Edgar Filing: FNB CORP/FL/

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the quarterly period ended 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)

Registrant’s telephone number, including area code: 724-981-6000

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at November 1, 2013
Common Stock, $0.01 Par Value		158,867,441 Shares

F.N.B. CORPORATION

FORM 10-Q

September 30, 2013

INDEX


		PAGE

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets		3
	Consolidated Statements of Comprehensive Income		4
	Consolidated Statements of Stockholders’ Equity		5
	Consolidated Statements of Cash Flows		6
	Notes to Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		56

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		78

Item 4.	Controls and Procedures		78

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		79

Item 1A.	Risk Factors		80

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		80

Item 3.	Defaults Upon Senior Securities		80

Item 4.	Mine Safety Disclosures		80

Item 5.	Other Information		80

Item 6.	Exhibits		81

Signatures			82

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

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	)

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

Total Assets	$	12,790,279		$	12,023,976


Liabilities
Deposits:
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

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

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	)

Total Stockholders’ Equity		1,481,647			1,402,069

Total Liabilities and Stockholders’ Equity	$	12,790,279		$	12,023,976

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Dollars in thousands, except per share data

Unaudited


	Three Months Ended					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

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

Total Interest Expense		10,536		14,225			33,653		45,395

Net Interest Income		99,254		93,531			289,096		278,933
Provision for loan losses		7,280		8,429			22,724		22,028

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

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

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

Total Non-Interest Expense		83,221		77,082			246,265		242,237

Income Before Income Taxes		41,611		42,833			123,389		114,004
Income taxes		9,977		12,090			34,024		32,549

Net Income	$	31,634	$	30,743		$	89,365	$	81,455


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

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Dollars in thousands, except per share data

Unaudited


	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other 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

Balance at September 30, 2013	$	1,455	$	1,440,779	$	112,649		$	(66,171	)	$	(7,065	)	$	1,481,647


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

Balance at September 30, 2012	$	1,397	$	1,374,241	$	63,298		$	(38,972	)	$	(4,966	)	$	1,394,998

See accompanying Notes to Consolidated Financial Statements

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

Net cash flows provided by operating activities		264,242			479,932


Investing Activities
Net change in loans		(473,933	)		(238,978	)
Securities available for sale:
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

Net cash flows used in investing activities		(487,345	)		(594,580	)


Financing Activities
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	)

Net cash flows provided by financing activities		267,568			273,289

Net Increase in Cash and Cash Equivalents		44,465			158,641
Cash and cash equivalents at beginning of period		239,044			208,953

Cash and Cash Equivalents at End of Period	$	283,509		$	367,594

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands, except share data

(Unaudited)

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 Corporation’s accompanying consolidated financial statements and these notes to the financial statements include subsidiaries in which the Corporation has a controlling financial interest. The Corporation owns and operates 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 Corporation’s financial position and results of operations in accordance with U.S. generally accepted accounting principles (GAAP). All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements through the date of the filing of the consolidated financial statements with the Securities and Exchange Commission (SEC).

Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results the Corporation expects for the full year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K filed with the SEC on February 28, 2013.

USE OF ESTIMATES

The accounting and reporting policies of the Corporation conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the allowance for loan losses, securities valuations, goodwill and other intangible assets and income taxes.

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 1/40^th 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.

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 Corporation’s balance sheet at their preliminary estimated fair values as of October 12, 2013, the acquisition date, and PVF’s results of operations have been included in the Corporation’s 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. PVF’s 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 Corporation’s balance sheet at their preliminary estimated fair values as of April 6, 2013, the acquisition date, and ANNB’s results of operations have been included in the Corporation’s consolidated statements of income and comprehensive income since that date. ANNB’s banking affiliate, BankAnnapolis, was merged into FNBPA on April 6, 2013. In conjunction with the acquisition, a warrant issued by ANNB to the U.S. Department of the Treasury (UST) under the Capital Purchase Program (CPP) was assumed by the Corporation and converted into a warrant to purchase up to 342,564 shares of the Corporation’s common stock. The warrant expires January 30, 2019 and has an exercise price of $3.57 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 Corporation’s balance sheet at their fair values as of January 1, 2012, the acquisition date, and Parkvale’s results of operations have been included in the Corporation’s consolidated statements of income and comprehensive income since that date. Parkvale’s banking affiliate, Parkvale Bank, was merged into FNBPA on January 1, 2012. The warrant issued by Parkvale to the UST under the CPP was assumed by the Corporation and converted into a warrant to purchase up to 819,640 shares of the Corporation’s common stock. The warrant expires December 23, 2018 and has an exercise price of $5.81. Based on the purchase price allocation, which was completed in the fourth quarter of 2012, the Corporation recorded $106,602 in goodwill and $16,033 in core deposit 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 Corporation’s common stock for each share of BCSB common stock. BCSB’s 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.

