Jan 26, 2010
Executives
Cynthia Christopher – IR Steve Gurgovits - President and CEO Gary Guerrieri - Chief Credit Officer Vince Calabrese - CFO
Analysts
Frank Schiraldi - Sandler O'Neill & Partners Andy Stapp - B Riley & Company Damon Delmonte - Keefe, Bruyette & Woods Mac Hodgson - Suntrust Robinson Humphrey Jason O'Donnell - Boenning & Scattergood Thomas Alonso - Macquarie Research Equities Mike Shafir - Sterne, Agee & Leach
Operator
Good morning ladies and gentlemen, thank you for standing by. Welcome to the FNB Corporation fourth quarter 2009 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 questions.
As a reminder, today's conference is being recorded. And now I would like to turn the conference over to Cynthia Christopher, Investor Relations Contact for FNB Corporation.
Please go ahead ma’am.
Cynthia Christopher
Thank you. Good morning everyone.
This conference call of FNB Corporation and the reports it filed with the Securities and Exchange Commission often contains forward-looking statements relating to present or future trends or factors affecting the banking industry and specifically the financial operations, markets and products of FNB Corporation. These forward-looking statements involve certain risks and uncertainties.
There are a number of important factors that could cause FNB Corporation’s 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 pre-payment 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 FNB Corporation is engaged, technological issues which may adversely affect FNB Corporation's financial operations or customers, changes in the security markets, or risk factors mentioned in the reports and registration statements FNB Corporation filed with the Securities and Exchange Commission.
FNB Corporation undertakes no obligation to revise these forward-looking statements or to reflect events or circumstances after the date of this call. As a reminder, a replay of this call will be available until midnight on Tuesday, January 26, 2010 by dialing 1888-203-1112 or 719-457-0820.
The confirmation number is 520 or 528. A transcript of this call will be posted to the shareholder in Investor Relations section of FNB Corporation's Web site at www.fnbcorporation.com.
It is now my pleasure to turn the call over to Mr Steve Gurgovits, President and CEO of FNB Corporation.
Steve Gurgovits
Thank you Cynthia. Good morning everyone, it is a pleasure to welcome you to our fourth quarter earnings call.
Joining me today in the call are Vince Calabrese our CFO, and Gary Guerrieri our Chief Credit Officer. Vince will highlight our fourth quarter performance and guidance for 2010 and Gary will provide insight into our asset quality.
Also with me today for the question-and-answer session are Brian Lilly, Executive Vice President and Chief Operating Officer, and Vince Delie, Executive Vice President and also our bank president. Now for the fourth quarter, our earnings for the quarter were $0.04 per diluted share.
The quarter included $0.02 related to OTTI charges for trucks and a $0.06 higher provision compared to the third quarter. Later in this presentation, Vince and Gary will elaborate more on the fourth quarter details.
During the quarter, opportunities created by the disruption in our markets caused by mergers, brand sales, and other competitor issues continued. We are very pleased to report that FNB continued to execute its organic growth strategy to take maximum advantage of this market disruption.
Our calling efforts combined with increased marketing to build brand awareness helped produce the following for FNB in 2009. We generated 115 significant new commercial relationships, which delivered over $400 million in new commitments.
We increased the net number of business checking accounts by nearly 1800 and we increased the net number of personal checking accounts by nearly 4300. This strategy will continue to benefit us as we enter 2010.
Also during the quarter, we began to see real progress on several earlier issues. The asset based lending team began to build a robust pipeline as they worked to build their own book of business as well as making joint calls with commercial lenders as a team approach with new prospects.
Our private banking initiative is getting real traction. This group is prospecting an upscale market segment as well as being the recipient of referrals from commercial and retail bankers.
Our small business lending unit and the centralization of small business underwriting has given us the opportunity for our bankers to focus on this segment of the market more efficiently and effectively, while continuing a consistent underwriting standard. These initiatives combined with the efforts of our experienced banking team produced average loan growth in the fourth quarter of 4.3% annualized.
Average commercial loans experienced growth of 6.8% annualized. Excluding the Florida portfolio, the commercial loan growth was 9.5% annualized.
We are extremely pleased with this considering line usage and existing customer demand is soft due to current economic conditions. This commercial growth represents mainly new client activity.
Average consumer loans including residential mortgages grew slightly in the fourth quarter. We are pleased with this modest growth in our consumer portfolio when one considers it nationally consumer debt outstandings have fallen dramatically.
