Edgar Filing: FNB CORP/FL/

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

¨	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 North Shore Center, 12 Federal Street, Pittsburgh, PA		15212
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 800-555-5455

One F.N.B. Boulevard, Hermitage, PA 16148

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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


Class		Outstanding at July 31, 2014
Common Stock, $0.01 Par Value		166,557,534 Shares

F.N.B. CORPORATION

FORM 10-Q

June 30, 2014

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		51

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		75

Item 4.	Controls and Procedures		76

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		77

Item 1A.	Risk Factors		77

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		77

Item 3.	Defaults Upon Senior Securities		77

Item 4.	Mine Safety Disclosures		77

Item 5.	Other Information		78

Item 6.	Exhibits		78

Signatures			79

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except par value


	June 30,			December 31,
	2014			2013
	(Unaudited)
Assets
Cash and due from banks	$	250,954		$	197,534
Interest bearing deposits with banks		19,766			16,447

Cash and Cash Equivalents		270,720			213,981
Securities available for sale		1,384,273			1,141,650
Securities held to maturity (fair value of $1,439,241 and $1,189,563)		1,427,852			1,199,169
Residential mortgage loans held for sale		2,705			7,138
Loans, net of unearned income of $54,009 and $55,051		10,333,873			9,506,094
Allowance for loan losses		(116,748	)		(110,784	)

Net Loans		10,217,125			9,395,310
Premises and equipment, net		162,383			154,032
Goodwill		805,514			764,248
Core deposit and other intangible assets, net		48,292			47,608
Bank owned life insurance		309,750			289,402
Other assets		390,633			350,867

Total Assets	$	15,019,247		$	13,563,405

Liabilities
Deposits:
Non-interest bearing demand	$	2,429,120		$	2,200,081
Interest bearing demand		4,354,333			3,968,679
Savings		1,576,480			1,423,399
Certificates and other time deposits		2,697,837			2,606,073

Total Deposits		11,057,770			10,198,232
Other liabilities		154,816			130,418
Short-term borrowings		1,504,510			1,241,239
Long-term debt		335,854			143,928
Junior subordinated debt		58,220			75,205

Total Liabilities		13,111,170			11,789,022
Stockholders’ Equity
Preferred stock—$0.01 par value
Authorized—20,000,000 shares
Issued—110,877 shares		106,882			106,882
Common stock—$0.01 par value
Authorized—500,000,000 shares
Issued—167,571,661 and 159,624,796 shares		1,673			1,592
Additional paid-in capital		1,700,220			1,608,117
Retained earnings		146,542			121,870
Accumulated other comprehensive loss		(36,559	)		(56,924	)
Treasury stock—1,012,403 and 657,585 shares at cost		(10,681	)		(7,154	)

Total Stockholders’ Equity		1,908,077			1,774,383

Total Liabilities and Stockholders’ Equity	$	15,019,247		$	13,563,405

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Dollars in thousands, except per share data

Unaudited


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Interest Income
Loans, including fees	$	109,542	$	95,682	$	213,639	$	188,657
Securities:
Taxable		13,577		10,656		25,864		21,253
Nontaxable		1,287		1,443		2,578		2,959
Dividends		13		42		192		58
Other		21		18		47		32

Total Interest Income		124,440		107,841		242,320		212,959
Interest Expense
Deposits		7,461		7,343		14,610		15,608
Short-term borrowings		1,333		1,075		2,552		2,182
Long-term debt		1,112		775		2,158		1,549
Junior subordinated debt		342		1,902		983		3,778

Total Interest Expense		10,248		11,095		20,303		23,117

Net Interest Income		114,192		96,746		222,017		189,842
Provision for loan losses		10,405		7,903		17,411		15,444

Net Interest Income After Provision for Loan Losses		103,787		88,843		204,606		174,398
Non-Interest Income
Service charges		17,441		18,564		32,710		34,989
Trust fees		4,862		4,167		9,626		8,252
Insurance commissions and fees		3,691		4,101		8,636		8,531
Securities commissions and fees		3,002		2,867		5,393		5,790
Net securities gains		776		68		10,237		752
Mortgage banking		928		1,114		1,142		2,198
Bank owned life insurance		1,807		1,890		3,992		3,526
Other		6,683		3,926		9,524		6,271

Total Non-Interest Income		39,190		36,697		81,260		70,309
Non-Interest Expense
Salaries and employee benefits		48,465		43,201		97,418		87,106
Net occupancy		8,068		6,839		16,550		13,537
Equipment		7,177		6,106		14,076		11,598
Amortization of intangibles		2,461		2,071		4,744		3,996
Outside services		8,233		8,562		15,470		15,767
FDIC insurance		3,399		2,672		6,393		5,036
Merger related		832		2,946		6,150		3,298
Other		13,949		11,730		25,949		22,591

Total Non-Interest Expense		92,584		84,127		186,750		162,929

Income Before Income Taxes		50,393		41,413		99,116		81,778
Income taxes		15,562		12,220		29,761		24,047

Net Income		34,831		29,193		69,355		57,731
Preferred stock dividends		2,010		—		4,332		—

Net Income Available to Common Stockholders	$	32,821	$	29,193	$	65,023	$	57,731

Net Income per Common Share – Basic	$	0.20	$	0.20	$	0.40	$	0.41
Net Income per Common Share – Diluted		0.20		0.20		0.39		0.40
Cash Dividends per Common Share		0.12		0.12		0.24		0.24
Comprehensive Income	$	42,313	$	14,314	$	89,720	$	41,878

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Dollars in thousands, except per share data

Unaudited


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance at January 1, 2014	$	106,882	$	1,592	$	1,608,117	$	121,870		$	(56,924	)	$	(7,154	)	$	1,774,383
Net income								69,355									69,355
Change in other comprehensive income (loss), net of tax											20,365						20,365
Dividends declared:
Preferred stock								(4,332	)								(4,332	)
Common stock: $0.24/share								(40,123	)								(40,123	)
Issuance of common stock				14		7,857		(228	)					(3,527	)		4,116
Issuance of common stock—acquisitions				67		81,322											81,389
Restricted stock compensation						1,419											1,419
Tax expense of stock-based compensation						1,505											1,505

Balance at June 30, 2014	$	106,882	$	1,673	$	1,700,220	$	146,542		$	(36,559	)	$	(10,681	)	$	1,908,077

Balance at January 1, 2013		—	$	1,398	$	1,376,601	$	75,312		$	(46,224	)	$	(5,018	)	$	1,402,069
Net income								57,731									57,731
Change in other comprehensive income (loss), net of tax											(15,853	)					(15,853	)
Dividends declared:
Common stock: $0.24/share								(34,468	)								(34,468	)
Issuance of common stock				56		58,066								(1,944	)		56,178
Restricted stock compensation						2,094											2,094
Tax benefit of stock-based compensation						1,247											1,247

Balance at June 30, 2013		—	$	1,454	$	1,438,008	$	98,575		$	(62,077	)	$	(6,962	)	$	1,468,998

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands

Unaudited


	Six Months Ended
	June 30,
	2014			2013
Operating Activities
Net income	$	69,355		$	57,731
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion		16,290			15,446
Provision for loan losses		17,411			15,444
Deferred tax (benefit) expenses		(2,454	)		3,936
Net securities gains		(10,237	)		(752	)
Tax benefit of stock-based compensation		(1,505	)		(1,247	)
Loans originated for sale		(51,761	)		(139,894	)
Loans sold		58,659			150,074
Gain on sale of loans		(2,465	)		(2,043	)
Net change in:
Interest receivable		40			(1,207	)
Interest payable		(1,292	)		(2,160	)
Trading securities		203,178			88,052
Bank owned life insurance		(3,375	)		(899	)
Other, net		8,705			18,370

Net cash flows provided by operating activities		300,549			200,851

Investing Activities
Net change in loans		(538,144	)		(262,589	)
Securities available for sale:
Purchases		(526,470	)		(211,531	)
Sales		150,055			21,919
Maturities		172,295			188,782
Securities held to maturity:
Purchases		(325,989	)		(235,392	)
Sales		—			17,429
Maturities		95,152			172,586
Purchase of bank owned life insurance		(4,448	)		(10,022	)
Withdrawal/surrender of bank owned life insurance		715			—
Increase in premises and equipment		(8,021	)		(1,853	)
Net cash received in business combinations		27,058			41,986

