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 September 30, 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 November 1, 2013 | |
Common Stock, $0.01 Par Value | 158,867,441 Shares |
FORM 10-Q
September 30, 2013
INDEX
PAGE | ||||||
Item 1. |
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3 | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
56 | ||||
Item 3. |
78 | |||||
Item 4. |
78 | |||||
Item 1. |
79 | |||||
Item 1A. |
80 | |||||
Item 2. |
80 | |||||
Item 3. |
80 | |||||
Item 4. |
80 | |||||
Item 5. |
80 | |||||
Item 6. |
81 | |||||
82 |
2
PART I - FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except par value
September 30, | December 31, | |||||||
2013 | 2012 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Cash and due from banks |
$ | 234,746 | $ | 216,233 | ||||
Interest bearing deposits with banks |
48,763 | 22,811 | ||||||
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|
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Cash and Cash Equivalents |
283,509 | 239,044 | ||||||
Securities available for sale |
1,115,558 | 1,172,683 | ||||||
Securities held to maturity (fair value of $1,181,652 and $1,143,213) |
1,180,992 | 1,106,563 | ||||||
Residential mortgage loans held for sale |
8,105 | 27,751 | ||||||
Loans, net of unearned income of $52,598 and $51,661 |
8,836,905 | 8,137,719 | ||||||
Allowance for loan losses |
(110,052 | ) | (104,374 | ) | ||||
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|
|||||
Net Loans |
8,726,853 | 8,033,345 | ||||||
Premises and equipment, net |
147,406 | 140,367 | ||||||
Goodwill |
713,509 | 675,555 | ||||||
Core deposit and other intangible assets, net |
35,400 | 37,851 | ||||||
Bank owned life insurance |
263,781 | 246,088 | ||||||
Other assets |
315,166 | 344,729 | ||||||
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Total Assets |
$ | 12,790,279 | $ | 12,023,976 | ||||
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Liabilities |
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Deposits: |
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Non-interest bearing demand |
$ | 2,115,813 | $ | 1,738,195 | ||||
Savings and NOW |
5,247,922 | 4,808,121 | ||||||
Certificates and other time deposits |
2,359,636 | 2,535,858 | ||||||
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Total Deposits |
9,723,371 | 9,082,174 | ||||||
Other liabilities |
133,061 | 163,151 | ||||||
Short-term borrowings |
1,166,180 | 1,083,138 | ||||||
Long-term debt |
91,807 | 89,425 | ||||||
Junior subordinated debt |
194,213 | 204,019 | ||||||
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Total Liabilities |
11,308,632 | 10,621,907 | ||||||
Stockholders Equity |
||||||||
Common stock $0.01 par value |
||||||||
Authorized 500,000,000 shares |
||||||||
Issued 145,913,917 and 140,314,846 shares |
1,455 | 1,398 | ||||||
Additional paid-in capital |
1,440,779 | 1,376,601 | ||||||
Retained earnings |
112,649 | 75,312 | ||||||
Accumulated other comprehensive loss |
(66,171 | ) | (46,224 | ) | ||||
Treasury stock 650,482 and 385,604 shares at cost |
(7,065 | ) | (5,018 | ) | ||||
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Total Stockholders Equity |
1,481,647 | 1,402,069 | ||||||
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Total Liabilities and Stockholders Equity |
$ | 12,790,279 | $ | 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Interest Income |
||||||||||||||||
Loans, including fees |
$ | 97,499 | $ | 94,545 | $ | 286,156 | $ | 282,720 | ||||||||
Securities: |
||||||||||||||||
Taxable |
10,888 | 11,470 | 32,141 | 36,022 | ||||||||||||
Nontaxable |
1,377 | 1,682 | 4,336 | 5,083 | ||||||||||||
Dividends |
13 | 12 | 71 | 361 | ||||||||||||
Other |
13 | 47 | 45 | 142 | ||||||||||||
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Total Interest Income |
109,790 | 107,756 | 322,749 | 324,328 | ||||||||||||
Interest Expense |
||||||||||||||||
Deposits |
6,895 | 10,205 | 22,503 | 32,776 | ||||||||||||
Short-term borrowings |
1,122 | 1,182 | 3,304 | 3,961 | ||||||||||||
Long-term debt |
719 | 860 | 2,268 | 2,702 | ||||||||||||
Junior subordinated debt |
1,800 | 1,978 | 5,578 | 5,956 | ||||||||||||
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Total Interest Expense |
10,536 | 14,225 | 33,653 | 45,395 | ||||||||||||
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Net Interest Income |
99,254 | 93,531 | 289,096 | 278,933 | ||||||||||||
Provision for loan losses |
7,280 | 8,429 | 22,724 | 22,028 | ||||||||||||
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Net Interest Income After Provision for Loan Losses |
91,974 | 85,102 | 266,372 | 256,905 | ||||||||||||
Non-Interest Income |
||||||||||||||||
Impairment losses on securities |
| (440 | ) | | (440 | ) | ||||||||||
Non-credit related losses on securities not expected to be sold (recognized in other comprehensive income) |
| 321 | | 321 | ||||||||||||
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Net impairment losses on securities |
| (119 | ) | | (119 | ) | ||||||||||
Service charges |
16,512 | 17,666 | 51,703 | 52,419 | ||||||||||||
Insurance commissions and fees |
4,088 | 4,578 | 12,619 | 12,632 | ||||||||||||
Securities commissions and fees |
2,575 | 2,102 | 8,365 | 6,143 | ||||||||||||
Trust fees |
4,176 | 3,783 | 12,428 | 11,359 | ||||||||||||
Net securities gains (losses) |
5 | (66 | ) | 757 | 302 | |||||||||||
Gain on sale of residential mortgage loans |
899 | 1,176 | 2,942 | 2,696 | ||||||||||||
Bank owned life insurance |
1,635 | 1,671 | 5,161 | 4,809 | ||||||||||||
Other |
2,968 | 4,022 | 9,307 | 9,095 | ||||||||||||
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Total Non-Interest Income |
32,858 | 34,813 | 103,282 | 99,336 | ||||||||||||
Non-Interest Expense |
||||||||||||||||
Salaries and employee benefits |
45,155 | 41,579 | 132,261 | 127,255 | ||||||||||||
Net occupancy |
6,132 | 5,840 | 19,669 | 18,624 | ||||||||||||
Equipment |
6,415 | 5,728 | 18,013 | 16,598 | ||||||||||||
Amortization of intangibles |
2,115 | 2,242 | 6,226 | 6,892 | ||||||||||||
Outside services |
7,565 | 7,048 | 23,332 | 20,725 | ||||||||||||
FDIC insurance |
3,161 | 2,014 | 8,197 | 6,172 | ||||||||||||
Merger related |
913 | 88 | 4,211 | 7,399 | ||||||||||||
Other |
11,765 | 12,543 | 34,356 | 38,572 | ||||||||||||
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Total Non-Interest Expense |
83,221 | 77,082 | 246,265 | 242,237 | ||||||||||||
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Income Before Income Taxes |
41,611 | 42,833 | 123,389 | 114,004 | ||||||||||||
Income taxes |
9,977 | 12,090 | 34,024 | 32,549 | ||||||||||||
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Net Income |
$ | 31,634 | $ | 30,743 | $ | 89,365 | $ | 81,455 | ||||||||
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Net Income per Share Basic |
$ | 0.22 | $ | 0.22 | $ | 0.63 | $ | 0.59 | ||||||||
Net Income per Share Diluted |
0.22 | 0.22 | 0.62 | 0.58 | ||||||||||||
Cash Dividends per Share |
0.12 | 0.12 | 0.36 | 0.36 | ||||||||||||
Comprehensive Income |
$ | 27,540 | $ | 33,132 | $ | 69,418 | $ | 87,631 | ||||||||
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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 Comprehensive 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 |
89,365 | 89,365 | ||||||||||||||||||||||
Change in other comprehensive income, net of tax |
(19,947 | ) | (19,947 | ) | ||||||||||||||||||||
Common stock dividends ($0.36/share) |
(52,028 | ) | (52,028 | ) | ||||||||||||||||||||
Issuance of common stock |
57 | 59,561 | (2,047 | ) | 57,571 | |||||||||||||||||||
Restricted stock compensation |
3,339 | 3,339 | ||||||||||||||||||||||
Tax expense of stock-based compensation |
1,278 | 1,278 | ||||||||||||||||||||||
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Balance at September 30, 2013 |
$ | 1,455 | $ | 1,440,779 | $ | 112,649 | $ | (66,171 | ) | $ | (7,065 | ) | $ | 1,481,647 | ||||||||||
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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 |
81,455 | 81,455 | ||||||||||||||||||||||
Change in other comprehensive income, net of tax |
6,176 | 6,176 | ||||||||||||||||||||||
Common stock dividends ($0.36/share) |
(50,705 | ) | (50,705 | ) | ||||||||||||||||||||
Issuance of common stock |
129 | 145,833 | (377 | ) | (1,548 | ) | 144,037 | |||||||||||||||||
Restricted stock compensation |
3,451 | 3,451 | ||||||||||||||||||||||
Tax expense of stock-based compensation |
385 | 385 | ||||||||||||||||||||||
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Balance at September 30, 2012 |
$ | 1,397 | $ | 1,374,241 | $ | 63,298 | $ | (38,972 | ) | $ | (4,966 | ) | $ | 1,394,998 | ||||||||||
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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
Nine Months Ended | ||||||||
September 30, | ||||||||
2013 | 2012 | |||||||
Operating Activities |
||||||||
Net income |
$ | 89,365 | $ | 81,455 | ||||
Adjustments to reconcile net income to net cash flows provided by operating activities: |
||||||||
Depreciation, amortization and accretion |
21,845 | 21,989 | ||||||
Provision for loan losses |
22,724 | 22,028 | ||||||
Deferred tax expenses |
12,246 | 29,549 | ||||||
Net securities gains |
(757 | ) | (302 | ) | ||||
Other-than-temporary impairment losses on securities |
| 119 | ||||||
