statement of income. The Corporation acquired securities in conjunction with the CBI acquisition that the Corporation classified as trading securities. The Corporation both acquired and sold these trading securities during the first quarter of 2011. As of June 30, 2011 and December 31, 2010, the Corporation did not hold any trading securities.

Gross gains and gross losses were realized on sales of securities as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011			2010
Gross gains	$	38	$	47	$	288		$	2,437
Gross losses		—		—		(196	)		—

	$	38	$	47	$	92		$	2,437

The gross gains for the six months ended June 30, 2010 included a gain of $2,291 relating to the sale of a $6,016 U.S. government agency security and $52,625 of mortgage backed securities. These securities were sold to better position the balance sheet.

As of June 30, 2011, the amortized cost and fair value of securities, by contractual maturities, were as follows:


	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	40,243	$	40,720	$	6,339	$	6,438
Due from one to five years		289,370		290,091		16,728		17,443
Due from five to ten years		12,671		12,996		36,047		36,875
Due after ten years		59,819		46,985		102,213		103,385

		402,103		390,792		161,327		164,141
Residential mortgage-backed securities:
Agency mortgage-backed securities		234,465		241,148		758,325		783,493
Agency collateralized mortgage obligations		184,665		186,985		62,673		63,118
Non-agency collateralized mortgage obligations		34		35		28,347		27,682
Equity securities		1,593		1,887		—		—

	$	822,860	$	820,847	$	1,010,672	$	1,038,434

Maturities may differ from contractual terms because borrowers may have the right to call or prepay obligations with or without penalties. Periodic payments are received on mortgage-backed securities based on the payment patterns of the underlying collateral.

At June 30, 2011 and December 31, 2010, securities with a carrying value of $705,270 and $651,299, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $576,986 and $676,083 at June 30, 2011 and December 31, 2010, respectively, were pledged as collateral for short-term borrowings.

Following are summaries of the fair values and unrealized losses of securities, segregated by length of impairment:

Securities available for sale:


	Less than 12 Months					Greater than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2011
U.S. Treasury and other U.S. government agencies and corporations	$	57,646	$	(91	)	$	—	$	—		$	57,646	$	(91	)
States of the U.S. and political subdivisions		1,193		(1	)		—		—			1,193		(1	)
Collateralized debt obligations		—		—			6,605		(12,683	)		6,605		(12,683	)
Other debt securities		—		—			5,946		(913	)		5,946		(913	)
Equity securities		28		(1	)		636		(37	)		664		(38	)

	$	58,867	$	(93	)	$	13,187	$	(13,633	)	$	72,054	$	(13,726	)


December 31, 2010
U.S. Treasury and other U.S. government agencies and corporations	$	117,140	$	(688	)	$	—	$	—		$	117,140	$	(688	)
Residential mortgage-backed securities:
Agency collateralized mortgage obligations		22,616		(192	)		—		—			22,616		(192	)
States of the U.S. and political subdivisions		3,322		(26	)		—		—			3,322		(26	)
Collateralized debt obligations		—		—			5,974		(13,314	)		5,974		(13,314	)
Other debt securities		4,024		(62	)		7,221		(1,682	)		11,245		(1,744	)
Equity securities		—		—			648		(59	)		648		(59	)

	$	147,102	$	(968	)	$	13,843	$	(15,055	)	$	160,945	$	(16,023	)

Securities held to maturity:


	Less than 12 Months					Greater than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2011
Residential mortgage-backed securities:
Agency mortgage-backed securities	$	180,079	$	(1,556	)	$	—	$	—		$	180,079	$	(1,556	)
Agency collateralized mortgage obligations		27,885		(164	)		—		—			27,885		(164	)
Non-agency collateralized mortgage obligations		—		—			9,395		(908	)		9,395		(908	)
States of the U.S. and political subdivisions		16,519		(311	)		—		—			16,519		(311	)
Collateralized debt obligations		—		—			1,994		(508	)		1,994		(508	)
Other debt securities		—		—			1,324		(4	)		1,324		(4	)

	$	224,483	$	(2,031	)	$	12,713	$	(1,420	)	$	237,196	$	(3,451	)


December 31, 2010
Residential mortgage-backed securities:
Agency mortgage-backed securities	$	156,544	$	(3,079	)	$	—	$	—		$	156,544	$	(3,079	)
Agency collateralized mortgage obligations		39,074		(889	)		—		—			39,074		(889	)
Non-agency collateralized mortgage obligations		2,551		(12	)		10,739		(1,319	)		13,290		(1,331	)
States of the U.S. and political subdivisions		47,125		(1,415	)		2,319		(215	)		49,444		(1,630	)
Collateralized debt obligations		—		—			2,354		(778	)		2,354		(778	)
Other debt securities		—		—			1,288		(42	)		1,288		(42	)

	$	245,294	$	(5,395	)	$	16,700	$	(2,354	)	$	261,994	$	(7,749	)

As of June 30, 2011, securities with unrealized losses for less than 12 months include 4 investments in U.S. Treasury and other U.S. government agencies and corporations, 17 investments in residential mortgage-backed securities (15 investments in agency mortgage-backed securities and 2 investments in agency collateralized mortgage obligations (CMOs)), 15 investments in states of the U.S. and political subdivisions and 1 investment in an equity security. Securities with unrealized losses of greater than 12 months include 2 investments in residential mortgage-backed securities (non-agency CMOs), 13 investments in collateralized debt obligations (CDOs), 5 investments in other debt securities and 2 investments in equity securities as of June 30, 2011. The Corporation does not intend to sell the debt securities and it is not more likely than not the Corporation will be required to sell the securities before recovery of their amortized cost basis.

The Corporation’s unrealized losses on CDOs relate to investments in trust preferred securities (TPS). The Corporation’s portfolio of TPS consists of single-issuer and pooled securities. The single-issuer securities are primarily from money-center and large regional banks. The pooled securities consist of securities issued primarily by banks and thrifts, with some of the pools including a limited number of insurance companies. Investments in pooled securities are all in mezzanine tranches except for one investment in a senior tranche, and are secured by over-collateralization or default protection provided by subordinated tranches. The non-credit portion of unrealized losses on investments in TPS is attributable to temporary illiquidity and the uncertainty affecting these markets, as well as changes in interest rates.

