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 March 31, 2006

o		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 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

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 April 30, 2006
Common Stock, $0.01 Par Value		57,505,613 Shares

 

 

F.N.B. CORPORATION
FORM 10-Q
March 31, 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			20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			32
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 3. Defaults Upon Senior Securities			33
Item 4. Submission of Matters to a Vote of Security Holders			33
Item 5. Other Information			33
Item 6. Exhibits			33
Signatures			34
EX-3.2
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

		March 31,				December 31,
		2006				2005
		(Unaudited)
Assets
Cash and due from banks		$	118,510			$	131,604
Interest bearing deposits with banks			515				627
Federal funds sold			5,000				—
Securities available for sale			279,360				279,219
Securities held to maturity (fair value of $835,165 and $867,122)			852,577				881,139
Mortgage loans held for sale			3,847				4,740
Loans, net of unearned income of $26,689 and $27,595			3,826,964				3,749,047
Allowance for loan losses			(50,178	)			(50,707	)
Net Loans			3,776,786				3,698,340
Premises and equipment, net			85,570				87,013
Goodwill			196,354				196,354
Bank owned life insurance			123,673				122,666
Other assets			189,221				188,624
Total Assets		$	5,631,413			$	5,590,326
Liabilities
Deposits:
Non-interest bearing demand		$	651,964			$	688,391
Savings and NOW			1,800,500				1,675,395
Certificates and other time deposits			1,637,474				1,648,157
Total Deposits			4,089,938				4,011,943
Other liabilities			59,123				59,634
Short-term borrowings			338,844				378,978
Long-term debt			662,244				662,569
Total Liabilities			5,150,149				5,113,124
Stockholders’ Equity
Common stock — $0.01 par value
Authorized – 500,000,000 shares
Issued – 57,554,489 and 57,513,586 shares			573				575
Additional paid-in capital			450,947				454,546
Retained earnings			26,389				24,376
Accumulated other comprehensive income			4,061				3,597
Deferred stock compensation			—				(4,154	)
Treasury stock – 40,140 and 94,545 shares at cost			(706	)			(1,738	)
Total Stockholders’ Equity			481,264				477,202
Total Liabilities and Stockholders’ Equity		$	5,631,413			$	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
		March 31,
		2006				2005
Interest Income
Loans, including fees		$	64,020			$	56,065
Securities:
Taxable			12,251				11,923
Nontaxable			1,112				877
Dividends			172				197
Other			66				11
Total Interest Income			77,621				69,073
Interest Expense
Deposits			20,979				14,312
Short-term borrowings			3,597				2,817
Long-term debt			7,226				6,361
Total Interest Expense			31,802				23,490
Net Interest Income			45,819				45,583
Provision for loan losses			2,958				2,331
Net Interest Income After Provision for Loan Losses			42,861				43,252
Non-Interest Income
Service charges			10,170				9,054
Insurance commissions and fees			4,100				3,769
Securities commissions and fees			947				1,404
Trust			1,844				1,905
Gain on sale of securities			547				607
Gain on sale of mortgage loans			298				314
Bank owned life insurance			777				863
Other			1,426				827
Total Non-Interest Income			20,109				18,743
Non-Interest Expense
Salaries and employee benefits			21,318				21,183
Net occupancy			3,366				3,135
Equipment			3,312				3,382
Amortization of intangibles			931				860
Other			11,324				11,778
Total Non-Interest Expense			40,251				40,338
Income Before Income Taxes			22,719				21,657
Income taxes			6,917				6,747
Net Income		$	15,802			$	14,910
Net Income per Common Share
Basic		$	.28			$	.28
Diluted		$	.27			$	.28
Cash Dividends per Common Share		$	.235			$	.23

