F.N.B. 10K/A 2004 Annual report (amended)

F.N.B. (FNB) 10-K/A2004 FY Annual report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

AMENDMENT NO. 1

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004
or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

F.N.B. CORPORATION

(Exact name of registrant as specified in its charter)


FLORIDA		25-1255406

State or other jurisdiction of		(I.R.S. Employer
incorporation or organization		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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered


Common Stock, par value $0.01 per share		New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act:
None

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. x Yes o No

Indicate by check mark it disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). x Yes o No

The aggregate market value of the registrant’s outstanding voting common stock held by non-affiliates on June 30, 2004, determined using a per share closing price on that date of $20.40, as quoted on the New York Stock Exchanges, was $874,793,974.

As of February 28, 2005, the registrant had outstanding 56,279,368 shares of common stock.

EXPLANATORY NOTE

F.N.B. Corporation (the “Corporation”) is filing this report on Form 10-K/A as Amendment No. 1 to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, originally filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2005 (the “Original Filing”), for the principal purpose of addressing comments from the staff of the SEC in connection with the staff’s review of a pending registration statement (the “Staff Comments”). In particular, the Staff Comments requested that we amend the Original Filing to: (1) include a computation of ratio of earnings to fixed charges as Exhibit 12 in accordance with Item 601(a) of Regulation S-K; and (2) include amended financial statement and internal control audit reports from our independent auditors that indicate the city and state where the audit reports were issued in accordance with paragraph 167(o) of PCAOB AS2. The Corporation has complied with the Staff Comments by filing this Form 10-K/A. This Amendment speaks as of the date of the Original Filing and has not been updated to reflect events occurring subsequent to that date.

PART II

Item 8. Financial Statements and Supplementary Data

Management’s Report on Internal Control Over Financial Reporting

F.N.B. Corporation (the Corporation) is responsible for the preparation and fair presentation of the consolidated financial statements included in this Annual Report on Form 10-K/A. The consolidated financial statements and notes included in this Annual Report onForm 10-K/A have been prepared in conformity with United States generally accepted accounting principles (GAAP).

We, as management of the Corporation, are responsible for establishing and maintaining adequate internal control over financial reporting as such item is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Corporation’s internal control over financial reporting is a process designed under the supervision of our chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the company’s financial statements for external reporting purposes in accordance with GAAP.

The Corporation’s management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2004, in relation to criteria set forth for effective internal control over financial reporting as described in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management determined that as of December 31, 2004, the Corporation’s internal control over financial reporting is effective and meets the criteria of the “Internal Control — Integrated Framework.” Management’s assessment of the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2004 has been audited by Ernst & Young LLP, independent registered public accounting firm, as stated in their report which is included elsewhere herein.


/s/Stephen J. Gurgovits Stephen J. Gurgovits President and Chief Executive Officer		/s/Brian F. Lilly Brian F. Lilly Chief Financial Officer

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

F.N.B. Corporation

We have audited the accompanying consolidated balance sheets of F.N.B. Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of F.N.B. Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of F.N.B. Corporation and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of F.N.B. Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2005, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP
Pittsburgh, PA

March 11, 2005

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
F.N.B. Corporation

We have audited management’s assessment, included in the accompanying Report on Management’s Assessment of Internal Control Over Financial Reporting, that F.N.B. Corporation maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). F.N.B. Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that F.N.B. Corporation maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, F.N.B. Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of F.N.B. Corporation as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004, of F.N.B. Corporation and our report dated March 11, 2005, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP
Pittsburgh, PA

March 11, 2005

F.N.B. Corporation and Subsidiaries

Consolidated Balance Sheets


			December 31

			2004			2003

			Dollars in thousands,
			except par values
Assets
Cash and due from banks			$	100,839		$	105,160
Interest bearing deposits with banks				2,921			1,152
Securities available for sale				555,698			878,667
Securities held to maturity (fair value of $620,827 and $25,009)				621,302			24,030
Mortgage loans held for sale				5,819			1,435
Loans, net of unearned income of $30,592 and $31,572				3,389,461			3,259,197
Allowance for loan losses				(50,467	)		(46,139	)

	Net Loans			3,338,994			3,213,058
Premises and equipment, net				79,033			79,618
Goodwill				84,544			28,710
Bank owned life insurance				112,300			102,600
Other assets				125,559			122,744
Assets of discontinued operations				—			3,751,136

		Total Assets	$	5,027,009		$	8,308,310

Liabilities
Deposits:
	Non-interest bearing demand		$	663,278		$	592,795
	Savings and NOW			1,539,547			1,517,209
	Certificates and other time deposits			1,395,262			1,329,506

		Total Deposits		3,598,087			3,439,510
Other liabilities				73,505			58,096
Short-term borrowings				395,106			232,966
Long-term debt				636,209			584,808
Liabilities of discontinued operations				—			3,386,021

		Total Liabilities		4,702,907			7,701,401

Stockholders’ Equity
Common stock — $0.01 par value Authorized – 500,000,000 shares Issued – 50,210,113 and 46,354,673 shares				502			464
Additional paid-in capital				295,404			586,009
Retained earnings				27,998			11,532
Accumulated other comprehensive income				4,965			10,251
Deferred stock compensation				(1,428	)		—
Treasury stock – 151,994 and 40,764 shares at cost				(3,339	)		(1,347	)

		Total Stockholders’ Equity		324,102			606,909

Total Liabilities and Stockholders’ Equity			$	5,027,009		$	8,308,310

See accompanying Notes to Consolidated Financial Statements

F.N.B. Corporation and Subsidiaries

Consolidated Statements of Income


				December 31

				2004		2003		2002

				Dollars in thousands,
				except per share data
Interest Income
Loans, including fees				$	208,307	$	218,839	$	241,538
Securities:
	Taxable				42,248		32,842		25,191
	Nontaxable				2,554		3,855		7,113
	Dividends				1,325		1,461		1,461
Other					14		22		550

		Total Interest Income			254,448		257,019		275,853
Interest Expense
Deposits					52,400		57,710		72,978
Short-term borrowings					7,278		7,437		8,884
Long-term debt					24,712		21,843		16,510

		Total Interest Expense			84,390		86,990		98,372

		Net Interest Income			170,058		170,029		177,481
Provision for loan losses					16,280		17,155		13,624

Net Interest Income After Provision for Loan Losses					153,778		152,874		163,857
Non-Interest Income
Service charges					34,264		34,140		33,041
Insurance commissions and fees					11,245		9,139		8,714
Securities commissions and fees					4,954		4,002		4,010
Trust					6,926		7,297		7,252
Gain on sale of securities					607		1,949		1,943
Gain on sale of mortgage loans					1,769		2,860		1,335
Gain on sale of branches					4,135		—		—
Bank owned life insurance					3,459		3,773		3,807
Data processing contract termination					3,840		—		—
Other					6,942		4,995		6,043

		Total Non-Interest Income			78,141		68,155		66,145
Non-Interest Expense
Salaries and employee benefits					71,328		87,434		74,728
Net occupancy					11,064		12,744		10,479
Equipment					13,282		15,839		14,519
Amortization of intangibles					2,415		2,172		2,120
Merger and consolidation related					1,681		—		41,952
Debt extinguishment penalty					2,245		20,737		—
Promotional					2,142		2,198		1,995
Insurance claims paid					2,696		2,377		2,998
Other					35,734		41,524		36,212

		Total Non-Interest Expense			142,587		185,025		185,003

		Income Before Income Taxes			89,332		36,004		44,999
Income taxes					27,537		8,966		13,728

		Income from Continuing Operations			61,795		27,038		31,271
Earnings from discontinued operations, net of taxes of $16,631 and $16,385					—		31,751		32,064

			Net Income	$	61,795	$	58,789	$	63,335

Net Income per Common Share
	Basic:
		Continuing operations		$	1.31	$	.58	$	.68
		Discontinued operations			—		.69		.69

				$	1.31	$	1.27	$	1.37

	Diluted:
		Continuing operations		$	1.29	$	.57	$	.67
		Discontinued operations			—		.68		.68

				$	1.29	$	1.25	$	1.35

See accompanying Notes to Consolidated Financial Statements

F.N.B. Corporation and Subsidiaries

Consolidated Statements of Stockholders’ Equity


																Accumulated
										Additional						Other			Deferred
		Comprehensive			Preferred			Common		Paid-In			Retained			Comprehensive			Stock			Treasury
		Income			Stock			Stock		Capital			Earnings			Income			Compensation			Stock			Total

		Dollars in thousands
Balance at January 1, 2002					$	1		$	418	$	444,549		$	119,256		$	9,845		$	—		$	(1,662	)	$	572,407
Income:
	Continuing operations	$	31,271											31,271												31,271
	Discontinued operations		32,064											32,064												32,064
Change in other comprehensive income, net of tax			7,490														7,490									7,490

Comprehensive income		$	70,825

Cash dividends declared:
	Preferred stock													(242	)											(242	)
	Common stock $0.81 per share													(37,274	)											(37,274	)
Purchase of common stock																							(30,276	)		(30,276	)
Issuance of common stock									2		5,351			(5,066	)								23,207			23,494
Stock dividend									21		66,625			(66,646	)											—
Conversion/retirement of preferred stock									1		(339	)														(338	)

Balance at December 31, 2002						1			442		516,186			73,363			17,335			—			(8,731	)		598,596
Income:
	Continuing operations	$	27,038											27,038												27,038
	Discontinued operations		31,751											31,751												31,751
Change in other comprehensive income, net of tax			(7,084	)													(7,084	)								(7,084	)

Comprehensive income		$	51,705

Cash dividends declared:
	Preferred stock													(62	)											(62	)
	Common stock $0.93 per share													(42,810	)											(42,810	)
Purchase of common stock																							(33,888	)		(33,888	)
Issuance of common stock											7,060			(7,059	)								33,367			33,368
Stock dividend									22		65,281			(65,303	)											—
Conversion/retirement of preferred stock						(1	)				(2,518	)		(5,386	)								7,905			—

Balance at December 31, 2003						—			464		586,009			11,532			10,251			—			(1,347	)		606,909
Income:
	Continuing operations	$	61,795											61,795												61,795
	Discontinued operations		—
Change in other comprehensive income, net of tax			(3,388	)													(3,388	)								(3,388	)

Comprehensive income		$	58,407

Cash dividends declared:
	Common stock $0.92 per share													(43,476	)											(43,476	)
Spin-off of Florida operations											(363,219	)					(1,898	)								(365,117	)
Change in deferred stock compensation																				(1,428	)					(1,428	)
Purchase of common stock																							(21,101	)		(21,101	)
Issuance of common stock									38		72,614			(1,853	)								19,109			89,908

Balance at December 31, 2004					$	—		$	502	$	295,404		$	27,998		$	4,965		$	(1,428	)	$	(3,339	)	$	324,102

See accompanying Notes to Consolidated Financial Statements

F.N.B. Corporation and Subsidiaries

Consolidated Statements of Cash Flows


				Year Ended December 31

				2004			2003			2002

				Dollars in thousands
Operating Activities
Income from continuing operations				$	61,795		$	27,038		$	31,271
Income from discontinued operations					—			31,751			32,064
Adjustments to reconcile net income to net cash flows from operating activities:
		Depreciation, amortization and accretion			14,620			15,148			12,520
		Provision for loan losses			16,280			17,155			13,624
		Deferred taxes			(2,751	)		3,980			(3,490	)
		Gain on sale of securities			(607	)		(1,949	)		(1,943	)
		Gain on sale of loans			(1,769	)		(2,860	)		(1,335	)
		Proceeds from sale of trading securities			14,187			—			—
		Proceeds from sale of loans			93,630			156,057			58,019
		Loans originated for sale			(96,245	)		(130,455	)		(74,405	)
		Net change in:
			Interest receivable		(1,760	)		1,768			2,492
			Interest payable		(3,789	)		1,948			(5,763	)
		Change in assets of discontinued operations			—			(97,034	)		(88,615	)
		Other, net			12,033			111,788			41,597