Other-Than-Temporary Impairment

The Corporation evaluates its investment securities portfolio for other-than-temporary impairment (OTTI) on a quarterly basis. Impairment is assessed at the individual security level. The Corporation considers an investment security impaired if the fair value of the security is less than its cost or amortized cost basis.

When impairment of an equity security is considered to be other-than-temporary, the security is written down to its fair value and an impairment loss is recorded as a loss within non-interest income in the consolidated statement of income. When impairment of a debt security is considered to be other-than-temporary, the amount of the OTTI recorded as a loss within non-interest income and thereby recognized in earnings depends on whether the Corporation intends to sell the security or whether it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis.

If the Corporation intends to sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value.

If the Corporation does not intend to sell the debt security and it is not more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis, OTTI shall be separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss shall be recognized in earnings. The amount related to other market factors shall be recognized in other comprehensive income, net of applicable taxes.

The Corporation performs its OTTI evaluation process in a consistent and systematic manner and includes an evaluation of all available evidence. Documentation of the process is as extensive as necessary to support a conclusion as to whether a decline in fair value below cost or amortized cost is temporary or other-than-temporary and includes documentation supporting both observable and unobservable inputs and a rationale for conclusions reached. In making these determinations for pooled TPS, the Corporation consults with third-party advisory firms to provide additional valuation assistance.

This process considers factors such as the severity, length of time and anticipated recovery period of the impairment, recoveries or additional declines in fair value subsequent to the balance sheet date, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions in its industry, and the issuer’s financial condition, repayment capacity, capital strength and near-term prospects.

For debt securities, the Corporation also considers the payment structure of the debt security, the likelihood of the issuer being able to make future payments, failure of the issuer of the security to make scheduled interest and principal payments, whether the Corporation has made a decision to sell the security and whether the Corporation’s cash or working capital requirements or contractual or regulatory obligations indicate that the debt security will be required to be sold before a forecasted recovery occurs. For equity securities, the Corporation also considers its intent and ability to retain the security for a period of time sufficient to allow for a recovery in fair value. Among the factors that the Corporation considers in determining its intent and ability to retain the security is a review of its capital adequacy, interest rate risk position and liquidity. The assessment of a security’s ability to recover any decline in fair value, the ability of the issuer to meet contractual obligations, the Corporation’s intent and ability to retain the security, and whether it is more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis require considerable judgment.

Debt securities with credit ratings below AA at the time of purchase that are repayment-sensitive securities are evaluated using the guidance of ASC Topic 325, Investments – Other. All other securities are required to be evaluated under ASC Topic 320, Investments – Debt Securities.

The Corporation invested in TPS issued by special purpose vehicles (SPVs) which hold pools of collateral consisting of trust preferred and subordinated debt securities issued by banks, bank holding companies, thrifts and insurance companies. The securities issued by the SPVs are generally segregated into several classes known as tranches. Typically, the structure includes senior, mezzanine and equity tranches. The equity tranche represents the first loss position. The Corporation generally holds interests in mezzanine tranches. Interest and principal collected from the collateral held by the SPVs are distributed with a priority that provides the highest level of protection to the senior-most tranches. In order to provide a high level of protection to the senior tranches, cash flows are diverted to higher-level tranches if the principal and interest coverage tests are not met.

The Corporation prices its holdings of TPS using Level 3 inputs in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, and guidance issued by the SEC. In this regard, the Corporation evaluates current available information in estimating the future cash flows of these securities and determines whether there have been favorable or adverse changes in estimated cash flows from the cash flows previously projected. The Corporation considers the structure and term of the pool and the financial condition of the underlying issuers. Specifically, the evaluation incorporates factors such as over-collateralization and interest coverage tests, interest rates and appropriate risk premiums, the timing and amount of interest and principal payments and the allocation of payments to the various tranches. Current estimates of cash flows are based on the most recent trustee reports, announcements of deferrals or defaults, and assumptions regarding expected future default rates, prepayment and recovery rates and other relevant information. In constructing these assumptions, the Corporation considers the following:

•

that current defaults would have no recovery;

•

that some individually analyzed deferrals will cure at rates varying from 10% to 90% after the deferral period ends;

•

recent historical performance metrics, including profitability, capital ratios, loan charge-offs and loan reserve ratios, for the underlying institutions that would indicate a higher probability of default by the institution;

•

that institutions identified as possessing a higher probability of default would recover at a rate of 10% for banks and 15% for insurance companies;

•

that financial performance of the financial sector continues to be affected by the economic environment resulting in an expectation of additional deferrals and defaults in the future;

•

whether the security is currently deferring interest; and

•

the external rating of the security and recent changes to its external rating.

The primary evidence utilized by the Corporation is the level of current deferrals and defaults, the level of excess subordination that allows for receipt of full principal and interest, the credit rating for each security and the likelihood that future deferrals and defaults will occur at a level that will fully erode the excess subordination based on an assessment of the underlying collateral. The Corporation combines the results of these factors considered in estimating the future cash flows of these securities to determine whether there has been an adverse change in estimated cash flows from the cash flows previously projected.

The Corporation’s portfolio of trust preferred CDOs consists of 13 pooled issues and five single issue securities. One of the pooled issues is a senior tranche; the remaining 12 are mezzanine tranches. At June 30, 2011, the 13 pooled TPS had an estimated fair value of $8,599 while the single-issuer TPS had an estimated fair value of $7,271. The Corporation has concluded from the analysis performed at June 30, 2011 that it is probable that the Corporation will collect all contractual principal and interest payments on all of its single-issuer and pooled TPS sufficient to recover the amortized cost basis of the securities.

The Corporation did not record any impairment losses on securities for the six months ended June 30, 2011. The Corporation recognized net impairment losses on securities of $2,288 for the six months ended June 30, 2010 due to the write-down of securities that the Corporation deemed to be other-than-temporarily impaired.