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands

Unaudited

																		Accumu-
																		lated
																		Other
																		Compre-				Deferred
		Compre-								Additional								hensive				Stock
		hensive				Common				Paid-In				Retained				(Deficit)				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		$	15,802												15,802																15,802
Change in other comprehensive Income			464																464												464
Comprehensive income		$	16,266
Cash dividends declared:
Common stock $0.235/share															(13,503	)															(13,503	)
Purchase of common stock																											(1,013	)			(1,013	)
Issuance of common stock							1				57				(286	)											2,045				1,817
Restricted stock compensation											246																				246
Tax benefit of stock-based Compensation											249																				249
Reclassification arising from the adoption of FAS 123R							(3	)			(4,151	)											4,154								—
Balance at March 31, 2006						$	573			$	450,947			$	26,389			$	4,061				—			$	(706	)		$	481,264
Balance at January 1, 2005						$	502			$	300,555			$	22,847			$	4,965			$	(1,428	)		$	(3,339	)		$	324,102
Net income		$	14,910												14,910																14,910
Change in other comprehensive income (loss)			(7,272	)															(7,272	)											(7,272	)
Comprehensive income		$	7,638
Cash dividends declared:
Common stock $0.23/share															(12,943	)															(12,943	)
Purchase of common stock																											(3,789	)			(3,789	)
Issuance of common stock							62				134,190				(494	)											5,383				139,141
Change in stock-based Compensation																							(1,473	)							(1,473	)
Balance at March 31, 2005						$	564			$	434,745			$	24,320			$	(2,307	)		$	(2,901	)		$	(1,745	)		$	452,676

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

Dollars in thousands

Unaudited

		Three Months Ended
		March 31,
		2006				2005
Operating Activities
Net income		$	15,802			$	14,910
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation, amortization and accretion			3,452				3,033
Provision for loan losses			2,958				2,331
Deferred taxes			36				1,448
Gain on sale of securities			(547	)			(607	)
Gain on sale of loans			(298	)			(314	)
Proceeds from sale of loans			19,682				20,766
Loans originated for sale			(18,491	)			(16,720	)
Net change in:
Interest receivable			(1,628	)			1,465
Interest payable			(332	)			(7,284	)
Other, net			5,619				(10,949	)
Net cash flows provided by operating activities			26,253				8,079
Investing Activities
Net change in:
Interest bearing deposits with banks			112				2,584
Federal funds sold			(5,000	)			—
Loans			(82,516	)			9,057
Bank owned life insurance			(1,007	)			528
Securities available for sale:
Purchases			(3,500	)			(102,563	)
Sales			2,381				86,903
Maturities			1,724				41,508
Securities held to maturity:
Purchases			—				(58,219	)
Maturities			28,225				27,330
Increase in premises and equipment			(944	)			(942	)
Net cash received for mergers and acquisitions			—				8,799
Net cash flows (used in) provided by investing activities			(60,525	)			14,985
Financing Activities
Net change in:
Non-interest bearing deposits, savings and NOW accounts			88,678				(61,418	)
Time deposits			(10,683	)			246
Short-term borrowings			(40,134	)			56,862
Increase in long-term debt			6,611				3,018
Decrease in long-term debt			(6,936	)			(7,606	)
Purchase of common stock			(4,921	)			(3,789	)
Issuance of common stock			1,817				9,494
Tax benefit of stock-based compensation			249				—
Cash dividends paid			(13,503	)			(12,943	)
Net cash flows provided by (used in) financing activities			21,178				(16,136	)
Net Increase (Decrease) in Cash and Due from Banks			(13,094	)			6,928
Cash and due from banks at beginning of period			131,604				100,839
Cash and Due from Banks at End of Period		$	118,510			$	107,767

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

March 31, 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 four 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 November 1, 2005, the Corporation acquired the assets of Penn Group Insurance, Inc. (Penn Group), a full-service insurance agency based in Pittsburgh, Pennsylvania. Penn Group, an established life and employee benefits agency, became a part of the Corporation’s existing insurance agency, FNIA.

     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, $49.4 million in loans and $61.2 million in deposits. The acquisition was accounted for as a purchase. 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, $308.9 million in loans and $378.8 million in deposits. The acquisition, which was accounted for as a purchase, 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.

Pending Acquisition

     In December 2005, the Corporation announced the signing of a definitive merger agreement to acquire The Legacy Bank (Legacy), a commercial bank and trust company with $370.5 million in assets at March 31, 2006 based in Harrisburg, Pennsylvania. Thirty percent of Legacy shares will be exchanged for cash at $18.40 per share while the remaining seventy percent will be exchanged for F.N.B. Corporation common stock on a one-for-one basis. The transaction is expected to be completed in the second quarter of 2006, pending regulatory and stockholder approval.

