Edgar Filing: FNB CORP/FL/

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10-Q

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)

Registrant’s 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):

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 issuer’s 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

INDEX


		PAGE
PART I – FINANCIAL INFORMATION
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.	Management’s 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
Signatures			74

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

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	)

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

Total Assets	$	11,997,990		$	12,023,976

Liabilities
Deposits:
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

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

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	)

Total Stockholders’ Equity		1,413,257			1,402,069

Total Liabilities and Stockholders’ Equity	$	11,997,990		$	12,023,976

See accompanying Notes to Consolidated Financial Statements

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

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

Total Interest Expense		12,022		16,366

Net Interest Income		93,096		90,921
Provision for loan losses		7,541		6,572

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

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

Total Non-Interest Expense		78,863		86,673

Income Before Income Taxes		40,365		29,421
Income taxes		11,827		7,839

Net Income	$	28,538	$	21,582

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

See accompanying Notes to Consolidated Financial Statements

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

Balance at March 31, 2013	$	1,406	$	1,379,086	$	86,923		$	(47,198	)	$	(6,960	)	$	1,413,257

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

Balance at March 31, 2012	$	1,393	$	1,363,956	$	37,272		$	(43,735	)	$	(4,187	)	$	1,354,699

See accompanying Notes to Consolidated Financial Statements

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	)

Net cash flows provided by operating activities		26,977			365,813

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

Net cash flows used in investing activities		(82,258	)		(394,730	)

Financing Activities
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	)

Net cash flows (used in) provided by financing activities		(22,167	)		84,686

Net (Decrease) Increase in Cash and Cash Equivalents		(77,448	)		55,769
Cash and cash equivalents at beginning of period		239,044			208,953

Cash and Cash Equivalents at End of Period	$	161,596		$	264,722

See accompanying Notes to Consolidated Financial Statements

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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s balance sheet at their fair values as of April 6, 2013, the acquisition date, and ANNB’s results of operations have been included in the Corporation’s consolidated statements of income and comprehensive income since that date. ANNB’s 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)

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 Corporation’s 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 Corporation’s balance sheet at their fair values as of January 1, 2012, the acquisition date, and Parkvale’s results of operations have been included in the Corporation’s consolidated statements of income and comprehensive income since that date. Parkvale’s 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 Corporation’s 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 Corporation’s common stock for each share of PVF common stock. PVF’s 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.

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

Total debt securities		1,161,903		14,859		(14,509	)		1,162,253
Equity securities		1,554		543		(23	)		2,074

	$	1,163,457	$	15,402	$	(14,532	)	$	1,164,327

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

Total debt securities		1,168,885		16,396		(14,605	)		1,170,676
Equity securities		1,554		462		(9	)		2,007

	$	1,170,439	$	16,858	$	(14,614	)	$	1,172,683

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

	$	1,110,556	$	31,179	$	(512	)	$	1,141,223


	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

	$	1,106,563	$	36,785	$	(135	)	$	1,143,213

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	)

	$	684		$	108

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

		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		—		—

	$	1,163,457	$	1,164,327	$	1,110,556	$	1,141,223

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.

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	)

		13	$	194,279	$	(1,067	)		17	$	18,905	$	(13,465	)		30	$	213,184	$	(14,532	)

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	)

		14	$	101,404	$	(1,275	)		13	$	11,431	$	(13,339	)		27	$	112,835	$	(14,614	)

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	)

		12	$	118,231	$	(485	)		1	$	477	$	(27	)		13	$	118,708	$	(512	)

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	)

		2	$	16,325	$	(100	)		1	$	477	$	(35	)		3	$	16,802	$	(135	)

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.

The Corporation’s unrealized losses on collateralized debt obligations (CDOs) relate to investments in trust preferred securities (TPS). The Corporation’s 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 investment’s 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 issuer’s 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 Corporation’s 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 security’s ability to recover any decline in fair value, the ability of the issuer to meet contractual obligations, the Corporation’s 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.

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, Investments—Other. 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 Corporation’s 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.

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	)

Ending balance	$	17,155	$	—		$	17,155

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		—		—			—

Ending balance	$	18,369	$	29		$	18,398

TPS continue to experience price volatility as the secondary market for such securities remains limited. Write-downs, when required, are based on an individual security’s 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.

The following table provides information relating to the Corporation’s 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

Total OTTI				34,031		18,129		6,264		(11,865	)				349		17		14		40		15

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

Total Not OTTI				63,263		17,602		17,543		(59	)				539		16		10		36		15

Total Pooled TPS			$	97,294	$	35,731	$	23,807	$	(11,924	)				888		16		11		38		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

Total TPS		$	105,294	$	43,559	$	30,806	$	(12,753	)				893

(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.

States of the U.S. and Political Subdivisions

The Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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.

The following table provides information relating to the Corporation’s non-agency CMOs as of March 31, 2013:


													Subordination Data
					Credit Rating				Credit Support %				Delinquency %												%
Security	Original Year		Book Value (1)		S&P		Moody’s		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

			$	11,544						3.9		12.5																51.1		720

(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.

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 Corporation’s 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 FHLB’s 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

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

	$	7,366,492	$	842,794	$	8,209,286

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

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

	$	7,237,391	$	900,328	$	8,137,719

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.

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 small—and medium-sized businesses within the Corporation’s 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 Corporation’s 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	)

Cash flows expected to be collected at acquisition		6,154			1,112,801			1,118,955
Accretable yield		(589	)		(293,594	)		(294,183	)

Basis in acquired loans at acquisition	$	5,565		$	819,207		$	824,772

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	)

Balance at end of period	$	778		$	253,375		$	254,153

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 Corporation’s 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		—

Following is information about the Corporation’s 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

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	)		—			—			—

Balance at end of period	$	41,134		$	(23,733	)	$	17,401		$	(778	)	$	16,623

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 Corporation’s 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


	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 Corporation’s 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

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 management’s use of migration and roll rate analysis to estimate a quantitative portion of credit risk. The Corporation’s 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 Corporation’s policy for each class of loans. Each quarter, management analyzes the resulting ratings, as well as

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 Corporation’s 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.

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 Corporation’s 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.

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

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