At June 30, 2011, all 12 of the pooled trust preferred security investments on which OTTI has been recognized are classified as non-performing investments.

The following table presents a summary of the cumulative credit-related OTTI charges recognized as components of earnings for securities for which a portion of an OTTI is recognized in other comprehensive income:


	June 30, 2011			December 31, 2010
Beginning balance of the amount related to credit loss for which a portion of OTTI was recognized in other comprehensive income	$	(18,332	)	$	(16,051	)
Additions related to credit loss for securities with previously recognized OTTI		—			(2,235	)
Additions related to credit loss for securities with initial OTTI		—			(46	)

Ending balance of the amount related to credit loss for which a portion of OTTI was recognized in other comprehensive income	$	(18,332	)	$	(18,332	)

TPS continue to experience price volatility as the secondary market for such securities remains limited. Write-downs in 2010 were based on the individual securities’ credit performance and its ability to make its contractual principal and interest payments. Should credit quality deteriorate to a greater extent than projected, it is possible that additional write-downs may be required. The Corporation monitors actual deferrals and defaults as well as expected future deferrals and defaults to determine if there is a high probability for expected losses and contractual shortfalls of interest or principal, which could warrant further impairment. The Corporation evaluates its entire portfolio each quarter to determine if additional write-downs are warranted.

The following table provides information relating to the Corporation’s TPS as of June 30, 2011:


Deal Name	Class	Current Par Value		Amortized Cost		Fair Value		Unrealized Loss			Lowest Credit Ratings	Number of Issuers Currently Performing		Actual Defaults (as a percent of original collateral)		Actual Deferrals (as a percent of original collateral)		Projected Recovery Rates on Current Deferrals (1)		Expected Defaults (%) (2)
Pooled TPS:
P1	C1	$	5,500	$	2,266	$	1,044	$	(1,222	)	C		42		20		19		37		10
P2	C1		4,889		2,746		780		(1,966	)	C		41		14		20		31		12
P3	C1		5,561		4,218		1,494		(2,724	)	C		51		12		6		18		14
P4	C1		3,994		2,852		860		(1,992	)	C		51		15		9		34		13
P5	MEZ		483		358		197		(161	)	C		16		19		13		63		11
P6	MEZ		1,909		1,087		589		(498	)	C		21		17		19		35		9
P7	B3		2,000		726		302		(424	)	C		21		29		9		34		9
P8	B1		3,028		2,386		816		(1,570	)	C		50		14		22		38		13
P9	C		5,048		756		154		(602	)	C		33		14		32		41		14
P10	C		507		461		84		(377	)	C		50		13		14		29		11
P11	C		2,010		787		114		(673	)	C		41		15		16		29		12
P12	A4L		2,000		645		171		(474	)	C		25		16		23		51		13

Total OTTI			36,929		19,288		6,605		(12,683	)			442		16		16		36		12


P13 (3)	SNR		2,384		2,502		1,994		(508	)	BBB		18		13		16		37		9

Total Not OTTI			2,384		2,502		1,994		(508	)			18		13		16		37		9

Total Pooled TPS		$	39,313	$	21,790	$	8,599	$	(13,191	)			460		16		16		36		12


Single Issuer TPS:
S1		$	2,000	$	1,948	$	1,612	$	(336	)	BB+		1
S2			2,000		1,912		1,641		(271	)	BBB+		1
S3			2,000		2,000		1,917		(83	)	B+		1
S4			1,000		999		777		(222	)	BB+		1
S5			1,300		1,328		1,324		(4	)	BB+		1

Total Single Issuer TPS		$	8,300	$	8,187	$	7,271	$	(916	)			5

Total TPS		$	47,613	$	29,977	$	15,870	$	(14,107	)			465

(1)	Some current deferrals will cure at rates varying from 10% to 90% after five years.

(2)	Expected future defaults as a percent of remaining performing collateral.

(3)	Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. The P13 security had excess subordination as a percent of current collateral of 60.77% as of June 30, 2011.

States of the U.S. and Political Subdivisions

The Corporation’s municipal bond portfolio of $197,531 as of June 30, 2011 is highly rated with an average rating of AA and 99.7% of the portfolio rated A or better. General obligation bonds comprise 100% of the portfolio. Geographically, these support the Corporation’s footprint as 77.6% of the securities are from municipalities located throughout Pennsylvania. The average holding size of the securities in the municipal bond portfolio is $936. Finally, this portfolio is supported by underlying insurance as 83.6% of the securities have credit support.

Non-Agency CMOs

The Corporation purchased $161,151 of non-agency CMOs from 2003 through 2005. These securities, which are classified as held to maturity, have a book value of $28,347 at June 30, 2011. Paydowns during the first six months of 2011 amounted to $5,604, an annualized paydown rate of 33.0%. At the time of purchase, these securities were all rated AAA, with an original average loan-to-value (LTV) ratio of 66.1% and original credit score of 724. At origination, the credit support, or the amount of loss the collateral pool could absorb before the AAA securities would incur a credit loss, ranged from 2.0% to 7.0%. The current credit support range is now 3.2% to 20.1%, due to paydowns and good credit performance through the first half of 2008. Beginning in the second half of 2008, national delinquencies, an early warning sign of potential default, began to accelerate on the collateral pools. The slight upward trend of the rate of delinquencies throughout 2010 continued into the first quarter of 2011 and have leveled off during the second quarter. All CMO holdings are current with regards to principal and interest.

The rating agencies monitor the underlying collateral performance of these non-agency CMOs for delinquencies, foreclosures and defaults. They also factor in trends in bankruptcies and housing values to ultimately arrive at an expected loss for a given piece of defaulted collateral. Based on deteriorating performance of the collateral, many of these types of securities have been downgraded by the rating agencies. For the Corporation’s portfolio, six of the ten non-agency CMOs have been downgraded with one being downgraded this quarter.

The Corporation determines its credit related losses by running scenario analysis on the underlying collateral. This analysis applies default assumptions to delinquencies already in the pipeline, projects future defaults based in part on the historical trends for the collateral, applies a rate of severity and estimates prepayment rates. Because of the limited historical trends for the collateral, multiple default scenarios were analyzed including scenarios that significantly elevate defaults over the next 12 – 18 months. Based on the results of the analysis, the Corporation’s management has concluded that there are currently no credit-related losses in its non-agency CMO portfolio.