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 as of and for the first quarter of 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 $0.3 million for the three months ended March 31, 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 $0.3 million for the three months ended March 31, 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 fair market value 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 March 31, 2006, there was $3.9 million of unrecognized compensation cost related to unvested restricted stock awards granted including $1.6 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 2.5 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):

		Three Months Ended
		March 31,
		2006				2005
Proceeds from stock options exercised		$	532			$	2,383
Tax benefit recognized from stock option exercises			236				—
Tax benefit recognized from restricted stock vesting			13				—
Intrinsic value of stock options exercised			672				1,820
Fair value of restricted stock vested			180				209

Restricted Stock

     The Corporation issued 90,921 restricted shares of common stock with a weighted average grant date fair value of $1.8 million for the quarter ended March 31, 2005 to key employees of the Corporation under its 2001 Incentive Plan. The Corporation did not issue any restricted shares for the quarter ended March 31, 2006. The Corporation has available up to 2,444,916 shares to issue under its 2001 Incentive Plan.

     Under this program, half of the shares awarded to management are earned if the Corporation meets or exceeds certain financial performance results when compared to peers. The service-based portion of the shares are expensed ratably over the 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 the 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 service period is not completed or the performance criteria are not met.

     The unamortized expense relating to all restricted stock awards, totaling $2.9 million at March 31, 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 information about restricted stock activity:

		Three Months Ended March 31,
		2006								2005
						Weighted								Weighted
						Average								Average
						Grant								Grant
		Shares				Price				Shares				Price
Unvested shares outstanding at beginning of period			296,457			$	18.52				117,667			$	17.86
Granted			—				—				90,921				19.50
Vested			(10,499	)			15.24				(10,933	)			12.42
Forfeited			(389	)			19.39				(2,849	)			18.05
Dividend reinvestment			4,018				16.72				2,322				19.30
Unvested shares outstanding at end of period			289,587				18.62				197,128				18.93

     As of March 31, 2006, there were 161,231 unvested service-based shares outstanding with unrecognized compensation expense of $1.9 million, an intrinsic value of $2.8 million and a weighted average remaining life of 2.5 years. As of March 31, 2006, there were also 128,356 unvested performance-based shares outstanding with unrecognized compensation expense of $2.0 million, an intrinsic value of $2.2 million and a weighted average remaining life of 2.9 years.

Stock Options

     The Corporation also has available up to 7,432,890 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 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 during the first quarter of 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 60,827 and 230,700 for the three months ended March 31, 2006 and 2005.

     The following table summarizes information about stock option activity:

		Three Months Ended March 31,
		2006								2005
						Weighted								Weighted
						Average								Average
						Exercise								Exercise
		Shares				Price				Shares				Price
Options outstanding at beginning of period			1,622,864			$	11.54				2,108,333			$	11.35
Granted/assumed			—				—				149,009				10.84
Exercised			(79,278	)			9.24				(286,509	)			10.54
Forfeited			—				—				(2,494	)			12.03
Options outstanding at end of period			1,543,586				11.66				1,968,339				11.43
Options exercisable at end of period			1,543,586								1,759,093

     The following table summarizes information about stock options outstanding at March 31, 2006:

						Weighted
		Options				Average				Weighted
		Outstanding				Remaining				Average
		and				Contractual				Exercise
Range of Exercise Prices		Exercisable				Years				Price
$2.68 - $4.02			25,168				6.96			$	2.68
4.03 - 6.05			—				—				—
6.06 - 9.09			46,786				3.64				8.94
9.10 - 13.65			1,098,149				4.44				11.26
13.66 - 15.43			373,483				4.67				13.78
			1,543,586

     The intrinsic value of outstanding and exercisable stock options at March 31, 2006 was $7.9 million.

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

     Prior to the adoption of FAS 123R, 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 months ended March 31, 2005 for employee stock option awards as the options were granted with an exercise price equal to the market value of 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 Ended March 31		2005
Net income		$	14,910
Stock-based employee compensation cost included in net income, net of tax			334
Stock-based employee compensation cost determined if the fair value method had been applied to all awards, net of tax			(510	)
Pro forma net income		$	14,734
Basic Earnings per Common Share:
As reported		$	.28
Pro forma		$	.28
Diluted Earnings per Common Share:
As reported		$	.28
Pro forma		$	.27

     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	%
Dividend yield			2.89	%
Expected stock price volatility			.21	%
Expected life (years)			5.00
Fair value of options granted		$	4.57

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

NEW ACCOUNTING STANDARDS

Accounting Changes and Error Corrections

     In May 2005, the FASB issued FAS 154, Accounting Charges and Error Corrections, which changes the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement required retrospective application to prior period consolidated financial statements of changes in accounting principle, unless it is impractical to determine either the period-specific or cumulative effects of the change. FAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. The adoption of the standard did not have a material effect on the financial condition, results of operations or liquidity of the Corporation.