			Net cash flows from operating activities		105,624			134,335			16,036

Investing Activities
Net change in:
	Interest bearing deposits with banks				(1,769	)		1,666			537
	Federal funds sold				—			—			66,000
	Loans				37,519			(43,726	)		(145,149	)
	Bank owned life insurance				112			2,302			(47,752	)
Securities available for sale:
	Purchases				(461,342	)		(593,283	)		(333,790	)
	Sales				104,220			31,137			188,477
	Maturities				203,519			330,073			190,735
Securities held to maturity:
	Purchases				(93,250	)		—			(3,781	)
	Maturities				45,722			8,361			3,178
Increase in premises and equipment					(1,106	)		618			(17,252	)
Net cash paid for mergers and acquisitions					2,650			(150,126	)		(40,618	)

		Net cash flows from investing activities			(163,725	)		(412,978	)		(139,415	)

Financing Activities
Net change in:
	Non-interest bearing deposits, savings, and NOW accounts				(83,223	)		367,528			44,229
	Time deposits				(21,104	)		(232,123	)		(79,037	)
	Short-term borrowings				176,651			(22,404	)		45,458
Increase in long-term debt					262,950			430,544			141,346
Decrease in long-term debt					(243,969	)		(245,792	)		(18,092	)
Purchase of common stock					(21,101	)		(33,888	)		(30,276	)
Issuance of common stock					27,052			33,367			23,207
Cash dividends paid					(43,476	)		(42,872	)		(37,516	)

		Net cash flows from financing activities			53,780			254,360			89,319

Net (Decrease) Increase in Cash and Cash Equivalents					(4,321	)		(24,283	)		(34,060	)
Cash and cash equivalents at beginning of year					105,160			129,443			163,503

Cash and Cash Equivalents at End of Year				$	100,839		$	105,160		$	129,443

See accompanying Notes to Consolidated Financial Statements

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Corporation and its subsidiaries. The Corporation’s consolidated financial statements have historically included subsidiaries in which the Corporation has a controlling financial interest. This requirement has been applied to subsidiaries in which the Corporation has a majority voting 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. In accordance with Financial Accounting Standards Board Interpretation No. (FIN) 46,Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,the Corporation considers a voting rights entity to be a subsidiary and consolidates it if the Corporation has a controlling financial interest in the entity. 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). All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation, including restatements for a transaction accounted for as a pooling-of-interests during 2002. See Note 3, Mergers and Acquisitions for Continuing Operations.

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.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents

The Corporation considers cash and due from banks as cash and cash equivalents.

Securities

Investment securities comprise a significant portion of the Corporation’s consolidated financials. Such securities can be classified as “Securities Available for Trading,” “Securities Held to Maturity” or “Securities Available for Sale.”

Securities available for trading are held primarily as a result of management’s intent to resell such securities in the near term and are carried at fair value, with unrealized gains (losses) reflected through the income statement. As of December 31, 2004, the Corporation did not carry a portfolio of trading securities.

Securities held to maturity are comprised of debt securities, which were purchased with management’s intent and ability to hold such securities until their maturity. Such securities are carried at cost, adjusted for related amortization of premiums and accretion of discounts through interest income from securities.

Securities that are not classified as trading or held to maturity are classified as available for sale. The Corporation’s available for sale securities portfolio is comprised of debt securities and marketable equity securities. Such securities are carried at fair value with net unrealized gains (losses), net of income taxes, reported separately as a component of other comprehensive income. Realized gains and losses on the sale of securities are determined using the specific-identification method.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Securities are periodically reviewed for 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, the 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. Any impairment loss is recognized when appropriate in accordance with Staff Accounting Bulletin (SAB) 59, Financial Accounting Standards Statement (FAS) 115,Accounting for Certain Investments in Debt and Equity Securities,and related guidance.

In November 2003, the Emerging Issues Task Force (EITF) issued EITF 03-1,The Meaning of Other-than-Temporary Impairments, and issued revised guidance in March 2004. The recognition and measurement requirements of EITF 03-1 were effective for periods beginning after June 15, 2004. In September 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) EITF 03-1-1, which delayed the effective date for certain measurement and recognition guidance contained in Issue 03-1. The FSP requires the application of pre-existing other-than-temporary guidance during the period of delay until a final consensus is reached.

Equity Method Investment

Through September 8, 2004, the Corporation accounted for its ownership of the common stock of Sun Bancorp, Inc. (Sun) under the equity method. Under the equity method, the carrying value of the Corporation’s investment in Sun was adjusted for the Corporation’s share of Sun’s earnings and reduced by dividends received from Sun. On September 9, 2004, the Corporation ceased to have any management control over Sun as the Corporation gave up its two seats on the Sun Board of Directors. As a result, the Corporation changed its accounting method to the cost basis of accounting and moved 56% of its investment in Sun to trading securities. In conjunction with this transfer, the Corporation recognized a $1.2 million gain due to the market value being higher than book value at the end of the third quarter of 2004. The remaining 44% of the Corporation’s investment in Sun was moved from the equity method of accounting to securities available for sale, at the securities carrying value at that date.

On October 1, 2004, Omega Financial Corporation (Omega) completed its acquisition of Sun. Under the terms of the agreement, Sun shareholders were entitled to receive either 0.664 shares of Omega common stock for each share of Sun common stock or $23.25 in cash for each share held, subject to a pro rata allocation such that 20% of the merger consideration shall be paid in cash and 80% shall be in the form of Omega common stock. On October 15, 2004, the Corporation received cash for 610,192 shares of Sun common stock that it categorized as trading. The remaining 479,930 shares of Sun common stock were converted into 318,673 shares of Omega common stock. As provided under EITF 91-5,Nonmonetary Exchange of Cost-Method Investments,on October 1, 2004, the Corporation recorded a gain of $959,000 to reflect the difference between market value at the transaction date and the carrying value of the remaining shares classified as available for sale.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party.

Mortgage Loans Held for Sale

Certain residential mortgage loans are originated for sale in the secondary mortgage loan market and typically sold with servicing rights released. These loans are classified as loans held for sale and are carried at the lower of cost or estimated market value on an aggregate basis. Market value is determined on the basis of rates obtained in the respective secondary market for the type of loan held for sale. Loans are generally sold at a

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

premium or discount from the carrying amount of the loan. Such premium or discount is recognized at the date of sale. Gain or loss on the sale of loans is recorded in non-interest income at the time consideration is received and all other criteria for sales treatment have been met.

Loans and the Allowance for Loan Losses

Loans are reported at their outstanding principal balance adjusted for any charge-offs and any deferred fees or costs on originated loans.

Interest income on loans is accrued on the principal outstanding. It is the Corporation’s policy to discontinue interest accruals when principal or interest is due and has remained unpaid for 90 days or more unless the loan is both well secured and in the process of collection. When a loan is placed on non-accrual status, all unpaid interest is reversed. Payments on non-accrual loans are generally applied to either principal or interest or both, depending on management’s evaluation of collectibility. Consumer installment loans are generally charged off against the allowance for loan losses upon reaching 90 to 180 days past due, depending on the installment loan type. Commercial loan charges-offs, either in whole or in part, are generally made as soon as facts and circumstances raise a serious doubt as to the collectibility of all or a portion of the principal. Loan origination fees and related costs are deferred and recognized over the life of the loans as an adjustment of yield.

The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to absorb probable losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio at the balance sheet date. The allowance for loan losses is based on management’s evaluation of potential loan losses in the loan portfolio, which includes an assessment of past experience, current economic conditions, known and inherent risks in the loan portfolio, the estimated value of underlying collateral and residuals and changes in the composition of the loan portfolio. Additions are made to the allowance through periodic provisions charged to income and recovery of principal on loans previously charged off. Losses of principal and/or residuals are charged to the allowance when the loss actually occurs or when a determination is made that a loss is probable.

Management estimates the allowance for loan losses pursuant to FAS 5,Accounting for Contingencies, and FAS 114,Accounting by Creditors for Impairment of a Loan. Larger balance commercial and commercial real estate loans that are considered impaired as defined in FAS 114 are reviewed individually to assess the likelihood and severity of loss exposure. Loans subject to individual review are, where appropriate, reserved for according to the present value of expected future cash flows available to repay the loan, or the estimated realizable value of the collateral. Commercial loans excluded from individual assessment, as well as smaller balance homogeneous loans, such as consumer, residential real estate and home equity loans, are evaluated for loss exposure under FAS 5 based upon historical loss rates for each of these categories of loans. Historical loss rates for each of these loan categories may be adjusted to reflect management’s estimates of the impacts of current economic conditions, trends in delinquencies and non-performing loans, as well as changes in credit underwriting and approval requirements.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed generally on the straight-line method over the asset’s estimated useful life. Useful lives are dependent upon the nature and condition of the asset and range from 3 to 40 years.

Other Real Estate Owned

Assets acquired in settlement of indebtedness are included in other assets at the lower of fair value minus estimated costs to sell or at the carrying amount of the indebtedness. Subsequent write-downs and net direct operating expenses attributable to such assets are included in other expenses.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. For each acquisition, goodwill and other intangible assets were allocated to the reporting units based upon the relative fair value of the assets and liabilities assigned to each reporting unit. On January 1, 2002, the Corporation adopted FAS 142,Goodwill and Other Intangible Assets. Under the provisions of FAS 142, goodwill is no longer amortized into the income statement over an estimated life, but rather is tested at least annually for impairment at the reporting unit level. Intangible assets that have finite lives continue to be amortized over their estimated useful lives and also continue to be subject to impairment testing. Core deposit intangibles are being amortized primarily over 10 years. Customer and renewal lists and other intangible assets are being amortized over their estimated useful lives which range from ten to twelve years.

The Corporation periodically reviews the carrying value of acquired intangible assets, including goodwill, to determine whether impairment may exist. FAS 142 requires that goodwill and certain intangible assets be assessed annually for impairment using fair value measurement techniques. Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions. Similarly, estimates and assumptions are used in determining the fair value of other intangible assets. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge. The Corporation performs an internal valuation analysis and considers other market information that is publicly available. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions including projected future cash flows, discount rate reflecting the risk inherent in future cash flows, growth rate and determination and evaluation of appropriate market comparables.

Income Taxes

The Corporation and the majority of its subsidiaries file a consolidated federal tax return. The Corporation’s provision for both federal and state income taxes is based on income reported on the financial statements, rather than the amounts reported on their respective income tax returns. Deferred tax assets and liabilities are computed using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred tax assets and liabilities from a change in tax rates is recognized as income or expense in the period that includes the enactment date.

The Corporation makes certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, tax benefits and deductions in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to the Corporation’s tax provision in a subsequent period.

The Corporation assesses the likelihood that it will be able to recover its deferred taxes. If recovery is not likely, the Corporation must increase its provision for taxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable. The Corporation believes that a substantial majority of the deferred tax assets recorded on the balance sheet will ultimately be recovered. However, should there be a change in the Corporation’s ability to recover its deferred tax assets, the tax provision would increase in the period in which it is determined that the recovery was not likely.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Per Share Amounts

Earnings and cash dividends per share have been adjusted for common stock dividends, including the five percent stock dividend declared on April 28, 2003.

Basic earnings per common share is calculated by dividing net income, adjusted for preferred stock dividends declared, by the sum of the weighted average number of shares of common stock outstanding.