As a direct result of securing new personal and business relationships, we grew average deposits and treasury management balance of 6.1% annualized compared to the third quarter with transaction balances growing 4.8% and treasury management balances benefitting from both organic and seasonal growth grew 60.5%. The decline in CD balances is by design and reflects our focus on growing our transaction deposits.
Now, I would like to turn the call over to Gary for his remarks on asset quality. Gary?
Gary Guerrieri
Thank you Steve and good morning everyone. Taking a look at the fourth quarter, we continued our aggressive management of the Florida portfolio writing down our impaired positions and providing an incremental $6 million in provision over the third quarter to right size the portfolio based on current market conditions.
Our Pennsylvania and Regency portfolios continued to perform well in light of the current economic environment with charge-offs up only slightly quarter over quarter. We were able to strengthen our reserve position in each of these portfolios which positions us well as we move into 2010.
Delinquency and non-performing assets are up slightly quarter over quarter and continue to be consistent with our expectations. As in the past, I will break down and review each portfolio with you in detail.
At quarter end, our Florida loan portfolio is down $28 million to $244 million or 4.2% of FNB’s total loan portfolio. Non-performing assets at $82 million are up $5.9 million over the prior quarter as we moved two land related credits totalling $25 million to non-accrual status.
This leaves only one significant land related credit in the amount of $20 million on accrual status at year-end, which we expect will continue to perform. Charge-offs of $20 million were up $16 million over the third quarter and were primarily related to the land portfolio.
Included in these write-downs were existing specific reserves totalling $10 million. The difference, which required additional provisioning, reflects devaluations 5% to 10% higher than our heavily discounted assumptions already placed on this portfolio.
As has been our practice, we continued to update the appraisals on all of our non-income producing properties at least annually with 92% of them being updated within the last four months reflecting extremely correct collateral valuations at this most difficult time in the Florida economy. As it relates to the Florida portfolio composition, there was some movement since the third quarter.
Our land and land development segment has been reduced to 40% or $98 million, down $52 million since the fourth quarter of 2008 representing a 35% reduction in exposure year over year. Our income-producing segment stands at 35% and continues to perform well.
Construction loans represent 21% of the portfolio with the condo piece of that nearly gone. The remaining 4% represents C&I and owner occupied.
Unfunded commitments continued to decline now at $13 million down $3 million over the prior quarter of which 75% are related to existing construction projects. Year over year, our Florida exposure including unfunded is down 24%.
Our weighted average loan-to-value ratio for the portfolio increased slightly to 77%, up 4 percentage points from the third quarter primarily driven by land values, which continued to experience pressure in the current environment. As it specifically relates to the land and land development portfolio, our current outstanding balances are being carried at an average of 36.5% of the original appraised value post reserve better than the 39% for the third quarter.
We continue to manage this portfolio very aggressively conducting formal reviews of each credit on a quarterly basis and meeting with clients regularly to review projects, status updates, update financial information, obtain new appraisals, and evaluate other options to strengthen the bank’s position, and reduce exposure. Moving to Regency Finance, it continues to deliver credit quality metrics consistent with our expectations and remains well within historical asset quality levels.
At quarter end, the portfolio stands at $162 million representing only 2.8% of our total loan portfolio. Net charge-offs were 4.3% annualized and the reserve position remained strong at 4.2%.
As we look at 2009 in review, we are pleased with the overall performance that Regency has delivered and the position of the portfolio at this point in the economic cycle. I would now like to focus your attention on our core portfolio in Pennsylvania.
At year-end, this portfolio stands at $5.4 billion, which represents 93% of FNB’s total loan portfolio. As mentioned, we continue to be pleased with its performance in light of the economic conditions reflecting slightly increasing credit metrics on a linked quarter basis as evidenced by delinquency at 2.07% up only 5 basis points.
Non-performing loans plus OREO to total loans plus OREO at 1.39% up 11 basis points, and charge-offs of 37 basis points, up 4 basis points from the prior quarter. The $6.5 million increase in non-performing loans and OREO reflects a $4 million net increase in non-accrual loans and OREO impacted by one $3 million loan and a $2.5 million increase in restructured mortgages as we continue to work with those customers.
Charge-off performance continues to reflect strong results with losses of 37 basis points annualized in the fourth quarter and 31 basis points for the year. During the quarter, we have strengthened our reserve position for the portfolio by 8 basis points anticipating the effects that the recession may have on commercial borrowers.
