Form 10-Q
Table of Contents

 

 

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):

 

Large Accelerated Filer   x    Accelerated Filer   ¨
Non-accelerated Filer   ¨    Smaller reporting company   ¨

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the 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

 

 

 


Table of Contents

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   

 

2


Table of Contents

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

 

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Table of Contents

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

 

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Table of Contents

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

 

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Table of Contents

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

 

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Table of Contents

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 1/40th interest in the Non-Cumulative Perpetual Preferred Stock, Series E, of the Corporation, at a price of $25.00 per share. The net proceeds of the combined offerings after deducting underwriting discounts and commissions and estimated offering expenses were $151,175. The Corporation intends to use the proceeds from the offerings to proactively position itself for Basel III implementation, as discussed in the “Enhanced Regulatory Capital Standards” section of this Report, and to support future growth opportunities.

 

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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.

 

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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.

 

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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   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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

 

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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.

 

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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.

 

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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.

 

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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.

 

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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      
     

 

 

    

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

16


Table of Contents

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.

 

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Table of Contents

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   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     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.

 

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Table of Contents

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         —     

 

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Table of Contents

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.

 

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Table of Contents

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents
     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.

 

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Table of Contents

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.

 

24


Table of Contents

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.

 

25


Table of Contents

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

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Specific
Related

Allowance
     Average
Recorded
Investment
 

At or For the Nine Months Ended September 30, 2013

           

With no specific allowance recorded:

           

Commercial real estate

   $ 34,281       $ 46,548       $ —         $ 34,165   

Commercial and industrial

     9,308         11,377         —           9,448   

Commercial leases

     782         782         —           729   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans and leases

     44,371         58,707         —           44,342   

Direct installment

     10,665         10,901         —           10,451   

Residential mortgages

     13,298         13,561         —           13,767   

Indirect installment

     1,092         2,491         —           1,169   

Consumer lines of credit

     549         609         —           631   

Other

     —           —           —           583   

With a specific allowance recorded:

           

Commercial real estate

     14,300         23,748         2,782         14,379   

Commercial and industrial

     124         131         124         126   

Commercial leases

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans and leases

     14,424         23,879         2,906         14,505   

Direct installment

     —           —           —           —     

Residential mortgages

     —           —           —           —     

Indirect installment

     —           —           —           —     

Consumer lines of credit

     —           —           —           —     

Other

     —           —           —           —     

Total:

           

Commercial real estate

     48,581         70,296         2,782         48,544   

Commercial and industrial

     9,432         11,508         124         9,574   

Commercial leases

     782         782         —           729   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans and leases

     58,795         82,586         2,906         58,847   

Direct installment

     10,665         10,901         —           10,451   

Residential mortgages

     13,298         13,561         —           13,767   

Indirect installment

     1,092         2,491         —           1,169   

Consumer lines of credit

     549         609         —           631   

Other

     —           —           —           583   

 

26


Table of Contents
     Recorded
Investment
     Unpaid
Principal
Balance
     Specific
Related

Allowance
     Average
Recorded
Investment
 

At or For the Year Ended December 31, 2012

           

With no specific allowance recorded:

           

Commercial real estate

   $ 37,119       $ 50,234       $ —         $ 36,426   

Commercial and industrial

     7,074         9,597         —           6,992   

Commercial leases

     965         —           —           1,053   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans and leases

     45,158         59,831         —           44,471   

Direct installment

     8,541         8,693         —           6,443   

Residential mortgages

     11,414         11,223         —           9,059   

Indirect installment

     1,132         2,381         —           1,133   

Consumer lines of credit

     746         792         —           591   

Other

     3,500         3,500         —           3,500   

With a specific allowance recorded:

           

Commercial real estate

     12,623         21,877         2,136         14,522   

Commercial and industrial

     590         590         590         592   

Commercial leases

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans and leases

     13,213         22,467         2,726         15,114   

Direct installment

     —           —           —           —     

Residential mortgages

     —           —           —           —     

Indirect installment

     —           —           —           —     

Consumer lines of credit

     —           —           —           —     

Other

     —           —           —           —     

Total:

           

Commercial real estate

     49,742         72,111         2,136         50,948   

Commercial and industrial

     7,664         10,187         590         7,584   

Commercial leases

     965         —           —           1,053   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans and leases

     58,371         82,298         2,726         59,585   

Direct installment

     8,541         8,693         —           6,443   

Residential mortgages

     11,414         11,223         —           9,059   

Indirect installment

     1,132         2,381         —           1,133   

Consumer lines of credit

     746         792         —           591   

Other

     3,500         3,500         —           3,500   

Interest income is generally no longer recognized once a loan becomes impaired.

The above tables do not include PCI loans with a recorded investment of $17,221 at September 30, 2013 and $16,623 at December 31, 2012. These tables do not reflect the additional allowance for loan losses relating to acquired loans in the following pools and categories: commercial real estate of $1,443; commercial and industrial of $1,023; direct installment of $916; residential mortgages of $1,039; and indirect installment of $295, totaling $4,716 at September 30, 2013 and commercial real estate of $1,955; commercial and industrial of $1,140; direct installment of $657; residential mortgages of $69; and indirect installment of $359, totaling $4,180 at December 31, 2012.

Troubled Debt Restructurings

TDRs are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs typically result from loss mitigation activities and could include the extension of a maturity date, interest rate reduction, principal forgiveness, deferral or decrease in payments for a period of time and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral.

 

27


Table of Contents

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.

 

28


Table of Contents

The majority of TDRs are the result of interest rate concessions for a limited period of time. Following is a summary of loans, by class, that have been restructured during the periods indicated:

 

     Three Months Ended
September 30, 2013
     Nine Months Ended
September 30, 2013
 
     Number
of
Contracts
     Pre-Modification
Outstanding

Recorded
Investment
     Post-
Modification

Outstanding
Recorded
Investment
     Number
of
Contracts
     Pre-Modification
Outstanding

Recorded
Investment
     Post-
Modification

Outstanding
Recorded
Investment
 

Commercial real estate

     2       $ 212       $ 207         7       $ 1,252       $ 1,031   

Commercial and industrial

     —           —           —           —           —           —     

Commercial leases

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans and leases

     2         212         207         7         1,252         1,031   

Direct installment

     117         1,199         1,168         300         3,078         2,930   

Residential mortgages

     9         346         348         39         1,809         1,784   

Indirect installment

     5         20         18         20         92         84   

Consumer lines of credit

     1         6         6         14         207         204   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     134       $ 1,783       $ 1,747         380       $ 6,438       $ 6,033   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended
September 30, 2012
     Nine Months Ended
September 30, 2012
 
     Number
of
Contracts
     Pre-Modification
Outstanding

Recorded
Investment
     Post-
Modification

Outstanding
Recorded
Investment
     Number
of
Contracts
     Pre-Modification
Outstanding

Recorded
Investment
     Post-
Modification

Outstanding
Recorded
Investment
 

Commercial real estate

     13       $ 2,183       $ 2,245         16       $ 2,341       $ 2,971   

Commercial and industrial

     4         51         48         7         254         123   

Commercial leases

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans and leases

     17         2,234         2,293         23         2,595         3,094   

Direct installment

     50         237         228         229         1,597         1,557   

Residential mortgages

     15         934         996         39         2,085         2,266   

Indirect installment

     4         30         30         17         105         97   

Consumer lines of credit

     2         2         3         4         5         5   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     88       $ 3,437       $ 3,550         312       $ 6,387       $ 7,019   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

29


Table of Contents

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.

 

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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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     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   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

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   
  

 

 

    

 

 

 

 

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Table of Contents

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