e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31,
2009
Commission file number
001-31940
F.N.B. CORPORATION
(Exact name of registrant as specified in its charter)
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Florida
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25-1255406
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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One F.N.B. Boulevard, Hermitage, PA
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16148
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
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724-981-6000
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Exchange on which
Registered
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Common Stock, par value $0.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes x No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No x
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 o
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 o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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 the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer x
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No x
The aggregate market value of the registrants outstanding
voting common stock held by non-affiliates on June 30,
2009, determined using a per share closing price on that date of
$6.19, as quoted on the New York Stock Exchange, was
$674,864,366.
As of January 31, 2010, the registrant had outstanding
114,311,658 shares of common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of F.N.B. Corporations definitive proxy statement
to be filed pursuant to Regulation 14A for the Annual
Meeting of Stockholders to be held on May 19, 2010 are
incorporated by reference into Part III, items 10, 11,
12, 13 and 14, of this Annual Report on
Form 10-K.
F.N.B. Corporation will file its definitive proxy statement with
the Securities and Exchange Commission on or before
April 30, 2010.
PART I
Forward-Looking Statements: From time to time F.N.B.
Corporation (the Corporation) has made and may continue to make
written or oral forward-looking statements with respect to the
Corporations outlook or expectations for earnings,
revenues, expenses, capital levels, asset quality or other
future financial or business performance, strategies or
expectations, or the impact of legal, regulatory or supervisory
matters on the Corporations business operations or
performance. This Annual Report on
Form 10-K
(the Report) also includes forward-looking statements. See
Cautionary Statement Regarding Forward-Looking Information in
Item 7 of this Report.
The Corporation was formed in 1974 as a bank holding company.
During 2000, the Corporation elected to become and remains a
financial holding company under the Gramm-Leach-Bliley Act of
1999 (GLB Act). The Corporation has four reportable business
segments: Community Banking, Wealth Management, Insurance and
Consumer Finance. As of December 31, 2009, the Corporation
had 224 Community Banking offices in Pennsylvania and Ohio and
57 Consumer Finance offices in those states and Tennessee. The
Corporation, through its Community Banking affiliate, also had 4
commercial loan production offices in Pennsylvania and Florida
as of that date.
The Corporation, through its subsidiaries, provides a full range
of financial services, principally to consumers and small- to
medium-sized businesses in its market areas. The
Corporations business strategy focuses primarily on
providing quality, community-based financial services adapted to
the needs of each of the markets it serves. The Corporation
seeks to maintain its community orientation by providing local
management with certain autonomy in decision-making, enabling
them to respond to customer requests more quickly and to
concentrate on transactions within their market areas. However,
while the Corporation seeks to preserve some decision-making at
a local level, it has centralized legal, loan review and
underwriting, accounting, investment, audit, loan operations and
data processing functions. The centralization of these processes
enables the Corporation to maintain consistent quality of these
functions and to achieve certain economies of scale.
As of December 31, 2009, the Corporation had total assets
of $8.7 billion, loans of $5.8 billion and deposits of
$6.4 billion. See Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and Item 8, Financial Statements
and Supplementary Data, of this Report.
On January 9, 2009, the Corporation received a
$100.0 million investment as part of its voluntary
participation in the United States Treasury Departments
(UST) Capital Purchase Program (CPP) implemented pursuant to the
Emergency Economic Stabilization Act (EESA) enacted on
October 3, 2008.
On June 16, 2009, the Corporation completed a public
offering of 24,150,000 shares of common stock at a price of
$5.50 per share, including 3,150,000 shares of common stock
purchased by the underwriters pursuant to an over-allotment
option, which the underwriters exercised in full. The net
proceeds of the offering after deducting underwriting discounts
and commissions and offering expenses were $125.8 million.
On September 9, 2009, the Corporation utilized a portion of
the proceeds of its public offering to redeem all of the
preferred stock issued to the UST under the CPP implemented
pursuant to the EESA. The Corporation paid $100.3 million
to the UST to redeem the preferred stock issued by the
Corporation in connection with its participation in the CPP.
This amount includes the original investment amount of
$100.0 million plus accrued unpaid dividends of
approximately $0.3 million. In addition, as a condition of
its participation in the CPP, the Corporation issued to the UST
a warrant to purchase up to 1,302,083 shares of the
Corporations common stock. However, under the terms of the
CPP, the Corporations June 16, 2009 public offering
automatically reduced the number of the Corporations
shares of common stock subject to the warrant by one-half to
651,042 shares. The warrant remains outstanding and has an
exercise price of $11.52 per share.
3
Business
Segments
In addition to the following information relating to the
Corporations business segments, information is contained
in the Business Segments footnote in the Notes to Consolidated
Financial Statements, which is included in Item 8 of this
Report. As of December 31, 2009, the Community Banking
segment consisted of a regional community bank. The Wealth
Management segment, as of that date, consisted of a trust
company, a registered investment advisor and a subsidiary that
offered broker-dealer services through a third party networking
arrangement with a non-affiliated licensed broker-dealer entity.
The Insurance segment consisted of an insurance agency and a
reinsurer as of that date. The Consumer Finance segment
consisted of a multi-state consumer finance company as of that
date.
Community
Banking
The Corporations Community Banking segment consists of
First National Bank of Pennsylvania (FNBPA), which offers
services traditionally offered by full-service commercial banks,
including commercial and individual demand, savings and time
deposit accounts and commercial, mortgage and individual
installment loans.
The goal of Community Banking is to generate high quality,
profitable revenue growth through increased business with its
current customers, attract new customer relationships through
FNBPAs current branches and loan production offices and
expand into new and existing markets through de novo branch
openings, acquisitions and the establishment of additional loan
production offices. Consistent with this strategy, on
August 16, 2008 and April 1, 2008, the Corporation
completed its acquisitions of Iron and Glass Bancorp, Inc.
(IRGB) and Omega Financial Corporation (Omega), respectively.
For information pertaining to these acquisitions, see the
Mergers and Acquisitions footnote in the Notes to Consolidated
Financial Statements, which is included in Item 8 of this
Report. In addition, the Corporation considers Community Banking
a fundamental source of revenue opportunity through the
cross-selling of products and services offered by the
Corporations other business segments.
As of December 31, 2009, the Corporation operates its
Community Banking business through a network of 224 branches in
Pennsylvania and Ohio.
Community Banking also includes three commercial loan production
offices in Florida and one commercial loan production office in
Pennsylvania. The underwriting for all loan production offices
is centrally performed. The Florida offices have their business
operations focused on managing the loan portfolio originated in
prior years.
The lending philosophy of Community Banking is to establish high
quality customer relationships while minimizing credit losses by
following strict credit approval standards (which include
independent analysis of realizable collateral value),
diversifying its loan portfolio by industry and borrower and
conducting ongoing review and management of the loan portfolio.
Commercial loans are generally made to established businesses
within the geographic market areas served by Community Banking.
No material portion of the loans or deposits of Community
Banking has been obtained from a single or small group of
customers, and the loss of any one customers loans or
deposits or a small group of customers loans or deposits
by Community Banking would not have a material adverse effect on
the Community Banking segment or on the Corporation. The
substantial majority of the loans and deposits have been
generated within the geographic market areas in which Community
Banking operates.
Wealth
Management
The Corporations Wealth Management segment delivers
comprehensive wealth management services to individuals,
corporations and retirement funds as well as existing customers
of Community Banking. Wealth Management provides services to
individuals and businesses located within the Corporations
geographic markets.
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The Corporations Wealth Management operations are
conducted through three subsidiaries of the Corporation. The
Corporations trust subsidiary, First National
Trust Company (FNTC), provides a broad range of personal
and corporate fiduciary services, including the administration
of decedent and trust estates. As of December 31, 2009, the
fair value of trust assets under management was approximately
$2.2 billion. FNTC is required to maintain certain minimum
capitalization levels in accordance with regulatory
requirements. FNTC periodically measures its capital position to
ensure all minimum capitalization levels are maintained.
The Corporations Wealth Management segment also includes
two other subsidiaries. First National Investment Services
Company, LLC offers a broad array of investment products and
services for customers of Wealth Management through a networking
relationship with a third-party licensed brokerage firm. F.N.B.
Investment Advisors, Inc. (Investment Advisors), an investment
advisor registered with the Securities and Exchange Commission
(SEC), offers customers of Wealth Management objective
investment programs featuring mutual funds, annuities, stocks
and bonds.
No material portion of the business of Wealth Management has
been obtained from a single or small group of customers, and the
loss of any one customers business or the business of a
small group of customers by Wealth Management would not have a
material adverse effect on the Wealth Management segment or on
the Corporation.
Insurance
The Corporations Insurance segment operates principally
through First National Insurance Agency, LLC (FNIA), which is a
subsidiary of the Corporation. FNIA is a full-service insurance
brokerage agency offering numerous lines of commercial and
personal insurance through major carriers to businesses and
individuals primarily within the Corporations geographic
markets. The goal of FNIA is to grow revenue through
cross-selling to existing clients of Community Banking and to
gain new clients through its own channels.
The Corporations Insurance segment also includes a
reinsurance subsidiary, Penn-Ohio Life Insurance Company
(Penn-Ohio). Penn-Ohio underwrites, as a reinsurer, credit life
and accident and health insurance sold by the Corporations
lending subsidiaries. Additionally, FNBPA owns a direct
subsidiary, First National Corporation, which offers title
insurance products.
No material portion of the business of Insurance has been
obtained from a single or small group of customers, and the loss
of any one customers business or the business of a small
group of customers by Insurance would not have a material
adverse effect on the Insurance segment or on the Corporation.
Consumer
Finance
The Corporations Consumer Finance segment operates through
its subsidiary, Regency Finance Company (Regency), which is
involved principally in making personal installment loans to
individuals and purchasing installment sales finance contracts
from retail merchants. Such activity is primarily funded through
the sale of the Corporations subordinated notes at
Regencys branch offices. The Consumer Finance segment
operates in Pennsylvania, Ohio and Tennessee.
No material portion of the business of Consumer Finance has been
obtained from a single or small group of customers, and the loss
of any one customers business or the business of a small
group of customers by Consumer Finance would not have a material
adverse effect on the Consumer Finance segment or on the
Corporation.
Other
The Corporation also has seven other subsidiaries. F.N.B.
Statutory Trust I, F.N.B. Statutory Trust II, Omega
Financial Capital Trust I and Sun Bancorp Statutory
Trust I issue trust preferred securities (TPS) to
third-party investors. Regency Consumer Financial Services, Inc.
and FNB Consumer Financial Services, Inc. are the general
partner and limited partner, respectively, of FNB Financial
Services, LP, a company established to issue,
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administer and repay the subordinated notes through which loans
in the Consumer Finance segment are funded. F.N.B. Capital
Corporation, LLC (FNB Capital), a merchant banking subsidiary,
offers financing options for small- to medium-sized businesses
that need financial assistance beyond the parameters of typical
commercial bank lending products. Certain financial information
concerning these subsidiaries, along with the parent company and
intercompany eliminations, are included in the Parent and
Other category in the Business Segments footnote in the
Notes to Consolidated Financial Statements, which is included in
Item 8 of this Report.
Market
Area and Competition
The Corporation primarily operates in Pennsylvania and
northeastern Ohio. This area is served by several major
interstate highways and is located at the approximate midpoint
between New York City and Chicago. The primary market area
served by the Corporation also extends to the Great Lakes
shipping port of Erie, the Pennsylvania state capital of
Harrisburg and the Pittsburgh International Airport. The
Corporation also has three commercial loan production offices in
Florida and one commercial loan production office in
Pennsylvania. In addition to Pennsylvania and Ohio, the
Corporations Consumer Finance segment also operates in
northern and central Tennessee and central and southern Ohio.
The Corporations subsidiaries compete for deposits, loans
and financial services business with a large number of other
financial institutions, such as commercial banks, savings banks,
savings and loan associations, credit life insurance companies,
mortgage banking companies, consumer finance companies, credit
unions and commercial finance and leasing companies, many of
which have greater resources than the Corporation. In providing
wealth and asset management services, as well as insurance
brokerage and merchant banking products and services, the
Corporations subsidiaries compete with many other
financial services firms, brokerage firms, mutual fund
complexes, investment management firms, merchant and investment
banking firms, trust and fiduciary service providers and
insurance agencies.