The following table provides information relating to the Corporation’s non-agency CMOs as of June 30, 2011:


													Subordination Data
					Credit Rating				Credit Support %				Delinquency %
Security	Original Year		Book Value		S&P		Moody’s		Original		Current		. 30 Day		60 Day		90 Day		% Foreclosure		% OREO		% Bankruptcy		% Total Delinquency		% LTV		Credit Score
1		2003	$	3,247		AAA		n/a		2.5		5.8		1.4		0.1		0.6		0.8		0.0		0.5		3.4		52.1		738
2		2003		2,265		AAA		n/a		4.3		16.3		2.0		1.2		5.0		2.6		0.3		1.2		12.2		56.0		710
3		2003		1,519		AAA		n/a		2.0		6.5		0.6		0.5		1.5		1.3		0.2		1.1		5.1		47.3		742
4		2003		1,522		AAA		n/a		2.7		18.2		0.8		0.0		1.6		2.2		0.0		1.1		5.7		50.4		n/a
5		2004		3,720		AAA		Baa2		7.0		20.1		0.9		1.2		2.0		7.0		1.2		0.8		13.0		55.8		689
6		2004		2,631		AA+		n/a		5.3		10.4		0.6		0.0		2.4		3.1		0.0		1.9		8.0		46.5		734
7		2004		1,260		n/a		A1-		2.5		8.5		0.0		1.1		0.0		4.8		0.0		0.0		5.9		56.0		736
8		2004		1,881		AAA		Baa2		4.4		9.3		1.3		0.5		0.5		2.6		0.5		1.1		6.5		55.1		733
9		2005		6,518		CCC		Caa1		5.1		5.0		3.6		2.1		12.2		5.4		0.5		2.5		26.2		65.5		706
10		2005		3,784		CCC		B3		4.7		3.2		3.5		2.2		3.8		9.1		1.2		1.6		21.4		65.8		726

			$	28,347						4.1		9.5																57.3		719

FEDERAL HOME LOAN BANK STOCK

The Corporation is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh. The FHLB requires members to purchase and hold a specified minimum level of FHLB stock based upon their level of borrowings, collateral balances and participation in other programs offered by the FHLB. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Both cash and stock dividends on FHLB stock are reported as income.

Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the low-cost products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value.

At June 30, 2011 and December 31, 2010, the Corporation’s FHLB stock totaled $26,057 and $26,564, respectively, and is included in other assets on the balance sheet. The Corporation accounts for the stock in accordance with ASC Topic 325, which requires the investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.

The Corporation periodically evaluates its FHLB investment for possible impairment based on, among other things, the capital adequacy of the FHLB and its overall financial condition. The Federal Housing Finance Agency, the regulator of the FHLB, requires it to maintain a total capital-to-assets ratio of at least 4.0%. At March 31, 2011, the FHLB’s capital ratio of 8.1% exceeded the regulatory requirement. Failure by the FHLB to meet this regulatory capital requirement would require an in-depth analysis of other factors including:

•

the member’s ability to access liquidity from the FHLB;

•

the member’s funding cost advantage with the FHLB compared to alternative sources of funds;

•

a decline in the market value of FHLB’s net assets relative to book value which may or may not affect future financial performance or cash flow;

•

the FHLB’s ability to obtain credit and source liquidity, for which one indicator is the credit rating of the FHLB;

•

the FHLB’s commitment to make payments taking into account its ability to meet statutory and regulatory payment obligations and the level of such payments in relation to the FHLB’s operating performance; and

•

the prospects of amendments to laws that affect the rights and obligations of the FHLB.

At June 30, 2011, the Corporation believes its holdings in the stock are ultimately recoverable at par value and, therefore, determined that FHLB stock was not other-than-temporarily impaired. In addition, the Corporation has ample liquidity and does not require redemption of its FHLB stock in the foreseeable future.

LOANS

Following is a summary of loans, net of unearned income:


	June 30, 2011		December 31, 2010
Commercial	$	3,776,287	$	3,337,992
Direct installment		1,039,270		1,002,725
Residential mortgages		676,574		622,242
Indirect installment		535,191		514,369
Consumer lines of credit		542,470		493,881
Commercial leases		93,273		79,429
Other		39,530		37,517

	$	6,702,595	$	6,088,155

Commercial is comprised of both commercial real estate loans and commercial and industrial loans. Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans. Residential mortgages consist of conventional mortgage loans for non-commercial properties. Indirect installment is comprised of loans written by third parties, primarily automobile loans. Consumer lines of credit includes home equity lines of credit (HELOC) and consumer lines of credit that are either unsecured or secured by collateral other than home equity. Commercial leases consist of loans for new or used equipment. Other is primarily comprised of mezzanine loans and student loans.

Unearned income on loans was $45,019 and $42,183 at June 30, 2011 and December 31, 2010, respectively.

The loan portfolio consists principally of loans to individuals and small- and medium-sized businesses within the Corporation’s primary market area of Pennsylvania and northeastern Ohio. The portfolio also includes commercial loans in Florida, which totaled $180,232 or 2.7% of total loans as of June 30, 2011 compared to $195,281 or 3.2% of total loans as of December 31, 2010. In addition, the portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky, which totaled $163,150 or 2.4% of total loans as of June 30, 2011 compared to $162,805 or 2.7% of total loans as of December 31, 2010.

The composition of the Corporation’s commercial loan portfolio in Florida consisted of the following as of June 30, 2011: unimproved residential land (7.9%), unimproved commercial land (18.5%), improved land (3.2%), income producing commercial real estate (50.8%), residential construction (6.2%), commercial construction (12.1%) and owner-occupied (1.3%). The weighted average loan-to-value ratio for this portfolio based on most recent appraisals was 81.7% as of June 30, 2011.