Net cash flows used in investing activities		(957,797	)		(278,685	)

Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts		451,460			390,867
Time deposits		(122,075	)		(173,154	)
Short-term borrowings		263,271			(66,920	)
Increase in long-term debt		216,736			20,826
Decrease in long-term debt		(24,809	)		(56,479	)
Decrease in junior subordinated debt		(34,022	)		(15,000	)
Net proceeds from issuance of common stock		6,376			1,973
Tax benefit of stock-based compensation		1,505			1,247
Cash dividends paid:
Preferred stock		(4,332	)		—
Common stock		(40,123	)		(34,468	)

Net cash flows provided by financing activities		713,987			68,892

Net Increase (Decrease) in Cash and Cash Equivalents		56,739			(8,942	)
Cash and cash equivalents at beginning of period		213,981			239,044

Cash and Cash Equivalents at End of Period	$	270,720		$	230,102

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands, except share data

(Unaudited)

June 30, 2014

BUSINESS

F.N.B. Corporation (the Corporation), headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in six states and three major metropolitan areas, including Pittsburgh, Baltimore, Maryland and Cleveland, Ohio. As of June 30, 2014, the Corporation had 283 banking offices throughout Pennsylvania, Ohio, Maryland and West Virginia. 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, international banking, business credit, 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 had 71 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee as of June 30, 2014.

On July 9, 2014, the Corporation announced that it has formally named its largest market, Pittsburgh, Pennsylvania, as its corporate headquarters, an action that is reflective of the Corporation’s strong position in that market, elevates the Corporation’s presence nationally and leverages the significant investments in infrastructure and personnel made in Pittsburgh since 2004. Given its close proximity and existing facilities, the Corporation will continue to maintain its operations centers and support areas in Hermitage, Pennsylvania.

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 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, 2014.

USE OF ESTIMATES

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

SECURITIES OFFERINGS

On November 1, 2013, the Corporation completed a public offering of 4,693,876 shares of common stock at a price of $12.25 per share, including 612,244 shares of common stock purchased by the underwriters pursuant to an over-allotment option, which the underwriters exercised in full. On November 1, 2013, the Corporation also completed a public offering of 4,000,000 Depositary Shares, each representing a 1/40^th interest in the Non-Cumulative Perpetual Preferred Stock, Series E, of the Corporation, at a price of $25.00 per share. On November 14, 2013, the underwriters exercised their over-allotment option of 435,080 additional Depositary Shares at the same terms. The net proceeds of the common and preferred stock offerings after deducting underwriting discounts and commissions and offering expenses were $54,434 and $106,882, respectively.

MERGERS AND ACQUISITIONS

OBA Financial Services, Inc.

On April 8, 2014, the Corporation announced the signing of a definitive merger agreement to acquire OBA Financial Services, Inc. (OBA), a bank holding company with approximately $390,000 in total assets based in Germantown, Maryland. The transaction is valued at approximately $94,000. Under the terms of the merger agreement, OBA shareholders will be entitled to receive 1.781 shares of the Corporation’s common stock for each share of OBA common stock. OBA’s banking affiliate, OBA Bank, will be merged into FNBPA. The transaction is expected to be completed in the third quarter of 2014, pending the approval of shareholders of OBA and the satisfaction of other closing conditions. Regulatory approvals for the transaction were obtained in July 2014.

BCSB Bancorp, Inc.

On February 15, 2014, the Corporation completed its acquisition of BCSB Bancorp, Inc. (BCSB), a bank holding company based in Baltimore, Maryland. On the acquisition date, the estimated fair values of BCSB included $597,522 in assets, $308,389 in loans and $532,197 in deposits. The acquisition was valued at approximately $80,544 and resulted in the Corporation issuing 6,730,597 shares of its common stock in exchange for 3,235,961 shares of BCSB common stock. The Corporation also acquired the outstanding stock options of BCSB that became fully vested upon the acquisition. The assets and liabilities of BCSB were recorded on the Corporation’s consolidated balance sheet at their preliminary estimated fair values as of February 15, 2014, the acquisition date, and BCSB’s results of operations have been included in the Corporation’s consolidated statement of comprehensive income since that date. BCSB’s banking affiliate, Baltimore County Savings Bank, was merged into FNBPA on February 15, 2014. Based on a preliminary purchase price allocation, the Corporation recorded $41,500 in goodwill and $6,591 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.

PVF Capital Corp.

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 $741,058 in assets, $512,795 in loans and $628,205 in deposits. The acquisition was valued at $109,856 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 Corporation also acquired the outstanding stock options of PVF that became fully vested upon the acquisition. The assets and liabilities of PVF were recorded on the Corporation’s consolidated balance sheets 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 comprehensive income since that date. PVF’s banking affiliate, Park View Federal Savings Bank, was merged into FNBPA on October 12, 2013. Based on a preliminary purchase price allocation, the Corporation recorded $52,605 in goodwill and $6,867 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.

Annapolis Bancorp, Inc.

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 $430,475 in assets, $256,212 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. The Corporation also acquired the outstanding stock options of ANNB that became fully vested upon the acquisition. 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 consolidated balance sheets at their fair values as of April 6, 2013, the acquisition date, and ANNB’s results of operations have been included in the Corporation’s consolidated statements of 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 the purchase price allocation, the Corporation recorded $35,854 in goodwill and $3,775 in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes.

NEW ACCOUNTING STANDARDS

Stock Compensation

In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU 2014-12 provides guidance relating to the accounting for a performance target that could be achieved after the requisite service period. ASU 2014-12 requires that such performance targets be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The requirements of ASU 2014-12 are effective for reporting periods beginning after December 15, 2015, with early adoption permitted. Companies may apply the amendments in this standard either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying ASU 2014-12 should be recognized as an adjustment to the beginning balance of retained earnings. The Corporation is evaluating this new guidance and has not yet determined the impact that the adoption of this update will have on its financial statements.

Repurchase Agreements

In June 2014, the FASB issued ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, that requires repurchase-to-maturity transactions to be accounted for as secured borrowings, eliminates current guidance on repurchase financings and requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty. ASU 2014-11 also requires an entity to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements and to disclose information about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The accounting changes in ASU 2014-11 are effective for the first interim or annual reporting period beginning after December 15, 2014. Changes in accounting for transactions outstanding on the effective date must be presented as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Early adoption is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual reporting periods beginning after December 15, 2014. The disclosure for repurchase agreements and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The Corporation is evaluating this new guidance and has not yet determined the impact that the adoption of this update will have on its financial statements.

Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to clarify the principles for recognizing revenue and to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. An entity should apply the amendments in this update using either a full retrospective application or a modified retrospective application. Under the full retrospective application, an entity will apply the standard to each prior reporting period presented. Under the modified retrospective application, an entity recognizes the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings at the date of initial application. Revenue in periods presented before that date will continue to be reported under guidance in effect before the change. The Corporation is evaluating this new guidance and has not yet determined which approach it will adopt to apply the amendments in ASU 2014-09 or the impact that the adoption of this update will have on its financial statements.

Troubled Debt Restructurings

In January 2014, the FASB issued ASU No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, to clarify when an in-substance repossession or foreclosure occurs; that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and other real estate owned (OREO) recognized. ASU 2014-04 requires a creditor to reclassify a collateralized consumer mortgage loan to OREO upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. The requirements of ASU 2014-04 are effective for reporting periods beginning after December 15, 2014. The adoption of this update will not have an impact on the financial statements, results of operations or liquidity of the Corporation since the Corporation already accounts for foreclosures according to the requirements of this update.

Investments in Qualified Affordable Housing Projects

In January 2014, the FASB issued ASU No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, to revise the accounting for investments in qualified affordable housing projects. ASU 2014-01 modifies the conditions that must be met to present the pretax effects and related tax benefits of such investments as a component of income taxes (“net” within income tax expense). It is expected that the new guidance will enable more investors to use a “net” presentation for investments in qualified affordable housing projects. Investors that do not qualify for “net” presentation under the new guidance will continue to account for such investments under the equity method or cost method, which results in losses recognized in pretax income and tax benefits recognized in income taxes (“gross” presentation of investment results). For investments that qualify for the “net” presentation of investment performance, the guidance introduces a “proportional amortization method” that can be elected to amortize the investment basis. If elected, the method is required for all eligible investments in qualified affordable housing projects. The requirements of ASU 2014-01 are effective for reporting periods beginning after December 15, 2014, 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.