Now, let me break down our Pennsylvania portfolios for you. At year-end our Pennsylvania commercial portfolio had just under $3 billion or 51% of FNB’s total loan portfolio continues to be well diversified, and remains relatively consistent with prior quarters with our non-owner occupied portfolio representing 33% of the total.
At $980 million, this portfolio remains well diversified both by industry and across our geographic footprint. It continues to perform well and remains in line with last quarter’s performance as non-performing loans totalled $19 million or 1.97% of the portfolio, up only 6 basis points.
Total delinquency including non-performing loans is only slightly higher at 2.2%. As we have communicated in the past, our construction and land development portfolio is small at $172 million, down $11 million quarter over quarter with only $29 million of that related to residential construction and land development.
Non-performing loans at year-end are 1.45%. Within the construction book, our projects are thoroughly underwritten at 75% to 80% LTVs required up front borrower equity and focus on permanent financing.
As such we are not facing the refinanced risk that is associated with a greatly reduced permanent market. We continue to be very pleased with the performance of our consumer related portfolios, which represent approximately $2.4 billion or 41% of FNB’s total loan portfolio.
You will recall that this portfolio is represented by nearly $1.2 billion in branch originated home equity loans and lines of credit, more than half of which carry first mortgage positions. The remaining consumer categories are consistent with the prior quarter.
Delinquency at 1.67% and losses of 32 basis points continue to reflect solid performance for the fourth quarter as delinquency is up only slightly with losses being equal to the third quarter, reflecting the consistent performance across this portfolio. As it specifically relates to the mortgage portfolio, delinquency at 2.9% has improved 23 basis points over the past two quarters.
Losses for the year were only 15 basis points. In summary, as we look back, 2009 will be remembered as one of the most difficult periods in recent history across the financial services industry.
That said, we continue to be very pleased with the performance of our Pennsylvania and Regency portfolios throughout this period. Our continued focus in Florida will be to reduce exposure across the market.
We remain confident that our steadfast approach to underwriting, experienced banking team, knowledge of our markets and customers, and risk management practices will serve us well as we look forward to an economic recovery in 2010. I would now like to turn the call over to Vince Calabrese our Chief Financial Officer.
Vince Calabrese
Thanks Gary and good morning everyone. Since we have addressed many of the fourth quarter details between last night’s earnings release and the comments provided by Steve and Gary, I will focus my remarks on guidance for 2010 with some added color on our fourth quarter operating results.
First let us discuss fourth quarter earnings on a pretax, pre-credit run rate basis. In order to focus on the fundamental relationship of revenue to expense, we adjusted for provision in OREO expense, (inaudible) credit costs, and litigation costs and the OTTI charges as non-run rate items.
On this basis, run rate net income increased 12% from the third quarter driven by a 4% increase in revenue and flat expenses. Revenue growth reflected nice increases in both net interest income and fee income.
Now, let me turn to additional fourth quarter highlights and 2010 guidance. To begin, we entered this year well positioned with solid loan and deposit growth during 2009, an improved funding mix, successful capital rates that strengthen our balance sheet, and strategic planning initiatives in place to capture market share.
Looking to our projected financial performance for this year, I will start with some primary economic assumptions that we used to build our 2010 plan before touching on loans and deposits, income statement drivers, and then finish with capital. The economist consensus is that modest recovery will recover with GDP growth averaging 2.4%.
Inflation is expected to remain low and unemployment is expected to remain near the current level of 10% throughout the year and the Fed is expected to keep short-term interest rates low well into the third quarter. Turning to the balance sheet, let us begin with loans.
As Steve mentioned, we are very pleased with the loan growth we generated in the fourth quarter of 2009. We enter this year with healthy commercial pipelines.
We look to build on the momentum we generated in the $3.2 billion commercial portfolio, which represents 55% of our total loan portfolio. On the consumer loans front, we expect to see continued good growth on home equity products and some growth in residential mortgages which is counter to our normal trends as we expect both our new private banking initiatives to contribute both residential mortgages and home equity loans.
For 2010, we are forecasting total loan growth in the mid single digits driven by gains in new FNB relationships and a deepening of established relationships. This growth is based on consensus forecast for an economic recovery occurring later in the year and in expectation that line utilization amongst existing customers will begin to trend upward while the continued exiting of Florida credits will somewhat temper overall loan growth.
Looking ahead on the funding side, we expect to continue our momentum in growing transaction deposits and treasury management balances further enhancing our deposit mix. Given our successes in deposit growth during 2009 and market disruption expected to continue this year, we are forecasting growth in total deposits and treasury management balances to be in the mid-single digits.
