January 31, 2003

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609


Dear Mr. Katz,

F.N.B. Corporation (FNB) is pleased to respond to the Commission's request for comment dealing with standards related to listing company audit committees. In particular, our comments are directed to those parts of the proposed rule which implement Section 406 of the Sarbanes-Oxley Act and concern the standards for audit committee member independence.

FNB is a $7 billion financial services holding company, headquartered in Naples, Florida. The Company owns and operates two traditional community banks with 176 full service banking offices located in Florida, Pennsylvania, and Ohio, as well as insurance agencies, a consumer finance company and a trust company. FNB's stock is listed on the NASDAQ National Market System (FBAN).

The proposed rule does not provide adequate guidance for the unique circumstances in which bank holding companies operate. Section 402(a)(3) of Sarbanes-Oxley exempts from the general loan prohibition provisions those credit relationships which are governed by Regulation O of the Federal Reserve Board. The question which is not addressed in the proposed rule is whether credit and other banking transactions with directors of parent bank holding companies violate the concepts of independence that are the hallmark of the legislation and the Commission's proposed rule. The issue is further aggravated by the proposed rules of the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD). The NYSE rules state that, "no director qualifies as independent unless the board of directors affirmatively determines that the director has no material relationship with the listed company." Obviously, a credit or other banking relationship between a director or his/her related interests with a banking affiliate of an issuer could easily be categorized as material and therefore, preclude the director's service. The NASD proposed rules are essentially silent on this point, which only serves to further the confusion.

Regulation O of the Federal Reserve Board has, for a quarter of a century, supported a regulatory regime that prohibits banking relationships that are not at arms length, contain preferential terms, or pose any other safety and soundness threat to the lending institution. Other rules and regulations of the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision, address all aspects of potential insider abuse. This complex array of regulatory control is the subject of regular and intense scrutiny from bank examiners.

It is our view that the proposed SEC rules on director independence should follow the policy aspects of Section 402(a)(3) of Sarbanes-Oxley and recognize the statutory exception for federally regulated banking companies. This exception would permit holding company directors to maintain banking relationships that are established and maintained at arms length and on non-preferential terms.

Such a rule would provide that a director's "independence" would not be impaired solely as the result of a banking relationship between the issuer's banking affiliate and a director of the issuer or his/her related interests. A banking relationship should be defined to encompass the traditional products and services provided by financial institutions, including loans, deposits, transfer agent, registrar, indenture trustee, trusts and estates, private banking, investment management, insurance, custodial, securities brokerage, cash management and other similar services permitted to financial services companies. However, the following criteria would be required to be met:

  1. the business relationships must be in the ordinary course of business and made on substantially the same terms as those at the time for comparable transactions with non-affiliated persons or consistent with broad-based employee benefit programs; and

  2. extensions of credit must comply with applicable law, including Regulation O of the Federal Reserve and Section 13(k) of the Securities Exchange Act of 1934 and must not have been classified or criticized in the lending institution's most recent report of examination.

Again, thank you for the opportunity to comment. If you should have any questions regarding our comment, please contact me at 239-659-6893.


William J. Rundorff
Executive Vice President
and Chief Legal Officer