Income Taxes

In July 2013, the FASB issued 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 did not have a material effect on the financial statements, results of operations or liquidity of the Corporation.

SECURITIES

The amortized cost and fair value of securities are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale:
June 30, 2014
U.S. Treasury	$	9,858	$	18	$	—		$	9,876
U.S. government-sponsored entities		293,306		784		(2,135	)		291,955
Residential mortgage-backed securities:
Agency mortgage-backed securities		427,873		7,230		(28	)		435,075
Agency collateralized mortgage obligations		614,983		1,130		(11,600	)		604,513
Non-agency collateralized mortgage obligations		1,612		13		—			1,625
Commercial mortgage-backed securities		9,059		2		—			9,061
States of the U.S. and political subdivisions		13,913		572		(74	)		14,411
Other debt securities		16,559		534		(620	)		16,473

Total debt securities		1,387,163		10,283		(14,457	)		1,382,989
Equity securities		1,031		253		—			1,284

	$	1,388,194	$	10,536	$	(14,457	)	$	1,384,273

December 31, 2013
U.S. government-sponsored entities	$	336,763	$	126	$	(5,904	)	$	330,985
Residential mortgage-backed securities:
Agency mortgage-backed securities		247,880		4,304		(1,303	)		250,881
Agency collateralized mortgage obligations		511,098		895		(20,794	)		491,199
Non-agency collateralized mortgage obligations		1,747		15		—			1,762
States of the U.S. and political subdivisions		16,842		410		(250	)		17,002
Collateralized debt obligations		37,203		4,507		(10,115	)		31,595
Other debt securities		16,505		524		(929	)		16,100

Total debt securities		1,168,038		10,781		(39,295	)		1,139,524
Equity securities		1,444		682		—			2,126

	$	1,169,482	$	11,463	$	(39,295	)	$	1,141,650

Securities Held to Maturity:
June 30, 2014
U.S. Treasury	$	502	$	138	$	—		$	640
U.S. government-sponsored entities		101,691		536		(720	)		101,507
Residential mortgage-backed securities:
Agency mortgage-backed securities		715,611		17,309		(698	)		732,222
Agency collateralized mortgage obligations		458,232		2,054		(9,778	)		450,508
Non-agency collateralized mortgage obligations		5,823		21		(7	)		5,837
Commercial mortgage-backed securities		2,227		147		—			2,374
States of the U.S. and political subdivisions		143,766		2,796		(409	)		146,153

	$	1,427,852	$	23,001	$	(11,612	)	$	1,439,241

December 31, 2013
U.S. Treasury	$	503	$	99	$	—		$	602
U.S. government-sponsored entities		43,322		180		(1,151	)		42,351
Residential mortgage-backed securities:
Agency mortgage-backed securities		628,681		12,281		(6,032	)		634,930
Agency collateralized mortgage obligations		385,408		764		(15,844	)		370,328
Non-agency collateralized mortgage obligations		6,852		44		(4	)		6,892
Commercial mortgage-backed securities		2,241		124		(37	)		2,328
States of the U.S. and political subdivisions		132,162		1,992		(2,022	)		132,132

	$	1,199,169	$	15,484	$	(25,090	)	$	1,189,563

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 BCSB, PVF and ANNB acquisitions as trading securities. The Corporation both acquired and sold these trading securities during the quarterly periods in which each of the acquisitions occurred. As of June 30, 2014 and December 31, 2013, the Corporation did not hold any trading securities.

Gross gains and gross losses were realized on securities as follows:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014		2013			2014			2013
Gross gains	$	739	$	83		$	18,748		$	1,115
Gross losses		37		(15	)		(8,511	)		(363	)

	$	776	$	68		$	10,237		$	752

During the first quarter of 2014, the Corporation strategically sold its entire portfolio of pooled trust preferred securities (TPS) with net proceeds of $51,540 and a gain of $13,766. Of the 23 pooled securities sold, one was determined to be a disallowed investment under the Volcker Rule (Section 619) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), and as such, was required to be disposed of by July 2015. Partially offsetting this gain was a net loss of $3,529 relating to the sale of other securities. By selling these securities, the Corporation strengthened the risk profile of its investment portfolio, improved its capital levels due to lowered risk-weighted assets and generated capital to support future growth.

As of June 30, 2014, 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	$	—	$	—	$	3,435	$	3,487
Due from one to five years		243,965		243,570		90,689		90,216
Due from five to ten years		82,788		82,882		76,059		77,683
Due after ten years		6,883		6,263		75,776		76,914

		333,636		332,715		245,959		248,300
Residential mortgage-backed securities:
Agency mortgage-backed securities		427,873		435,075		715,611		732,222
Agency collateralized mortgage obligations		614,983		604,513		458,232		450,508
Non-agency collateralized mortgage obligations		1,612		1,625		5,823		5,837
Commercial mortgage-backed securities		9,059		9,061		2,227		2,374
Equity securities		1,031		1,284		—		—

	$	1,388,194	$	1,384,273	$	1,427,852	$	1,439,241

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 June 30, 2014 and December 31, 2013, securities with a carrying value of $1,047,174 and $909,548, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required by law. Securities with a carrying value of $758,343 and $860,279 at June 30, 2014 and December 31, 2013, respectively, were pledged as collateral for short-term borrowings.

Following are summaries of the fair values and unrealized losses of securities, segregated by length of impairment:


	Less than 12 Months							12 Months or More							Total
	#		Fair Value		Unrealized Losses			#		Fair Value		Unrealized Losses			#		Fair Value		Unrealized Losses
Securities Available for Sale:
June 30, 2014
U.S. government-sponsored entities		2	$	25,647	$	(38	)		8	$	113,891	$	(2,097	)		10	$	139,538	$	(2,135	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		2		29,988		(28	)		—		—		—			2		29,988		(28	)
Agency collateralized mortgage obligations		10		178,355		(1,187	)		16		243,377		(10,413	)		26		421,732		(11,600	)
States of the U.S. and political subdivisions		1		2,070		(10	)		1		1,128		(64	)		2		3,198		(74	)
Other debt securities		—		—		—			4		6,263		(620	)		4		6,263		(620	)

		15	$	236,060	$	(1,263	)		29	$	364,659	$	(13,194	)		44	$	600,719	$	(14,457	)

December 31, 2013
U.S. government-sponsored entities		17	$	232,962	$	(5,904	)		—	$	—	$	—			17	$	232,962	$	(5,904	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		9		108,284		(1,303	)		—		—		—			9		108,284		(1,303	)
Agency collateralized mortgage obligations		26		389,989		(18,644	)		2		34,229		(2,150	)		28		424,218		(20,794	)
States of the U.S. and political subdivisions		2		3,022		(250	)		—		—		—			2		3,022		(250	)
Collateralized debt obligations		—		—		—			8		7,965		(10,115	)		8		7,965		(10,115	)
Other debt securities		—		—		—			4		5,950		(929	)		4		5,950		(929	)

		54	$	734,257	$	(26,101	)		14	$	48,144	$	(13,194	)		68	$	782,401	$	(39,295	)

Securities Held to Maturity:
June 30, 2014
U.S. government-sponsored entities		2	$	30,103	$	(14	)		3	$	39,330	$	(706	)		5	$	69,433	$	(720	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		1		13,788		(8	)		8		87,376		(690	)		9		101,164		(698	)
Agency collateralized mortgage obligations		4		50,237		(281	)		16		224,392		(9,497	)		20		274,629		(9,778	)
Non-agency collateralized mortgage obligations		3		2,805		(7	)		—		—		—			3		2,805		(7	)
States of the U.S. and political subdivisions		13		18,846		(93	)		10		14,193		(316	)		23		33,039		(409	)

		23	$	115,779	$	(403	)		37	$	365,291	$	(11,209	)		60	$	481,070	$	(11,612	)

December 31, 2013
U.S. government-sponsored entities		2	$	24,513	$	(530	)		1	$	14,378	$	(621	)		3	$	38,891	$	(1,151	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		24		308,864		(5,942	)		1		1,296		(90	)		25		310,160		(6,032	)
Agency collateralized mortgage obligations		21		301,312		(15,844	)		—		—		—			21		301,312		(15,844	)
Non-agency collateralized mortgage obligations		3		2,010		(4	)		—		—		—			3		2,010		(4	)
Commercial mortgage-backed securities		1		984		(37	)		—		—		—			1		984		(37	)
States of the U.S. and political subdivisions		27		31,537		(2,022	)		—		—		—			27		31,537		(2,022	)

		78	$	669,220	$	(24,379	)		2	$	15,674	$	(711	)		80	$	684,894	$	(25,090	)

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) as of December 31, 2013 related to investments in pooled TPS, all of which were sold during the first quarter of 2014 as previously noted. The Corporation’s remaining portfolio of TPS consists of four single-issuer securities, which are primarily from money-center and large regional banks and are included in other debt securities. These single-issuer TPS had an amortized cost and estimated fair value of $6,883 and $6,263 at June 30, 2014, respectively. The Corporation has concluded from its analysis performed at June 30, 2014 that it is probable that the Corporation will collect all contractual principal and interest payments related to these securities.