The loans deposit and treasury management balances ratio is projected to remain in the mid 80s, which provides ample capacity to lend. We were pleased to expand the net interest margin to 3.85% for this quarter, 7 basis points widening compared to the third quarter and our third consecutive quarterly expansion.
The net interest margin has expanded 15 basis points since the first quarter of 2009. Our success in improving our overall funding mix generating solid loan and deposit growth contributed to the improved margin.
For 2010, we are looking for the margin to be stable at current levels given our relatively neutral interest rate risk position. Non-interest income for the fourth quarter excluding the impairment charges saw a $1.8 million overall increase compared to the prior quarter.
We saw increases in wealth management revenue due to improved market conditions in our trust business and a successful fall [ph] sales campaign in our securities business during the fourth quarter. We also realized increased swap fee revenue from our commercial business.
The OTTI impairment charges that we had this quarter included a non-interest income almost entirely due to pooled trust preferred securities with only $70,000 related to bank stock holdings. The remaining bank stock portfolio was comprised of 23 holdings totalling $3 million.
After taking this quarter’s impairment charge, the remaining portfolio was slightly above cost at the end of the year with the single largest unrealized loss of only $36,000. Regarding the impairment charges on pool trust preferred securities, 94% of the charge was related to three securities.
For these securities the amount of projected deferrals into swaps for the 488 banks to collateralize these securities again pushed past the prior quarter’s assumptions to trigger the additional credit impairment charges. We have 13 pools with an original cost of $41 million, a book value of $25 million and a fair value of $8 million, which is reflected in equity at year-end.
For this year, we are targeting a run rate increase in non-interest income in the low single digits as we anticipate an increase in wealth management revenue due to improved market conditions and higher service charge income resulting from continued growth, new business, and consumer deposit accounts. Fee income generally is an area of risk for all banks, as we know, given the continued attention from Washington.
We currently have a group studying the rules that go into effect on July 1 for point of sale overdraft transactions. For us the amount of fees attributable to these transactions is approximately $9 million.
As with other banks, we are looking at different implementation approaches to maximise customer opt in and potential changes in fee structure to substantially mitigate the effect of these rules. Non-interest expense for the fourth quarter excluding the increased OREO cost related to Florida and the net litigation cost is relatively flat compared to the third quarter as we continue to focus on expense control.
For the full year of 2010, we project an efficiency ratio in the low 60% level with a typical higher first quarter ratio closer to the mid 60% level at the beginning of the year involves resetting employee benefits such as payroll taxes at seasonably higher utility costs. Gary provided a comprehensive overview of our credit quality.
Our 2009 results were affected by elevated credit costs primarily due to our Florida portfolio. As we look ahead to this year, assuming continued improvement in the economy, we expect the levels of non-performing assets, net charge-offs, and provisioning for credit losses to be lower than 2009 but still elevated compared to historical levels.
Regarding our capital position, capital ratio is expected to continue to exceed well-capitalized thresholds throughout the year. We ended 2009 at much higher levels than we started the year which positions us well for 2010.
Lastly, our effective tax rate this quarter is not representative of our normal operating levels due to the asking low level of pretax income. As we look ahead to this year, we expect the effective tax rate to be more in the 26% to 27% area.
As for diluted shares, we are looking to end the year slightly higher than fourth quarter 2009 levels. Steve, that completes my remarks.
Steve Gurgovits
Thanks Vince. As we look ahead to 2010, we are more optimistic than we were at this time last year.
We believe the economy has begun to recover although unemployment will remain high. We are right sized our Florida portfolio based upon very current appraisals.
We would expect non-performing loans to crash near mid summer and begin to decline thereafter. We are keeping a watchful eye on Washington and monitoring events.
We would expect to react quickly to any changing regulatory environment. We believe that the momentum we have established will continue into this year and we will continue to have organic growth opportunities.
For instance, many commercial credit facilities of our competitors will mature during 2010. For the first time, they will be renewed by a new bank.
We expect that in a number of instances pricing or structural terms of the credit could be changing. This will provide FNB the opportunity to look at new business and improving the economy should cause loan demand and line usage to increase this year.
Finally and importantly, our entire staff has experienced training and certainly focused on customer service and new client acquisition. Nothing breeds success like success and our staff certainly experienced significant wins last year.
