Edgar Filing: FNB CORP/FL/

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016

¨	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

(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, 2016
Common Stock, $0.01 Par Value		210,120,837 Shares

F.N.B. CORPORATION

FORM 10-Q

June 30, 2016

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		53

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		81

Item 4.	Controls and Procedures		81

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		82

Item 1A.	Risk Factors		82

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		83

Item 3.	Defaults Upon Senior Securities		83

Item 4.	Mine Safety Disclosures		83

Item 5.	Other Information		84

Item 6.	Exhibits		84

Signatures			85

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

In thousands, except share and per share data


	June 30,			December 31,
	2016			2015
	(Unaudited)
Assets
Cash and due from banks	$	285,783		$	207,399
Interest bearing deposits with banks		113,244			281,720

Cash and Cash Equivalents		399,027			489,119
Securities available for sale		2,133,662			1,630,567
Securities held to maturity (fair value of $2,104,782 and $1,643,416)		2,064,305			1,637,061
Residential mortgage loans held for sale		12,062			4,781
Loans and leases, net of unearned income of $60,268 and $51,642		14,563,128			12,190,440
Allowance for credit losses		(154,369	)		(142,012	)

Net Loans and Leases		14,408,759			12,048,428
Premises and equipment, net		224,805			159,080
Goodwill		1,021,247			833,086
Core deposit and other intangible assets, net		83,744			45,644
Bank owned life insurance		328,127			308,192
Other assets		539,229			401,704

Total Assets	$	21,214,967		$	17,557,662

Liabilities
Deposits:
Non-interest bearing demand	$	3,969,115		$	3,059,949
Interest bearing demand		6,657,651			5,311,589
Savings		2,284,159			1,786,459
Certificates and other time deposits		2,617,637			2,465,466

Total Deposits		15,528,562			12,623,463
Short-term borrowings		2,260,411			2,048,896
Long-term borrowings		656,844			641,480
Other liabilities		223,813			147,641

Total Liabilities		18,669,630			15,461,480

Stockholders’ Equity
Preferred stock - $0.01 par value; liquidation preference of $1,000 per share
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 – 211,406,626 and 176,595,060 shares		2,116			1,766
Additional paid-in capital		2,220,243			1,808,210
Retained earnings		255,921			243,217
Accumulated other comprehensive loss		(25,459	)		(51,133	)
Treasury stock – 1,286,025 and 1,153,390 shares at cost		(14,366	)		(12,760	)

Total Stockholders’ Equity		2,545,337			2,096,182

Total Liabilities and Stockholders’ Equity	$	21,214,967		$	17,557,662

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In thousands, except per share data

Unaudited


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Interest Income
Loans and leases, including fees	$	150,720	$	119,460	$	287,841	$	237,199
Securities:
Taxable		17,976		14,467		34,469		28,681
Nontaxable		2,129		1,484		4,147		2,857
Dividends		9		9		14		20
Other		97		28		214		60

Total Interest Income		170,931		135,448		326,685		268,817
Interest Expense
Deposits		10,424		7,636		19,910		15,085
Short-term borrowings		2,559		1,794		4,920		3,562
Long-term borrowings		3,579		2,251		7,132		4,482

Total Interest Expense		16,562		11,681		31,962		23,129

Net Interest Income		154,369		123,767		294,723		245,688
Provision for credit losses		16,640		8,864		28,408		17,000

Net Interest Income After Provision for Credit Losses		137,729		114,903		266,315		228,688
Non-Interest Income
Service charges		26,396		17,514		47,672		33,331
Trust fees		5,405		5,432		10,687		10,593
Insurance commissions and fees		4,105		3,559		9,026		7,928
Securities commissions and fees		3,622		3,597		6,996		6,654
Net securities gains		226		14		297		5
Mortgage banking operations		2,753		2,516		4,348		4,315
Bank owned life insurance		2,559		1,838		4,621		3,681
Other		6,345		5,282		13,808		11,427

Total Non-Interest Income		51,411		39,752		97,455		77,934
Non-Interest Expense
Salaries and employee benefits		61,329		50,431		117,754		99,700
Net occupancy		10,193		8,472		19,459		17,448
Equipment		10,014		7,698		18,570		15,346
Amortization of intangibles		3,388		1,999		6,037		4,114
Outside services		9,825		9,163		19,128		17,940
FDIC insurance		5,103		2,783		9,071		6,472
Merger and acquisition related		10,551		371		35,491		371
Other		19,226		15,582		40,767		29,763

Total Non-Interest Expense		129,629		96,499		266,277		191,154

Income Before Income Taxes		59,511		58,156		97,493		115,468
Income taxes		18,211		18,025		30,061		34,994

Net Income		41,300		40,131		67,432		80,474
Less: Preferred stock dividends		2,010		2,010		4,020		4,020

Net Income Available to Common Stockholders	$	39,290	$	38,121	$	63,412	$	76,454

Net Income per Common Share – Basic	$	0.19	$	0.22	$	0.31	$	0.44
Net Income per Common Share – Diluted		0.19		0.22		0.31		0.43
Cash Dividends per Common Share		0.12		0.12		0.24		0.24

Comprehensive Income	$	49,492	$	31,158	$	93,106	$	82,524

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Dollars in thousands, except per share data

Unaudited


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance at January 1, 2016	$	106,882	$	1,766	$	1,808,210	$	243,217		$	(51,133	)	$	(12,760	)	$	2,096,182
Comprehensive income								67,432			25,674						93,106
Dividends declared:
Preferred stock								(4,020	)								(4,020	)
Common stock: $0.24/share								(50,708	)								(50,708	)
Issuance of common stock				9		5,284								(1,606	)		3,687
Issuance of common stock - acquisitions				341		403,690											404,031
Restricted stock compensation						2,916											2,916
Tax benefit of stock-based compensation						143											143

Balance at June 30, 2016	$	106,882	$	2,116	$	2,220,243	$	255,921		$	(25,459	)	$	(14,366	)	$	2,545,337

Balance at January 1, 2015	$	106,882	$	1,754	$	1,798,984	$	176,120		$	(46,003	)	$	(16,281	)	$	2,021,456
Comprehensive income								80,474			2,050						82,524
Dividends declared:
Preferred stock								(4,020	)								(4,020	)
Common stock: $0.24/share								(42,152	)								(42,152	)
Issuance of common stock				11		2,607								3,589			6,207
Restricted stock compensation						1,564											1,564
Tax benefit of stock-based compensation						192											192

Balance at June 30, 2015	$	106,882	$	1,765	$	1,803,347	$	210,422		$	(43,953	)	$	(12,692	)	$	2,065,771

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,
	2016			2015
Operating Activities
Net income	$	67,432		$	80,474
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion		25,892			21,871
Provision for credit losses		28,408			17,000
Deferred tax expense		11,539			5,789
Net securities (gains) losses		(297	)		(5	)
Tax benefit of stock-based compensation		(143	)		(192	)
Loans originated for sale		(266,313	)		(195,538	)
Loans sold		264,874			198,787
Gain on sale of loans		(5,843	)		(3,780	)
Net change in:
Interest receivable		(215	)		(1,593	)
Interest payable		(131	)		(492	)
Bank owned life insurance		(3,355	)		(2,524	)
Other, net		(21,916	)		(14,562	)

Net cash flows provided by operating activities		99,932			105,235

Investing Activities
Net change in loans and leases		(438,448	)		(402,216	)
Securities available for sale:
Purchases		(622,544	)		(242,375	)
Sales		615,199			33,228
Maturities		256,722			125,270
Securities held to maturity:
Purchases		(588,138	)		(204,591	)
Maturities		158,240			137,518
Purchase of bank owned life insurance		(16,579	)		(24	)
Increase in premises and equipment		(27,311	)		(8,651	)
Net cash received in business combinations		245,762			—

Net cash flows used in investing activities		(417,097	)		(561,841	)

Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts		355,565			999,376
Time deposits		(79,850	)		(21,510	)
Short-term borrowings		9,114			(534,076	)
Increase in long-term borrowings		28,168			14,654
Decrease in long-term borrowings		(37,942	)		(13,544	)
Net proceeds from issuance of common stock		6,603			7,772
Tax benefit of stock-based compensation		143			192
Cash dividends paid:
Preferred stock		(4,020	)		(4,020	)
Common stock		(50,708	)		(42,152	)

Net cash flows provided by financing activities		227,073			406,692

Net Decrease in Cash and Cash Equivalents		(90,092	)		(49,914	)
Cash and cash equivalents at beginning of period		489,119			287,393

Cash and Cash Equivalents at End of Period	$	399,027		$	237,479

See accompanying Notes to Consolidated Financial Statements

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2016

NATURE OF OPERATIONS

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, Pennsylvania, Baltimore, Maryland and Cleveland, Ohio. As of June 30, 2016, the Corporation had 330 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 provides a full line of consumer banking products and services including deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. Wealth management services include fiduciary and brokerage services, asset management, private banking and insurance. The Corporation also operates Regency Finance Company (Regency), which had 76 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee as of June 30, 2016.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, Bank Capital Services, LLC and F.N.B. Capital Corporation, 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 26, 2016.

