Jan 27, 2009
Executives
Frank Milano - IR Bob New - President and CEO Gary Guerrieri - CCO Brian Lilly - CFO
Analysts
Frank Schiraldi - Sandler O'Neil David Darst - FTN Midwest Jonathan Kapps - BMO Capital Markets Damon DelMonte - KBW Mac Hodgson - SunTrust Robinson Humphrey
Operator
Good day and welcome to the F.N.B. Corporation Fourth Quarter 2008 Earnings Conference Call.
At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.
Instructions will be provided at that time for you to queue up for question. As a reminder, today's conference is being recorded.
And now I would like to turn the conference over to Frank Milano, Investor Relations Contact for F.N.B. Corporation.
Please go ahead sir.
Frank Milano
Thank you. Good morning everyone.
This conference call of F.N.B. Corporation and the reports it files with the Securities and Exchange Commission often contain “forward-looking statements,” relating to present or future trends or factors affecting the banking industry and specifically a financial operations, markets and products of F.N.B.
Corporation. These forward-looking statements involve certain risks and uncertainties.
There are a number of important factors that could cause F.N.B. Corporations future results to differ materially from historical performance or projected performance.
These factors include but are not limited to: a significant increase in competitive pressures among financial institutions; changes in the interest rate environment that may reduce interest margins; changes in prepayment speeds, loan sale volumes, charge-offs and loan loss provisions; general economic conditions; legislative or regulatory changes that may adversely affect the businesses in which F.N.B. Corporation is engaged; technological issues which may adversely affect F.N.B.
Corporation's financial operations or customers; changes in the securities markets; or risk factors mentioned in the reports and registration statements F.N.B. Corporation files with the Securities and Exchange Commission.
F.N.B. Corporation undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date of this call.
It is now my pleasure to turn the call over to Mr. Bob New, President and CEO of F.N.B.
Corporation. Bob?
Bob New
Thank you, Frank. And good morning everyone, and thank you for joining us.
With me today is Brian Lilly, our Chief Financial Officer, as well as Gary Guerrieri, our Chief Credit Officer and other members of our senior leadership team. I would like to begin our call this morning by recognizing the contribution of Steve Gurgovits.
As you may recall Steve turned over the role of CEO to me back in April, but he stayed on with us for the remainder of the year to assist with that transition to which I am grateful. Steve formally retired from the company on December 31, after 47 year's of service.
He will remain associated with F.N.B. Corporation as a paid consultant and also will serve as Chairman of our Board.
As I said in our press release, our 2008 financial results were short of our expectations. We reported a net loss of $18.9 million or $0.21 per share for the quarter.
For the full year we reported a profit of $35.6 million or $0.44 a share. Our biggest challenge this year has been Florida.
Illinois represents only 5% of our total loans, the impact on our 2008 results were significant. We took a series of action this year to improve our processes, to better manage the risks inherent in Florida and build our loan loss reserves accordingly much of it in the fourth quarter.
We also added F.N.B.' s overall loan loss reserve in light of the challenges facing the economy.
In a few moments Gary will talk more about Florida. And what we did with our reserves.
He will also share with you details about our Pennsylvania and Ohio portfolios as well as Regency Finance. Also this quarter we took a charge for other than temporary impairment on investments.
Brian, will cover the details of these charges when he reviews the company's financial results and also provide guidance for 2009. Following Brian's, comments I will talk briefly about our view of the challenges facing us; how we intend to manage through those challenges; where we see opportunity and our efforts to improve our performance to take advantage of those opportunities?
At this time I would like to turn the call over Gary Guerrieri, F.N.B.' s Chief Credit Officer.
Gary Guerrieri
Thank you, Bob, and good morning everyone. I would like to cover this in three segments with you, including Florida, our Pennsylvania and Ohio banking portfolios and Regency Finance.
We took some aggressive action against our Florida portfolio during the fourth quarter. So $32 million provision covered $13.7 million in charge-offs, but more importantly allowed us to build our reserves by $18 million, to a level that now covers 9.69% of the total Florida portfolio up from the 3.32% figure at the end of the third quarter.
The portfolio declined by about $14 million to stand at $294 million still only 5% of F.N.B.' s total loan portfolio.