In Regencys market areas of Pennsylvania, Ohio and
Tennessee, the active competitors include banks, credit unions
and national, regional and local consumer finance companies,
some of which have substantially greater resources than that of
Regency. The ready availability of consumer credit through
charge accounts and credit cards constitutes additional
competition. In this market area, competition is based on the
rates of interest charged for loans, the rates of interest paid
to obtain funds and the availability of customer services.
The ability to access and use technology is an increasingly
important competitive factor in the financial services industry.
Technology is not only important with respect to delivery of
financial services and protecting the security of customer
information, but also in processing information. The Corporation
and each of its subsidiaries must continually make technological
investments to remain competitive in the financial services
industry.
Mergers
and Acquisitions
See the Mergers and Acquisitions footnote in the Notes to
Consolidated Financial Statements, which is included in
Item 8 of this Report.
Employees
As of January 31, 2010, the Corporation and its
subsidiaries had 2,028 full-time and 497 part-time
employees. Management of the Corporation considers its
relationship with its employees to be satisfactory.
Government
Supervision and Regulation
The following summary sets forth certain of the material
elements of the regulatory framework applicable to bank holding
companies and financial holding companies and their subsidiaries
and to companies engaged in securities and insurance activities
and provides certain specific information about the Corporation.
The bank regulatory framework is intended primarily for the
protection of depositors through the federal deposit insurance
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guarantee, and not for the protection of security holders.
Numerous laws and regulations govern the operations of financial
services institutions and their holding companies. To the extent
that the following information describes statutory and
regulatory provisions, it is qualified in its entirety by
express reference to each of the particular statutory and
regulatory provisions. A change in applicable statutes,
regulations or regulatory policy may have a material effect on
the business of the Corporation.
Many aspects of the Corporations business are subject to
rigorous regulation by the U.S. federal and state
regulatory agencies and securities exchanges and by
non-government agencies or regulatory bodies and securities
exchanges. Certain of the Corporations public disclosure,
internal control environment and corporate governance principles
are subject to the Sarbanes-Oxley Act of 2002 and related
regulations and rules of the SEC and the New York Stock
Exchange, Inc. (NYSE). New laws or regulations or changes to
existing laws and regulations (including changes in
interpretation or enforcement) could materially adversely affect
the Corporations financial condition or results of
operations. As a financial institution, to the extent that
different regulatory systems impose overlapping or inconsistent
requirements on the conduct of the Corporations business,
it faces increased complexity and additional costs in its
compliance efforts.
General
The Corporation is a legal entity separate and distinct from its
subsidiaries. As a financial holding company and a bank holding
company, the Corporation is regulated under the Bank Holding
Company Act of 1956, as amended (BHC Act), and is subject to
inspection, examination and supervision by the Board of
Governors of the Federal Reserve System (FRB). The Corporation
is also subject to regulation by the SEC as a result of the
Corporations status as a public company and due to the
nature of the business activities of certain of the
Corporations subsidiaries. The Corporations common
stock is listed on the NYSE under the trading symbol
FNB and the Corporation is subject to the listed
company rules of the NYSE.
The Corporations subsidiary bank (FNBPA) and trust company
(FNTC) are organized as national banking associations, which are
subject to regulation, supervision and examination by the Office
of the Comptroller of the Currency (OCC). FNBPA is also subject
to certain regulatory requirements of the Federal Deposit
Insurance Corporation (FDIC), the FRB and other federal and
state regulatory agencies, including requirements to maintain
reserves against deposits, restrictions on the types and amounts
of loans that may be granted and the interest that may be
charged thereon, limitations on the types of investments that
may be made, activities that may be engaged in and types of
services that may be offered. In addition to banking laws,
regulations and regulatory agencies, the Corporation and its
subsidiaries are subject to various other laws and regulations
and supervision and examination by other regulatory agencies,
all of which directly or indirectly affect the operations and
management of the Corporation and its ability to make
distributions to its stockholders.
As a result of the GLB Act, which repealed or modified a number
of significant statutory provisions, including those of the
Glass-Steagall Act and the BHC Act which imposed restrictions on
banking organizations ability to engage in certain types
of business activities, bank holding companies such as the
Corporation now have broad authority to engage in activities
that are financial in nature or incidental to such financial
activity, including insurance underwriting and brokerage;
merchant banking; securities underwriting, dealing and
market-making; real estate development; and such additional
activities as the FRB in consultation with the Secretary of the
UST determines to be financial in nature or incidental thereto.
A bank holding company may engage in these activities directly
or through subsidiaries by qualifying as a financial
holding company. A financial holding company may engage
directly or indirectly in activities considered financial in
nature, either de novo or by acquisition, provided the financial
holding company gives the FRB
after-the-fact
notice of the new activities. The GLB Act also permits national
banks, such as FNBPA, to engage in activities considered
financial in nature through a financial subsidiary, subject to
certain conditions and limitations and with the approval of the
OCC.
As a regulated financial holding company, the Corporations
relationships and good standing with its regulators are of
fundamental importance to the continuation and growth of the
Corporations businesses. The FRB, OCC, FDIC and SEC have
broad enforcement powers and authority to approve, deny or
refuse to act upon
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applications or notices of the Corporation or its subsidiaries
to conduct new activities, acquire or divest businesses or
assets or reconfigure existing operations. In addition, the
Corporation, FNBPA and FNTC are subject to examination by
various regulators, which results in examination reports (which
are not publicly available) and ratings that can impact the
conduct and growth of the Corporations businesses. These
examinations consider not only compliance with applicable laws
and regulations, including bank secrecy and anti-money
laundering requirements, but also loan quality and
administration, capital levels, asset quality and risk
management ability and performance, earnings, liquidity and
various other factors, including, but not limited to, community
reinvestment. An examination downgrade by any of the
Corporations federal bank regulators could potentially
result in the imposition of significant limitations on the
activities and growth of the Corporation and its subsidiaries.
The FRB is the umbrella regulator of a financial
holding company. In addition, a financial holding companys
operating entities, such as its subsidiary broker-dealers,
investment managers, merchant banking operations, investment
companies, insurance companies and banks, are subject to the
jurisdiction of various federal and state functional
regulators.
There are numerous laws, regulations and rules governing the
activities of financial institutions and bank holding companies.
The following discussion is general in nature and seeks to
highlight some of the more significant of these regulatory
requirements, but does not purport to be complete or to describe
all of the laws and regulations that apply to the Corporation
and its subsidiaries.
Interstate
Banking
Under the BHC Act, bank holding companies, including those that
are also financial holding companies, are required to obtain the
prior approval of the FRB before acquiring more than five
percent of any class of voting stock of any non-affiliated bank.
Pursuant to the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Banking Act), a bank holding
company may acquire banks located in states other than its home
state without regard to the permissibility of such acquisitions
under state law, but subject to any state requirement that the
bank has been organized and operating for a minimum period of
time, not to exceed five years, and the requirement that the
bank holding company, after the proposed acquisition, controls
no more than 10 percent of the total amount of deposits of
insured depository institutions in the United States and no more
than 30 percent or such lesser or greater amount set by
state law of such deposits in that state.
Subject to certain restrictions, the Interstate Banking Act also
authorizes banks to merge across state lines to create
interstate banks. The Interstate Banking Act also permits a bank
to open new branches in a state in which it does not already
have banking operations if such state enacts a law permitting de
novo branching. The Corporations retail subsidiary
national bank, FNBPA, owns and operates eleven interstate branch
offices within Ohio.
Capital
and Operational Requirements
The FRB, OCC and FDIC issued substantially similar risk-based
and leverage capital guidelines applicable to United States
banking organizations. In addition, these regulatory agencies
may from time to time require that a banking organization
maintain capital above the minimum levels, due to its financial
condition or actual or anticipated growth.
The FRBs risk-based guidelines are based on a three-tier
capital framework. Tier 1 capital includes common
stockholders equity and qualifying preferred stock, less
goodwill and other adjustments. Tier 2 capital consists of
preferred stock not qualifying as tier 1 capital, mandatory
convertible debt, limited amounts of subordinated debt, other
qualifying term debt and the allowance for loan losses of up to
1.25 percent of risk-weighted assets. Tier 3 capital
includes subordinated debt that is unsecured, fully paid, has an
original maturity of at least two years, is not redeemable
before maturity without prior approval by the FRB and includes a
lock-in clause precluding payment of either interest or
principal if the payment would cause the issuing banks
risk-based capital ratio to fall or remain below the required
minimum.
8
The Corporation, like other bank holding companies, currently is
required to maintain tier 1 capital and total capital (the
sum of tier 1, tier 2 and tier 3 capital) equal
to at least 4.0% and 8.0%, respectively, of its total
risk-weighted assets (including various off-balance sheet
items). Risk-based capital ratios are calculated by dividing
tier 1 and total capital by risk-weighted assets. Assets
and off-balance sheet exposures are assigned to one of four
categories of risk-weights, based primarily on relative credit
risk. The risk-based capital standards are designed to make
regulatory capital requirements more sensitive to differences in
credit and market risk profiles among banks and financial
holding companies, to account for off-balance sheet exposure,
and to minimize disincentives for holding liquid assets. Assets
and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted
assets and off-balance sheet items. At December 31, 2009,
the Corporations tier 1 and total capital ratios
under these guidelines were 11.42% and 12.88%, respectively. At
December 31, 2009, the Corporation had $199.0 million
of capital securities that qualified as tier 1 capital and
$12.6 million of subordinated debt that qualified as
tier 2 capital.
In addition, the FRB has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide
for a minimum ratio tier 1 capital to average total assets,
less goodwill and certain other intangible assets (the leverage
ratio), of 3.0% for bank holding companies that meet certain
specified criteria, including the highest regulatory rating. All
other bank holding companies generally are required to maintain
a leverage ratio of at least 4.0%. The guidelines also provide
that bank holding companies experiencing internal growth or
making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels
without significant reliance on intangible assets. Further, the
FRB has indicated that it will consider a tangible
tier 1 capital leverage ratio (deducting all
intangibles) and all other indicators of capital strength in
evaluating proposals for expansion or new activities. The
Corporations leverage ratio at December 31, 2009 was
8.68%.
Prompt
Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA), among other things, classifies insured depository
institutions into five capital categories (well-capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) and requires
the respective federal regulatory agencies to implement systems
for prompt corrective action for insured depository
institutions that do not meet minimum capital requirements
within such categories. FDICIA imposes progressively more
restrictive constraints on operations, management and capital
distributions, depending on the category in which an institution
is classified. Failure to meet the capital guidelines could also
subject a banking institution to capital-raising requirements,
restrictions on its business and a variety of enforcement
remedies, including the termination of deposit insurance by the
FDIC, and in certain circumstances the appointment of a
conservator or receiver. An undercapitalized bank
must develop a capital restoration plan and its parent holding
company must guarantee that banks compliance with the
plan. The liability of the parent holding company under any such
guarantee is limited to the lesser of five percent of the
banks assets at the time it became
undercapitalized or the amount needed to comply with
the plan. Furthermore, in the event of the bankruptcy of the
parent holding company, the obligation under such guarantee
would take priority over the parents general unsecured
creditors. In addition, FDICIA requires the various regulatory
agencies to prescribe certain non-capital standards for safety
and soundness relating generally to operations and management,
asset quality and executive compensation and permits regulatory
action against a financial institution that does not meet such
standards.
The various regulatory agencies have adopted substantially
similar regulations that define the five capital categories
identified by FDICIA, using the total risk-based capital,
tier 1 risk-based capital and leverage capital ratios as
the relevant capital measures. Such regulations establish
various degrees of corrective action to be taken when an
institution is considered undercapitalized. Under the
regulations, a well-capitalized institution must
have a tier 1 risk-based capital ratio of at least 6.0%, a
total risk-based capital ratio of at least 10.0% and a leverage
ratio of at least 5.0% and not be subject to a capital directive
order. Under these guidelines, FNBPA was considered
well-capitalized as of December 31, 2009.