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 credit losses, securities valuations, goodwill and other intangible assets, fair value measurements and income taxes.

Business Combinations

Business combinations are accounted for by applying the acquisition method in accordance with Accounting Standards Codification (ASC) 805, Business Combinations. Under the acquisition method, identifiable assets acquired and liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date, and are recognized separately from goodwill. Results of operations of the acquired entities are included in the consolidated statements of comprehensive income from the date of acquisition. Beginning in 2016, measurement-period adjustments are recorded in the period the adjustment is identified. Prior to this time, measurement-period adjustments were recorded retrospectively.

Cloud Computing Arrangements

Beginning in 2016, for new or materially modified contracts, the Corporation prospectively adopted new accounting principles to evaluate fees paid for cloud computing arrangements to determine if those arrangements include the purchase of or license to software that should be accounted for separately as internal-use software. If a contract includes the purchase or license to software that should be accounted for separately as internal-use software, the contract is amortized over the software’s identified useful life in amortization of intangibles. For contracts that do not include a software license, the contract is accounted for as a service contract with fees paid recorded in other non-interest expense.

Stock Based Compensation

The Corporation accounts for its stock based compensation awards in accordance with ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards, including stock options and restricted stock, made to employees and directors.

ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Corporation’s consolidated statements of comprehensive income over the shorter of requisite service periods or the period through the date that the employee first becomes eligible to retire. Some of the Corporation’s plans contain performance targets that affect vesting and can be achieved after the requisite service period and accounted for as a performance condition. Beginning in 2016, the performance target is not reflected in the estimation of the award’s grant date fair value and compensation cost is recognized in the period in which it becomes probable that the performance condition will be achieved.

Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense has been reduced to account for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Variable Interest Entities

The Corporation has investments in certain partnerships and limited liability entities that qualify as variable interest entities (VIEs). These entities are evaluated on an on-going basis to determine whether they should be consolidated. Consolidation of a VIE is appropriate if a reporting entity holds a controlling financial interest in the VIE. The Corporation has determined that it does not hold a controlling financial interest in any of the VIEs and, therefore, the assets and liabilities of these entities are not consolidated into its financial statements. Instead, investments in these entities are accounted for under the equity method of accounting and are evaluated periodically for impairment. The recorded investment in these entities is reported in other assets on the consolidated balance sheets.

2. NEW ACCOUNTING STANDARDS

The following paragraphs summarize accounting pronouncements applicable to the Corporation that have been issued by the Financial Accounting Standards Board (FASB) but are not yet effective.

Credit Losses

Accounting Standards Update (ASU or Update) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, commonly referred to as “CECL,” replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses for most financial assets measured at amortized cost and certain other instruments, including loans, held-to-maturity debt securities, net investments in leases and off-balance sheet credit exposures. In addition, the Update will require the use of a modified available-for-sale debt security impairment model and eliminate the current accounting for purchased credit impaired loans and debt securities. The Update is effective the first quarter of 2020. Early application is permitted. The Corporation is currently assessing the potential impact to its Consolidated Financial Statements.

Revenue Recognition

ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, addresses certain issues in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.

ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, clarifies several aspects of identifying performance obligations and licensing implementation guidance including guidance that is expected to reduce the cost and complexity by eliminating the need to assess whether goods and services are performance obligations if they are immaterial in the context of the contract with the customer.

ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), clarifies the guidance on principal versus agent considerations when another party is involved in providing goods and services to a customer. The guidance requires a company to determine whether it is required to provide the specific good or service itself or to arrange for that good or service to be provided by another party.

ASU 2014-09, Revenue from Contracts with Customers (Topic 606), modifies the guidance used to recognize revenue from contracts with customers for transfers of goods and services and transfers of nonfinancial assets, unless those contracts are within the scope of other guidance. The guidance also requires new qualitative and quantitative disclosures about contract balances and performance obligations. The Update can be adopted using either the full retrospective method or modified retrospective method. The Corporation intends to use the modified retrospective approach when adopted.

The guidance for these Revenue Recognition Updates is effective for annual periods beginning in the first quarter of 2018. Early application is permitted beginning in the first quarter of 2017. The Corporation is currently assessing the potential impact to its Consolidated Financial Statements.

Stock Based Compensation

ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Update is effective in the first quarter of 2017 by an application method determined by the type of transaction impacted by the adoption. Early application is permitted. The Corporation is currently assessing the potential impact to its Consolidated Financial Statements.

Investments

ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting, eliminates the requirement for an investor to retrospectively apply the equity method when an investment that it had accounted for by another method qualifies for use of the equity method. The Update is effective in the first quarter of 2017 with prospective application. Early application is permitted. This Update is not expected to have a material effect on the Consolidated Financial Statements.

Derivative and Hedging Activities

ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force), provides clarification that determination of whether an embedded contingent put or call option in a financial instrument is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence described in ASC 815-15-25-42. The Update is effective in the first quarter of 2017 with modified retrospective application. Early application is permitted. If an entity is no longer required to bifurcate an embedded derivative as a result of this Update and elects fair value accounting, the effects should be reported as a cumulative-effect adjustment. This Update is not expected to have a material effect on the Consolidated Financial Statements.

ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force), clarifies that a change in counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided all other hedge accounting criteria continue to be met. The Update is effective in the first quarter of 2017 with either prospective or modified retrospective application. Early application is permitted. This Update is not expected to have a material effect on the Consolidated Financial Statements.

Extinguishments of Liabilities

ASU 2016-04, Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force), requires entities that sell prepaid stored-value products redeemable for goods, services or cash at third-party merchants to recognize breakage. The Update is effective in the first quarter of 2018 with either the modified retrospective method by means of a cumulative-effect adjustment to retained earnings or retrospective application. Early application is permitted. This Update is not expected to have a material effect on the Consolidated Financial Statements.

Leases

ASU 2016-02, Leases (Topic 842), requires lessees to put most leases on their balance sheet but recognize expenses in the income statement similar to current accounting. In addition, the Update changes the guidance for sale-leaseback transactions, initial direct costs and lease executory costs for most entities. All entities will classify leases to determine how to recognize lease related revenue and expense. The Update is effective in the first quarter of 2019 with modified retrospective application including a number of optional practical expedients. Early application is permitted. The Corporation is currently assessing the potential impact to its Consolidated Financial Statements.

Financial Instruments – Recognition and Measurement

ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, amends the presentation and accounting for certain financial instruments, including liabilities measured at fair value under the fair value option, and equity investments. The guidance also updates fair value presentation and disclosure requirements for financial instruments measured at amortized cost. The Update is effective in the first quarter of 2018 with a cumulative-effect adjustment as of the beginning of the fiscal year of adoption. Early application is prohibited except for the provision requiring the recognition of changes in fair value related to changes in an entity’s own credit risk in other comprehensive income for financial liabilities measured using the fair value option. This Update is not expected to have a material effect on the Consolidated Financial Statements.

3. MERGERS AND ACQUISITIONS

Branch Purchase – Fifth Third Bank

On April 22, 2016, the Corporation completed its purchase of 17 branch-banking locations and related consumer loans in the Pittsburgh, Pennsylvania metropolitan area from Fifth Third Bank (Fifth Third). The fair value of the acquired assets totaled $317.6 million, including $198.9 million in cash, $97.7 million in loans and $15.0 million in fixed and other assets. The Corporation also assumed $302.5 million in deposits, for which it paid a deposit premium of 1.97%, as part of the transaction. The assets and liabilities relating to these purchased branches were recorded on the Corporation’s balance sheet at their preliminary fair values as of April 22, 2016 and the related results of operations for these branches have been included in the Corporation’s consolidated statement of comprehensive income since that date. Based on the preliminary purchase price allocation, the Corporation recorded $11.4 million in goodwill and $6.0 million in core deposit intangibles. These fair value estimates are provisional amounts based on third party valuations that are currently under review. The goodwill for this transaction is deductible for income tax purposes.