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. 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			Equities		Total
For the Six Months Ended June 30, 2014
Beginning balance	$	17,155		$	—		$	27	$	17,182
Loss where impairment was not previously recognized		—			—			—		—
Additional loss where impairment was previously recognized		—			—			—		—
Reduction due to credit impaired securities sold		(17,155	)		—			—		(17,155	)

Ending balance	$	—		$	—		$	27	$	27

For the Six Months Ended June 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

The Corporation did not recognize any impairment losses on securities for the six months ended June 30, 2014 or 2013.

States of the U.S. and Political Subdivisions

The Corporation’s municipal bond portfolio of $158,177 as of June 30, 2014 is highly rated with an average entity-specific rating of AA and 99.2% 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 82.3% of the securities are from municipalities located throughout Pennsylvania. The average holding size of the securities in the municipal bond portfolio is $1,069. In addition to the strong stand-alone ratings, 89.3% of the municipalities have some formal credit enhancement insurance that strengthens 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 June 30, 2014 and December 31, 2013, the Corporation’s FHLB stock totaled $48,425 and $23,636, 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
June 30, 2014
Commercial real estate	$	2,840,836	$	737,097	$	3,577,933
Commercial and industrial		1,997,008		106,888		2,103,896
Commercial leases		164,676		—		164,676

Total commercial loans and leases		5,002,520		843,985		5,846,505
Direct installment		1,438,347		73,802		1,512,149
Residential mortgages		718,332		426,954		1,145,286
Indirect installment		726,066		3,447		729,513
Consumer lines of credit		881,913		155,606		1,037,519
Other		62,901		—		62,901

	$	8,830,079	$	1,503,794	$	10,333,873

December 31, 2013
Commercial real estate	$	2,640,428	$	604,781	$	3,245,209
Commercial and industrial		1,761,668		119,806		1,881,474
Commercial leases		158,895		—		158,895

Total commercial loans and leases		4,560,991		724,587		5,285,578
Direct installment		1,387,995		79,241		1,467,236
Residential mortgages		678,227		408,512		1,086,739
Indirect installment		649,701		5,886		655,587
Consumer lines of credit		832,668		133,103		965,771
Other		45,183		—		45,183

	$	8,154,765	$	1,351,329	$	9,506,094

The carrying amount of acquired loans at June 30, 2014 totaled $1,498,234, including purchased credit-impaired (PCI) loans with a carrying amount of $12,953, while the carrying amount of acquired loans at December 31, 2013 totaled $1,345,429, including PCI loans with a carrying amount of $21,192. The outstanding contractual balance receivable of acquired loans at June 30, 2014 totaled $1,601,476, including PCI loans with an outstanding contractual balance receivable of $35,352, while the outstanding contractual balance receivable of acquired loans at December 31, 2013 totaled $1,449,227, including PCI loans with an outstanding contractual balance receivable of $56,500.

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 are made 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, eastern Ohio, Maryland and northern West Virginia. The commercial real estate portfolio also includes run-off loans in Florida, which totaled $32,935 or 0.3% of total loans at June 30, 2014, compared to $39,379 or 0.4% of total loans at December 31, 2013. Additionally, the total loan portfolio contains consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky, which totaled $175,802 or 1.7% of total loans at June 30, 2014, compared to $179,970 or 1.9% of total loans at December 31, 2013. Due to the relative size of the consumer finance loan portfolio, they are not segregated from other consumer loans.

As of June 30, 2014, 41.1% of the commercial real estate loans were owner-occupied, while the remaining 58.9% were non-owner-occupied, compared to 43.1% and 56.9%, respectively, as of December 31, 2013. As of June 30, 2014 and December 31, 2013, the Corporation had commercial construction loans of $274,489 and $252,842, respectively, representing 2.7% of total loans.

ASC 310-30 Loans

All loans acquired in the BCSB, PVF and ANNB acquisitions, except for revolving loans, are accounted for in accordance with ASC 310-30. Revolving loans are accounted for under ASC 310-20. The Corporation’s allowance for loan losses for acquired loans reflects only those losses incurred after acquisition.

The following table reflects amounts at acquisition for all purchased loans subject to ASC 310-30 (impaired and non-impaired) acquired from PVF and ANNB in 2013. ASC 310-30 (impaired and non-impaired) loans acquired from BSCB in 2014 are not presented because their values are expected to be immaterial, are preliminary in nature and are subject to refinement as additional information becomes available.


	Acquired Impaired Loans			Acquired Performing Loans			Total
Acquired from PVF and ANNB in 2013
Contractually required cash flows at acquisition	$	40,972		$	796,114		$	837,086
Non-accretable difference (expected losses and foregone interest)		(23,207	)		(52,992	)		(76,199	)

Cash flows expected to be collected at acquisition		17,765			743,122			760,887
Accretable yield		(2,505	)		(112,847	)		(115,352	)

Basis in acquired loans at acquisition	$	15,260		$	630,275		$	645,535

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


	Acquired Impaired Loans			Acquired Performing Loans			Total
Six Months Ended June 30, 2014
Balance at beginning of period	$	7,456		$	298,190		$	305,646
Acquisitions		—			—			—
Reduction due to unexpected early payoffs		—			(18,821	)		(18,821	)
Reclass from non-accretable difference		1,710			895			2,605
Disposals/transfers		(1,821	)		(309	)		(2,130	)
Accretion		(1,746	)		(26,529	)		(28,275	)

Balance at end of period	$	5,599		$	253,426		$	259,025

Year Ended December 31, 2013
Balance at beginning of period	$	778		$	253,375		$	254,153
Acquisitions		2,505			112,847			115,352
Reduction due to unexpected early payoffs		—			(42,582	)		(42,582	)
Reclass from non-accretable difference		8,097			8,296			16,393
Disposals/transfers		(368	)		(224	)		(592	)
Accretion		(3,556	)		(33,522	)		(37,078	)

Balance at end of period	$	7,456		$	298,190		$	305,646

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. The table below does not include impaired loans from the BCSB acquisition because their values are expected to be immaterial, are preliminary in nature and are subject to refinement as additional information becomes available.


	Outstanding Balance			Non- Accretable Difference			Expected Cash Flows			Accretable Yield			Recorded Investment
For the Six Months Ended June 30, 2014
Balance at beginning of period	$	56,500		$	(26,852	)	$	29,648		$	(7,456	)	$	22,192
Acquisitions		—			—			—			—			—
Accretion		—			—			—			1,746			1,746
Payments received		(10,105	)		2,306			(7,799	)		—			(7,799	)
Reclass from non-accretable difference		—			1,710			1,710			(1,710	)		—
Disposals/transfers		(12,230	)		7,671			(4,559	)		1,821			(2,738	)
Contractual interest		1,187			(1,187	)		—			—			—

Balance at end of period	$	35,352		$	(16,352	)	$	19,000		$	(5,599	)	$	13,401

For the Year Ended December 31, 2013
Balance at beginning of period	$	41,134		$	(23,733	)	$	17,401		$	(778	)	$	16,623
Acquisitions		42,031			(24,266	)		17,765			(2,505	)		15,260
Accretion		—			—			—			3,556			3,556
Payments received		(10,670	)		1,345			(9,325	)		—			(9,325	)
Reclass from non-accretable difference		—			8,097			8,097			(8,097	)		—
Disposals/transfers		(18,695	)		14,405			(4,290	)		368			(3,922	)
Contractual interest		2,700			(2,700	)		—			—			—

Balance at end of period	$	56,500		$	(26,852	)	$	29,648		$	(7,456	)	$	22,192

The accretion in the table above includes $242 in 2014 and $440 in 2013 that primarily represents payoffs received on certain loans in excess of expected cash flows.