As we have discussed in the past, our process continues to focus on reviewing each individual credit every quarter. Which includes meeting with our borrowers to update financial information, review project status updates, discuss upcoming maturities, obtain updated appraisals and review other alternatives that may include right-sizing the loan, providing additional collateral or moving the loan in total if possible.
During the quarter we were able to eliminate another $12 million or 7% of our land and condo related portfolio from our balance sheet through sales or pay downs from our borrowers. As of year-end we have updated appraisals on all of our non-income producing exposures to within one year with 77% being within 120 days, and 91% within six months, reflecting extremely current collateral evaluations at this most difficult time in the Florida economy.
Let me remind you that of the total $294 million portfolio, approximately $150 million or about half is comprised of land and land development, 46% of that being commercial in nature. While our condo construction portfolio is now down to $17 million.
With the exception of one credit related to the hospitality industry that we discussed last quarter. Our income producing portfolio continues to perform well with outstanding of $79 million.
The balance of our Florida portfolio includes construction loans of approximately $40 million and C&I owner occupied of $9 million. At year-end, our weighted average loan to value for the entire portfolio stands at 73.7% versus 71% for the third quarter.
During the quarter we made one loan on an income producing property and continued to be extremely cautious regarding any new lending opportunities across that market. Now let me turn our attention to Pennsylvania.
As it relates to our commercial portfolio, we experienced slightly elevated delinquency levels from the third quarter, but they remain wealth-intolerance at this point of the economic cycle. We recognized charge-offs on a number of credits that we were monitoring closely during the year resulting in net charge-offs in our Pennsylvania commercial portfolio of 21 basis points.
In addition, we built our reserve by nearly $12 million to strengthen our allowance as we move into 2009. In reference to our consumer portfolio, it continues to perform very well in this environment.
While delinquencies are up slightly at 1.08%, losses continue to track near historical low levels at 31 basis points year-to-date. Losses across the mortgage portfolio continue to be minimal at 1 basis point.
These portfolios continue to perform very well due to our disciplined underwriting and our decisions to stay away from sub-prime, stated income and brokered business opportunities. These decisions have proven to be sound as reflected in the performance of these portfolios.
While we do anticipate slightly elevated delinquencies and losses as we move through the economic downturn, we expect these portfolios to continue to perform relatively well. Taking a quick look at Regency Finance, the loan portfolio has remained relatively unchanged since the third quarter at $157 million.
We continue to experience normal delinquency in loss levels at 4.23% and 3.78%, respectively, which is consistent with levels experienced over the last couple of years. I would now like to turn the call over to Brian Lilly, our Chief Financial Officer.
Brian Lilly
Thank you, Gary and good morning everyone. The fourth quarter loss of $0.21 included a $0.47 impact from the increased provision for credit losses and other than temporary impairment charges.
Without these charges, the EPS would have been $0.26, which is reflective of a good underlying profitability picture. We are currently in a down credit cycle, but this will pass overtime.
And we believe that's important to manage the core trends in a long-term performance. Let me add a few details other than temporary impairment charge that we took against the trust-preferred pool securities.
As we shared with you in the past, we have a total of $55 million in trust-preferred securities. Single-name holdings comprised $14 million, represent six names, and all continue to be investment grade rated by Moody's.
These are valued at $0.64 on the dollar as the spreads are very wide in this illiquid market. The remaining $41 million are in 13 pools, representing 12 mezzanine and one senior debt tranche, and had a fair market value of $18 million at year-end.
We deemed eight of these pools to be other than temporarily impaired and realize the pre-tax loss of $16 million. We made this determination based on a cash flow analysis that consider the current levels and trends in the deferral and defaults, and analytic review of the 500 plus companies that make up the pools, and an assumption that all deferrals and defaults will recover virtually nothing.
It is worth noting that none of these pools have currently reached the collateralization levels. And in fact on a weighted basis, these eight pools must increase the current approvals and defaults in additional 1.4 times to reach the collateral support levels.
Now, let me turn to the fourth quarter review and 2009 guidance. I will start with some of our economic assumptions before we touch on loans and deposits all with the income statement categories and then finish with capital.