Tax benefit of stock-based compensation |
(1,278 | ) | (385 | ) | ||||
Net change in: |
||||||||
Interest receivable |
(1,568 | ) | (3,248 | ) | ||||
Interest payable |
(2,836 | ) | (3,506 | ) | ||||
Trading securities |
88,052 | 331,972 | ||||||
Residential mortgage loans held for sale |
19,647 | (7,300 | ) | |||||
Bank owned life insurance |
(1,808 | ) | (4,475 | ) | ||||
Other, net |
18,610 | 12,036 | ||||||
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Net cash flows provided by operating activities |
264,242 | 479,932 | ||||||
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Investing Activities |
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Net change in loans |
(473,933 | ) | (238,978 | ) | ||||
Securities available for sale: |
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Purchases |
(250,724 | ) | (780,185 | ) | ||||
Sales |
21,919 | 87,101 | ||||||
Maturities |
269,330 | 367,025 | ||||||
Securities held to maturity: |
||||||||
Purchases |
(335,533 | ) | (468,780 | ) | ||||
Sales |
17,429 | 2,903 | ||||||
Maturities |
239,942 | 240,059 | ||||||
Purchase of bank owned life insurance |
(10,016 | ) | (20,024 | ) | ||||
Withdrawal/surrender of bank owned life insurance |
| 20,701 | ||||||
Increase in premises and equipment |
(7,745 | ) | (7,940 | ) | ||||
Net cash received in business combinations |
41,986 | 203,538 | ||||||
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Net cash flows used in investing activities |
(487,345 | ) | (594,580 | ) | ||||
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Financing Activities |
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Net change in: |
||||||||
Non-interest bearing deposits, savings and NOW accounts |
536,442 | 567,788 | ||||||
Time deposits |
(240,111 | ) | (249,764 | ) | ||||
Short-term borrowings |
68,643 | 155,177 | ||||||
Increase in long-term debt |
37,602 | 26,961 | ||||||
Decrease in long-term debt |
(73,867 | ) | (183,139 | ) | ||||
Decrease in junior subordinated debt |
(15,000 | ) | | |||||
Net proceeds from issuance of common stock |
4,609 | 6,586 | ||||||
Tax benefit of stock-based compensation |
1,278 | 385 | ||||||
Cash dividends paid |
(52,028 | ) | (50,705 | ) | ||||
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Net cash flows provided by financing activities |
267,568 | 273,289 | ||||||
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Net Increase in Cash and Cash Equivalents |
44,465 | 158,641 | ||||||
Cash and cash equivalents at beginning of period |
239,044 | 208,953 | ||||||
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Cash and Cash Equivalents at End of Period |
$ | 283,509 | $ | 367,594 | ||||
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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)
September 30, 2013
BUSINESS
F.N.B. Corporation (the Corporation), headquartered in Hermitage, Pennsylvania, is a regional diversified financial services company operating in six states and three major metropolitan areas, including Pittsburgh, Pennsylvania, Baltimore, Maryland and Cleveland, Ohio. The Corporation has more than 250 banking offices throughout Pennsylvania, Ohio, West Virginia and Maryland. The Corporation provides a full range of commercial banking, consumer banking and wealth management solutions through its subsidiary network which is led by its largest affiliate, First National Bank of Pennsylvania (FNBPA). Commercial banking solutions include corporate banking, small business banking, investment real estate financing, asset based lending, capital markets and lease financing. Consumer banking products and services include deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. Wealth management services include asset management, private banking and insurance. The Corporation also operates Regency Finance Company (Regency), which has more than 70 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee.
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 FNBPA, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, 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.
SECURITIES OFFERINGS
On November 1, 2013, the Corporation completed a public offering of 4,693,876 shares of common stock at a price of $12.25 per share, including 612,244 shares of common stock purchased by the underwriters pursuant to an over-allotment option, which the underwriters exercised in full. On November 1, 2013, the Corporation also completed a public offering of 4,000,000 Depositary Shares, each representing a 1/40th interest in the Non-Cumulative Perpetual Preferred Stock, Series E, of the Corporation, at a price of $25.00 per share. The net proceeds of the combined offerings after deducting underwriting discounts and commissions and estimated offering expenses were $151,175. The Corporation intends to use the proceeds from the offerings to proactively position itself for Basel III implementation, as discussed in the Enhanced Regulatory Capital Standards section of this Report, and to support future growth opportunities.
7
MERGERS AND ACQUISITIONS
On October 12, 2013, the Corporation completed its acquisition of PVF Capital Corp. (PVF), a savings and loan holding company based in Solon, Ohio. On the acquisition date, the estimated fair values of PVF included $714,126 in assets, $500,000 in loans and $620,000 in deposits. The acquisition was valued at $110,280 and resulted in the Corporation issuing 8,893,598 shares of its common stock in exchange for 26,119,398 shares of PVF common stock. The assets and liabilities of PVF were recorded on the Corporations balance sheet at their preliminary estimated fair values as of October 12, 2013, the acquisition date, and PVFs results of operations have been included in the Corporations consolidated statements of income and comprehensive income since that date. The operations of PVF are not included in the accompanying financial statements dated September 30, 2013. PVFs banking affiliate, Park View Federal Savings Bank, was merged into FNBPA on October 12, 2013. Based on a preliminary purchase price allocation, during October 2013 the Corporation recorded $50,898 in goodwill and $4,400 in core deposit intangibles as a result of the acquisition. 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 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, the estimated fair values of ANNB included $429,358 in assets, $254,911 in loans and $349,370 in deposits. The acquisition 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 preliminary estimated 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) 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 per share. Based on a preliminary purchase price allocation, the Corporation has recorded $37,954 in goodwill and $3,775 in core deposit intangibles as a result of the acquisition. 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, the fair values of Parkvale included $1,743,885 in assets, $919,480 in loans and $1,525,253 in deposits. The acquisition 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 intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes.
Pending Acquisition
On June 14, 2013, the Corporation announced the signing of a definitive merger agreement to acquire BCSB Bancorp, Inc. (BCSB), a bank holding company based in Baltimore, Maryland with approximately $640,000 in total assets. The transaction is valued at approximately $79,000. Under the terms of the merger agreement, BCSB shareholders will be entitled to receive 2.08 shares of the Corporations common stock for each share of BCSB common stock. BCSBs banking affiliate, Baltimore County Savings Bank, will be merged into FNBPA. The transaction is expected to be completed in the first quarter of 2014, pending regulatory approvals, the approval of BCSB shareholders and the satisfaction of other closing conditions.
8
NEW ACCOUNTING STANDARDS
Income Taxes
In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, to provide guidance on the financial statement presentation of certain unrecognized tax benefits. An unrecognized tax benefit or a portion of an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward with certain exceptions related to availability. The requirements of ASU 2013-11 are effective prospectively for reporting periods beginning after December 15, 2013, with early adoption permitted. The adoption of this update is not expected to have a material effect on the financial statements, results of operations or liquidity of the Corporation.
Derivatives and Hedging
In July 2013, the FASB issued ASU No. 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes, which establishes the Fed Funds Effective Swap Rate as an acceptable U.S. benchmark interest rate, in addition to the UST and LIBOR swap rates, to provide risk managers with a more comprehensive spectrum of interest rate resets to utilize as the designated benchmark interest rate risk component under the hedge accounting guidance. The requirements of ASU 2013-10 are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption of this update did not have a material effect on the financial statements, results of operations or liquidity of the Corporation.
Comprehensive Income
In February 2013, the FASB issued 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 were 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.
