UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2013
¨ | Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 001-31940
F.N.B. CORPORATION
(Exact name of registrant as specified in its charter)
Florida | 25-1255406 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
One F.N.B. Boulevard, Hermitage, PA | 16148 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: 724-981-6000
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer | x | Accelerated Filer | ¨ | |||
Non-accelerated Filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class |
Outstanding at April 30, 2013 | |
Common Stock, $0.01 Par Value | 145,018,586 Shares |
F.N.B. CORPORATION
FORM 10-Q
March 31, 2013
PAGE | ||||||
PART I FINANCIAL INFORMATION |
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Item 1. |
Financial Statements | |||||
Consolidated Balance Sheets | 3 | |||||
Consolidated Statements of Comprehensive Income | 4 | |||||
Consolidated Statements of Stockholders Equity | 5 | |||||
Consolidated Statements of Cash Flows | 6 | |||||
Notes to Consolidated Financial Statements | 7 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 55 | ||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 70 | ||||
Item 4. |
Controls and Procedures | 70 | ||||
PART II OTHER INFORMATION |
||||||
Item 1. |
Legal Proceedings | 72 | ||||
Item 1A. |
Risk Factors | 73 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 73 | ||||
Item 3. |
Defaults Upon Senior Securities | 73 | ||||
Item 4. |
Mine Safety Disclosures | 73 | ||||
Item 5. |
Other Information | 73 | ||||
Item 6. |
Exhibits | 73 | ||||
74 |
2
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
F.N.B. CORPORATION AND SUBSIDIARIES
Dollars in thousands, except par value
March 31, 2013 |
December 31, 2012 |
|||||||
(Unaudited) | ||||||||
Assets |
||||||||
Cash and due from banks |
$ | 146,810 | $ | 216,233 | ||||
Interest bearing deposits with banks |
14,786 | 22,811 | ||||||
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Cash and Cash Equivalents |
161,596 | 239,044 | ||||||
Securities available for sale |
1,164,327 | 1,172,683 | ||||||
Securities held to maturity (fair value of $1,141,223 and $1,143,213) |
1,110,556 | 1,106,563 | ||||||
Residential mortgage loans held for sale |
25,871 | 27,751 | ||||||
Loans, net of unearned income of $49,493 and $51,661 |
8,209,286 | 8,137,719 | ||||||
Allowance for loan losses |
(107,702 | ) | (104,374 | ) | ||||
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Net Loans |
8,101,584 | 8,033,345 | ||||||
Premises and equipment, net |
134,889 | 140,367 | ||||||
Goodwill |
675,555 | 675,555 | ||||||
Core deposit and other intangible assets, net |
35,865 | 37,851 | ||||||
Bank owned life insurance |
252,763 | 246,088 | ||||||
Other assets |
334,984 | 344,729 | ||||||
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Total Assets |
$ | 11,997,990 | $ | 12,023,976 | ||||
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Liabilities |
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Deposits: |
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Non-interest bearing demand |
$ | 1,792,603 | $ | 1,738,195 | ||||
Savings and NOW |
4,974,539 | 4,808,121 | ||||||
Certificates and other time deposits |
2,443,496 | 2,535,858 | ||||||
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Total Deposits |
9,210,638 | 9,082,174 | ||||||
Other liabilities |
133,324 | 163,151 | ||||||
Short-term borrowings |
945,001 | 1,083,138 | ||||||
Long-term debt |
91,738 | 89,425 | ||||||
Junior subordinated debt |
204,032 | 204,019 | ||||||
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|
|||||
Total Liabilities |
10,584,733 | 10,621,907 | ||||||
Stockholders Equity |
||||||||
Common stock - $0.01 par value Authorized 500,000,000 shares Issued 141,018,132 and 140,314,846 shares |
1,406 | 1,398 | ||||||
Additional paid-in capital |
1,379,086 | 1,376,601 | ||||||
Retained earnings |
86,923 | 75,312 | ||||||
Accumulated other comprehensive loss |
(47,198 | ) | (46,224 | ) | ||||
Treasury stock 640,958 and 385,604 shares at cost |
(6,960 | ) | (5,018 | ) | ||||
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|||||
Total Stockholders Equity |
1,413,257 | 1,402,069 | ||||||
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Total Liabilities and Stockholders Equity |
$ | 11,997,990 | $ | 12,023,976 | ||||
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See accompanying Notes to Consolidated Financial Statements
3
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in thousands, except per share data
Unaudited
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Interest Income |
||||||||
Loans, including fees |
$ | 92,975 | $ | 93,138 | ||||
Securities: |
||||||||
Taxable |
10,597 | 12,037 | ||||||
Nontaxable |
1,516 | 1,721 | ||||||
Dividends |
16 | 335 | ||||||
Other |
14 | 56 | ||||||
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|
|||||
Total Interest Income |
105,118 | 107,287 | ||||||
Interest Expense |
||||||||
Deposits |
8,265 | 11,958 | ||||||
Short-term borrowings |
1,107 | 1,444 | ||||||
Long-term debt |
774 | 953 | ||||||
Junior subordinated debt |
1,876 | 2,011 | ||||||
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|
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Total Interest Expense |
12,022 | 16,366 | ||||||
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|
|||||
Net Interest Income |
93,096 | 90,921 | ||||||
Provision for loan losses |
7,541 | 6,572 | ||||||
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|
|||||
Net Interest Income After Provision for Loan Losses |
85,555 | 84,349 | ||||||
Non-Interest Income |
||||||||
Service charges |
16,531 | 17,165 | ||||||
Insurance commissions and fees |
4,430 | 4,172 | ||||||
Securities commissions and fees |
2,923 | 2,011 | ||||||
Trust fees |
4,085 | 3,734 | ||||||
Net securities gains |
684 | 108 | ||||||
Gain on sale of residential mortgage loans |
1,021 | 809 | ||||||
Bank owned life insurance |
1,636 | 1,559 | ||||||
Other |
2,363 | 2,187 | ||||||
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|
|||||
Total Non-Interest Income |
33,673 | 31,745 | ||||||
Non-Interest Expense |
||||||||
Salaries and employee benefits |
43,905 | 44,606 | ||||||
Net occupancy |
6,698 | 6,606 | ||||||
Equipment |
5,492 | 5,186 | ||||||
Amortization of intangibles |
1,986 | 2,281 | ||||||
Outside services |
7,205 | 6,367 | ||||||
FDIC insurance |
2,364 | 1,971 | ||||||
Merger related |
352 | 6,994 | ||||||
Other |
10,861 | 12,662 | ||||||
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|
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Total Non-Interest Expense |
78,863 | 86,673 | ||||||
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|
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Income Before Income Taxes |
40,365 | 29,421 | ||||||
Income taxes |
11,827 | 7,839 | ||||||
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|
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Net Income |
$ | 28,538 | $ | 21,582 | ||||
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Net Income per Share Basic |
$ | 0.20 | $ | 0.16 | ||||
Net Income per Share Diluted |
0.20 | 0.15 | ||||||
Cash Dividends per Share |
0.12 | 0.12 | ||||||
Comprehensive Income |
$ | 27,564 | $ | 22,995 | ||||
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See accompanying Notes to Consolidated Financial Statements
4
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Dollars in thousands, except per share data
Unaudited
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Accumulated Other Compre- hensive Loss |
Treasury Stock |
Total | |||||||||||||||||||
Balance at January 1, 2013 |
$ | 1,398 | $ | 1,376,601 | $ | 75,312 | $ | (46,224 | ) | $ | (5,018 | ) | $ | 1,402,069 | ||||||||||
Net income |
28,538 | 28,538 | ||||||||||||||||||||||
Change in other comprehensive income, net of tax |
(974 | ) | (974 | ) | ||||||||||||||||||||
Common stock dividends ($0.12/share) |
(16,927 | ) | (16,927 | ) | ||||||||||||||||||||
Issuance of common stock |
8 | 155 | (1,942 | ) | (1,779 | ) | ||||||||||||||||||
Restricted stock compensation |
1,083 | 1,083 | ||||||||||||||||||||||
Tax expense of stock-based compensation |
1,247 | 1,247 | ||||||||||||||||||||||
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Balance at March 31, 2013 |
$ | 1,406 | $ | 1,379,086 | $ | 86,923 | $ | (47,198 | ) | $ | (6,960 | ) | $ | 1,413,257 | ||||||||||
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Balance at January 1, 2012 |
$ | 1,268 | $ | 1,224,572 | $ | 32,925 | $ | (45,148 | ) | $ | (3,418 | ) | $ | 1,210,199 | ||||||||||
Net income |
21,582 | 21,582 | ||||||||||||||||||||||
Change in other comprehensive income, net of tax |
1,413 | 1,413 | ||||||||||||||||||||||
Common stock dividends ($0.12/share) |
(16,858 | ) | (16,858 | ) | ||||||||||||||||||||
Issuance of common stock |
125 | 138,052 | (377 | ) | (769 | ) | 137,031 | |||||||||||||||||
Restricted stock compensation |
998 | 998 | ||||||||||||||||||||||
Tax expense of stock-based compensation |
334 | 334 | ||||||||||||||||||||||
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Balance at March 31, 2012 |
$ | 1,393 | $ | 1,363,956 | $ | 37,272 | $ | (43,735 | ) | $ | (4,187 | ) | $ | 1,354,699 | ||||||||||
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See accompanying Notes to Consolidated Financial Statements
5
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Unaudited
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Operating Activities |
||||||||
Net income |
$ | 28,538 | $ | 21,582 | ||||
Adjustments to reconcile net income to net cash flows provided by operating activities: |
||||||||
Depreciation, amortization and accretion |
8,181 | 5,467 | ||||||
Provision for loan losses |
7,541 | 6,572 | ||||||
Deferred taxes |
6,057 | 10,195 | ||||||
Net securities gains |
(684 | ) | (108 | ) | ||||
Tax benefit of stock-based compensation |
(1,247 | ) | (334 | ) | ||||
Net change in: |
||||||||
Interest receivable |
(1,971 | ) | 950 | |||||
Interest payable |
(1,467 | ) | (2,457 | ) | ||||
Trading securities |