As usual I will assume that you had a chance to review the release details from yesterday. Many key economic indicators forced into the fourth quarter, officially being recognized as a recession.
The economist consensus view is that the recession will continue well into 2009. As a result unemployment has increased significantly and is expected to remain elevated in 2009.
And the Fed's interest rate policy has dropped rates to unprecedented levels, and are expected to stay low. All this presents a more challenging 2009 operating environment.
We believe that these challenges demand more than ever that we continue our focus on liquidity, capital, risk management and the enhancement of our franchise. Now, let me turn to the fourth quarter results and 2009 guidance.
Average fourth quarter loan balances grew 1% annualized over the third quarter. And reflect the smaller commercial pipeline that we shared with you in last quarter's call.
We are very pleased with the year-over-year fourth quarter organic growth of 4.4% reflected in both the commercial and the consumer portfolios. As we look to 2009, we are forecasting low single-digit loan growth.
Incorporated into these expectations, it's the assumption that businesses and consumers will reduce their debts and that we will exit some of our troubled loans. We expect total deposits and treasury management balances to match the loan growth in the low single-digits.
And to maintain the low loan-to-deposit and treasury management balances at a very good level of 90%. We have a plan for our team to continue their core transaction accounts.
And we use our wholesale borrowings and retail deposits as offset if necessary. We expect the net interest margin to be lower in 2009, given the late 2008 Fed interest rate actions, the unprecedented low level of these rates, higher non-performing assets, and continued competition from banks that are not as well positioned with their deposit funding.
We have plan for margin to narrow to approximately 3.75 to 3.80 in the first quarter and to remain there for the rest of the year. Gary, provided an excellent overview of the credit quality.
And this will be a continued area of focus in 2009. Versus a more normal year, we do expect that the coming year will contain elevated levels of non-performing assets, net charge-offs and provisioning for credit losses.
As you know, many of these assumptions are driven by the economy and could worsen with a longer and/or deeper recession. Fourth quarter non-interest income include a good performance in our retail security sales and loan spot related income.
The OTTI charges impacted this category with the troupes in the bank stock impairment shown in impairment losses on securities and the $3 million impairment for the Capital Corp investments were shown as a contrary in other income. We have taken some pricing actions to increase banking service charges and expect to benefit from a hardening of the insurance market and the sales of annuity contracts which have a relative attractive rate.
Our trust team is focused on adding new business, we will have headwinds given the market sensitive fees. In total, we are targeting the run rate increase in the mid single digits.
Of course any additional OTTI charges would be included here. Given our view for revenues in 2009 we are focused on maintaining a strong expense culture and taking incremental actions where appropriate.
However, there will be unfavorable impacts from higher FDIC insurance, credit work out expenses and employee benefit costs. These increases are more than offsetting the expense savings that we have included in our 2009 plan.
In total, we expect the efficiency ratio to run nearly 60% level as previously mentioned the expense increases are not entirely offset by revenue gains. With regards to capital, we saw that even with the fourth quarter loss we ended the year in a regulatory well-capitalized position.
In early January, we closed on our participation with Treasury's Capital Purchase program through the issuance of $100 million of preferred shares. This strengthens our capital position and provides the ability to increase lending and deposits as the economy recovers overtime.
We also took a hard look at our capital strategy given the recessionary economy, elevated credit costs, narrower margin and the higher regulatory costs. This review led the Board of Directors to reduce the quarterly payout to $0.12 per share.
This was not an easy decision given F.N.B.' s 36 years history of increasing dividends.
But we believe the decision was prudent in the environment. Bob, that completes my comments.
Bob New
Thank you, Brian. During the fourth quarter, we continued to feel bench strength, adding John Williams to the position of our Pittsburgh Market Executive and President of our Pittsburgh region.
John, spent more than 38 years in his banking career in Pennsylvania and previously served as a Executive Vice President of Commercial Banking for Huntington. Prior to that he held Executive Management positions with National City and Mellon Bank.
In addition, we appointed Dave Yates to the new position of Corporate Strategies Coordinator. In this role Dave will oversee a number of high level strategic initiatives, including process improvement and efficiency, product development and customer service.
As Brian said in his remarks many economists see the world and the US economy is continuing to slow in 2009, with a leveling sometime in the second half of the year, then followed by a slow and gradual recovery as consumers and businesses continue to de-leverage. These conditions will challenge bank profitability again in 2009.