Credit Quality

Management monitors the credit quality of the Corporation’s loan portfolio on an ongoing basis. Measurement of delinquency and past due status are based on the contractual terms of each loan.

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

Following is a summary of non-performing assets:


	June 30, 2014			December 31, 2013
Non-accrual loans	$	59,549		$	58,755
Troubled debt restructurings		20,485			18,698

Total non-performing loans		80,034			77,453
Other real estate owned (OREO)		40,268			40,681

Total non-performing loans and OREO		120,302			118,134
Non-performing investments		—			797

Total non-performing assets	$	120,302		$	118,931

Asset quality ratios:
Non-performing loans as a percent of total loans		0.77	%		0.81	%
Non-performing loans + OREO as a percent of total loans + OREO		1.16	%		1.24	%
Non-performing assets as a percent of total assets		0.80	%		0.88	%

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:
June 30, 2014
Commercial real estate	$	5,313	$	157	$	39,300	$	44,770	$	2,796,066	$	2,840,836
Commercial and industrial		2,444		4		8,890		11,338		1,985,670		1,997,008
Commercial leases		802		—		788		1,590		163,086		164,676

Total commercial loans and leases		8,559		161		48,978		57,698		4,944,822		5,002,520
Direct installment		9,158		3,118		4,846		17,122		1,421,225		1,438,347
Residential mortgages		9,053		2,098		3,829		14,980		703,352		718,332
Indirect installment		4,734		235		1,229		6,198		719,868		726,066
Consumer lines of credit		2,293		662		667		3,622		878,291		881,913
Other		25		7		—		32		62,869		62,901

	$	33,822	$	6,281	$	59,549	$	99,652	$	8,730,427	$	8,830,079

December 31, 2013
Commercial real estate	$	5,428	$	252	$	40,960	$	46,640	$	2,593,788	$	2,640,428
Commercial and industrial		2,066		8		6,643		8,717		1,752,951		1,761,668
Commercial leases		714		—		734		1,448		157,447		158,895

Total commercial loans and leases		8,208		260		48,337		56,805		4,504,186		4,560,991
Direct installment		9,038		3,753		4,686		17,477		1,370,518		1,387,995
Residential mortgages		12,681		2,401		4,260		19,342		658,885		678,227
Indirect installment		5,653		471		1,060		7,184		642,517		649,701
Consumer lines of credit		1,737		1,076		412		3,225		829,443		832,668
Other		25		10		—		35		45,148		45,183

	$	37,342	$	7,971	$	58,755	$	104,068	$	8,050,697	$	8,154,765


	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due (1)		Current		Discount			Total Loans
Acquired Loans:
June 30, 2014
Commercial real estate	$	15,322	$	30,769		—	$	46,091	$	740,533	$	(49,527	)	$	737,097
Commercial and industrial		1,068		5,373		—		6,441		108,955		(8,508	)		106,888
Commercial leases		—		—		—		—		—		—			—

Total commercial loans and leases		16,390		36,142		—		52,532		849,488		(58,035	)		843,985
Direct installment		2,063		1,177		—		3,240		68,762		1,800			73,802
Residential mortgages		11,502		18,239		—		29,741		430,993		(33,780	)		426,954
Indirect installment		54		39		—		93		3,874		(520	)		3,447
Consumer lines of credit		647		3,039		—		3,686		159,067		(7,147	)		155,606
Other		—		—		—		—		—		—			—

	$	30,656	$	58,636		—	$	89,292	$	1,512,184	$	(97,682	)	$	1,503,794

December 31, 2013
Commercial real estate	$	13,637	$	20,668		—	$	34,305	$	619,197	$	(48,721	)	$	604,781
Commercial and industrial		1,860		1,899		—		3,759		124,415		(8,368	)		119,806
Commercial leases		—		—		—		—		—		—			—

Total commercial loans and leases		15,497		22,567		—		38,064		743,612		(57,089	)		724,587
Direct installment		1,447		1,178		—		2,625		74,917		1,699			79,241
Residential mortgages		11,464		19,298		—		30,762		412,704		(34,954	)		408,512
Indirect installment		205		31		—		236		6,267		(617	)		5,886
Consumer lines of credit		1,592		2,749		—		4,341		135,699		(6,937	)		133,103
Other		—		—		—		—		—		—			—

	$	30,205	$	45,823		—	$	76,028	$	1,373,199	$	(97,898	)	$	1,351,329

(1)	Past due information for loans acquired is based on the contractual balance outstanding at June 30, 2014 and December 31, 2013.

The Corporation utilizes the following categories to monitor credit quality within its commercial loan portfolio:


Rating Category		Definition
Pass		in general, the condition of the borrower and the performance of the loan is satisfactory or better

Special Mention		in general, the condition of the borrower has deteriorated, requiring an increased level of monitoring

Substandard		in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected

Doubtful		in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable

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

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


	Commercial Loan Credit Quality Categories
	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans:
June 30, 2014
Commercial real estate	$	2,673,272	$	59,271	$	107,633	$	660	$	2,840,836
Commercial and industrial		1,851,533		66,776		77,812		887		1,997,008
Commercial leases		163,224		434		1,018		—		164,676

	$	4,688,029	$	126,481	$	186,463	$	1,547	$	5,002,520

December 31, 2013
Commercial real estate	$	2,476,988	$	56,140	$	106,599	$	701	$	2,640,428
Commercial and industrial		1,611,530		97,675		52,322		141		1,761,668
Commercial leases		155,991		1,945		959		—		158,895

	$	4,244,509	$	155,760	$	159,880	$	842	$	4,560,991

Acquired Loans:
June 30, 2014
Commercial real estate	$	552,495	$	73,245	$	103,238	$	8,119	$	737,097
Commercial and industrial		87,406		5,987		13,449		46		106,888
Commercial leases		—		—		—		—		—

	$	639,901	$	79,232	$	116,687	$	8,165	$	843,985

December 31, 2013
Commercial real estate	$	442,604	$	74,315	$	85,086	$	2,776	$	604,781
Commercial and industrial		100,743		6,182		12,866		15		119,806
Commercial leases		—		—		—		—		—

	$	543,347	$	80,497	$	97,952	$	2,791	$	724,587

Credit quality information for acquired loans is based on the contractual balance outstanding at June 30, 2014 and December 31, 2013. The increase in acquired loans in 2014 primarily relates to the BCSB acquisition on February 15, 2014.

The Corporation uses payment status and delinquency migration analysis within the consumer and other loan classes to enable management to estimate a quantitative portion of credit risk. Each month, management analyzes payment and volume activity, as well as other external statistics and factors such as unemployment, to determine how consumer loans are performing.

Following is a table showing originated consumer loans by payment status:


	Consumer Loan Credit Quality by Payment Status
	Performing		Non-Performing		Total
June 30, 2014
Direct installment	$	1,425,827	$	12,520	$	1,438,347
Residential mortgages		704,210		14,122		718,332
Indirect installment		724,698		1,368		726,066
Consumer lines of credit		880,309		1,604		881,913
Other		62,901		—		62,901
December 31, 2013
Direct installment	$	1,377,418	$	10,577	$	1,387,995
Residential mortgages		664,214		14,013		678,227
Indirect installment		648,499		1,202		649,701
Consumer lines of credit		832,071		597		832,668
Other		45,183		—		45,183

Loans are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan contract is doubtful. Typically, the Corporation does not consider loans for impairment unless a sustained period of delinquency (i.e., 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e., negative financial trends, bankruptcy filings, imminent foreclosure proceedings, etc.). Impairment is evaluated in the aggregate for consumer installment loans, residential mortgages, consumer lines of credit, commercial leases and commercial loan relationships less than $500. For commercial loan relationships greater than or equal to $500, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using a market interest rate or at the fair value of collateral if repayment is expected solely from the collateral. Consistent with the Corporation’s existing method of income recognition for loans, interest on impaired loans, except those classified as non-accrual, is recognized as income using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