9
SECURITIES
The amortized cost and fair value of securities are as follows:
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
Securities Available for Sale: |
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September 30, 2013 |
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U.S. government-sponsored entities |
$ | 336,126 | $ | 412 | $ | (4,386 | ) | $ | 332,152 | |||||||
Residential mortgage-backed securities: |
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Agency mortgage-backed securities |
223,125 | 4,641 | (128 | ) | 227,638 | |||||||||||
Agency collateralized mortgage obligations |
506,672 | 405 | (18,030 | ) | 489,047 | |||||||||||
Non-agency collateralized mortgage obligations |
1,818 | 28 | | 1,846 | ||||||||||||
States of the U.S. and political subdivisions |
17,472 | 542 | (139 | ) | 17,875 | |||||||||||
Collateralized debt obligations |
36,451 | 2,452 | (10,199 | ) | 28,704 | |||||||||||
Other debt securities |
16,478 | 564 | (914 | ) | 16,128 | |||||||||||
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Total debt securities |
1,138,142 | 9,044 | (33,796 | ) | 1,113,390 | |||||||||||
Equity securities |
1,554 | 645 | (31 | ) | 2,168 | |||||||||||
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$ | 1,139,696 | $ | 9,689 | $ | (33,827 | ) | $ | 1,115,558 | ||||||||
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December 31, 2012 |
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U.S. government-sponsored entities |
$ | 352,910 | $ | 1,676 | $ | (129 | ) | $ | 354,457 | |||||||
Residential mortgage-backed securities: |
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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: |
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September 30, 2013 |
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U.S. Treasury |
$ | 503 | $ | 122 | $ | | $ | 625 | ||||||||
U.S. government-sponsored entities |
43,403 | 191 | (1,019 | ) | 42,575 | |||||||||||
Residential mortgage-backed securities: |
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Agency mortgage-backed securities |
650,732 | 14,679 | (2,414 | ) | 662,997 | |||||||||||
Agency collateralized mortgage obligations |
341,743 | 759 | (12,788 | ) | 329,714 | |||||||||||
Non-agency collateralized mortgage obligations |
7,317 | 53 | | 7,370 | ||||||||||||
Commercial mortgage-backed securities |
2,247 | 134 | (31 | ) | 2,350 | |||||||||||
States of the U.S. and political subdivisions |
135,047 | 2,641 | (1,667 | ) | 136,021 | |||||||||||
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$ | 1,180,992 | $ | 18,579 | $ | (17,919 | ) | $ | 1,181,652 | ||||||||
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December 31, 2012 |
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U.S. Treasury |
$ | 503 | $ | 188 | $ | | $ | 691 | ||||||||
U.S. government-sponsored entities |
28,731 | 280 | (99 | ) | 28,912 | |||||||||||
Residential mortgage-backed securities: |
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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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10
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 ANNB and Parkvale acquisitions as trading securities. The Corporation both acquired and sold these trading securities during the quarters in which the acquisitions occurred. As of September 30, 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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Gross gains |
$ | 5 | $ | 355 | $ | 1,120 | $ | 1,151 | ||||||||
Gross losses |
| (421 | ) | (363 | ) | (849 | ) | |||||||||
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$ | 5 | $ | (66 | ) | $ | 757 | $ | 302 | ||||||||
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As of September 30, 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 |
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Due in one year or less |
$ | | $ | | $ | 2,461 | $ | 2,483 | ||||||||
Due from one to five years |
209,474 | 209,523 | 34,366 | 34,162 | ||||||||||||
Due from five to ten years |
150,871 | 147,783 | 65,749 | 66,086 | ||||||||||||
Due after ten years |
46,182 | 37,553 | 76,377 | 76,490 | ||||||||||||
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406,527 | 394,859 | 178,953 | 179,221 | |||||||||||||
Residential mortgage-backed securities: |
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Agency mortgage-backed securities |
223,125 | 227,638 | 650,732 | 662,997 | ||||||||||||
Agency collateralized mortgage obligations |
506,672 | 489,047 | 341,743 | 329,714 | ||||||||||||
Non-agency collateralized mortgage obligations |
1,818 | 1,846 | 7,317 | 7,370 | ||||||||||||
Commercial mortgage-backed securities |
| | 2,247 | 2,350 | ||||||||||||
Equity securities |
1,554 | 2,168 | | | ||||||||||||
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$ | 1,139,696 | $ | 1,115,558 | $ | 1,180,992 | $ | 1,181,652 | |||||||||
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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 September 30, 2013 and December 31, 2012, securities with a carrying value of $1,025,579 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 $849,901 and $795,812 at September 30, 2013 and December 31, 2012, respectively, were pledged as collateral for short-term borrowings.
11
Following are summaries of the fair values and unrealized losses of securities, segregated by length of impairment:
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
# | Fair Value |
Unrealized Losses |
# | Fair Value |
Unrealized Losses |
# | Fair Value |
Unrealized Losses |
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Securities Available for Sale: |
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September 30, 2013 |
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U.S. government-sponsored entities |
12 | $ | 173,836 | $ | (4,386 | ) | | $ | | $ | | 12 | $ | 173,836 | $ | (4,386 | ) | |||||||||||||||||||
Residential mortgage-backed securities: |
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Agency mortgage-backed securities |
3 | 31,737 | (128 | ) | | | | 3 | 31,737 | (128 | ) | |||||||||||||||||||||||||
Agency collateralized mortgage obligations |
28 | 416,085 | (18,030 | ) | | | | 28 | 416,085 | (18,030 | ) | |||||||||||||||||||||||||
States of the U.S. and political subdivisions |
2 | 3,134 | (139 | ) | | | | 2 | 3,134 | (139 | ) | |||||||||||||||||||||||||
Collateralized debt obligations |
1 | 2,195 | (3 | ) | 9 | 8,927 | (10,196 | ) | 10 | 11,122 | (10,199 | ) | ||||||||||||||||||||||||
Other debt securities |
| | | 4 | 5,963 | (914 | ) | 4 | 5,963 | (914 | ) | |||||||||||||||||||||||||
Equity securities |
| | | 1 | 632 | (31 | ) | 1 | 632 | (31 | ) | |||||||||||||||||||||||||
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46 | $ | 626,987 | $ | (22,686 | ) | 14 | $ | 15,522 | $ | (11,141 | ) | 60 | $ | 642,509 | $ | (33,827 | ) | |||||||||||||||||||
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December 31, 2012 |
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U.S. government-sponsored entities |
3 | $ | 44,868 | $ | (129 | ) | | $ | | $ | | 3 | $ | 44,868 | $ | (129 | ) | |||||||||||||||||||
Residential mortgage-backed securities: |
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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: |
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September 30, 2013 |
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U.S. government-sponsored entities |
3 | $ | 39,027 | $ | (1,019 | ) | | | | 3 | $ | 39,027 | $ | (1,019 | ) | |||||||||||||||||||||
Residential mortgage-backed securities: |
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Agency mortgage-backed securities |
18 | 237,938 | (2,414 | ) | | | | 18 | 237,938 | (2,414 | ) | |||||||||||||||||||||||||
Agency collateralized mortgage obligations |
19 | 274,423 | (12,788 | ) | | | | 19 | 274,423 | (12,788 | ) | |||||||||||||||||||||||||
Commercial mortgage-backed securities |
1 | 991 | (31 | ) | | | | 1 | 991 | (31 | ) | |||||||||||||||||||||||||
States of the U.S. and political subdivisions |
25 | 28,327 | (1,667 | ) | | | | 25 | 28,327 | (1,667 | ) | |||||||||||||||||||||||||
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66 | $ | 580,706 | $ | (17,919 | ) | | | | 66 | $ | 580,706 | $ | (17,919 | ) | ||||||||||||||||||||||
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December 31, 2012 |
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U.S. government-sponsored entities |
1 | $ | 14,901 | $ | (99 | ) | | $ | | $ | | 1 | $ | 14,901 | $ | (99 | ) | |||||||||||||||||||
Residential mortgage-backed securities: |
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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.
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 two 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 illiquidity and the uncertainty affecting these markets, as well as changes in interest rates.
12
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.
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.
13
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 23 pooled issues and four single-issuer securities. Two of the pooled issues are senior tranches; the remaining 21 are mezzanine tranches. At September 30, 2013, the pooled TPS had an estimated fair value of $28,704 while the single-issuer TPS had an estimated fair value of $5,963. The Corporation has concluded from the analysis performed at September 30, 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 September 30, 2013, all four single-issuer TPS are current in regards to their principal and interest payments. Of the 23 pooled TPS, three 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 $2,448 and $2,138 was recognized on pooled TPS for the nine months ended September 30, 2013 and 2012, respectively. Included in the amount for the nine months ended September 30, 2012 was $34 recognized on two pooled TPS which were sold in the second quarter of 2012.
The Corporation recognized net impairment losses on securities of $119 for the nine months ended September 30, 2012 due to the write-down of securities that the Corporation deemed to be other-than-temporarily impaired. The Corporation did not recognize any impairment losses on securities for the nine months ended September 30, 2013.
14
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 Nine Months Ended September 30, 2013 |
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Beginning balance |
$ | 17,155 | $ | 212 | $ | 17,367 | ||||||
Loss where impairment was not previously recognized |
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Additional loss where impairment was previously recognized |
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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 Nine Months Ended September 30, 2012 |
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Beginning balance |
$ | 18,369 | $ | 29 | $ | 18,398 | ||||||
Loss where impairment was not previously recognized |
119 | | 119 | |||||||||
Additional loss where impairment was previously recognized |
| | | |||||||||
Reduction due to credit impaired securities sold |
(1,214 | ) | (29 | ) | (1,243 | ) | ||||||
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Ending balance |
$ | 17,274 | $ | | $ | 17,274 | ||||||
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|
|
|
|
The secondary market for pooled TPS 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.