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When determining the adequacy of an institutions capital,
federal regulators must also take into consideration
(a) concentrations of credit risk; (b) interest rate
risk (when the interest rate sensitivity of an
institutions assets does not match the sensitivity of its
liabilities or its off-balance sheet position) and
(c) risks from non-traditional activities, as well as an
institutions ability to manage those risks. This
evaluation is made as a part of the institutions regular
safety and soundness examination. In addition, the Corporation,
and any bank with significant trading activity, must incorporate
a measure for market risk in their regulatory capital
calculations.
FDIC
Insurance Assessments
In November 2006, the FDIC issued final regulations, as required
by the Federal Deposit Insurance Reform Act of 2005, by which
the FDIC established a new base rate schedule for the assessment
of deposit insurance premiums and set new assessment rates.
Under these regulations, each depository institution is assigned
to a risk category based upon capital and supervisory measures.
Depending upon the risk category to which it is assigned, the
depository institution is then assessed insurance premiums based
upon its deposits. Some depository institutions are entitled to
apply against these premiums a credit that is designed to give
effect to premium payments, if any, that the depository
institution may have made in prior years.
A large portion of the Corporations insurance premium paid
in 2009 was in the form of a special assessment charged to all
FDIC-insured banks in the second quarter of 2009. In addition,
the FDIC required all insured institutions to prepay three years
of assessments on December 30, 2009, which required the
Corporation to prepay $39.6 million in estimated FDIC
premiums, with FDIC estimated assessments as follows:
$2.5 million for 2009, $10.4 million for 2010,
$13.0 million for 2011 and $13.7 million for 2012.
Under the Federal Deposit Insurance Act, the FDIC may terminate
the insurance of an institutions deposits upon finding
that the institution has engaged in unsafe and unsound
practices, is in an unsafe and unsound condition to continue
operations or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC. The Corporation does not
know of any practice, condition or violation that might lead to
termination of its deposit insurance.
FDIC
Powers Upon Insolvency of Insured Depository
Institutions
If the FDIC is appointed the conservator or receiver of an
insured depository institution upon its insolvency or in certain
other events, the FDIC has the power to:
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transfer any of the depository institutions assets and
liabilities to a new obligor without the approval of the
depository institutions creditors;
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enforce the terms of the depository institutions contracts
pursuant to their terms; and
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repudiate or disaffirm any contract or lease to which the
depository institution is a party, the performance of which is
determined by the FDIC to be burdensome and the disaffirmation
or repudiation of which is determined by the FDIC to promote the
orderly administration of the depository institution. Also,
under applicable law, the claims of a receiver of an insured
depository institution for administrative expense and claims of
holders of U.S. deposit liabilities (including the FDIC, as
subrogee of the depositors) have priority over the claims of
other unsecured creditors of the institution in the event of the
liquidation or other resolution of the institution. As a result,
whether or not the FDIC would ever seek to repudiate any
obligations held by public note holders, such persons would be
treated differently from, and could receive, if anything,
substantially less than the depositors of FNBPA.
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Emergency
Economic Stabilization Act of 2008 and Other Legislative
Developments
Recent market and industry developments resulting from the
unprecedented turmoil, volatility and illiquidity in
U.S. and worldwide financial markets, accompanied by
uncertain prospects for sustaining a fragile economic recovery,
prompted the U.S. federal government, including the UST,
FRB, FDIC, and SEC, to embark on
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a number of initiatives designed to stabilize and restore
confidence in the financial services industry. These efforts,
which may continue to evolve, include the EESA, the American
Recovery and Reinvestment Act of 2009 (ARRA), and other
legislative, administrative and regulatory initiatives,
including the USTs CPP, the FDICs Temporary
Liquidity, Guaranty Program (TLGP) and the FRBs commercial
paper funding facility.
On January 9, 2009, the Corporation issued to the UST
100,000 shares of Fixed Rate Cumulative Perpetual Preferred
Stock, Series C (Series C Preferred Stock) with a
liquidation preference of $1,000 per share together with a
related warrant to purchase shares of common stock of the
Corporation, in accordance with the terms of the CPP.
Subsequently, on September 9, 2009, the Corporation
redeemed all of the preferred stock issued to the UST under the
CPP and repaid all accrued but unpaid dividends through the date
of the repurchase.
With respect to deposit insurance, the EESA authorizes the FDIC
to increase the maximum deposit insurance amount up to $250,000
until December 31, 2013, and removes the statutory limits
on the FDICs ability to borrow from the UST during this
period. In addition, the FDIC established a TLGP under which the
FDIC provides a guaranty for newly-issued senior unsecured debt
and non-interest bearing transaction deposit accounts at
eligible insured institutions. For non-interest bearing
transaction deposit accounts, a ten basis point annual rate
charge will be applied to deposit amounts in excess of $250,000.
The Corporation participates in the TLGP.
Due to the current economic environment and issues confronting
the financial services industry, as well as certain initiatives
being considered by the current administration, the Corporation
anticipates new legislative and regulatory initiatives over the
next several years, including many focused specifically on
banking and other financial services in which the Corporation is
engaged. These initiatives will be in addition to the actions
already undertaken by Congress and the regulators, including the
EESA and the ARRA. Developments today, as well as those that
come in the future, have had and are likely to continue to have
an impact on the conduct of the Corporations business.
Community
Reinvestment Act
The Community Reinvestment Act of 1977 (CRA) requires depository
institutions to assist in meeting the credit needs of their
market areas consistent with safe and sound banking practices.
Under the CRA, each depository institution is required to help
meet the credit needs of its market areas by, among other
things, providing credit to low- and moderate-income individuals
and communities. Depository institutions are periodically
examined for compliance with the CRA and are assigned ratings.
In order for a financial holding company to commence any new
activity permitted by the BHC Act, or to acquire any company
engaged in any new activity permitted by the BHC Act, each
insured depository institution subsidiary of the financial
holding company must have received a rating of at least
satisfactory in its most recent examination under
the CRA. Furthermore, banking regulators take into account CRA
ratings when considering approval of a proposed transaction.
Financial
Privacy
In accordance with the GLB Act, federal banking regulators
adopted rules that limit the ability of banks and other
financial institutions to disclose non-public information about
consumers to nonaffiliated third parties. These limitations
require disclosure of privacy policies to consumers and, in some
circumstances, allow consumers to prevent disclosure of certain
personal information to a nonaffiliated third party. The privacy
provisions of the GLB Act affect how consumer information is
transmitted through diversified financial companies and conveyed
to outside vendors.
Anti-Money
Laundering Initiatives and the USA Patriot Act
A major focus of governmental policy on financial institutions
in recent years has been aimed at combating money laundering and
terrorist financing. The USA Patriot Act of 2001 (USA Patriot
Act) substantially broadened the scope of U.S. anti-money
laundering laws and regulations by imposing significant new
compliance and due diligence obligations, creating new crimes
and penalties and expanding the extra-territorial jurisdiction
of the U.S. The UST has issued a number of regulations that
apply various requirements of the USA Patriot Act to
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financial institutions such as FNBPA. These regulations require
financial institutions to maintain appropriate policies,
procedures and controls to detect, prevent and report money
laundering and terrorist financing and to verify the identity of
their customers. Failure of a financial institution to maintain
and implement adequate programs to combat money laundering and
terrorist financing, or to comply with all of the relevant laws
or regulations, could have serious legal and reputational
consequences for the institution.
Office of
Foreign Assets Control Regulation
The U.S. has instituted economic sanctions which affect
transactions with designated foreign countries, nationals and
others. These are typically known as the OFAC rules
because they are administered by the UST Office of Foreign
Assets Control (OFAC). The OFAC-administered sanctions target
countries in various ways. Generally, however, they contain one
or more of the following elements: (i) restrictions on
trade with or investment in a sanctioned country, including
prohibitions against direct or indirect imports from and exports
to a sanctioned country, and prohibitions on
U.S. persons engaging in financial transactions
which relate to investments in, or providing investment-related
advice or assistance to, a sanctioned country; and (ii) a
blocking of assets in which the government or specially
designated nationals of the sanctioned country have an interest,
by prohibiting transfers of property subject to
U.S. jurisdiction (including property in the possession or
control of U.S. persons). Blocked assets (e.g., property
and bank deposits) cannot be paid out, withdrawn, set off or
transferred in any manner without a license from OFAC. Failure
to comply with these sanctions could have serious legal and
reputational consequences for the institution.
Consumer
Protection Statutes and Regulations
FNBPA is subject to many federal consumer protection statutes
and regulations including the Truth in Lending Act, Truth in
Savings Act, Equal Credit Opportunity Act, Fair Housing Act,
Real Estate Settlement Procedures Act and Home Mortgage
Disclosure Act. Among other things, these acts:
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require banks to disclose credit terms in meaningful and
consistent ways;
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prohibit discrimination against an applicant in any consumer or
business credit transaction;
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prohibit discrimination in housing-related lending activities;
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require banks to collect and report applicant and borrower data
regarding loans for home purchases or improvement projects;
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require lenders to provide borrowers with information regarding
the nature and cost of real estate settlements;
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prohibit certain lending practices and limit escrow account
amounts with respect to real estate transactions; and
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prescribe possible penalties for violations of the requirements
of consumer protection statutes and regulations.
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On November 17, 2009, the FRB published a final rule
amending Regulation E, which implements the Electronic Fund
Transfer Act. The final rule limits the ability of a financial
institution to assess an overdraft fee for paying automated
teller machine transactions and one-time debit card transactions
that overdraw a customers account, unless the customer
affirmatively consents, or opts in, to the institutions
payment of overdrafts for these transactions.
There have been numerous attempts at the federal level to expand
consumer protection measures. A major focus of recent
legislation has been aimed at the creation of a consumer
financial protection agency that would be dedicated to
administering and enforcing fair lending and consumer compliance
laws with respect to financial products. If enacted, such
legislation may have a substantial impact on FNBPAs
operations. However, because any final legislation may differ
significantly from current proposals, the specific effects of
the legislation cannot be evaluated at this time.
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Dividend
Restrictions
The Corporations primary source of funds for cash
distributions to its stockholders, and funds used to pay
principal and interest on its indebtedness, is dividends
received from FNBPA. FNBPA is subject to federal laws and
regulations governing its ability to pay dividends to the
Corporation. FNBPA is subject to various regulatory policies and
requirements relating to the payment of dividends, including
requirements to maintain capital above regulatory minimums.
Additionally, FNBPA requires prior approval of the OCC for the
payment of a dividend if the total of all dividends declared in
a calendar year would exceed the total of its net income for the
year combined with its retained net income for the two preceding
years. The appropriate federal regulatory agency may determine
under certain circumstances that the payment of dividends would
be an unsafe or unsound practice and prohibit payment thereof.
In addition to dividends from FNBPA, other sources of parent
company liquidity for the Corporation include cash and
short-term investments, as well as dividends and loan repayments
from other subsidiaries.
In addition, the ability of the Corporation and FNBPA to pay
dividends may be affected by the various minimum capital
requirements and the capital and non-capital standards
established under FDICIA, as described above. The right of the
Corporation, its stockholders and its creditors to participate
in any distribution of the assets or earnings of the
Corporations subsidiaries is further subject to the prior
claims of creditors of the respective subsidiaries.
Source of
Strength
According to FRB policy, a financial or bank holding company is
expected to act as a source of financial strength to each of its
subsidiary banks and to commit resources to support each such
subsidiary. Consistent with the source of strength
policy, the FRB has stated that, as a matter of prudent banking,
a bank holding company generally should not maintain a rate of
cash dividends unless its net income available to common
stockholders has been sufficient to fully fund the dividends and
the prospective rate of earnings retention appears to be
consistent with the Corporations capital needs, asset
quality and overall financial condition. This support may be
required at times when a bank holding company may not be able to
provide such support. Similarly, under the cross-guarantee
provisions of the Federal Deposit Insurance Act, in the event of
a loss suffered or anticipated by the FDIC either as a result of
default of a banking subsidiary or related to FDIC assistance
provided to a subsidiary in danger of default, the other banks
that are members of the FDIC may be assessed for the FDICs
loss, subject to certain exceptions.