| 331,972 | ||||||
Residential mortgage loans held for sale |
1,880 | 2,657 | ||||||
Bank owned life insurance |
(1,675 | ) | (1,637 | ) | ||||
Other, net |
(18,176 | ) | (9,046 | ) | ||||
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Net cash flows provided by operating activities |
26,977 | 365,813 | ||||||
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Investing Activities |
||||||||
Net change in loans |
(80,520 | ) | (31,878 | ) | ||||
Securities available for sale: |
||||||||
Purchases |
(92,521 | ) | (474,224 | ) | ||||
Sales |
21,919 | 15,414 | ||||||
Maturities |
77,002 | 142,435 | ||||||
Securities held to maturity: |
||||||||
Purchases |
(113,176 | ) | (323,679 | ) | ||||
Sales |
17,429 | 2,903 | ||||||
Maturities |
90,826 | 72,385 | ||||||
Purchase of bank owned life insurance |
(5,000 | ) | (20,000 | ) | ||||
Withdrawal/surrender of bank owned life insurance |
| 20,701 | ||||||
(Increase) decrease in premises and equipment |
1,783 | (2,325 | ) | |||||
Net cash received in business combinations |
| 203,538 | ||||||
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Net cash flows used in investing activities |
(82,258 | ) | (394,730 | ) | ||||
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Financing Activities |
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Net change in: |
||||||||
Non-interest bearing deposits, savings and NOW accounts |
220,825 | 353,871 | ||||||
Time deposits |
(90,793 | ) | (111,091 | ) | ||||
Short-term borrowings |
(138,137 | ) | 13,593 | |||||
Increase in long-term debt |
13,331 | 5,695 | ||||||
Decrease in long-term debt |
(11,017 | ) | (162,069 | ) | ||||
Net proceeds from issuance of common stock |
(696 | ) | 1,211 | |||||
Tax benefit of stock-based compensation |
1,247 | 334 | ||||||
Cash dividends paid |
(16,927 | ) | (16,858 | ) | ||||
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Net cash flows (used in) provided by financing activities |
(22,167 | ) | 84,686 | |||||
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Net (Decrease) Increase in Cash and Cash Equivalents |
(77,448 | ) | 55,769 | |||||
Cash and cash equivalents at beginning of period |
239,044 | 208,953 | ||||||
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Cash and Cash Equivalents at End of Period |
$ | 161,596 | $ | 264,722 | ||||
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See accompanying Notes to Consolidated Financial Statements
6
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except share data
(Unaudited)
March 31, 2013
BUSINESS
F.N.B. Corporation (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 commercial leasing and merchant banking activities. The Corporation operates its community banking business through a full service branch network in Pennsylvania, eastern Ohio and northern West Virginia. The Corporation operates its wealth management and insurance businesses within the existing branch network. It also conducts selected consumer finance business in Pennsylvania, Ohio, Tennessee and Kentucky.
BASIS OF PRESENTATION
The Corporations accompanying consolidated financial statements and these notes to the financial statements include subsidiaries in which the Corporation has a controlling financial interest. The Corporation owns and operates First National Bank of Pennsylvania (FNBPA), First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, Regency Finance Company (Regency), F.N.B. Capital Corporation, LLC and Bank Capital Services, LLC, and includes results for each of these entities in the accompanying consolidated financial statements.
The accompanying consolidated financial statements include all adjustments that are necessary, in the opinion of management, to fairly reflect the Corporations financial position and results of operations in accordance with U.S. generally accepted accounting principles (GAAP). All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements through the date of the filing of the consolidated financial statements with the Securities and Exchange Commission (SEC).
Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results the Corporation expects for the full year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporations Annual Report on Form 10-K filed with the SEC on February 28, 2013.
USE OF ESTIMATES
The accounting and reporting policies of the Corporation conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the allowance for loan losses, securities valuations, goodwill and other intangible assets and income taxes.
MERGERS AND ACQUISITIONS
On April 6, 2013, the Corporation completed its acquisition of Annapolis Bancorp, Inc. (ANNB), a bank holding company based in Annapolis, Maryland. On the acquisition date, ANNB had $434,729 in assets, which included $273,269 in loans, and $348,343 in deposits. The acquisition, net of equity offering costs, was valued at $56,300 and resulted in the Corporation issuing 4,641,412 shares of its common stock in exchange for 4,060,802 shares of ANNB common stock. Additionally, the Corporation paid $609, or $0.15 per share, to the holders of ANNB common stock as cash consideration due to the collection of a certain loan, as designated in the merger agreement. The assets and liabilities of ANNB were recorded on the Corporations balance sheet at their fair values as of April 6, 2013, the acquisition date, and ANNBs results of operations have been included in the Corporations consolidated statements of income and comprehensive income since that date. ANNBs banking affiliate, BankAnnapolis, was merged into FNBPA on April 6, 2013. In conjunction with the acquisition, a warrant issued by ANNB to the U.S. Department of the Treasury (UST)
7
under the Capital Purchase Program (CPP) was assumed by the Corporation and converted into a warrant to purchase up to 342,564 shares of the Corporations common stock. The warrant expires January 30, 2019 and has an exercise price of $3.57. Based on a preliminary purchase price allocation, the Corporation expects to record $33,300 in goodwill and $4,400 in core deposit intangibles as a result of the acquisition. The Corporation has recorded estimates of the fair values of acquired assets and liabilities. These fair value estimates are provisional amounts based on third party valuations that are currently under review. None of the goodwill is deductible for income tax purposes.
On January 1, 2012, the Corporation completed its acquisition of Parkvale Financial Corporation (Parkvale), a unitary savings and loan holding company based in Monroeville, Pennsylvania. On the acquisition date, Parkvale had $1,815,663 in assets, which included $937,350 in loans, and $1,505,671 in deposits. The acquisition, net of equity offering costs, was valued at $140,900 and resulted in the Corporation issuing 12,159,312 shares of its common stock in exchange for 5,582,846 shares of Parkvale common stock. The assets and liabilities of Parkvale were recorded on the Corporations balance sheet at their fair values as of January 1, 2012, the acquisition date, and Parkvales results of operations have been included in the Corporations consolidated statements of income and comprehensive income since that date. Parkvales banking affiliate, Parkvale Bank, was merged into FNBPA on January 1, 2012. The warrant issued by Parkvale to the UST under the CPP was assumed by the Corporation and converted into a warrant to purchase up to 819,640 shares of the Corporations common stock. The warrant expires December 23, 2018 and has an exercise price of $5.81. Based on the purchase price allocation, which was completed in the fourth quarter of 2012, the Corporation recorded $106,602 in goodwill and $16,033 in core deposit intangible as a result of the acquisition. None of the goodwill is deductible for income tax purposes.
Pending Acquisition
On February 19, 2013, the Corporation announced the signing of a definitive merger agreement to acquire PVF Capital Corp. (PVF), a savings and loan holding company with approximately $782,000 in total assets based in Solon, Ohio. The transaction is valued at approximately $106,300. Under the terms of the merger agreement, PVF shareholders will be entitled to receive 0.3405 shares of the Corporations common stock for each share of PVF common stock. PVFs banking affiliate, Park View Federal Savings Bank, will be merged into FNBPA. The transaction is expected to be completed in the fourth quarter of 2013, pending regulatory approvals, the approval of shareholders of PVF and the satisfaction of other closing conditions.
NEW ACCOUNTING STANDARDS
Comprehensive Income
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, that requires an entity to report the effects of significant reclassifications out of each component of accumulated other comprehensive income on the respective line item in net income if the amount being reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For amounts not required to be reclassified in their entirety in the same reporting period, an entity shall add a cross reference to the related footnote where additional information about the effect of the reclassification is disclosed. The requirements of ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this update did not have a material effect on the financial statements, results of operations or liquidity of the Corporation.
Disclosures about Offsetting Assets and Liabilities
In January 2013, the FASB issued ASU No. 2013-01, Scope Clarification of Disclosures about Offsetting Assets and Liabilities, that clarifies the scope of its previously issued guidance, limiting the disclosure requirements to derivative instruments, repurchase agreements and reverse repurchase agreements and securities borrowing and lending transactions to the extent that they are offset in the financial statements or subject to an enforceable master netting arrangement or similar agreement. The requirements of ASU 2013-01 are effective on January 1, 2013. The adoption of this update did not have a material effect on the financial statements, results of operations or liquidity of the Corporation.