Based upon a recent employee corporate culture survey, we continue to build a very strong, positive corporate culture. All of this bodes well for FNB and we would certainly expect this will lead to improved performance in 2010.
I will now ask the operator to poll the audience for any questions.
Operator
(Operator instructions) We will take our first question from Frank Schiraldi of Sandler O'Neill & Partners.
Frank Schiraldi - Sandler O'Neill & Partners
Good morning guys.
Steve Gurgovits
Good morning Frank.
Frank Schiraldi - Sandler O'Neill & Partners
Just a few questions. I wondered on the growth in cash management accounts, I know some of it was seasonal, some of it was new business wins or new accounts, would you be able to sort of estimate, break down how much was seasonal and how much was new account growth?
Vince Calabrese
I guess on looking at the pieces, the treasury management business is a business that we continue to focus on growing and are continuing to add new accounts. On a financial guess, I would probably say it is probably about 50/50 because we continue to have significant new clients we are bringing into the mix.
Frank Schiraldi - Sandler O'Neill & Partners
Okay and when you gave the deposit growth outlook for 2010 in the mid-single digits, is that taking into account a continued improved mix, you know CDs continue to run off and core deposits continued to grow.
Vince Calabrese
I still think [ph] for CDs to be kind of stable at these levels and then to continue to have the growth in the transaction components.
Frank Schiraldi - Sandler O'Neill & Partners
Okay. In terms of loan loss provision in the quarter, is there an extra conservatism there given it is the year-end and then you want to sort of clean stuff up for 2010 or does that not really come into play?
I am just trying to get a sense; it is always hard to get a sense quarter over quarter what the provisioning is going to do. Is there any sense in 1Q do you think will most probably be down from these levels given the extra conservatism end of the year?
Vince Calabrese
Yes I will not say that the guidance to that is given on provision, we do expect to be lower in 2010 than we were in 2009. I think to Gary’s comments earlier regarding appraisals that came in, we have updated really within the last four months, values came down significantly, so there is definitely a good piece of the provision that is right sizing the allowance for that portfolio (inaudible) today.
So if you look ahead to the first and second quarter, we definitely expect to be lower than where we were in the fourth quarter. Then for the Pennsylvania portfolio, I think the credit metrics that Gary talked about were non-performers and charge-offs still at very healthy levels, there is some continued migration that has been occurring in Pennsylvania, we did put some additional reserves into that portfolio.
Frank Schiraldi - Sandler O'Neill & Partners
Then finally, is it possible to get what the total charge-offs to date over the last say 2008 and 2009 in the Florida book?
Gary Guerrieri
It is right at just under $60 million charged off to date.
Frank Schiraldi - Sandler O'Neill & Partners
Okay, thank you.
Operator
We will take our next question from Andy Stapp of B Riley & Company.
Andy Stapp - B Riley & Company
Good Morning.
Steve Gurgovits
Good morning.
Gary Guerrieri
Good morning Andy.
Andy Stapp - B Riley & Company
From what you commented, is it fair to say that as far as reserve billed you expect really little or no reserve billed in the first half of this year and in the second half with NPLs crusting [ph] your reserve coverage of loans could start to trend downward?
Vince Calabrese
Andy, this is Vince. I would say that as we think about 2010 and where we end the year, Steve mentioned NPAs crusting during the year, but crusting and then kind of gradually declining from there.
So from an allowance coverage standpoint, I would think the end of the year probably looks pretty stable from where we ended 2009 just cuts the pace of the change in the non-performers.
Andy Stapp - B Riley & Company
Okay and you know I have been under the impression that real estate values in Florida has shown some signs of stabilization so I was really surprised when you talked about the real estate values declining, is it just contained in raw land?
Gary Guerrieri
Andy, the land values continued to see pressure all through the year and when you looked at that piece of the portfolio, they came down on average about 40% over the past 12 months, so there has been continued pressure there. We do feel that those values are reaching very, very close to a rock bottom levels at this point and the appraisal process has continued to be a bit difficult in that the appraisers are being quite conservative from that perspective based on the environment.
Andy Stapp - B Riley & Company
Okay, got you, and you got it to a stable net interest margin, as the Fed begins to raise interest rates, what do you foresee happening to your margin including the national impact of interest rate falls on loans?
Steve Gurgovits
Andy, I guess as we think about the margin, if you step back and we talk about our interest rate risk management process, we really managed to a neutral net interest margin. Our goal is to target so that when you see big moves up or down that our market is not going to move significantly and I think over time if you look at our margins it has been in the pretty tight band in this year with the benefit of deposit re-pricing and the growth that we have had, we have been able to expand the market.