15
The following table provides information relating to the Corporations TPS as of September 30, 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 | $ | 2,571 | $ | 1,511 | $ | (1,060 | ) | C | 42 | 22 | 7 | 41 | 18 | 0.00 | |||||||||||||||||||||||||||
P2 |
C1 | 4,889 | 3,073 | 1,241 | (1,832 | ) | C | 41 | 16 | 15 | 41 | 15 | 0.00 | |||||||||||||||||||||||||||||||
P3 |
C1 | 5,561 | 4,357 | 1,668 | (2,689 | ) | C | 47 | 13 | 9 | 34 | 16 | 0.00 | |||||||||||||||||||||||||||||||
P4 |
C1 | 3,994 | 3,120 | 1,197 | (1,923 | ) | C | 52 | 16 | 6 | 42 | 16 | 0.00 | |||||||||||||||||||||||||||||||
P5 |
B3 | 2,000 | 765 | 364 | (401 | ) | C | 14 | 29 | 10 | 48 | 11 | 0.00 | |||||||||||||||||||||||||||||||
P6 |
B1 | 3,028 | 2,497 | 1,004 | (1,493 | ) | C | 50 | 15 | 19 | 51 | 10 | 0.00 | |||||||||||||||||||||||||||||||
P7 |
C | 5,048 | 828 | 875 | 47 | C | 36 | 14 | 22 | 37 | 14 | 0.00 | ||||||||||||||||||||||||||||||||
P8 |
C | 2,011 | 788 | 336 | (452 | ) | C | 44 | 16 | 11 | 36 | 17 | 0.42 | |||||||||||||||||||||||||||||||
P9 |
A4L | 2,000 | 645 | 397 | (248 | ) | C | 24 | 16 | 13 | 43 | 11 | 0.00 | |||||||||||||||||||||||||||||||
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|
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|
|
|
|
|||||||||||||||||||||||||||
Total OTTI |
34,031 | 18,644 | 8,593 | (10,051 | ) | 350 | 17 | 12 | 41 | 15 | ||||||||||||||||||||||||||||||||||
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|
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|
|
|
|||||||||||||||||||||||||||
P10 |
C1 | 5,220 | 1,077 | 1,434 | 357 | C | 42 | 22 | 7 | 41 | 18 | 0.00 | ||||||||||||||||||||||||||||||||
P11 |
A2A | 5,000 | 2,198 | 2,195 | (3 | ) | B+ | 41 | 16 | 15 | 41 | 15 | 47.85 | |||||||||||||||||||||||||||||||
P12 |
C1 | 4,781 | 1,317 | 1,434 | 117 | C | 47 | 13 | 9 | 34 | 16 | 0.00 | ||||||||||||||||||||||||||||||||
P13 |
C1 | 5,260 | 1,278 | 1,576 | 298 | C | 52 | 16 | 6 | 42 | 16 | 0.00 | ||||||||||||||||||||||||||||||||
P14 |
C1 | 5,190 | 1,063 | 1,166 | 103 | C | 58 | 15 | 12 | 36 | 17 | 0.00 | ||||||||||||||||||||||||||||||||
P15 |
C1 | 3,206 | 408 | 639 | 231 | C | 43 | 19 | 7 | 28 | 16 | 0.00 | ||||||||||||||||||||||||||||||||
P16 |
C | 3,339 | 651 | 673 | 22 | C | 36 | 15 | 12 | 28 | 15 | 0.00 | ||||||||||||||||||||||||||||||||
P17 |
B | 2,069 | 672 | 673 | 1 | Ca | 32 | 13 | 21 | 40 | 12 | 18.75 | ||||||||||||||||||||||||||||||||
P18 |
B2 | 5,000 | 2,228 | 2,905 | 677 | CCC | 20 | 0 | 8 | 10 | 15 | 37.52 | ||||||||||||||||||||||||||||||||
P19 |
B | 4,070 | 963 | 1,340 | 377 | C | 44 | 16 | 11 | 36 | 17 | 0.52 | ||||||||||||||||||||||||||||||||
P20 |
A1 | 3,304 | 1,983 | 2,037 | 54 | BB- | 46 | 21 | 6 | 35 | 15 | 54.24 | ||||||||||||||||||||||||||||||||
P21 |
B | 5,000 | 1,307 | 1,209 | (98 | ) | C | 15 | 18 | 6 | 49 | 11 | 0.00 | |||||||||||||||||||||||||||||||
P22 |
C1 | 5,531 | 1,386 | 1,399 | 13 | C | 23 | 15 | 12 | 42 | 11 | 0.00 | ||||||||||||||||||||||||||||||||
P23 |
C1 | 5,606 | 1,276 | 1,431 | 155 | C | 23 | 16 | 10 | 44 | 11 | 0.00 | ||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||
Total Not OTTI |
62,576 | 17,807 | 20,111 | 2,304 | 522 | 16 | 10 | 36 | 15 | |||||||||||||||||||||||||||||||||||
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|
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|
|||||||||||||||||||||||||||
Total Pooled TPS |
$ | 96,607 | $ | 36,451 | $ | 28,704 | $ | (7,747 | ) | 872 | 16 | 11 | 38 | 15 | ||||||||||||||||||||||||||||||
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|
16
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 | $ | 1,954 | $ | 1,600 | $ | (354 | ) | BB | 1 | |||||||||||||||||||||||||||||||||||
S2 |
2,000 | 1,924 | 1,620 | (304 | ) | BBB | 1 | |||||||||||||||||||||||||||||||||||||||
S3 |
2,000 | 2,000 | 1,943 | (57 | ) | B+ | 1 | |||||||||||||||||||||||||||||||||||||||
S4 |
1,000 | 999 | 800 | (199 | ) | BB | 1 | |||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
Total Single Issuer TPS |
|
$ | 7,000 | $ | 6,877 | $ | 5,963 | $ | (914 | ) | 4 | |||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
Total TPS |
$ | 103,607 | $ | 43,328 | $ | 34,667 | $ | (8,661 | ) | 876 | ||||||||||||||||||||||||||||||||||||
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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. |
17
States of the U.S. and Political Subdivisions
The Corporations municipal bond portfolio of $152,922 as of September 30, 2013 is highly rated with an average entity-specific rating of AA and 98.7% of the portfolio rated A or better. General obligation bonds comprise 99.0% of the portfolio. Geographically, municipal bonds support the Corporations footprint as 78.0% of the securities are from municipalities located throughout Pennsylvania. The average holding size of the securities in the municipal bond portfolio is $987. In addition to the strong stand-alone ratings, 67.7% 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.
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 September 30, 2013 and December 31, 2012, the Corporations FHLB stock totaled $21,636 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 |
||||||||||
September 30, 2013 |
||||||||||||
Commercial real estate |
$ | 2,548,278 | $ | 372,530 | $ | 2,920,808 | ||||||
Commercial and industrial |
1,689,467 | 65,768 | 1,755,235 | |||||||||
Commercial leases |
141,714 | | 141,714 | |||||||||
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|
|
|
|||||||
Total commercial loans and leases |
4,379,459 | 438,298 | 4,817,757 | |||||||||
Direct installment |
1,349,804 | 58,735 | 1,408,539 | |||||||||
Residential mortgages |
669,978 | 361,827 | 1,031,805 | |||||||||
Indirect installment |
631,030 | 7,282 | 638,312 | |||||||||
Consumer lines of credit |
804,453 | 83,528 | 887,981 | |||||||||
Other |
52,511 | | 52,511 | |||||||||
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|
|
|
|
|||||||
$ | 7,887,235 | $ | 949,670 | $ | 8,836,905 | |||||||
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|
|
|
18
Originated Loans |
Acquired Loans |
Total Loans |
||||||||||
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 September 30, 2013 totaled $944,954, including purchased credit-impaired (PCI) loans with a carrying amount of $16,559, while the carrying amount of acquired loans at December 31, 2012 totaled $896,148, including PCI loans with a carrying amount of $15,864. The outstanding contractual balance receivable of acquired loans at September 30, 2013 totaled $1,011,890, including PCI loans with an outstanding contractual balance receivable of $43,767, 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 Corporations primary market area of Pennsylvania, northeastern Ohio, northern West Virginia and central Maryland. The commercial real estate portfolio also includes run-off loans in Florida, which totaled $49,189 or 0.6% of total loans at September 30, 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 $175,123 or 2.0% of total loans at September 30, 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 September 30, 2013, 45.2% of the commercial real estate loans were owner-occupied, while the remaining 54.8% were non-owner-occupied, compared to 46.5% and 53.5%, respectively, as of December 31, 2012. As of September 30, 2013 and December 31, 2012, the Corporation had commercial construction loans of $215,433 and $190,206, respectively, representing 2.4% and 2.3% of total loans, respectively.
ASC 310-30 Loans
All loans acquired in the ANNB and Parkvale acquisitions, except for revolving loans, are accounted for in accordance with 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.