Metro Bancorp, Inc.

On February 13, 2016, the Corporation completed its acquisition of Metro Bancorp, Inc. (METR), a bank holding company based in Harrisburg, Pennsylvania. The acquisition enhanced the Corporation’s distribution and scale across Central Pennsylvania, strengthened its position as the largest Pennsylvania-based regional bank and allowed the Corporation to leverage the significant infrastructure investments made in connection with the expansion of its product offerings and risk management systems. On the acquisition date, the estimated fair values of METR included $2.8 billion in assets, $1.9 billion in loans and $2.3 billion in deposits. The acquisition was valued at $404.0 million and resulted in the Corporation issuing 34,041,181 shares of its common stock in exchange for 14,345,319 shares of METR common stock. The Corporation also acquired the fully vested outstanding stock options of METR. The assets and liabilities of METR were recorded on the Corporation’s consolidated balance sheet at their preliminary estimated fair values as of February 13, 2016, the acquisition date, and METR’s results of operations have been included in the Corporation’s consolidated statement of comprehensive income since that date. METR’s banking affiliate, Metro Bank, was merged into FNBPA on February 13, 2016. Based on the preliminary purchase price allocation, the Corporation recorded $177.0 million in goodwill and $36.8 million 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.

The following pro forma financial information for the six months ended June 30, 2015 reflects the Corporation’s estimated consolidated pro forma results of operations as if the METR acquisition occurred on January 1, 2015, unadjusted for potential cost savings and other business synergies the Corporation expects to receive as a result of the acquisition:


(dollars in thousands, except per share data)	F.N.B. Corporation		METR		Pro Forma Adjustments			Pro Forma Combined
Revenue (net interest income and non-interest income)	$	323,622	$	67,629	$	(2,122	)	$	389,129
Net income		80,474		9,899		(4,007	)		86,366
Net income available to common stockholders		76,454		9,859		(3,967	)		82,346
Earnings per common share – basic		0.44		0.70		—			0.39
Earnings per common share – diluted		0.43		0.68		—			0.39

The pro forma adjustments reflect amortization and associated taxes related to the purchase accounting adjustments made to record various acquired items at fair value.

In connection with the METR acquisition, the Corporation incurred expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into the Corporation. These merger-related charges amounted to $31.4 million and were expensed as incurred. Severance costs comprised 40.8% of the merger-related expenses, with the remainder consisting of other non-interest expenses, including professional services, marketing and advertising, technology and communications, occupancy and equipment, and charitable contributions. The Corporation also incurred issuance costs of $0.7 million which were charged to additional paid-in capital.

Branch Purchase – Bank of America

On September 18, 2015, the Corporation completed its purchase of five branch-banking locations in southeastern Pennsylvania from Bank of America (BofA). The fair value of the acquired assets totaled $153.1 million, including $148.2 million in cash and $2.0 million in fixed and other assets. The Corporation also assumed $154.6 million in deposits associated with these branches. The Corporation paid a deposit premium of 1.96% and acquired an immaterial amount of loans as part of the transaction. The Corporation’s operating results for 2015 include the impact of branch activity subsequent to the September 18, 2015 closing date. The Corporation recorded $1.5 million in goodwill and $3.0 million in core deposit intangibles. The goodwill for this transaction is deductible for income tax purposes.

The following table summarizes the amounts recorded on the consolidated balance sheet as of each of the acquisition dates in conjunction with the acquisitions discussed above:

(in thousands)

Fifth Third
Branches

METR

BofA
Branches

Fair value of consideration paid

—

404,031

—

Fair value of identifiable assets acquired:

Cash and cash equivalents

198,872

46,890

148,159

Securities

—

722,980

—

Loans

97,734

1,868,873

842

Core deposit intangibles

5,952

36,801

3,000

Other assets

15,038

122,704

1,133

Total identifiable assets acquired

317,596

2,798,248

153,134

Fair value of liabilities assumed:

Deposits

302,529

2,328,238

154,619

Borrowings

—

227,539

—

Other liabilities

26,427

15,397

—

Total liabilities assumed

328,956

2,571,174

154,619

Fair value of net identifiable assets acquired

(11,360

)

227,074

(1,485

)

Goodwill recognized (1)

11,360

176,957

1,485

(1)	All of the goodwill for these transactions has been recorded by FNBPA.

Pending Acquisition – Yadkin Financial Corporation

On July 20, 2016, the Corporation entered into a definitive merger agreement to acquire Yadkin Financial Corporation (YDKN), a bank holding company based in Raleigh, North Carolina with approximately $7.5 billion in total assets. The transaction is valued at approximately $1.4 billion. Under the terms of the merger agreement, YDKN voting common shareholders will be entitled to receive 2.16 shares of the Corporation’s common stock for each share of YDKN common stock. The Corporation expects to issue approximately 111.0 million shares of its common stock in exchange for approximately 51.4 million shares of YDKN common stock. YDKN’s banking affiliate, Yadkin Bank, will be merged into FNBPA. The transaction is expected to be completed in the first quarter of 2017, pending regulatory approvals, the approval of shareholders of the Corporation and YDKN, and the satisfaction of other closing conditions.

4. SECURITIES

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


(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale
June 30, 2016
U.S. Treasury	$	29,805	$	257	$	—		$	30,062
U.S. government-sponsored entities		432,534		3,235		—			435,769
Residential mortgage-backed securities:
Agency mortgage-backed securities		1,095,826		19,051		—			1,114,877
Agency collateralized mortgage obligations		495,943		5,239		(1,535	)		499,647
Non-agency collateralized mortgage obligations		1,034		—		(56	)		978
Commercial mortgage-backed securities		3,389		4		—			3,393
States of the U.S. and political subdivisions		38,195		280		(27	)		38,448
Other debt securities		9,778		150		(760	)		9,168

Total debt securities		2,106,504		28,216		(2,378	)		2,132,342
Equity securities		975		345		—			1,320

Total securities available for sale	$	2,107,479	$	28,561	$	(2,378	)	$	2,133,662

December 31, 2015
U.S. Treasury	$	29,738	$	58	$	—		$	29,796
U.S. government-sponsored entities		368,463		856		(1,325	)		367,994
Residential mortgage-backed securities:
Agency mortgage-backed securities		703,069		4,594		(2,832	)		704,831
Agency collateralized mortgage obligations		503,328		1,032		(8,530	)		495,830
Non-agency collateralized mortgage obligations		1,177		13		—			1,190
Commercial mortgage-backed securities		4,299		—		(12	)		4,287
States of the U.S. and political subdivisions		10,748		309		—			11,057
Other debt securities		14,729		208		(651	)		14,286

Total debt securities		1,635,551		7,070		(13,350	)		1,629,271
Equity securities		975		324		(3	)		1,296

Total securities available for sale	$	1,636,526	$	7,394	$	(13,353	)	$	1,630,567

Securities Held to Maturity
June 30, 2016
U.S. Treasury	$	500	$	204	$	—		$	704
U.S. government-sponsored entities		238,464		2,073		—			240,537
Residential mortgage-backed securities:
Agency mortgage-backed securities		882,467		22,422		—			904,889
Agency collateralized mortgage obligations		614,480		6,356		(1,305	)		619,531
Non-agency collateralized mortgage obligations		2,143		5		(4	)		2,144
Commercial mortgage-backed securities		50,294		1,776		(81	)		51,989
States of the U.S. and political subdivisions		275,957		9,031		—			284,988

Total securities held to maturity	$	2,064,305	$	41,867	$	(1,390	)	$	2,104,782

December 31, 2015
U.S. Treasury	$	500	$	153	$	—		$	653
U.S. government-sponsored entities		137,385		809		(395	)		137,799
Residential mortgage-backed securities:
Agency mortgage-backed securities		709,970		9,858		(1,176	)		718,652
Agency collateralized mortgage obligations		499,694		803		(7,657	)		492,840
Non-agency collateralized mortgage obligations		2,681		14		—			2,695
Commercial mortgage-backed securities		51,258		115		(259	)		51,114
States of the U.S. and political subdivisions		235,573		4,191		(101	)		239,663

Total securities held to maturity	$	1,637,061	$	15,943	$	(9,588	)	$	1,643,416

The increase in securities in 2016 primarily relates to the METR acquisition completed on February 13, 2016.