The majority of the Corporation’s loan portfolio consists of commercial loans. As of June 30, 2011 and December 31, 2010, commercial real estate loans were $2,353,519 and $2,115,492, or 35.1% and 34.7% of total loans, respectively. As of June 30, 2011, approximately 49.0% of the commercial real estate loans were owner-occupied, while the remaining 51.0% were non-owner-occupied. As of June 30, 2011 and December 31, 2010, the Corporation had commercial construction loans of $225,614 and $202,018, respectively, representing 3.4% and 3.3%, respectively, of total loans for those periods.

CREDIT QUALITY

Management monitors the credit quality of the Corporation’s loan portfolio on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.

Non-performing loans include non-accrual and restructured loans. Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. The Corporation places a loan on non-accrual status and discontinues interest accruals generally when principal or interest is due and has remained unpaid for 90 to 180 days depending on the loan type. When a loan is placed on non-accrual status, all unpaid interest recognized in the current year is reversed and interest accrued in prior years is charged to the allowance for loan losses. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate collectibility of the remaining principal and interest is reasonably assured. Restructured loans are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Non-performing assets also include debt securities on which OTTI has been taken in the current or prior periods.

Following is a summary of non-performing assets:


	June 30, 2011		December 31, 2010
Non-accrual loans	$	107,091	$	115,589
Restructured loans		20,146		19,705

Total non-performing loans		127,237		135,294
Other real estate owned (OREO)		35,793		32,702

Total non-performing loans and OREO		163,030		167,996
Non-performing investments		6,605		5,974

Total non-performing assets	$	169,635	$	173,970


	June 30, 2011			December 31, 2010
Asset quality ratios:
Non-performing loans as a percent of total loans		1.90	%		2.22	%
Non-performing loans + OREO as a percent of total loans + OREO		2.42	%		2.74	%
Non-performing assets as a percent of total assets		1.72	%		1.94	%

Following is an age analysis of the Corporation’s past due loans, by class:


	30-89 Days Past Due		>90 Days Past Due and Still Accruing		Non-Accrual		Total Past Due		Current		Total Loans
June 30, 2011
Commercial	$	14,152	$	10,060	$	97,174	$	121,386	$	3,654,901	$	3,776,287
Direct installment		8,528		2,458		3,586		14,572		1,024,698		1,039,270
Residential mortgages		12,192		2,775		3,832		18,799		657,775		676,574
Indirect installment		4,297		260		908		5,465		529,726		535,191
Consumer lines of credit		857		479		851		2,187		540,283		542,470
Commercial leases		1,339		78		740		2,157		91,116		93,273
Other		45		5		—		50		39,480		39,530

	$	41,410	$	16,115	$	107,091	$	164,616	$	6,537,979	$	6,702,595


December 31, 2010
Commercial	$	17,101	$	3,020	$	106,724	$	126,845	$	3,211,147	$	3,337,992
Direct installment		8,603		2,496		3,285		14,384		988,341		1,002,725
Residential mortgages		9,127		2,144		3,272		14,543		607,699		622,242
Indirect installment		5,659		394		750		6,803		507,566		514,369
Consumer lines of credit		1,581		571		588		2,740		491,141		493,881
Commercial leases		1,551		9		970		2,530		76,899		79,429
Other		—		—		—		—		37,517		37,517

	$	43,622	$	8,634	$	115,589	$	167,845	$	5,920,310	$	6,088,155

The Corporation utilizes the following categories to monitor credit quality within its commercial loan portfolio:


Pass		in general, the condition of the borrower and the performance of the loan is satisfactory or better
Special Mention		in general, the condition of the borrower has deteriorated although the loan performs as agreed
Substandard		in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected
Doubtful		in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable

The use of these internally assigned credit quality categories within the commercial loan portfolio permits management’s use of migration and roll rate analysis to estimate a quantitative portion of credit risk. The Corporation’s internal credit risk grading system is based on past experiences with similarly graded loans and conforms with regulatory categories. In general, loan risk ratings within each category are reviewed on an ongoing basis according to the Corporation’s policy for each class of loans. Each quarter, management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the commercial loan portfolio. Loans that migrate toward the Pass credit category or within the Pass credit category generally have a lower risk of loss and therefore a lower risk factor compared to loans that migrate toward the Substandard or Doubtful credit categories which generally have a higher risk of loss and therefore a higher risk factor applied to those related loan balances.

Following is a table showing commercial loans by credit quality category:


	Commercial Loan Credit Quality Categories
	Pass		Special Mention		Substandard		Doubtful		Total
June 30, 2011
Commercial – PA	$	3,293,685	$	114,414	$	182,169	$	5,787	$	3,596,055
Commercial – FL		78,207		16,545		85,480		—		180,232
Commercial leases		91,937		518		818		—		93,273

	$	3,463,829	$	131,477	$	268,467	$	5,787	$	3,869,560


December 31, 2010
Commercial – PA	$	2,887,682	$	80,409	$	170,714	$	3,906	$	3,142,711
Commercial – FL		83,444		38,664		73,173		—		195,281
Commercial leases		77,945		505		979		—		79,429

	$	3,049,071	$	119,578	$	244,866	$	3,906	$	3,417,421

The Corporation uses payment status and delinquency migration analysis within the consumer and other loan classes to enable management to estimate a quantitative portion of credit risk. Each month, management analyzes payment activity, as well as other external statistics and factors such as volume, to determine how consumer loans are performing.