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 currently has not determined if it will adopt FAS 156 using the fair value election.

Accounting for Uncertain Tax Positions

     In July 2005, the FASB released an Exposure Draft of a proposed interpretation, Accounting for Uncertain Tax Positions – an Interpretation of FAS 109. The Exposure Draft contains proposed language related to the recognition and measurement of uncertain tax positions. Any initial de-recognition amounts will be reported as a cumulative effect of an accounting principle. In October 2005, the effective date of the Exposure Draft was delayed and in January 2006, the FASB staff concluded that it will be effective for the first annual period beginning after December 15, 2006. A final interpretation is expected to be issued during the second quarter of 2006. The Corporation will evaluate the potential impact on the consolidated financial statements upon issuance of the final standard.

Accounting for Defined Benefit Pension and Other Postretirement Plans

     In March 2006, the FASB released an Exposure Draft of a proposed interpretation, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans, an amendment of FAS 87, 88, 106 and 132R. The Exposure Draft contains a proposed provision to recognize in the balance sheet the overfunded or underfunded status of pension and postretirement plans, which is measured as the difference between the fair value of plan assets and the benefit obligation. The Exposure Draft also proposes recognizing actuarial gains and losses and prior service costs as a component of accumulated other comprehensive income, net of tax within equity with costs and credits that arise in each period included in comprehensive income. Under existing pension and postretirement accounting standards, actuarial gains and losses and prior service cost and credit amounts are not recognized in the balance sheet.

     A final interpretation is expected to be issued during the second quarter of 2006, and the standard is expected to be effective for fiscal years ending after December 15, 2006. Retrospective application would be required. The Corporation has not yet completed its evaluation of the potential impact of the Exposure Draft on its consolidated financial statements, however the recognition of its unamortized actuarial losses and prior service costs in accumulated other comprehensive income within equity would result in a significant reduction to stockholders’ equity.

SECURITIES

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

		March 31,				December 31,
		2006				2005
U.S. Treasury and other U.S. government agencies and corporations		$	189,682			$	190,301
Mortgage-backed securities of U.S. government agencies			31,022				32,496
States of the U.S. and political subdivisions			5,124				5,385
Corporate debt securities			40,134				36,741
Total debt securities			265,962				264,923
Equity securities			13,398				14,296
		$	279,360			$	279,219

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

		March 31,				December 31,
		2006				2005
U.S. Treasury and other U.S. government agencies and corporations		$	105,408			$	105,355
Mortgage-backed securities of U.S. government agencies			606,515				631,160
States of the U.S. and political subdivisions			121,092				124,649
Corporate and other debt securities			19,562				19,975
		$	852,577			$	881,139

     The Corporation sold $2.4 million of securities at a gain of $0.5 million for the three months ended March 31, 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
March 31, 2006
U.S. Treasury and other U.S. government agencies and corporations		$	189,682			$	(630	)			—				—			$	189,682			$	(630	)
Mortgage-backed securities of U.S. government agencies			22,852				(479	)		$	7,657			$	(205	)			30,509				(684	)
States of the U.S. and political Subdivisions			3,944				(44	)			712				(5	)			4,656				(49	)
Corporate debt securities			12,949				(121	)			—				—				12,949				(121	)
Equity securities			342				(18	)			—				—				342				(18	)
		$	229,769			$	(1,292	)		$	8,369			$	(210	)		$	238,138			$	(1,502	)

		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
March 31, 2006
U.S. Treasury and other U.S. government agencies and corporations		$	102,756			$	(439	)		$	1,661			$	(43	)		$	104,417			$	(482	)
Mortgage-backed securities of U.S. government agencies			203,456				(2,913	)			359,236				(11,965	)			562,692				(14,878	)
States of the U.S. and political subdivisions			46,971				(653	)			56,036				(1,171	)			103,007				(1,824	)
Corporate debt securities			11,930				(286	)			4,711				(90	)			16,641				(376	)
		$	365,113			$	(4,291	)		$	421,644			$	(13,269	)		$	786,757			$	(17,560	)