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.

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:
September 30, 2013
U.S. government-sponsored entities	$	336,126	$	412	$	(4,386	)	$	332,152
Residential mortgage-backed securities:
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

Total debt securities		1,138,142		9,044		(33,796	)		1,113,390
Equity securities		1,554		645		(31	)		2,168

	$	1,139,696	$	9,689	$	(33,827	)	$	1,115,558


December 31, 2012
U.S. government-sponsored entities	$	352,910	$	1,676	$	(129	)	$	354,457
Residential mortgage-backed securities:
Agency mortgage-backed securities		267,575		7,575		—			275,150
Agency collateralized mortgage obligations		465,574		4,201		(228	)		469,547
Non-agency collateralized mortgage obligations		2,679		50		—			2,729
States of the U.S. and political subdivisions		23,592		1,232		—			24,824
Collateralized debt obligations		34,765		967		(13,276	)		22,456
Other debt securities		21,790		695		(972	)		21,513

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

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


Securities Held to Maturity:
September 30, 2013
U.S. Treasury	$	503	$	122	$	—		$	625
U.S. government-sponsored entities		43,403		191		(1,019	)		42,575
Residential mortgage-backed securities:
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

	$	1,180,992	$	18,579	$	(17,919	)	$	1,181,652


December 31, 2012
U.S. Treasury	$	503	$	188	$	—		$	691
U.S. government-sponsored entities		28,731		280		(99	)		28,912
Residential mortgage-backed securities:
Agency mortgage-backed securities		780,022		28,783		(1	)		808,804
Agency collateralized mortgage obligations		133,976		1,266		—			135,242
Non-agency collateralized mortgage obligations		14,082		130		—			14,212
Commercial mortgage-backed securities		1,024		39		—			1,063
States of the U.S. and political subdivisions		147,713		6,099		—			153,812
Collateralized debt obligations		512		—		(35	)		477

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

The Corporation classifies securities as trading securities when management intends to sell such securities in the near term. Such securities are carried at fair value, with unrealized gains (losses) reflected through the consolidated statements of comprehensive income. The Corporation classified certain securities acquired in conjunction with the 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	)

	$	5	$	(66	)	$	757		$	302

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
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

		406,527		394,859		178,953		179,221
Residential mortgage-backed securities:
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		—		—

	$	1,139,696	$	1,115,558	$	1,180,992	$	1,181,652

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.

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
Securities Available for Sale:
September 30, 2013
U.S. government-sponsored entities		12	$	173,836	$	(4,386	)		—	$	—	$	—			12	$	173,836	$	(4,386	)
Residential mortgage-backed securities:
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	)

		46	$	626,987	$	(22,686	)		14	$	15,522	$	(11,141	)		60	$	642,509	$	(33,827	)


December 31, 2012
U.S. government-sponsored entities		3	$	44,868	$	(129	)		—	$	—	$	—			3	$	44,868	$	(129	)
Residential mortgage-backed securities:
Agency collateralized mortgage obligations		3		47,174		(228	)		—		—		—			3		47,174		(228	)
Collateralized debt obligations		7		8,708		(909	)		9		5,532		(12,367	)		16		14,240		(13,276	)
Other debt securities		—		—		—			4		5,899		(972	)		4		5,899		(972	)
Equity securities		1		654		(9	)		—		—		—			1		654		(9	)

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


Securities Held to Maturity:
September 30, 2013
U.S. government-sponsored entities		3	$	39,027	$	(1,019	)		—		—		—			3	$	39,027	$	(1,019	)
Residential mortgage-backed securities:
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	)

		66	$	580,706	$	(17,919	)		—		—		—			66	$	580,706	$	(17,919	)


December 31, 2012
U.S. government-sponsored entities		1	$	14,901	$	(99	)		—	$	—	$	—			1	$	14,901	$	(99	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		1		1,424		(1	)		—		—		—			1		1,424		(1	)
Collateralized debt obligations		—		—		—			1		477		(35	)		1		477		(35	)

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

The Corporation does not intend to sell the debt securities and it is not more likely than not the Corporation will be required to sell the securities before recovery of their amortized cost basis.