Following is a table showing consumer and other loans by payment activity:


	Consumer Loan Credit Quality by Payment Status
	Performing		Non-Performing		Total
June 30, 2011
Direct installment	$	1,027,412	$	11,858	$	1,039,270
Residential mortgages		662,749		13,825		676,574
Indirect installment		534,211		980		535,191
Consumer lines of credit		541,402		1,068		542,470
Other		39,530		—		39,530

December 31, 2010
Direct installment	$	991,921	$	10,804	$	1,002,725
Residential mortgages		608,642		13,600		622,242
Indirect installment		513,619		750		514,369
Consumer lines of credit		493,075		806		493,881
Other		37,517		—		37,517

Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, the Corporation does not consider loans for impairment unless a sustained period of delinquency (i.e. 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e. negative financial trends, bankruptcy filings, imminent foreclosure proceedings, etc.). Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Consistent with the Corporation’s existing method of income recognition for loans, interest on impaired loans, except those classified as non-accrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Following is a summary of information pertaining to loans considered to be impaired or restructured, by class of loans:


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
At or For the Six Months Ended June 30, 2011
With no specific allowance recorded:
Commercial	$	65,121	$	85,778	$	—	$	63,828	$	55
Direct installment		11,858		12,172		—		11,689		132
Residential mortgages		13,825		14,182		—		14,297		142
Indirect installment		980		1,039		—		865		4
Consumer lines of credit		1,068		1,070		—		1,137		4
Commercial leases		740		740		—		912		—
Other		—		—		—		—		—

With a specific allowance recorded:
Commercial		33,627		33,765		8,440		35,460		22
Direct installment		—		—		—		—		—
Residential mortgages		—		—		—		—		—
Indirect installment		—		—		—		—		—
Consumer lines of credit		—		—		—		—		—
Commercial leases		—		—		—		—		—
Other		—		—		—		—		—

Total:
Commercial		98,748		119,543		8,440		99,288		77
Direct installment		11,858		12,172		—		11,689		132
Residential mortgages		13,825		14,182		—		14,297		142
Indirect installment		980		1,039		—		865		4
Consumer lines of credit		1,068		1,070		—		1,137		4
Commercial leases		740		740		—		912		—
Other		—		—		—		—		—


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
At or For the Year Ended December 31, 2010
With no specific allowance recorded:
Commercial	$	70,832	$	95,725	$	—	$	81,394	$	98
Direct installment		4,542		4,669		—		5,613		77
Residential mortgages		8,032		8,055		—		8,233		260
Indirect installment		750		1,930		—		833		—
Consumer lines of credit		589		604		—		584		—
Commercial leases		979		979		—		749		—
Other		—		—		—		—		—

With a specific allowance recorded:
Commercial		37,532		39,250		10,313		38,070		—
Direct installment		6,262		6,340		626		4,503		275
Residential mortgages		5,568		5,568		557		4,252		246
Indirect installment		—		—		—		—		—
Consumer lines of credit		217		217		22		138		9
Commercial leases		—		—		—		—		—
Other		—		—		—		—		—

Total:
Commercial		108,364		134,975		10,313		119,464		98
Direct installment		10,804		11,009		626		10,116		352
Residential mortgages		13,600		13,623		557		12,485		506
Indirect installment		750		1,930		—		833		—
Consumer lines of credit		806		821		22		722		9
Commercial leases		979		979		—		749		—
Other		—		—		—		—		—

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses represents management’s estimate of probable loan losses inherent in the loan portfolio at a specific point in time. This estimate includes losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio. Additions are made to the allowance through both periodic provisions charged to income and recoveries of losses previously incurred. Reductions to the allowance occur as loans are charged off. Management evaluates the adequacy of the allowance at least quarterly, and in doing so relies on various factors including, but not limited to, assessment of historical loss experience, delinquency and non-accrual trends, portfolio growth, underlying collateral coverage and current economic conditions. This evaluation is subjective and requires material estimates that may change over time.

The components of the allowance for loan losses represent estimates based upon ASC Topic 450, Contingencies, and ASC Topic 310, Receivables. ASC Topic 450 applies to homogeneous loan pools such as consumer installment, residential mortgages and consumer lines of credit, as well as commercial loans that are not individually evaluated for impairment under ASC Topic 310. ASC Topic 310 is applied to commercial loans that are individually evaluated for impairment.

Under ASC Topic 310, a loan is impaired when, based upon current information and events, it is probable that the loan will not be repaid according to its original contractual terms, including both principal and interest. Management performs individual assessments of impaired loans to determine the existence of loss exposure and, where applicable, the extent of loss exposure based upon the present value of expected future cash flows available to pay the loan, or based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent.

In estimating loan loss contingencies, management considers numerous factors, including historical charge-off rates and subsequent recoveries. Management also considers, but is not limited to, qualitative factors that influence the Corporation’s credit quality, such as delinquency and non-performing loan trends, changes in loan underwriting guidelines and credit policies, as well as the results of internal loan reviews. Finally, management considers the impact of changes in current local and regional economic conditions in the markets that the Corporation serves. Assessment of relevant economic factors indicates that the Corporation’s primary markets historically tend to lag the national economy, with local economies in the Corporation’s primary market areas also improving or weakening, as the case may be, but at a more measured rate than the national trends. Regional economic factors influencing management’s estimate of reserves include uncertainty of the labor markets in the regions the Corporation serves as well as the impact of unemployment trends in these areas, which have fluctuated in response to the recent economic cycle. Homogeneous loan pools are evaluated using similar criteria that are based upon historical loss rates for various loan types. Historical loss rates are adjusted to incorporate changes in existing conditions that may impact, both positively or negatively, the degree to which these loss histories may vary. This determination inherently involves a high degree of uncertainty and considers current risk factors that may not have occurred in the Corporation’s historical loan loss experience.

At June 30, 2011 and December 31, 2010, there were $17,804 and $3,626 of loans, respectively, that were impaired loans acquired with no associated allowance for loan losses as they were accounted for in accordance with ASC Topic 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality.

