Management's discussion and analysis represents an overview of the consolidated results of operations and financial condition of the Corporation and highlights material changes to the financial condition and results of operations at and for the three- and nine-month periods ended September 30, 2009. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto. The Corporation's results of operations for the nine months ended September 30, 2009 are not necessarily indicative of results to be expected for the year ending December 31, 2009.
IMPORTANT NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this report are "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995, which statements generally can be identified by the use of forward-looking terminology, such as "may," "will," "expect," "estimate," "anticipate," "believe," "target," "plan," "project" or "continue" or the negatives thereof or other variations thereon or similar terminology, and are made on the basis of management's current plans and analyses of the Corporation, its business and the industry as a whole. These forward-looking statements are subject to risks and uncertainties, including, but not limited to, economic conditions, competition, interest rate sensitivity and exposure to regulatory and legislative changes. The above factors in some cases could affect the Corporation's financial performance and could cause actual results to differ materially from those expressed or implied in such forward-looking statements. The Corporation does not undertake to update or revise its forward-looking statements even if experience or future changes make it clear that the Corporation will not realize any projected results expressed or implied therein.
CRITICAL ACCOUNTING POLICIES
A description of the Corporation's critical accounting policies is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Corporation's 2008 Annual Report on Form 10-K under the heading "Application of Critical Accounting Policies." There have been no significant changes in critical accounting policies since the year ended December 31, 2008, other than Goodwill, which is summarized below. Goodwill
Goodwill is subject to impairment testing, which must be conducted at least annually. The Corporation performs goodwill impairment testing in the fourth quarter of each year. Due to ongoing uncertainty regarding market conditions surrounding the banking industry, the Corporation continues to monitor goodwill for impairment and to evaluate its carrying amount, as necessary. Based on the results of testing performed, the Corporation concluded that no impairment existed at December 31, 2008, March 31, 2009, June 30, 2009 or September 30, 2009.
At September 30, 2009, total goodwill amounted to $528.7 million, of which $510.0 million relates to the Corporation's Community Banking segment. Because of uncertain market conditions during the third quarter of 2009, the Corporation updated its review for goodwill impairment for its Community Banking segment at September 30, 2009. To determine the fair value of the Community Banking reporting unit, the Corporation utilized an income approach. This approach is based on discounted cash flows derived from assumptions of balance sheet and income statement activity. It also factors in costs of equity and weighted-average costs of capital to determine an appropriate discount rate. Applying this methodology, the degree by which the fair value of the Community Banking reporting unit exceeded its carrying value at September 30, 2009 was approximately 21%.
The financial services industry and securities markets continue to be adversely affected by declining values of nearly all asset classes. If current economic conditions continue to result in a prolonged period of economic weakness, the Corporation's business segments, including the Community Banking segment, may be adversely affected, which may result in impairment of goodwill and other intangibles in the future. Any resulting impairment loss could have a material adverse impact on the Corporation's financial condition and its results of operations.

OVERVIEW
The Corporation is a diversified financial services company headquartered in Hermitage, Pennsylvania. Its primary businesses include community banking, consumer finance, wealth management and insurance. The Corporation also conducts leasing and merchant banking activities. The Corporation operates its community banking business through a full service branch network with offices in Pennsylvania and Ohio and loan production offices in Pennsylvania, Florida and Tennessee. The Corporation operates its wealth management and insurance businesses within the community banking branch network. It also conducts selected consumer finance business in Pennsylvania, Ohio and Tennessee.
On June 16, 2009, the Corporation completed its public offering of 24,150,000 shares of common stock at a price of $5.50 per share, including 3,150,000 shares of common stock purchased by the underwriters pursuant to an over-allotment option, which the underwriters exercised in full. The net proceeds of the offering after deducting underwriting discounts and commissions and estimated offering expenses were $125.8 million.
On September 9, 2009, the Corporation redeemed all of the 100,000 outstanding shares of its preferred stock originally issued to the UST in conjunction with the CPP. Since receiving the CPP funds on January 9, 2009, the Corporation paid the UST $3.3 million in cash dividends. Upon redemption, the difference of $4.3 million between the preferred stock redemption amount and the recorded amount was charged to retained earnings as a non-cash deemed preferred stock dividend. This non-cash deemed preferred stock dividend had no impact on total equity, but reduced earnings per diluted common share by $0.04. In total, CPP costs reduced earnings per diluted common share by $0.05.
Because the Corporation issued preferred stock to the UST in January 2009, the Corporation is required to report net income available to common stockholders for the periods in which the preferred stock was outstanding. Net income available to common stockholders is calculated by subtracting the preferred stock dividends and discount amortization from net income.
On April 1, 2008, the Corporation completed the acquisition of Omega, a diversified financial services company with $1.8 billion in assets, and on August 16, 2008, the Corporation completed the acquisition of IRGB, a bank holding company with $301.7 million in assets. The assets and liabilities of each of these acquired companies were recorded on the Corporation's balance sheet at their fair values as of each of the acquisition dates, and their results of operations have been included in the Corporation's consolidated statement of income since the respective acquisition dates.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
Net income for the nine months ended September 30, 2009 was $36.6 million, compared to net income for the same period of 2008 of $54.5 million. Net income available to common stockholders for the nine months ended September 30, 2009 was $28.2 million or $0.29 per diluted share, compared to net income available to common stockholders for the same period of 2008 of $54.5 million or $0.70 per diluted share. Net income available to common stockholders for the nine months ended September 30, 2009 included $8.3 million related to preferred stock dividends and discount amortization associated with the Corporation's participation in the CPP. For the nine months ended September 30, 2009, the Corporation's return on average equity was 4.58% and its return on average assets was 0.57%, compared to 9.04% and 0.98%, respectively, for the nine months ended September 30, 2008.