Diluted earnings per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding, assuming conversion of outstanding convertible preferred stock from the beginning of the year and the exercise of stock options. Such adjustments to net income and the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.

Pension and Postretirement Benefit Plans

The Corporation sponsors pension and other postretirement benefit plans for its employees. The expense associated with the pension plans is calculated in accordance with FAS 87,Employers’ Accounting for Pensions, while the expense associated with the postretirement benefit plans is calculated in accordance with FAS 106,Employers’ Accounting for Postretirement Benefits Other Than Pension. The associated expense utilizes assumptions and methods determined in accordance therewith, including a policy of reflecting trust assets at their fair market value for the qualified pension plans.

Stock Based Compensation

Current accounting guidance permits two alternative methods of accounting for stock-based compensation, the intrinsic value method of Accounting Principles Board (APB) Opinion 25,Accounting for Stock Issued to Employees,and the fair value method of FAS 123,Accounting for Stock-Based Compensation. FAS 148,Accounting for Stock-Based Compensation Transition and Disclosure,was issued in December 2002. It continues to provide alternative methods of accounting for stock-based employee compensation. In addition, it amends disclosure requirements in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The Corporation continues to account for its stock-based compensation plans under APB Opinion 25.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

In accordance with FAS 123, the following table shows pro forma net income and earnings per share assuming stock options had been expensed based on the fair value of the options granted along with the significant assumptions used in the Black-Scholes option valuation model (dollars in thousands, except per share data):


Year Ended December 31		2004			2003			2002

Income from continuing operations		$	61,795		$	27,038		$	31,271
Stock-based employee compensation cost included in net income from continuing operations, net of tax			463			184			85
Stock-based employee compensation cost determined if the fair value method had been applied to all awards, net of tax			(979	)		(1,236	)		(1,338	)

			61,279			25,986			30,018

Income from discontinued operations			—			31,751			32,064
Stock-based employee compensation cost determined if the fair value method had been applied to all awards, net of tax, for discontinued operations			—			(827	)		(696	)

			—			30,924			31,368

Pro forma net income		$	61,279		$	56,910		$	61,386

Basic Earnings per Common Share:
As reported:
From continuing operations		$	1.31		$	.58		$	.68
From discontinued operations			—			.69			.69

		$	1.31		$	1.27		$	1.37

Pro forma:
From continuing operations		$	1.30		$	.57		$	.66
From discontinued operations			—			.67			.68

		$	1.30		$	1.24		$	1.34

Diluted Earnings per Common Share:
As reported:
From continuing operations		$	1.29		$	.57		$	.67
From discontinued operations			—			.68			.68

		$	1.29		$	1.25		$	1.35

Pro forma:
From continuing operations		$	1.28		$	.55		$	.64
From discontinued operations			—			.66			.67

		$	1.28		$	1.21		$	1.31

Assumptions:
	Risk-free interest rate		4.05	%		4.05	%		3.92	%
	Dividend yield		2.63	%		2.63	%		3.09	%
	Expected stock price volatility		.21	%		.21	%		.17	%
	Expected life (years)		5.00			5.00			5.00
	Fair value of options granted	$	5.04		$	5.04		$	4.56

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period of five years.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The Corporation’s employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.

New Accounting Standards

The FASB issued FSP 106-2,Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003(the Act), in May 2004. The Act, which was enacted in December 2003 and takes effect in 2006, introduces a prescription drug benefit under Medicare (the Medicare benefit). It also provides a federal subsidy to sponsors of retiree healthcare benefit plans that offer prescription drug coverage to retirees that is at least actuarially equivalent to the Medicare benefit. In accordance with FSP 106-2, sponsoring companies must recognize the subsidy in the measurement of their plan’s accumulated postretirement benefit obligation and net postretirement benefit cost. The Corporation adopted FSP 106-2 retroactively to the beginning of 2004. The implementation of FSP 106-2 did not have a significant impact on the Corporation’s financial condition, results of operations or cash flows.

The FASB revised FAS 123,Accounting for Stock-Based Compensation,in December 2004. FAS 123R establishes accounting requirements for share-based compensation to employees and carries forward prior guidance on accounting for awards to non-employees. FAS 123R requires an entity to recognize compensation expense based on an estimate of the number of awards expected to actually vest, exclusive of awards expected to be forfeited. The provisions of this statement will become effective July 1, 2005. The Corporation is still evaluating the methodology and impact of FAS 123R on its financial condition and results of operations. For purposes of historical comparison of the compensation expense of options, see Note 1, Summary of Significant Accounting Policies — Stock Based Compensation.

FIN 46,Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,was issued in January 2003 and amended in December 2003. FIN 46 addresses consolidation by business enterprises of variable interest entities that have certain characteristics. FIN 46 applied immediately to variable interest entities created after January 31, 2003. It applied in the first fiscal year or interim period beginning after December 15, 2003 to variable interest entities in which an enterprise holds a variable interest that was acquired before February 1, 2003. The impact of adopting the revised FIN 46 is described below.

The Corporation invests in low-income housing projects, primarily through F.N.B. Community Development Corporation, a subsidiary of FNBPA, for the purpose of providing a source of private sector financing for projects to promote economic development, create employment opportunities and contribute to the economic enhancement of the community. Investments principally consist of real estate projects. The Corporation accounts for these partnership investments under the equity method of accounting, with a carrying value of $2.6 million at December 31, 2004. The maximum exposure to loss would be limited to the initial capital investment in the limited partnerships. As a limited partner in these projects, the Corporation is allocated tax credits and deductions associated with the underlying projects. The Corporation has determined that it is not the primary beneficiary of these partnerships and does not consolidate them. In addition, the Corporation determined that it is not the primary beneficiary of F.N.B. Statutory Trust I and does not consolidate it.

FAS 146,Accounting for Costs Associated with Exit or Disposal Activities,was issued in June 2002 and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. FAS 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of FAS 146 became effective for the Corporation on January 1, 2003. The costs incurred in connection with the spin-off of its Florida operations (see Note 2, Business, Organizational Changes and Discontinued Operations) were accounted for in accordance with the provisions of FAS 146.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-3,Accounting for Certain Loans or Debt Securities Acquired in a Transfer, in December 2003. SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 does not apply to loans originated by the entity. The application of SOP 03-3 limits the interest income, including accretion of purchase price discounts that may be recognized for certain loans. Additionally, SOP 03-3 requires that the excess of contractual cash flows over cash flows expected to be collected (non-accretable difference) not be recognized as an adjustment of yield or valuation allowance, such as the allowance for loan losses. Subsequent to the initial investment, increases in expected cash flows generally should be recognized prospectively through adjustments to the yield on loans over its remaining life. Decreases in expected cash flows, on the other hand, should be recognized as impairment through the allowance for loan losses. The impact of this pronouncement is further discussed in Note 4, as it relates to the Corporation’s acquisition of NSD Bancorp, Inc. subsequent to December 31, 2004.

The Securities and Exchange Commission issued SAB 105,Application of Accounting Principles to Loan Commitments,in March 2004. SAB 105 informs registrants that the fair value of the recorded loan commitments that are required to follow derivative accounting under FAS 133,Accounting for Derivative Instruments and Hedging Activities,should not consider the expected future cash flows related to the associated servicing of a future loan. The provisions of SAB 105 are required to be applied to loan commitments accounted for as derivatives that are entered into after March 31, 2004. The implementation of SAB 105 did not have a significant impact on the Corporation’s financial condition, results of operations or cash flows.

2. Business, Organizational Changes and Discontinued Operations

Business

F.N.B. Corporation (the Corporation) is a diversified financial services company headquartered in Hermitage, Pennsylvania. The Corporation owns and operates First National Bank of Pennsylvania (FNBPA), First National Trust Company, First National Investment Services Company, F.N.B. Investment Advisors, Inc., First National Insurance Agency, Inc. and Regency Finance Company (Regency). It has full service banking offices located in Pennsylvania and Ohio and consumer finance operations in Pennsylvania, Ohio and Tennessee.

Organizational Changes

During the fourth quarter of 2002, the Corporation reduced its number of bank charters from two to one by merging its community banking affiliate in Ohio, Metropolitan National Bank, into FNBPA. The Corporation incurred $510,000 in consolidation costs associated with the transaction.

Discontinued Operations

On January 1, 2004, the Corporation completed the spin-off of its Florida operations into a separate, publicly traded company known as First National Bankshares of Florida, Inc. (Bankshares) and transferred all of its Florida operations to Bankshares. At the same time, the Corporation distributed all of the outstanding stock of Bankshares to the Corporation’s shareholders of record as of December 26, 2003. Shareholders eligible for the distribution received one share of Bankshares common stock for each outstanding share of the Corporation’s common stock held. Immediately following the distribution, the Corporation and its subsidiaries did not own any shares of Bankshares common stock and Bankshares became an independent public company. Concurrent with the spin-off of its Florida operations, the Corporation moved its executive offices from Naples, Florida to Hermitage, Pennsylvania on January 1, 2004.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

As a result of the spin-off, the Florida operations’ earnings have been reclassified as discontinued operations on the consolidated statements of income, and assets and liabilities related to these discontinued operations have been disclosed separately on the consolidated balance sheets.

Following is a summary of the carrying amount of major classes of assets and liabilities of the Corporation’s discontinued operations (in thousands):


December 31	2003

Assets
Cash and short-term investments	$	105,658
Investment securities		775,334
Mortgage loans held for sale		15,153
Net loans		2,421,278
Goodwill		173,729
Other assets		259,984

Total Assets of Discontinued Operations	$	3,751,136

Liabilities
Deposits	$	2,719,989
Borrowings		625,051
Other liabilities		40,981

Total Liabilities of Discontinued Operations	$	3,386,021

Following is a summary of the income and expense of the Corporation’s discontinued operations (in thousands):


Year Ended December 31		2003		2002

Interest income		$	166,294	$	150,931
Interest expense			42,846		47,299
Provision for loan losses			7,184		5,470
Non-interest income			62,416		54,728
Non-interest expense			130,298		104,441

	Income Before Income Taxes		48,382		48,449
Income taxes			16,631		16,385

	Income from Discontinued Operations	$	31,751	$	32,064

As a result of the spin-off on January 1, 2004, there was no income or loss recorded from discontinued operations for 2004.

The spin-off resulted in the division of certain existing corporate support functions between the two resulting entities. Corporate expenses included in the Corporation’s financial results represent an allocation of F.N.B. Corporation’s corporate expenses. This allocation was based on a specific review to identify costs incurred for the benefit of the subsidiaries of the Corporation and in management’s judgment resulted in a reasonable allocation of such costs. The Corporation was allocated $24.7 million and $32.6 million of overhead costs related to shared administrative and support functions for 2003 and 2002, respectively. The majority of these costs were specific to the activities of the continuing operations. The remaining costs were allocated based on a proportional share of assets.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The Corporation incurred approximately $39.2 million in restructuring expenses directly attributable to the distribution. These expenses consisted of a $20.7 million prepayment penalty for refinancing Federal Home Loan Bank (FHLB) debt, $12.0 million of early retirement expenses, involuntary separation costs and data processing contract termination costs, $3.4 million in professional fees and approximately $3.1 million in the write-off of fixed assets and other expenses connected with the separation.