8
SECURITIES
The amortized cost and fair value of securities are as follows:
Securities Available For Sale:
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
March 31, 2013 |
||||||||||||||||
U.S. government-sponsored entities |
$ | 353,703 | $ | 1,240 | $ | (125 | ) | $ | 354,818 | |||||||
Residential mortgage-backed securities: |
||||||||||||||||
Agency mortgage-backed securities |
227,465 | 6,823 | | 234,288 | ||||||||||||
Agency collateralized mortgage obligations |
500,955 | 4,072 | (692 | ) | 504,335 | |||||||||||
Non-agency collateralized mortgage obligations |
2,386 | 27 | | 2,413 | ||||||||||||
States of the U.S. and political subdivisions |
20,382 | 1,045 | | 21,427 | ||||||||||||
Collateralized debt obligations |
35,226 | 888 | (12,785 | ) | 23,329 | |||||||||||
Other debt securities |
21,786 | 764 | (907 | ) | 21,643 | |||||||||||
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Total debt securities |
1,161,903 | 14,859 | (14,509 | ) | 1,162,253 | |||||||||||
Equity securities |
1,554 | 543 | (23 | ) | 2,074 | |||||||||||
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$ | 1,163,457 | $ | 15,402 | $ | (14,532 | ) | $ | 1,164,327 | ||||||||
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December 31, 2012 |
||||||||||||||||
U.S. government-sponsored entities |
$ | 352,910 | $ | 1,676 | $ | (129 | ) | $ | 354,457 | |||||||
Residential mortgage-backed securities: |
||||||||||||||||
Agency mortgage-backed securities |
267,575 | 7,575 | | 275,150 | ||||||||||||
Agency collateralized mortgage obligations |
465,574 | 4,201 | (228 | ) | 469,547 | |||||||||||
Non-agency collateralized mortgage obligations |
2,679 | 50 | | 2,729 | ||||||||||||
States of the U.S. and political subdivisions |
23,592 | 1,232 | | 24,824 | ||||||||||||
Collateralized debt obligations |
34,765 | 967 | (13,276 | ) | 22,456 | |||||||||||
Other debt securities |
21,790 | 695 | (972 | ) | 21,513 | |||||||||||
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Total debt securities |
1,168,885 | 16,396 | (14,605 | ) | 1,170,676 | |||||||||||
Equity securities |
1,554 | 462 | (9 | ) | 2,007 | |||||||||||
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$ | 1,170,439 | $ | 16,858 | $ | (14,614 | ) | $ | 1,172,683 | ||||||||
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|
Securities Held To Maturity:
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
March 31, 2013 |
||||||||||||||||
U.S. Treasury |
$ | 503 | $ | 174 | $ | | $ | 677 | ||||||||
U.S. government-sponsored entities |
43,611 | 301 | (98 | ) | 43,814 | |||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
Agency mortgage-backed securities |
692,631 | 23,986 | (21 | ) | 716,596 | |||||||||||
Agency collateralized mortgage obligations |
221,081 | 1,392 | (352 | ) | 222,121 | |||||||||||
Non-agency collateralized mortgage obligations |
9,180 | 107 | (2 | ) | 9,285 | |||||||||||
Commercial mortgage-backed securities |
1,023 | 28 | | 1,051 | ||||||||||||
States of the U.S. and political subdivisions |
142,022 | 5,191 | (12 | ) | 147,201 | |||||||||||
Collateralized debt obligations |
505 | | (27 | ) | 478 | |||||||||||
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$ | 1,110,556 | $ | 31,179 | $ | (512 | ) | $ | 1,141,223 | ||||||||
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9
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
December 31, 2012 |
||||||||||||||||
U.S. Treasury |
$ | 503 | $ | 188 | $ | | $ | 691 | ||||||||
U.S. government-sponsored entities |
28,731 | 280 | (99 | ) | 28,912 | |||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
Agency mortgage-backed securities |
780,022 | 28,783 | (1 | ) | 808,804 | |||||||||||
Agency collateralized mortgage obligations |
133,976 | 1,266 | | 135,242 | ||||||||||||
Non-agency collateralized mortgage obligations |
14,082 | 130 | | 14,212 | ||||||||||||
Commercial mortgage-backed securities |
1,024 | 39 | | 1,063 | ||||||||||||
States of the U.S. and political subdivisions |
147,713 | 6,099 | | 153,812 | ||||||||||||
Collateralized debt obligations |
512 | | (35 | ) | 477 | |||||||||||
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|||||||||
$ | 1,106,563 | $ | 36,785 | $ | (135 | ) | $ | 1,143,213 | ||||||||
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The Corporation classifies securities as trading securities when management intends to sell such securities in the near term. Such securities are carried at fair value, with unrealized gains (losses) reflected through the consolidated statements of comprehensive income. The Corporation classified certain securities acquired in conjunction with the Parkvale acquisition as trading securities. The Corporation both acquired and sold these trading securities during the quarter in which the acquisition occurred. As of March 31, 2013 and December 31, 2012, the Corporation did not hold any trading securities.
Gross gains and gross losses were realized on securities as follows:
Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
Gross gains |
$ | 1,032 | $ | 349 | ||||
Gross losses |
(348 | ) | (241 | ) | ||||
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|||||
$ | 684 | $ | 108 | |||||
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As of March 31, 2013, the amortized cost and fair value of securities, by contractual maturities, were as follows:
Available for Sale | Held to Maturity | |||||||||||||||
Amortized Cost |
Fair Value |
Amortized Cost |
Fair Value |
|||||||||||||
Due in one year or less |
$ | 4,904 | $ | 4,909 | $ | 4,863 | $ | 4,921 | ||||||||
Due from one to five years |
268,114 | 269,946 | 17,960 | 18,297 | ||||||||||||
Due from five to ten years |
105,308 | 106,050 | 86,216 | 88,238 | ||||||||||||
Due after ten years |
52,771 | 40,312 | 77,602 | 80,714 | ||||||||||||
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|||||||||
431,097 | 421,217 | 186,641 | 192,170 | |||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||
Agency mortgage-backed securities |
227,465 | 234,288 | 692,631 | 716,596 | ||||||||||||
Agency collateralized mortgage obligations |
500,955 | 504,335 | 221,081 | 222,121 | ||||||||||||
Non-agency collateralized mortgage obligations |
2,386 | 2,413 | 9,180 | 9,285 | ||||||||||||
Commercial mortgage-backed securities |
| | 1,023 | 1,051 | ||||||||||||
Equity securities |
1,554 | 2,074 | | | ||||||||||||
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|||||||||
$ | 1,163,457 | $ | 1,164,327 | $ | 1,110,556 | $ | 1,141,223 | |||||||||
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Maturities may differ from contractual terms because borrowers may have the right to call or prepay obligations with or without penalties. Periodic payments are received on mortgage-backed securities based on the payment patterns of the underlying collateral.
At March 31, 2013 and December 31, 2012, securities with a carrying value of $781,014 and $725,450, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $760,932 and $795,812 at March 31, 2013 and December 31, 2012, respectively, were pledged as collateral for short-term borrowings.
10
Following are summaries of the fair values and unrealized losses of securities, segregated by length of impairment:
Securities available for sale:
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
# | Fair Value |
Unrealized Losses |
# | Fair Value |
Unrealized Losses |
# | Fair Value |
Unrealized Losses |
||||||||||||||||||||||||||||
March 31, 2013 |
||||||||||||||||||||||||||||||||||||
U.S. government-sponsored entities |
2 | $ | 34,872 | $ | (125 | ) | | $ | | $ | | 2 | $ | 34,872 | $ | (125 | ) | |||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||
Agency collateralized mortgage obligations |
9 | 157,723 | (692 | ) | | | | 9 | 157,723 | (692 | ) | |||||||||||||||||||||||||
Collateralized debt obligations |
1 | 1,045 | (227 | ) | 13 | 12,938 | (12,558 | ) | 14 | 13,983 | (12,785 | ) | ||||||||||||||||||||||||
Other debt securities |
| | | 4 | 5,967 | (907 | ) | 4 | 5,967 | (907 | ) | |||||||||||||||||||||||||
Equity securities |
1 | 639 | (23 | ) | | | | 1 | 639 | (23 | ) | |||||||||||||||||||||||||
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13 | $ | 194,279 | $ | (1,067 | ) | 17 | $ | 18,905 | $ | (13,465 | ) | 30 | $ | 213,184 | $ | (14,532 | ) | |||||||||||||||||||
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December 31, 2012 |
||||||||||||||||||||||||||||||||||||
U.S. government-sponsored entities |
3 | $ | 44,868 | $ | (129 | ) | | $ | | $ | | 3 | $ | 44,868 | $ | (129 | ) | |||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||
Agency collateralized mortgage obligations |
3 | 47,174 | (228 | ) | | | | 3 | 47,174 | (228 | ) | |||||||||||||||||||||||||
Collateralized debt obligations |
7 | 8,708 | (909 | ) | 9 | 5,532 | (12,367 | ) | 16 | 14,240 | (13,276 | ) | ||||||||||||||||||||||||
Other debt securities |
| | | 4 | 5,899 | (972 | ) | 4 | 5,899 | (972 | ) | |||||||||||||||||||||||||
Equity securities |
1 | 654 | (9 | ) | | | | 1 | 654 | (9 | ) | |||||||||||||||||||||||||
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14 | $ | 101,404 | $ | (1,275 | ) | 13 | $ | 11,431 | $ | (13,339 | ) | 27 | $ | 112,835 | $ | (14,614 | ) | |||||||||||||||||||
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Securities held to maturity:
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
# | Fair Value |
Unrealized Losses |
# | Fair Value |
Unrealized Losses |
# | Fair Value |
Unrealized Losses |
||||||||||||||||||||||||||||
March 31, 2013 |
||||||||||||||||||||||||||||||||||||
U.S. government-sponsored entities |
1 | $ | 14,902 | $ | (98 | ) | | $ | | $ | | 1 | $ | 14,902 | $ | (98 | ) | |||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||
Agency mortgage-backed securities |
1 | 1,394 | (21 | ) | | | | 1 | 1,394 | (21 | ) | |||||||||||||||||||||||||
Agency collateralized mortgage obligations |
5 | 94,133 | (352 | ) | | | | 5 | 94,133 | (352 | ) | |||||||||||||||||||||||||
Non-agency collateralized mortgage obligations |
1 | 1,306 | (2 | ) | | | | 1 | 1,306 | (2 | ) | |||||||||||||||||||||||||
States of the U.S. and political Subdivisions |
4 | 6,496 | (12 | ) | | | | 4 | 6,496 | (12 | ) | |||||||||||||||||||||||||
Collateralized debt obligations |
| | | 1 | 477 | (27 | ) | 1 | 477 | (27 | ) | |||||||||||||||||||||||||
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12 | $ | 118,231 | $ | (485 | ) | 1 | $ | 477 | $ | (27 | ) | 13 | $ | 118,708 | $ | (512 | ) | |||||||||||||||||||
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December 31, 2012 |
||||||||||||||||||||||||||||||||||||
U.S. government-sponsored entities |
1 | $ | 14,901 | $ | (99 | ) | | $ | | $ | | 1 | $ | 14,901 | $ | (99 | ) | |||||||||||||||||||
Residential mortgage-backed securities: |
||||||||||||||||||||||||||||||||||||
Agency mortgage-backed securities |
1 | 1,424 | (1 | ) | | | | 1 | 1,424 | (1 | ) | |||||||||||||||||||||||||
Collateralized debt obligations |
| | | 1 | 477 | (35 | ) | 1 | 477 | (35 | ) | |||||||||||||||||||||||||
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2 | $ | 16,325 | $ | (100 | ) | 1 | $ | 477 | $ | (35 | ) | 3 | $ | 16,802 | $ | (135 | ) | |||||||||||||||||||
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The Corporation does not intend to sell the debt securities and it is not more likely than not the Corporation will be required to sell the securities before recovery of their amortized cost basis.
