Document
Table of Contents                                     

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
(Mark One)
☒
Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934


For the quarterly period ended June 30, 2017
☐
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)
 
 
 
Pennsylvania
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  ☒    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  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
☒
Accelerated Filer
☐
 
 
 
 
Non-accelerated Filer
☐
Smaller reporting company
☐
 
 
 
 
 
 
Emerging Growth Company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
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, 2017
Common Stock, $0.01 Par Value
323,227,563

Shares


Table of Contents                                     

F.N.B. CORPORATION
FORM 10-Q
June 30, 2017
INDEX
 
 
PAGE
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


2
Table of Contents                                     

PART I – FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except share and per share data
 
June 30,
2017
 
December 31,
2016
 
(Unaudited)
 
 
Assets
 
 
 
Cash and due from banks
$
397,482

 
$
303,526

Interest bearing deposits with banks
125,136

 
67,881

Cash and Cash Equivalents
522,618

 
371,407

Securities available for sale
2,593,455

 
2,231,987

Securities held to maturity (fair value of $3,059,223 and $2,294,777)
3,075,634

 
2,337,342

Loans held for sale (includes $121,941 and $0 measured at fair value) (1)
168,727

 
11,908

Loans and leases, net of unearned income of $60,250 and $52,723
20,533,298

 
14,896,943

Allowance for credit losses
(165,699
)
 
(158,059
)
Net Loans and Leases
20,367,599

 
14,738,884

Premises and equipment, net
335,297

 
243,956

Goodwill
2,244,972

 
1,032,129

Core deposit and other intangible assets, net
131,410

 
67,327

Bank owned life insurance
476,363

 
330,152

Other assets
837,651

 
479,725

Total Assets
$
30,753,726

 
$
21,844,817

Liabilities
 
 
 
Deposits:
 
 
 
Non-interest-bearing demand
$
5,544,753

 
$
4,205,337

Interest-bearing demand
9,221,408

 
6,931,381

Savings
2,562,259

 
2,352,434

Certificates and other time deposits
3,723,287

 
2,576,495

Total Deposits
21,051,707

 
16,065,647

Short-term borrowings
4,425,967

 
2,503,010

Long-term borrowings
656,883

 
539,494

Other liabilities
226,731

 
165,049

Total Liabilities
26,361,288

 
19,273,200

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 – 324,854,375 and 212,378,494 shares
3,250

 
2,125

Additional paid-in capital
4,024,576

 
2,234,366

Retained earnings
333,201

 
304,397

Accumulated other comprehensive loss
(56,383
)
 
(61,369
)
Treasury stock – 1,627,901 and 1,318,947 shares at cost
(19,088
)
 
(14,784
)
Total Stockholders’ Equity
4,392,438

 
2,571,617

Total Liabilities and Stockholders’ Equity
$
30,753,726

 
$
21,844,817

 
(1)
Amount represents loans for which we have elected the fair value option. See Note 17.
See accompanying Notes to Consolidated Financial Statements (unaudited)

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Table of Contents                                     

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Dollars in thousands, except per share data
Unaudited
 
Three Months Ended
June 30,
 
Six Months Ended
June 30, 2017
 
2017
 
2016
 
2017
 
2016
Interest Income
 
 
 
 
 
 
 
Loans and leases, including fees
$
221,091

 
$
150,720

 
$
389,720

 
$
287,841

Securities:
 
 
 
 
 
 
 
Taxable
25,029

 
17,976

 
47,495

 
34,469

Tax-exempt
4,677

 
2,129

 
8,078

 
4,147

Dividends
76

 
9

 
85

 
14

Other
161

 
97

 
349

 
214

Total Interest Income
251,034

 
170,931

 
445,727

 
326,685

Interest Expense
 
 
 
 
 
 
 
Deposits
16,753

 
10,424

 
28,493

 
19,910

Short-term borrowings
10,959

 
2,559

 
17,633

 
4,920

Long-term borrowings
4,907

 
3,579

 
8,434

 
7,132

Total Interest Expense
32,619

 
16,562

 
54,560

 
31,962

Net Interest Income
218,415

 
154,369

 
391,167

 
294,723

Provision for credit losses
16,756

 
16,640

 
27,606

 
28,408

Net Interest Income After Provision for Credit Losses
201,659

 
137,729

 
363,561

 
266,315

Non-Interest Income
 
 
 
 
 
 
 
Service charges
33,389

 
25,804

 
58,196

 
46,938

Trust services
5,715

 
5,405

 
11,462

 
10,687

Insurance commissions and fees
4,347

 
4,105

 
9,488

 
9,026

Securities commissions and fees
3,887

 
3,622

 
7,510

 
6,996

Capital markets income
5,004

 
4,147

 
8,851

 
6,996

Mortgage banking operations
5,173

 
2,753

 
8,963

 
4,348

Bank owned life insurance
3,092

 
2,592

 
5,245

 
4,687

Net securities gains
493

 
226

 
3,118

 
297

Other
4,978

 
2,757

 
8,361

 
7,480

Total Non-Interest Income
66,078

 
51,411

 
121,194

 
97,455

Non-Interest Expense
 
 
 
 
 
 
 