So if the Fed starts to move, which is expected to be pretty late in 2010, we really do not expect to see significant impact on that from our margin which is why we are really giving the guidance of stable around the current levels that we ended 3.85% which is the healthy level for us.
Andy Stapp - B Riley & Company
Okay, I have some other questions but I will get back in the queue.
Operator
We will take our next question from Damon Delmonte of Keefe, Bruyette & Woods.
Damon Delmonte - Keefe, Bruyette & Woods
Good morning guys, how are you?
Steve Gurgovits
Good morning Damon.
Gary Guerrieri
Good morning Damon.
Damon Delmonte - Keefe, Bruyette & Woods
Could you guys put a little framework around the expected run-off in the Florida portfolio this year?
Gary Guerrieri
In terms of that portfolio Damon, we are projecting about another 20% run-off as we look out over the next 12-month period. So those are the numbers that we are looking at, at this point.
We are hopeful that we can be a little more successful than that even but based on the portfolio structure at this point that is what we are projecting.
Damon Delmonte - Keefe, Bruyette & Woods
Okay, great and Vince, could you quantify what the expenses included in non-interest expense were related to OREO and Florida-related loans just from a modelling perspective basically so we know what is not included as a re-occurring expense.
Vince Calabrese
The increase was $2.6 million related to the Florida OREO expense. If we think about it in total, total OREO expense for the quarter was $3.6 million, so $2.6 million of an increase was related to Florida.
Damon Delmonte - Keefe, Bruyette & Woods
Okay, perfect and regarding the tax benefit what drove that this quarter?
Vince Calabrese
Well it is really just a matter of the level of tax preferred items that we have, we have certain amount of tax preferred interests, the tax preferred interests are securities and the absolute level of that was pretty consistent with the prior quarter and then pretax income came down so the piece taxed at 35% is stable but it is just really the absolute level of it relative to those tax preferred items. So if you look ahead to 2010, our effective tax rate would really be more to 26% to 27% that I mentioned.
So there is nothing really unusual in there, it is just the absolute low level of the pretax income.
Damon Delmonte - Keefe, Bruyette & Woods
Okay, great, one last question, are there any restructured loans that are not included in non-performing loans?
Gary Guerrieri
There are not.
Damon Delmonte - Keefe, Bruyette & Woods
Okay, great, thank you.
Operator
We will take our next question from Mac Hodgson of Suntrust Robinson Humphrey.
Mac Hodgson - Suntrust Robinson Humphrey
Good morning.
Steve Gurgovits
Good morning Mac.
Mac Hodgson - Suntrust Robinson Humphrey
Just a couple of questions, you mentioned guidance on mid single digit deposit loan growth for the year, do you expect the balance sheet to kind of grow at the same rate or you kind of shrink the securities book a bit and maybe pay down borrowings or something like that.
Vince Calabrese
I would expect the securities portfolio would probably be pretty stable at where we ended the year and then growing the balance sheet so that the overall balance sheet should grow a little bit less than the mid single digit that I mentioned.
Mac Hodgson - Suntrust Robinson Humphrey
Okay, got you. In the overdraft that $9 million of overdraft income that is obviously a quarterly number, right?
Vince Calabrese
No that is a full-year figure. So that is the amount of fees that is kind of targeted by these new rules that go into place in the middle of the year and then we look as I mentioned between getting customers to opt in and for a good portion of our customers they are going to want to have that service so that they can continue to have their transactions honored at the point of sale.
So we think that there is an ability to really mitigate the vast majority of that figure as we go forward and that is even before we look at changing any fee structures, so that is a full-year figure.
Mac Hodgson - Suntrust Robinson Humphrey
Okay, (inaudible) have the estimated tier 1 risk-based and total risk-based ratios for the company?
Vince Calabrese
Sure. The estimated ratios of the end of the year, total risk based is 12.7%, tier 1 is 11.3%, and leverage 8.7%.
Mac Hodgson - Suntrust Robinson Humphrey
Great. Gary, just a credit related question, you mentioned about $25 million of land related Florida loans were non-performing in the quarter, obviously it is not surprising to see pressure still in Florida but I am curious maybe what drove the move to non-accrual if those borrowers had lasted this long and then maybe what that remaining land credit, could you give us some more color the $20 million that is still on accrual (inaudible) good.