In addition, if FNBPA was no longer well-capitalized
and well-managed within the meaning of the BHC Act
and FRB rules (which take into consideration capital ratios,
examination ratings and other factors), the expedited processing
of certain types of FRB applications would not be available to
the Corporation. Moreover, examination ratings of 3
or lower, unsatisfactory ratings, capital ratios
below well-capitalized levels, regulatory concerns regarding
management, controls, assets, operations or other factors can
all potentially result in the loss of financial holding company
status, practical limitations on the ability of a bank or bank
holding company to engage in new activities, grow, acquire new
businesses, repurchase its stock or pay dividends or continue to
conduct existing activities.
Financial
Holding Companies Status and Activities
Under the BHC Act, an eligible bank holding company may elect to
be a financial holding company and thereafter may
engage in a range of activities that are financial in nature and
that were not previously permissible for banks and bank holding
companies. The financial holding company may engage directly or
through a subsidiary in certain statutorily authorized
activities. A financial holding company may also engage in any
activity that has been determined by rule or order to be
financial in nature, incidental to such financial activity, or
(with prior FRB approval) complementary to a financial activity
and that does not pose substantial risk to the safety and
soundness of an institution or to the financial system
generally. In addition to these activities, a financial holding
company may engage in those activities permissible for a bank
holding company that has not elected to be treated as a
financial holding company.
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For a bank holding company to be eligible for financial holding
company status, all of its subsidiary U.S. depository
institutions must be well-capitalized and
well-managed. The FRB generally must deny expanded
authority to any bank holding company with a subsidiary insured
depository institution that received less than a satisfactory
rating on its most recent CRA review as of the time it submits
its request for financial holding company status. If, after
becoming a financial holding company and undertaking activities
not permissible for a bank holding company under the BHC Act,
the company fails to continue to meet any of the requirements
for financial holding company status, the company must enter
into an agreement with the FRB to comply with all applicable
capital and management requirements. If the company does not
return to compliance within 180 days, the FRB may order the
company to divest its subsidiary banks or the company may
discontinue or divest investments in companies engaged in
activities permissible only for a bank holding company that has
elected to be treated as a financial holding company.
Activities
and Acquisitions
The BHC Act requires a bank holding company to obtain the prior
approval of the FRB before it:
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may acquire direct or indirect ownership or control of any
voting shares of any bank or savings and loan association, if
after such acquisition the bank holding company will directly or
indirectly own or control more than five percent of any class of
voting securities of the institution;
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or any of its subsidiaries, other than a bank, may acquire all
or substantially all of the assets of any bank or savings
and loan association; or
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may merge or consolidate with any other bank holding company.
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The Interstate Banking Act generally permits bank holding
companies to acquire banks in any state, and preempts all state
laws restricting the ownership by a bank holding company of
banks in more than one state. The Interstate Banking Act also
permits:
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a bank to merge with an
out-of-state
bank and convert any offices into branches of the resulting bank
if both states have not opted out of interstate branching;
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a bank to acquire branches from an
out-of-state
bank if the law of the state where the branches are located
permits the interstate branch acquisition; and
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banks to establish and operate de novo interstate branches
whenever the host state opts-in to de novo branching.
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Bank holding companies and banks seeking to engage in
transactions authorized by the Interstate Banking Act must be
adequately capitalized and managed.
The Change in Bank Control Act prohibits a person, entity or
group of persons or entities acting in concert, from acquiring
control of a bank holding company or bank unless the
FRB has been given prior notice and has not objected to the
transaction. Under FRB regulations, the acquisition of 10% or
more of a class of voting stock of a corporation would, under
the circumstances set forth in the regulations, create a
rebuttable presumption of acquisition of control of the
corporation.
Transactions
between FNBPA and its Respective Subsidiaries
Certain transactions (including loans and credit extensions from
FNBPA) between FNBPA and the Corporation
and/or its
affiliates and subsidiaries are subject to quantitative and
qualitative limitations, collateral requirements, and other
restrictions imposed by statute and FRB regulation. Transactions
subject to these restrictions are generally required to be made
on an arms-length basis. These restrictions generally do not
apply to transactions between FNBPA and its direct wholly-owned
subsidiaries.
14
Securities
and Exchange Commission
The Corporation is also subject to regulation by the SEC by
virtue of the Corporations status as a public company and
due to the nature of the business activities of certain
subsidiaries.
The Sarbanes-Oxley Act of 2002 (SOX) contains important
requirements for public companies in the area of financial
disclosure and corporate governance. In accordance with
section 302(a) of SOX, written certifications by the
Corporations Chief Executive Officer (CEO) and Chief
Financial Officer (CFO) are required with respect to each of the
Corporations quarterly and annual reports filed with the
SEC. These certifications attest that the applicable report does
not contain any untrue statement of a material fact. The
Corporation also maintains a program designed to comply with
Section 404 of SOX, which includes the identification of
significant processes and accounts, documentation of the design
of process and entity level controls and testing of the
operating effectiveness of key controls. See Item 9A,
Controls and Procedures, of this Report for the
Corporations evaluation of its disclosure controls and
procedures.
Investment Advisors is registered with the SEC as an investment
advisor and, therefore, is subject to the requirements of the
Investment Advisors Act of 1940 and the SECs regulations
thereunder. The principal purpose of the regulations applicable
to investment advisors is the protection of investment advisory
clients and the securities markets, rather than the protection
of creditors and stockholders of investment advisors. The
regulations applicable to investment advisors cover all aspects
of the investment advisory business, including limitations on
the ability of investment advisors to charge performance-based
or non-refundable fees to clients, record-keeping, operating,
marketing and reporting requirements, disclosure requirements,
limitations on principal transactions between an advisor or its
affiliates and advisory clients, as well as other anti-fraud
prohibitions. The Corporations investment advisory
subsidiary also may be subject to certain state securities laws
and regulations.
Additional legislation, changes in or new rules promulgated by
the SEC and other federal and state regulatory authorities and
self-regulatory organizations or changes in the interpretation
or enforcement of existing laws and rules, may directly affect
the method of operation and profitability of Investment
Advisors. The profitability of Investment Advisors could also be
affected by rules and regulations that impact the business and
financial communities in general, including changes to the laws
governing taxation, antitrust regulation, homeland security and
electronic commerce.
Under various provisions of the federal and state securities
laws, including in particular those applicable to
broker-dealers, investment advisors and registered investment
companies and their service providers, a determination by a
court or regulatory agency that certain violations have occurred
at a company or its affiliates can result in a limitation of
permitted activities and disqualification to continue to conduct
certain activities.
Investment Advisors is also subject to rules and regulations
promulgated by the Financial Industry Regulatory Authority
(FINRA), among others. The principal purpose of these
regulations is the protection of clients and the securities
markets, rather than the protection of stockholders and
creditors.
Consumer
Finance Subsidiary
Regency is subject to regulation under Pennsylvania, Tennessee
and Ohio state laws that require, among other things, that it
maintain licenses in effect for consumer finance operations for
each of its offices. Representatives of the Pennsylvania
Department of Banking, the Tennessee Department of Financial
Institutions and the Ohio Division of Consumer Finance
periodically visit Regencys offices and conduct extensive
examinations in order to determine compliance with such laws and
regulations. Additionally, the FRB, as umbrella
regulator of the Corporation pursuant to the GLB Act, may
conduct an examination of Regencys offices or operations.
Such examinations include a review of loans and the collateral
therefor, as well as a check of the procedures employed for
making and collecting loans. Additionally, Regency is subject to
certain federal laws that require that certain information
relating to credit terms be disclosed to customers and, in
certain instances, afford customers the right to rescind
transactions.
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Insurance
Agencies
FNIA is subject to licensing requirements and extensive
regulation under the laws of the Commonwealth of Pennsylvania
and the various states in which FNIA conducts business. These
laws and regulations are primarily for the benefit of
policyholders. In all jurisdictions, the applicable laws and
regulations are subject to amendment or interpretation by
regulatory authorities. Generally, such authorities are vested
with relatively broad discretion to grant, renew and revoke
licenses and approvals and to implement regulations. Licenses
may be denied or revoked for various reasons, including the
violation of such regulations or the conviction of certain
crimes. Possible sanctions that may be imposed for violation of
regulations include the suspension of individual employees,
limitations on engaging in a particular business for a specified
period of time, revocation of licenses, censures and fines.
Penn-Ohio is subject to examination on a triennial basis by the
Arizona Department of Insurance. Representatives of the Arizona
Department of Insurance periodically determine whether Penn-Ohio
has maintained required reserves, established adequate deposits
under a reinsurance agreement and complied with reporting
requirements under the applicable Arizona statutes.
Merchant
Banking
FNB Capital is subject to regulation and examination by the FRB
and is subject to rules and regulations issued by FINRA.
Governmental
Policies
The operations of the Corporation and its subsidiaries are
affected not only by general economic conditions, but also by
the policies of various regulatory authorities. In particular,
the FRB regulates monetary policy and interest rates in order to
influence general economic conditions. These policies have a
significant influence on overall growth and distribution of
loans, investments and deposits and affect interest rates
charged on loans or paid for time and savings deposits. FRB
monetary policies have had a significant effect on the operating
results of all financial institutions in the past and may
continue to do so in the future.
Available
Information
The Corporation makes available on its website at
www.fnbcorporation.com, free of charge, its Annual Report
on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K
(and amendments to any of the foregoing) as soon as practicable
after such reports are filed with or furnished to the SEC. These
reports are also available to stockholders, free of charge, upon
written request to F.N.B. Corporation, Attn: David B. Mogle,
Corporate Secretary, One F.N.B. Boulevard, Hermitage, PA 16148.
A fee to cover the Corporations reproduction costs will be
charged for any requested exhibits to these documents. The
public may read and copy the materials the Corporation files
with the SEC at the SECs Public Reference Room, located at
100 F Street, NE, Washington, D.C. 20549. The
public may obtain information regarding the operation of the
Public Reference Room by calling the SEC at
1-800-SEC-0330.
The public may also read and copy the materials the Corporation
files with the SEC by visiting the SECs website at
www.sec.gov. The Corporations common stock is
traded on the NYSE under the symbol FNB.
As a financial services organization, the Corporation takes on a
certain amount of risk in every business decision and activity.
For example, every time FNBPA opens an account or approves a
loan for a customer, processes a payment, hires a new employee,
or implements a new computer system, FNBPA and the Corporation
incur a certain amount of risk. As an organization, the
Corporation must balance revenue generation and profitability
with the risks associated with its business activities. The
objective of risk management is not to eliminate risk, but to
identify and accept risk and then manage risk effectively so as
to optimize total shareholder value.
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The Corporation has identified five major categories of risk:
credit risk, market risk, liquidity risk, operational risk and
compliance risk. The Corporation more fully describes credit
risk, market risk and liquidity risk, and the programs the
Corporations management has implemented to address these
risks, in the Market Risk section of Managements
Discussion and Analysis of Financial Condition and Results of
Operations, which is included in Item 7 of this Report.
Operational risk arises from inadequate information systems and
technology, weak internal control systems or other failed
internal processes or systems, human error, fraud or external
events. Compliance risk relates to each of the other four major
categories of risk listed above, but specifically addresses
internal control failures that result in non-compliance with
laws, rules, regulations or ethical standards.
The following discussion highlights specific risks that could
affect the Corporation and its businesses. You should carefully
consider each of the following risks and all of the other
information set forth in this Report. Based on the information
currently known, the Corporation believes that the following
information identifies the most significant risk factors
affecting the Corporation. However, the risks and uncertainties
the Corporation faces are not limited to those described below.
Additional risks and uncertainties not presently known or that
the Corporation currently believes to be immaterial may also
adversely affect its business.
If any of the following risks and uncertainties develop into
actual events or if the circumstances described in the risks and
uncertainties occur or continue to occur, these events or
circumstances could have a material adverse affect on the
Corporations business, financial condition or results of
operations. These events could also have a negative affect on
the trading price of the Corporations securities.
The
Corporations results of operations are significantly
affected by the ability of its borrowers to repay their
loans.