Salaries and employee benefits
84,899

 
61,329

 
158,477

 
117,754

Net occupancy
14,060

 
10,193

 
25,409

 
19,459

Equipment
12,420

 
10,014

 
22,050

 
18,570

Amortization of intangibles
4,813

 
3,388

 
7,911

 
6,037

Outside services
13,483

 
9,825

 
26,526

 
19,128

FDIC insurance
9,376

 
5,103

 
14,763

 
9,071

Supplies
2,474

 
2,754

 
4,670

 
5,408

Bank shares and franchise taxes
2,742

 
2,913

 
5,722

 
5,530

Merger-related
1,354

 
10,551

 
54,078

 
35,491

Other
18,093

 
13,559

 
31,663

 
29,829

Total Non-Interest Expense
163,714

 
129,629

 
351,269

 
266,277

Income Before Income Taxes
104,023

 
59,511

 
133,486

 
97,493

Income taxes
29,617

 
18,211

 
36,101

 
30,061

Net Income
74,406

 
41,300

 
97,385

 
67,432

Preferred stock dividends
2,010

 
2,010

 
4,020

 
4,020

Net Income Available to Common Stockholders
$
72,396

 
$
39,290

 
$
93,365

 
$
63,412

Earnings per Common Share
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.19

 
$
0.33

 
$
0.31

Diluted
$
0.22

 
$
0.19

 
$
0.33

 
$
0.31

Cash Dividends per Common Share
$
0.12

 
$
0.12

 
$
0.24

 
$
0.24

See accompanying Notes to Consolidated Financial Statements (unaudited)

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Table of Contents                                     

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in thousands, except per share data
Unaudited
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30, 2017
 
2017
 
2016
 
2017
 
2016
Net income
$
74,406

 
$
41,300

 
$
97,385

 
$
67,432

Other comprehensive income:
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
Unrealized gains arising during the period, net of tax expense of $403, $3,634, $3,779 and $11,353
720

 
6,750

 
6,739

 
21,085

Reclassification adjustment for (losses) gains included in net income, net of tax (benefit) expense of $(427), $79, $8 and $104
761

 
(147
)
 
(14
)
 
(193
)
Derivative instruments:
 
 
 
 
 
 
 
Unrealized (losses) gains arising during the period, net of tax (benefit) expense of $(766), $834, $(1,341) and $2,527
(1,365
)
 
1,548

 
(2,390
)
 
4,693

Reclassification adjustment for (losses) gains included in net income, net of tax (benefit) expense of $(40), $191, $89 and $379
70

 
(355
)
 
(159
)
 
(704
)
Pension and postretirement benefit obligations:
 
 
 
 
 
 
 
Unrealized gains arising during the period, net of tax expense of $224, $213, $452 and $427
400

 
396

 
810

 
793

Other comprehensive income
586

 
8,192

 
4,986

 
25,674

Comprehensive income
$
74,992

 
$
49,492

 
$
102,371

 
$
93,106

See accompanying Notes to Consolidated Financial Statements (unaudited)


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Table of Contents                                     

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Dollars in thousands, except per share data
Unaudited
 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Total
Balance at January 1, 2017
$
106,882

 
$
2,125

 
$
2,234,366

 
$
304,397

 
$
(61,369
)
 
$
(14,784
)
 
$
2,571,617

Comprehensive income
 
 
 
 
 
 
97,385

 
4,986

 
 
 
102,371

Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
 
 
(4,020
)
 
 
 
 
 
(4,020
)
Common stock: $0.24/share
 
 
 
 
 
 
(64,561
)
 
 
 
 
 
(64,561
)
Issuance of common stock
 
 
9

 
4,039

 
 
 
 
 
(4,304
)
 
(256
)
Issuance of common stock - acquisitions
 
 
1,116

 
1,780,819

 
 
 
 
 
 
 
1,781,935

Assumption of warrant due to acquisition
 
 
 
 
1,394

 
 
 
 
 
 
 
1,394

Restricted stock compensation
 
 
 
 
3,958

 
 
 
 
 
 
 
3,958

Balance at June 30, 2017
$
106,882

 
$
3,250

 
$
4,024,576

 
$
333,201

 
$
(56,383
)
 
$
(19,088
)
 
$
4,392,438

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

See accompanying Notes to Consolidated Financial Statements (unaudited)


6
Table of Contents                                     

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Unaudited
 
 
Six Months Ended
June 30,
 
2017
 
2016
Operating Activities
 
 
 
Net income
$
97,385

 
$
67,432

Adjustments to reconcile net income to net cash flows provided by operating activities:
 
 
 
Depreciation, amortization and accretion
36,392

 
25,892

Provision for credit losses
27,606

 
28,408

Deferred tax expense
21,226

 
11,539

Net securities gains
(3,118
)
 
(297
)
Tax benefit of stock-based compensation
(724
)
 
(143
)
Loans originated for sale
(519,973
)
 
(266,597
)
Loans sold
380,522

 
263,112

Gain on sale of loans
(4,716
)
 
(3,797
)
Net change in:
 
 
 
Interest receivable
(462
)
 
(215
)
Interest payable
58

 
(131
)
Bank owned life insurance
(5,063
)
 
(3,355
)
Other, net
(114,988
)
 
(21,916
)
Net cash flows (used in) provided by operating activities
(85,855
)
 
99,932

Investing Activities
 
 
 
Net change in loans and leases
(582,236
)
 
(438,448
)
Securities available for sale:
 
 
 
Purchases
(592,601
)
 
(622,544
)
Sales
755,866

 
615,199

Maturities
247,930

 
256,722

Securities held to maturity:
 
 
 
Purchases
(782,281
)
 
(588,138
)
Sales
1,574

 
—

Maturities
214,739

 
158,240

Purchase of bank owned life insurance
(5,805
)
 
(16,579
)
Increase in premises and equipment
(34,832
)
 
(27,311
)
Net cash received in business combinations
196,964

 
245,762

Net cash flows used in investing activities
(580,682
)
 
(417,097
)
Financing Activities
 
 
 
Net change in:
 
 
 