11
The Corporations unrealized losses on collateralized debt obligations (CDOs) relate to investments in trust preferred securities (TPS). The Corporations portfolio of TPS consists of single-issuer and pooled securities. The single-issuer securities are primarily from money-center and large regional banks and are included in other debt securities. The pooled securities consist of securities issued primarily by banks and thrifts, with some of the pools including a limited number of insurance companies. Investments in pooled securities are all in mezzanine tranches except for three investments in senior tranches, and are secured by over-collateralization or default protection provided by subordinated tranches. The non-credit portion of unrealized losses on investments in TPS is attributable to temporary illiquidity and the uncertainty affecting these markets, as well as changes in interest rates.
Other-Than-Temporary Impairment
The Corporation evaluates its investment securities portfolio for other-than-temporary impairment (OTTI) on a quarterly basis. Impairment is assessed at the individual security level. The Corporation considers an investment security impaired if the fair value of the security is less than its cost or amortized cost basis.
When impairment of an equity security is considered to be other-than-temporary, the security is written down to its fair value and an impairment loss is recorded as a loss within non-interest income in the consolidated statement of comprehensive income. When impairment of a debt security is considered to be other-than-temporary, the amount of the OTTI recorded as a loss within non-interest income and thereby recognized in earnings depends on whether the Corporation intends to sell the security or whether it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis.
If the Corporation intends to sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, OTTI shall be recognized in earnings equal to the entire difference between the investments amortized cost basis and its fair value.
If the Corporation does not intend to sell the debt security and it is not more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis, OTTI shall be separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss shall be recognized in earnings. The amount related to other market factors shall be recognized in other comprehensive income, net of applicable taxes.
The Corporation performs its OTTI evaluation process in a consistent and systematic manner and includes an evaluation of all available evidence. Documentation of the process is as extensive as necessary to support a conclusion as to whether a decline in fair value below cost or amortized cost is temporary or other-than-temporary and includes documentation supporting both observable and unobservable inputs and a rationale for conclusions reached. In making these determinations for pooled TPS, the Corporation consults with third-party advisory firms to provide additional valuation assistance.
This process considers factors such as the severity, length of time and anticipated recovery period of the impairment, recoveries or additional declines in fair value subsequent to the balance sheet date, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions in its industry, and the issuers financial condition, repayment capacity, capital strength and near-term prospects.
For debt securities, the Corporation also considers the payment structure of the debt security, the likelihood of the issuer being able to make future payments, failure of the issuer of the security to make scheduled interest and principal payments, whether the Corporation has made a decision to sell the security and whether the Corporations cash or working capital requirements or contractual or regulatory obligations indicate that the debt security will be required to be sold before a forecasted recovery occurs. For equity securities, the Corporation also considers its intent and ability to retain the security for a period of time sufficient to allow for a recovery in fair value. Among the factors that the Corporation considers in determining its intent and ability to retain the security is a review of its capital adequacy, interest rate risk position and liquidity. The assessment of a securitys ability to recover any decline in fair value, the ability of the issuer to meet contractual obligations, the Corporations intent and ability to retain the security, and whether it is more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis require considerable judgment.
12
Debt securities with credit ratings below AA at the time of purchase that are repayment-sensitive securities are evaluated using the guidance of ASC 325, InvestmentsOther. All other securities are required to be evaluated under ASC 320, Investments Debt Securities.
The Corporation invested in TPS issued by special purpose vehicles (SPVs) that hold pools of collateral consisting of trust preferred and subordinated debt securities issued by banks, bank holding companies, thrifts and insurance companies. The securities issued by the SPVs are generally segregated into several classes known as tranches. Typically, the structure includes senior, mezzanine and equity tranches. The equity tranche represents the first loss position. The Corporation generally holds interests in mezzanine tranches. Interest and principal collected from the collateral held by the SPVs are distributed with a priority that provides the highest level of protection to the senior-most tranches. In order to provide a high level of protection to the senior tranches, cash flows are diverted to higher-level tranches if the principal and interest coverage tests are not met.
The Corporation prices its holdings of TPS using Level 3 inputs in accordance with ASC 820, Fair Value Measurements and Disclosures, and guidance issued by the SEC. In this regard, the Corporation evaluates current available information in estimating the future cash flows of these securities and determines whether there have been favorable or adverse changes in estimated cash flows from the cash flows previously projected. The Corporation considers the structure and term of the pool and the financial condition of the underlying issuers. Specifically, the evaluation incorporates factors such as over-collateralization and interest coverage tests, interest rates and appropriate risk premiums, the timing and amount of interest and principal payments and the allocation of payments to the various tranches. Current estimates of cash flows are based on the most recent trustee reports, announcements of deferrals or defaults, and assumptions regarding expected future default rates, prepayment and recovery rates and other relevant information. In constructing these assumptions, the Corporation considers the following:
| that current defaults would have no recovery; |
| that some individually analyzed deferrals will cure at rates varying from 10% to 90% after the deferral period ends; |
| recent historical performance metrics, including profitability, capital ratios, loan charge-offs and loan reserve ratios, for the underlying institutions that would indicate a higher probability of default by the institution; |
| that institutions identified as possessing a higher probability of default would recover at a rate of 10% for banks and 15% for insurance companies; |
| that financial performance of the financial sector continues to be affected by the economic environment resulting in an expectation of additional deferrals and defaults in the future; |
| whether the security is currently deferring interest; and |
| the external rating of the security and recent changes to its external rating. |
The primary evidence utilized by the Corporation is the level of current deferrals and defaults, the level of excess subordination that allows for receipt of full principal and interest, the credit rating for each security and the likelihood that future deferrals and defaults will occur at a level that will fully erode the excess subordination based on an assessment of the underlying collateral. The Corporation combines the results of these factors considered in estimating the future cash flows of these securities to determine whether there has been an adverse change in estimated cash flows from the cash flows previously projected.
The Corporations portfolio of TPS consists of 24 pooled issues, primarily obtained through acquisitions, and five single-issuer securities. Three of the pooled issues are senior tranches; the remaining 21 are mezzanine tranches. At March 31, 2013, the 24 pooled TPS had an estimated fair value of $23,807 while the single-issuer TPS had an estimated fair value of $6,999. The Corporation has concluded from the analysis performed at March 31, 2013 that it is probable that the Corporation will collect all contractual principal and interest payments on all of its single-issuer and pooled TPS sufficient to recover the amortized cost basis of the securities.
At March 31, 2013, all five single-issuer TPS are current in regards to their principal and interest payments. Of the 24 pooled TPS, four are accruing interest based on the coupon rate, 18 are accreting income based on future expected cash flows and the remaining two are on non-accrual status. Income of $813 and $133 was recognized on pooled TPS for the three months ended March 31, 2013 and 2012, respectively.
The Corporation did not recognize any impairment losses on securities for the three months ended March 31, 2013 and 2012.
13
The following table presents a summary of the cumulative credit-related OTTI charges recognized as components of earnings for securities for which a portion of an OTTI is recognized in other comprehensive income:
Collateralized Debt Obligations |
Residential Non-Agency CMOs |
Total | ||||||||||
For the Three Months Ended March 31, 2013 |
||||||||||||
Beginning balance |
$ | 17,155 | $ | 212 | $ | 17,367 | ||||||
Loss where impairment was not previously recognized |
| | | |||||||||
Additional loss where impairment was previously recognized |
| | | |||||||||
Reduction due to credit impaired securities sold |
| (212 | ) | (212 | ) | |||||||
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|
|||||||
Ending balance |
$ | 17,155 | $ | | $ | 17,155 | ||||||
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|||||||
For the Three Months Ended March 31, 2012 |
||||||||||||
Beginning balance |
$ | 18,369 | $ | 29 | $ | 18,398 | ||||||
Loss where impairment was not previously recognized |
| | | |||||||||
Additional loss where impairment was previously recognized |
| | | |||||||||
Reduction due to credit impaired securities sold |
| | | |||||||||
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|
|||||||
Ending balance |
$ | 18,369 | $ | 29 | $ | 18,398 | ||||||
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TPS continue to experience price volatility as the secondary market for such securities remains limited. Write-downs, when required, are based on an individual securitys credit performance and its ability to make its contractual principal and interest payments. Should credit quality deteriorate to a greater extent than projected, it is possible that additional write-downs may be required. The Corporation monitors actual deferrals and defaults as well as expected future deferrals and defaults to determine if there is a high probability for expected losses and contractual shortfalls of interest or principal, which could warrant further impairment. The Corporation evaluates its entire TPS portfolio each quarter to determine if additional write-downs are warranted.