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


	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in thousands)	2016			2015		2016			2015
Gross gains	$	227		$	14	$	298		$	14
Gross losses		(1	)		—		(1	)		(9	)

Net gains	$	226		$	14	$	297		$	5

As of June 30, 2016, the amortized cost and fair value of securities, by contractual maturities, were as:

Available for Sale

Held to Maturity

(in thousands)

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Due in one year or less

14,985

15,061

11,478

11,502

Due from one to five years

460,162

463,729

234,393

236,292

Due from five to ten years

27,882

28,135

48,491

49,991

Due after ten years

7,283

6,522

220,559

228,444

510,312

513,447

514,921

526,229

Residential mortgage-backed securities:

Agency mortgage-backed securities

1,095,826

1,114,877

882,467

904,889

Agency collateralized mortgage obligations

495,943

499,647

614,480

619,531

Non-agency collateralized mortgage obligations

1,034

978

2,143

2,144

Commercial mortgage-backed securities

3,389

3,393

50,294

51,989

Equity securities

975

1,320

—

Total securities

2,107,479

2,133,662

2,064,305

2,104,782

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.

Following is information relating to securities pledged:


	June 30,			December 31,
(dollars in thousands)	2016			2015
Securities pledged (carrying value):
Collateral for public deposits, trust deposits and for other purposes as required by law	$	2,404,720		$	1,728,939
Collateral for short-term borrowings		298,240			272,629
Securities pledged as a percent of total securities		64.4	%		61.3	%

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


	Less than 12 Months							12 Months or More							Total
(dollars in thousands)	#		Fair Value		Unrealized Losses			#		Fair Value		Unrealized Losses			#		Fair Value		Unrealized Losses
Securities Available for Sale
June 30, 2016
Residential mortgage-backed securities:
Agency collateralized mortgage obligations		1	$	12,209	$	(37	)		11	$	122,569	$	(1,498	)		12	$	134,778	$	(1,535	)
Non-agency collateralized mortgage obligations		1		974		(56	)		—		—		—			1		974		(56	)
States of the U.S. and political subdivisions		9		11,515		(27	)		—		—		—			9		11,515		(27	)
Other debt securities		—		—		—			3		4,140		(760	)		3		4,140		(760	)

Total impaired securities available for sale		11	$	24,698	$	(120	)		14	$	126,709	$	(2,258	)		25	$	151,407	$	(2,378	)

December 31, 2015
U.S. government-sponsored entities		6	$	99,131	$	(814	)		2	$	34,487	$	(511	)		8	$	133,618	$	(1,325	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		19		359,250		(2,832	)		—		—		—			19		359,250		(2,832	)
Agency collateralized mortgage obligations		9		126,309		(1,366	)		18		215,330		(7,164	)		27		341,639		(8,530	)
Commercial mortgage-backed securities		1		4,287		(12	)		—		—		—			1		4,287		(12	)
Other debt securities		—		—		—			3		4,245		(651	)		3		4,245		(651	)
Equity securities		1		632		(3	)		—		—		—			1		632		(3	)

Total impaired securities available for sale		36	$	589,609	$	(5,027	)		23	$	254,062	$	(8,326	)		59	$	843,671	$	(13,353	)

Securities Held to Maturity
June 30, 2016
Residential mortgage-backed securities:
Agency collateralized mortgage obligations		—	$	—	$	—			12	$	128,715	$	(1,305	)		12	$	128,715	$	(1,305	)
Non-agency collateralized mortgage obligations		2		1,174		(4	)		—		—		—			2		1,174		(4	)
Commercial mortgage-backed securities		1		8,541		(81	)		—		—		—			1		8,541		(81	)

Total impaired securities held to maturity		3	$	9,715	$	(85	)		12	$	128,715	$	(1,305	)		15	$	138,430	$	(1,390	)

December 31, 2015
U.S. government-sponsored entities		3	$	39,843	$	(173	)		1	$	14,778	$	(222	)		4	$	54,621	$	(395	)
Residential mortgage-backed securities:
Agency mortgage-backed securities		17		212,024		(1,159	)		1		917		(17	)		18		212,941		(1,176	)
Agency collateralized mortgage obligations		11		150,593		(1,434	)		14		160,716		(6,223	)		25		311,309		(7,657	)
Commercial mortgage-backed securities		3		46,278		(259	)		—		—		—			3		46,278		(259	)
States of the U.S. and political subdivisions		9		17,616		(101	)		—		—		—			9		17,616		(101	)

Total impaired securities held to maturity		43	$	466,354	$	(3,126	)		16	$	176,411	$	(6,462	)		59	$	642,765	$	(9,588	)

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

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:


(in thousands)	Equities		Total
For the Six Months Ended June 30, 2016
Beginning balance	$	27	$	27
Loss where impairment was not previously recognized		—		—
Additional loss where impairment was previously recognized		—		—
Reduction due to credit impaired securities sold		—		—

Ending balance	$	27	$	27

For the Six Months Ended June 30, 2015
Beginning balance	$	27	$	27
Loss where impairment was not previously recognized		—		—
Additional loss where impairment was previously recognized		—		—
Reduction due to credit impaired securities sold		—		—

Ending balance	$	27	$	27

The Corporation did not recognize any impairment losses on securities for the six months ended June 30, 2016 or 2015.

States of the U.S. and Political Subdivisions

The Corporation’s municipal bond portfolio with a carrying amount of $314.4 million as of June 30, 2016 is highly rated with an average entity-specific rating of AA and 96.0% of the portfolio rated A or better. General obligation bonds comprise 99.9% of the portfolio. Geographically, municipal bonds support the Corporation’s primary footprint as 95.7% of the securities are from municipalities located throughout Pennsylvania, Ohio and Maryland. The average holding size of the securities in the municipal bond portfolio is $1.8 million. In addition to the strong stand-alone ratings, 77.0% 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.

5. LOANS AND LEASES

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

(in thousands)

Originated
Loans

Acquired
Loans

Total
Loans and
Leases

June 30, 2016

Commercial real estate

3,789,036

1,566,589

5,355,625

Commercial and industrial

2,643,116

436,489

3,079,605

Commercial leases

200,350

—

200,350

Total commercial loans and leases

6,632,502

2,003,078

8,635,580

Direct installment

1,733,606

96,600

1,830,206

Residential mortgages

1,217,574

461,072

1,678,646

Indirect installment

1,076,516

301

1,076,817

Consumer lines of credit

1,058,128

231,925

1,290,053

Other

51,826

—

51,826

Total loans and leases, net of unearned income

11,770,152

2,792,976

14,563,128


(in thousands)	Originated Loans		Acquired Loans		Total Loans and Leases
December 31, 2015
Commercial real estate	$	3,531,146	$	577,910	$	4,109,056
Commercial and industrial		2,534,351		67,371		2,601,722
Commercial leases		204,553		—		204,553

Total commercial loans and leases		6,270,050		645,281		6,915,331
Direct installment		1,660,717		45,919		1,706,636
Residential mortgages		1,044,689		351,282		1,395,971
Indirect installment		996,175		554		996,729
Consumer lines of credit		1,021,830		115,425		1,137,255
Other		38,518		—		38,518

Total loans and leases, net of unearned income	$	11,031,979	$	1,158,461	$	12,190,440

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 credit cards, mezzanine loans and student loans.

The loan and lease 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 total loan portfolio also contains consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky, which totaled $187.8 million or 1.3% of total loans and leases at June 30, 2016, compared to $186.2 million or 1.5% of total loans and leases at December 31, 2015. Due to the relative size of the consumer finance loan portfolio, these loans are not segregated from other consumer loans.

The following table shows certain information relating to commercial loans:


	June 30,			December 31,
(dollars in thousands)	2016			2015
Commercial construction loans	$	432,429		$	352,322
Percent of total loans and leases		3.0	%		2.9	%

Commercial real estate:
Percent owner-occupied		37.0	%		38.1	%
Percent non-owner-occupied		63.0	%		61.9	%

Acquired Loans

All acquired loans were initially recorded at fair value at the acquisition date. The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows:


(in thousands)	June 30, 2016		December 31, 2015
Accounted for under ASC 310-30:
Outstanding balance	$	2,730,575	$	1,258,418
Carrying amount		2,419,551		1,011,139

Accounted for under ASC 310-20:
Outstanding balance		398,107		146,161
Carrying amount		367,775		140,595

Total acquired loans:
Outstanding balance		3,128,682		1,404,579
Carrying amount		2,787,326		1,151,734

The carrying amount of purchased credit impaired loans included in the table above totaled $7.1 million at June 30, 2016 and $5.9 million at December 31, 2015, representing less than 1% of the carrying amount of total acquired loans as of each date.