Demand (non-interest bearing and interest bearing) and savings accounts
(45,049
)
 
355,565

Time deposits
(143,154
)
 
(79,850
)
Short-term borrowings
1,126,769

 
9,114

Proceeds from issuance of long-term borrowings
77,223

 
28,168

Repayment of long-term borrowings
(133,162
)
 
(37,942
)
Net proceeds from issuance of common stock
3,702

 
6,603

Tax benefit of stock-based compensation
—

 
143

Cash dividends paid:
 
 
 
Preferred stock
(4,020
)
 
(4,020
)
Common stock
(64,561
)
 
(50,708
)
Net cash flows provided by financing activities
817,748

 
227,073

Net Increase (Decrease) in Cash and Cash Equivalents
151,211

 
(90,092
)
Cash and cash equivalents at beginning of period
371,407

 
489,119

Cash and Cash Equivalents at End of Period
$
522,618

 
$
399,027

See accompanying Notes to Consolidated Financial Statements (unaudited)

7
Table of Contents                                     

F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2017
NATURE OF OPERATIONS
F.N.B. Corporation (FNB), headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in eight states. We hold a significant retail deposit market share in attractive markets including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. As of June 30, 2017, we had 423 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina and South Carolina. We provide a full range of commercial banking, consumer banking and wealth management solutions through our subsidiary network which is led by our 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. We also operate Regency Finance Company (Regency), which had 76 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee as of June 30, 2017.
The terms “FNB,” “the Corporation,” “we,” “us” and “our” throughout this Report mean F.N.B. Corporation and its subsidiaries, when appropriate.
 
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our accompanying consolidated financial statements and these notes to the financial statements include subsidiaries in which we have a controlling financial interest. We own and operate FNBPA, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC (FNIA), Regency, Bank Capital Services, LLC and F.N.B. Capital Corporation, LLC, and include 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 our 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. Such reclassifications had no impact on our net income and stockholders’ equity. Events occurring subsequent to the date of the June 30, 2017 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 FNB expects for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in FNB’s Annual Report on Form 10-K filed with the SEC on February 23, 2017. The accounting policies presented below have been added or amended for newly material items or the adoption of new accounting standards.
Use of Estimates
Our accounting and reporting policies conform with GAAP. The preparation of financial statements in conformity with GAAP requires us 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, accounting for acquired loans, fair value of financial instruments, goodwill and other intangible assets and income taxes.


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Table of Contents                                     

Loans Held for Sale and Loan Commitments
Certain of our residential mortgage loans are originated for sale in the secondary mortgage loan market. Effective January 1, 2017, we made an automatic election to account for all future residential mortgage loans under the fair value option (FVO). The FVO election is intended to better reflect the underlying economics and better facilitate the economic hedging of the loans. The FVO is applied on an instrument by instrument basis and is an irrevocable election. Additionally, with the election of the FVO, fees and costs associated with the origination and acquisition of residential mortgage loans are expensed as incurred, rather than deferred. Changes in fair value under the FVO are recorded in mortgage banking operations non-interest income on the consolidated statements of income. Fair value is determined on the basis of rates obtained in the respective secondary market for the type of loan held for sale. Prior to the FVO election, loans were generally sold at a premium or discount from the carrying amount of the loan which represented the lower of cost or fair value. Gain or loss on the sale of loans is recorded in mortgage banking operations non-interest income. Interest income on loans held for sale is recorded in interest income.
We routinely issue interest rate lock commitments for residential mortgage loans that we intend to sell. These interest rate lock commitments are considered derivatives. We also enter into loan sale commitments to sell these loans when funded to mitigate the risk that the market value of residential mortgage loans may decline between the time the rate commitment is issued to the customer and the time we sell the loan. These loan sale commitments are also derivatives. Both types of derivatives are recorded at fair value on the consolidated balance sheets with changes in fair value recorded in mortgage banking operations non-interest income.
We also originate loans guaranteed by the Small Business Administration (SBA) for the purchase of businesses, business startups, business expansion, equipment, and working capital. All SBA loans are underwritten and documented as prescribed by the SBA. The portion of SBA loans originated that are guaranteed and intended for sale on the secondary market are classified as held for sale and are carried at the lower of cost or fair value. At the time of the sale, we allocate the carrying value of the entire loan between the guaranteed portion sold and the unguaranteed portion retained based on their relative fair value which results in a discount recorded on the retained portion of the loan. The guaranteed portion is typically sold at a premium and the gain is recognized in other income for any net premium received in excess of the relative fair value of the portion of the loan transferred. The net carrying value of the retained portion of the loans is included in the appropriate loan classification for disclosure purposes, primarily commercial real estate or commercial and industrial.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the asset’s estimated useful life. Leasehold improvements are expensed over the lesser of the asset’s estimated useful life or the term of the lease including renewal periods when reasonably assured. Useful lives are dependent upon the nature and condition of the asset and range from 3 to 40 years. Maintenance and repairs are charged to expense as incurred, while major improvements are capitalized and amortized to expense over the identified useful life.
Premises and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Assets to be disposed of are transferred to other assets and are reported at the lower of the carrying amount or fair value less costs to sell.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as core deposit intangibles, customer relationship intangibles and renewal lists, are amortized over their estimated useful lives and subject to periodic impairment testing. Core deposit intangibles are primarily amortized over ten years using accelerated methods. Customer renewal lists are amortized over their estimated useful lives which range from eight to thirteen years.
Goodwill and other intangibles are subject to impairment testing at the reporting unit level, which must be conducted at least annually. We perform impairment testing during the fourth quarter of each year, or more frequently if impairment indicators exist. We also continue to monitor other intangibles for impairment and to evaluate carrying amounts, as necessary.
We perform a quantitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Prior to 2017, if, after assessing updated quantitative factors, we determined it was not more likely than not that the fair value of a reporting unit is less than its carrying amount, we did not have to perform the two-step goodwill impairment test.