Gary Guerrieri
Sure, the two that we moved to non-accrual received pressure from a valuation standpoint Mac, the borrowers also were also getting tight from a liquidity standpoint. Actually one of those continues to perform at this point but we are being cautious with that and moving it to non-accrual status.
The one that we anticipate will continue to perform even with the most recent valuation updates, we have loan to value in the 60% range as well the borrower is in the process of posting a payment for the next year to 18 months with us, we have good properties there and expect that that situation will continue to perform through the cycle.
Mac Hodgson - Suntrust Robinson Humphrey
Okay, great and of the Florida land-related non-performing loans, what is generally the disposition process? Are you all, in most cases, going to the foreclosure process and look to take over the asset and try to sell it or will it just be kind of a long drawn out reduction in balances?
Gary Guerrieri
Mac, we continue to look at all options including trying to move those assets in every way that we possibly can, that includes negotiating sales with the customer which we have been successful with, it also includes consideration of the secondary market those prices continue to be lower than where we would want to move values at this point, so we have not taken that approach but we will continue to analyze that as the market moves and then just continuing to work with the borrowers to try to keep them going where we can and if we cannot we are in the foreclosure process on those assets.
Mac Hodgson - Suntrust Robinson Humphrey
Great, I appreciate the detail, thanks.
Operator
(Operator instructions) We will take our next question from Jason O'Donnell from Boenning & Scattergood.
Jason O'Donnell - Boenning & Scattergood
Good morning.
Steve Gurgovits
Good morning Jason.
Gary Guerrieri
Good morning Jason.
Jason O'Donnell - Boenning & Scattergood
I apologize if I have missed it but can you just give us some color around the composition of Pennsylvania and net charge-offs?
Gary Guerrieri
The Pennsylvania net charge-offs totalled $5 million for the quarter and it was pretty much a normal quarter across all of the portfolios, really nothing out of the ordinary Jason, pretty much a diverse charge against the book of business in the normal course. So, really nothing standing out there.
Jason O'Donnell - Boenning & Scattergood
Okay so we are looking at just one portfolio kind of driving the bulk of those losses.
Gary Guerrieri
It was not.
Jason O'Donnell - Boenning & Scattergood
Okay and then in terms of, just switching real quick, in terms of the steps you have taken to manage interest rate risk recently, can you just give us an update on the securities portfolio and what the average duration is on that portfolio?
Vince Calabrese
Sure. The average duration on the portfolio was 2.8 at the end of the year, 2.7 at the end of September.
So, as far as the securities portfolio, the cash that we are reinvesting, we are reinvesting short as we look ahead to 2010, we have close to $0.5 billion worth of investments that will be paying off and we look to continue to put that in shorter term investments given where we are in the rate cycle. And as far as the remaining parts of the balance sheet, we continue to have a focus on growing loans with variable rate, adjustable rate (inaudible) to help sensitivity of the balance sheet to go forward.
Jason O'Donnell - Boenning & Scattergood
Okay but the longer term goal is to keep the balance sheet relatively neutral, is that correct?
Vince Calabrese
Yes.
Jason O'Donnell - Boenning & Scattergood
Okay and then can you give us an update on your single issue cost preferred positions and specifically there have been any downgrades since the last quarter?
Vince Calabrese
The single issue troughs as we see here today there is $14 million related to this, it is basically in four names, I think one was upgraded, one was downgraded a little bit but they are all in good ratings. There has been no impairment in that portfolio at all; in fact the pricing has been improving.
For the second consecutive quarter, they are at $0.81 on the dollar; they were $0.79 on the dollar at the end of the third quarter. So that portfolio we feel good about where it stands today.
Jason O'Donnell - Boenning & Scattergood
Right, thanks a lot.
Operator
We will take our next question from Thomas Alonso from Macquarie Research Equities.
Thomas Alonso - Macquarie Research Equities
Good morning guys.
Steve Gurgovits
Good morning.
Gary Guerrieri
Good morning Tom.
Thomas Alonso - Macquarie Research Equities
Most of my questions have been answered, just real quickly, given that you guys have that merchant banking operation and sort of what is going on in Washington, is there any concern about maybe you guys not being able to continue that or thoughts about potentially being forced somehow to divest that, I am just curious how you guys are thinking about that now at this early stage?
Steve Gurgovits
Tom, we are watching that. So far most of their activity has been on direct lending of subordinated debt and we would expect that to be able to continue but as to whether or not full powers that a merchant bank can have can continue, it will be a question but right now all I can tell you is we are studying that and most of what we are talking about in our pipeline is strictly sub-debt lending.