Lending money is an essential part of the banking business.
However, borrowers do not always repay their loans. The risk of
non-payment is affected by:
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credit risks of a particular borrower;
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changes in economic and industry conditions;
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the duration of the loan; and
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in the case of a collateralized loan, uncertainties as to the
future value of the collateral.
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Generally, commercial/industrial, construction and commercial
real estate loans present a greater risk of non-payment by a
borrower than other types of loans. For additional information,
see the Lending Activity section of Managements Discussion
and Analysis of Financial Condition and Results of Operations,
which is included in Item 7 of this Report. In addition,
consumer loans typically have shorter terms and lower balances
with higher yields compared to real estate mortgage loans, but
generally carry higher risks of default. Consumer loan
collections are dependent on the borrowers continuing
financial stability, and thus are more likely to be affected by
adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and
insolvency laws, may limit the amount that can be recovered on
these loans.
The
Corporations financial condition and results of operations
would be adversely affected if its allowance for loan losses is
not sufficient to absorb actual losses.
There is no precise method of predicting loan losses. The
Corporation can give no assurance that its allowance for loan
losses is or will be sufficient to absorb actual loan losses.
Excess loan losses could have a material adverse effect on the
Corporations financial condition and results of
operations. The Corporation attempts to maintain an appropriate
allowance for loan losses to provide for estimated losses
inherent in its loan portfolio as of the reporting date. The
Corporation periodically determines the amount of its allowance
for loan losses based upon consideration of several quantitative
and qualitative factors including, but not limited to, the
following:
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a regular review of the quality, mix and size of the overall
loan portfolio;
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historical loan loss experience;
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evaluation of non-performing loans;
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geographic concentration;
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assessment of economic conditions and their effects on the
Corporations existing portfolio; and
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the amount and quality of collateral, including guarantees,
securing loans.
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For additional discussion relating to this matter, refer to the
Allowance and Provision for Loan Losses section of
Managements Discussion and Analysis of Financial Condition
and Results of Operations, which is included in Item 7 of
this Report.
Changes
in economic conditions and the composition of the
Corporations loan portfolio could lead to higher loan
charge-offs or an increase in the Corporations provision
for loan losses and may reduce the Corporations net
income.
Changes in national and regional economic conditions continue to
impact the loan portfolios of the Corporation. For example, an
increase in unemployment, a decrease in real estate values or
changes in interest rates, as well as other factors, have
weakened the economies of the communities the Corporation
serves. Weakness in the market areas served by the Corporation
could depress its earnings and consequently its financial
condition because customers may not want or need the
Corporations products or services; borrowers may not be
able to repay their loans; the value of the collateral securing
the Corporations loans to borrowers may decline; and the
quality of the Corporations loan portfolio may decline.
Any of the latter three scenarios could require the Corporation
to charge-off a higher percentage of its loans
and/or
increase its provision for loan losses, which would reduce its
net income.
The
Corporation may continue to be adversely affected by the
downturn in Florida real estate markets.
Many Florida real estate markets, including the markets in
Orlando, Sarasota and Tampa, where the Corporation had operated
loan production offices, continued to decline in value
throughout 2009 and may continue to undergo further declines.
The Corporation operates three commercial loan production
offices in the Florida market and is therefore exposed to the
further weakening real estate conditions in the Florida
geographic region. During a period of prolonged general economic
downturn in the Florida market, the Corporation may experience
further increases in non-performing assets, net charge-offs and
provisions for loan losses.
The
Corporations continued pace of growth may require it to
raise additional capital in the future, but that capital may not
be available when it is needed.
The Corporation is required by federal and state regulatory
authorities to maintain adequate levels of capital to support
its operations (see the Government Supervision and Regulation
section included in Item 1 of this Report). As a financial
holding company, the Corporation seeks to maintain capital
sufficient to meet the well-capitalized standard set
by regulators. The Corporation anticipates that its current
capital resources will satisfy its capital requirements for the
foreseeable future. The Corporation may at some point, however,
need to raise additional capital to support continued growth,
whether such growth occurs internally or through acquisitions.
The Corporations ability to raise additional capital, if
needed, will depend on conditions in the capital markets at that
time, which are outside of the Corporations control, and
on the Corporations financial performance. Accordingly,
there can be no assurance of the Corporations ability to
expand its operations through internal growth and acquisitions
could be materially impaired. As such, the Corporation may be
forced to delay raising capital, issue shorter term securities
than desired or bear an unattractive cost of capital, which
could decrease profitability and significantly reduce financial
flexibility.
In the event current sources of liquidity, including internal
sources, do not satisfy the Corporations needs, the
Corporation would be required to seek additional financing. The
availability of additional financing will depend on a variety of
factors such as market conditions, the general availability of
credit, the overall availability of credit to the financial
services industry, the Corporations credit ratings and
credit capacity, as well as the possibility that lenders could
develop a negative perception of the Corporations long- or
short-term financial prospects if the Corporation incurs large
credit losses or if the level of business activity decreases due
to economic conditions.
18
The
actions of the U.S. Government for the purpose of stabilizing
the financial markets, or market response to those actions, may
not achieve the intended effect, and the Corporations
results of operations could be adversely affected.
In response to the financial issues affecting the banking system
and financial markets and going concern threats to investment
banks and other financial institutions, the U.S. Congress
enacted the EESA. The EESA provides the UST with the authority
to establish the Troubled Asset Relief Program (TARP) to
purchase from financial institutions up to $700 billion of
residential or commercial mortgages and any securities,
obligations or other instruments that are based on or related to
such mortgages.
As part of the EESA, the UST has developed a CPP to purchase up
to $250 billion in senior preferred stock from qualifying
financial institutions. The CPP was designed to strengthen the
capital and liquidity positions of viable institutions and to
encourage banks and thrifts to increase lending to creditworthy
borrowers. The EESA also increased the insurance coverage of
deposit accounts to $250,000 per depositor. In a related action,
the FDIC established a TLGP under which the FDIC provides a
guarantee for newly-issued senior unsecured debt and
non-interest bearing transaction deposit accounts at eligible
insured institutions. For non-interest bearing transaction
deposit accounts, a 10 basis point annual rate surcharge
will be applied to deposit amounts in excess of $250,000.
Although the Corporation was a participant in the CPP in 2009,
the Corporation redeemed all of the preferred shares issued to
the UST on September 9, 2009 and therefore is no longer a
participant in the CPP. The Corporation has opted to participate
in the TLGP.
The U.S. Congress or federal banking regulatory agencies
could adopt additional regulatory requirements or restrictions
in response to the threats to the financial system and such
changes may adversely affect the operations of the Corporation
and FNBPA.
The Corporations status as a holding company makes it
dependent on dividends from its subsidiaries to meet its
financial obligations and pay dividends to stockholders.
The Corporation is a holding company and conducts almost all of
its operations through its subsidiaries. The Corporation does
not have any significant assets other than cash and the stock of
its subsidiaries. Accordingly, the Corporation depends on
dividends from its subsidiaries to meet its financial
obligations and to pay dividends to stockholders. The
Corporations right to participate in any distribution of
earnings or assets of its subsidiaries is subject to the prior
claims of creditors of such subsidiaries. Under federal law,
FNBPA is limited in the amount of dividends it may pay to the
Corporation without prior regulatory approval. Also, bank
regulators have the authority to prohibit FNBPA from paying
dividends if the bank regulators determine FNBPA is in an
unsound or unsafe condition or that the payment would be an
unsafe and unsound banking practice.
The
Corporations results of operations may be adversely
affected if asset valuations cause
other-than-temporary
impairment or goodwill impairment charges.
The Corporation may be required to record future impairment
charges on its investment securities if they suffer declines in
value that are considered
other-than-temporary.
Numerous factors, including lack of liquidity for re-sales of
certain investment securities, absence of reliable pricing
information for investment securities, adverse changes in
business climate, adverse actions by regulators, or
unanticipated changes in the competitive environment could have
a negative effect on the Corporations investment portfolio
in future periods. If an impairment charge is significant enough
it could affect the ability of FNBPA to pay dividends to the
Corporation, which could have a material adverse effect on the
Corporations liquidity and its ability to pay dividends to
stockholders and could also negatively impact its regulatory
capital ratios and result in FNBPA not being classified as
well-capitalized for regulatory purposes.
19
The
Corporation could be adversely affected by changes in the law,
especially changes in the regulation of the banking
industry.
The Corporation and its subsidiaries operate in a highly
regulated environment and are subject to supervision and
regulation by several governmental agencies, including the FRB,
OCC and FDIC. Regulations are generally intended to provide
protection for depositors, borrowers and other customers rather
than for investors. The Corporation is subject to changes in
federal and state law, regulations, governmental policies, tax
laws and accounting principles. Changes in regulations or the
regulatory environment could adversely affect the banking and
financial services industry as a whole and could limit the
Corporations growth and the return to investors by
restricting such activities as:
|
|
|
|
|
the payment of dividends;
|
|
|
mergers with or acquisitions of other institutions;
|
|
|
investments;
|
|
|
loans and interest rates;
|
|
|
fees assessed for consumer deposit accounts;
|
|
|
the provision of securities, insurance or trust
services; and
|
|
|
the types of non-deposit activities in which the
Corporations financial institution subsidiaries may engage.
|
Adverse
economic conditions in the Corporations market area may
adversely impact its results of operations and financial
condition.
The substantial portion of the Corporations business is
concentrated in western and central Pennsylvania and eastern
Ohio, which over recent years has been a slower growth market
than other areas of the United States. As a result, FNBPAs
loan portfolio and results of operations may be adversely
affected by factors that have a significant impact on the
economic conditions in this market area. The local economies of
this market area have historically been less robust than the
economy of the nation as a whole and may not be subject to the
same fluctuations as the national economy. Adverse economic
conditions in this market area, including the loss of certain
significant employers, could reduce its growth rate, affect its
borrowers ability to repay their loans and generally
affect the Corporations financial condition and results of
operations. Furthermore, a downturn in real estate values in
FNBPAs market area could cause many of its loans to become
inadequately collateralized.
The
Corporations deposit insurance premiums could be
substantially higher in the future which would have an adverse
effect on the Corporations future earnings.
The FDIC insures deposits at FDIC-insured financial
institutions, including FNBPA. The FDIC charges the insured
financial institutions premiums to maintain the Deposit
Insurance Fund at a certain level. Current economic conditions
have increased bank failures and expectations for further
failures, in which case the FDIC would pay all deposits of a
failed bank up to the insured amount from the Deposit Insurance
Fund. In December 2008, the FDIC adopted a rule that would
increase premiums paid by insured institutions and make other
changes to the assessment system. In December 2009, the FDIC
required banks to pay their fourth quarter 2009 premiums plus
prepay all of the 2010, 2011 and 2012 insurance premiums. On
December 30, 2009, FNBPA prepaid $39.6 million in FDIC
insurance premiums. Further increases and additional premium
assessments in deposit insurance premiums could adversely affect
the Corporations net income in the future.
The
Corporations information systems may experience an
interruption or breach in security.
The Corporation relies heavily on communications and information
systems to conduct its business. Any failure, interruption or
breach in security of these systems could result in failures or
disruptions in the Corporations customer relationship
management, general ledger, deposit, loan and other systems.
Although the Corporation has policies and procedures designed to
prevent or limit the effect of the failure, interruption or
security breach of these information systems, there can be no
assurance that any such failures, interruptions or security
breaches will not
20
occur or, if they do occur, that they will be adequately
addressed. The occurrence of any failures, interruptions or
security breaches of the Corporations information systems
could damage its reputation, result in a loss of customer
business, subject it to additional regulatory scrutiny, or
expose it to civil litigation and possible financial liability,
any of which could have a material adverse effect on the
Corporations financial condition and results of operations.
Certain
provisions of the Corporations Articles of Incorporation
and By-laws and Florida law may discourage takeovers.