We believe that our conservative operating model, efficient use of capital and a lower volatility of our conditional markets, position F.N.B. to outperform many of our competitors in 2009.
As a reminder, back in April, I reported that F.N.B.' s management and Board Of Directors reaffirmed our conservative operating strategy that functions well in both good times and bad.
Our operating strategy is designed to manage our business for profitability. And the components of that strategy require us to operate our businesses in markets that we know and understand, maintain a low risk profile, drive organic revenue growth through relationship banking, fund loan growth with core deposits, targeted neutral asset liability posture to manage interest rate risk, build fee income sources and maintain rigid control of expenses.
As the financial services industry restructures, I believe we will see investment banks dramatically deliver, non-traditional consumer lending will largely disappear. And wholesale funding models give way to more traditional funding models such as ours.
As these events unfold traditional banks such as F.N.B. will become more important to credit creation.
Furthermore, if constraint supply and deposit funding should require a loan pricing to better reflect risk, which helps improve net interest income. These things won't happen overnight, they will take time.
So before we can enjoy the good times ahead, we have to successfully manage through to the tough time we are in today. That means preserving our capital and maintaining our liquidity.
It's for these reasons that we decided to reduce our dividend. As we deal with today's challenges, it's critically important that we not lose sight of the promise of the future and prepare for it.
We must strategically invest in our people, products and processes to improve profitability and continue to improve our sales and service culture to ensure we retain our current customer base, attract new customers to F.N.B. and meet more of our customers' needs with F.N.B.
products and services. We reaffirm our commitment to manage our business to create long-term value for shareholders and position F.N.B.
Corporation as a strong competitor in the communities where we do business. That completes our prepared remarks.
I would like to ask Allan if he please open the call for questions.
Operator
Thank you, sir. (Operator Instructions).
And we will pause for just a moment to assemble the queue. And we will take our first question from Frank Schiraldi from Sandler O'Neil.
Frank Schiraldi - Sandler O'Neil
Good morning, guys.
Bob New
Good morning, Frank.
Brian Lilly
Hi, Frank.
Frank Schiraldi - Sandler O'Neil
I am wondering, if you can give us a little further breakdown maybe on Florida as far as NPA growth and net charge-off growth within that portfolio, is it mostly land loans that have gone up to non-performing status?
Gary Guerrieri
Frank, this is Gary Guerrieri, and we haven't moved some of those land loans to non-performing status. During the quarter, we increased non-performers to $60 million across the organization and over the $1.4 million of that was in Florida.
Frank Schiraldi - Sandler O'Neil
Okay. And as far as the length of the loan down there, I mean what sort of the length of that loan and how much stress do you see from developers?
Gary Guerrieri
We are seeing continued stress across all of the asset categories from the developer perspective. As we broke down the Florida portfolio for you, our land and land related portfolios is about $150 million and the stress does continue across that asset class, across the state of Florida.
Frank Schiraldi - Sandler O'Neil
Okay, but in terms of what sorts of things you are doing to clean up those loans, I mean are you facing issues where you have to sort of extend terms, or you are just instead of doing that, are you just taking an aggressive stand in charging them off, and how that sort of working itself out?
Bob New
Yeah. Frank, this is Bob.
We talked over the last couple of quarters about our process that we have in place. When we get out and talk to customers six months before these loans come due and go arms with current appraisals, good number of these loans were made in late 2006.
They were done for ordering where from a year to two years, so they came due really in the second half of this year. And many of these projects had developed net associated whether it was commercial or retail.
But as the economy soured in 2007, most of these folks ended up not executing their development plans, so effectively what we had was the land portion of that loan. What we have done over the past year is, we had good current appraisals on these things.
So we knew what the underlying collateral value was and we go out visit with the borrowers. Some of these folks have some pretty strong financial statements and they were able to put up cash reserves for the interest and size the loans down, and that's our preference.
We will renew that loan for another year if they provide an interest reserve, and then hopefully something that will break in the next not twelve months, where either the developer decides to go develop the property, or whether they move the loan or do something different. But the reality is as long as they continue to pay the interest and size the loan down for the current value of collateral, we will extend it.