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


	Recorded Investment		Unpaid Principal Balance		Specific Related Allowance		Average Recorded Investment
At or For the Six Months Ended June 30, 2014
With no specific allowance recorded:
Commercial real estate	$	37,984	$	58,513	$	—	$	37,486
Commercial and industrial		7,413		9,038		—		6,192
Commercial leases		788		788		—		766

Total commercial loans and leases		46,185		68,339		—		44,444
Direct installment		12,520		12,920		—		12,222
Residential mortgages		14,122		16,220		—		13,840
Indirect installment		1,368		1,536		—		1,390
Consumer lines of credit		1,604		1,607		—		1,263
Other		—		—		—		—
With a specific allowance recorded:
Commercial real estate		2,804		4,930		660		6,074
Commercial and industrial		2,424		2,486		809		1,302
Commercial leases		—		—		—		—

Total commercial loans and leases		5,228		7,416		1,469		7,376
Direct installment		—		—		—		—
Residential mortgages		—		—		—		—
Indirect installment		—		—		—		—
Consumer lines of credit		—		—		—		—
Other		—		—		—		—
Total:
Commercial real estate		40,788		63,443		660		43,560
Commercial and industrial		9,837		11,524		809		7,494
Commercial leases		788		788		—		766

Total commercial loans and leases		51,413		75,755		1,469		51,820
Direct installment		12,520		12,920		—		12,222
Residential mortgages		14,122		16,220		—		13,840
Indirect installment		1,368		1,536		—		1,390
Consumer lines of credit		1,604		1,607		—		1,263
Other		—		—		—		—


	Recorded Investment		Unpaid Principal Balance		Specific Related Allowance		Average Recorded Investment
At or For the Year Ended December 31, 2013
With no specific allowance recorded:
Commercial real estate	$	40,472	$	62,034	$	—	$	37,376
Commercial and industrial		7,301		8,669		—		8,304
Commercial leases		734		734		—		758

Total commercial loans and leases		48,507		71,437		—		46,438
Direct installment		10,577		10,830		—		10,557
Residential mortgages		14,012		14,560		—		13,565
Indirect installment		1,202		2,633		—		1,127
Consumer lines of credit		597		668		—		573
Other		—		—		—		—
With a specific allowance recorded:
Commercial real estate		3,603		3,818		701		14,379
Commercial and industrial		122		130		123		126
Commercial leases		—		—		—		—

Total commercial loans and leases		3,725		3,948		824		14,505
Direct installment		—		—		—		—
Residential mortgages		—		—		—		—
Indirect installment		—		—		—		—
Consumer lines of credit		—		—		—		—
Other		—		—		—		—
Total:
Commercial real estate		44,075		65,852		701		51,755
Commercial and industrial		7,423		8,799		123		8,430
Commercial leases		734		734		—		758

Total commercial loans and leases		52,232		75,385		824		60,943
Direct installment		10,577		10,830		—		10,557
Residential mortgages		14,012		14,560		—		13,565
Indirect installment		1,202		2,633		—		1,127
Consumer lines of credit		597		668		—		573
Other		—		—		—		—

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 $13,401 at June 30, 2014 and $22,192 at December 31, 2013. 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 $2,911; commercial and industrial of $674; direct installment of $1,405; residential mortgages of $207; indirect installment of $248; and consumer lines of credit of $115, totaling $5,560 at June 30, 2014 and commercial real estate of $3,093; commercial and industrial of $786; direct installment of $727; residential mortgages of $970 and indirect installment of $324, totaling $5,900 at December 31, 2013.

Troubled Debt Restructurings

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

Following is a summary of the composition of total TDRs:


	June 30, 2014		December 31, 2013
Accruing:
Performing	$	10,614	$	10,220
Non-performing		20,485		18,698
Non-accrual		13,415		12,705

	$	44,514	$	41,623

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 six months ended June 30, 2014, the Corporation returned to performing status $2,915 in restructured residential mortgage loans 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 $446 and $561 at June 30, 2014 and December 31, 2013, respectively, and pooled reserves for individual loans under $500 of $212 and $193 for those same respective 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 $1,062 and $1,005 at June 30, 2014 and December 31, 2013, respectively. Upon default of an individual loan, the Corporation’s charge-off policy is followed accordingly for that class of loan.

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


	Three Months Ended June 30, 2014						Six Months Ended June 30, 2014
	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		8	$	2,508	$	2,496		9	$	2,581	$	2,553
Commercial and industrial		—		—		—		1		188		188
Commercial leases		—		—		—		—		—		—

Total commercial loans and leases		8		2,508		2,496		10		2,769		2,741
Direct installment		136		1,873		1,843		262		3,573		3,479
Residential mortgages		15		1,070		1,045		24		1,359		1,324
Indirect installment		6		18		16		13		34		32
Consumer lines of credit		18		555		553		25		812		807
Other		—		—		—		—		—		—

		183	$	6,024	$	5,953		334	$	8,547	$	8,383


	Three Months Ended June 30, 2013						Six Months Ended June 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		—	$	—	$	—		5	$	1,029	$	882
Commercial and industrial		—		—		—		—		—		—
Commercial leases		—		—		—		—		—		—

Total commercial loans and leases		—		—		—		5		1,029		882
Direct installment		75		743		715		184		1,904		1,833
Residential mortgages		17		804		804		31		1,519		1,507
Indirect installment		5		15		14		15		71		70
Consumer lines of credit		4		28		28		13		201		199
Other		—		—		—		—		—		—

		101	$	1,590	$	1,561		248	$	4,724	$	4,491

Following is a summary of TDRs, by class of loans, for which there was a payment default, 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 June 30, 2014 (1)				Six Months Ended June 30, 2014 (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		33		240		47		392
Residential mortgages		—		—		—		—
Indirect installment		1		—		1		—
Consumer lines of credit		—		—		—		—
Other		—		—		—		—

		34	$	240		48	$	392


	Three Months Ended June 30, 2013 (1)				Six Months Ended June 30, 2013 (1)
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial real estate		1	$	764		1	$	764
Commercial and industrial		—		—		1		32
Commercial leases		—		—		—		—

Total commercial loans and leases		1		764		2		796
Direct installment		24		276		32		375
Residential mortgages		2		114		4		232
Indirect installment		3		35		4		45
Consumer lines of credit		—		—		—		—
Other		—		—		—		—

		30	$	1,189		42	$	1,448

(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.

Credit impaired loans obtained through acquisitions are accounted for under the provisions of ASC 310-30. The Corporation also accounts for certain acquired loans considered performing at the time of acquisition by analogy to ASC 310-30. ASC 310-30 requires the initial recognition of acquired loans at the present value of amounts expected to be received. Any deterioration in the credit quality of acquired loans subsequent to acquisition would be considered in the allowance for loan losses.

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 June 30, 2014
Commercial real estate	$	38,534	$	(1,572	)	$	263	$	(1,309	)	$	1,253		$	38,478
Commercial and industrial		29,971		(540	)		168		(372	)		3,418			33,017
Commercial leases		1,944		(63	)		53		(10	)		145			2,079

Total commercial loans and leases		70,449		(2,175	)		484		(1,691	)		4,816			73,574
Direct installment		16,630		(2,264	)		283		(1,981	)		2,195			16,844
Residential mortgages		5,307		(137	)		44		(93	)		292			5,506
Indirect installment		6,500		(696	)		230		(466	)		659			6,693
Consumer lines of credit		7,658		(340	)		38		(302	)		308			7,664
Other		579		(307	)		5		(302	)		630			907

Total allowance on originated loans		107,123		(5,919	)		1,084		(4,835	)		8,900			111,188

Purchased credit-impaired loans		708		(1,653	)		—		(1,653	)		1,393			448
Other acquired loans		4,388		(126	)		738		612			112			5,112

Total allowance on acquired loans		5,096		(1,779	)		738		(1,041	)		1,505			5,560

Total allowance	$	112,219	$	(7,698	)	$	1,822	$	(5,876	)	$	10,405		$	116,748

Six Months Ended June 30, 2014
Commercial real estate	$	32,548	$	(3,795	)	$	562	$	(3,233	)	$	9,163		$	38,478
Commercial and industrial		32,603		(1,053	)		538		(515	)		929			33,017
Commercial leases		1,903		(150	)		82		(68	)		244			2,079