Following is a summary of changes in the allowance for loan losses:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Balance at beginning of period	$	107,612		$	109,592		$	106,120		$	104,655
Charge-offs		(7,570	)		(8,636	)		(14,903	)		(16,285	)
Recoveries		631			845			1,228			1,467

Net charge-offs		(6,939	)		(7,791	)		(13,675	)		(14,818	)
Provision for loan losses		8,551			12,239			16,779			24,203

Balance at end of period	$	109,224		$	114,040		$	109,224		$	114,040


Allowance for loan losses to:
Total loans, net of unearned income								1.63	%		1.91	%
Non-performing loans								85.84	%		76.19	%

Following is a summary of changes in the allowance for loan losses by loan class for the three months ended June 30, 2011:


	Balance at Beginning of Period		Charge-Offs			Recoveries		Provision for Loan Losses		Balance at End of Period
Commercial	$	76,408	$	(3,739	)	$	189	$	5,100	$	77,958
Direct installment		14,767		(2,274	)		205		2,217		14,915
Residential mortgages		4,514		(169	)		23		112		4,480
Indirect installment		5,761		(604	)		156		392		5,705
Consumer lines of credit		4,612		(422	)		44		562		4,796
Commercial leases		1,254		(120	)		13		126		1,273
Other		296		(242	)		1		42		97

	$	107,612	$	(7,570	)	$	631	$	8,551	$	109,224

Following is a summary of changes in the allowance for loan losses by loan class for the six months ended June 30, 2011:


	Balance at Beginning of Period		Charge-Offs			Recoveries		Provision for Loan Losses		Balance at End of Period
Commercial	$	74,606	$	(7,028	)	$	329	$	10,051	$	77,958
Direct installment		14,941		(4,502	)		434		4,042		14,915
Residential mortgages		4,578		(407	)		31		278		4,480
Indirect installment		5,941		(1,537	)		294		1,007		5,705
Consumer lines of credit		4,743		(818	)		87		784		4,796
Commercial leases		1,070		(205	)		30		378		1,273
Other		241		(406	)		23		239		97

	$	106,120	$	(14,903	)	$	1,228	$	16,779	$	109,224

Following is a summary of the individual and collective allowance for loan losses and corresponding loan balances by class as of June 30, 2011:


	Allowance				Loans Outstanding
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Loans		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Commercial	$	8,440	$	69,518	$	3,776,287	$	115,156	$	3,661,131
Direct installment		—		14,915		1,039,270		—		1,039,270
Residential mortgages		—		4,480		676,574		—		676,574
Indirect installment		—		5,705		535,191		—		535,191
Consumer lines of credit		—		4,796		542,470		—		542,470
Commercial leases		—		1,273		93,273		—		93,273
Other		—		97		39,530		—		39,530

	$	8,440	$	100,784	$	6,702,595	$	115,156	$	6,587,439

BORROWINGS

Following is a summary of short-term borrowings:


	June 30, 2011		December 31, 2010
Securities sold under repurchase agreements	$	563,196	$	611,902
Federal funds purchased		20,000		—
Subordinated notes		135,104		131,458
Other short-term borrowings		10,000		10,243

	$	728,300	$	753,603

Securities sold under repurchase agreements is comprised of customer repurchase agreements, which are borrowings from commercial customers of FNBPA which are generally renewable on a daily basis. Securities are pledged to these customers in an amount equal to the outstanding balance.

Following is a summary of long-term debt:


	June 30, 2011		December 31, 2010
Federal Home Loan Bank advances	$	137,052	$	118,700
Subordinated notes		74,233		72,745
Other subordinated debt		9,168		—
Convertible debt		608		613

	$	221,061	$	192,058

The Corporation’s banking affiliate has available credit with the FHLB of $2,016,214 of which $137,052 was used as of June 30, 2011. These advances are secured by loans collateralized by 1-4 family mortgages and FHLB stock and are scheduled to mature in various amounts periodically through the year 2019. Effective interest rates paid on these advances range from 0.99% to 4.79% for both the six months ended June 30, 2011 and the year ended December 31, 2010.

JUNIOR SUBORDINATED DEBT

The Corporation has four unconsolidated subsidiary trusts (collectively, the Trusts): F.N.B. Statutory Trust I, F.N.B. Statutory Trust II, Omega Financial Capital Trust I and Sun Bancorp Statutory Trust I. One hundred percent of the common equity of each Trust is owned by the Corporation. The Trusts were formed for the purpose of issuing Corporation-obligated mandatorily redeemable capital securities (TPS) to third-party investors. The proceeds from the sale of TPS 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. Since third-party investors are the primary beneficiaries, the Trusts are not consolidated in the Corporation’s financial statements. The Trusts pay dividends on the TPS at the same rate as the distributions paid by the Corporation on the junior subordinated debt held by the Trusts. Omega Financial Capital Trust I and Sun Bancorp Statutory Trust I were acquired as a result of a previous acquisition.

Distributions on the subordinated debt issued to the Trusts are recorded as interest expense by the Corporation. The TPS are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated debt. The TPS are eligible for redemption, at any time, at the Corporation’s discretion. 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 (FRB) guidelines. The Corporation has entered into agreements which, when taken collectively, fully and unconditionally guarantee the obligations under the TPS subject to the terms of each of the guarantees.

The following table provides information relating to the Trusts as of June 30, 2011:


	F.N.B. Statutory Trust I			F.N.B. Statutory Trust II			Omega Financial Capital Trust I			Sun Bancorp Statutory Trust I
Trust preferred securities	$	125,000		$	21,500		$	36,000		$	16,500
Common securities		3,866			665			1,114			511
Junior subordinated debt		128,866			22,165			35,899			17,011
Stated maturity date		3/31/33			6/15/36			10/18/34			2/22/31
Interest rate		3.56	%		1.90	%		2.47	%		10.20	%
		variable; LIBOR plus 325 basis points			variable; LIBOR plus 165 basis points			variable; LIBOR plus 219 basis points

DERIVATIVE INSTRUMENTS

The Corporation is exposed to certain risks arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. The Corporation’s existing interest rate derivatives result from a service provided to certain qualifying customers. The Corporation manages its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

The Corporation periodically enters into interest rate swap agreements to meet the financing, interest rate and equity risk management needs of its commercial loan customers. These agreements provide the customer the ability to convert from variable to fixed interest rates. The Corporation then enters into positions with a derivative counterparty in order to offset its exposure on the fixed components of the customer agreements. These agreements meet the definition of derivatives, but are not designated as hedging instruments under ASC Topic 815, Derivatives and Hedging. The interest rate swap agreement with the loan customer and with the counterparty are reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period earnings as other income.