In cases where we don't think that's happening, that's where we took specific reserves. The natural progression is that if borrowers can't make interest payments and make the reductions that are required, we eventually have taken them, [no worry].
Frank Schiraldi - Sandler O'Neil
Okay, so as far as the land loans did, is there anyway to get a breakdown or just maybe, anecdotally, sort of how much within your portfolio down there you have seen raw land fall and value, how much you have seen the appraisals come down in the last year?
Brian Lilly
I can tell you, Frank that since origination and these loans as Bob has mentioned were originated in late '05 and throughout '06. Across that portfolio residential land prices on average have come down about 44% across our portfolio based on the information on each transaction.
Commercial have held up much better, they have come down about 22% and on the development transactions they have come down right around 40% as well.
Frank Schiraldi - Sandler O'Neil
Okay. And do you have a breakdown of loan-to-value within the land loans or no?
That you could give us, I know you gave the loan-to-value or the average loan-to-value of the entire portfolio?
Bob New
We do, across that portfolio the developed fees at this point is 80%, the commercial land is 65 and the residential land is 91% and both the residential land and commercial land are carrying heavy reserves at this point, the commercial land carrying about half of the reserve that the residential land portfolio is carrying. So, the residential land is carrying the heaviest piece of that reserve.
Brian Lilly
Right, okay, and these are all as you said new appraisal, Frank.
Bob New
Do you have a post reserve appraisal?
Brian Lilly
Yes, I do Bob, and I can give that too to the group, if you look at the reserves and take a post reserve look at these groupings. The residential land post reserve is a 65% LTV, the commercial land 49% LTV and the developed land 68% LTV.
So, you can see that we've positioned those portfolios with very, updated appraisals once again margin is quite well.
Frank Schiraldi - Sandler O'Neil
Okay, thank you.
Operator
(Operator Instructions). We will take our next question from David Darst of FTN Midwest.
David Darst
Good morning.
FTN Midwest
Good morning.
Bob New
Good morning, David.
David Darst
I guess within the $96 million non-performing in Florida. Could you give us, I guess what percentage of that is actually current with reserves and then placed on non-performing [status]?
FTN Midwest
I guess within the $96 million non-performing in Florida. Could you give us, I guess what percentage of that is actually current with reserves and then placed on non-performing [status]?
Bob New
In terms of our current non-accruals that are less than 30 days. Across the bank we have a total of $51 million in that category.
Brian Lilly
David, we will get to that in a moment.
David Darst
Okay. At some point you are going to recognize that your borrowers who are not building a project.
Good for you, has been more aggressive in recognizing issues there? Or exiting some of those loans as they were not going to do with the project?
FTN Midwest
Okay. At some point you are going to recognize that your borrowers who are not building a project.
Good for you, has been more aggressive in recognizing issues there? Or exiting some of those loans as they were not going to do with the project?
Bob New
David, it's a great question. Remember, when these loans were booked and I think I said this in prior calls.
The developers particularly on the loans that were just secured by land had product cash reverses, and resident have these interest payments taken out of the loan that the cash reserves were set up to pay the interests. So, we had current loans that haven’t been past due and borrowers who had substantial financial statements, released financial statements when we made the loans.
So, should we have been more aggressive, probably so. But I don’t know that we had any right to go into a borrower as they were going through this process of getting their permitting and the steps that they had it's going through to get to the construction phase to call those loans.
So, again, I think, the answer to your question is maybe on an isolated basis. If you look at one or two of these things, could we have been more aggressive, maybe so.
But on a whole, I think our team handled them about as well as they could handle.
Brian Lilly
David, back to your question in reference to the Florida non-accruals that are less than 30 days past due, that number is $26 million of the $94 million total non-performing assets grouping there.
David Darst
And how is your Omega transaction going? That’s a recorded in the franchise and does anything in this environment do you feel like you have to taken impairment charge in that good will?
FTN Midwest
And how is your Omega transaction going? That’s a recorded in the franchise and does anything in this environment do you feel like you have to taken impairment charge in that good will?
Bob New
Okay, there is two pieces of that question.
Brian Lilly
Address the portfolio, how the Omega portfolio is performing first.