3.	Mergers and Acquisitions for Continuing Operations

On October 8, 2004, the Corporation completed its acquisition of Slippery Rock Financial Corporation (Slippery Rock) (OTC BB: SRCK), a bank holding company headquartered in Slippery Rock, Pennsylvania with $335.0 million in assets. The acquisition, which was accounted for as a purchase, was a stock and cash transaction valued at $84.3 million. The Corporation issued 3,309,203 shares of its common stock in exchange for 2,346,952 shares of Slippery Rock common stock. In addition, the Corporation paid $11.6 million to Slippery Rock shareholders in exchange for 414,482 shares of Slippery Rock common stock. Slippery Rock’s banking subsidiary, First National Bank of Slippery Rock, was merged into FNBPA. FNBPA recognized $50.8 million in goodwill and $5.3 million in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes.

On July 30, 2004, the Corporation completed the acquisition of the assets of Morrell, Butz and Junker, Inc. and MBJ Benefits, Inc. (collectively MBJ), a full-service insurance agency based in Pittsburgh, Pennsylvania. MBJ is one of the largest independent insurance agencies in western Pennsylvania with annual revenues of $4.0 million. MBJ, which offers property and casualty, life and health, and group benefits coverage to both commercial and individual clients, became a part of the Corporation’s existing insurance agency, First National Insurance Agency, Inc., doubling the size of the Corporation’s insurance business. This transaction closed on July 30, 2004.

On April 30, 2004, Regency completed its acquisition of eight consumer finance offices in the greater Columbus, Ohio area from The Modern Finance Company, an affiliate of Thaxton Group, Inc., headquartered in South Carolina. This acquisition added approximately $7.0 million in net loan outstandings to Regency’s portfolio.

On October 8, 2002, the Corporation completed its business combination with Harry Blackwood, Inc. (Blackwood), an independent insurance agency in Chippewa Township, Pennsylvania. In exchange for all of the outstanding common stock of Blackwood, the Corporation paid $1.4 million in cash. Goodwill recognized in connection with this acquisition was $990,000. The transaction was accounted for as a purchase. Blackwood operates as a part of First National Insurance Agency, Inc.

On January 18, 2002, the Corporation completed its business combination with Promistar Financial Corporation (Promistar), a bank holding company headquartered in Johnstown, Pennsylvania, with assets of $2.4 billion. Under the terms of the merger agreement, each outstanding share of Promistar’s common stock was converted into .926 shares of the Corporation’s common stock. A total of 16,007,346 shares of the Corporation’s common stock were issued. The transaction was accounted for as a pooling-of-interests. Promistar’s banking affiliate, Promistar Bank, was merged into FNBPA. The Corporation incurred a merger-related charge of approximately $41.4 million during the first quarter of 2002 relating to this transaction. The total merger charge included involuntary separation costs associated with terminated employees, early retirement and other employment-related expenses, data processing conversion charges, professional services, write-downs of impaired assets and other miscellaneous expenses, all of which were paid by December 31, 2003.

The Corporation regularly evaluates the potential acquisition of, and holds discussions with, various acquisition candidates and as a general rule the Corporation publicly announces such acquisitions only after a definitive merger agreement has been reached.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


4.	Subsequent Events (unaudited)

Mergers and Acquisitions

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, $316.2 million in loans and $378.8 million in deposits. The acquisition was a stock transaction valued at approximately $135.8 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.

Under the scope of SOP 03-3 (refer to Note 1), the Corporation has determined certain that loans have differences between the contractual cash flows and the cash flows expected to be collected when such loans are acquired as a result of this transaction. The Corporation further expects that these cash flow differences are attributable, at least in part, to credit quality. Generally, loans qualifying under the scope of SOP 03-3 for this transaction were such loans with specific loan loss reserve allocations under FAS 114, certain loans with loan loss reserve allocations under FAS 5 and certain additional loans or additional portions of loans deemed by the Corporation to have differences between contractual and expected cash flows, irrespective of NSD’s reserve allocations to such loans.

Interest Rate Swap

In February 2005, the Corporation entered into an interest rate swap, whereby it will pay a fixed rate of interest and receive a variable rate based on LIBOR. The effective date of the swap will be January 3, 2006. The interest rate swap is designed to convert the variable interest rate to fixed rate on $125.0 million of debentures. The swap is considered to be highly effective. Accordingly, any change in the swap’s fair value will be recorded in other comprehensive income, net of tax. The Corporation will account for the swap in accordance with FAS 133,Accounting for Derivative Instruments and Hedging Activities.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

5. Securities

The amortized cost and fair value of securities are as follows (in thousands):

Securities available for sale:


				Gross		Gross
		Amortized		Unrealized		Unrealized
		Cost		Gains		Losses			Fair Value

December 31, 2004
U.S. Treasury and other U.S. government agencies and corporations		$	170,125	$	238	$	(892	)	$	169,471
Mortgage-backed securities of U.S. government agencies			306,639		1,116		(1,134	)		306,621
States of the U.S. and political subdivisions			1,160		20		—			1,180
Other debt securities			15,154		882		—			16,036

	Total debt securities		493,078		2,256		(2,026	)		493,308
Equity securities			58,728		3,798		(136	)		62,390

		$	551,806	$	6,054	$	(2,162	)	$	555,698

December 31, 2003
U.S. Treasury and other U.S. government agencies and corporations		$	123,294	$	957	$	(88	)	$	124,163
Mortgage-backed securities of U.S. government agencies			629,445		6,562		(1,330	)		634,677
States of the U.S. and political subdivisions			41,970		485		(47	)		42,408
Other debt securities			29,803		2,496		—			32,299

	Total debt securities		824,512		10,500		(1,465	)		833,547
Equity securities			39,864		5,259		(3	)		45,120

		$	864,376	$	15,759	$	(1,468	)	$	878,667

December 31, 2002
U.S. Treasury and other U.S. government agencies and corporations		$	63,497	$	2,343	$	(1	)	$	65,839
Mortgage-backed securities of U.S. government agencies			383,132		9,625		(69	)		392,688
States of the U.S. and political subdivisions			129,010		3,032		(38	)		132,004
Other debt securities			26,302		631		(127	)		26,806

	Total debt securities		601,941		15,631		(235	)		617,337
Equity securities			35,819		4,438		(47	)		40,210

		$	637,760	$	20,069	$	(282	)	$	657,547

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Securities held to maturity:


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value

December 31, 2004
U.S. Treasury and other U.S. government agencies and corporations	$	2,926	$	15	$	(15	)	$	2,926
Mortgage-backed securities of U.S. government agencies		514,593		544		(1,213	)		513,924
States of the U.S. and political subdivisions		82,502		558		(378	)		82,682
Other debt securities		21,281		233		(219	)		21,295

	$	621,302	$	1,350	$	(1,825	)	$	620,827

December 31, 2003
U.S. Treasury and other U.S. government agencies and corporations	$	3,761	$	23	$	(8	)	$	3,776
States of the U.S. and political subdivisions		17,105		793		—			17,898
Other debt securities		3,164		172		(1	)		3,335

	$	24,030	$	988	$	(9	)	$	25,009

December 31, 2002
U.S. Treasury and other U.S. government agencies and corporations	$	4,724		—		—		$	4,724
States of the U.S. and political subdivisions		24,990	$	921		—			25,911
Other debt securities		2,653		—		—			2,653

	$	32,367	$	921		—		$	33,288

During 2004, the Corporation transferred $519.4 million of securities from available for sale to held to maturity. This transaction resulted in $4.0 million being recorded as other comprehensive income, which is being amortized over the average life of the securities transferred. At December 31, 2004, $3.4 million remained in other comprehensive income. The Corporation initiated this transfer to better reflect management’s intentions and to reduce the volatility of the equity adjustment due to the fluctuation in market prices of available for sale securities.

The Corporation does not believe the unrealized losses on securities, individually or in the aggregate, as of December 31, 2004, represent an other-than-temporary impairment. The unrealized losses are primarily the result of changes in interest rates and will not prohibit the Corporation from receiving its contractual principal and interest payments. The Corporation has the ability and intent to hold these securities for a period necessary to recover the amortized cost.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

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

Securities available for sale:


	Less than					Greater than
	12 Months					12 Months				Total

	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Losses			Value		Losses		Value		Losses

December 31, 2004
U.S. Treasury and other U.S. government agencies and corporations	$	99,782	$	(892	)		—		—	$	99,782	$	(892	)
Mortgage-backed securities of U.S. government agencies		163,352		(1,134	)		—		—		163,352		(1,134	)
Equity securities		9,721		(136	)		—		—		9,721		(136	)

	$	272,855	$	(2,162	)		—		—	$	272,855	$	(2,162	)

December 31, 2003
U.S. Treasury and other U.S. government agencies and corporations	$	33,078	$	(88	)		—		—	$	33,078	$	(88	)
Mortgage-backed securities of U.S. government agencies		148,743		(1,330	)		—		—		148,743		(1,330	)
States of the U.S. and political subdivisions		7,768		(47	)		—		—		7,768		(47	)
Equity securities		12		(3	)		—		—		12		(3	)

	$	189,601	$	(1,468	)		—		—	$	189,601	$	(1,468	)

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

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

December 31, 2004
U.S. Treasury and other U.S. government agencies and corporations	$	1,603	$	(15	)		—		—	$	1,603	$	(15	)
Mortgage-backed securities of U.S. government agencies		196,056		(1,213	)		—		—		196,056		(1,213	)
States of the U.S. and political subdivisions		34,538		(378	)		—		—		34,538		(378	)
Other debt securities		12,794		(219	)		—		—		12,794		(219	)

	$	244,991	$	(1,825	)		—		—	$	244,991	$	(1,825	)

December 31, 2003
U.S. Treasury and other U.S. government agencies and corporations	$	1,436	$	(8	)		—		—	$	1,436	$	(8	)
Other debt securities		200		(1	)		—		—		200		(1	)

	$	1,636	$	(9	)		—		—	$	1,636	$	(9	)

At December 31, 2004, 2003 and 2002, securities with a carrying value of $499.1 million, $435.4 million and $283.7 million, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $283.7 million, $193.1 million and $139.0 million at December 31, 2004, 2003 and 2002, respectively, were pledged as collateral for short-term borrowings.

As of December 31, 2004, the amortized cost and fair value of securities, by contractual maturities, were as follows (in thousands):


	Available for Sale				Held to Maturity

	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Due in one year or less	$	5,483	$	5,509	$	7,445	$	7,442
Due from one to five years		155,487		154,797		27,022		27,504
Due from five to ten years		10,315		10,344		54,450		54,215
Due after ten years		15,154		16,037		17,792		17,742

		186,439		186,687		106,709		106,903
Mortgage-backed securities of U.S. government agencies		306,639		306,621		514,593		513,924
Equity securities		58,728		62,390		—		—

	$	551,806	$	555,698	$	621,302	$	620,827

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.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Proceeds from sales of securities available for sale for the years ended December 31, 2004, 2003 and 2002 were $118.4 million, $31.1 million and $188.5 million, respectively. Gross gains and gross losses were realized on those sales as follows (in thousands):


Year Ended December 31	2004			2003			2002

Gross gains	$	1,632		$	1,962		$	2,417
Gross losses		(1,025	)		(13	)		(474	)

	$	607		$	1,949		$	1,943

6. Loans

Following is a summary of loans, net of unearned income (in thousands):


December 31	2004		2003

Commercial	$	1,440,674	$	1,297,559
Direct installment		820,886		776,716
Consumer lines of credit		251,037		229,005
Residential mortgages		479,769		468,173
Indirect installment		389,754		452,170
Lease financing		2,926		16,594
Other		4,415		18,980

	$	3,389,461	$	3,259,197

The above loan totals include unearned income of $30.6 million and $31.6 million at December 31, 2004 and 2003, respectively.

The loan portfolio consists principally of loans to individuals and small-and medium-sized businesses within the Corporation’s primary market area of western and central Pennsylvania and northeastern Ohio. In addition, the portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio and Tennessee.