14
The following table provides information relating to the Corporations TPS as of March 31, 2013:
Deal Name |
Class | Current Par Value |
Amortized Cost |
Fair Value |
Unrealized Gain (Loss) |
Lowest Credit Ratings |
Number of Issuers Currently Performing |
Actual Defaults (as a percent of original collateral) |
Actual Deferrals (as a percent of original collateral) |
Projected Recovery Rates on Current Deferrals (1) |
Expected Defaults (%) (2) |
Excess Subordination (as a percent of current collateral) (3) |
||||||||||||||||||||||||||||||||||||
Pooled TPS: |
||||||||||||||||||||||||||||||||||||||||||||||||
P1 |
C1 | $ | 5,500 | $ | 2,491 | $ | 1,103 | $ | (1,388 | ) | C | 42 | 22 | 12 | 46 | 17 | 0.00 | |||||||||||||||||||||||||||||||
P2 |
C1 | 4,889 | 2,972 | 972 | (2,000 | ) | C | 42 | 17 | 14 | 38 | 15 | 0.00 | |||||||||||||||||||||||||||||||||||
P3 |
C1 | 5,561 | 4,260 | 1,292 | (2,968 | ) | C | 47 | 13 | 9 | 31 | 16 | 0.00 | |||||||||||||||||||||||||||||||||||
P4 |
C1 | 3,994 | 3,039 | 943 | (2,096 | ) | C | 52 | 16 | 6 | 37 | 16 | 0.00 | |||||||||||||||||||||||||||||||||||
P5 |
B3 | 2,000 | 739 | 327 | (412 | ) | C | 15 | 29 | 10 | 46 | 11 | 0.00 | |||||||||||||||||||||||||||||||||||
P6 |
B1 | 3,028 | 2,419 | 826 | (1,593 | ) | C | 49 | 14 | 21 | 44 | 10 | 0.00 | |||||||||||||||||||||||||||||||||||
P7 |
C | 5,048 | 776 | 388 | (388 | ) | C | 34 | 14 | 28 | 39 | 13 | 0.00 | |||||||||||||||||||||||||||||||||||
P8 |
C | 2,011 | 788 | 185 | (603 | ) | C | 43 | 16 | 12 | 36 | 17 | 0.00 | |||||||||||||||||||||||||||||||||||
P9 |
A4L | 2,000 | 645 | 228 | (417 | ) | C | 25 | 16 | 14 | 44 | 11 | 0.00 | |||||||||||||||||||||||||||||||||||
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Total OTTI |
34,031 | 18,129 | 6,264 | (11,865 | ) | 349 | 17 | 14 | 40 | 15 | ||||||||||||||||||||||||||||||||||||||
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P10 |
SNR | 488 | 505 | 478 | (27 | ) | A2 | 8 | 15 | 11 | 51 | 11 | 103.71 | |||||||||||||||||||||||||||||||||||
P11 |
C1 | 5,219 | 1,012 | 1,047 | 35 | C | 42 | 22 | 12 | 46 | 17 | 0.00 | ||||||||||||||||||||||||||||||||||||
P12 |
A2A | 5,000 | 2,124 | 1,896 | (228 | ) | B+ | 43 | 17 | 14 | 38 | 15 | 44.37 | |||||||||||||||||||||||||||||||||||
P13 |
C1 | 4,781 | 1,225 | 1,111 | (114 | ) | C | 47 | 13 | 9 | 31 | 16 | 0.00 | |||||||||||||||||||||||||||||||||||
P14 |
C1 | 5,260 | 1,179 | 1,242 | 63 | C | 52 | 16 | 6 | 37 | 16 | 0.00 | ||||||||||||||||||||||||||||||||||||
P15 |
C1 | 5,190 | 979 | 1,189 | 210 | C | 59 | 15 | 12 | 35 | 17 | 4.20 | ||||||||||||||||||||||||||||||||||||
P16 |
C1 | 3,206 | 370 | 537 | 167 | C | 44 | 19 | 6 | 27 | 18 | 0.00 | ||||||||||||||||||||||||||||||||||||
P17 |
C | 3,339 | 601 | 638 | 37 | C | 35 | 15 | 13 | 26 | 16 | 0.00 | ||||||||||||||||||||||||||||||||||||
P18 |
B | 2,069 | 633 | 541 | (92 | ) | C | 33 | 13 | 24 | 34 | 14 | 17.67 | |||||||||||||||||||||||||||||||||||
P19 |
B2 | 5,000 | 2,199 | 2,540 | 341 | CCC | 22 | 0 | 4 | 10 | 13 | 42.23 | ||||||||||||||||||||||||||||||||||||
P20 |
B | 4,051 | 939 | 963 | 24 | C | 40 | 16 | 12 | 36 | 17 | 11.80 | ||||||||||||||||||||||||||||||||||||
P21 |
A1 | 3,523 | 2,094 | 2,015 | (79 | ) | BB- | 47 | 21 | 6 | 40 | 15 | 51.55 | |||||||||||||||||||||||||||||||||||
P22 |
B | 5,000 | 1,271 | 1,044 | (227 | ) | C | 15 | 18 | 6 | 44 | 11 | 0.00 | |||||||||||||||||||||||||||||||||||
P23 |
C1 | 5,531 | 1,291 | 1,111 | (180 | ) | C | 26 | 15 | 12 | 36 | 10 | 0.00 | |||||||||||||||||||||||||||||||||||
P24 |
C1 | 5,606 | 1,180 | 1,191 | 11 | C | 26 | 16 | 9 | 43 | 11 | 0.00 | ||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||
Total Not OTTI |
63,263 | 17,602 | 17,543 | (59 | ) | 539 | 16 | 10 | 36 | 15 | ||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||||||
Total Pooled TPS |
$ | 97,294 | $ | 35,731 | $ | 23,807 | $ | (11,924 | ) | 888 | 16 | 11 | 38 | 15 | ||||||||||||||||||||||||||||||||||
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15
Deal Name |
Class | Current Par Value |
Amortized Cost |
Fair Value |
Unrealized Gain (Loss) |
Lowest Credit Ratings |
Number of Issuers Currently Performing |
Actual Defaults (as a percent of original collateral) |
Actual Deferrals (as a percent of original collateral) |
Projected Recovery Rates on Current Deferrals (1) |
Expected Defaults (%) (2) |
Excess Subordination (as a percent of current collateral) (3) | ||||||||||||||||||||||||
Single Issuer TPS: |
||||||||||||||||||||||||||||||||||||
S1 |
$ | 2,000 | $ | 1,953 | $ | 1,533 | $ | (420 | ) | BB | 1 | |||||||||||||||||||||||||
S2 |
2,000 | 1,921 | 1,664 | (257 | ) | BBB | 1 | |||||||||||||||||||||||||||||
S3 |
1,000 | 955 | 1,033 | 78 | BB+ | 1 | ||||||||||||||||||||||||||||||
S4 |
2,000 | 2,000 | 1,985 | (15 | ) | BB+ | 1 | |||||||||||||||||||||||||||||
S5 |
1,000 | 999 | 784 | (215 | ) | BB | 1 | |||||||||||||||||||||||||||||
Total Single Issuer TPS |
$ | 8,000 | $ | 7,828 | $ | 6,999 | $ | (829 | ) | 5 | ||||||||||||||||||||||||||
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|||||||||||||||||||||||||||
Total TPS |
$ | 105,294 | $ | 43,559 | $ | 30,806 | $ | (12,753 | ) | 893 | ||||||||||||||||||||||||||
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(1) | Some current deferrals are expected to cure at rates varying from 10% to 90% after five years. |
(2) | Expected future defaults as a percent of remaining performing collateral. |
(3) | Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. |
16
States of the U.S. and Political Subdivisions
The Corporations municipal bond portfolio of $163,449 as of March 31, 2013 is highly rated with an average entity specific rating of AA and 98.8% of the portfolio rated A or better. General obligation bonds comprise 99.5% of the portfolio. Geographically, municipal bonds support the Corporations footprint as 77.1% of the securities are from municipalities located throughout Pennsylvania. The average holding size of the securities in the municipal bond portfolio is $997. In addition to the strong stand-alone ratings, 69.1% of the municipalities have purchased credit enhancement insurance to strengthen the creditworthiness of their issue. Management also reviews the credit profile of each issuer on a quarterly basis.
Non-Agency CMOs
The Corporation purchased $161,151 of non-agency CMOs from 2003 through 2005. The book value of these CMOs was $9,180 at March 31, 2013. At the time of purchase, these securities were all rated AAA, with an original average LTV ratio of 66.1% and original average credit score of 724. At origination, the credit support, or the amount of loss the collateral pool could absorb before the AAA securities would incur a credit loss, ranged from 2.0% to 7.0%. Since the time of these original purchases, all of which are classified as held to maturity, three holdings have been sold and one holding has paid off. The Corporation acquired and retained $60 of non-agency CMOs from a previous acquisition and acquired $42,810 and retained $4,238 of non-agency CMOs from the Parkvale acquisition. These acquired and retained securities are classified as available for sale and had a book value of $2,386 at March 31, 2013. Paydowns during the first three months of 2013 amounted to $1,680, an annualized paydown rate of 40.1%. The credit support at March 31, 2013 varied by holding and ranged between 5.8% to 21.3%, due to paydowns, continued good credit performance and the sale of one non-agency CMO having a book value of $3,529 during the first quarter of 2013. National delinquencies, an early warning sign of potential default, have been increasing for the past five years. Overall, the rate of delinquencies on the Corporations holdings continued to increase modestly during the first three months of 2013, but at a slower pace. All non-agency CMO holdings are current with regards to principal and interest.