The Corporations Articles of Incorporation and By-laws
contain certain anti-takeover provisions that may discourage or
may make more difficult or expensive a tender offer, change in
control or takeover attempt that is opposed by the
Corporations Board of Directors. In particular, the
Corporations Articles of Incorporation and By-laws:
|
|
|
|
|
currently classify its Board of Directors into three classes, so
that stockholders elect only one-third of its Board of Directors
each year (provided, however, that this classified structure
will be phased out by 2011);
|
|
|
permit stockholders to remove directors only for cause;
|
|
|
do not permit stockholders to take action except at an annual or
special meeting of stockholders;
|
|
|
require stockholders to give the Corporation advance notice to
nominate candidates for election to its Board of Directors or to
make stockholder proposals at a stockholders meeting;
|
|
|
permit the Corporations Board of Directors to issue,
without stockholder approval unless otherwise required by law,
preferred stock with such terms as its Board of Directors may
determine;
|
|
|
require the vote of the holders of at least 75% of the
Corporations voting shares for stockholder amendments to
its By-laws;
|
Under Florida law, the approval of a business combination with a
stockholder owning 10% or more of the voting shares of a
corporation requires the vote of holders of at least two-thirds
of the voting shares not owned by such stockholder, unless the
transaction is approved by a majority of the corporations
disinterested directors. In addition, Florida law generally
provides that shares of a corporation that are acquired in
excess of certain specified thresholds will not possess any
voting rights unless the voting rights are approved by a
majority of the corporations disinterested stockholders.
These provisions of the Corporations Articles of
Incorporation and By-laws and of Florida law could discourage
potential acquisition proposals and could delay or prevent a
change in control, even though a majority of the
Corporations stockholders may consider such proposals
desirable. Such provisions could also make it more difficult for
third parties to remove and replace members of the
Corporations Board of Directors. Moreover, these
provisions could diminish the opportunities for stockholders to
participate in certain tender offers, including tender offers at
prices above the then-current market price of the
Corporations common stock, and may also inhibit increases
in the trading price of the Corporations common stock that
could result from takeover attempts.
The
Corporation is exposed to risk of environmental liabilities with
respect to properties to which it takes title.
Portions of the Corporations loan portfolio are secured by
real property. In the course of its business, the Corporation
may own or foreclose and take title to real estate, and could be
subject to environmental liabilities with respect to these
properties. The Corporation may be held liable to a governmental
entity or to third parties for property damage, personal injury,
investigation and
clean-up
costs incurred by these parties in connection with environmental
contamination, or may be required to investigate or clean up
hazardous or toxic substances, or chemical releases at a
property. The costs associated with investigation or remediation
activities could be substantial. In addition, as the owner or
former owner of a contaminated site, the Corporation may be
subject to common law claims by third parties based on damages
and costs resulting from environmental contamination emanating
from the property. If the Corporation ever becomes subject to
significant environmental liabilities, the Corporations
business, financial condition, liquidity and results of
operations could be materially and adversely affected.
21
The
Corporations key assets include its brand and reputation
and the Corporations business may be affected by how it is
perceived in the market place.
The Corporations brand and its attributes are key assets
of the Corporation. The Corporations ability to attract
and retain banking, insurance, consumer finance, wealth
management, merchant banking and corporate clients is highly
dependent upon the external perceptions of its level of service,
trustworthiness, business practices and financial condition.
Negative perceptions or publicity regarding these matters could
damage the Corporations representation among existing
customers and corporate clients, which could make it difficult
for the Corporation to attract new clients and maintain existing
ones. Adverse developments with respect to the financial
services industry may also, by association, negatively impact
the Corporations representation, or result in greater
regulatory or legislative scrutiny or litigation against the
Corporation. Although the Corporation monitors developments for
areas of potential risk to its representation and brand,
negative perceptions or publicity could materially and adversely
affect the Corporations revenues and profitability.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
NONE.
The Corporation owns a six-story building in Hermitage,
Pennsylvania that serves as its headquarters, executive and
administrative offices. It shares this facility with Community
Banking and Wealth Management. Additionally, the Corporation
owns a two-story building in Hermitage, Pennsylvania that serves
as its data processing and technology center.
The Community Banking segment has 224 offices, located in 31
counties in Pennsylvania and four counties in Ohio, of which 163
are owned and 61 are leased. Community Banking also leases its
four loan production offices. The Consumer Finance segment has
57 offices, located in 18 counties in Pennsylvania, 16 counties
in Tennessee and 14 counties in Ohio, of which one is owned and
56 are leased. The operating leases for the Community Banking
and Consumer Finance segments expire at various dates through
the year 2030 and generally include options to renew. For
additional information regarding the lease commitments, see the
Premises and Equipment footnote in the Notes to Consolidated
Financial Statements, which is included in Item 8 of this
Report.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
The Corporation and its subsidiaries are involved in various
pending and threatened legal proceedings in which claims for
monetary damages and other relief are asserted. These actions
include claims brought against the Corporation and its
subsidiaries where the Corporation or a subsidiary acted as one
or more of the following: a depository bank, lender,
underwriter, fiduciary, financial advisor, broker or was engaged
in other business activities. Although the ultimate outcome for
any asserted claim cannot be predicted with certainty, the
Corporation believes that it and its subsidiaries have valid
defenses for all asserted claims. Reserves are established for
legal claims when losses associated with the claims are judged
to be probable and the amount of the loss can be reasonably
estimated.
Based on information currently available, advice of counsel,
available insurance coverage and established reserves, the
Corporation does not anticipate, at the present time, that the
aggregate liability, if any, arising out of such legal
proceedings will have a material adverse effect on the
Corporations consolidated financial position. However, the
Corporation cannot determine whether or not any claims asserted
against it will have a material adverse effect on its
consolidated results of operations in any future reporting
period.
On December 29, 2009, FNBPA and Regency reached an
agreement covering an action in which the plaintiffs alleged
that FNBPA and Regency violated the Pennsylvania commercial
code. The agreement contemplates settlement of the claims on a
class wide basis and is subject to approval of the court. Under
the terms of the settlement, FNBPA and Regency established a
settlement fund for distribution to settlement class members on
a pro
22
rata basis and release certain deficiency balances owed by class
members, in exchange for a complete release of all claims by the
plaintiffs and the class. Attorney fees also will be paid out of
the settlement fund. Class members will receive notice of the
settlement agreement and be afforded an opportunity to opt out
of the settlement class. The Corporation anticipates that the
proposed settlement will be approved by the court, at the agreed
upon terms. The Corporation recorded net expense of
$1.1 million during 2009 associated with the proposed
settlement.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
NONE.
EXECUTIVE
OFFICERS OF THE REGISTRANT
The name, age and principal occupation for each of the executive
officers of the Corporation as of December 31, 2009 is set
forth below:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Principal Occupation
|
|
|
|
|
|
|
|
|
Stephen J. Gurgovits
|
|
|
66
|
|
|
President and Chief Executive Officer of the Corporation;
Chairman and Chief Executive Officer of FNBPA
|
|
|
|
|
|
|
|
Vincent J. Calabrese
|
|
|
47
|
|
|
Chief Financial Officer of the Corporation;
Senior Vice President of FNBPA
|
|
|
|
|
|
|
|
Vincent J. Delie
|
|
|
45
|
|
|
Executive Vice President and Chief Revenue Officer of the
Corporation;
President of FNBPA
|
|
|
|
|
|
|
|
Scott D. Free
|
|
|
46
|
|
|
Treasurer and Vice President of the Corporation;
Treasurer and Senior Vice President of FNBPA
|
|
|
|
|
|
|
|
Gary L. Guerrieri
|
|
|
49
|
|
|
Executive Vice President of FNBPA
|
|
|
|
|
|
|
|
Brian F. Lilly
|
|
|
51
|
|
|
Executive Vice President and Chief Operating Officer of the
Corporation;
Chief Administrative Officer of FNBPA
|
|
|
|
|
|
|
|
Louise C. Lowrey
|
|
|
56
|
|
|
Executive Vice President of FNBPA
|
|
|
|
|
|
|
|
David B. Mogle
|
|
|
59
|
|
|
Corporate Secretary and Vice President of the Corporation;
Secretary and Senior Vice President of FNBPA
|
|
|
|
|
|
|
|
James G. Orie
|
|
|
51
|
|
|
Chief Legal Officer and Vice President of the Corporation;
Senior Vice President of FNBPA
|
|
|
|
|
|
|
|
Timothy G. Rubritz
|
|
|
55
|
|
|
Corporate Controller and Senior Vice President of the
Corporation
|
There are no family relationships among any of the above
executive officers, and there is no arrangement or understanding
between any of the above executive officers and any other person
pursuant to which he was selected as an officer. The executive
officers are elected by and serve at the pleasure of the
Corporations Board of Directors, subject in certain cases
to the terms of an employment agreement between the officer and
the Corporation.
23
PART II.
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The Corporations common stock is listed on the NYSE under
the symbol FNB. The accompanying table shows the
range of high and low sales prices per share of the common stock
as reported by the NYSE for 2009 and 2008. The table also shows
dividends per share paid on the outstanding common stock during
those periods. As of January 31, 2010, there were 12,735
holders of record of the Corporations common stock.
|
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|
|
|
|
|
|
|
Low
|
|
|
High
|
|
|
Dividends
|
|
|
Quarter Ended 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
5.14
|
|
|
$
|
13.71
|
|
|
$
|
0.12
|
|
June 30
|
|
|
5.74
|
|
|
|
9.31
|
|
|
|
0.12
|
|
September 30
|
|
|
5.86
|
|
|
|
8.07
|
|
|
|
0.12
|
|
December 31
|
|
|
6.32
|
|
|
|
7.45
|
|
|
|
0.12
|
|
Quarter Ended 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
12.52
|
|
|
$
|
16.50
|
|
|
$
|
0.24
|
|
June 30
|
|
|
11.74
|
|
|
|
16.99
|
|
|
|
0.24
|
|
September 30
|
|
|
9.30
|
|
|
|
20.70
|
|
|
|
0.24
|
|
December 31
|
|
|
9.59
|
|
|
|
16.68
|
|
|
|
0.24
|
|
The information required by this Item 5 with respect to
securities authorized for issuance under equity compensation
plans is set forth in Part III, Item 12 of this Report.
The Corporation did not purchase any of its own equity
securities during the fourth quarter of 2009.
24
STOCK
PERFORMANCE GRAPH
Comparison of Total Return on F.N.B. Corporations
Common Stock with Certain Averages
The following five-year performance graph compares the
cumulative total shareholder return (assuming reinvestment of
dividends) on the Corporations common stock
(u)
to the NASDAQ Bank Index
(n)
and the Russell 2000 Index
(5).
This stock performance graph assumes $100 was invested on
December 31, 2004, and the cumulative return is measured as
of each subsequent fiscal year end.
F.N.B.