As of December 31, 2004, no concentrations of loans exceeding 10% of total loans existed that were not disclosed as a separate category of loans.

Certain directors and executive officers of the Corporation and its significant subsidiaries, as well as associates of such persons, are loan customers. Such loans were made in the ordinary course of business under normal credit terms and do not represent more than a normal risk of collection. Following is a summary of the aggregate amount of loans to any such persons who had loans in excess of $60,000 during the year (in thousands):


Total loans at beginning of year	$	43,588
New loans		48,665
Repayments		(47,526	)
Other		(10,053	)

Total loans at end of year	$	34,674

Other represents the net change in loan balances resulting from changes in related parties during the year.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

7. Non-Performing Assets

Following is a summary of non-performing assets (in thousands):


December 31		2004		2003

Non-accrual loans		$	27,029	$	22,449
Restructured loans			4,993		5,719

	Total non-performing loans		32,022	��	28,168
Other real estate owned			6,200		3,109

	Total non-performing assets	$	38,222	$	31,277

For the years ended December 31, 2004, 2003 and 2002, income that would have been recognized on non-accrual and restructured loans if they were in accordance with their original terms was $2.7 million, $3.0 million and $2.6 million, respectively. Loans past due 90 days or more and still accruing (See Note 1, Summary of Significant Accounting Policies — Loans and the Allowance for Loan Losses) were $5.1 million, $5.1 million and $6.9 million, at December 31, 2004, 2003 and 2002, respectively.

Following is a summary of information pertaining to loans considered to be impaired (in thousands):


At or for the Year Ended December 31		2004		2003		2002

Impaired loans with an allocated allowance		$	7,125	$	12,569	$	8,336
Impaired loans without an allocated allowance			7,402		560		—

	Total impaired loans	$	14,527	$	13,129	$	8,336

Allocated allowance on impaired loans		$	3,711	$	4,054	$	2,936

Average impaired loans		$	13,828	$	11,380	$	4,959

Income recognized on impaired loans		$	93	$	596	$	605

8. Allowance for Loan Losses

Following is an analysis of changes in the allowance for loan losses (in thousands):


Year Ended December 31		2004			2003			2002

Balance at beginning of year		$	46,139		$	46,984		$	46,345
Addition from acquisitions			4,354			—			—
Reduction due to branch sale			(54	)		—			—
Charge-offs			(18,796	)		(20,244	)		(16,557	)
Recoveries			2,544			2,244			3,572

	Net charge-offs		(16,252	)		(18,000	)		(12,985	)
Provision for loan losses			16,280			17,155			13,624

	Balance at end of year	$	50,467		$	46,139		$	46,984

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

9. Premises and Equipment

Following is a summary of premises and equipment (in thousands):


December 31	2004			2003

Land	$	12,970		$	10,478
Premises		89,262			86,387
Equipment		85,400			83,534

		187,632			180,399
Accumulated depreciation		(108,599	)		(100,781	)

	$	79,033		$	79,618

Depreciation expense was $9.7 million for 2004, $12.3 million for 2003 and $10.9 million for 2002.

The Corporation has operating leases extending to 2087 for certain land, office locations and equipment. Leases that expire are generally expected to be renewed or replaced by other leases. Rental expense was $4.6 million for 2004, $6.1 million for 2003 and $6.2 million for 2002. Total minimum rental commitments under such leases were $24.4 million at December 31, 2004. Following is a summary of future minimum lease payments for years following December 31, 2004 (in thousands):


2005	$	2,683
2006		2,262
2007		1,927
2008		1,461
2009		1,080
Later years		14,998

10. Goodwill

The Corporation’s annual impairment analyses did not result in an impairment charge for 2004, 2003 or 2002.

The following table shows a rollforward of goodwill by line of business (in thousands):


	Community				Consumer
	Banking		Insurance		Finance		Total

Balance at January 1, 2003	$	21,831	$	2,107	$	1,809	$	25,747
Goodwill addition		2,500		463		—		2,963

Balance at December 31, 2003		24,331		2,570		1,809		28,710
Goodwill addition		50,819		5,015		—		55,834

Balance at December 31, 2004	$	75,150	$	7,585	$	1,809	$	84,544

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

11. Other Intangible Assets

The following table shows a summary of core deposit intangibles, customer and renewal lists and other intangible assets (in thousands):


				Customer			Other			Total
	Core Deposit			and Renewal			Intangible			Finite-lived
	Intangibles			Lists			Assets			Intangibles

Gross carrying amount	$	25,645		$	4,890		$	901		$	31,436
Accumulated amortization		(12,550	)		(489	)		(92	)		(13,131	)

Net December 31, 2004	$	13,095		$	4,401		$	809		$	18,305

Gross carrying amount	$	20,305		$	818		$	124		$	21,247
Accumulated amortization		(10,456	)		(239	)		(21	)		(10,716	)

Net December 31, 2003	$	9,849		$	579		$	103		$	10,531

The Corporation recorded $5.3 million in core deposit intangibles and $4.1 in customer and renewal lists during 2004 as the result of the acquisitions of Slippery Rock Financial Corporation and Morrell, Butz and Junker, Inc., respectively.

Core deposit intangibles are being amortized primarily over 10 years. Customer and renewal lists and other intangible assets are being amortized over their estimated useful lives which range from ten to twelve years.

Amortization expense on finite-lived intangible assets totaled $2.4 million, $2.2 million and $2.1 million for 2004, 2003 and 2002, respectively. Amortization expense on finite-lived intangible assets is expected to total $3.0 million, $2.9 million, $2.9 million, $2.3 million and $1.4 million in 2005, 2006, 2007, 2008 and 2009, respectively, assuming no new additions.

12. Deposits

Following is a summary of deposits (in thousands):


December 31	2004		2003

Non-interest bearing	$	663,278	$	592,795
Savings and NOW		1,539,547		1,517,209
Certificates of deposit and other time deposits		1,395,262		1,329,506

	$	3,598,087	$	3,439,510

Time deposits of $100,000 or more were $297.0 million and $242.3 million at December 31, 2004 and 2003, respectively. Following is a summary of these time deposits by remaining maturity at December 31, 2004 (in thousands):


	Certificates of		Other Time
	Deposit		Deposits		Total

Three months or less	$	56,097	$	13,093	$	69,190
Three to six months		39,204		2,495		41,699
Six to twelve months		38,747		3,804		42,551
Over twelve months		122,546		21,012		143,558

	$	256,594	$	40,404	$	296,998

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Following is a summary of the scheduled maturities of certificates of deposits and other time deposits for each of the five years following December 31, 2004 (in thousands):


2005	$	755,077
2006		327,257
2007		213,872
2008		48,598
2009		48,155
Later years		2,303

13. Short-Term Borrowings

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


December 31	2004		2003

Securities sold under repurchase agreements	$	160,847	$	81,444
Federal funds purchased		65,865		865
Federal Home Loan Bank advances		16,000		6,000
Subordinated notes		151,860		144,006
Other short-term borrowings		534		651

	$	395,106	$	232,966

Credit facilities amounting to $91.0 million at December 31, 2004 were maintained with various banks at rates that are at or below prime rate. The facilities and their terms are periodically reviewed by the banks and are generally subject to withdrawal at their discretion. No credit facilities were used at December 31, 2004.

14. Long-Term Debt

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


December 31	2004		2003

Federal Home Loan Bank advances	$	476,637	$	425,141
Debentures due to Statutory Trust		128,866		128,866
Subordinated notes		30,412		30,517
Other long-term debt		294		284

	$	636,209	$	584,808

The Corporation’s banking affiliate has available credit with the FHLB of $1.7 billion, of which $492.6 million was used as of December 31, 2004. 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 2012. Interest rates paid on these advances range from 2.10% to 6.93% in 2004 and 2.10% to 5.75% in 2003.

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

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

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 LIBOR plus 325 basis points. The interest rate in effect at December 31, 2004 was 5.23%. 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 Federal Reserve Board guidelines and are first redeemable, in whole or in part, by the Corporation on or after March 31, 2008.

Subordinated notes are unsecured and subordinated to other indebtedness of the Corporation. The long-term subordinated notes are scheduled to mature in various amounts periodically through the year 2014. At December 31, 2004, all of the long-term subordinated debt is redeemable by the holders prior to maturity at a discount equal to three months of interest. The Corporation may require the holder to give 30 days prior written notice. No sinking fund is required and none has been established to retire the debt. The weighted average interest rate on long-term subordinated debt was 4.91% at December 31, 2004 and 5.13% at December 31, 2003.

Scheduled annual maturities for all of the long-term debt for each of the five years following December 31, 2004 are as follows (in thousands):


2005	$	81,791
2006		65,654
2007		189,765
2008		30,814
2009		1,067
Later years		267,118

15. 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. Consistent credit policies are used by the Corporation for both on- and off-balance sheet items.

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


December 31	2004		2003

Commitments to extend credit	$	594,791	$	592,762
Standby letters of credit		62,454		48,501

At December 31, 2004, funding of approximately 84% 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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 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 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

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

where the Corporation acted as a depository bank, lender, underwriter, fiduciary, financial advisor, broker or 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 and available insurance coverage, 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.

16. Stockholders’ Equity

During 2003, the Corporation completed the planned redemption of its Preferred Stock Series A and Preferred Stock Series B. In connection with the redemption, the Corporation issued shares of its common stock out of treasury stock in exchange for the remaining outstanding preferred stock. The Corporation issued 15,882 and 264,568 shares of its common stock for the remaining 19,174 and 98,851 shares of Preferred Stock Series A and Preferred Stock Series B, respectively. As a result of the redemption, the Corporation no longer has any shares of Preferred Series A or Preferred Series B stock outstanding.

17. Comprehensive Income

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


Year Ended December 31			2004			2003			2002

Income from continuing operations			$	61,795		$	27,038		$	31,271
Income from discontinued operations				—			31,751			32,064
Other comprehensive (loss) income from continuing operations:
	Unrealized (losses) gains on securities:
		Arising during the period, net of tax (benefit) expense of $(1,592), $(1,219) and $3,680		(2,957	)		(2,264	)		6,834
		Less: reclassification adjustment for gains included in net income, net of tax expense of $212, $703 and $791		(395	)		(1,307	)		(1,470	)
	Minimum benefit plan liability adjustment, net of tax benefit of $20, $195 and $310			(36	)		(362	)		(577	)

Other comprehensive (loss) income from continuing operations				(3,388	)		(3,933	)		4,787

Other comprehensive (loss) income from discontinued operations:
	Unrealized (losses) gains on securities:
		Arising during the period, net of tax (benefit) expense of $(1,129) and $1,881		—			(2,096	)		3,493
		Less: reclassification adjustment for gains included in net income, net of tax expense of $334 and $66		—			(621	)		(122	)
	Minimum benefit plan liability adjustment, net of tax benefit of $234 and $360			—			(434	)		(668	)

Other comprehensive (loss) income from discontinued operations				—			(3,151	)		2,703

Comprehensive income			$	58,407		$	51,705		$	70,825

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

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


December 31		2004			2003			2002

Continuing operations:
	Unrealized gains on securities	$	5,940		$	9,292		$	12,863
	Minimum pension liability adjustment		(975	)		(939	)		(577	)

			4,965			8,353			12,286

Discontinued operations:
	Unrealized gains on securities		—			3,000			5,717
	Minimum pension liability adjustment		—			(1,102	)		(668	)

			—			1,898			5,049

Accumulated other comprehensive income		$	4,965		$	10,251		$	17,335

18. Stock Incentive Plans

During 2004, the Corporation issued 107,285 restricted shares of common stock, with a weighted average grant date fair value of $2.1 million, to key employees and directors of the Corporation under its 2001 Incentive Plan. Under this program, shares awarded to management are earned, in part, if the Corporation meets or exceeds certain financial performance results when compared to peers. The awards are earned over three- to five-year periods. Under the provisions of APB Opinion 25, based on the performance-related criteria, compensation expense is recorded until the number of shares is fixed. The compensation expense recorded for these awards was $713,000, $283,000 and $131,000 for the years ended December 31, 2004, 2003 and 2002, respectively. The unamortized expense relating to these awards, totaling $1.4 million at December 31, 2004, is reflected as deferred stock compensation in the stockholders’ equity section of the Corporation’s balance sheet. The Corporation has available up to 1,568,344 shares to issue under its 2001 Incentive Plan.