The Corporation’s unrealized losses on collateralized debt obligations (CDOs) relate to investments in trust preferred securities (TPS). The Corporation’s portfolio of TPS consists of single-issuer and pooled securities. The single-issuer securities are primarily from money-center and large regional banks and are included in other debt securities. The pooled securities consist of securities issued primarily by banks and thrifts, with some of the pools including a limited number of insurance companies. Investments in pooled securities are all in mezzanine tranches except for 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.

Other-Than-Temporary Impairment

The Corporation evaluates its investment securities portfolio for other-than-temporary impairment (OTTI) on a quarterly basis. Impairment is assessed at the individual security level. The Corporation considers an investment security impaired if the fair value of the security is less than its cost or amortized cost basis.

When impairment of an equity security is considered to be other-than-temporary, the security is written down to its fair value and an impairment loss is recorded as a loss within non-interest income in the consolidated statement of comprehensive income. When impairment of a debt security is considered to be other-than-temporary, the amount of the OTTI recorded as a loss within non-interest income and thereby recognized in earnings depends on whether the Corporation intends to sell the security or whether it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis.

If the Corporation intends to sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value.

If the Corporation does not intend to sell the debt security and it is not more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis, OTTI shall be separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss shall be recognized in earnings. The amount related to other market factors shall be recognized in other comprehensive income, net of applicable taxes.

The Corporation performs its OTTI evaluation process in a consistent and systematic manner and includes an evaluation of all available evidence. Documentation of the process is as extensive as necessary to support a conclusion as to whether a decline in fair value below cost or amortized cost is temporary or other-than-temporary and includes documentation supporting both observable and unobservable inputs and a rationale for conclusions reached. In making these determinations for pooled TPS, the Corporation consults with third-party advisory firms to provide additional valuation assistance.

This process considers factors such as the severity, length of time and anticipated recovery period of the impairment, recoveries or additional declines in fair value subsequent to the balance sheet date, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions in its industry, and the issuer’s financial condition, repayment capacity, capital strength and near-term prospects.

For debt securities, the Corporation also considers the payment structure of the debt security, the likelihood of the issuer being able to make future payments, failure of the issuer of the security to make scheduled interest and principal payments, whether the Corporation has made a decision to sell the security and whether the Corporation’s cash or working capital requirements or contractual or regulatory obligations indicate that the debt security will be required to be sold before a forecasted recovery occurs. For equity securities, the Corporation also considers its intent and ability to retain the security for a period of time sufficient to allow for a recovery in fair value. Among the factors that the Corporation considers in determining its intent and ability to retain the security is a review of its capital adequacy, interest rate risk position and liquidity. The assessment of a security’s ability to recover any decline in fair value, the ability of the issuer to meet contractual obligations, the Corporation’s intent and ability to retain the security, and whether it is more likely than not the Corporation will be required to sell the security before recovery of its amortized cost basis require considerable judgment.

Debt securities with credit ratings below AA at the time of purchase that are repayment-sensitive securities are evaluated using the guidance of ASC 325, Investments – Other. All other securities are required to be evaluated under ASC 320, Investments – Debt Securities.

The Corporation invested in TPS issued by special purpose vehicles (SPVs) that hold pools of collateral consisting of trust preferred and subordinated debt securities issued by banks, bank holding companies, thrifts and insurance companies. The securities issued by the SPVs are generally segregated into several classes known as tranches. Typically, the structure includes senior, mezzanine and equity tranches. The equity tranche represents the first loss position. The Corporation generally holds interests in mezzanine tranches. Interest and principal collected from the collateral held by the SPVs are distributed with a priority that provides the highest level of protection to the senior-most tranches. In order to provide a high level of protection to the senior tranches, cash flows are diverted to higher-level tranches if the principal and interest coverage tests are not met.

The Corporation prices its holdings of TPS using Level 3 inputs in accordance with ASC 820, Fair Value Measurements and Disclosures, and guidance issued by the SEC. In this regard, the Corporation evaluates current available information in estimating the future cash flows of these securities and determines whether there have been favorable or adverse changes in estimated cash flows from the cash flows previously projected. The Corporation considers the structure and term of the pool and the financial condition of the underlying issuers. Specifically, the evaluation incorporates factors such as over-collateralization and interest coverage tests, interest rates and appropriate risk premiums, the timing and amount of interest and principal payments and the allocation of payments to the various tranches. Current estimates of cash flows are based on the most recent trustee reports, announcements of deferrals or defaults, and assumptions regarding expected future default rates, prepayment and recovery rates and other relevant information. In constructing these assumptions, the Corporation considers the following:

•

that current defaults would have no recovery;

•

that some individually analyzed deferrals will cure at rates varying from 10% to 90% after the deferral period ends;

•

recent historical performance metrics, including profitability, capital ratios, loan charge-offs and loan reserve ratios, for the underlying institutions that would indicate a higher probability of default by the institution;

•

that institutions identified as possessing a higher probability of default would recover at a rate of 10% for banks and 15% for insurance companies;

•

that financial performance of the financial sector continues to be affected by the economic environment resulting in an expectation of additional deferrals and defaults in the future;

•

whether the security is currently deferring interest; and

•

the external rating of the security and recent changes to its external rating.

The primary evidence utilized by the Corporation is the level of current deferrals and defaults, the level of excess subordination that allows for receipt of full principal and interest, the credit rating for each security and the likelihood that future deferrals and defaults will occur at a level that will fully erode the excess subordination based on an assessment of the underlying collateral. The Corporation combines the results of these factors considered in estimating the future cash flows of these securities to determine whether there has been an adverse change in estimated cash flows from the cash flows previously projected.

The Corporation’s portfolio of TPS consists of 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.

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
Beginning balance	$	17,155		$	212		$	17,367
Loss where impairment was not previously recognized		—			—			—
Additional loss where impairment was previously recognized		—			—			—
Reduction due to credit impaired securities sold		—			(212	)		(212	)

Ending balance	$	17,155		$	—		$	17,155


For the Nine Months Ended September 30, 2012
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	)

Ending balance	$	17,274		$	—		$	17,274

The secondary market for pooled TPS remains limited. Write-downs, when required, are based on an individual security’s credit performance and its ability to make its contractual principal and interest payments. Should credit quality deteriorate to a greater extent than projected, it is possible that additional write-downs may be required. The Corporation monitors actual deferrals and defaults as well as expected future deferrals and defaults to determine if there is a high probability for expected losses and contractual shortfalls of interest or principal, which could warrant further impairment. The Corporation evaluates its entire TPS portfolio each quarter to determine if additional write-downs are warranted.

The following table provides information relating to the Corporation’s TPS as of 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

Total OTTI			34,031		18,644		8,593		(10,051	)			350		17		12		41		15


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

Total Not OTTI			62,576		17,807		20,111		2,304				522		16		10		36		15

Total Pooled TPS		$	96,607	$	36,451	$	28,704	$	(7,747	)			872		16		11		38		15


Deal Name	Class	Current Par Value		Amortized Cost		Fair Value		Unrealized Gain (Loss)			Lowest Credit Ratings	Number of Issuers Currently Performing		Actual Defaults (as a percent of original collateral)	Actual Deferrals (as a percent of original collateral)	Projected Recovery Rates on Current Deferrals (1)	Expected Defaults (%) (2)	Excess Subordination (as a percent of current collateral) (3)
Single Issuer TPS:
S1		$	2,000	$	1,954	$	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

Total Single Issuer TPS		$	7,000	$	6,877	$	5,963	$	(914	)			4


Total TPS		$	103,607	$	43,328	$	34,667	$	(8,661	)			876

(1)	Some current deferrals are expected to cure at rates varying from 10% to 90% after five years.

(2)	Expected future defaults as a percent of remaining performing collateral.

(3)	Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment.

States of the U.S. and Political Subdivisions

The Corporation’s municipal bond portfolio of $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 Corporation’s 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 Corporation’s 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 FHLB’s financial performance and stability over the past several years, the Corporation believes its holdings in the stock are ultimately recoverable at par value and, therefore, determined that FHLB stock was not other-than-temporarily impaired. In addition, the Corporation has ample liquidity and does not require redemption of its FHLB stock in the foreseeable future.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Following is a summary of loans, net of unearned income:


	Originated Loans		Acquired Loans		Total Loans
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

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

	$	7,887,235	$	949,670	$	8,836,905


	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

Total commercial loans and leases		4,133,905		305,588		4,439,493
Direct installment		1,108,865		69,665		1,178,530
Residential mortgages		653,826		438,402		1,092,228
Indirect installment		568,324		13,713		582,037
Consumer lines of credit		732,534		72,960		805,494
Other		39,937		—		39,937

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

The carrying amount of acquired loans at 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 Corporation’s 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 Corporation’s allowance for loan losses for acquired loans reflects only those losses incurred after acquisition.