Corporation Five-Year Stock Performance
Total
Return, Including Stock and Cash Dividends
25
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
Dollars in thousands, except per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Total interest income
|
|
$
|
387,722
|
|
|
$
|
409,781
|
|
|
$
|
368,890
|
|
|
$
|
342,422
|
|
|
$
|
295,480
|
|
Total interest expense
|
|
|
121,179
|
|
|
|
157,989
|
|
|
|
174,053
|
|
|
|
153,585
|
|
|
|
108,780
|
|
Net interest income
|
|
|
266,543
|
|
|
|
251,792
|
|
|
|
194,837
|
|
|
|
188,837
|
|
|
|
186,700
|
|
Provision for loan losses
|
|
|
66,802
|
|
|
|
72,371
|
|
|
|
12,693
|
|
|
|
10,412
|
|
|
|
12,176
|
|
Total non-interest income
|
|
|
105,978
|
|
|
|
86,115
|
|
|
|
81,609
|
|
|
|
79,275
|
|
|
|
57,807
|
|
Total non-interest expense
|
|
|
255,339
|
|
|
|
222,704
|
|
|
|
165,614
|
|
|
|
160,514
|
|
|
|
155,226
|
|
Net income
|
|
|
41,111
|
|
|
|
35,595
|
|
|
|
69,678
|
|
|
|
67,649
|
|
|
|
55,258
|
|
Net income available to common stockholders
|
|
|
32,803
|
|
|
|
35,595
|
|
|
|
69,678
|
|
|
|
67,649
|
|
|
|
55,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,709,077
|
|
|
$
|
8,364,811
|
|
|
$
|
6,088,021
|
|
|
$
|
6,007,592
|
|
|
$
|
5,590,326
|
|
Net loans
|
|
|
5,744,706
|
|
|
|
5,715,650
|
|
|
|
4,291,429
|
|
|
|
4,200,569
|
|
|
|
3,698,340
|
|
Deposits
|
|
|
6,380,223
|
|
|
|
6,054,623
|
|
|
|
4,397,684
|
|
|
|
4,372,842
|
|
|
|
4,011,943
|
|
Short-term borrowings
|
|
|
669,167
|
|
|
|
596,263
|
|
|
|
449,823
|
|
|
|
363,910
|
|
|
|
378,978
|
|
Long-term and junior subordinated debt
|
|
|
529,588
|
|
|
|
695,636
|
|
|
|
632,397
|
|
|
|
670,921
|
|
|
|
662,569
|
|
Total stockholders equity
|
|
|
1,043,302
|
|
|
|
925,984
|
|
|
|
544,357
|
|
|
|
537,372
|
|
|
|
477,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.32
|
|
|
$
|
0.44
|
|
|
$
|
1.16
|
|
|
$
|
1.15
|
|
|
$
|
0.99
|
|
Diluted earnings per share
|
|
|
0.32
|
|
|
|
0.44
|
|
|
|
1.15
|
|
|
|
1.14
|
|
|
|
0.98
|
|
Cash dividends declared
|
|
|
0.48
|
|
|
|
0.96
|
|
|
|
0.95
|
|
|
|
0.94
|
|
|
|
0.925
|
|
Book value
|
|
|
9.14
|
|
|
|
10.32
|
|
|
|
8.99
|
|
|
|
8.90
|
|
|
|
8.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.48
|
%
|
|
|
0.46
|
%
|
|
|
1.15
|
%
|
|
|
1.15
|
%
|
|
|
0.99
|
%
|
Return on average tangible assets
|
|
|
0.57
|
|
|
|
0.55
|
|
|
|
1.25
|
|
|
|
1.25
|
|
|
|
1.07
|
|
Return on average equity
|
|
|
3.87
|
|
|
|
4.20
|
|
|
|
12.89
|
|
|
|
13.15
|
|
|
|
12.44
|
|
Return on average tangible equity
|
|
|
9.30
|
|
|
|
10.63
|
|
|
|
26.23
|
|
|
|
26.30
|
|
|
|
23.62
|
|
Return on average tangible common equity
|
|
|
8.74
|
|
|
|
10.63
|
|
|
|
26.23
|
|
|
|
26.30
|
|
|
|
23.62
|
|
Dividend payout ratio
|
|
|
149.50
|
|
|
|
219.91
|
|
|
|
82.45
|
|
|
|
81.84
|
|
|
|
94.71
|
|
Average equity to average assets
|
|
|
12.35
|
|
|
|
11.01
|
|
|
|
8.93
|
|
|
|
8.73
|
|
|
|
7.97
|
|
26
QUARTERLY EARNINGS SUMMARY (Unaudited)
Dollars in thousands, except per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended 2009
|
|
Dec. 31
|
|
|
Sept. 30
|
|
|
June 30
|
|
|
Mar. 31
|
|
|
Total interest income
|
|
|
$96,053
|
|
|
|
$96,533
|
|
|
|
$97,034
|
|
|
|
$98,102
|
|
Total interest expense
|
|
|
26,468
|
|
|
|
28,989
|
|
|
|
31,702
|
|
|
|
34,020
|
|
Net interest income
|
|
|
69,585
|
|
|
|
67,544
|
|
|
|
65,332
|
|
|
|
64,082
|
|
Provision for loan losses
|
|
|
25,924
|
|
|
|
16,455
|
|
|
|
13,909
|
|
|
|
10,514
|
|
Gain on sale of securities
|
|
|
30
|
|
|
|
154
|
|
|
|
66
|
|
|
|
278
|
|
Impairment loss on securities
|
|
|
(3,659
|
)
|
|
|
(3,291
|
)
|
|
|
(740
|
)
|
|
|
(203
|
)
|
Other non-interest income
|
|
|
29,016
|
|
|
|
27,099
|
|
|
|
29,124
|
|
|
|
28,104
|
|
Total non-interest expense
|
|
|
65,781
|
|
|
|
62,321
|
|
|
|
66,265
|
|
|
|
60,972
|
|
Net income
|
|
|
4,556
|
|
|
|
10,306
|
|
|
|
10,598
|
|
|
|
15,651
|
|
Net income available to common stockholders
|
|
|
4,556
|
|
|
|
4,810
|
|
|
|
9,129
|
|
|
|
14,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
$0.04
|
|
|
|
$0.04
|
|
|
|
$0.10
|
|
|
|
$0.16
|
|
Diluted earnings per share
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.10
|
|
|
|
0.16
|
|
Cash dividends declared
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended 2008
|
|
Dec. 31
|
|
|
Sept. 30
|
|
|
June 30
|
|
|
Mar. 31
|
|
|
Total interest income
|
|
|
$107,158
|
|
|
|
$108,801
|
|
|
|
$105,297
|
|
|
|
$88,525
|
|
Total interest expense
|
|
|
38,793
|
|
|
|
39,896
|
|
|
|
39,740
|
|
|
|
39,560
|
|
Net interest income
|
|
|
68,365
|
|
|
|
68,905
|
|
|
|
65,557
|
|
|
|
48,965
|
|
Provision for loan losses
|
|
|
51,298
|
|
|
|
6,514
|
|
|
|
10,976
|
|
|
|
3,583
|
|
Gain on sale of securities
|
|
|
6
|
|
|
|
33
|
|
|
|
41
|
|
|
|
754
|
|
Impairment loss on securities
|
|
|
(16,699
|
)
|
|
|
(24
|
)
|
|
|
(456
|
)
|
|
|
(10
|
)
|
Other non-interest income
|
|
|
24,951
|
|
|
|
28,224
|
|
|
|
27,871
|
|
|
|
21,424
|
|
Total non-interest expense
|
|
|
58,416
|
|
|
|
57,911
|
|
|
|
62,014
|
|
|
|
44,363
|
|
Net income (loss)
|
|
|
(18,906
|
)
|
|
|
23,505
|
|
|
|
14,505
|
|
|
|
16,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
$(0.21
|
)
|
|
|
$0.27
|
|
|
|
$0.17
|
|
|
|
$0.27
|
|
Diluted earnings (loss) per share
|
|
|
(0.21
|
)
|
|
|
0.27
|
|
|
|
0.17
|
|
|
|
0.27
|
|
Cash dividends declared
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.24
|
|
27
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Managements discussion and analysis represents an overview
of the consolidated results of operations and financial
condition of the Corporation. This discussion and analysis
should be read in conjunction with the consolidated financial
statements and notes presented in Item 8 of this Report.
Results of operations for the periods included in this review
are not necessarily indicative of results to be obtained during
any future period.
Important
Note Regarding Forward-Looking Statements
Certain statements in this Report are
forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements
generally can be identified by the use of forward-looking
terminology, such as may, will,
expect, estimate,
anticipate, believe, target,
plan, project or continue or
the negatives thereof or other variations thereon or similar
terminology, and are made on the basis of managements
current plans and analyses of the Corporation, its business and
the industry in which it operates as a whole. These
forward-looking statements are subject to risks and
uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure
to regulatory and legislative changes. The above factors in some
cases have affected, and in the future could affect, the
Corporations financial performance and could cause actual
results to differ materially from those expressed in or implied
by such forward-looking statements. The Corporation does not
undertake to publicly update or revise its forward-looking
statements even if experience or future changes make it clear
that any projected results expressed or implied therein will not
be realized.
Application
of Critical Accounting Policies
The Corporations consolidated financial statements are
prepared in accordance with U.S. generally accepted
accounting principles (GAAP). Application of these principles
requires management to make estimates, assumptions and judgments
that affect the amounts reported in the consolidated financial
statements and accompanying notes. These estimates, assumptions
and judgments are based on information available as of the date
of the consolidated financial statements; accordingly, as this
information changes, the consolidated financial statements could
reflect different estimates, assumptions and judgments. Certain
policies inherently are based to a greater extent on estimates,
assumptions and judgments of management and, as such, have a
greater possibility of producing results that could be
materially different than originally reported.
The most significant accounting policies followed by the
Corporation are presented in the Summary of Significant
Accounting Policies footnote in the Notes to Consolidated
Financial Statements, which is included in Item 8 of this
Report. These policies, along with the disclosures presented in
the Notes to Consolidated Financial Statements, provide
information on how the Corporation values significant assets and
liabilities in the consolidated financial statements and how the
Corporation determines those values
Management views critical accounting policies to be those which
are highly dependent on subjective or complex judgments,
estimates and assumptions, and where changes in those estimates
and assumptions could have a significant impact on the
consolidated financial statements. Management currently views
the determination of the allowance for loan losses, securities
valuation, goodwill and other intangible assets and income taxes
to be critical accounting policies.
Allowance
for Loan Losses
The allowance for loan losses addresses credit losses inherent
in the existing loan portfolio and is presented as a reserve
against loans on the consolidated balance sheet. Loan losses are
charged off against the allowance for loan losses, with
recoveries of amounts previously charged off credited to the
allowance for loan losses. Provisions for loan losses are
charged to operations based on managements periodic
evaluation of the adequacy of the allowance.
28
Estimating the amount of the allowance for loan losses is based
to a significant extent on the judgment and estimates of
management regarding the amount and timing of expected future
cash flows on impaired loans, estimated losses on pools of
homogeneous loans based on historical loss experience and
consideration of current economic trends and conditions, all of
which may be susceptible to significant change.
Managements assessment of the adequacy of the allowance
for loan losses considers individual impaired loans, pools of
homogeneous loans with similar risk characteristics and other
risk factors concerning the economic environment. The specific
credit allocations for individual impaired loans are based on
ongoing analyses of all loans over a fixed dollar amount where
the internal credit rating is at or below a predetermined
classification. These analyses involve a high degree of judgment
in estimating the amount of loss associated with specific
impaired loans, including estimating the amount and timing of
future cash flows, current market value of the underlying
collateral and other qualitative risk factors that may affect
the loan. The evaluation of this component of the allowance
requires considerable judgment in order to estimate inherent
loss exposures.
Pools of homogeneous loans with similar risk characteristics are
also assessed for probable losses. A loss migration and
historical charge-off analysis is performed quarterly and loss
factors are updated regularly based on actual experience. This
analysis examines historical loss experience, the related
internal ratings of loans charged off and considers inherent but
undetected losses within the portfolio. Inherent but undetected
losses may arise due to uncertainties in economic conditions,
delays in obtaining information, including unfavorable
information about a borrowers financial condition, the
difficulty in identifying triggering events that correlate to
subsequent loss rates and risk factors that have not yet
manifested themselves in loss allocation factors. The
Corporation has grown through acquisitions and expanding the
geographic footprint in which it operates. As a result,
historical loss experience data used to establish loss estimates
may not precisely correspond to the current portfolio. Also,
loss data representing a complete economic cycle is not
available for all sectors. Uncertainty surrounding the strength
and timing of economic cycles also affects estimates of loss.
The historical loss experience used in the migration and
historical charge-off analysis may not be representative of
actual unrealized losses inherent in the portfolio.
Management also evaluates the impact of various qualitative
factors which pose additional risks that may not adequately be
addressed in the analyses described above. Such factors could
include: levels of, and trends in, consumer bankruptcies,
delinquencies, impaired loans, charge-offs and recoveries;
trends in volume and terms of loans; effects of any changes in
lending policies and procedures, including those for
underwriting, collection, charge-off and recovery; experience,
ability and depth of lending management and staff; national and
local economic trends and conditions; industry and geographic
conditions; concentrations of credit such as, but not limited
to, local industries, their employees or suppliers; market
uncertainty and illiquidity; or any other common risk factor
that might affect loss experience across one or more components
of the portfolio. The determination of this component of the
allowance is particularly dependent on the judgment of
management.