At June 30, 2011, the Corporation was party to 169 swaps with customers with notional amounts totaling approximately $570,268 and 169 swaps with derivative counterparties with notional amounts totaling approximately $570,268. The following table presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the balance sheet:


	Balance Sheet Location	June 30, 2011		December 31, 2010
Interest Rate Products:
Asset derivatives	Other assets	$	29,333	$	25,631
Liability derivatives	Other liabilities		29,326		25,043

The following table presents the effect of the Corporation’s derivative financial instruments on the income statement:


	Income Statement Location	Six Months Ended June 30,
	Income Statement Location	2011			2010
Interest rate products	Other income	$	(582	)	$	(288	)

The Corporation has agreements with each of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. The Corporation also has agreements with certain of its derivative counterparties that contain a provision if the Corporation fails to maintain its status as a well capitalized institution, then the counterparty could terminate the derivative positions and the Corporation would be required to settle its obligations under the agreements. Certain of the Corporation’s agreements with its derivative counterparties contain provisions where if a material or adverse change occurs that materially changes the Corporation’s creditworthiness in an adverse manner the Corporation may be required to fully collateralize its obligations under the derivative instrument.

Interest rate swap agreements generally require posting of collateral by either party under certain conditions. As of June 30, 2011, the fair value of counterparty derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk related to these agreements, was $30,123. At June 30, 2011, the Corporation has posted collateral with derivative counterparties with a fair value of $28,449, of which none is cash collateral. Additionally, if the Corporation had breached its agreements with its derivative counterparties it would be required to settle its obligations under the agreements at the termination value and would be required to pay an additional $1,674 in excess of amounts previously posted as collateral with the respective counterparty.

The Corporation has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans to secondary market investors. These arrangements are considered derivative instruments. The fair values of the Corporation’s rate lock commitments to customers and commitments with investors at June 30, 2011 are not material.

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:


	June 30, 2011		December 31, 2010
Commitments to extend credit	$	1,782,204	$	1,550,256
Standby letters of credit		108,432		101,185

At June 30, 2011, funding of 78.5% 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 quantified on a quarterly basis, through the review of historical performance of the Corporation’s portfolios and allocated as a liability on the Corporation’s balance sheet.

The Corporation and its subsidiaries are involved in various pending and threatened legal proceedings in which claims for monetary damages and other relief are asserted. These actions include claims brought against the Corporation and its subsidiaries where the Corporation or a subsidiary acted as one or more of the following: a depository bank, lender, underwriter, fiduciary, financial advisor, broker or was engaged in other business activities. Although the ultimate outcome for any asserted claim cannot be predicted with certainty, the Corporation believes that it and its subsidiaries have 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 amount of the loss can be reasonably estimated.

Based on information currently available, advice of counsel, available insurance coverage and established reserves, the Corporation does not anticipate, at the present time, that the aggregate liability, if any, arising out of such legal proceedings will have a material adverse effect on the Corporation’s consolidated financial position. However, the Corporation cannot determine whether or not any claims asserted against it will have a material adverse effect on its consolidated results of operations in any future reporting period.

STOCK INCENTIVE PLANS

Restricted Stock

The Corporation issues restricted stock awards, consisting of both restricted stock and restricted stock units, to key employees under its Incentive Compensation Plans (Plans). The grant date fair value of the restricted stock awards is equal to the price of the Corporation’s common stock on the grant date. For the six months ended June 30, 2011 and 2010, the Corporation issued 384,847 and 500,707 restricted stock awards with aggregate weighted average grant date fair values of $3,887 and $3,890, respectively, under these Plans. As of June 30, 2011, the Corporation had available up to 2,418,983 shares of common stock to issue under these Plans.

Under the Plans, more than half of the restricted stock awards granted to management are earned if the Corporation meets or exceeds certain financial performance results when compared to its peers. These performance-related awards are expensed ratably from the date that the likelihood of meeting the performance measure is probable through the end of a four-year vesting period. The service-based awards are expensed ratably over a three-year vesting period. The Corporation also issues discretionary service-based awards to certain employees that vest over five years.

The unvested restricted stock awards are eligible to receive cash dividends or dividend equivalents which are ultimately used to purchase additional shares of stock. Any additional shares of stock received as a result of cash dividends are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met. These awards are subject to certain accelerated vesting provisions upon retirement, death, disability or in the event of a change of control as defined in the award agreements.

Share-based compensation expense related to restricted stock awards was $1,780 and $1,418 for the six months ended June 30, 2011 and 2010, the tax benefit of which was $623 and $496, respectively.

The following table summarizes certain information concerning restricted stock awards:


	Six Months Ended June 30,
	2011					2010
	Awards			Weighted Average Grant Price		Awards			Weighted Average Grant Price
Unvested awards outstanding at beginning of period		1,309,489		$	8.52		854,440		$	10.57
Granted		384,847			10.10		500,707			7.77
Vested		(171,446	)		13.59		(95,281	)		15.05
Forfeited		(1,397	)		9.20		(32,008	)		9.21
Dividend reinvestment		31,860			10.17		32,427			8.30

Unvested awards outstanding at end of period		1,553,353			8.39		1,260,285			9.09

The total fair value of awards vested was $1,761 and $698 for the six months ended June 30, 2011 and 2010, respectively.

As of June 30, 2011, there was $6,933 of unrecognized compensation cost related to unvested restricted stock awards including $207 that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement provision for awards granted prior to the adoption of ASC Topic 718, Compensation – Stock Compensation, on January 1, 2006. The components of the restricted stock awards as of June 30, 2011 are as follows:


	Service- Based Awards		Performance- Based Awards		Total
Unvested awards		563,747		989,606		1,553,353
Unrecognized compensation expense	$	2,315	$	4,618	$	6,933
Intrinsic value	$	5,835	$	10,242	$	16,077
Weighted average remaining life (in years)		2.21		2.67		2.50

Stock Options

The Corporation did not grant stock options during the six months ended June 30, 2011 or 2010. All outstanding stock options were granted at prices equal to the fair market value at the date of the grant, are primarily exercisable within ten years from the date of the grant and were fully vested as of January 1, 2006. The Corporation issues shares of treasury stock or authorized but unissued shares to satisfy stock options exercised. Shares issued upon the exercise of stock options were 8,389 for the six months ended June 30, 2011. No stock options were exercised during the six months ended June 30, 2010.

The following table summarizes certain information concerning stock option awards:

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