The Corporation monitors the underlying collateral performance of these non-agency CMOs for delinquencies, foreclosures and defaults. They also factor in trends in bankruptcies and housing values to ultimately arrive at an expected loss for a given piece of defaulted collateral. Since 2008, the collateral performance on many of these types of securities has deteriorated, resulting in downgrades by the rating agencies. For the Corporations portfolio, all ten non-agency CMOs have been downgraded since their original purchase date, but nine remain investment grade.
The Corporation determines its credit-related losses by running scenario analysis on the underlying collateral. This analysis applies default assumptions to delinquencies already in the pipeline, projects future defaults based in part on the historical trends for the collateral, applies a rate of severity and estimates prepayment rates. Because of the limited historical trends for the collateral, multiple default scenarios were analyzed including scenarios that significantly elevate defaults over the next 12 - 18 months. Based on the results of the analysis, the Corporations management concluded that there are currently no credit-related losses in its non-agency CMO portfolio. The one non-agency CMO that incurred a credit-related loss in 2012 was sold in March 2013 and resulted in a net loss on sale of $348, which was recognized in the first quarter of 2013.
17
The following table provides information relating to the Corporations non-agency CMOs as of March 31, 2013:
Subordination Data | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit Rating | Credit Support % | Delinquency % | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Security |
Original Year |
Book Value (1) |
S&P | Moodys | Original | Current | 30 Day | 60 Day | 90 Day | % Foreclosure |
% OREO |
% Bankruptcy |
Total Delinquency |
% LTV |
Credit Score |
|||||||||||||||||||||||||||||||||||||||||||||
1 |
2003 | $ | 1,386 | AA+ | n/a | 2.5 | 6.9 | 3.2 | 0.4 | 1.3 | 1.3 | 0.2 | 1.2 | 7.6 | 50.5 | 733 | ||||||||||||||||||||||||||||||||||||||||||||
2 |
2003 | 1,308 | A+ | n/a | 4.3 | 17.4 | 3.5 | 1.8 | 1.9 | 4.4 | 0.6 | 1.4 | 13.5 | 54.1 | 708 | |||||||||||||||||||||||||||||||||||||||||||||
3 |
2003 | 675 | AA- | n/a | 2.0 | 8.1 | 1.5 | 0.3 | 3.4 | 1.5 | 0.3 | 0.4 | 7.3 | 45.8 | 740 | |||||||||||||||||||||||||||||||||||||||||||||
4 |
2003 | 605 | AA+ | n/a | 2.7 | 21.0 | 1.8 | 0.0 | 0.0 | 2.2 | 2.0 | 2.4 | 8.3 | 48.1 | n/a | |||||||||||||||||||||||||||||||||||||||||||||
5 |
2003 | 2,364 | BBB+ | n/a | 2.5 | 5.8 | 1.2 | 0.6 | 0.6 | 2.8 | 0.0 | 0.5 | 5.8 | 50.0 | 729 | |||||||||||||||||||||||||||||||||||||||||||||
6 |
2004 | 2,340 | A+ | Ba3 | 7.0 | 21.3 | 2.4 | 0.8 | 3.1 | 10.8 | 0.5 | 3.6 | 21.2 | 54.5 | 689 | |||||||||||||||||||||||||||||||||||||||||||||
7 |
2004 | 1,238 | A+ | n/a | 5.3 | 10.4 | 1.0 | 0.7 | 2.1 | 4.1 | 0.0 | 0.9 | 8.8 | 45.0 | 731 | |||||||||||||||||||||||||||||||||||||||||||||
8 |
2004 | 697 | n/a | A1 | 2.5 | 11.5 | 0.0 | 0.0 | 0.0 | 6.6 | 0.0 | 0.0 | 6.6 | 53.9 | 727 | |||||||||||||||||||||||||||||||||||||||||||||
9 |
2004 | 931 | AA+ | Baa2 | 4.4 | 10.0 | 1.4 | 0.6 | 0.8 | 3.2 | 0.4 | 1.3 | 7.7 | 53.5 | 733 | |||||||||||||||||||||||||||||||||||||||||||||
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$ | 11,544 | 3.9 | 12.5 | 51.1 | 720 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(1) | One acquired available for sale non-agency CMO with a March 31, 2013 book value of $22 is not included in the above table. The bond rating at acquisition was AAA and is now Baa2. This non-agency CMO is current with regards to principal and interest. |
18
FEDERAL HOME LOAN BANK STOCK
The Corporation is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh. The FHLB requires members to purchase and hold a specified minimum level of FHLB stock based upon their level of borrowings, collateral balances and participation in other programs offered by the FHLB. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Both cash and stock dividends on FHLB stock are reported as income.
Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the low-cost products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value.
At March 31, 2013 and December 31, 2012, the Corporations FHLB stock totaled $20,950 and $24,560, respectively, and is included in other assets on the balance sheet. The Corporation accounts for the stock in accordance with ASC 325, which requires the investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. Due to the continued improvement of the FHLBs financial performance and stability over the past several years, the Corporation believes its holdings in the stock are ultimately recoverable at par value and, therefore, determined that FHLB stock was not other-than-temporarily impaired. In addition, the Corporation has ample liquidity and does not require redemption of its FHLB stock in the foreseeable future.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Following is a summary of loans, net of unearned income:
Originated Loans |
Acquired Loans |
Total Loans |
||||||||||
March 31, 2013 |
||||||||||||
Commercial real estate |
$ | 2,429,277 | $ | 249,246 | $ | 2,678,523 | ||||||
Commercial and industrial |
1,668,060 | 42,738 | 1,710,798 | |||||||||
Commercial leases |
131,500 | | 131,500 | |||||||||
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|
|
|
|
|
|||||||
Total commercial loans and leases |
4,228,837 | 291,984 | 4,520,821 | |||||||||
Direct installment |
1,130,096 | 62,330 | 1,192,426 | |||||||||
Residential mortgages |
663,781 | 409,117 | 1,072,898 | |||||||||
Indirect installment |
562,824 | 11,297 | 574,121 | |||||||||
Consumer lines of credit |
749,346 | 68,066 | 817,412 | |||||||||
Other |
31,608 | | 31,608 | |||||||||
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|
|||||||
$ | 7,366,492 | $ | 842,794 | $ | 8,209,286 | |||||||
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|
|||||||
December 31, 2012 |
||||||||||||
Commercial real estate |
$ | 2,448,471 | $ | 258,575 | $ | 2,707,046 | ||||||
Commercial and industrial |
1,555,301 | 47,013 | 1,602,314 | |||||||||
Commercial leases |
130,133 | | 130,133 | |||||||||
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|
|||||||
Total commercial loans and leases |
4,133,905 | 305,588 | 4,439,493 | |||||||||
Direct installment |
1,108,865 | 69,665 | 1,178,530 | |||||||||
Residential mortgages |
653,826 | 438,402 | 1,092,228 | |||||||||
Indirect installment |
568,324 | 13,713 | 582,037 | |||||||||
Consumer lines of credit |
732,534 | 72,960 | 805,494 | |||||||||
Other |
39,937 | | 39,937 | |||||||||
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|
|||||||
$ | 7,237,391 | $ | 900,328 | $ | 8,137,719 | |||||||
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|
The carrying amount of acquired loans at March 31, 2013 totaled $842,794, including purchased credit-impaired (PCI) loans with a carrying amount of $15,084, while the carrying amount of acquired loans at December 31, 2012 totaled $900,328, including PCI loans with a carrying amount of $16,623. The outstanding contractual balance receivable of acquired loans at March 31, 2013 totaled $887,313, including PCI loans with an outstanding contractual balance receivable of $33,909, while the outstanding contractual balance receivable of acquired loans at December 31, 2012 totaled $949,862, including PCI loans with an outstanding contractual balance receivable of $41,134.
19
Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties. Commercial and industrial includes loans to businesses that are not secured by real estate. Commercial leases consist of loans for new or used equipment. Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans. Residential mortgages consist of conventional and jumbo mortgage loans for non-commercial properties. Indirect installment is comprised of loans originated by third parties and underwritten by the Corporation, primarily automobile loans. Consumer lines of credit include home equity lines of credit (HELOC) and consumer lines of credit that are either unsecured or secured by collateral other than home equity. Other is comprised primarily of mezzanine loans and student loans.
The loan portfolio consists principally of loans to individuals and smalland medium-sized businesses within the Corporations primary market area of Pennsylvania, northeastern Ohio and northern West Virginia. The commercial real estate portfolio also includes loans in Florida, which totaled $55,438 or 0.7% of total loans at March 31, 2013, compared to $68,627 or 0.8% of total loans at December 31, 2012. Additionally, the total loan portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky, which equaled $167,586 or 2.0% of total loans at March 31, 2013, compared to $170,999 or 2.1% of total loans at December 31, 2012. Due to the relative size of the consumer finance loan portfolio, they are not segregated from other consumer loans.
As of March 31, 2013, 47.7% of the commercial real estate loans were owner-occupied, while the remaining 52.3% were non-owner-occupied, compared to 46.5% and 53.5%, respectively, as of December 31, 2012. As of March 31, 2013 and December 31, 2012, the Corporation had commercial construction loans of $257,816 and $190,206, respectively, representing 3.1% and 2.3% of total loans, respectively.