Bob New
The Omega portfolio is reflecting performance exactly as we expected during the due-diligence. It continues to move along quarter-by-quarter and we took the march that were necessary to take in that portfolio at the time of bringing it on-board.
We have not seen yet ultra rich performance as per our original expectations.
Brian Lilly
David, if I could add this is Brian Lilly. The goodwill impairment charge, of course, is the accounting measurement that we take a look at periodically and we are completing that work for three year and as yet not seeing any issue.
But that also reminds you that some company that seem to announce have different operating structures when they buy the company, they maintain that legal entity and that goodwill gets pushed and measured against that legal entity. Our philosophy is that we are consolidated all of these acquisitions into one entity.
So we measure that against the total enterprise value of F.N.B. and not on an individual taxation basis.
David Darst
Okay. And how about just with entire funding, what will be the mechanics of that cash how to use this in the near-term, which you receive it?
FTN Midwest
Okay. And how about just with entire funding, what will be the mechanics of that cash how to use this in the near-term, which you receive it?
Bob New
I am sorry, could you say that again.
David Darst
The total cash that you received will you use that spurge portfolio or pay down borrowings?
FTN Midwest
The total cash that you received will you use that spurge portfolio or pay down borrowings?
Brian Lilly
Certainly, as we took that our plan is we put that into some investment securities for a period of time here and then to let that out as the opportunity arises. I don’t believe that's going to be a longer term proposition.
And so we are -- we currently just receive it and are looking to get pass through earning season here. The interest rate opportunities as you may well know are not as attractive and so we are taking our time putting that money to work in the investment securities and later (inaudible).
David Darst
Thanks.
FTN Midwest
Thanks.
Operator
(Operator Instructions). We will take our next question from Jonathan Kapps of BMO Capital Markets.
Jonathan Kapps - BMO Capital Markets
Hi. Good morning guys.
In regards to the Florida portfolio, where are you currently carrying the $94 million in non-performing assets?
Bob New
I am not sure.
Jonathan Kapps - BMO Capital Markets
I guess what percentage on the dollar has been charged off on the non-performers?
Bob New
Well the non-performers would reflect on that charge-off amount only on loans, any charge-off comes right through into the balance [settlement].
Jonathan Kapps - BMO Capital Markets
Okay, and do you have a dollar amount, we have heard some banks carrying non-performers in Florida, $0.33 in a $1 possibly $0.50 in a $1.
Brian Lilly
What you are talking about, there is how much reserve we have positioning against these, these categories. And I think when Gary, was talking about the residential, the commercial land portfolios in particular where he was talking about, another reserves to $0.65 at this time well at $0.60.
That is the best I can, think that you should be referring to.
Jonathan Kapps - BMO Capital Markets
Okay, alright. And second question is, on the tangible common equity ratio, do you guys have a specific target?
Or where do you become concerned and then maybe look at raising additional capital?
Brian Lilly
We certainly are very strong from a regulatory capital. And we do watch the tangible equity ratio we had conversations of that as part of our consideration and the dividend.
We said that we just announced, we have operated since a span in the 4.50% to 5% range basically. And I would say that we have been comfortable there, certainly the fair market value are counting as one of the considerations that we have when we reset the dividend to build that.
But we are not looking. Lastly, the company has been to maintain the capital that's needed to run the business and to execute the operating strategies, and not to contain anymore.
And so I was and Board is comfortable at our current levels, but certainly something that monitoring as we go forward.
Jonathan Kapps - BMO Capital Markets
Okay. Alright, thanks a lot.
Operator
And we will take our next question from Damon DelMonte from KBW.
Damon DelMonte - KBW
Good morning, guys. How are you?
Bob New
Fine Damon.
Damon DelMonte - KBW
Great. Just a quick question regarding the provisioning as we look out into '09, we did see a meaningful reserve built this quarter.
Anyway we can kind of balance out, our charge-offs in the coming year with reserve build and provision level?
Brian Lilly
Maybe could you be a little more specific, Damon?
Damon DelMonte - KBW
Where are you going to be comfortable with your loan loss reserve level? You are at 180 right now.
Do you see that growing materially more in the coming quarters, or do you think that for right now that's an adequate level?