In addition to evaluating its results of operations in accordance with GAAP, the Corporation routinely supplements its evaluation with an analysis of certain non-GAAP financial measures, such as return on average tangible equity, return on average tangible common equity and return on average tangible assets. The Corporation believes these non-GAAP financial measures provide information useful to investors in understanding the Corporation's operating performance and trends, and facilitates comparisons with the performance of the Corporation's peers. The non-GAAP financial measures used by the Corporation may differ from the non-GAAP financial measures other financial institutions use to measure their results of operations. The following tables summarize the Corporation's non-GAAP financial measures for the year-to-date periods indicated derived from amounts reported in the Corporation's financial statements (dollars in thousands):

                                                                        Nine Months Ended
                                                                          September 30,
                                                                     2009               2008
Return on average tangible equity:
Net income (annualized)                                           $    48,874        $    72,800
Amortization of intangibles, net of tax (annualized)                    4,658              3,867

                                                                  $    53,532        $    76,667


Average total stockholders' equity                                $ 1,066,683        $   805,540
Less: Average intangibles                                            (572,444 )         (438,832 )

                                                                  $   494,239        $   366,708


Return on average tangible equity                                       10.83 %            20.91 %


Return on average tangible common equity:
Net income available to common stockholders (annualized)          $    37,764        $    72,800
Amortization of intangibles, net of tax (annualized)                    4,658              3,867

                                                                  $    42,422        $    76,667


Average total stockholders' equity                                $ 1,066,683        $   805,540
Less: Average preferred stockholders' equity                          (85,035 )                -
Less: Average intangibles                                            (572,444 )         (438,832 )

                                                                  $   409,204        $   366,708


Return on average tangible common equity                                10.37 %            20.91 %


Return on average tangible assets:
Net income (annualized)                                           $    48,874        $    72,800
Amortization of intangibles, net of tax (annualized)                    4,658              3,867

                                                                  $    53,532        $    76,667


Average total assets                                              $ 8,580,798        $ 7,455,911
Less: Average intangibles                                            (572,444 )         (438,832 )

                                                                  $ 8,008,354        $ 7,017,079


Return on average tangible assets                                        0.67 %             1.09 %

The following table provides information regarding the average balances and yields earned on interest earning assets and the average balances and rates paid on interest bearing liabilities (dollars in thousands):

                                                                                   Nine Months Ended September 30,
                                                                     2009                                                      2008
                                                                       Interest                                               Interest
                                                                        Income/           Yield/            Average            Income/           Yield/
                                              Average Balance           Expense            Rate             Balance            Expense            Rate
Assets
Interest earning assets:
Interest bearing deposits with banks         $           2,335         $       4             0.20 %       $     4,360         $      75             2.31 %
Federal funds sold                                      18,864                69             0.48              19,293               301             2.05
Taxable investment securities (1)                    1,183,115            38,366             4.28           1,003,960            36,235             4.79
Non-taxable investment securities (2)                  185,944             8,013             5.75             179,907             7,519             5.57
Loans (2) (3)                                        5,815,899           249,906             5.73           5,258,390           262,933             6.68

Total interest earning assets (2)                    7,206,157           296,358             5.48           6,465,910           307,063             6.34

Cash and due from banks                                357,230                                                138,944
Allowance for loan losses                             (105,681 )                                              (65,129 )
Premises and equipment                                 121,519                                                103,990
Other assets                                         1,001,573                                                812,196