The Corporation also has available up to 6,041,385 shares to issue under its non-qualified stock option plans to key employees and directors of the Corporation. The options vest in equal installments over periods ranging from three to ten years. The options are granted at a price equal to the fair market value at the date of the grant and are exercisable within ten years from the date of the grant. Because the exercise price of the Corporation’s stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in accordance with APB Opinion 25. No shares were issued under these plans during 2004.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

As a result of the Corporation’s spin-off of its Florida operations, the Corporation developed a methodology designed to adjust the number and exercise price of its outstanding stock options immediately following the completion of the spin-off for the purpose of preserving the equivalent value of these stock options that existed as of the close of business on December 31, 2003. This adjustment is reflected in the following tables.

Activity in the option plan relating to employees of continuing operations during the past three years was as follows:


					Weighted
					Average
					Price per
		2004			Share			2003			2002

Options outstanding at beginning of year			1,879,329		$	20.75			2,143,420			2,150,369
	Adjustment related to spin-off		473,144			(9.64	)		—			—
	Granted/assumed during the year		204,669			11.59			334,831			502,564
	Exercised during the year		(448,809	)		10.19			(448,210	)		(465,945	)
	Forfeited during the year		—			—			(150,712	)		(43,568	)

Options outstanding at end of year			2,108,333			11.35			1,879,329			2,143,420

The following table summarizes information about the stock options outstanding relating to employees of continuing operations at December 31, 2004:


Options Outstanding								Options Exercisable

				Weighted
				Average		Weighted				Weighted
				Remaining		Average				Average
Range of		Options		Contractual		Exercise		Options		Exercise
Exercise Prices		Outstanding		Years		Price		Exercisable		Price

$	2.68 - $ 4.02		25,168		8.20	$	2.68		25,168	$	2.68
	4.03 - 6.05		4,382		.08		5.04		4,382		5.04
	6.06 - 9.09		158,381		2.41		8.39		158,381		8.39
	9.10 - 13.65		1,468,444		5.29		11.09		1,186,501		10.92
	13.66 - 15.43		451,958		5.55		13.78		312,720		13.80

			2,108,333						1,687,152

19. Retirement 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 an annual contribution to the RIP each year equal to the maximum tax deductible amount.

The Corporation acquired a qualified noncontributory defined benefit pension plan (the SR Plan) from Slippery Rock Financial Corporation. The SR Plan covers substantially all former Slippery Rock employees who satisfy minimum age and length of service requirements. Benefits of the SR Plan are generally based on years of service and the employee’s compensation for five consecutive years during their last ten years of employment. The SR Plan’s funding policy is to make an annual contribution to the SR Plan each year, the amount of which is between the minimum and the maximum tax deductible amount. Benefits under the SR Plan were frozen as of December 31, 2004. Effective January 1, 2005, active participants in the SR Plan will begin earning benefits under the F.N.B. Corporation Retirement Income Plan.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

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 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 following tables summarize the accumulated benefit obligation, change in benefit obligation, change in plan assets, the Plans’ funded status and the asset included in the consolidated balance sheet for the qualified and non-qualified plans described above (collectively, the Plans) (in thousands):


December 31	2004		2003

Accumulated benefit obligation	$	96,281	$	88,137


December 31	2004			2003

Projected benefit obligation at beginning of year	$	101,721		$	83,599
Service cost		3,721			3,551
Interest cost		6,072			5,867
Plan amendments		487			(8	)
Actuarial loss		3,208			10,678
Termination gain due to curtailment		—			(1,128	)
Special termination benefits		—			3,052
Adjustment for acquisition		2,780			—
Individual nonqualified agreements		(2,782	)		—
Benefits paid		(4,473	)		(3,890	)

Projected benefit obligation at end of year	$	110,734		$	101,721


December 31	2004			2003

Fair value of plan assets at beginning of year	$	84,921		$	57,891
Actual return on plan assets		7,026			9,959
Company contribution		5,627			20,961
Adjustment for acquisition		2,395			—
Benefits paid		(4,473	)		(3,890	)

Fair value of plan assets at end of year	$	95,496		$	84,921


December 31	2004			2003

Plan assets (less than) projected benefit obligation	$	(15,238	)	$	(16,800	)
Unrecognized actuarial loss		24,757			22,753
Unrecognized prior service cost		3			(365	)
Unrecognized net transition obligation		(856	)		(949	)

Prepaid pension cost	$	8,666		$	4,639

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


December 31	2004			2003

Prepaid pension cost	$	24,138		$	21,451
Accrued pension cost		(15,472	)		(16,812	)
Additional minimum liability		(2,404	)		(1,869	)
Accumulated other comprehensive income		1,500			1,280
Intangible asset		904			589

Net amount recognized on balance sheet	$	8,666		$	4,639

The net periodic pension cost for the Plans included the following components (in thousands):


Year Ended December 31	2004			2003			2002

Service cost	$	3,721		$	3,551		$	2,587
Interest cost		6,072			5,867			5,467
Expected return on plan assets		(6,715	)		(5,492	)		(4,771	)
Special termination benefit		—			3,052			1,302
Curtailment gain (loss)		—			62			(324	)
Net amortization		917			929			194

Net periodic pension cost	$	3,995		$	7,969		$	4,455

Actuarial assumptions used in the determination of the projected benefit obligation in the Plans are as follows:


Assumptions at December 31	2004			2003

Weighted average discount rate		5.75	%		6.00	%
Rates of average increase in compensation levels		4.00	%		4.00	%

The Plans have an actuarial measurement date of January 1. Actuarial assumptions used in the determination of the net periodic pension cost in the Plans are as follows:


Assumptions for the Year Ended December 31	2004			2003			2002

Weighted average discount rate		6.00	%		6.75	%		7.25	%
Rates of increase in compensation levels		4.00	%		4.00	%		4.00	%
Expected long-term rate of return on assets		8.00	%		8.00	%		8.00	%

The expected long-term rate of return on plan assets has been established by considering historical and anticipated expected returns on the asset classes invested in by the pension trust and the allocation strategy currently in place among those classes.

The change in plan assets reflects benefits paid from the qualified pension plans of $4.0 million and $3.2 million for 2004 and 2003, respectively, and employer contributions to the qualified pension plans of $5.1 million and $20.2 million for 2004 and 2003, respectively. For the non-qualified pension plans, the change in plan assets reflects benefits paid and contributions to the plans in the same amount. This amount represents the actual benefit payments paid from general plan assets of $484,000 and $717,000 for 2004 and 2003, respectively. The Corporation expects that no contributions will be made to the qualified pension plans in 2005, as the plans’ fully funded statuses are expected to preclude any deductible contributions.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

As of December 31, 2004 and 2003, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the qualified and non-qualified pension plans were as follows (in thousands):


	Qualified Pension				Non-Qualified Pension
	Plans				Plans

December 31	2004		2003		2004		2003

Projected benefit obligation	$	92,643	$	82,508	$	18,091	$	19,213
Accumulated benefit obligation		78,882		69,552		17,399		18,585
Fair value of plan assets		95,496		84,921		—		—

The following table provides information regarding estimated future cash flows relating to the Plans (in thousands):


Employer contributions (expected):	2005	$	674
Expected benefit payments:	2005		3,924
	2006		5,453
	2007		4,716
	2008		4,925
	2009		5,276
	2010 - 2014		32,843

The qualified pension plan contributions are deposited into a trust and the qualified benefit payments are made from trust assets. For the non-qualified plans, the contributions and the benefit payments are the same and reflect expected benefit amounts, which are paid from general assets.

The Corporation’s subsidiaries participate in a qualified 401(k) defined contribution plan under which eligible employees may contribute a percentage of their salary. The Corporation matches 50 percent of an eligible employee’s contribution on the first 6 percent that the employee defers. Employees are generally eligible to participate upon completing 90 days of service and having attained age 21. Employer contributions become 20 percent vested when an employee has completed one year of service, and vest at a rate of 20 percent per year thereafter. The Corporation’s contribution expense was $1.2 million in 2004, $1.4 million in 2003 and $1.1 million in 2002.

The Corporation also sponsors an ERISA Excess Lost Match Plan for certain officers who are designated by the Board of Directors. This plan provides retirement benefits equal to the difference, if any, between the maximum benefit allowable under the Code and the amount that would have been provided under the qualified 401(k) defined contribution plan, if no limits were applied.

Pension Plan Investment Policy and Strategy

The Corporation’s investment strategy is to diversify plan assets between a wide mix of securities within the equity and debt markets in an effort to allow the account the opportunity to meet the expected long-term rate of return requirements while minimizing short-term volatility. In this regard, the Plans have targeted allocations within the equity securities category for domestic large cap, domestic mid cap, domestic small cap and international securities. Within the debt securities category, the Plans have targeted allocation levels for U.S. treasury, U.S. agency, intermediate term corporate bonds and inflation protected securities.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Following are asset allocations for the Corporation’s pension plans as of December 31, 2004 and 2003, and the target allocation for 2005, by asset category:


	Target			Percentage of
	Allocation			Plan Assets

December 31	2005			2004			2003

Asset Category
Equity securities		45-65	%		52	%		52	%
Debt securities		33-53	%		38	%		39	%
Cash equivalents		0-5	%		10	%		9	%

Equity securities include 215,628 shares of the Corporation’s common stock, of which 26,450 shares were acquired during 2004, totaling $4.4 million (4.7% of total plan assets) and 189,178 shares totaling $6.7 million (7.9% of plan assets) as of December 31, 2004 and 2003, respectively. Dividends received on these shares totaled $190,000 and $170,000 for 2004 and 2003, respectively.