The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30. Loans accounted for under ASC 310-20 are not included in this table.


	Six Months Ended
	June 30,
(in thousands)	2016			2015
Balance at beginning of period	$	256,120		$	331,899
Acquisitions		308,311			—
Reduction due to unexpected early payoffs		(35,879	)		(25,735	)
Reclass from non-accretable difference		14,508			15,653
Disposals/transfers		(208	)		(348	)
Accretion		(49,646	)		(31,656	)

Balance at end of period	$	493,206		$	289,813

The following table reflects amounts at acquisition for all purchased loans subject to ASC 310-30 (impaired and non-impaired) acquired from METR and Fifth Third.

(in thousands)

Acquired
Impaired
Loans

Acquired
Performing
Loans

Total

Contractually required cash flows at acquisition

99,611

2,191,476

2,291,087

Non-accretable difference (expected losses and foregone interest)

(52,995

)

(264,233

)

(317,228

)

Cash flows expected to be collected at acquisition

46,616

1,927,243

1,973,859

Accretable yield

(1,063

)

(307,248

)

(308,311

)

Basis in acquired loans at acquisition

45,553

1,619,995

1,665,548

In addition, loans purchased in the METR acquisition and Fifth Third branch purchase that were not subject to ASC 310-30 had the following balances at the date of acquisition: fair value of $292.3 million; unpaid principal balance of $315.1 million; and contractual cash flows not expected to be collected of $103.0 million.

Credit Quality

Management monitors the credit quality of the Corporation’s loan and lease portfolio on an ongoing basis. Measurement of delinquency and past due status is 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 or when the principal and interest is deemed uncollectible, 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.

Following is a summary of non-performing assets:


(dollars in thousands)	June 30, 2016			December 31, 2015
Non-accrual loans	$	67,475		$	49,897
Troubled debt restructurings		22,542			22,028

Total non-performing loans		90,017			71,925
Other real estate owned (OREO)		48,344			38,918

Total non-performing assets	$	138,361		$	110,843

Asset quality ratios:
Non-performing loans / total loans and leases		0.62	%		0.59	%
Non-performing loans + OREO / total loans and leases + OREO		0.95	%		0.91	%
Non-performing assets / of total assets		0.65	%		0.63	%

The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure totaled $4.7 million at June 30, 2016 and $5.2 million at December 31, 2015. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at June 30, 2016 and December 31, 2015 totaled $9.7 million and $11.7 million, respectively.

The following tables provide an analysis of the aging of the Corporation’s past due loans by class, segregated by loans and leases originated and loans acquired:


(in thousands)	30-89 Days Past Due		³ 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans and Leases
Originated Loans and Leases
June 30, 2016
Commercial real estate	$	9,219	$	1	$	23,797	$	33,017	$	3,756,019	$	3,789,036
Commercial and industrial		9,411		3		27,568		36,982		2,606,134		2,643,116
Commercial leases		1,099		—		1,142		2,241		198,109		200,350

Total commercial loans and leases		19,729		4		52,507		72,240		6,560,262		6,632,502
Direct installment		9,479		3,690		5,743		18,912		1,714,694		1,733,606
Residential mortgages		11,249		1,662		3,072		15,983		1,201,591		1,217,574
Indirect installment		6,067		270		1,613		7,950		1,068,566		1,076,516
Consumer lines of credit		2,141		532		2,063		4,736		1,053,392		1,058,128
Other		41		28		—		69		51,757		51,826

Total originated loans and leases	$	48,706	$	6,186	$	64,998	$	119,890	$	11,650,262	$	11,770,152

December 31, 2015
Commercial real estate	$	11,006	$	1	$	23,503	$	34,510	$	3,496,636	$	3,531,146
Commercial and industrial		5,409		3		14,382		19,794		2,514,557		2,534,351
Commercial leases		924		—		659		1,583		202,970		204,553

Total commercial loans and leases		17,339		4		38,544		55,887		6,214,163		6,270,050
Direct installment		9,254		3,813		4,806		17,873		1,642,844		1,660,717
Residential mortgages		8,135		1,470		2,882		12,487		1,032,202		1,044,689
Indirect installment		9,472		379		1,361		11,212		984,963		996,175
Consumer lines of credit		2,410		1,189		1,181		4,780		1,017,050		1,021,830
Other		73		169		—		242		38,276		38,518

Total originated loans and leases	$	46,683	$	7,024	$	48,774	$	102,481	$	10,929,498	$	11,031,979


(in thousands)	30-89 Days Past Due		³ 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due (1) (2)		Current		Discount			Total Loans
Acquired Loans
June 30, 2016
Commercial real estate	$	24,253	$	26,315	$	893	$	51,461	$	1,602,228	$	(87,100	)	$	1,566,589
Commercial and industrial		2,758		4,821		1,163		8,742		461,688		(33,941	)		436,489

Total commercial loans		27,011		31,136		2,056		60,203		2,063,916		(121,041	)		2,003,078
Direct installment		2,602		1,124		—		3,726		90,263		2,611			96,600
Residential mortgages		11,990		13,963		—		25,953		474,442		(39,323	)		461,072
Indirect installment		11		4		—		15		255		31			301
Consumer lines of credit		1,325		858		421		2,604		234,158		(4,837	)		231,925

Total acquired loans	$	42,939	$	47,085	$	2,477	$	92,501	$	2,863,034	$	(162,559	)	$	2,792,976

December 31, 2015
Commercial real estate	$	6,399	$	12,752	$	931	$	20,082	$	593,128	$	(35,300	)	$	577,910
Commercial and industrial		1,065		616		103		1,784		72,037		(6,450	)		67,371

Total commercial loans		7,464		13,368		1,034		21,866		665,165		(41,750	)		645,281
Direct installment		837		659		—		1,496		43,596		827			45,919
Residential mortgages		5,871		15,136		—		21,007		366,742		(36,467	)		351,282
Indirect installment		32		9		—		41		571		(58	)		554
Consumer lines of credit		830		546		89		1,465		117,443		(3,483	)		115,425

Total acquired loans	$	15,034	$	29,718	$	1,123	$	45,875	$	1,193,517	$	(80,931	)	$	1,158,461

(1)	Past due information for acquired loans is based on the contractual balance outstanding at June 30, 2016 and December 31, 2015.

(2)

Acquired loans are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, as long as the Corporation can reasonably estimate the timing and amount of expected cash flows on such loans. In these instances, the Corporation does not consider acquired contractually delinquent loans to be non-accrual or non-performing and continues to recognize interest income on these loans using the accretion method. Acquired loans are considered non-accrual or non-performing when, due to credit deterioration or other factors, the Corporation determines it is no longer able to reasonably estimate the timing and amount of expected cash flows on such loans. The Corporation does not recognize interest income on acquired loans considered non-accrual or non-performing.

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


Rating Category		Definition
Pass		in general, the condition and performance of the borrower 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 and performance of the borrower has significantly deteriorated and 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 and lease portfolio permits management’s use of transition matrices 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 leases and conforms with regulatory categories. In general, loan and lease risk ratings within each category are reviewed on an ongoing basis according to the Corporation’s policy for each class of loans and leases. 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 and lease portfolio. Loans and leases within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans and leases 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 and leases by credit quality category, segregated by loans and leases originated and loans acquired:


	Originated Commercial Loan and Lease Credit Quality Categories
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans and Leases
June 30, 2016
Commercial real estate	$	3,612,375	$	106,555	$	69,872	$	234	$	3,789,036
Commercial and industrial		2,387,112		89,891		159,497		6,616		2,643,116
Commercial leases		194,408		2,107		3,835		—		200,350

Total originated commercial loans and leases	$	6,193,895	$	198,553	$	233,204	$	6,850	$	6,632,502

December 31, 2015
Commercial real estate	$	3,416,527	$	52,887	$	61,411	$	321	$	3,531,146
Commercial and industrial		2,335,103		109,539		87,380		2,329		2,534,351
Commercial leases		198,207		2,447		3,899		—		204,553

Total originated commercial loans and leases	$	5,949,837	$	164,873	$	152,690	$	2,650	$	6,270,050

Acquired Loans
June 30, 2016
Commercial real estate	$	1,301,203	$	131,051	$	132,639	$	1,696	$	1,566,589
Commercial and industrial		371,294		21,805		42,874		516		436,489

Total acquired commercial loans	$	1,672,497	$	152,856	$	175,513	$	2,212	$	2,003,078

December 31, 2015
Commercial real estate	$	464,162	$	47,619	$	66,129		—	$	577,910
Commercial and industrial		56,446		3,182		7,743		—		67,371

Total acquired commercial loans	$	520,608	$	50,801	$	73,872		—	$	645,281

Credit quality information for acquired loans is based on the contractual balance outstanding at June 30, 2016 and December 31, 2015. The increase in acquired loans in 2016 relates to the METR acquisition completed on February 13, 2016.