		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 March 31, 2006, securities with unrealized losses for less than 12 months include 21 investments in U.S. government agency securities, 32 investments in mortgage-backed securities of U.S. government agencies, 68 investments in states of the U.S. and political subdivision securities, 13 investments in other debt securities and 2 investments in equity securities. As of March 31, 2006, securities with unrealized losses of greater than 12 months include 4 investments in U.S. government agency securities, 62 investments in mortgage-backed securities of U.S. government agencies, 87 investments in states of the U.S. and political subdivision securities and 5 investments in other debt securities. 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):

		March 31,				December 31,
		2006				2005
Securities sold under repurchase agreements		$	193,618			$	182,517
Federal funds purchased			—				30,000
Federal Home Loan Bank advances			25,000				40,000
Subordinated notes			119,980				125,673
Other short-term borrowings			246				788
		$	338,844			$	378,978

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

		March 31,				December 31,
		2006				2005
Federal Home Loan Bank advances		$	494,888			$	499,963
Debentures due to Statutory Trust			128,866				128,866
Subordinated notes			38,184				33,437
Other long-term debt			306				303
		$	662,244			$	662,569

     The Corporation’s banking affiliate has available credit with the Federal Home Loan Bank (FHLB) of $1.8 billion, of which $519.9 million was used as of March 31, 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 2012. Effective interest rates on these advances range from 2.10% to 5.75% for the three months ended March 31, 2006 and 2005.

     F.N.B. Statutory Trust I (Statutory Trust), an unconsolidated subsidiary trust, issued $125.0 million of Corporation-obligated mandatorily redeemable capital securities (capital securities) to fund the acquisition of a bank that was later spun-off with the Corporation’s Florida operations. The proceeds from the sale of the capital securities were invested in junior subordinated debt securities of the Corporation (debentures). The Statutory Trust was formed for the sole purpose of issuing the capital securities and investing the proceeds from the sale of such capital securities in the debentures. The debentures held by Statutory Trust are its sole assets. Distributions on the debentures issued by Statutory Trust are recorded as interest expense by the Corporation. The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. The capital securities 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 March 31, 2006 was 7.78%. The Corporation has entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of each of the guarantees. The debentures qualify as Tier 1 capital under the Board of Governors of the Federal Reserve System (Federal Reserve Board) guidelines and are first redeemable, in whole or in part, by the Corporation on or after March 31, 2008 and mature on March 31, 2033.

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 debentures. The swap is considered to be highly effective and assessment of the hedging relationship is evaluated under the critical terms match method. At March 31, 2006, the swap had a fair value of $2.3 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):

		March 31,				December 31,
		2006				2005
Commitments to extend credit		$	810,536			$	729,892
Standby letters of credit			72,263				61,659

     At March 31, 2006, funding of approximately 75% 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 a number of 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, broker or engaged in other business activities. 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 by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options and restricted shares based on the treasury stock method using the average market price. 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
		March 31,
		2006				2005
Net income		$	15,802			$	14,910
Weighted average common shares outstanding (basic)			57,177,923				53,041,581
Net effect of dilutive stock options and restricted stock based on the treasury stock method using the average market price			409,555				767,151
Weighted average common shares outstanding (diluted)			57,587,478				53,808,732
Basic earnings per share		$	.28			$	.28
Diluted earnings per share		$	.27			$	.28

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. Benefits of the RIP 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 a contribution of $3.0 million to the RIP in the first quarter 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
		March 31,
		2006				2005
Service cost		$	1,215			$	1,241
Interest cost			1,779				1,643
Expected return on plan assets			(2,007	)			(1,832	)
Net amortization			384				305
Net periodic pension cost		$	1,371			$	1,357

     The Corporation sponsors a pre-Medicare eligible postretirement medical insurance plan for retirees between the ages of 62 and 65 of certain affiliates. 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 plan changes at any time.

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

		Three Months Ended
		March 31,
		2006				2005
Service cost		$	94			$	106
Interest cost			85				78
Net amortization			16				17
Net periodic postretirement benefit cost		$	195			$	201

     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 $0.4 million for the three months ended March 31, 2006 and 2005.