20. Other Postretirement Benefit Plans

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 following tables summarize the change in benefit obligation, change in plan assets, the Plan’s funded status and the liability reflected in the consolidated balance sheet (in thousands):


December 31	2004			2003

Benefit obligation at beginning of year	$	6,468		$	6,665
Service cost		312			290
Interest cost		307			365
Plan participants’ contributions		105			108
Actuarial gain		(1,356	)		(555	)
Benefits paid		(609	)		(554	)
Adjustment for acquisition		160			—
Special termination benefits		—			149

Benefit obligation at end of year	$	5,387		$	6,468


December 31	2004			2003

Fair value of plan assets at beginning of year	$	—		$	—
Company contribution		504			446
Plan participants’ contributions		105			108
Benefits paid		(609	)		(554	)

Fair value of plan assets at end of year	$	—		$	—

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


December 31	2004			2003

Plan assets (less than) benefit obligation	$	(5,387	)	$	(6,468	)
Unrecognized actuarial loss		377			1,734
Unrecognized prior service cost		401			432
Unrecognized net transition obligation		265			299

Accrued postretirement benefit cost	$	(4,344	)	$	(4,003	)

Net periodic postretirement benefit cost included the following components (in thousands):


Year Ended December 31	2004		2003		2002

Service cost	$	312	$	290	$	149
Interest cost		307		365		332
Curtailment and settlement		—		—		57
One-time charge for voluntary retirement		—		149		—
Special termination benefit		—		—		19
Net amortization		66		98		69

Net periodic postretirement benefit cost	$	685	$	902	$	626

Actuarial assumptions used in the determination of the projected benefit obligation in the Plan are as follows:


Assumptions at December 31		2004			2003

Discount rate			5.75	%		6.00	%
Assumed healthcare cost trend:
	Initial trend		9.00	%		10.00	%
	Ultimate trend		5.00	%		5.00	%
	Year ultimate trend reached		2011			2009

Actuarial assumptions used in the determination of the net periodic postretirement cost in the Plan are as follows:


Assumptions for the Year Ended December 31		2004			2003			2002

Weighted average discount rate			6.00	%		6.75	%		7.25	%
Assumed healthcare cost trend:
	Initial trend		10.00	%		9.00	%		8.00	%
	Ultimate trend		5.00	%		5.00	%		5.00	%
	Year ultimate cost trend reached		2009			2007			2005

A one percentage point change in the assumed health care cost trend rate would have had the following effects on 2004 service and interest cost and the accumulated postretirement benefit obligation at December 31, 2004 (in thousands):


	1% Increase		1% Decrease

Effect on service and interest components of net periodic cost	$	70	$	(60	)
Effect on accumulated postretirement benefit obligation		473		(406	)

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The following table provides information regarding estimated future cash flows relating to the postretirement benefit plan (in thousands):


Employer contributions (expected):	2005	$	470
Expected benefit payments:	2005		470
	2006		458
	2007		444
	2008		438
	2009		458
	2010 - 2014		3,004

The contributions and the benefit payments for the postretirement benefit plan are the same and represent expected benefit amounts, net of participant contributions, which are paid from general assets.

21. Income Taxes

Income tax expense, allocated based on a separate tax return basis, consists of the following (in thousands):


Year Ended December 31		2004		2003			2002

Current income taxes
	Federal taxes	$	24,596	$	1,955		$	16,732
	State taxes		124		1,012			563

			24,720		2,967			17,295
Deferred income taxes:
	Federal taxes		2,632		6,714			(4,012	)
	State taxes		185		(715	)		445

		$	27,537	$	8,966		$	13,728

Income tax expense related to gains on the sale of securities was $212,000, $682,000 and $680,000 for 2004, 2003 and 2002, respectively.

Following is a reconciliation between tax expense using federal statutory tax and actual effective tax:


Year Ended December 31	2004			2003			2002

Federal statutory tax		35.0	%		35.0	%		35.0	%
Effect of tax-free interest and dividend income		(3.3	)		(10.2	)		(11.1	)
State taxes		0.2			0.5			0.2
Goodwill		—			0.1			0.9
Merger and consolidation related costs		—			0.9			4.6
Other items		(1.1	)		(1.4	)		0.9

Actual effective taxes applicable to continuing operations		30.8	%		24.9	%		30.5	%

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are presented below (in thousands):


December 31			2004			2003

Deferred tax assets:
	Allowance for loan losses		$	17,997		$	16,149
	Deferred benefits			958			1,298
	Deferred compensation			1,818			2,230
	Minimum benefit plan liability			357			416
	Depreciation			3,049			675
	Purchase accounting adjustment			1,344			21
	Other			214			281

		Total		25,737			21,070
	Valuation allowance			(1,513	)		—

		Total Deferred Tax Assets		24,224			21,070

Deferred tax liabilities:
	Loan fees			(722	)		(1,065	)
	Deferred gain on sale of subsidiary			(752	)		(3,555	)
	Leasing			(199	)		(1,075	)
	Net unrealized securities gains			(3,032	)		(5,003	)
	Intangibles			(3,233	)		(1,679	)
	Prepaid expenses			(797	)		(839	)
	Other			(1,244	)		(1,204	)

		Total Deferred Tax Liabilities		(9,979	)		(14,420	)

		Net Deferred Tax Assets	$	14,245		$	6,650

The Corporation establishes a valuation allowance when it is more likely than not that the Corporation will not be able to realize the benefit of the deferred tax assets, or that future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management’s assessments of realizable deferred tax assets. Gross deferred tax assets as of December 31, 2004 were reduced by a valuation allowance of $1.5 million related to deferred state taxes of certain subsidiaries, as recovery of these assets is not likely.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

22. Earnings per Share

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


		Year Ended December 31,

		2004		2003			2002

Basic
Income from continuing operations		$	61,795	$	27,038		$	31,271
Income from discontinued operations			—		31,751			32,064
Preferred stock dividends			—		(62	)		(242	)

Net income applicable to basic earnings per share		$	61,795	$	58,727		$	63,093

Average common shares outstanding			47,180,471		46,080,966			46,012,908

Basic earnings per share:
	From continuing operations	$	1.31	$	.58		$	.68
	From discontinued operations		—		.69			.69

	Total basic earnings per share	$	1.31	$	1.27		$	1.37


		Year Ended December 31,

		2004		2003		2002

Diluted
Income from continuing operations		$	61,795	$	27,038	$	31,271
Income from discontinued operations			—		31,751		32,064

Net income applicable to diluted earnings per share		$	61,795	$	58,789	$	63,335

Average common shares outstanding			47,180,471		46,080,966		46,012,908
Convertible preferred stock			—		63,927		341,886
Net effect of dilutive stock options based on the treasury stock method using the average market price			831,868		827,970		718,991

			48,012,339		46,972,863		47,073,785

Diluted earnings per share:
	From continuing operations	$	1.29	$	.57	$	.67
	From discontinued operations		—		.68		.68

	Total diluted earnings per share	$	1.29	$	1.25	$	1.35

23. Regulatory Matters

Quantitative measures established by regulators to ensure capital adequacy requires the Corporation and FNBPA to maintain minimum amounts and ratios of total and tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of leverage ratio (as defined). Management believes, as of December 31, 2004, that the Corporation and FNBPA meet all capital adequacy requirements to which either of them is subject.

As of December 31, 2004 and 2003, the Corporation and FNBPA satisfy the requirements to be considered “well-capitalized” under the regulatory framework for prompt corrective action.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The Corporation and FNBPA are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and FNBPA must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s and FNBPA’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Following are the capital ratios as of December 31, 2004 for the Corporation and FNBPA (dollars in thousands):


							Well-Capitalized					Minimum Capital
		Actual					Requirements					Requirements

		Amount		Ratio			Amount		Ratio			Amount		Ratio

Total Capital (to risk-weighted assets):
	F.N.B. Corporation	$	395,168		11.7	%	$	337,297		10.0	%	$	269,838		8.0	%
	FNBPA		369,014		11.3	%		326,087		10.0	%		260,870		8.0	%
Tier 1 Capital (to risk-weighted assets):
	F.N.B. Corporation		323,456		9.6	%		202,378		6.0	%		134,919		4.0	%
	FNBPA		328,213		10.1	%		195,652		6.0	%		130,435		4.0	%
Leverage Ratio:
	F.N.B. Corporation		323,456		6.5	%		247,576		5.0	%		198,061		4.0	%
	FNBPA		328,213		6.9	%		239,470		5.0	%		191,576		4.0	%

As of December 31, 2004, the Corporation’s total capital to risk-weighted assets, tier 1 capital to risk-weighted assets and leverage ratio were 11.7%, 9.6% and 6.5%, respectively. These ratios exceed the well-capitalized requirements noted in the above table.

FNBPA was required to maintain aggregate cash reserves with the Federal Reserve Bank amounting to $28.4 million at December 31, 2004. The Corporation also maintains deposits for various services such as check clearing.

Certain limitations exist under applicable law and regulations by regulatory agencies regarding dividend payments to a parent by its subsidiaries. As of December 31, 2004, the Corporation’s subsidiaries had $27.9 million of retained earnings available for distribution to the Corporation without prior regulatory approval.

Under current Federal Reserve Board regulations, FNBPA is limited in the amount it may lend to non-bank affiliates, including the Corporation. Such loans must be secured by specified collateral. In addition, any such loans to a non-bank affiliate may not exceed 10% of FNBPA’s capital and surplus and the aggregate of loans to all such affiliates may not exceed 20% of FNBPA’s capital and surplus. The maximum amount that may be borrowed by the Corporation under these provisions approximated $45.3 million at December 31, 2004.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

24. 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 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 with approximately 15% of its volume being derived from the purchase of installment sales finance contracts from retail merchants. 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 parent company, 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 Year Ended December 31, 2004
Interest income	$	225,152	$	31	$	25	$	31,133	$	(1,893	)	$	254,448
Interest expense		72,822		9		—		5,036		6,523			84,390
Provision for loan losses		9,247		—		—		7,033		—			16,280
Non-interest income		54,767		12,588		6,325		1,989		2,472			78,141
Non-interest expense		108,953		9,605		5,464		14,591		1,559			140,172
Intangible amortization		2,163		2		250		—		—			2,415
Income tax expense (benefit)		26,903		1,158		304		2,276		(3,104	)		27,537
Income (loss) from continuing operations		59,831		1,845		332		4,186		(4,399	)		61,795
Income from discontinued operations		—		—		—		—		—			—
Net income (loss)		59,831		1,845		332		4,186		(4,399	)		61,795
Total assets from continuing operations		4,850,203		5,613		16,507		150,380		4,306			5,027,009
Total intangibles from continuing operations		89,054		—		11,986		1,809		—			102,849

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


	Community		Wealth						Consumer
	Banking		Management			Insurance			Finance		Other			Consolidated

At or for the Year Ended December 31, 2003
Interest income	$	228,346	$	21		$	35		$	28,586	$	31		$	257,019
Interest expense		78,675		9			5			5,174		3,127			86,990
Provision for loan losses		11,353		—			—			5,802		—			17,155
Non-interest income		45,938		11,787			3,075			1,872		5,483			68,155
Non-interest expense		126,790		10,041			3,426			12,508		30,088			182,853
Intangible amortization		1,967		4			116			—		85			2,172
Income tax expense (benefit)		14,811		563			(156	)		2,599		(8,851	)		8,966
Income (loss) from continuing operations		40,688		1,191			(281	)		4,375		(18,935	)		27,038
Income (loss) from discontinued operations		28,981		(84	)		2,854			—		—			31,751
Net income (loss)		69,669		1,107			2,573			4,375		(18,935	)		58,789
Total assets from continuing operations		4,385,455		3,479			6,070			147,444		14,726			4,557,174
Total intangibles from continuing operations		34,273		10			3,149			1,809		—			39,241

At or for the Year Ended December 31, 2002
Interest income	$	249,897	$	5		$	38		$	28,096	$	(2,183	)	$	275,853
Interest expense		89,542		—			41			6,618		2,171			98,372
Provision for loan losses		8,323		—			—			5,301		—			13,624
Non-interest income		41,953		11,662			3,288			1,781		7,461			66,145
Non-interest expense		126,863		10,077			2,600			12,519		30,824			182,883
Intangible amortization		1,962		1			71			—		86			2,120
Income tax expense (benefit)		18,982		592			187			1,962		(7,995	)		13,728
Income (loss) from continuing operations		46,178		997			427			3,477		(19,808	)		31,271
Income (loss) from discontinued operations		29,072		(427	)		3,419			—		—			32,064
Net income (loss)		75,250		570			3,846			3,477		(19,808	)		63,335
Total assets from continuing operations		4,196,746		2,436			7,265			148,400		181			4,355,028
Total intangibles from continuing operations		33,716		16			4,946			1,809		85			40,572

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

25. Cash Flow Information

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


Year Ended December 31		2004		2003			2002

Cash paid during year for:
	Interest	$	87,691	$	85,043		$	104,135
	Income taxes		18,312		(8,149	)		18,379
Non-cash Investing and Financing Activities:
	Acquisition of real estate in settlement of loans		4,477		3,374			2,038
	Loans granted in the sale of other real estate		285		60			739

The acquisition of Slippery Rock included the purchase of assets with a fair value of $384.3 million, of which $15.5 million was cash and due from banks, and the assumption of liabilities with a fair value of $310.0 million. The fair value of shares issued by the Corporation for this acquisition totaled $62.9 million.