The Corporation uses delinquency transition matrices 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, FICO scores and other external factors such as unemployment, to determine how consumer loans are performing.

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


	Originated Consumer Loan Credit Quality by Payment Status
(in thousands)	Performing		Non- Performing		Total
June 30, 2016
Direct installment	$	1,718,741	$	14,865	$	1,733,606
Residential mortgages		1,204,189		13,385		1,217,574
Indirect installment		1,074,744		1,772		1,076,516
Consumer lines of credit		1,055,118		3,010		1,058,128
Other		51,826		—		51,826

Total originated consumer loans	$	5,104,618	$	33,032	$	5,137,650

December 31, 2015
Direct installment	$	1,646,925	$	13,792	$	1,660,717
Residential mortgages		1,031,926		12,763		1,044,689
Indirect installment		994,661		1,514		996,175
Consumer lines of credit		1,019,783		2,047		1,021,830
Other		38,518		—		38,518

Total originated consumer loans	$	4,731,813	$	30,116	$	4,761,929

Loans and leases 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 and lease contract is doubtful. Typically, the Corporation does not consider loans and leases 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 and commercial loan and lease relationships less than $500,000 based on loan and lease segment loss given default. For commercial loan relationships greater than or equal to $500,000, 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 and leases, 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 and leases considered to be impaired, by class of loan and lease:


(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Reserve		Recorded Investment With Specific Reserve		Total Recorded Investment		Specific Reserve		Average Recorded Investment
At or for the Six Months Ended June 30, 2016
Commercial real estate	$	32,295	$	22,983	$	2,101	$	25,084	$	234	$	25,319
Commercial and industrial		29,126		12,826		14,699		27,525		6,616		26,023
Commercial leases		1,142		1,142		—		1,142		—		—

Total commercial loans and leases		62,563		36,951		16,800		53,751		6,850		51,342
Direct installment		16,125		14,865		—		14,865		—		14,481
Residential mortgages		13,942		13,385		—		13,385		—		13,093
Indirect installment		4,266		1,772		—		1,772		—		1,636
Consumer lines of credit		3,776		3,010		—		3,010		—		2,947

Total	$	100,672	$	69,983	$	16,800	$	86,783	$	6,850	$	83,499

At or for the Year Ended December 31, 2015
Commercial real estate	$	33,780	$	24,423	$	772	$	25,195	$	321	$	26,143
Commercial and industrial		15,860		9,176		5,543		14,719		2,329		12,298
Commercial leases		659		659		—		659		—		747

Total commercial loans and leases		50,299		34,258		6,315		40,573		2,650		39,188
Direct installment		14,679		13,792		—		13,792		—		13,267
Residential mortgages		13,394		12,763		—		12,763		—		12,896
Indirect installment		3,745		1,514		—		1,514		—		1,401
Consumer lines of credit		2,408		2,047		—		2,047		—		2,198

Total	$	84,525	$	64,374	$	6,315	$	70,689	$	2,650	$	68,950

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

The above tables do not reflect the additional allowance for credit losses relating to acquired loans in the following pools and categories:


(in thousands)	June 30, 2016		December 31, 2015
Commercial real estate	$	2,775	$	3,073
Commercial and industrial		600		695

Total commercial loans		3,375		3,768
Direct installment		1,183		1,557
Residential mortgages		582		659
Indirect installment		221		221
Consumer lines of credit		289		522

Total	$	5,650	$	6,727

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 payment status of originated TDRs:


(in thousands)	June 30, 2016		December 31, 2015
Accruing:
Performing	$	16,762	$	15,165
Non-performing		22,542		22,028
Non-accrual		7,479		8,307

Total TDRs	$	46,783	$	45,500

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, 2016, the Corporation returned to performing status $3,968 million 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 may result in potential incremental losses which are factored into the allowance for credit losses.

Excluding purchased impaired loans, commercial loans over $500,000 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 credit losses included specific reserves for commercial TDRs and pooled reserves for individual loans under $500,000 based on loan segment loss given default. 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 credit losses. The reserve for commercial TDRs included in the allowance for credit losses are as follows:


(in thousands)	June 30, 2016		December 31, 2015
Specific reserves	$	—	$	300
Pooled reserves for individual loans under $500		752		929

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 credit losses included pooled reserves for these classes of loans of $3.3 million and $3.5 million at June 30, 2016 and December 31, 2015, 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 originated loans, by class, that have been restructured:


	Three Months Ended June 30, 2016						Six Months Ended June 30, 2016
(dollars in thousands)	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		—	$	—	$	—		4	$	778	$	749
Commercial and industrial		—		—		—		—		—		—

Total commercial loans		—		—		—		4		778		749
Direct installment		120		1,960		1,832		265		3,984		3,772
Residential mortgages		8		385		390		27		1,420		1,402
Indirect installment		2		6		6		5		17		17
Consumer lines of credit		17		302		298		36		481		473

Total		147	$	2,653	$	2,526		337	$	6,680	$	6,413


	Three Months Ended June 30, 2015						Six Months Ended June 30, 2015
(dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate		—	$	—	$	—		2	$	312	$	176
Commercial and industrial		1		5		4		1		5		4

Total commercial loans		1		5		4		3		317		180
Direct installment		110		1,761		1,729		241		3,310		3,201
Residential mortgages		7		231		234		21		812		846
Indirect installment		5		14		13		10		30		30
Consumer lines of credit		14		250		249		30		520		519

Total		137	$	2,261	$	2,229		305	$	4,989	$	4,776

Following is a summary of originated TDRs, by class of loans and leases, 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 (dollars in thousands).


	Three Months Ended June 30, 2016 (1)				Six Months Ended June 30, 2016 (1)
(dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial real estate		—	$	—		—	$	—
Commercial and industrial		—		—		—		—

Total commercial loans		—		—		—		—
Direct installment		32		135		57		246
Residential mortgages		3		142		4		193
Indirect installment		2		8		6		8
Consumer lines of credit		1		55		2		65

Total		38	$	340		69	$	512


	Three Months Ended June 30, 2015 (1)				Six Months Ended June 30, 2015 (1)
(dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial real estate		—	$	—		—	$	—
Commercial and industrial		1		229		1		229

Total commercial loans		1		229		1		229
Direct installment		27		96		58		182
Residential mortgages		3		114		4		171
Indirect installment		3		7		5		7
Consumer lines of credit		—		—		1		92
Other		—		—		—		—

Total		34	$	446		69	$	681

(1)	The recorded investment is as of period end.

6. ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses addresses credit losses inherent in the existing loan and lease portfolio and is presented as a reserve against loans and leases on the consolidated balance sheet. Loan and lease losses are charged off against the allowance for credit losses, with recoveries of amounts previously charged off credited to the allowance for credit losses. Provisions for credit losses are charged to operations based on management’s periodic evaluation of the adequacy of the allowance for credit losses.