The following table reflects amounts at acquisition for all purchased loans subject to ASC310-30 (impaired and non-impaired) acquired from 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	)

Cash flows expected to be collected at acquisition		4,371			256,492			260,863
Accretable yield		(523	)		(41,207	)		(41,730	)

Basis in acquired loans at acquisition	$	3,848		$	215,285		$	219,133


Acquired from Parkvale in 2012
Contractually required cash flows at acquisition	$	12,224		$	1,327,342		$	1,339,566
Non-accretable difference (expected losses and foregone interest)		(6,070	)		(214,541	)		(220,611	)

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

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

The following table provides a summary of change in accretable yield for all acquired loans:


	Acquired Impaired Loans			Acquired Performing Loans			Total
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	)

Balance at end of period	$	5,533		$	230,866		$	236,399


Year Ended December 31, 2012
Balance at beginning of period	$	2,477		$	49,229		$	51,706
Acquisitions		589			293,594			294,183
Reduction due to unexpected early payoffs		—			(57,840	)		(57,840	)
Reclass from non-accretable difference		3,539			10,915			14,454
Disposals/transfers		(49	)		(615	)		(664	)
Accretion		(5,778	)		(41,908	)		(47,686	)

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

Purchased Credit-Impaired (PCI) Loans

The Corporation has acquired loans for which there was evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected.

Following is information about PCI loans identified in the Corporation’s acquisition of 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		—

Following is information about PCI loans identified in the Corporation’s acquisition of Parkvale:


	At Acquisition		December 31, 2012
Outstanding balance	$	9,135	$	3,704
Carrying amount		5,565		2,552
Allowance for loan losses		n/a		103
Impairment recognized since acquisition		n/a		103
Allowance reduction recognized since acquisition		n/a		—

Following is information about the Corporation’s PCI loans:


	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


For the Year Ended December 31, 2012
Balance at beginning of period	$	51,693		$	(33,377	)	$	18,316		$	(2,477	)	$	15,839
Acquisitions		9,135			(2,981	)		6,154			(589	)		5,565
Accretion		—			—			—			5,778			5,778
Payments received		(9,556	)		—			(9,556	)		—			(9,556	)
Reclass from non-accretable difference		—			3,539			3,539			(3,539	)		—
Disposals/transfers		(12,494	)		11,442			(1,052	)		49			(1,003	)
Contractual interest		2,356			(2,356	)		—			—			—

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

The accretion in the table above includes $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 Corporation’s loan portfolio on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.

Non-performing loans include non-accrual loans and non-performing troubled debt restructurings (TDRs). Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. The Corporation places a loan on non-accrual status and discontinues interest accruals on originated loans generally when principal or interest is due and has remained unpaid for a certain number of days unless the loan is both well secured and in the process of collection. Commercial loans are placed on non-accrual at 90 days, installment loans are placed on non-accrual at 120 days and residential mortgages and consumer lines of credit are generally placed on non-accrual at 180 days. When a loan is placed on non-accrual status, all unpaid interest is reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate ability to collect the remaining principal and interest is reasonably assured. TDRs are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Non-performing assets also include debt securities on which OTTI has been taken in the current or prior periods that have not been returned to accrual status.

Following is a summary of non-performing assets:


	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 Corporation’s 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


	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 management’s use of migration and roll rate analysis to estimate a quantitative portion of credit risk. The Corporation’s internal credit risk grading system is based on past experiences with similarly graded loans and conforms with regulatory categories. In general, loan risk ratings within each category are reviewed on an ongoing basis according to the Corporation’s policy for each class of loans. Each quarter, management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the commercial loan portfolio. Loans within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans that migrate toward the Substandard or Doubtful credit categories. Accordingly, management applies higher risk factors to Substandard and Doubtful credit categories.

The following tables present a summary of the Corporation’s commercial loans by credit quality category, segregated by loans originated and loans acquired:


	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.

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 Corporation’s existing method of income recognition for loans, interest on impaired loans, except those classified as non-accrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Following is a summary of information pertaining to originated loans considered to be impaired, by class of loans:


	Recorded Investment		Unpaid Principal Balance		Specific Related Allowance		Average Recorded Investment
At or For the 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


	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.

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 Corporation’s 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 Corporation’s 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 Corporation’s charge-off policy is followed accordingly for that class of loan.

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

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 management’s 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 management’s 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.

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


	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

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

The Corporation’s 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 Corporation’s 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 Corporation’s discretion. The subordinated debt, net of the Corporation’s 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

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller reporting company