Total commercial loans and leases		67,054		(4,998	)		1,182		(3,816	)		10,336			73,574
Direct installment		17,824		(4,785	)		550		(4,235	)		3,255			16,844
Residential mortgages		5,836		(269	)		48		(221	)		(109	)		5,506
Indirect installment		6,409		(1,498	)		447		(1,051	)		1,335			6,693
Consumer lines of credit		7,231		(663	)		93		(570	)		1,003			7,664
Other		530		(569	)		10		(559	)		936			907

Total allowance on originated loans		104,884		(12,782	)		2,330		(10,452	)		16,756			111,188

Purchased credit-impaired loans		1,000		(1,902	)		—		(1,902	)		1,350			448
Other acquired loans		4,900		(117	)		1,024		907			(695	)		5,112

Total allowance on acquired loans		5,900		(2,019	)		1,024		(995	)		655			5,560

Total allowance	$	110,784	$	(14,801	)	$	3,354	$	(11,447	)	$	17,411		$	116,748


	Balance at Beginning of Period		Charge- Offs			Recoveries		Net Charge- Offs			Provision for Loan Losses			Balance at End of Period
Three Months Ended June 30, 2013
Commercial real estate	$	40,012	$	(415	)	$	99	$	(316	)	$	(4,030	)	$	35,666
Commercial and industrial		28,838		(2,525	)		147		(2,378	)		6,026			32,486
Commercial leases		1,696		(191	)		40		(151	)		211			1,756

Total commercial loans and leases		70,546		(3,131	)		286		(2,845	)		2,207			69,908
Direct installment		15,100		(2,296	)		249		(2,047	)		2,940			15,993
Residential mortgages		4,978		(350	)		11		(339	)		481			5,120
Indirect installment		5,152		(732	)		195		(537	)		1,011			5,626
Consumer lines of credit		6,045		(387	)		62		(325	)		701			6,421
Other		683		(211	)		—		(211	)		(691	)		(219	)

Total allowance on originated loans		102,504		(7,107	)		803		(6,304	)		6,649			102,849

Purchased credit-impaired loans		583		—			—		—			(258	)		325
Other acquired loans		4,615		(1,056	)		35		(1,021	)		1,512			5,106

Total allowance on acquired loans		5,198		(1,056	)		35		(1,021	)		1,254			5,431

Total allowance	$	107,702	$	(8,163	)	$	838	$	(7,325	)	$	7,903		$	108,280

Six Months Ended June 30, 2013
Commercial real estate	$	34,810	$	(2,702	)	$	1,526	$	(1,176	)	$	2,032		$	35,666
Commercial and industrial		31,849		(2,733	)		503		(2,230	)		2,867			32,486
Commercial leases		1,744		(248	)		102		(146	)		158			1,756

Total commercial loans and leases		68,403		(5,683	)		2,131		(3,552	)		5,057			69,908
Direct installment		15,130		(4,641	)		482		(4,159	)		5,022			15,993
Residential mortgages		5,155		(559	)		40		(519	)		484			5,120
Indirect installment		5,449		(1,542	)		388		(1,154	)		1,331			5,626
Consumer lines of credit		6,057		(729	)		149		(580	)		944			6,421
Other		—		(388	)		—		(388	)		169			(219	)

Total allowance on originated loans		100,194		(13,542	)		3,190		(10,352	)		13,007			102,849

Purchased credit-impaired loans		759		(156	)		—		(156	)		(278	)		325
Other acquired loans		3,421		(1,269	)		239		(1,030	)		2,715			5,106

Total allowance on acquired loans		4,180		(1,425	)		239		(1,186	)		2,437			5,431

Total allowance	$	104,374	$	(14,967	)	$	3,429	$	(11,538	)	$	15,444		$	108,280

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
June 30, 2014
Commercial real estate	$	660	$	37,818	$	2,840,836	$	27,909	$	2,812,927
Commercial and industrial		809		32,208		1,997,008		6,694		1,990,314
Commercial leases		—		2,079		164,676		—		164,676

Total commercial loans and leases		1,469		72,105		5,002,520		34,603		4,967,917
Direct installment		—		16,844		1,438,347		—		1,438,347
Residential mortgages		—		5,506		718,332		—		718,332
Indirect installment		—		6,693		726,066		—		726,066
Consumer lines of credit		—		7,664		881,913		—		881,913
Other		—		907		62,901		—		62,901

	$	1,469	$	109,719	$	8,830,079	$	34,603	$	8,795,476

December 31, 2013
Commercial real estate	$	701	$	31,847	$	2,640,428	$	30,133	$	2,610,295
Commercial and industrial		123		32,480		1,761,668		4,243		1,757,425
Commercial leases		—		1,903		158,895		—		158,895

Total commercial loans and leases		824		66,230		4,560,991		34,376		4,526,615
Direct installment		—		17,824		1,387,995		—		1,387,995
Residential mortgages		—		5,836		678,227		—		678,227
Indirect installment		—		6,409		649,701		—		649,701
Consumer lines of credit		—		7,231		832,668		—		832,668
Other		—		530		45,183		—		45,183

	$	824	$	104,060	$	8,154,765	$	34,376	$	8,120,389

BORROWINGS

Following is a summary of short-term borrowings:


	June 30, 2014		December 31, 2013
Securities sold under repurchase agreements	$	751,066	$	841,741
Federal funds purchased		624,000		270,000
Subordinated notes		129,444		129,498

	$	1,504,510	$	1,241,239

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:


	June 30, 2014		December 31, 2013
Federal Home Loan Bank advances	$	250,070	$	50,076
Subordinated notes		85,784		84,637
Other subordinated debt		—		8,637
Convertible debt		—		578

	$	335,854	$	143,928

The Corporation’s banking affiliate has available credit with the FHLB of $3,695,372 of which $690,070 was used as of June 30, 2014. These advances are secured by loans collateralized by residential mortgages, HELOCs, commercial real estate and FHLB stock and are scheduled to mature in various amounts periodically through the year 2019. Effective interest rates paid on these advances ranged from 0.95% to 4.19% for the six months ended June 30, 2014 and 1.06% to 4.19% for the year ended December 31, 2013.

JUNIOR SUBORDINATED DEBT

The Corporation has two unconsolidated subsidiary trusts as of June 30, 2014 (collectively, the Trusts): F.N.B. Statutory Trust II and Omega Financial Capital 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. Omega Financial Capital Trust I was assumed as a result of an 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 first six months of 2014, the Corporation redeemed $33,000 of the Corporation-issued TPS, including $16,500 that the Corporation assumed as a result of the BCSB acquisition. During 2013, the Corporation redeemed $130,000 of the Corporation-issued TPS. The Corporation proactively redeemed these Corporation-issued TPS, primarily using proceeds from the November 2013 capital raise, in anticipation of meeting the limitations as described above. Under applicable regulatory capital guidelines issued by the bank regulatory agencies, upon notice of redemption, the redeemed TPS no longer qualify as tier 1 capital for the Corporation.

The following table provides information relating to the Trusts as of June 30, 2014:


	Trust Preferred Securities		Common Securities		Junior Subordinated Debt		Stated Maturity Date		Interest Rate
F.N.B. Statutory Trust II	$	21,500	$	665	$	22,165		6/15/36		1.88	%	Variable; LIBOR + 165 basis points (bps)
Omega Financial Capital Trust I		36,000		1,114		36,055		10/18/34		2.42	%	Variable; LIBOR + 219 bps

	$	57,500	$	1,779	$	58,220

DERIVATIVE INSTRUMENTS

The Corporation is exposed to certain risks arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate risk, primarily by managing the amount, source, and duration of its assets and liabilities, and through the use of derivative instruments. Interest rate swaps are the primary derivative instrument used by the Corporation for interest rate management. The Corporation also uses derivative instruments to facilitate transactions on behalf of its customers.

Commercial Borrower Derivatives

The Corporation enters into interest rate swap agreements to meet the financing, interest rate and equity risk management needs of qualifying commercial loan customers. These agreements provide the customer the ability to convert from variable to fixed interest rates. The Corporation then enters into positions with a derivative counterparty in order to offset its exposure on the fixed components of the customer agreements. The credit risk associated with derivatives executed with customers is essentially the same as that involved in extending loans and is subject to normal credit policies and monitoring. The Corporation seeks to minimize counterparty credit risk by entering into transactions with only high-quality institutions. Since June 10, 2014, the majority of the Corporation’s derivative transactions are executed through CME Clearing, a SEC registered clearing agency, whose purpose is to ensure safety and soundness in the markets, rather than directly with a counterparty. These arrangements meet the definition of derivatives, but are not designated as hedging instruments under ASC 815, Derivatives and Hedging. The interest rate swap agreement with the loan customer and with the counterparty is reported at fair value in other assets and other liabilities on the consolidated balance sheet with any resulting gain or loss recorded in current period earnings as other income or other expense.