Following is a summary of changes in the allowance for credit losses, by loan and lease class:

(in thousands)

Balance at
Beginning of
Period

Charge-
Offs

Recoveries

Net
Charge-
Offs

Provision
for Credit
Losses

Balance at
End of
Period

Three Months Ended June 30, 2016

Commercial real estate

43,898

(666

)

1,109

443

44,428

Commercial and industrial

47,863

(5,671

)

190

(5,481

)

9,093

51,475

Commercial leases

2,818

(603

)

(571

)

800

3,047

Total commercial loans and leases

94,579

(6,940

)

1,331

(5,609

)

9,980

98,950

Direct installment

20,725

(2,421

)

454

(1,967

)

2,785

21,543

Residential mortgages

7,810

(72

)

(34

)

634

8,410

Indirect installment

9,065

(1,763

)

666

(1,097

)

1,575

9,543

Consumer lines of credit

8,967

(528

)

(479

)

661

9,149

Other

1,074

(725

)

(699

)

749

1,124

Total allowance on originated loans and leases

142,220

(12,449

)

2,564

(9,885

)

16,384

148,719

Purchased credit-impaired loans

704

(239

)

—

(239

)

167

632

Other acquired loans

4,876

(226

)

279

5,018

Total allowance on acquired loans

5,580

(465

)

279

(186

)

256

5,650

Total

147,800

(12,914

)

2,843

(10,071

)

16,640

154,369

Six Months Ended June 30, 2016

Commercial real estate

41,741

(2,035

)

1,706

(329

)

3,016

44,428

Commercial and industrial

41,023

(5,969

)

380

(5,589

)

16,041

51,475

Commercial leases

2,541

(717

)

(671

)

1,177

3,047

Total commercial loans and leases

85,305

(8,721

)

2,132

(6,589

)

20,234

98,950

Direct installment

21,587

(5,088

)

908

(4,180

)

4,136

21,543

Residential mortgages

7,909

(157

)

(100

)

601

8,410

Indirect installment

9,889

(3,705

)

928

(2,777

)

2,431

9,543

Consumer lines of credit

9,582

(1,002

)

105

(897

)

464

9,149

Other

1,013

(1,279

)

(1,247

)

1,358

1,124

Total allowance on originated loans and leases

135,285

(19,952

)

4,162

(15,790

)

29,224

148,719

Purchased credit-impaired loans

834

(399

)

—

(399

)

197

632

Other acquired loans

5,893

(447

)

585

138

(1,013

)

5,018

Total allowance on acquired loans

6,727

(846

)

585

(261

)

(816

)

5,650

Total

142,012

(20,798

)

4,747

(16,051

)

28,408

154,369


(in thousands)	Balance at Beginning of Period		Charge- Offs			Recoveries		Net Charge- Offs			Provision for Credit Losses			Balance at End of Period
Three Months Ended June 30, 2015
Commercial real estate	$	38,792	$	(977	)	$	200	$	(777	)	$	1,857		$	39,872
Commercial and industrial		32,803		(1,416	)		976		(440	)		(58	)		32,305
Commercial leases		2,576		(111	)		35		(76	)		(277	)		2,223

Total commercial loans and leases		74,171		(2,504	)		1,211		(1,293	)		1,522			74,400
Direct installment		21,204		(2,953	)		297		(2,656	)		3,731			22,279
Residential mortgages		8,471		(112	)		24		(88	)		196			8,579
Indirect installment		7,657		(1,503	)		332		(1,171	)		2,423			8,909
Consumer lines of credit		8,890		(323	)		36		(287	)		515			9,118
Other		854		(325	)		25		(300	)		357			911

Total allowance on originated loans and leases		121,247		(7,720	)		1,925		(5,795	)		8,744			124,196

Purchased credit-impaired loans		621		—			—		—			37			658
Other acquired loans		6,631		(468	)		41		(427	)		83			6,287

Total allowance on acquired loans		7,252		(468	)		41		(427	)		120			6,945

Total	$	128,499	$	(8,188	)	$	1,966	$	(6,222	)	$	8,864		$	131,141

Six Months Ended June 30, 2015
Commercial real estate	$	37,588	$	(1,978	)	$	409	$	(1,569	)	$	3,853		$	39,872
Commercial and industrial		32,645		(2,100	)		1,096		(1,004	)		664			32,305
Commercial leases		2,398		(204	)		45		(159	)		(16	)		2,223

Total commercial loans and leases		72,631		(4,282	)		1,550		(2,732	)		4,501			74,400
Direct installment		20,538		(5,386	)		566		(4,820	)		6,561			22,279
Residential mortgages		8,024		(623	)		39		(584	)		1,139			8,579
Indirect installment		7,504		(2,783	)		634		(2,149	)		3,554			8,909
Consumer lines of credit		8,496		(733	)		76		(657	)		1,279			9,118
Other		759		(660	)		36		(624	)		776			911

Total allowance on originated loans and leases		117,952		(14,467	)		2,901		(11,566	)		17,810			124,196

Purchased credit-impaired loans		660		(64	)		19		(45	)		43			658
Other acquired loans		7,314		(545	)		371		(174	)		(853	)		6,287

Total allowance on acquired loans		7,974		(609	)		390		(219	)		(810	)		6,945

Total	$	125,926	$	(15,076	)	$	3,291	$	(11,785	)	$	17,000		$	131,141

Following is a summary of the individual and collective originated allowance for credit losses and corresponding loan and lease balances by class:


	Originated Allowance				Originated Loans and Leases Outstanding
(in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Loans and Leases		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
June 30, 2016
Commercial real estate	$	234	$	44,194	$	3,789,036	$	14,059	$	3,774,977
Commercial and industrial		6,616		44,859		2,643,116		23,546		2,619,570
Commercial leases		—		3,047		200,350		—		200,350

Total commercial loans and leases		6,850		92,100		6,632,502		37,605		6,594,897
Direct installment		—		21,543		1,733,606		—		1,733,606
Residential mortgages		—		8,410		1,217,574		—		1,217,574
Indirect installment		—		9,543		1,076,516		—		1,076,516
Consumer lines of credit		—		9,149		1,058,128		—		1,058,128
Other		—		1,124		51,826		—		51,826

Total	$	6,850	$	141,869	$	11,770,152	$	37,605	$	11,732,547

December 31, 2015
Commercial real estate	$	321	$	41,420	$	3,531,146	$	12,904	$	3,518,242
Commercial and industrial		2,329		38,694		2,534,351		10,802		2,523,549
Commercial leases		—		2,541		204,553		—		204,553

Total commercial loans and leases		2,650		82,655		6,270,050		23,706		6,246,344
Direct installment		—		21,587		1,660,717		—		1,660,717
Residential mortgages		—		7,909		1,044,689		—		1,044,689
Indirect installment		—		9,889		996,175		—		996,175
Consumer lines of credit		—		9,582		1,021,830		—		1,021,830
Other		—		1,013		38,518		—		38,518

Total	$	2,650	$	132,635	$	11,031,979	$	23,706	$	11,008,273

7. BORROWINGS

Following is a summary of short-term borrowings:


(in thousands)	June 30, 2016		December 31, 2015
Securities sold under repurchase agreements	$	279,730	$	266,732
Federal Home Loan Bank advances		1,075,000		1,090,000
Federal funds purchased		782,000		568,000
Subordinated notes		123,681		124,164

Total short-term borrowings	$	2,260,411	$	2,048,896

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 borrowings:


(in thousands)	June 30, 2016		December 31, 2015
Federal Home Loan Bank advances	$	425,135	$	400,017
Subordinated notes		84,569		84,668
Junior subordinated debt		48,581		58,298
Other subordinated debt		98,559		98,497

Total long-term borrowings	$	656,844	$	641,480

The Corporation’s banking affiliate has available credit with the FHLB of $5.5 billion of which $1.5 billion was used as of June 30, 2016. 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 2021. Effective interest rates paid on the long-term advances ranged from 0.76% to 4.19% for both the six months ended June 30, 2016 and the year ended December 31, 2015.

The junior subordinated debt is comprised of debt securities issued by the Corporation in relation to its two unconsolidated subsidiary trusts (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, or trust preferred 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 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 junior 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 junior subordinated debt. The TPS are eligible for redemption, at any time, at the Corporation’s discretion. Under capital guidelines, beginning in 2016, the entire balance of TPS is included in tier 2 capital. 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 quarter of 2016, the Corporation redeemed $10.0 million of the TPS issued by Omega Financial Capital Trust I.

The following table provides information relating to the Trusts as of June 30, 2016:

(dollars in thousands)

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

2.30

Variable; 3-month LIBOR + 165 basis points (bps)

Omega Financial Capital Trust I

26,000

1,114

26,416

10/18/34

2.82

Variable; 3-month LIBOR + 219 bps

Total

47,500

1,779

48,581

8. DERIVATIVE AND HEDGING ACTIVITIES

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. Derivative instruments are used to reduce the effects that changes in interest rates may have on net income and cash flows. The Corporation also uses derivative instruments to facilitate transactions on behalf of its customers.