ASC 310-30 Loans
All loans acquired in the Parkvale acquisition, except for revolving loans, are subject to ASC 310-30. Revolving loans are accounted for under ASC 310-20. The Corporations allowance for loan losses for acquired loans reflects only those losses incurred after acquisition.
The following table reflects amounts at acquisition for all purchased loans subject to ASC310-30 (impaired and non-impaired) acquired from Parkvale in 2012:
Acquired Impaired Loans |
Acquired Performing Loans |
Total | ||||||||||
Acquired from Parkvale in 2012 |
||||||||||||
Contractually required cash flows at acquisition |
$ | 12,224 | $ | 1,327,342 | $ | 1,339,566 | ||||||
Non-accretable difference (expected losses and foregone interest) |
(6,070 | ) | (214,541 | ) | (220,611 | ) | ||||||
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|
|||||||
Cash flows expected to be collected at acquisition |
6,154 | 1,112,801 | 1,118,955 | |||||||||
Accretable yield |
(589 | ) | (293,594 | ) | (294,183 | ) | ||||||
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Basis in acquired loans at acquisition |
$ | 5,565 | $ | 819,207 | $ | 824,772 | ||||||
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20
The following table provides a summary of change in accretable yield for all acquired loans:
Acquired Impaired Loans |
Acquired Performing Loans |
Total | ||||||||||
Three Months Ended March 31, 2013 |
||||||||||||
Balance at beginning of period |
$ | 778 | $ | 253,375 | $ | 254,153 | ||||||
Reduction due to unexpected early payoffs |
| (10,632 | ) | (10,632 | ) | |||||||
Reclass from non-accretable difference |
510 | 4,609 | 5,119 | |||||||||
Disposals/transfers |
(6 | ) | (44 | ) | (50 | ) | ||||||
Accretion |
(688 | ) | (8,221 | ) | (8,909 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
$ | 594 | $ | 239,087 | $ | 239,681 | ||||||
|
|
|
|
|
|
|||||||
Year Ended December 31, 2012 |
||||||||||||
Balance at beginning of period |
$ | 2,477 | $ | 49,229 | $ | 51,706 | ||||||
Acquisitions |
589 | 293,594 | 294,183 | |||||||||
Reduction due to unexpected early payoffs |
| (57,840 | ) | (57,840 | ) | |||||||
Reclass from non-accretable difference |
3,539 | 10,915 | 14,454 | |||||||||
Disposals/transfers |
(49 | ) | (615 | ) | (664 | ) | ||||||
Accretion |
(5,778 | ) | (41,908 | ) | (47,686 | ) | ||||||
|
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|
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|
|
|||||||
Balance at end of period |
$ | 778 | $ | 253,375 | $ | 254,153 | ||||||
|
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|
Purchased Credit-Impaired (PCI) Loans
The Corporation has acquired loans for which there was evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected.
Following is information about PCI loans identified in the Corporations acquisition of Parkvale:
At Acquisition |
December 31, 2012 |
|||||||
Outstanding balance |
$ | 9,135 | $ | 3,704 | ||||
Carrying amount |
5,565 | 2,552 | ||||||
Allowance for loan losses |
n/a | 103 | ||||||
Impairment recognized since acquisition |
n/a | 103 | ||||||
Allowance reduction recognized since acquisition |
n/a | |
21
Following is information about the Corporations PCI loans:
Contractual Receivable |
Non- Accretable Difference |
Expected Cash Flows |
Accretable Yield |
Carrying Amount |
||||||||||||||||
For the Three Months Ended March 31, 2013 |
||||||||||||||||||||
Balance at beginning of period |
$ | 41,134 | $ | (23,733 | ) | $ | 17,401 | $ | (778 | ) | $ | 16,623 | ||||||||
Acquisitions |
| | | | | |||||||||||||||
Accretion |
| | | 688 | 688 | |||||||||||||||
Payments received |
(1,595 | ) | | (1,595 | ) | | (1,595 | ) | ||||||||||||
Reclass from non-accretable difference |
| 510 | 510 | (510 | ) | | ||||||||||||||
Disposals/transfers |
(6,074 | ) | 5,436 | (638 | ) | 6 | (632 | ) | ||||||||||||
Contractual interest |
444 | (444 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at end of period |
$ | 33,909 | $ | (18,321 | ) | $ | 15,678 | $ | (594 | ) | $ | 15,084 | ||||||||
|
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|
|||||||||||
For the Year Ended December 31, 2012 |
||||||||||||||||||||
Balance at beginning of period |
$ | 51,693 | $ | (33,377 | ) | $ | 18,316 | $ | (2,477 | ) | $ | 15,839 | ||||||||
Acquisitions |
9,135 | (2,981 | ) | 6,154 | (589 | ) | 5,565 | |||||||||||||
Accretion |
| | | 5,778 | 5,778 | |||||||||||||||
Payments received |
(9,556 | ) | | (9,556 | ) | | (9,556 | ) | ||||||||||||
Reclass from non-accretable difference |
| 3,539 | 3,539 | (3,539 | ) | | ||||||||||||||
Disposals/transfers |
(12,494 | ) | 11,442 | (1,052 | ) | 49 | (1,003 | ) | ||||||||||||
Contractual interest |
2,356 | (2,356 | ) | | | | ||||||||||||||
|
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|
|
|
|
|
|
|||||||||||
Balance at end of period |
$ | 41,134 | $ | (23,733 | ) | $ | 17,401 | $ | (778 | ) | $ | 16,623 | ||||||||
|
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|
The accretion in the table above includes $510 in 2013 and $3,539 in 2012 that primarily represents payoffs received on certain loans in excess of expected cash flows.
Credit Quality
Management monitors the credit quality of the Corporations loan portfolio on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.
Non-performing loans include non-accrual loans and non-performing troubled debt restructurings (TDRs). Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. The Corporation places a loan on non-accrual status and discontinues interest accruals on originated loans generally when principal or interest is due and has remained unpaid for a certain number of days unless the loan is both well secured and in the process of collection. Commercial loans are placed on non-accrual at 90 days, installment loans are placed on non-accrual at 120 days and residential mortgages and consumer lines of credit are generally placed on non-accrual at 180 days. When a loan is placed on non-accrual status, all unpaid interest is reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate ability to collect the remaining principal and interest is reasonably assured. TDRs are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Non-performing assets also include debt securities on which OTTI has been taken in the current or prior periods that have not been returned to accrual status.
Following is a summary of non-performing assets:
March 31, 2013 |
December 31, 2012 |
|||||||
Non-accrual loans |
$ | 65,578 | $ | 66,004 | ||||
Troubled debt restructurings |
16,555 | 14,876 | ||||||
|
|
|
|
|||||
Total non-performing loans |
82,133 | 80,880 | ||||||
Other real estate owned (OREO) |
35,869 | 35,257 | ||||||
|
|
|
|
|||||
Total non-performing loans and OREO |
118,002 | 116,137 | ||||||
Non-performing investments |
413 | 2,809 | ||||||
|
|
|
|
|||||
Total non-performing assets |
$ | 118,415 | $ | 118,946 | ||||
|
|
|
|
22
March 31, 2013 |
December 31, 2012 |
|||||||
Asset quality ratios: |
||||||||
Non-performing loans as a percent of total loans |
1.00 | % | 0.99 | % | ||||
Non-performing loans + OREO as a percent of total loans + OREO |
1.43 | % | 1.42 | % | ||||
Non-performing assets as a percent of total assets |
0.99 | % | 0.99 | % |
The following tables provide an analysis of the aging of the Corporations past due loans by class, segregated by loans originated and loans acquired:
Originated loans:
30-89 Days Past Due |
>90
Days Past Due and Still Accruing |
Non-Accrual | Total Past Due |
Current | Total Loans |
|||||||||||||||||||
March 31, 2013 |
||||||||||||||||||||||||
Commercial real estate |
$ | 7,320 | $ | 523 | $ | 46,274 | $ | 54,117 | $ | 2,375,160 | $ | 2,429,277 | ||||||||||||
Commercial and industrial |
2,177 | 456 | 10,110 | 12,743 | 1,655,317 | 1,668,060 | ||||||||||||||||||
Commercial leases |
1,427 | | 657 | 2,084 | 129,416 | 131,500 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans and leases |
10,924 | 979 | 57,041 | 68,944 | 4,159,893 | 4,228,837 | ||||||||||||||||||
Direct installment |
7,555 | 2,602 | 3,875 | 14,032 | 1,116,064 | 1,130,096 | ||||||||||||||||||
Residential mortgages |
10,389 | 1,769 | 3,424 | 15,582 | 648,199 | 663,781 | ||||||||||||||||||
Indirect installment |
4,045 | 380 | 977 | 5,402 | 557,422 | 562,824 | ||||||||||||||||||
Consumer lines of credit |
1,985 | 218 | 261 | 2,464 | 746,882 | 749,346 | ||||||||||||||||||
Other |
11 | 26 | | 37 | 31,571 | 31,608 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 34,909 | $ | 5,974 | $ | 65,578 | $ | 106,461 | $ | 7,260,031 | $ | 7,366,492 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2012 |
||||||||||||||||||||||||
Commercial real estate |
$ | 5,786 | $ | 533 | $ | 47,895 | $ | 54,214 | $ | 2,394,257 | $ | 2,448,471 | ||||||||||||
Commercial and industrial |
7,310 | 456 | 6,017 | 13,783 | 1,541,518 | 1,555,301 | ||||||||||||||||||
Commercial leases |
1,671 | | 965 | 2,636 | 127,497 | 130,133 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans and leases |
14,767 | 989 | 54,877 | 70,633 | 4,063,272 | 4,133,905 | ||||||||||||||||||
Direct installment |
8,834 | 2,717 | 3,342 | 14,893 | 1,093,972 | 1,108,865 | ||||||||||||||||||
Residential mortgages |
15,821 | 2,365 | 2,891 | 21,077 | 632,749 | 653,826 | ||||||||||||||||||
Indirect installment |
5,114 | 374 | 1,039 | 6,527 | 561,797 | 568,324 | ||||||||||||||||||
Consumer lines of credit |