Risk Management Derivatives

The Corporation entered into interest rate derivative agreements in order to manage its net interest income by increasing the stability of the net interest income over a range of potential interest rate scenarios. Interest rate swaps are also used to modify the interest rate characteristics of designated commercial loans from variable to fixed in order to reduce the impact of changes in future cash flows due to interest rate changes. These agreements are designated as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows). The effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same line item associated with the forecasted transaction when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. Gains and losses from hedge ineffectiveness recognized in the consolidated statement of comprehensive income were not material for the six months ended June 30, 2014.

In accordance with the requirements of ASU No. 2011-04, the Corporation made an accounting policy election to use the portfolio exception with respect to measuring derivative instruments, consistent with the guidance in ASC 820. The Corporation further documents that it meets the criteria for this exception as follows:

•

The Corporation manages credit risk for its derivative positions on a counterparty-by-counterparty basis, consistent with its risk management strategy for such transactions. The Corporation manages credit risk by considering indicators of risk such as credit ratings, and by negotiating terms in its master netting arrangements and credit support annex documentation with each individual counterparty. Review of credit risk plays a central role in the decision of which counterparties to consider for such relationships and when deciding with whom it will enter into derivative transactions.

•

Since the effective date of ASC 820, the Corporation’s management has monitored and measured credit risk and calculated credit valuation adjustments (CVAs) for its derivative transactions on a counterparty-by-counterparty basis. Management receives reports from an independent third-party valuation specialist on a monthly basis to assist in determining CVAs by counterparty for purposes of reviewing and managing its credit risk exposures. Since the portfolio exception applies only to the fair value measurement and not to the financial statement presentation, the portfolio-level adjustments are then allocated in a reasonable and consistent manner each period to the individual assets or liabilities that make up the counterparty derivative portfolio, in accordance with the Corporation’s accounting policy elections.

The Corporation notes that key market participants take into account the existence of such arrangements that mitigate credit risk exposure in the event of default. As such, the Corporation formally elects to apply the portfolio exception in ASC 820 with respect to measuring counterparty credit risk for all of its derivative transactions subject to master netting arrangements.

At June 30, 2014, the Corporation was party to 325 swaps with customers with notional amounts totaling $915,432 and 291 swaps with derivative counterparties with notional amounts totaling $1,115,432.

Derivative assets are classified in the balance sheet under “other assets” and derivative liabilities are classified in the balance sheet under “other liabilities.” The following tables present information about derivative assets and derivative liabilities that are subject to enforceable master netting agreements as well as those not subject to enforceable master netting arrangements:


	Gross Amount		Gross Amounts Offset in the Balance Sheet		Net Amount Presented in the Balance Sheet
Offsetting of Derivative Assets:
June 30, 2014
Derivative assets subject to master netting arrangement:
Interest rate contracts	$	1,675		—	$	1,675
Equity contracts		61		—		61
Derivative assets not subject to master netting arrangement:
Interest rate contracts		37,502		—		37,502

Total derivative assets	$	39,238		—	$	39,238

December 31, 2013
Derivative assets subject to master netting arrangement:
Interest rate contracts	$	3,547		—	$	3,547
Equity contracts		32		—		32
Derivative assets not subject to master netting arrangement:
Interest rate contracts		29,738		—		29,738

Total derivative assets	$	33,317		—	$	33,317

Offsetting of Derivative Liabilities:
June 30, 2014
Derivative liabilities subject to master netting arrangement:
Interest rate contracts	$	41,768		—	$	41,768
Derivative liabilities not subject to master netting arrangement:
Interest rate contracts		704		—		704
Equity contracts		61		—		61

Total derivative liabilities	$	42,533		—	$	42,533

December 31, 2013
Derivative liabilities subject to master netting arrangement:
Interest rate contracts	$	40,323		—	$	40,323
Derivative liabilities not subject to master netting arrangement:
Interest rate contracts		3,014		—		3,014
Equity contracts		32		—		32

Total derivative liabilities	$	43,369		—	$	43,369

The following tables present a reconciliation of the net amounts of derivative assets and derivative liabilities presented in the balance sheet to the net amounts that would result in the event of offset:


			Gross Amounts Not Offset in the Balance Sheet
	Net Amount Presented in the Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amount
Derivative Assets:
June 30, 2014
Counterparty D	$	56	$	56	$	—	$	—
Counterparty E		476		476		—		—
Counterparty F		94		—		—		94
Counterparty G		50		50		—		—
Counterparty I		198		198		—		—
Counterparty J		862		—		862		—

	$	1,736	$	780	$	862	$	94

December 31, 2013
Counterparty B	$	24	$	24	$	—	$	—
Counterparty D		566		566		—		—
Counterparty E		1,696		1,696		—		—
Counterparty F		355		273		—		82
Counterparty G		251		251		—		—
Counterparty I		634		634		—		—
Counterparty J		53		—		53		—

	$	3,579	$	3,444	$	53	$	82

Derivative Liabilities:
June 30, 2014
Counterparty A	$	4,567	$	4,567	$	—	$	—
Counterparty B		2,889		2,889		—		—
Counterparty C		1,333		1,333		—		—
Counterparty D		8,263		8,263		—		—
Counterparty E		4,453		4,453		—		—
Counterparty F		27		—		—		27
Counterparty G		4,334		4,334		—		—
Counterparty H		2,057		—		—		2,057
Counterparty I		5,899		5,899		—		—
Counterparty J		7,946		—		7,946		—

	$	41,768	$	31,738	$	7,946	$	2,084

December 31, 2013
Counterparty A	$	4,934	$	4,934	$	—	$	—
Counterparty B		3,249		3,249		—		—
Counterparty C		1,431		1,431		—		—
Counterparty D		9,614		9,614		—		—
Counterparty E		6,257		6,257		—		—
Counterparty F		13		13		—		—
Counterparty G		5,309		5,309		—		—
Counterparty H		2,257		125		—		2,132
Counterparty I		5,649		5,649		—		—
Counterparty J		1,610		—		1,610		—

	$	40,323	$	36,581	$	1,610	$	2,132

The following table presents the effect of the Corporation’s derivative financial instruments on the income statement:


	Income Statement Location	Six Months Ended
		June 30,
		2014		2013
Interest Rate Products	Other income	$	820	$	368

The Corporation has agreements with each of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. The Corporation also has agreements with certain of its derivative counterparties that contain a provision that if the Corporation fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Corporation would be required to settle its obligations under the agreements. Certain of the Corporation’s agreements with its derivative counterparties contain provisions where if a material or adverse change occurs that materially changes the Corporation’s creditworthiness in an adverse manner, the Corporation may be required to fully collateralize its obligations under the derivative instrument.

Interest rate swap agreements generally require posting of collateral by either party under certain conditions. As of June 30, 2014 and December 31, 2013, the fair value of counterparty derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk related to these agreements, was $41,333 and $38,239, respectively. At June 30, 2014, the Corporation has posted collateral with derivative counterparties with a fair value of $33,211 and cash collateral of $9,461. At December 31, 2013, the Corporation had posted collateral with derivative counterparties with a fair value of $37,427 and cash collateral of $1,976. Additionally, if the Corporation had breached its agreements with its derivative counterparties it would be required to settle its obligations under the agreements at the termination value and would be required to pay an additional $2,124 and $2,224 as of June 30, 2014 and December 31, 2013, respectively, in excess of amounts previously posted as collateral with the respective counterparty.

The Corporation has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans to secondary market investors. These arrangements are considered derivative instruments. The fair values of the Corporation’s rate lock commitments to customers and commitments with investors at June 30, 2014 and December 31, 2013 are not material.

COMMITMENTS, CREDIT RISK AND CONTINGENCIES

The Corporation has commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the consolidated balance sheet. The Corporation’s exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with loan commitments and standby letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

Following is a summary of off-balance sheet credit risk information:


	June 30, 2014		December 31, 2013
Commitments to extend credit	$	3,287,465	$	2,897,748
Standby letters of credit		114,268		114

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