All derivatives are carried on the consolidated balance sheet at fair value and do not take into account the effects of master netting arrangements the Corporation has with other financial institutions. Credit risk is included in the determination of the estimated fair value of derivatives. Derivative assets are classified in the consolidated balance sheet under other assets and derivative liabilities are classified in the consolidated balance sheet under other liabilities. Changes in fair value are recognized in earnings except for certain changes related to derivative instruments designated as part of a cash flow hedging relationship.

The following table presents notional amounts and gross fair values of all derivative assets and derivative liabilities held by the Corporation:


	June 30, 2016						December 31, 2015
	Notional		Fair Value				Notional		Fair Value
(in thousands)	Amount		Asset		Liability		Amount		Asset		Liability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated	$	450,000	$	10,022	$	1,669	$	250,000	$	3,178	$	962
Interest rate swaps – not designated		1,470,266		—		98,682		1,262,964		1		50,491
Equity contracts – not designated		1,180		59		—		1,180		18		—

Total subject to master netting arrangements		1,921,446		10,081		100,351		1,514,144		3,197		51,453
Not subject to master netting arrangements:
Interest rate swaps – not designated		1,470,266		98,021		—		1,262,964		49,998		1
Credit risk contracts – not designated		169,973		47		407		114,753		7		133
Equity contracts – not designated		1,180		—		59		1,180		—		18

Total not subject to master netting arrangements		1,641,419		98,068		466		1,378,897		50,005		152

Total	$	3,562,865	$	108,149	$	100,817	$	2,893,041	$	53,202	$	51,605

Derivatives Designated as Hedging Instruments under GAAP

Interest Rate Contracts. The Corporation entered into interest rate derivative agreements to modify the interest rate characteristics of certain commercial loans and three of its FHLB advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market 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.

Following is a summary of key data related to interest rate contracts:


(in thousands)	June 30, 2016		December 31, 2015
Notional amount	$	450,000	$	250,000
Fair value included in other assets		10,022		3,178
Fair value included in other liabilities		1,669		962

The following table shows amounts reclassified from accumulated other comprehensive income (AOCI) for the six months ended June 30, 2016:


(in thousands)	Total		Net of Tax
Reclassified from AOCI to interest income	$	1,368	$	889
Reclassified from AOCI to interest expense		286		186

As of June 30, 2016, the maximum length of time over which forecasted interest cash flows are hedged is seven years. In the twelve months that follow June 30, 2016, the Corporation expects to reclassify from the amount currently reported in AOCI net derivative gains of $1.6 million ($1.0 million net of tax), in association with interest on the hedged loans and FHLB advances. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to June 30, 2016. There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to these cash flow hedges. For the six months ended June 30, 2016 and 2015, there was no hedge ineffectiveness. Also, during the six months ended June 30, 2016 and 2015, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transactions would not occur.

Derivatives Not Designated as Hedging Instruments under GAAP

Interest Rate Swaps. 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 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. Swap derivative transactions with customers are not subject to enforceable master netting arrangements and are generally secured by rights to non-financial collateral, such as real and personal property.

The Corporation enters into positions with a derivative counterparty in order to offset its exposure on the fixed components of the customer interest rate swap agreements. The Corporation seeks to minimize counterparty credit risk by entering into transactions only with high-quality financial dealer institutions. These arrangements meet the definition of derivatives, but are not designated as hedging instruments under ASC 815, Derivatives and Hedging. Substantially all contracts with dealers that require central clearing (generally, transactions since June 10, 2014) are novated to a SEC registered clearing agency who becomes the Corporation’s counterparty.

Following is a summary of key data related to interest rate swaps:


(in thousands)	June 30, 2016		December 31, 2015
Notional amount	$	1,470,266	$	1,262,964
Fair value included in other assets		98,021		49,999
Fair value included in other liabilities		98,682		50,492

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.

Credit Risk Contracts. The Corporation purchases and sells credit protection under risk participation agreements to share with other counterparties some of the credit exposure related to interest rate derivative contracts or to take on credit exposure to generate revenue. The Corporation will make/receive payments under these agreements if a customer defaults on its obligation to perform under certain derivative swap contracts.

Risk participation agreements sold with notional amounts totaling $120.5 million as of June 30, 2016 have remaining terms ranging from nine months to fourteen years. Under these agreements, the Corporation’s maximum exposure assuming a customer defaults on their obligation to perform under certain derivative swap contracts with third parties would be $0.4 million at June 30, 2016 and $0.1 million at December 31, 2015.

The fair values of risk participation agreements purchased and sold were not material at June 30, 2016 and December 31, 2015.

Counterparty Credit Risk

The Corporation is party to master netting arrangements with most of its swap derivative counterparties. Collateral, usually marketable securities and/or cash, is exchanged between the Corporation and its counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, the Corporation posts cash to its clearing agency. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Corporation are made as appropriate to maintain proper collateralization for these transactions.

Certain master netting agreements contain provisions that, if violated, could cause the counterparties to request immediate settlement or demand full collateralization under the derivative instrument. 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 $1.6 million and $1.3 million as of June 30, 2016 and December 31, 2015, respectively, in excess of amounts previously posted as collateral with the respective counterparty.

The following table presents information about derivative assets and derivative liabilities that are subject to enforceable master netting arrangements as well as those not subject to enforceable master netting arrangements:


(in thousands)	Gross Amount		Gross Amounts Offset in the Balance Sheet		Net Amount Presented in the Balance Sheet
June 30, 2016
Derivative Assets
Subject to master netting arrangements:
Interest rate contracts
Designated	$	10,022		—	$	10,022
Not designated		—		—		—
Equity contracts – not designated		59		—		59

Not subject to master netting arrangements:
Interest rate contracts – not designated		98,021		—		98,021
Credit contracts – not designated		47		—		47

Total derivative assets	$	108,149		—	$	108,149

Derivative Liabilities
Subject to master netting arrangements:
Interest rate contracts
Designated	$	1,669		—	$	1,669
Not designated		98,682		—		98,682

Not subject to master netting arrangements:
Interest rate contracts – not designated		—		—		—
Credit contracts – not designated		407		—		407
Equity contracts – not designated		59		—		59

Total derivative liabilities	$	100,817		—	$	100,817

December 31, 2015
Derivative Assets
Subject to master netting arrangements:
Interest rate contracts
Designated	$	3,178		—	$	3,178
Not designated		1		—		1
Equity contracts – not designated		18		—		18

Not subject to master netting arrangements:
Interest rate contracts – not designated		49,998		—		49,998
Credit contracts – not designated		7				7

Total derivative assets	$	53,202		—	$	53,202


	Gross Amount		Gross Amounts Offset in the Balance Sheet		Net Amount Presented in the Balance Sheet
Derivative Liabilities
Subject to master netting arrangements:
Interest rate contracts
Designated	$	962		—	$	962
Not designated		50,491		—		50,491

Not subject to master netting arrangements:
Interest rate contracts – not designated		1		—		1
Credit contracts – not designated		133				133
Equity contracts – not designated		18		—		18

Total derivative liabilities	$	51,605		—	$	51,605

The following table presents 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:


			Amount Not Offset in the Balance Sheet
(in thousands)	Net Amount Presented in the Balance Sheet		Financial Instruments		Cash Collateral		Net Amount
June 30, 2016
Derivative Assets
Interest rate contracts:
Designated	$	10,022	$	6,770	$	3,252		—
Not designated		—		—		—		—
Equity contracts – not designated		59		59		—		—

Total	$	10,081	$	6,829	$	3,252		—

Derivative Liabilities
Interest rate contracts:
Designated	$	1,669	$	—	$	1,669	$	—
Not designated		98,682		34,305		62,887		1,490

Total	$	100,351	$	34,305	$	64,556	$	1,490

December 31, 2015
Derivative Assets
Interest rate contracts:
Designated	$	3,178	$	1,516	$	1,662		—
Not designated		1		1		—		—
Equity contracts – not designated		18		18		—		—

Total	$	3,197	$	1,535	$	1,662		—

Derivative Liabilities
Interest rate contracts:
Designated	$	962	$	792	$	170	$	—
Not designated		50,491		24,579		24,632		1,280

Total	$	51,453	$	25,371	$	24,802	$	1,280

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


				Six Months Ended
				June 30,

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller reporting company