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Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test are judgmental and often involve the use of significant estimates and assumptions. Similarly, estimates and assumptions are used in determining the fair value of other intangible assets. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation of appropriate market comparables. Based on the results of quantitative assessments of all reporting units, we concluded that no impairment existed at December 31, 2016. However, future events could cause us to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.
Beginning in 2017, as permitted under the early adoption provisions of ASU 2017-4, we changed our impairment policy to record an impairment loss, if any, based on the excess of a reporting unit’s carrying amount over its fair value. This change in accounting principle will be applied prospectively. We believe this change in accounting policy is preferable as it reduces the cost and complexity of accounting for goodwill impairment.
Loan Servicing Rights
We have two primary classes of servicing rights, residential mortgage loan servicing and SBA-guaranteed loan servicing. We recognize the right to service residential mortgage loans and SBA-guaranteed loans for others as an asset whether we purchase the servicing rights or as a result from a sale of loans that we originate when the servicing is contractually separated from the underlying loan and retained by us.
We initially record servicing rights at fair value in core deposit and other intangible assets, net on the consolidated balance sheet. Subsequently, servicing rights are measured at the lower of cost or fair value. Servicing rights are amortized in proportion to, and over the period of, estimated net servicing income against servicing income during the period in mortgage banking operations income for residential mortgage loans and other income for SBA-guaranteed loans. The amount and timing of estimated future net cash flows are updated based on actual results and updated projections.
Mortgage servicing rights (MSRs) are separated into pools based on common risk characteristics of the underlying loans and evaluated for impairment at least quarterly. SBA-guaranteed servicing rights are evaluated for impairment at least quarterly on an aggregate basis. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. If impairment exists at the pool level for residential mortgage loans or on an aggregate basis for SBA-guaranteed loans, the servicing right is written down through a valuation allowance and is charged against mortgage banking operations income or other income, respectively.
Bank-Owned Life Insurance (BOLI)
We have purchased life insurance policies on certain current and former directors, officers and employees for which the Corporation is the owner and beneficiary. These policies are recorded in other assets in the consolidated balance sheet at their cash surrender value, or the amount that could be realized by surrendering the policies. Tax-exempt income from death benefits and changes in the net cash surrender value are recorded in bank owned life insurance income.
Low Income Housing Tax Credit Partnerships
We invest in various affordable housing projects that qualify for low income housing tax credits (LIHTCs). The investments are recorded in other assets on the consolidated balance sheets. These investments generate a return through the realization of federal tax credits. We use the proportional amortization method to account for a majority of our investments in these entities. LIHTCs that do not meet the requirements of the proportional amortization method are recognized using the equity method. Our net investment in LIHTCs was $15.9 million and $14.0 million at June 30, 2017 and December 31, 2016, respectively.
Per Share Amounts
Earnings per common share is computed using net income available to common stockholders, which is net income adjusted for preferred stock dividends.
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, net of unvested shares of restricted stock.
Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for

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stock options, warrants and restricted shares, as calculated using the treasury stock method. Adjustments to net income available to common stockholders and the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.
Beginning in 2017, the assumed proceeds from applying the treasury stock method when computing diluted earnings per share excludes the amount of excess tax benefits that would have been recognized in accumulated paid-in capital in accordance with newly adopted accounting guidance.
Stock Based Compensation
We account for our 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 stock-based awards, including stock options and restricted stock, made to employees and directors.
ASC 718 requires companies to estimate the fair value of stock-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 our 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 our plans contain performance targets that affect vesting and can be achieved after the requisite service period and are accounted for as performance conditions. 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 stock-based compensation expense is based on awards that are ultimately expected to vest, stock-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. Beginning in 2017, with the adoption of ASU 2016-9, we elected to change our accounting policy to account for forfeitures as they occur. The estimate for forfeitures prior to adoption of ASU 2016-9 was immaterial to our consolidated financial statements. We believe this change in accounting policy reduces the cost and complexity of accounting for stock-based compensation and is preferable to estimating forfeitures at the time of grant.
 
2.
NEW ACCOUNTING STANDARDS
The following paragraphs summarize accounting pronouncements issued by the Financial Accounting Standards Board (FASB) that we recently adopted or will be adopting in the future.
Stock Based Compensation
Accounting Standards Update (ASU or Update) 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, provides guidance about which changes to the terms and conditions of a share-based payment award requires the application of modification accounting. The Update is effective in the first quarter of 2018. Early adoption is permitted. The Update is to be applied prospectively and is not expected to have a material effect on our consolidated financial statements.
Securities
ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities which shortens the amortization period for the premium on certain purchased callable securities to the earliest call date. The accounting for purchased callable debt securities held at a discount does not change. The Update is effective in the first quarter of 2019. Early adoption is permitted. The Update is to be applied using a modified retrospective transition method and is not expected to have a material effect on our consolidated financial statements.
Retirement Benefits
ASU 2017-07, Compensation—Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The Update is effective the first quarter of 2018. Early adoption is permitted. The Update is to be applied using a retrospective transition method to adopt the requirement for separate presentation in the income statement of service costs and other components and a prospective transition method to adopt the requirement to limit the capitalization of