Brian Lilly
I think we took a hard look given all reactions of the fourth quarter to our model and the assumptions of a qualitative, quantitative employees to that model. And I think as we've shared with you in the overall scheme of things, we are not projecting recovery in 2009.
We are adopting really the economic consensus that says, we know recession is, it's going to continue into 2009, and we reflect those in our qualitative and not quantitative measures in our allowance. So, I think the reserve bill that took place at the end of the year and got us to the 180 I think it's reflective of environment that is not going to be the operating environment for the banking.
Damon DelMonte - KBW
And than just with respect to your Pennsylvania franchise, in which loan categories are you seeing the most stress or the most weakening in credit trends?
Brian Lilly
Damon, it's just a spattering across the Board just based on general weakness in the economy.
Damon DelMonte - KBW
Okay.
Bob New
I would say Damon that just appraising your question, I think, if you look at our credit quality or past dues of the Pennsylvania portfolio as it sits at year-end without the dues of 2009, and really where it came off of a very strong, it's very normal. And so we wouldn't categorize where we sit at the fourth quarter in Pennsylvania is being that normal or being stressed in any way.
But certainly it reminds that things can play out in 2009 and then risk management to support.
Damon DelMonte - KBW
Okay, great. And then lastly, if you already answered this, I apologize.
But what was your initial [TARP proceeds], were you going to try to leverage that upto minimize the dilutive effect of that, or you are just going to reinvest that in short-term securities until lending opportunities presents itself.
Gary Guerrieri
Yeah. Damon, the response that Brian gave you earlier that we are putting into securities until those lending opportunities come up, and if you kind of look at the amount that we took $100 million, of the $180 million we were approved for.
Our normal growth pattern, and we have stated this in the past. We try to grow our assets somewhere around 5% a year.
That meets our investment thesis. And to do that, and that's about a $200 million increase every year.
So, if you don't have much increase in 2009, that's a function of the recession. And you look at five years, and we would be able to fully leverage that $100 million over that period of time.
And that was really some of our tough processes as we started to really work our model and decide how much of the capital we needed, and that's one of the reasons we didn't take the whole thing, we just didn't think we needed it.
Damon DelMonte - KBW
Okay, that's very helpful. Thank you.
Operator
And we will take our next question from Mac Hodgson of SunTrust Robinson Humphrey.
Mac Hodgson - SunTrust Robinson Humphrey
Hey, good morning.
Bob New
Good morning, Mac.
Brian Lilly
Good morning.
Mac Hodgson - SunTrust Robinson Humphrey
I had more of a big picture question on Florida. I know historically the strategy there, and made sense, because you knew the market, and knew the people and it was good way for that loan growth because of the measurement slower growth market.
How you think about Florida as it's a near strategy long-term now taking over or going through?
Bob New
I think in the last quarter's call, we answered similar question, Mac. We have left our options open in Florida.
And the options range from not being in Florida at all to going into Florida in a bigger way. And we have done that for couple of reasons.
One, we believe in the team that we have down there. They are good people, they really do understand the market.
Timing was terrible when we had back in and so most of the loans we made in '05, but when prices were at, or when the sales were at the highest, and then prices were a their peaks in '06, so just our timing was really lousy. So, we really kind of let that open, and whether it's a brand strategy where you collect deposits or whether it's a strategy similar to Texas Capital, for example, where it's strictly a commercial operation, we really haven't made that decision, and we won't come to that decision and we won’t come to that decision until we get sense for when Florida is going to turn.
So, yes, the static we made a decision to leave our options open, right now the people who are down there know all of the borrowers that are in our portfolio and then the last thing I want to do is lend them off. They are going to help us collect this and we are also seeing an occasional opportunity and make a loan down there and make sense.
But, so I run a whole pattern on it it's probably the best way to put it.
Mac Hodgson - SunTrust Robinson Humphrey
Okay, make sense. I appreciate it.
Thanks.
Operator
We have time for one last question. We will take a follow-up from Frank Schiraldi at Sandler O'Neil.