                                             $       8,580,798                                            $ 7,455,911


Liabilities
Interest bearing liabilities:
Deposits:
Interest bearing demand                      $       2,157,008            11,179             0.69         $ 1,786,874            19,821             1.48
Savings                                                848,157             2,412             0.38             725,143             5,254             0.97
Certificates and other time                          2,276,079            53,471             3.14           2,072,524            59,115             3.81
Treasury management accounts                           451,208             3,418             1.00             353,377             6,070             2.26
Other short-term borrowings                            108,919             2,951             3.57             148,215             4,127             3.66
Long-term debt                                         444,087            13,622             4.10             499,671            15,889             4.25
Junior subordinated debt                               205,130             7,658             4.99             187,558             8,920             6.35

Total interest bearing liabilities (2)               6,490,588            94,711             1.95           5,773,362           119,196             2.75

Non-interest bearing demand                            928,238                                                793,836
Other liabilities                                       95,289                                                 83,173

                                                     7,514,115                                              6,650,371
Stockholders' equity                                 1,066,683                                                805,540

                                             $       8,580,798                                            $ 7,455,911

Excess of interest earning assets over
interest bearing liabilities                 $         715,569                                            $   692,548


Fully tax-equivalent net interest
income                                                                   201,647                                                187,867
Tax-equivalent adjustment                                                  4,689                                                  4,440

Net interest income                                                    $ 196,958                                              $ 183,427


Net interest spread                                                                          3.53 %                                                 3.59 %


Net interest margin (2)                                                                      3.72 %                                                 3.88 %

(1) The average balances and yields earned on securities are based on historical cost.

(2) The interest income amounts are reflected on a fully taxable equivalent (FTE) basis, a non-GAAP measure, which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. The yields on earning assets and the net interest margin are presented on an FTE and annualized basis. The rates paid on interest bearing liabilities are also presented on an annualized basis. The Corporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

(3) Average balances include non-accrual loans. Loans consist of average total loans less average unearned income. The amount of loan fees included in interest income on loans is immaterial.

Net Interest Income
Net interest income, which is the Corporation's principal source of revenue, is the difference between interest income from earning assets (loans, securities and federal funds sold) and interest expense paid on liabilities (deposits, treasury management accounts and short- and long-term borrowings). For the nine months ended September 30, 2009, net interest income, which comprised 71.0% of net revenue (net interest income plus non-interest income) compared to 70.2% for the same period in 2008, was affected by the general level of interest rates, changes in interest rates, the shape of the yield curve, the level of non-accrual loans and changes in the amount and mix of interest earning assets and interest bearing liabilities.
Net interest income, on an FTE basis, increased $13.8 million or 7.3% from $187.9 million for the nine months ended September 30, 2008 to $201.6 million for the same period of 2009. Average interest earning assets increased $740.2 million or 11.4% and average interest bearing liabilities increased $717.2 million or 12.4% from the nine months ended September 30, 2008 due to organic loan and deposit growth and the Omega and IRGB acquisitions. The Corporation's net interest margin decreased from 3.88% for the first nine months of 2008 to 3.72% for the first nine months of 2009 as loan yields declined faster than deposit rates, reflecting the actions taken by the FRB to lower interest rates during the fourth quarter of 2008 combined with competitive pressures on deposit rates. Details on changes in tax equivalent net interest income attributed to changes in interest earning assets, interest bearing liabilities, yields and cost of funds are set forth in the preceding table.
The following table sets forth certain information regarding changes in net interest income attributable to changes in the volumes of interest earning assets and interest bearing liabilities and changes in the rates for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 (in thousands):

                                               Volume        Rate           Net
       Interest Income
       Interest bearing deposits with banks   $    (24 )   $     (48 )   $     (72 )
       Federal funds sold                           (7 )        (225 )        (232 )
       Securities                                5,765        (3,140 )       2,625
       Loans                                    24,163       (37,189 )     (13,026 )

                                                29,897       (40,602 )     (10,705 )


       Interest Expense
       Deposits:
       Interest bearing demand                   3,677       (12,319 )      (8,642 )
       Savings                                     784        (3,626 )      (2,842 )
       Certificates and other time               5,656       (11,300 )      (5,644 )
       Treasury management accounts              1,359        (4,011 )      (2,652 )
       Other short-term borrowings                (623 )        (553 )      (1,176 )
       Long-term debt                           (1,730 )        (537 )      (2,267 )
       Junior subordinated debt                    779        (2,041 )      (1,262 )

                                                 9,902       (34,387 )     (24,485 )

       Net Change                             $ 19,995     $  (6,215 )   $  13,780

(1) The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the net size of the rate and volume changes.