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benefit costs to the service cost component. We are currently assessing the potential impact to our consolidated financial statements.
Goodwill
ASU 2017-04, Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, eliminates the requirement of Step 2 in the current guidance to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value in Step 1 of the current guidance. The Update is effective the first quarter of 2020. Early adoption is permitted for annual or interim goodwill impairment tests with a measurement date after January 1, 2017. We adopted this Update in 2017 for the next goodwill impairment test. This Update is applied prospectively and is not expected to have a material effect on our consolidated financial statements.
Business Combinations
ASU 2017-01, Business Combinations (Topic 850): Clarifying the Definition of a Business, clarifies the definition of a business with the objective of providing guidance to assist in the evaluation of whether transactions should be accounted for as acquisitions (disposals) of assets or businesses. The Update is effective for the first quarter of 2018. Early adoption is permitted for transactions that occurred before the issuance date or effective date of the Update if the transactions were not reported in financial statements that have been issued or made available for issuance. We adopted this Update in 2017. This Update was applied prospectively and is not expected to have a material effect on our consolidated financial statements.
Statement of Cash Flows
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), adds or clarifies guidance on eight cash flow issues. The Update is effective the first quarter of 2018. Early adoption is permitted. We are currently assessing the potential impact to our consolidated financial statements.
Credit Losses
ASU 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 adoption is permitted for fiscal years beginning after December 15, 2018. We continue to assess the potential impact to our consolidated financial statements. We are reviewing our business processes, information systems and controls to support recognition and disclosures under this Update. This review includes an assessment of our existing credit models and the financial statement disclosure requirements. The impact of this Update will be dependent on the portfolio composition, credit quality and economic conditions at the time of adoption.
Revenue Recognition
ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, clarifies the scope for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers.
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 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

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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.
We expect to adopt ASU 2014-09 in the first quarter of 2018 under the modified retrospective method where the cumulative effect is recognized at the date of initial application. Our evaluation of ASU 2014-09 is ongoing and not complete. The FASB has issued, and may issue in the future, interpretative guidance which may cause our evaluation to change. Based on our evaluation under the current guidance, we estimate that substantially all of our interest income and non-interest income will not be impacted by the adoption of ASU 2014-09 because either the revenue from those contracts with customers is covered by other guidance in U.S. GAAP or the revenue recognition outcomes anticipated with the adoption of ASU 2014-09 will likely be similar to our current revenue recognition practices. We may continue to identify contracts with customers that are out-of-scope or with similar revenue recognition practices through the date of adoption. In addition, we are reviewing our business processes, systems and controls to support recognition and disclosures under the new standard. While we anticipate some changes to revenue recognition within trust, investment management fees and insurance commissions and fees, we have not yet completed our assessment of the potential impact to our consolidated financial statements upon adoption.
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 was adopted in the first quarter of 2017 by an application method determined by the type of transaction impacted by the adoption. This Update did not have a material effect on our 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 was adopted in the first quarter of 2017 by prospective application. This Update did not have a material effect on our 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 was adopted in the first quarter of 2017 by modified retrospective application. This Update did not have a material effect on our 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 was adopted in the first quarter of 2017 by prospective application. This Update did not have a material effect on our 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 adoption is permitted. This Update is not expected to have a material effect on our consolidated financial statements.



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Leases
ASU 2016-02, Leases (Topic 842), requires lessees to put most leases on their balance sheets 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 adoption is permitted. We are currently assessing the potential impact to our 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 adoption 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. We are currently assessing the potential impact to our consolidated financial statements.
 
3.
MERGERS AND ACQUISITIONS
Yadkin Financial Corporation
On March 11, 2017, we completed our acquisition of Yadkin Financial Corporation (YDKN), a bank holding company based in Raleigh, North Carolina. YDKN’s banking affiliate, Yadkin Bank, was also merged into FNBPA on March 11, 2017. YDKN’s results of operations have been included in our consolidated statements of income since that date. The acquisition enabled us to enter the attractive North Carolina markets, including Raleigh, Charlotte and the Piedmont Triad, which is comprised of Winston-Salem, Greensboro and High Point. We also completed the core systems conversion activities during the first quarter.
On the acquisition date, the preliminary estimated fair values of YDKN included $6.8 billion in assets, $5.1 billion in loans and $5.2 billion in deposits. The acquisition was valued at $1.8 billion based on the acquisition date FNB common stock closing price of $15.97 and resulted in FNB issuing 111,619,975 shares of our common stock in exchange for 51,677,565 shares of YDKN common stock. Under the terms of the merger agreement, shareholders of YDKN received 2.16 shares of FNB common stock for each share of YDKN common stock and cash in lieu of fractional shares. YDKN’s fully vested and outstanding stock options and restricted stock awards were converted into options to purchase and receive FNB common stock. In conjunction with the acquisition, we assumed a warrant that was issued by YDKN to the U.S. Department of the Treasury (UST) under the Capital Purchase Program (CPP). Based on the exchange ratio, this warrant, which expires in 2019, was converted into a warrant to purchase up to 207,320 shares of FNB common stock with an exercise price of $9.63.
The acquisition of YDKN constituted a business combination and has been accounted for using the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments, which can be updated for up to a year following the acquisition. As of June 30, 2017, we continue to review information relating to events or circumstances existing at the acquisition date. Management anticipates that this review could result in adjustments to the preliminary acquisition date valuation amounts presented due to the complexity and time required by management and third-parties involved in the valuation of loans, core deposit intangibles, premises and equipment, and other real estate owned (OREO). Acquired loans and core deposit intangibles were recorded at provisional amounts based on our preliminary third party valuations. Acquired premises and equipment and OREO were recorded at provisional amounts, and are currently being valued in conjunction with third parties. The valuation of the acquired loans was not final prior to March 31, 2017. An estimate was recorded during the 2017 first quarter based on the results of a valuation exercise conducted and applied to the March 11, 2017 balance of loans acquired from YDKN.
During the second quarter of 2017, we continued to analyze the valuations assigned to the acquired assets and assumed liabilities. Our third-party valuation firm provided revised valuations for loans based on the March 11, 2017 balances, which affected the valuation estimates. Due to the complexity in valuing the loans and the significant amount of data inputs required, the valuation of the loans is not yet final. As a result of revising the loan valuation, the purchase accounting accretion and