Frank Schiraldi - Sandler O'Neil
Yeah, thanks, just a couple quick if I could, two quick follow-up questions, I know 25% of the portfolio, so I hate to talk about it this much, but on Florida when you are making your provisioning assumptions in terms of how that’s going to hold, how Florida is going to hold up as whole. I mean do you have sort of assumptions you are making, in terms of values coming down further, do you think we are sort of closed to a bottom down there in terms of residential land and commercial land values or do you think there is a bit more to go.
Bob New
I wish my crystal ball was that clear, Frank, but I will tell you here is how I feel about it. If you ever watched Rodeo and seen the cap roping.
They left the cap out before they left the rope are out. So, it moves away from the cowboy and cowboy ends up chasing this cap until he finally gets a rope around it.
When he finally gets a rope around it he goes and he wrestles to the ground and starts to tide away. So that’s where we are in our process.
We finally feel like we got a rope around the cap. We got it on the ground and we finally get the lifestyle.
Remember that the key to Rodeo is to make sure that it stays tight, what we hope because that we do a good job with our borrowers down there and make sure that we tie these things up pretty close. If we get another 20% or 30% or 40% decline in values in Florida there are going to be more losses in this portfolio.
If we see that the decline down there given that we have had current values on these things in the last three or four months is 10% to 15% then I think we have come out a lot better. But I can't really tell you typically whether we have it behind us or not, but at least, we have it on the ground and rope around his neck, so that’s the best I can give you.
Frank Schiraldi - Sandler O'Neil
Okay, it's good enology. And have you seen any sort of positive trends, I mean, anything to hang your head on as inventory gotten -- has anything turnaround down there yet where you say hey, that’s something positive that we can hang our head on for the future?
Bob New
Yes, we have sold a good number of our condo portfolio that was on non-accrual.
Frank Schiraldi - Sandler O'Neil
Right. So, you have seen that market pickup a bit?
Bob New
We have seen some, and we continue to see some pay-offs and pay-downs in this market as well. So, but I don’t think the bottom fishers are reaching for the wallet quite yet, but we hope to get in calls.
Brian Lilly
Frank, we have also experienced with some of the march that we are taking in the fourth quarter, we have also experienced a couple of instances where we reordered appraisals on properties in the last four, five, six months and we have seen some stabilizations in those updated appraisals as well.
Bob New
If I could add, Frank, this one analytically, I think about this little bit differently, in that input [materialize]. We have already experienced as Gary mentioned in the residential portfolio, 44% decrease in the appraisal.
And after reserves we were still carrying these 65%. There is a point of which certain diminishing [laws] of numbers.
That the next has, even if it is 10%, 20%, how low can the land actually go before it gets to zero? And we already experienced quite a bit, we have a lot built in the reserve.
And that’s part of as we looked at methodology and evaluation at year-end. It gives us some comfort that, okay, we have consider a lot of factors here.
Fine enough, you have done. But numbers get small going forward.
Frank Schiraldi - Sandler O'Neil
Okay. Thanks.
And then just from modeling perspective. I am just looking at other non-interest income, that line sell dramatically link quarters.
Is there something, I am missing there as far as link quarter looks like it was down from about $2.5 million down to $800,000.
Brian Lilly
Yes. What happens in there, Frank, is that's where part of the other temporary impairment charge.
But if you look at the fee and to manage this income section, there is one line that's impairments on securities, and that contains the $16 million for the [troupes] and the $700,000 for the bank stock portfolio and the $3 million plus amount was a contract in the other income line.
Frank Schiraldi - Sandler O'Neil
Okay. That would be capital corporate.
Okay, thank you.
Operator
And that concludes the question-and-answer session today. At this time, Mr.
Milano, I will turn the conference back over to you for any additional or closing remarks.
Frank Milano
Thank you once again for joining us today. A replay of this call will be available from 11:00 AM Eastern Time today until midnight on Tuesday, February 3rd..
The replay can be accessed by dialing 888-203-1112. The confirmation number is 7951124.
A transcript of the call will the posted to the shareholder and Investor Relation section of F.N.B. Corporation's website at www.fnbcorporation.com.
Also on our website under the shareholder and Investor Relations section is a letter I drafted to shareholders and you can assess that by clicking on the link 'letters to shareholders January 2009'. Thank you once again.
This concludes our call.
Operator
This concludes today's conference. We thank you for your participation.
Have a good day.