19
The following table reflects amounts at acquisition for all purchased loans subject to ASC310-30 (impaired and non-impaired) acquired from ANNB in 2013 and Parkvale in 2012:
Acquired Impaired Loans |
Acquired Performing Loans |
Total | ||||||||||
Acquired from ANNB in 2013 |
||||||||||||
Contractually required cash flows at acquisition |
$ | 12,200 | $ | 270,197 | $ | 282,397 | ||||||
Non-accretable difference (expected losses and foregone interest) |
(7,829 | ) | (13,705 | ) | (21,534 | ) | ||||||
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|
|
|||||||
Cash flows expected to be collected at acquisition |
4,371 | 256,492 | 260,863 | |||||||||
Accretable yield |
(523 | ) | (41,207 | ) | (41,730 | ) | ||||||
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|
|||||||
Basis in acquired loans at acquisition |
$ | 3,848 | $ | 215,285 | $ | 219,133 | ||||||
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|
|
|||||||
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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|
|
The following table provides a summary of change in accretable yield for all acquired loans:
Acquired Impaired Loans |
Acquired Performing Loans |
Total | ||||||||||
Nine Months Ended September 30, 2013 |
||||||||||||
Balance at beginning of period |
$ | 778 | $ | 253,375 | $ | 254,153 | ||||||
Acquisitions |
523 | 41,207 | 41,730 | |||||||||
Reduction due to unexpected early payoffs |
| (37,432 | ) | (37,432 | ) | |||||||
Reclass from non-accretable difference |
6,318 | 1,555 | 7,873 | |||||||||
Disposals/transfers |
164 | (210 | ) | (46 | ) | |||||||
Accretion |
(2,250 | ) | (27,629 | ) | (29,879 | ) | ||||||
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|
|
|
|||||||
Balance at end of period |
$ | 5,533 | $ | 230,866 | $ | 236,399 | ||||||
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|
|
|
|||||||
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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|
|
|
|
|||||||
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 ANNB:
At Acquisition |
September 30, 2013 |
|||||||
Outstanding balance |
$ | 12,220 | $ | 11,867 | ||||
Carrying amount |
3,848 | 3,442 | ||||||
Allowance for loan losses |
n/a | | ||||||
Impairment recognized since acquisition |
n/a | | ||||||
Allowance reduction recognized since acquisition |
n/a | |
20
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 | |
Following is information about the Corporations PCI loans:
Outstanding Balance |
Non- Accretable Difference |
Expected Cash Flows |
Accretable Yield |
Recorded Investment |
||||||||||||||||
For the Nine Months Ended September 30, 2013 |
|
|||||||||||||||||||
Balance at beginning of period |
$ | 41,134 | $ | (23,733 | ) | $ | 17,401 | $ | (778 | ) | $ | 16,623 | ||||||||
Acquisitions |
12,220 | (7,849 | ) | 4,371 | (523 | ) | 3,848 | |||||||||||||
Accretion |
| | | 2,250 | 2,250 | |||||||||||||||
Payments received |
(3,087 | ) | | (3,087 | ) | | (3,087 | ) | ||||||||||||
Reclass from non-accretable difference |
| 6,318 | 6,318 | (6,318 | ) | | ||||||||||||||
Disposals/transfers |
(8,442 | ) | 6,193 | (2,249 | ) | (164 | ) | (2,413 | ) | |||||||||||
Contractual interest |
1,942 | (1,942 | ) | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at end of period |
$ | 43,767 | $ | (21,013 | ) | $ | 22,754 | $ | (5,533 | ) | $ | 17,221 | ||||||||
|
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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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|
|
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|
The accretion in the table above includes $440 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.
21
Following is a summary of non-performing assets:
September 30, 2013 |
December 31, 2012 |
|||||||
Non-accrual loans |
$ | 65,451 | $ | 66,004 | ||||
Troubled debt restructurings |
17,252 | 14,876 | ||||||
|
|
|
|
|||||
Total non-performing loans |
82,703 | 80,880 | ||||||
Other real estate owned (OREO) |
35,144 | 35,257 | ||||||
|
|
|
|
|||||
Total non-performing loans and OREO |
117,847 | 116,137 | ||||||
Non-performing investments |
733 | 2,809 | ||||||
|
|
|
|
|||||
Total non-performing assets |
$ | 118,580 | $ | 118,946 | ||||
|
|
|
|
|||||
Asset quality ratios: |
||||||||
Non-performing loans as a percent of total loans |
0.94 | % | 0.99 | % | ||||
Non-performing loans + OREO as a percent of total loans + OREO |
1.33 | % | 1.42 | % | ||||
Non-performing assets as a percent of total assets |
0.93 | % | 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:
30-89 Days Past Due |
>90 Days Past Due and Still Accruing |
Non- Accrual |
Total Past Due |
Current | Total Loans |
|||||||||||||||||||
Originated loans: |
||||||||||||||||||||||||
September 30, 2013 |
||||||||||||||||||||||||
Commercial real estate |
$ | 7,041 | $ | 301 | $ | 47,151 | $ | 54,493 | $ | 2,493,785 | $ | 2,548,278 | ||||||||||||
Commercial and industrial |
4,068 | 459 | 8,081 | 12,608 | 1,676,859 | 1,689,467 | ||||||||||||||||||
Commercial leases |
836 | | 782 | 1,618 | 140,096 | 141,714 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans and leases |
11,945 | 760 | 56,014 | 68,719 | 4,310,740 | 4,379,459 | ||||||||||||||||||
Direct installment |
9,952 | 2,515 | 4,462 | 16,929 | 1,332,875 | 1,349,804 | ||||||||||||||||||
Residential mortgages |
12,331 | 1,986 | 3,694 | 18,011 | 651,967 | 669,978 | ||||||||||||||||||
Indirect installment |
4,815 | 607 | 975 | 6,397 | 624,633 | 631,030 | ||||||||||||||||||
Consumer lines of credit |
2,146 | 1,113 | 306 | 3,565 | 800,888 | 804,453 | ||||||||||||||||||
Other |
23 | 37 | | 60 | 52,451 | 52,511 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 41,212 | $ | 7,018 | $ | 65,451 | $ | 113,681 | $ | 7,773,554 | $ | 7,887,235 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
22
30-89 Days Past Due |
³ 90 Days Past Due and Still Accruing |
Non-Accrual | Total Past Due (1) |
Current | Discount | Total Loans |
||||||||||||||||||||||
Acquired Loans: |
||||||||||||||||||||||||||||
September 30, 2013 |
||||||||||||||||||||||||||||
Commercial real estate |
$ | 4,681 | $ | 16,002 | | $ | 20,683 | $ | 370,373 | $ | (18,526 | ) | $ | 372,530 | ||||||||||||||
Commercial and industrial |
3,396 | 4,500 | | 7,896 | 63,566 | (5,694 | ) | 65,768 | ||||||||||||||||||||
Commercial leases |
| | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total commercial loans and leases |
8,077 | 20,502 | | 28,579 | 433,939 | (24,220 | ) | 438,298 | ||||||||||||||||||||
Direct installment |
1,147 | 1,023 | | 2,170 | 53,785 | 2,780 | 58,735 | |||||||||||||||||||||
Residential mortgages |
7,272 | 19,002 | | 26,274 | 370,609 | (35,056 | ) | 361,827 | ||||||||||||||||||||
Indirect installment |
246 | 38 | | 284 | 7,661 | (663 | ) | 7,282 | ||||||||||||||||||||
Consumer lines of credit |
226 | 893 | | 1,119 | 87,470 | (5,061 | ) | 83,528 | ||||||||||||||||||||
Other |
| | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 16,968 | $ | 41,458 | | $ | 58,426 | $ | 953,464 | $ | (62,220 | ) | $ | 949,670 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
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 September 30, 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 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.
23
The following tables present a summary of the Corporations commercial loans by credit quality category, segregated by loans originated and loans acquired:
Commercial Loan Credit Quality Categories | ||||||||||||||||||||
Pass | Special Mention |
Substandard | Doubtful | Total | ||||||||||||||||
Originated Loans: |
||||||||||||||||||||
September 30, 2013 |
||||||||||||||||||||
Commercial real estate |
$ | 2,388,404 | $ | 46,750 | $ | 110,342 | $ | 2,782 | $ | 2,548,278 | ||||||||||
Commercial and industrial |
1,550,195 | 80,987 | 57,966 | 319 | 1,689,467 | |||||||||||||||
Commercial leases |
139,966 | 764 | 984 | | 141,714 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 4,078,565 | $ | 128,501 | $ | 169,292 | $ | 3,101 | $ | 4,379,459 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
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: |
||||||||||||||||||||
September 30, 2013 |
||||||||||||||||||||
Commercial real estate |
$ | 277,806 | $ | 47,663 | $ | 45,673 | $ | 1,388 | $ | 372,530 | ||||||||||
Commercial and industrial |
49,105 | 5,067 | 11,582 | 14 | 65,768 | |||||||||||||||
Commercial leases |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 326,911 | $ | 52,730 | $ | 57,255 | $ | 1,402 | $ | 438,298 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
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 acquired loans is based on the contractual balance outstanding at September 30, 2013 and December 31, 2012. The increase in acquired loans in 2013 primarily relates to the ANNB acquisition on April 6, 2013.
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.
24
Following is a table showing originated consumer loans by payment status:
Consumer Loan Credit Quality by Payment Status |
||||||||||||
Performing | Non-Performing | Total | ||||||||||
September 30, 2013 |
||||||||||||
Direct installment |
$ | 1,339,139 | $ | 10,665 | $ | 1,349,804 | ||||||
Residential mortgages |
656,674 | 13,304 | 669,978 | |||||||||
Indirect installment |
629,838 | 1,092 | 631,030 | |||||||||
Consumer lines of credit |
803,904 | 549 | 804,453 | |||||||||
Other |
52,511 | | 52,511 | |||||||||
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 commercial 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.