CASH FLOW INFORMATION

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

Three Months Ended March 31		2006				2005
Interest paid on deposits and other borrowings		$	32,134			$	26,195
Income taxes paid			—				4,043
Transfers of loans to other real estate owned			1,204				1,113
Transfers of other real estate owned to loans			199				—
Summary of business acquisition:
Fair value of tangible assets acquired			—			$	478,466
Fair value of core deposit intangible acquired			—				8,888
Fair value of liabilities assumed			—				(473,872	)
Stock issued for the purchase of acquired company’s common stock			—				(127,516	)
Cash received in the acquisition			—				8,799
Goodwill recognized			—			$	(105,235	)

COMPREHENSIVE INCOME

     The components of comprehensive income, net of related tax, are as follows (in thousands):

		Three Months Ended
		March 31,
		2006				2005
Net income		$	15,802			$	14,910
Other comprehensive (loss) income:
Unrealized (losses) gains on securities:
Arising during the period			288				(7,505	)
Less: reclassification adjustment for gains included in net income			(356	)			(395	)
Unrealized gains on swap			532				628
Minimum benefit plan liability adjustment			—				—
Other comprehensive (loss) income			464				(7,272	)
Comprehensive income		$	16,266			$	7,638

     The accumulated balances related to each component of other comprehensive income (deficit) are as follows (in thousands):

March 31		2006				2005
Unrealized (losses) gains on securities		$	3,428			$	(1,960	)
Unrealized gains on swap			1,504				628
Minimum pension liability adjustment			(871	)			(975	)
Accumulated other comprehensive (deficit) income		$	4,061			$	(2,307	)

BUSINESS SEGMENTS

     The Corporation operates in four reportable segments: Community Banking, Wealth Management, Insurance and Consumer Finance.

	•		The Community Banking segment offers services traditionally offered by full-service commercial banks, including commercial and individual demand, savings and time deposit accounts and commercial, mortgage and individual installment loans.
	•		The Wealth Management segment provides a broad range of personal and corporate fiduciary services including the administration of decedent and trust estates. In addition, it offers various alternative products, including securities brokerage and investment advisory services, mutual funds and annuities.
	•		The Insurance segment includes a full-service insurance agency offering all lines of commercial and personal insurance through major carriers. The Insurance segment also includes a reinsurer.
	•		The Consumer Finance segment is primarily involved in making installment loans to individuals. The Consumer Finance segment activity is funded through the sale of the Corporation’s subordinated notes at the finance company’s branch offices.
	•		The other segment includes the Corporation, other non-bank subsidiaries and eliminations, which are necessary for purposes of reconciling to the consolidated amounts.

     The following tables provide financial information for these segments of the Corporation (in thousands):

		Community				Wealth								Consumer
		Banking				Management				Insurance				Finance				Other				Consolidated
At or for the Three Months Ended March 31, 2006
Interest income		$	70,582			$	30			$	133			$	7,563			$	(687	)		$	77,621
Interest expense			28,528				2				—				1,869				1,403				31,802
Provision for loan losses			1,390				—				—				1,568				—				2,958
Non-interest income			13,400				3,023				3,660				557				(531	)			20,109
Non-interest expense			30,894				2,360				2,563				3,672				(169	)			39,320
Intangible amortization			820				—				111				—				—				931
Income tax expense (benefit)			6,864				247				399				358				(951	)			6,917
Net income (loss)			15,486				444				720				653				(1,501	)			15,802
Total assets			5,465,215				6,212				27,976				146,365				(14,355	)			5,631,413
Total intangibles			205,367				—				11,644				1,809				—				218,820

		Community				Wealth								Consumer
		Banking				Management				Insurance				Finance				Other				Consolidated
At or for the Three Months Ended March 31, 2005
Interest income		$	61,553			$	19			$	98			$	7,733			$	(330	)		$	69,073
Interest expense			20,390				2				—				1,436				1,662				23,490
Provision for loan losses			709				—				—				1,622				—				2,331
Non-interest income			12,179				3,523				3,369				501				(829	)			18,743
Non-interest expense			30,797				2,394				2,710				3,713				(136	)			39,478
Intangible amortization			749				—				111				—				—				860
Income tax expense (benefit)			6,471				421				271				517				(933	)			6,747
Net income (loss)			14,616				725				375				946				(1,752	)			14,910
Total assets			5,408,006				7,355				29,496				147,242				17,287				5,609,386
Total intangibles			202,628				—				11,900				1,809				—				216,337