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unfunded commitment amortization amounts are also subject to change. In addition, we have now received third-party valuations on acquired premises resulting in the revised fair values below. Based on the revised valuations and new information, we updated our estimated fair values of these items within our Consolidated Balance Sheet with a corresponding adjustment to goodwill. There was no significant impact on the consolidated income statement for the three months ended June 30, 2017. The measurement period adjustments are reflected in the following table:
(in thousands)
 
 
 
 
 
 
 
 
Acquired Asset or Liability
 
Balance Sheet Line Item
 
Provisional Estimate
 
Revised Estimate
 
Increase (Decrease)
Loans and leases
 
Loans and leases, net
 
$
5,116,497

 
$
5,114,355

 
$
(2,142
)
Premises and equipment
 
Premises and equipment, net
 
95,208

 
72,202

 
(23,006
)
Deferred taxes
 
Other assets
 
94,307

 
120,411

 
26,104

Other liabilities
 
Other liabilities
 
70,761

 
66,806

 
(3,955
)
Based on the preliminary purchase price allocation, we recorded $1.2 billion in goodwill and $55.7 million in core deposit intangibles as a result of the acquisition. The core deposit intangible asset is being amortized over the estimated useful life of approximately ten years utilizing an accelerated method. Goodwill is not amortized, but is periodically evaluated for impairment. None of the goodwill is deductible for income tax purposes.
The following pro forma financial information for the periods presented reflects our estimated consolidated pro forma results of operations as if the YDKN acquisition occurred on January 1, 2016, unadjusted for potential cost savings and other business synergies we expect to receive as a result of the acquisition:
 
(dollars in thousands, except per share data)
FNB
 
YDKN
 
Pro Forma
Adjustments
 
Pro Forma
Combined
Six Months Ended June 30, 2017
 
 
 
 
 
 
 
Revenue (net interest income and non-interest income)
$
491,462

 
$
74,574

 
$
(2,381
)
 
$
563,655

Net income
125,659

 
22,435

 
(2,498
)
 
145,596

Net income available to common stockholders
121,605

 
22,435

 
(2,498
)
 
141,542

Earnings per common share – basic
0.58

 
0.70

 
—

 
0.50

Earnings per common share – diluted
0.57

 
0.70

 
—

 
0.50

Six Months Ended June 30, 2016
 
 
 
 
 
 
 
Revenue (net interest income and non-interest income)
392,178

 
138,445

 
(2,645
)
 
527,978

Net income
67,432

 
25,203

 
(3,931
)
 
88,704

Net income available to common stockholders
63,412

 
25,203

 
(3,931
)
 
84,684

Earnings per common share – basic
0.31

 
0.56

 
—

 
0.28

Earnings per common share – diluted
0.31

 
0.56

 
—

 
0.28

The pro forma adjustments reflect amortization and associated taxes related to the preliminary purchase accounting adjustments made to record various acquired items at fair value.
In connection with the YDKN acquisition, we incurred expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into FNB. These merger-related expenses, that were expensed as incurred, amounted to $53.7 million for the six months ended June 30, 2017. Contract terminations and severance costs comprised 31.3% and 25.7%, respectively, 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. We also incurred issuance costs of $0.6 million which were charged to additional paid-in capital.
Branch Purchase – Fifth Third Bank
On April 22, 2016, we completed our purchase of 17 branch-banking locations and certain consumer loans in the Pittsburgh, Pennsylvania metropolitan area from Fifth Third Bank (Fifth Third). The fair value of the acquired assets totaled $312.4 million, including $198.9 million in cash, $95.4 million in loans and $14.1 million in fixed and other assets. We also assumed $302.5 million in deposits, for which we paid a deposit premium of 1.97%, as part of the transaction. The assets and liabilities

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relating to these purchased branches were recorded on our balance sheet at their fair values as of April 22, 2016, and the related results of operations for these branches have been included in our consolidated income statement since that date. We recorded $14.1 million in goodwill and $4.1 million in core deposit intangibles as a result of the purchase transaction. The goodwill for this transaction is deductible for income tax purposes.
Metro Bancorp, Inc.
On February 13, 2016, we completed our acquisition of Metro Bancorp, Inc. (METR), a bank holding company based in Harrisburg, Pennsylvania. The acquisition enhanced our distribution and scale across Central Pennsylvania, strengthened our position as the largest Pennsylvania-based regional bank and allowed us to leverage the significant infrastructure investments made in connection with the expansion of our product offerings and risk management systems. On the acquisition date, the 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 $404.2 million and resulted in FNB issuing 34,041,181 shares of its common stock in exchange for 14,345,319 shares of METR common stock. We also acquired the fully vested outstanding stock options of METR. The assets and liabilities of METR were recorded on our consolidated balance sheet at their fair values as of the acquisition date and METR’s results of operations have been included in our consolidated income statement since that date. METR’s banking affiliate, Metro Bank, was merged into FNBPA on February 13, 2016. Based on the purchase price allocation, we recorded $185.1 million in goodwill and $24.2 million in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes.
In connection with the METR acquisition, we incurred expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into FNB. These merger-related charges, that were expensed as incurred, amounted to $0.4 million for the six months ended June 30, 2017 and $31.0 million for the year ended December 31, 2016. Severance costs comprised 39.9% 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. We also incurred issuance costs of $0.7 million which were charged to additional paid-in capital.
The following table summarizes the amounts recorded on the consolidated balance sheets as of each of the acquisition dates in conjunction with the acquisitions discussed above:
 