26. Parent Company Financial Statements

Below is condensed financial information of F.N.B. Corporation (parent company only). In this information, the parent company’s investments in subsidiaries are stated at cost plus equity in undistributed earnings of subsidiaries since acquisition. This information should be read in conjunction with the consolidated financial statements.


Balance Sheet (in thousands)
December 31			2004		2003

Assets
Cash and cash equivalents			$	10,551	$	15,906
Premises and equipment				—		1,392
Other assets				28,327		16,461
Assets of discontinued operations				—		364,956
Investment in a bank holding company				—		31,278
Investment in and advance to bank subsidiary				452,939		369,433
Investment in and advance to non-bank subsidiaries				161,186		131,166

		Total Assets	$	653,003	$	930,592

Liabilities
Other liabilities			$	21,629	$	22,642
Debentures to Statutory Trust				125,000		125,000
Subordinated notes:
	Short-term			151,860		145,524
	Long-term			30,412		30,517

		Total Liabilities		328,901		323,683

Stockholders’ Equity				324,102		606,909

		Total Liabilities and Stockholders’ Equity	$	653,003	$	930,592

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


Income Statement (in thousands)
Year Ended December 31		2004		2003			2002

Income
Dividend income from subsidiaries:
	Bank	$	49,230	$	37,924		$	61,394
	Non-bank		4,255		6,527			8,050

			53,485		44,451			69,444
Interest income			4,893		3,776			5,500
Affiliate service fee income			—		11,882			12,723
Other income			44		1,210			1,188

	Total Income		58,422		61,319			88,855

Expenses
Interest expense			12,501		11,632			8,568
Salaries and personnel expense			—		13,488			13,620
Merger and consolidation expense			—		—			18,798
Other expenses			5,055		21,380			8,207

	Total Expenses		17,556		46,500			49,193

Income Before Taxes and Equity in Undistributed Income of Subsidiaries			40,866		14,819			39,662
Income tax benefit			4,580		10,016			8,885

			45,446		24,835			48,547
Equity in undistributed income of subsidiaries:
	Bank holding company		1,103		2,357			3,323
	Bank		12,446		(3,124	)		(16,455	)
	Non-bank		2,800		2,970			(4,144	)

Income from Continuing Operations			61,795		27,038			31,271
Dividends from discontinued operations			—		66,152			24,516
Undistributed earnings from discontinued operations			—		(34,401	)		7,548

Income from discontinued operations			—		31,751			32,064

Net Income		$	61,795	$	58,789		$	63,335

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


Statement of Cash Flows (in thousands)
Year Ended December 31			2004			2003			2002

Operating Activities
Income from continuing operations			$	61,795		$	27,038		$	31,271
Income from discontinued operations				—			31,751			32,064
Adjustments to reconcile net income to net cash flows from operating activities:
	Undistributed earnings from subsidiaries			(16,349	)		(2,203	)		17,276
	Other, net			(14,336	)		953			14,867
	Other assets from discontinued operations, net			—			34,401			(7,548	)

		Net cash flows from operating activities		31,110			91,940			87,930

Investing Activities
Sale (purchase) of premises and equipment				1,392			3,440			(3,083	)
Advances to subsidiaries				(7,302	)		(47,990	)		(86,551	)
Investment in subsidiaries				(59,688	)		(135,950	)		52,711

		Net cash flows from investing activities		(65,598	)		(180,500	)		(36,923	)

Financing Activities
Net increase (decrease) in short-term borrowings				3,907			13,145			(979	)
Decrease in long-term debt				(12,045	)		(7,067	)		(14,513	)
Increase in long-term debt				11,940			132,912			8,346
Net acquisition of common stock				68,807			(521	)		(7,090	)
Cash dividends paid				(43,476	)		(42,872	)		(37,516	)

		Net cash flows from financing activities		29,133			95,597			(51,752	)

Net (Decrease) Increase in Cash and Cash Equivalents				(5,355	)		7,037			(745	)
Cash and cash equivalents at beginning of year				15,906			8,869			9,614

Cash and Cash Equivalents at End of Year			$	10,551		$	15,906		$	8,869

Cash paid during the year for:
	Interest		$	11,266		$	11,600		$	8,558

27. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each financial instrument:

Cash and Due from Banks

For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities

For both securities available for sale and securities held to maturity, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Loans

The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of adjustable rate loans approximates the carrying amount.

Bank Owned Life Insurance

The Corporation owns both general account and separate account bank owned life insurance (BOLI). The fair value of general account BOLI is based on the insurance contract cash surrender value. The fair value of separate account BOLI equals the quoted market price of the underlying securities, if available. If a quoted market price is not available, fair value is estimated using quoted market price for similar securities.

Deposits

The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity deposits is estimated by discounting future cash flows using rates currently offered for deposits of similar remaining maturities.

Short-Term Borrowings

The carrying amounts for short-term borrowings approximate fair value for amounts that mature in 90 days or less. The fair value of subordinated notes is estimated by discounting future cash flows using rates currently offered.

Long-Term Debt

The fair value of long-term debt is estimated by discounting future cash flows based on the market prices for the same or similar issues or on the current rates offered to the Corporation for debt of the same remaining maturities.

Loan Commitments and Standby Letters of Credit

Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counter-parties. Also, unfunded loan commitments relate principally to variable rate commercial loans, typically non-binding, and fees are not normally assessed on these balances.

F.N.B. Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The estimated fair values of the Corporation’s financial instruments are as follows (in thousands):


	2004				2003

	Carrying				Carrying
December 31	Amount		Fair Value		Amount		Fair Value

Financial Assets
Cash and short-term investments	$	103,760	$	103,760	$	106,312	$	106,312
Securities available for sale		555,698		555,698		878,667		878,667
Securities held to maturity		621,302		620,827		24,030		25,009
Net loans, including loans held for sale		3,344,813		3,313,169		3,214,493		3,203,947
Bank owned life insurance		112,300		109,848		102,600		100,979
Financial Liabilities
Deposits		3,598,087		3,601,394		3,439,510		3,461,240
Short-term borrowings		395,106		395,106		232,966		232,982
Long-term debt		636,209		636,252		584,808		588,834

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial StatementsThe consolidated financial statements of F.N.B. Corporation and subsidiaries required in response to this item are incorporated by reference to Item 8 of this Report.

(b) ExhibitsThe exhibits filed or incorporated by reference as a part of this report are listed in the Index to Exhibits which appears at page 4 and is incorporated by reference.

(c) SchedulesNo financial statement schedules are being filed because of the absence of conditions under which they are required or because the required information is included in the Consolidated Financial Statements and related notes thereto.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	F.N.B. Corporation
	By	/s/Stephen J. Gurgovits
		Stephen J. Gurgovits
Dated: July 27, 2005		President and Chief Executive Officer

INDEX TO EXHIBITS

The following exhibits are filed or incorporated by reference as part of this report:

	3.1.		Articles of Incorporation of the Corporation as currently in effect (incorporated by reference to Exhibit 4.1. of the Corporation’s Form 8-K filed on June 1, 2001).

	3.2.		By-laws of the Corporation as currently in effect (incorporated by reference to Exhibit 4.2. of the Corporation’s Form 8-K filed on June 1, 2001).

	4.		The rights of holders of equity securities are defined in portions of the Articles of Incorporation and By-laws. The Articles of Incorporation are incorporated by reference to Exhibit 4.1. of the registrant’s Form 8-K filed on June 1, 2001. The By-laws are incorporated by reference to Exhibit 4.2. of the registrant’s Form 8-K filed on June 1, 2001. A designation statement defining the rights of F.N.B. Corporation Series A — Cumulative Convertible Preferred Stock is incorporated by reference to Form S-14, Registration Statement of F.N.B. Corporation, File No. 2-96404. A designation statement defining the rights of F.N.B. Corporation Series B — Cumulative Convertible Preferred Stock is incorporated by reference to Exhibit 4 of the registrant’s Form 10-Q for the quarter ended June 30, 1992. The Corporation agrees to furnish to the Commission upon request copies of all instruments not filed herewith defining the rights of holders of long-term debt of the Corporation and its subsidiaries.

	10.1.		Form of agreement regarding deferred payment of directors’ fees by First National Bank of Pennsylvania (incorporated by reference to Exhibit 10.1. of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993).

	10.2.		Form of agreement regarding deferred payment of directors’ fees by F.N.B. Corporation (incorporated by reference to Exhibit 10.2. of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993).

	10.3.		Form of Deferred Compensation Agreement by and between First National Bank of Pennsylvania and four of its executive officers (incorporated by reference to Exhibit 10.3. of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993).

	10.4.		Employment Agreement between F.N.B. Corporation and Stephen J. Gurgovits (incorporated by reference to Exhibit 10.5. of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 1998).

	10.5.		Basic Retirement Plan (formerly the Supplemental Executive Retirement Plan) of F.N.B. Corporation effective January 1, 1992 (incorporated by reference to Exhibit 10.9. of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993).

	10.6.		F.N.B. Corporation 1990 Stock Option Plan as amended effective February 2, 1996 (incorporated by reference to Exhibit 10.10. of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995).

	10.7.		F.N.B. Corporation Restricted Stock Bonus Plan dated January 1, 1994 (incorporated by reference to Exhibit 10.11. of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993).

	10.8.		F.N.B. Corporation Restricted Stock and Incentive Bonus Plan (incorporated by reference to Exhibit 10.14. of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995).

	10.9.		F.N.B. Corporation 1996 Stock Option Plan (incorporated by reference to Exhibit 10.15. of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995).

	10.10.		F.N.B. Corporation Director’s Compensation Plan (incorporated by reference to Exhibit 10.16. of the Corporation’s Form 10-Q for the quarter ended March 31, 1996).

	10.11.		F.N.B. Corporation 1998 Director’s Stock Option Plan (incorporated by reference to Exhibit 10.14. of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 1998).

	10.12.		F.N.B. Corporation 2001 Incentive Plan (incorporated by reference to Exhibit 10.1. of the Corporation’s Form S-8 filed on June 14, 2001).

	10.13.		Termination of Continuation of Employment Agreement between F.N.B. Corporation and Peter Mortensen (incorporated by reference to Exhibit 10.17. of the Corporation’s Form 10-K for the year ended December 31, 2001).

	12.		Ratio of earnings to fixed charge (filed herewith).

	14.		Code of Ethics (incorporated by reference to Exhibit 99.3. of the Corporation’s Form 10-K for the year ended December 31, 2002).

	21.		Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 of the Corporation’s Form 10-K for the year ended December 31, 2004).

	23.1.		Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (filed herewith).

	31.1.		Certification of Chief Executive Officer under Sarbanes-Oxley Act Section 302 (filed herewith).

	31.2.		Certification of Chief Financial Officer under Sarbanes-Oxley Act Section 302 (filed herewith).

	32.1.		Certification of Chief Executive Officer under Sarbanes-Oxley Act Section 906 (filed herewith).

	32.2.		Certification of Chief Financial Officer under Sarbanes-Oxley Act Section 906 (filed herewith).

For the transition period from

Commission file number