(2) Interest income amounts are reflected on an FTE basis which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. The Corporation believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

Interest income, on an FTE basis, of $296.4 million for the first nine months of 2009 decreased by $10.7 million or 3.5% from the same period of 2008. Average interest earning assets of $7.2 billion for the first nine months of 2009 grew $740.2 million or 11.4% from the same period of 2008 primarily driven by the Omega and IRGB acquisitions which increased loans by $1.1 billion and $160.2 million, respectively, at the time of acquisition. Organic loan growth was flat for the first nine months of 2009 compared to the same period of 2008. The yield on interest earning assets decreased 86 basis points from the nine months ended September 30, 2008 to 5.48% for the nine months

ended September 30, 2009, reflecting changes in interest rates as the FRB has lowered its federal funds target rate from 4.25% at the beginning of 2008 to a current range of 0.00% to 0.25%.
Interest expense of $94.7 million for the nine months ended September 30, 2009 decreased by $24.5 million or 20.5% from the same period of 2008. The rate paid on interest bearing liabilities decreased 80 basis points to 1.95% during the first nine months of 2009 compared to the first nine months of 2008, reflecting changes in interest rates and a favorable shift in mix. Average interest bearing liabilities increased $717.2 million or 12.4% to average $6.5 billion for the first nine months of 2009. This growth was primarily attributable to the Omega and IRGB acquisitions combined with organic growth. The Omega and IRGB acquisitions increased deposits by $1.3 billion and $256.8 million, respectively, at the time of acquisition. The Corporation also recognized organic average deposit and treasury management account growth of $0.3 million or 4.7% for the first nine months of 2009, compared to the first nine months of 2008 driven by success with ongoing marketing campaigns designed to attract new customers to the Corporation's local approach to banking combined with customer preferences to keep funds in banks due to uncertainties in the market.
Provision for Loan Losses
The provision for loan losses is determined based on management's estimates of the appropriate level of allowance for loan losses needed to absorb probable losses inherent in the existing loan portfolio, after giving consideration to charge-offs and recoveries for the period.
The provision for loan losses of $40.9 million during the first nine months of 2009 increased $19.8 million from the same period in 2008 due to higher net charge-offs and increased allocations for a weaker economic environment. The significant increases primarily reflect continued weakness in the Corporation's Florida portfolio, and, to a much lesser extent, the slowing economy in Pennsylvania. The $40.9 million provision for loan losses for the first nine months of 2009 was comprised of $21.7 million relating to FNBPA's Florida region, $4.6 million relating to Regency and $14.6 million relating to the remainder of the Corporation's portfolio, which is predominantly in Pennsylvania. During the first nine months of 2009, net charge-offs were $39.7 million or 0.91% (annualized) of average loans compared to $11.4 million or 0.29% (annualized) of average loans for the same period in 2008. The net charge-offs for the first nine months of 2009 were comprised of $23.5 million or 11.12% (annualized) of average loans relating to FNBPA's Florida region, $4.6 million or 3.94% (annualized) of average loans relating to Regency and $11.6 million or 0.29% (annualized) of average loans relating to the remainder of the Corporation's portfolio. For additional information relating to the allowance and provision for loan losses, refer to the Allowance and Provision for Loan Losses section of this Management's Discussion and Analysis. Non-Interest Income
Total non-interest income of $80.6 million for the first nine months of 2009 increased $2.7 million or 3.5% from the same period of 2008. This increase resulted primarily from increases in both service charges and insurance commissions and fees reflecting organic growth and the impact of acquisitions combined with a gain on the sale of a building acquired in a previous acquisition and gains on the sale of residential mortgage loans. These items were partially offset by decreases in securities commissions and fees, trust fees, income from bank owned life insurance and gain on the sale of securities and higher OTTI charges. These items are further explained in the following paragraphs.
Service charges on loans and deposits of $43.0 million for the first nine months of 2009 increased $2.9 million or 7.3% from the same period of 2008, reflecting organic growth and the expansion of the Corporation's customer base as a result of the Omega and IRGB acquisitions during 2008.
Insurance commissions and fees of $12.9 million for the nine months ended September 30, 2009 increased $0.8 million or 6.7% from the same period of 2008 primarily as a result of the acquisition of Omega during 2008.
Securities commissions of $5.2 million for the first nine months of 2009 decreased by $0.4 million or 6.8% from the same period of 2008 primarily due to lower activity due to market conditions, partially offset by the acquisition of Omega during 2008.
Trust fees of $8.8 million for the first nine months of 2009 decreased by $0.2 million or 2.5% from the same period of 2008 due to the negative effect of market conditions on assets under management, partially offset by growth in assets under management resulting from the Omega acquisition during 2008.

Income from bank owned life insurance of $4.4 million for the nine months ended September 30, 2009 decreased by $0.3 million or 6.0% from the same period of 2008. This decrease was primarily attributable to death claims, lower yields . . .