25
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 Nine Months Ended September 30, 2013 |
||||||||||||||||
With no specific allowance recorded: |
||||||||||||||||
Commercial real estate |
$ | 34,281 | $ | 46,548 | $ | | $ | 34,165 | ||||||||
Commercial and industrial |
9,308 | 11,377 | | 9,448 | ||||||||||||
Commercial leases |
782 | 782 | | 729 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans and leases |
44,371 | 58,707 | | 44,342 | ||||||||||||
Direct installment |
10,665 | 10,901 | | 10,451 | ||||||||||||
Residential mortgages |
13,298 | 13,561 | | 13,767 | ||||||||||||
Indirect installment |
1,092 | 2,491 | | 1,169 | ||||||||||||
Consumer lines of credit |
549 | 609 | | 631 | ||||||||||||
Other |
| | | 583 | ||||||||||||
With a specific allowance recorded: |
||||||||||||||||
Commercial real estate |
14,300 | 23,748 | 2,782 | 14,379 | ||||||||||||
Commercial and industrial |
124 | 131 | 124 | 126 | ||||||||||||
Commercial leases |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans and leases |
14,424 | 23,879 | 2,906 | 14,505 | ||||||||||||
Direct installment |
| | | | ||||||||||||
Residential mortgages |
| | | | ||||||||||||
Indirect installment |
| | | | ||||||||||||
Consumer lines of credit |
| | | | ||||||||||||
Other |
| | | | ||||||||||||
Total: |
||||||||||||||||
Commercial real estate |
48,581 | 70,296 | 2,782 | 48,544 | ||||||||||||
Commercial and industrial |
9,432 | 11,508 | 124 | 9,574 | ||||||||||||
Commercial leases |
782 | 782 | | 729 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans and leases |
58,795 | 82,586 | 2,906 | 58,847 | ||||||||||||
Direct installment |
10,665 | 10,901 | | 10,451 | ||||||||||||
Residential mortgages |
13,298 | 13,561 | | 13,767 | ||||||||||||
Indirect installment |
1,092 | 2,491 | | 1,169 | ||||||||||||
Consumer lines of credit |
549 | 609 | | 631 | ||||||||||||
Other |
| | | 583 |
26
Recorded Investment |
Unpaid Principal Balance |
Specific Related Allowance |
Average Recorded Investment |
|||||||||||||
At or For the Year Ended December 31, 2012 |
||||||||||||||||
With no specific allowance recorded: |
||||||||||||||||
Commercial real estate |
$ | 37,119 | $ | 50,234 | $ | | $ | 36,426 | ||||||||
Commercial and industrial |
7,074 | 9,597 | | 6,992 | ||||||||||||
Commercial leases |
965 | | | 1,053 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans and leases |
45,158 | 59,831 | | 44,471 | ||||||||||||
Direct installment |
8,541 | 8,693 | | 6,443 | ||||||||||||
Residential mortgages |
11,414 | 11,223 | | 9,059 | ||||||||||||
Indirect installment |
1,132 | 2,381 | | 1,133 | ||||||||||||
Consumer lines of credit |
746 | 792 | | 591 | ||||||||||||
Other |
3,500 | 3,500 | | 3,500 | ||||||||||||
With a specific allowance recorded: |
||||||||||||||||
Commercial real estate |
12,623 | 21,877 | 2,136 | 14,522 | ||||||||||||
Commercial and industrial |
590 | 590 | 590 | 592 | ||||||||||||
Commercial leases |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans and leases |
13,213 | 22,467 | 2,726 | 15,114 | ||||||||||||
Direct installment |
| | | | ||||||||||||
Residential mortgages |
| | | | ||||||||||||
Indirect installment |
| | | | ||||||||||||
Consumer lines of credit |
| | | | ||||||||||||
Other |
| | | | ||||||||||||
Total: |
||||||||||||||||
Commercial real estate |
49,742 | 72,111 | 2,136 | 50,948 | ||||||||||||
Commercial and industrial |
7,664 | 10,187 | 590 | 7,584 | ||||||||||||
Commercial leases |
965 | | | 1,053 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans and leases |
58,371 | 82,298 | 2,726 | 59,585 | ||||||||||||
Direct installment |
8,541 | 8,693 | | 6,443 | ||||||||||||
Residential mortgages |
11,414 | 11,223 | | 9,059 | ||||||||||||
Indirect installment |
1,132 | 2,381 | | 1,133 | ||||||||||||
Consumer lines of credit |
746 | 792 | | 591 | ||||||||||||
Other |
3,500 | 3,500 | | 3,500 |
Interest income is generally no longer recognized once a loan becomes impaired.
The above tables do not include PCI loans with a recorded investment of $17,221 at September 30, 2013 and $16,623 at December 31, 2012. These tables do not reflect the additional allowance for loan losses relating to acquired loans in the following pools and categories: commercial real estate of $1,443; commercial and industrial of $1,023; direct installment of $916; residential mortgages of $1,039; and indirect installment of $295, totaling $4,716 at September 30, 2013 and commercial real estate of $1,955; commercial and industrial of $1,140; direct installment of $657; residential mortgages of $69; and indirect installment of $359, totaling $4,180 at December 31, 2012.
Troubled Debt Restructurings
TDRs are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs typically result from loss mitigation activities and could include the extension of a maturity date, interest rate reduction, principal forgiveness, deferral or decrease in payments for a period of time and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral.
27
Following is a summary of the composition of total TDRs:
September 30, 2013 |
December 31, 2012 |
|||||||
Accruing: |
||||||||
Performing |
$ | 10,102 | $ | 12,659 | ||||
Non-performing |
17,252 | 14,876 | ||||||
Non-accrual |
12,185 | 12,385 | ||||||
|
|
|
|
|||||
$ | 39,539 | $ | 39,920 | |||||
|
|
|
|
TDRs that are accruing and performing include loans that met the criteria for non-accrual of interest prior to restructuring for which the Corporation can reasonably estimate the timing and amount of the expected cash flows on such loans and for which the Corporation expects to fully collect the new carrying value of the loans. During the nine months ended September 30, 2013, the Corporation returned to performing status $1,737 in restructured loans, all of which were secured by residential mortgages that have consistently met their modified obligations for more than six months. TDRs that are accruing and non-performing are comprised of consumer loans that have not demonstrated a consistent repayment pattern on the modified terms for more than six months, however it is expected that the Corporation will collect all future principal and interest payments. TDRs that are on non-accrual are not placed on accruing status until all delinquent principal and interest have been paid and the ultimate collectability of the remaining principal and interest is reasonably assured. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and result in potential incremental losses which are factored into the allowance for loan losses.
Excluding purchased impaired loans, commercial loans over $500 whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured for estimated impairment based on the fair value of the underlying collateral. The Corporations allowance for loan losses included specific reserves for commercial TDRs of $756 and $41 at September 30, 2013 and December 31, 2012, respectively, and pooled reserves for individual loans under $500 of $108 and $297 for those same periods, based on historical loss experience. Upon default, the amount of the recorded investment in the TDR in excess of the fair value of the collateral less estimated selling costs is generally considered a confirmed loss and is charged-off against the allowance for loan losses.
All other classes of loans, which are primarily secured by residential properties, whose terms have been modified in a TDR are pooled and measured for estimated impairment based on the expected net present value of the estimated future cash flows of the pool. The Corporations allowance for loan losses included pooled reserves for these classes of loans of $1,096 and $1,455 at September 30, 2013 and December 31, 2012, respectively. Upon default of an individual loan, the Corporations charge-off policy is followed accordingly for that class of loan.
28
The majority of TDRs are the result of interest rate concessions for a limited period of time. Following is a summary of loans, by class, that have been restructured during the periods indicated:
Three Months Ended September 30, 2013 |
Nine Months Ended September 30, 2013 |
|||||||||||||||||||||||
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post- Modification Outstanding Recorded Investment |
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post- Modification Outstanding Recorded Investment |
|||||||||||||||||||
Commercial real estate |
2 | $ | 212 | $ | 207 | 7 | $ | 1,252 | $ | 1,031 | ||||||||||||||
Commercial and industrial |
| | | | | | ||||||||||||||||||
Commercial leases |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans and leases |
2 | 212 | 207 | 7 | 1,252 | 1,031 | ||||||||||||||||||
Direct installment |
117 | 1,199 | 1,168 | 300 | 3,078 | 2,930 | ||||||||||||||||||
Residential mortgages |
9 | 346 | 348 | 39 | 1,809 | 1,784 | ||||||||||||||||||
Indirect installment |
5 | 20 | 18 | 20 | 92 | 84 | ||||||||||||||||||
Consumer lines of credit |
1 | 6 | 6 | 14 | 207 | 204 | ||||||||||||||||||
Other |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
134 | $ | 1,783 | $ | 1,747 | 380 | $ | 6,438 | $ | 6,033 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2012 |
Nine Months Ended September 30, 2012 |
|||||||||||||||||||||||
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post- Modification Outstanding Recorded Investment |
Number of Contracts |
Pre-Modification Outstanding Recorded Investment |
Post- Modification Outstanding Recorded Investment |
|||||||||||||||||||
Commercial real estate |
13 | $ | 2,183 | $ | 2,245 | 16 | $ | 2,341 | $ | 2,971 | ||||||||||||||
Commercial and industrial |
4 | 51 | 48 | 7 | 254 | 123 | ||||||||||||||||||
Commercial leases |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans and leases |
17 | 2,234 | 2,293 | 23 | 2,595 | 3,094 | ||||||||||||||||||
Direct installment |
50 | 237 | 228 | 229 | 1,597 | 1,557 | ||||||||||||||||||
Residential mortgages |
15 | 934 | 996 | 39 | 2,085 | 2,266 | ||||||||||||||||||
Indirect installment |
4 | 30 | 30 | 17 | 105 | 97 | ||||||||||||||||||
Consumer lines of credit |
2 | 2 | 3 | 4 | 5 | 5 | ||||||||||||||||||
Other |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
88 | $ | 3,437 | $ | 3,550 | 312 | $ | 6,387 | $ | 7,019 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
29
Following is a summary of TDRs, by class of loans, for which there was a payment default during the periods indicated, excluding loans that were either charged-off or cured by period end. Default occurs when a loan is 90 days or more past due and is within 12 months of restructuring.