(in thousands)
YDKN
 
Fifth
Third
Branches
 
METR
Fair value of consideration paid
$
1,783,294

 
$
—

 
$
404,242

Fair value of identifiable assets acquired:
 
 
 
 
 
Cash and cash equivalents
196,964

 
198,872

 
46,890

Securities
940,272

 
—

 
722,980

Loans
5,114,355

 
95,354

 
1,862,447

Core deposit and other intangible assets
69,555

 
4,129

 
24,163

Fixed and other assets
465,437

 
14,069

 
127,185

Total identifiable assets acquired
6,786,583

 
312,424

 
2,783,665

Fair value of liabilities assumed:
 
 
 
 
 
Deposits
5,176,915

 
302,529

 
2,328,238

Borrowings
969,385

 
—

 
227,539

Other liabilities
69,696

 
24,041

 
8,700

Total liabilities assumed
6,215,996

 
326,570

 
2,564,477

Fair value of net identifiable assets acquired
570,587

 
(14,146
)
 
219,188

Goodwill recognized (1)
$
1,212,707

 
$
14,146

 
$
185,054

 
(1)
All of the goodwill for these transactions has been recorded in the Community Banking Segment.


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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 (AFS):
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
U.S. Treasury
$
29,942

 
$
7

 
$
—

 
$
29,949

U.S. government-sponsored entities
382,668

 
518

 
(2,853
)
 
380,333

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
1,672,304

 
3,116

 
(9,913
)
 
1,665,507

Agency collateralized mortgage obligations
483,556

 
284

 
(9,373
)
 
474,467

Non-agency collateralized mortgage obligations
2

 
—

 
—

 
2

Commercial mortgage-backed securities
315

 
—

 
—

 
315

States of the U.S. and political subdivisions
31,048

 
49

 
(27
)
 
31,070

Other debt securities
9,878

 
39

 
(229
)
 
9,688

Total debt securities
2,609,713

 
4,013

 
(22,395
)
 
2,591,331

Equity securities
1,696

 
495

 
(67
)
 
2,124

Total securities available for sale
$
2,611,409

 
$
4,508

 
$
(22,462
)
 
$
2,593,455

December 31, 2016
 
 
 
 
 
 
 
U.S. Treasury
$
29,874

 
$
79

 
$
—

 
$
29,953

U.S. government-sponsored entities
367,604

 
864

 
(3,370
)
 
365,098

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
1,267,535

 
2,257

 
(16,994
)
 
1,252,798

Agency collateralized mortgage obligations
546,659

 
419

 
(11,104
)
 
535,974

Non-agency collateralized mortgage obligations
891

 
6

 
—

 
897

Commercial mortgage-backed securities
1,292

 
—

 
(1
)
 
1,291

States of the U.S. and political subdivisions
36,065

 
86

 
(302
)
 
35,849

Other debt securities
9,828

 
94

 
(435
)
 
9,487

Total debt securities
2,259,748

 
3,805

 
(32,206
)
 
2,231,347

Equity securities
273

 
367

 
—

 
640

Total securities available for sale
$
2,260,021

 
$
4,172

 
$
(32,206
)
 
$
2,231,987


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(in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Securities Held to Maturity (HTM):
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
U.S. Treasury
$
500

 
$
144

 
$
—

 
$
644

U.S. government-sponsored entities
247,537

 
327

 
(3,704
)
 
244,160

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
1,238,720

 
8,047

 
(5,561
)
 
1,241,206

Agency collateralized mortgage obligations
757,780

 
1,122

 
(14,066
)
 
744,836

Commercial mortgage-backed securities
81,455

 
903

 
(279
)
 
82,079

States of the U.S. and political subdivisions
749,642

 
8,560

 
(11,904
)
 
746,298

Total securities held to maturity
$
3,075,634

 
$
19,103

 
$
(35,514
)
 
$
3,059,223

December 31, 2016
 
 
 
 
 
 
 
U.S. Treasury
$
500

 
$
137

 
$
—

 
$
637

U.S. government-sponsored entities
272,645

 
348

 
(4,475
)
 
268,518

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
852,215

 
5,654

 
(8,645
)
 
849,224

Agency collateralized mortgage obligations
743,148

 
447

 
(17,801
)
 
725,794

Non-agency collateralized mortgage obligations
1,689

 
3

 
(6
)
 
1,686

Commercial mortgage-backed securities
49,797

 
181

 
(226
)
 
49,752

States of the U.S. and political subdivisions
417,348

 
1,456

 
(19,638
)
 
399,166

Total securities held to maturity
$
2,337,342

 
$
8,226

 
$
(50,791
)
 
$
2,294,777


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

 
Three Months Ended
June 30,
 
Six Months Ended
June 30, 2017
(in thousands)
2017
 
2016
 
2017
 
2016
Gross gains
$
611

 
$
227

 
$
4,011

 
$
298

Gross losses
(118
)
 
(1
)
 
(893
)
 
(1
)
Net gains
$
493

 
$
226

 
$
3,118

 
$
297

As of June 30, 2017, the amortized cost and fair value of securities, by contractual maturities, were as follows:

 
Available for Sale
 
Held to Maturity
(in thousands)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
105,257