Thomas Alonso - Macquarie Research Equities
Okay, so it would not fall into that purview, that is great. Okay and then just sort of on the Florida book, I know you kind of discussed this but just judging from the way you are speaking, there really has not been a change in sort of how you are going to go about the disposition of this portfolio, you have not decided – I remember last quarter you mentioned that there was some improvement in liquidity in that market that maybe that would lead to potentially more sales as the bid started to come in but it does not seem like that is that case, it seems like you are just going to continue to do what you have been doing.
Steve Gurgovits
We are going to continue to do what we have been doing but we are watching the market obviously. We have seen a little more interest from certain people kicking the tires than we have been able to get an agreement on some small transactions but we are pursuing everything as Gary said.
We are staying the course with our strategy but in the meantime we are investigating other opportunities. Right now we do not think those make sense to FNB, we do not need to panic, and so we are being very methodical on our approach, but as the market conditions change, and I believe over time certainly they will, that may lead to different strategies than the one we are following today.
Thomas Alonso - Macquarie Research Equities
Okay, terrific, thank you, that is all I had.
Operator
(Operator instructions) We will take another question from Mike Shafir for Sterne, Agee & Leach.
Mike Shafir - Sterne, Agee & Leach
Good morning guys.
Steve Gurgovits
Good morning.
Gary Guerrieri
Good morning Tom.
Mike Shafir - Sterne, Agee & Leach
As you kind of think about the Pennsylvania portfolio, I would say certainly credit has held up pretty well, I know that the bulk of your portfolio is really in Western Pennsylvania, I was wondering how much exposure if any do you guys have towards kind of Central and Eastern PA, what kind of have you seen in terms of – from a credit standpoint the differences between those two markets?
Gary Guerrieri
In terms of the breakdown Mike, we do have a sizable book of business in the central part of Pennsylvania as well as eastern central part of Pennsylvania. Those portfolios total probably just shy of about a third of that Pennsylvania book in terms of footings and the performance has pretty much (inaudible) to the western part of the state with the western part of the state holding probably slightly better than the eastern part.
The central part is held very, very well as has the western part and the eastern part probably just a little under that.
Steve Gurgovits
Mike, just if I can add on to that, the unemployment rates in our markets are slightly below the State of Pennsylvania, which the State of Pennsylvania is below the national average. So when you get out, I think to Gary’s point, some of the far eastern markets of Pennsylvania that has had some issues around real estate in construction and development type loans, that is not something we do a lot of in Pennsylvania, hardly any [ph] to be honest with you and the unemployment in the state college area where Omega is based, with our acquisition of Omega a couple of years ago, has some of the lowest unemployment in the entire state, it is mid-single digit.
Mike Shafir - Sterne, Agee & Leach
Then kind of moving forward especially on the C&I and non-owner occupied CRA portfolios, what are you guys seeing in terms of an evaluation in cap rates and so forth?
Gary Guerrieri
In terms of Florida, Mike?
Mike Shafir - Sterne, Agee & Leach
No, in the Pennsylvania portfolio.
Gary Guerrieri
In the Pennsylvania portfolio, the credit tenants cap rates are in the 7.5% range. When you are look at a normal strip centre you are talking about 9.5% push and 10% these days but 9.5% is probably a pretty good average across the footprint.
Mike Shafir - Sterne, Agee & Leach
Thanks a lot guys, I appreciate that detail.
Operator
We will take a follow-up question from Andy Stapp from B Riley & Company.
Andy Stapp - B Riley & Company
Your securities commission was very strong in the quarter, do you think you can build upon that going into Q1 of this year?
Vince Calabrese
No I would say Andy, as we look at it, there is definitely some seasonality in that business and the fourth quarter tends to be our stronger quarter because of the fall campaign that we run. So I would expect us to come down from that level to be more like – if you look at the first quarter last year, it probably looks a lot more like the first quarter last year than it would this quarter but not by a significant amount.
Year over year, it would look at some level kind of mid-single digit increase kind of first quarter to first quarter is what I would look for, a little bit lower than the fourth quarter but a good increase year over year.
Andy Stapp - B Riley & Company
Okay, sounds good, thank you.
Operator
That does conclude today’s Q&A session; we will turn it back over to management for any closing remarks.
Steve Gurgovits
Okay, thank you. I would like to thank everybody for your participation in our call today and your interest in FNB Corporation.