Three Months Ended September 30, 2013 (1) |
Nine Months Ended September 30, 2013 (1) |
|||||||||||||||
Number of Contracts |
Recorded Investment |
Number of Contracts |
Recorded Investment |
|||||||||||||
Commercial real estate |
| $ | | 1 | $ | 751 | ||||||||||
Commercial and industrial |
| | 1 | 15 | ||||||||||||
Commercial leases |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans and leases |
| | 2 | 766 | ||||||||||||
Direct installment |
24 | 254 | 53 | 509 | ||||||||||||
Residential mortgages |
2 | 99 | 5 | 240 | ||||||||||||
Indirect installment |
| | 4 | 37 | ||||||||||||
Consumer lines of credit |
1 | 85 | 1 | 85 | ||||||||||||
Other |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
27 | $ | 438 | 65 | $ | 1,637 | |||||||||||
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2012 (1) |
Nine Months Ended September 30, 2012 (1) |
|||||||||||||||
Number of Contracts |
Recorded Investment |
Number of Contracts |
Recorded Investment |
|||||||||||||
Commercial real estate |
| $ | | | $ | | ||||||||||
Commercial and industrial |
| | | | ||||||||||||
Commercial leases |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total commercial loans and leases |
| | | | ||||||||||||
Direct installment |
21 | 138 | 27 | 165 | ||||||||||||
Residential mortgages |
1 | 25 | 3 | 208 | ||||||||||||
Indirect installment |
2 | 6 | 3 | 8 | ||||||||||||
Consumer lines of credit |
| | | | ||||||||||||
Other |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
24 | $ | 169 | 33 | $ | 381 | |||||||||||
|
|
|
|
|
|
|
|
(1) | The recorded investment is as of period end. |
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision charged to earnings. Loan losses are charged against the allowance for loan losses when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Changes in the allowance for loan losses related to impaired loans are charged or credited to the provision for loan losses.
The allowance for loan losses is maintained at a level that, in managements judgment, is believed adequate to absorb probable losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio. Adequacy of the allowance for loan losses is based on managements evaluation of potential loan losses in the loan portfolio, which includes an assessment of past experience, current economic conditions in specific industries and geographic areas, general economic conditions, known and inherent risks in the loan portfolio, the estimated value of underlying collateral and residuals and changes in the composition of the loan portfolio. Determination of the allowance for loan losses is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience and consideration of current environmental factors and economic trends, all of which are susceptible to significant change.
30
Management estimates the allowance for loan losses pursuant to ASC 450, Contingencies, and ASC 310, Receivables. ASC 310 is applied to commercial loans that are individually evaluated for impairment. Under ASC 310, a loan is impaired when, based upon current information and events, it is probable that the loan will not be repaid according to its original contractual terms, including both principal and interest. Management performs individual assessments of impaired commercial loan relationships greater than or equal to $500 to determine the existence of loss exposure and, where applicable, the extent of loss exposure based upon the present value of expected future cash flows available to pay the loan, or based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent. Commercial loans excluded from individual assessment, as well as smaller balance homogeneous loans, such as consumer installment, residential mortgages, consumer lines of credit and commercial leases, are evaluated for loss exposure under ASC 450 based upon historical loss rates for each of these categories of loans.
Following is a summary of changes in the allowance for loan losses, by loan class:
Balance at Beginning of Period |
Charge- Offs |
Recoveries | Net Charge- Offs |
Provision for Loan Losses |
Balance at End of Period |
|||||||||||||||||||
Three Months Ended September 30, 2013 |
|
|||||||||||||||||||||||
Commercial real estate |
$ | 35,666 | $ | (365 | ) | $ | 80 | $ | (285 | ) | $ | (538 | ) | $ | 34,843 | |||||||||
Commercial and industrial |
32,486 | (1,529 | ) | 231 | (1,298 | ) | 1,460 | 32,648 | ||||||||||||||||
Commercial leases |
1,756 | (69 | ) | 59 | (10 | ) | 21 | 1,767 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans and leases |
69,908 | (1,963 | ) | 370 | (1,593 | ) | 943 | 69,258 | ||||||||||||||||
Direct installment |
15,993 | (2,183 | ) | 227 | (1,956 | ) | 3,194 | 17,231 | ||||||||||||||||
Residential mortgages |
5,120 | (174 | ) | 50 | (124 | ) | 437 | 5,433 | ||||||||||||||||
Indirect installment |
5,626 | (807 | ) | 188 | (619 | ) | 1,120 | 6,127 | ||||||||||||||||
Consumer lines of credit |
6,421 | (454 | ) | 60 | (394 | ) | 1,052 | 7,079 | ||||||||||||||||
Other |
(219 | ) | (333 | ) | | (333 | ) | 760 | 208 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance on originated loans |
102,849 | (5,914 | ) | 895 | (5,019 | ) | 7,506 | 105,336 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Purchased credit-impaired loans |
325 | | | | 337 | 662 | ||||||||||||||||||
Other acquired loans |
5,106 | 70 | (559 | ) | (489 | ) | (563 | ) | 4,054 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance on acquired loans |
5,431 | 70 | (559 | ) | (489 | ) | (226 | ) | 4,716 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance |
$ | 108,280 | $ | (5,844 | ) | $ | 336 | $ | (5,508 | ) | $ | 7,280 | $ | 110,052 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Three Months Ended September 30, 2012 |
||||||||||||||||||||||||
Commercial real estate |
$ | 38,480 | $ | (1,481 | ) | $ | 1,375 | $ | (106 | ) | $ | (3,360 | ) | $ | 35,014 | |||||||||
Commercial and industrial |
30,779 | (3,746 | ) | (19 | ) | (3,765 | ) | 4,861 | 31,875 | |||||||||||||||
Commercial leases |
1,674 | (216 | ) | 78 | (138 | ) | 214 | 1,750 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans and leases |
70,933 | (5,443 | ) | 1,434 | (4,009 | ) | 1,715 | 68,639 | ||||||||||||||||
Direct installment |
14,536 | (1,985 | ) | 225 | (1,760 | ) | 1,929 | 14,705 | ||||||||||||||||
Residential mortgages |
4,259 | (3 | ) | 4 | 1 | 256 | 4,516 | |||||||||||||||||
Indirect installment |
5,666 | (688 | ) | 158 | (530 | ) | 539 | 5,675 | ||||||||||||||||
Consumer lines of credit |
5,266 | (831 | ) | 37 | (794 | ) | 1,556 | 6,028 | ||||||||||||||||
Other |
203 | (270 | ) | | (270 | ) | 229 | 162 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance on originated loans |
100,863 | (9,220 | ) | 1,858 | (7,362 | ) | 6,224 | 99,725 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Purchased credit-impaired loans |
784 | | | | 2,205 | 2,989 | ||||||||||||||||||
Other acquired loans |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance on acquired loans |
784 | | | | 2,205 | 2,989 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance |
$ | 101,647 | $ | (9,220 | ) | $ | 1,858 | $ | (7,362 | ) | $ | 8,429 | $ | 102,714 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
31
Balance at Beginning of Period |
Charge- Offs |
Recoveries | Net Charge- Offs |
Provision for Loan Losses |
Balance at End of Period |
|||||||||||||||||||
Nine Months Ended September 30, 2013 |
|
|||||||||||||||||||||||
Commercial real estate |
$ | 34,810 | $ | (3,067 | ) | $ | 1,606 | $ | (1,461 | ) | $ | 1,494 | $ | 34,843 | ||||||||||
Commercial and industrial |
31,849 | (4,262 | ) | 734 | (3,528 | ) | 4,327 | 32,648 | ||||||||||||||||
Commercial leases |
1,744 | (317 | ) | 161 | (156 | ) | 179 | 1,767 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans and leases |
68,403 | (7,646 | ) | 2,501 | (5,145 | ) | 6,000 | 69,258 | ||||||||||||||||
Direct installment |
15,130 | (6,824 | ) | 709 | (6,115 | ) | 8,216 | 17,231 | ||||||||||||||||
Residential mortgages |
5,155 | (733 | ) | 90 | (643 | ) | 921 | 5,433 | ||||||||||||||||
Indirect installment |
5,449 | (2,349 | ) | 576 | (1,773 | ) | 2,451 | 6,127 | ||||||||||||||||
Consumer lines of credit |
6,057 | (1,183 | ) | 209 | (974 | ) | 1,996 | 7,079 | ||||||||||||||||
Other |
| (721 | ) | | (721 | ) | 929 | 208 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance on originated loans |