 
$
105,295

 
$
612

 
$
618

Due from one to five years
325,946

 
323,633

 
253,083

 
249,675

Due from five to ten years
19,367

 
19,317

 
68,554

 
69,711

Due after ten years
2,966

 
2,795

 
675,430

 
671,098

 
453,536

 
451,040

 
997,679

 
991,102

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
1,672,304

 
1,665,507

 
1,238,720

 
1,241,206

Agency collateralized mortgage obligations
483,556

 
474,467

 
757,780

 
744,836

Non-agency collateralized mortgage obligations
2

 
2

 
—

 
—

Commercial mortgage-backed securities
315

 
315

 
81,455

 
82,079

Equity securities
1,696

 
2,124

 
—

 
—

Total securities
$
2,611,409

 
$
2,593,455

 
$
3,075,634

 
$
3,059,223


18
Table of Contents                                     

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:

(dollars in thousands)
June 30,
2017
 
December 31,
2016
Securities pledged (carrying value):
 
 
 
To secure public deposits, trust deposits and for other purposes as required by law
$
3,058,009

 
$
2,779,335

As collateral for short-term borrowings
299,651

 
322,038

Securities pledged as a percent of total securities
59.2
%
 
67.9
%

Following are summaries of the fair values and unrealized losses of temporarily 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, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored entities
13

 
$
237,159

 
$
(2,853
)
 
—

 
$
—

 
$
—

 
13

 
$
237,159

 
$
(2,853
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed securities
57

 
1,185,412

 
(9,913
)
 
—

 
—

 
—

 
57

 
1,185,412

 
(9,913
)
Agency collateralized mortgage obligations
35

 
302,658

 
(5,864
)
 
10

 
90,687

 
(3,509
)
 
45

 
393,345

 
(9,373
)
Non-agency collateralized mortgage obligations
1

 
2

 
—

 
—

 
—

 
—

 
1

 
2

 
—

Commercial mortgage-backed securities
1

 
315

 
—

 
—

 
—

 
—

 
1

 
315

 
—

States of the U.S. and political subdivisions
9

 
14,906

 
(19
)
 
3

 
3,839

 
(8
)
 
12

 
18,745

 
(27
)
Other debt securities
—

 
—

 
—

 
3

 
4,680

 
(229
)
 
3

 
4,680

 
(229
)
Equity securities
3

 
1,219

 
(67
)
 
—

 
—

 
—

 
3

 
1,219

 
(67
)
Total temporarily impaired securities AFS
119

 
$
1,741,671

 
$
(18,716
)
 
16

 
$
99,206

 
$
(3,746
)
 
135

 
$
1,840,877

 
$
(22,462
)
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored entities
11

 
$
211,636

 
$
(3,370
)
 
—

 
$
—

 
$
—

 
11

 
$
211,636

 
$
(3,370
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed securities
55

 
1,056,731

 
(16,994
)
 
—

 
—

 
—

 
55

 
1,056,731

 
(16,994
)
Agency collateralized mortgage obligations
26

 
346,662

 
(7,261
)
 
9

 
89,040

 
(3,843
)
 
35

 
435,702

 
(11,104
)
Commercial mortgage-backed securities
1

 
1,291

 
(1
)
 
—

 
—

 
—

 
1

 
1,291

 
(1
)
States of the U.S. and political subdivisions
20

 
28,631

 
(302
)
 
—

 
—

 
—

 
20

 
28,631

 
(302
)
Other debt securities
—

 
—

 
—

 
3

 
4,470

 
(435
)
 
3

 
4,470

 
(435
)
Total temporarily impaired securities AFS
113

 
$
1,644,951

 
$
(27,928
)
 
12

 
$
93,510

 
$
(4,278
)
 
125

 
$
1,738,461

 
$
(32,206
)

19
Table of Contents                                     

 
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 Held to Maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored entities
11

 
$
201,295

 
$
(3,704
)
 
—

 
$
—

 
$
—

 
11

 
$
201,295

 
$
(3,704
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed securities
37

 
668,448

 
(5,561
)
 
—

 
—

 
—

 
37

 
668,448

 
(5,561
)
Agency collateralized mortgage obligations
29

 
470,354

 
(11,451
)
 
11

 
91,676

 
(2,615
)
 
40

 
562,030

 
(14,066
)
Commercial mortgage-backed securities
3

 
14,839

 
(52
)
 
1

 
7,640

 
(227
)
 
4

 
22,479

 
(279
)
States of the U.S. and political subdivisions
58

 
176,763

 
(11,904
)
 
—

 
—

 
—

 
58

 
176,763

 
(11,904
)
Total temporarily impaired securities HTM
138

 
$
1,531,699

 
$
(32,672
)
 
12

 
$
99,316

 
$
(2,842
)
 
150

 
$
1,631,015

 
$
(35,514
)
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored entities
10

 
$
185,525

 
$
(4,475
)
 
—

 
$
—

 
$
—

 
10

 
$
185,525

 
$
(4,475
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed securities
36

 
551,404

 
(8,645
)
 
—

 
—

 
—

 
36

 
551,404

 
(8,645
)
Agency collateralized mortgage obligations
29

 
516,237

 
(13,710
)
 
12

 
112,690

 
(4,091
)
 
41

 
628,927

 
(17,801
)
Non-agency collateralized mortgage obligations
3

 
1,128

 
(6
)
 
—

 
—

 
—

 
3

 
1,128

 
(6
)
Commercial mortgage-backed securities
1

 
12,317

 
(10
)
 
1

 
8,267

 
(216
)
 
2

 
20,584

 
(226
)
States of the U.S. and political subdivisions
94

 
247,301

 
(19,638
)
 
—

 
—

 
—

 
94

 
247,301