1,633 | 247 | 355 | 2,235 | 730,299 | 732,534 | ||||||||||||||||||
Other |
36 | 15 | 3,500 | 3,551 | 36,386 | 39,937 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 46,205 | $ | 6,707 | $ | 66,004 | $ | 118,916 | $ | 7,118,475 | $ | 7,237,391 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
23
Acquired loans:
30-89 Days Past Due |
> 90 Days Past Due and Still Accruing |
Non- Accrual |
Total Past Due (1) |
Current | Discount | Total Loans |
||||||||||||||||||||||
March 31, 2013 |
||||||||||||||||||||||||||||
Commercial real estate |
$ | 3,411 | $ | 14,095 | | $ | 17,506 | $ | 239,383 | $ | (7,643 | ) | $ | 249,246 | ||||||||||||||
Commercial and industrial |
929 | 4,086 | | 5,015 | 39,723 | (2,000 | ) | 42,738 | ||||||||||||||||||||
Commercial leases |
| | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial loans and leases |
4,340 | 18,181 | | 22,521 | 279,106 | (9,643 | ) | 291,984 | ||||||||||||||||||||
Direct installment |
865 | 1,324 | | 2,189 | 56,579 | 3,562 | 62,330 | |||||||||||||||||||||
Residential mortgages |
8,091 | 20,929 | | 29,020 | 414,084 | (33,987 | ) | 409,117 | ||||||||||||||||||||
Indirect installment |
219 | 57 | | 276 | 11,779 | (758 | ) | 11,297 | ||||||||||||||||||||
Consumer lines of credit |
357 | 743 | | 1,100 | 70,659 | (3,693 | ) | 68,066 | ||||||||||||||||||||
Other |
| | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 13,872 | $ | 41,234 | | $ | 55,106 | $ | 832,207 | $ | (44,519 | ) | $ | 842,794 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
December 31, 2012 |
||||||||||||||||||||||||||||
Commercial real estate |
$ | 6,829 | $ | 13,597 | | $ | 20,426 | $ | 250,116 | $ | (11,967 | ) | $ | 258,575 | ||||||||||||||
Commercial and industrial |
1,653 | 138 | | 1,791 | 47,351 | (2,129 | ) | 47,013 | ||||||||||||||||||||
Commercial leases |
| | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial loans and leases |
8,482 | 13,735 | | 22,217 | 297,467 | (14,096 | ) | 305,588 | ||||||||||||||||||||
Direct installment |
1,454 | 947 | | 2,401 | 63,502 | 3,762 | 69,665 | |||||||||||||||||||||
Residential mortgages |
12,137 | 21,069 | | 33,206 | 439,620 | (34,424 | ) | 438,402 | ||||||||||||||||||||
Indirect installment |
347 | 56 | | 403 | 14,089 | (779 | ) | 13,713 | ||||||||||||||||||||
Consumer lines of credit |
379 | 778 | | 1,157 | 75,800 | (3,997 | ) | 72,960 | ||||||||||||||||||||
Other |
| | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 22,799 | $ | 36,585 | | $ | 59,384 | $ | 890,478 | $ | (49,534 | ) | $ | 900,328 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Past due information for loans acquired is based on the contractual balance outstanding at March 31, 2013 and December 31, 2012. |
The Corporation utilizes the following categories to monitor credit quality within its commercial loan portfolio:
Rating Category |
Definition | |
Pass | in general, the condition of the borrower and the performance of the loan is satisfactory or better | |
Special Mention | in general, the condition of the borrower has deteriorated, requiring an increased level of monitoring | |
Substandard | in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected | |
Doubtful | in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable |
The use of these internally assigned credit quality categories within the commercial loan portfolio permits managements use of migration and roll rate analysis to estimate a quantitative portion of credit risk. The Corporations internal credit risk grading system is based on past experiences with similarly graded loans and conforms with regulatory categories. In general, loan risk ratings within each category are reviewed on an ongoing basis according to the Corporations policy for each class of loans. Each quarter, management analyzes the resulting ratings, as well as
24
other external statistics and factors such as delinquency, to track the migration performance of the commercial loan portfolio. Loans within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans that migrate toward the Substandard or Doubtful credit categories. Accordingly, management applies higher risk factors to Substandard and Doubtful credit categories.
The following tables present a summary of the Corporations commercial loans by credit quality category, segregated by loans originated and loans acquired:
Originated loans:
Commercial Loan Credit Quality Categories | ||||||||||||||||||||
Pass | Special Mention |
Substandard | Doubtful | Total | ||||||||||||||||
March 31, 2013 |
||||||||||||||||||||
Commercial real estate |
$ | 2,263,366 | $ | 52,197 | $ | 111,166 | $ | 2,548 | $ | 2,429,277 | ||||||||||
Commercial and industrial |
1,567,078 | 40,401 | 59,830 | 751 | 1,668,060 | |||||||||||||||
Commercial leases |
127,674 | 608 | 3,218 | | 131,500 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 3,958,118 | $ | 93,206 | $ | 174,214 | $ | 3,299 | $ | 4,228,837 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2012 |
||||||||||||||||||||
Commercial real estate |
$ | 2,282,139 | $ | 57,938 | $ | 106,258 | $ | 2,136 | $ | 2,448,471 | ||||||||||
Commercial and industrial |
1,472,598 | 32,227 | 49,814 | 662 | 1,555,301 | |||||||||||||||
Commercial leases |
126,283 | 243 | 3,607 | | 130,133 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 3,881,020 | $ | 90,408 | $ | 159,679 | $ | 2,798 | $ | 4,133,905 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Acquired loans:
Commercial Loan Credit Quality Categories | ||||||||||||||||||||
Pass | Special Mention |
Substandard | Doubtful | Total | ||||||||||||||||
March 31, 2013 |
||||||||||||||||||||
Commercial real estate |
$ | 202,317 | $ | 13,031 | $ | 33,816 | $ | 82 | $ | 249,246 | ||||||||||
Commercial and industrial |
30,974 | 4,126 | 7,636 | 2 | 42,738 | |||||||||||||||
Commercial leases |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 233,291 | $ | 17,157 | $ | 41,452 | $ | 84 | $ | 291,984 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2012 |
||||||||||||||||||||
Commercial real estate |
$ | 204,300 | $ | 14,713 | $ | 39,093 | $ | 469 | $ | 258,575 | ||||||||||
Commercial and industrial |
39,596 | 3,611 | 3,804 | 2 | 47,013 | |||||||||||||||
Commercial leases |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 243,896 | $ | 18,324 | $ | 42,897 | $ | 471 | $ | 305,588 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Credit quality information for loans acquired is based on the contractual balance outstanding at March 31, 2013 and December 31, 2012.
The Corporation uses payment status and delinquency migration analysis within the consumer and other loan classes to enable management to estimate a quantitative portion of credit risk. Each month, management analyzes payment and volume activity, as well as other external statistics and factors such as unemployment, to determine how consumer loans are performing.
25
Following is a table showing originated consumer and other loans by payment status:
Consumer and Other Loan Credit
Quality by Payment Status |
||||||||||||
Performing | Non- Performing |
Total | ||||||||||
March 31, 2013 |
||||||||||||
Direct installment |
$ | 1,120,161 | $ | 9,935 | $ | 1,130,096 | ||||||
Residential mortgages |
650,946 | 12,835 | 663,781 | |||||||||
Indirect installment |
561,722 | 1,102 | 562,824 | |||||||||
Consumer lines of credit |
748,537 | 809 | 749,346 | |||||||||
Other |
31,608 | | 31,608 | |||||||||
December 31, 2012 |
||||||||||||
Direct installment |
$ | 1,100,324 | $ | 8,541 | $ | 1,108,865 | ||||||
Residential mortgages |
642,406 | 11,420 | 653,826 | |||||||||
Indirect installment |
567,192 | 1,132 | 568,324 | |||||||||
Consumer lines of credit |
731,788 | 746 | 732,534 | |||||||||
Other |
36,437 | 3,500 | 39,937 |
Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, the Corporation does not consider loans for impairment unless a sustained period of delinquency (i.e., 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e., negative financial trends, bankruptcy filings, imminent foreclosure proceedings, etc.). Impairment is evaluated in the aggregate for consumer installment loans, residential mortgages, consumer lines of credit, commercial leases and commercial loan relationships less than $500. For loan relationships greater than or equal to $500, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using a market interest rate or at the fair value of collateral if repayment is expected solely from the collateral. Consistent with the Corporations existing method of income recognition for loans, interest on impaired loans, except those classified as non-accrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
26
Following is a summary of information pertaining to originated loans considered to be impaired, by class of loans:
Recorded Investment |
Unpaid Principal Balance |
Specific Related Allowance |
Average Recorded Investment |
|||||||||||||
At or For the Three Months Ended March 31, 2013 |
||||||||||||||||
With no specific allowance recorded: |
||||||||||||||||
Commercial real estate |
$ | 34,787 | $ | 49,686 | $ | | $ | 35,953 | ||||||||
Commercial and industrial |
10,911 | 12,862 | | 8,993 | ||||||||||||
Commercial leases |
| | | 483 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans and leases |
45,698 | 62,548 | | 45,429 | ||||||||||||
Direct installment |
9,935 | 10,198 |