100,194 | (19,456 | ) | 4,085 | (15,371 | ) | 20,513 | 105,336 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Purchased credit-impaired loans |
759 | (156 | ) | | (156 | ) | 59 | 662 | ||||||||||||||||
Other acquired loans |
3,421 | (1,199 | ) | (320 | ) | (1,519 | ) | 2,152 | 4,054 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance on acquired loans |
4,180 | (1,355 | ) | (320 | ) | (1,675 | ) | 2,211 | 4,716 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance |
$ | 104,374 | $ | (20,811 | ) | $ | 3,765 | $ | (17,046 | ) | $ | 22,724 | $ | 110,052 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Nine Months Ended September 30, 2012 |
||||||||||||||||||||||||
Commercial real estate |
$ | 43,283 | $ | (4,733 | ) | $ | 1,634 | $ | (3,099 | ) | $ | (5,170 | ) | $ | 35,014 | |||||||||
Commercial and industrial |
25,476 | (7,086 | ) | 349 | (6,737 | ) | 13,136 | 31,875 | ||||||||||||||||
Commercial leases |
1,556 | (509 | ) | 177 | (332 | ) | 526 | 1,750 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total commercial loans and leases |
70,315 | (12,328 | ) | 2,160 | (10,168 | ) | 8,492 | 68,639 | ||||||||||||||||
Direct installment |
14,814 | (5,908 | ) | 721 | (5,187 | ) | 5,078 | 14,705 | ||||||||||||||||
Residential mortgages |
4,437 | (644 | ) | 127 | (517 | ) | 596 | 4,516 | ||||||||||||||||
Indirect installment |
5,503 | (2,128 | ) | 433 | (1,695 | ) | 1,867 | 5,675 | ||||||||||||||||
Consumer lines of credit |
5,447 | (1,585 | ) | 146 | (1,439 | ) | 2,020 | 6,028 | ||||||||||||||||
Other |
146 | (716 | ) | | (716 | ) | 732 | 162 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance on originated loans |
100,662 | (23,309 | ) | 3,587 | (19,722 | ) | 18,785 | 99,725 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Purchased credit-impaired loans |
| (254 | ) | | (254 | ) | 3,243 | 2,989 | ||||||||||||||||
Other acquired loans |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance on acquired loans |
| (254 | ) | | (254 | ) | 3,243 | 2,989 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total allowance |
$ | 100,662 | $ | (23,563 | ) | $ | 3,587 | $ | (19,976 | ) | $ | 22,028 | $ | 102,714 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
32
Following is a summary of the individual and collective originated allowance for loan losses and corresponding loan balances by class:
Allowance | Loans Outstanding | |||||||||||||||||||
Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
Loans | Individually Evaluated for Impairment |
Collectively Evaluated for Impairment |
||||||||||||||||
September 30, 2013 |
||||||||||||||||||||
Commercial real estate |
$ | 2,782 | $ | 32,061 | $ | 2,548,278 | $ | 35,740 | $ | 2,512,538 | ||||||||||
Commercial and industrial |
124 | 32,524 | 1,689,467 | 5,357 | 1,684,110 | |||||||||||||||
Commercial leases |
| 1,767 | 141,714 | | 141,714 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans and leases |
2,906 | 66,352 | 4,379,459 | 41,097 | 4,338,362 | |||||||||||||||
Direct installment |
| 17,231 | 1,349,804 | | 1,349,804 | |||||||||||||||
Residential mortgages |
| 5,433 | 669,978 | | 669,978 | |||||||||||||||
Indirect installment |
| 6,127 | 631,030 | | 631,030 | |||||||||||||||
Consumer lines of credit |
| 7,079 | 804,453 | | 804,453 | |||||||||||||||
Other |
| 208 | 52,511 | | 52,511 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 2,906 | $ | 102,430 | $ | 7,887,235 | $ | 41,097 | $ | 7,846,138 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2012 |
||||||||||||||||||||
Commercial real estate |
$ | 2,136 | $ | 32,674 | $ | 2,448,471 | $ | 35,024 | $ | 2,413,447 | ||||||||||
Commercial and industrial |
590 | 31,259 | 1,555,301 | 1,624 | 1,553,677 | |||||||||||||||
Commercial leases |
| 1,744 | 130,133 | | 130,133 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial loans and leases |
2,726 | 65,677 | 4,133,905 | 36,648 | 4,097,257 | |||||||||||||||
Direct installment |
| 15,130 | 1,108,865 | | 1,108,865 | |||||||||||||||
Residential mortgages |
| 5,155 | 653,826 | | 653,826 | |||||||||||||||
Indirect installment |
| 5,449 | 568,324 | | 568,324 | |||||||||||||||
Consumer lines of credit |
| 6,057 | 732,534 | | 732,534 | |||||||||||||||
Other |
| | 39,937 | | 39,937 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 2,726 | $ | 97,468 | $ | 7,237,391 | $ | 36,648 | $ | 7,200,743 | |||||||||||
|
|
|
|
|
|
|
|
|
|
BORROWINGS
Following is a summary of short-term borrowings:
September 30, 2013 |
December 31, 2012 |
|||||||
Securities sold under repurchase agreements |
$ | 834,610 | $ | 807,820 | ||||
Federal funds purchased |
200,000 | 140,000 | ||||||
Subordinated notes |
131,570 | 135,318 | ||||||
|
|
|
|
|||||
$ | 1,166,180 | $ | 1,083,138 | |||||
|
|
|
|
Securities sold under repurchase agreements is comprised of customer repurchase agreements, which are sweep accounts with next day maturities utilized by larger commercial customers to earn interest on their funds. Securities are pledged to these customers in an amount equal to the outstanding balance.
Following is a summary of long-term debt:
September 30, 2013 |
December 31, 2012 |
|||||||
Federal Home Loan Bank advances |
$ | 79 | $ | 88 | ||||
Subordinated notes |
82,457 | 79,897 | ||||||
Other subordinated debt |
8,691 | 8,850 | ||||||
Convertible debt |
580 | 590 | ||||||
|
|
|
|
|||||
$ | 91,807 | $ | 89,425 | |||||
|
|
|
|
33
The Corporations banking affiliate has available credit with the FHLB of $3,212,358 of which $79 was used as of September 30, 2013. These advances are secured by loans collateralized by 1-4 family mortgages and FHLB stock and are scheduled to mature in various amounts periodically through the year 2019. Effective interest rates paid on these advances range from 3.78% to 4.19% for the nine months ended September 30, 2013 and for the year ended December 31, 2012.
JUNIOR SUBORDINATED DEBT
The Corporation has five unconsolidated subsidiary trusts (collectively, the Trusts): F.N.B. Statutory Trust I, F.N.B. Statutory Trust II, Omega Financial Capital Trust I, Sun Bancorp Statutory Trust I and Annapolis Bancorp Statutory Trust I. One hundred percent of the common equity of each Trust is owned by the Corporation. The Trusts were formed for the purpose of issuing Corporation-obligated mandatorily redeemable capital securities (TPS) to third-party investors. The proceeds from the sale of TPS and the issuance of common equity by the Trusts were invested in junior subordinated debt securities (subordinated debt) issued by the Corporation, which are the sole assets of each Trust. Since third-party investors are the primary beneficiaries, the Trusts are not consolidated in the Corporations financial statements. The Trusts pay dividends on the TPS at the same rate as the distributions paid by the Corporation on the junior subordinated debt held by the Trusts. Annapolis Bancorp Statutory Trust I was acquired in conjunction with the ANNB acquisition completed on April 6, 2013. Omega Financial Capital Trust I and Sun Bancorp Statutory Trust I were acquired as a result of a previous acquisition.
Distributions on the subordinated debt issued to the Trusts are recorded as interest expense by the Corporation. The TPS are subject to mandatory redemption, in whole or in part, upon repayment of the subordinated debt. The TPS are eligible for redemption, at any time, at the Corporations discretion. The subordinated debt, net of the Corporations investment in the Trusts, qualifies as Tier 1 capital under the Board of Governors of the Federal Reserve System (FRB) guidelines. Under recently issued capital guidelines, these TPS obligations are subject to limitations when total assets of the Corporation exceed $15,000,000. The Corporation has entered into agreements which, when taken collectively, fully and unconditionally guarantee the obligations under the TPS subject to the terms of each of the guarantees.
During the second quarter of 2013, $15,000 of the Corporation-issued TPS was repurchased at a discount and the related debt extinguished. This $15,000 was opportunistically purchased at auction and represents a portion of the underlying collateral of a pooled TPS that was liquidated by the trustee. The regulatory capital ratios at September 30, 2013 reflect this $15,000 debt extinguishment of TPS.
The following table provides information relating to the Trusts as of September 30, 2013:
Trust Preferred Securities |
Common Securities |
Junior Subordinated Debt |
Stated Maturity Date |
Interest Rate |