There are many factors affecting the allowance for loan losses;
some are quantitative, while others require qualitative
judgment. Although management believes its process for
determining the allowance adequately considers all of the
factors that could potentially result in credit losses, the
process includes subjective elements and may be susceptible to
significant change. To the extent actual outcomes differ from
management estimates, additional provisions for loan losses
could be required that may adversely affect the
Corporations earnings or financial position in future
periods.
The Allowance and Provision for Loan Losses section of this
financial review includes a discussion of the factors driving
changes in the allowance for loan losses during the current
period.
Securities
Valuation
Investment securities, which consist of debt securities and
certain equity securities, comprise a significant portion of the
Corporations consolidated balance sheet. Such securities
can be classified as trading, securities held
to maturity or securities available for sale.
29
Securities are classified as trading securities when management
intends to sell such securities in the near term and are carried
at fair value, with unrealized gains (losses) reflected through
the consolidated statement of income. The Corporation acquired
securities in conjunction with the Omega acquisition that the
Corporation classified as trading securities. The Corporation
both acquired and sold these trading securities during the
second quarter of 2008. As of December 31, 2009 and 2008,
the Corporation did not hold any trading securities.
Securities held to maturity are comprised of debt securities,
which were purchased with managements positive intent and
ability to hold such securities until their maturity. Such
securities are carried at cost, adjusted for related
amortization of premiums and accretion of discounts through
interest income from securities and OTTI, if any.
Securities that are not classified as trading or held to
maturity are classified as available for sale. The
Corporations available for sale securities portfolio is
comprised of debt securities and marketable equity securities.
Such securities are carried at fair value with net unrealized
gains and losses deemed to be temporary and unrealized losses
deemed to be
other-than-temporary
and attributable to non-credit factors reported separately as a
component of other comprehensive income, net of tax. Realized
gains and losses on the sale of available for sale securities
and credit-related
other-than-temporary
impairment (OTTI) charges are recorded within non-interest
income in the consolidated statement of income. Realized gains
and losses on the sale of securities are determined using the
specific-identification method.
The Corporation evaluates its investment securities portfolio
for OTTI on a quarterly basis. Impairment is assessed at the
individual security level. An investment security is considered
impaired if the fair value of the security is less than its cost
or amortized cost basis.
The Corporations OTTI evaluation process is performed in a
consistent and systematic manner and includes an evaluation of
all available evidence. Documentation of the process is
extensive as necessary to support a conclusion as to whether a
decline in fair value below cost or amortized cost is
other-than-temporary
and includes documentation supporting both observable and
unobservable inputs and a rationale for conclusions reached.
This process considers factors such as the severity, length of
time and anticipated recovery period of the impairment, recent
events specific to the issuer, including investment downgrades
by rating agencies and economic conditions of its industry, and
the issuers financial condition, capital strength and
near-term prospects. The Corporation also considers its intent
to sell the security and whether it is more likely than not that
the Corporation would be required to sell the security prior to
the recovery of its amortized cost basis. Among the factors that
are considered in determining the Corporations intent to
sell the security or whether it is more likely than not that the
Corporation would be required to sell the security is a review
of its capital adequacy, interest rate risk position and
liquidity.
The assessment of a securitys ability to recover any
decline in fair value, the ability of the issuer to meet
contractual obligations, and the Corporations intent and
ability to retain the security require considerable judgment.
The unrealized losses of $16.4 million on pooled TPS have
been recognized on the balance sheet, however future charges to
earnings could result if expected cash flows deteriorate.
Debt securities with credit ratings below AA at the time of
purchase that are repayment-sensitive securities are evaluated
using the guidance of ASC (Accounting Standards Codification)
Topic 320, Investments - Debt Securities.
Goodwill
and Other Intangible Assets
As a result of acquisitions, the Corporation has acquired
goodwill and identifiable intangible assets. Goodwill represents
the cost of acquired companies in excess of the fair value of
net assets, including identifiable intangible assets, at the
acquisition date. The Corporations recorded goodwill
relates to value inherent in its Community Banking, Wealth
Management and Insurance segments.
30
The value of goodwill and other identifiable intangibles is
dependent upon the Corporations ability to provide
quality, cost-effective services in the face of competition. As
such, these values are supported ultimately by revenue that is
driven by the volume of business transacted. A decline in
earnings as a result of a lack of growth or the
Corporations inability to deliver cost effective services
over sustained periods can lead to impairment in value which
could result in additional expense and adversely impact earnings
in future periods.
Other identifiable intangible assets such as core deposit
intangibles and customer and renewal lists are amortized over
their estimated useful lives.
The two-step impairment test is used to identify potential
goodwill impairment and measure the amount of impairment loss to
be recognized, if any. The first step compares the fair value of
a reporting unit with its carrying amount. If the fair value of
a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired and the second step of
the test is not necessary. If the carrying amount of a reporting
unit exceeds its fair value, the second step is performed to
measure impairment loss, if any. Under the second step, the fair
value is allocated to all of the assets and liabilities of the
reporting unit to determine an implied goodwill value. This
allocation is similar to a purchase price allocation performed
in purchase accounting. If the implied goodwill value of a
reporting unit is less than the carrying amount of that
goodwill, an impairment loss is recognized in an amount equal to
that difference.
Determining fair values of a reporting unit, of its individual
assets and liabilities, and also of other identifiable
intangible assets requires considering market information that
is publicly available as well as the use of significant
estimates and assumptions. These estimates and assumptions could
have a significant impact on whether or not an impairment charge
is recognized and also the magnitude of any such charge. Inputs
used in determining fair values where significant estimates and
assumptions are necessary include discounted cash flow
calculations, market comparisons and recent transactions,
projected future cash flows, discount rates reflecting the risk
inherent in future cash flows, long-term growth rates and
determination and evaluation of appropriate market comparables.
The Corporation performed an annual test of goodwill and other
intangibles as of December 31, 2009, and concluded that the
recorded value of goodwill was not impaired.
The Corporations total goodwill at December 31, 2009
was $528.7 million, of which $509.9 million relates to
the Corporations Community Banking segment. The estimated
fair value of this reporting unit is based on valuation
techniques that the Corporation believes market participants
would use, including discounted cash flows, peer company
price-to-earnings
and
price-to-book
multiples. During the fourth quarter of 2008 and 2009, the
financial services industry and securities markets generally
were adversely affected by significant declines in the values of
nearly all asset classes. Given this volatility in the
securities market, management considered the results of their
discounted cash flows to a greater extent than the peer company
market multiples. As of December 31, 2009, a decline of
greater than 10.2% in the estimated fair value of the Community
Banking segment may result in recorded goodwill being impaired.
This decline equates to a decrease in the long-term growth rate
of 2.9% or an increase in the discount rate of 2.0%. If current
economic conditions continue resulting in a prolonged period of
economic weakness, the Corporations business segments,
including the Community Banking segment, may be adversely
affected, which may result in impairment of goodwill and other
intangibles in the future. Any resulting impairment loss could
have a material adverse impact on the Corporations
financial condition and its results of operations.
Income
Taxes
The Corporation is subject to the income tax laws of the U.S.,
its states and other jurisdictions where it conducts business.
The laws are complex and subject to different interpretations by
the taxpayer and various taxing authorities. In determining the
provision for income taxes, management must make judgments and
estimates about the application of these inherently complex tax
statutes, related regulations and case law. In the process of
preparing the Corporations tax returns, management
attempts to make reasonable interpretations of the tax laws.
These interpretations are subject to challenge by the taxing
authorities based on audit results or to change based on
managements ongoing assessment of the facts and evolving
case law.
31
The Corporation establishes a valuation allowance when it is
more likely than not that the Corporation will not
be able to realize a benefit from its deferred tax assets, or
when future deductibility is uncertain. Periodically, the
valuation allowance is reviewed and adjusted based on
managements assessments of realizable deferred tax assets.
On a quarterly basis, management assesses the reasonableness of
the Corporations effective tax rate based on
managements current best estimate of net income and the
applicable taxes for the full year. Deferred tax assets and
liabilities are assessed on an annual basis, or sooner, if
business events or circumstances warrant.
Recent
Accounting Pronouncements and Developments
The New Accounting Standards footnote in the Notes to
Consolidated Financial Statements, which is included in
Item 8 of this Report, discusses new accounting
pronouncements adopted by the Corporation in 2009 and the
expected impact of accounting pronouncements recently issued or
proposed but not yet required to be adopted.
Financial
Overview
The Corporation is a diversified financial services company
headquartered in Hermitage, Pennsylvania. Its primary businesses
include community banking, consumer finance, wealth management
and insurance. The Corporation also conducts leasing and
merchant banking activities. The Corporation operates its
community banking business through a full service branch network
with offices in Pennsylvania and Ohio and loan production
offices in Pennsylvania and Florida. The Corporation operates
its wealth management and insurance businesses within the
community banking branch network. It also conducts selected
consumer finance business in Pennsylvania, Ohio and Tennessee.
In connection with the USTs CPP, on January 9, 2009,
the Corporation voluntarily issued to the UST
100,000 shares of Series C Preferred Stock and a
warrant to purchase up to 1,302,083 shares of the
Corporations common stock, for an aggregate purchase price
of $100.0 million. The warrant, which is currently
exercisable, has a ten-year term and an exercise price of $11.52.
On June 16, 2009, the Corporation completed a public
offering of 24,150,000 shares of common stock at a price of
$5.50 per share, including 3,150,000 shares of common stock
purchased by the underwriters pursuant to an over-allotment
option, which the underwriters exercised in full. The net
proceeds of the offering after deducting underwriting discounts
and commissions and offering expenses were $125.8 million.
As a result of the completion of the public stock offering, the
number of shares of the Corporations common stock
purchasable upon exercise of the warrant issued to the UST has
been reduced in half to 651,042 shares.
On September 9, 2009, the Corporation redeemed all of the
100,000 outstanding shares of its Series C Preferred Stock
originally issued to the UST in conjunction with the CPP. Since
receiving the CPP funds on January 9, 2009, the Corporation
paid the UST $3.3 million in cash dividends on the
preferred stock. Upon redemption, the difference of
$4.3 million between the Series C Preferred Stock
redemption amount and the recorded amount was charged to
retained earnings as a non-cash deemed preferred stock dividend.
This non-cash deemed preferred stock dividend had no impact on
total equity, but reduced earnings per diluted common share by
$0.04 in 2009. In total, CPP costs reduced earnings per diluted
common share by $0.05 in 2009.
Because the Corporation issued preferred stock to the UST in
January 2009, the Corporation is required to report net income
available to common stockholders for the periods in which the
preferred stock was outstanding. Net income available to common
stockholders is calculated by subtracting the preferred stock
dividends and discount amortization from net income.
On April 1, 2008, the Corporation completed the acquisition
of Omega, a diversified financial services company with
$1.8 billion in assets, and, on August 16, 2008, the
Corporation completed the acquisition of IRGB, a
32
bank holding company with $301.7 million in assets. The
assets and liabilities of each of these acquired companies were
recorded on the Corporations balance sheet at their fair
values as of each of the acquisition dates, and their results of
operations have been included in the Corporations
consolidated statement of income since the respective
acquisition dates.
Results
of Operations
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Net income for 2009 was $41.1 million compared to net
income of $35.6 million for 2008. Net income available to
common stockholders for 2009 was $32.8 million or $0.32 per
diluted share, compared to net income available to common
stockholders for 2008 of $35.6 million or $0.44 per diluted
share. Net income available to common stockholders for 2009
included $8.3 million related to preferred stock dividends
and discount amortization associated with the Corporations
participation in the CPP. The increase in net income is a result
of an increase of $14.8 million in net interest income,
combined with an increase of $19.9 million in non-interest
income and a decrease of $5.6 million in the provision for
loan losses, partially offset by an increase of
$32.6 million in non-interest expenses. These items are
more fully discussed later in this section.
The Corporations return on average equity was 3.87% and
its return on average assets was 0.48% for 2009, compared to
4.20% and 0.46%, respectively, for 2008.
In addition to evaluating its results of operations in
accordance with GAAP, the Corporation routinely supplements its
evaluation with an analysis of certain non-GAAP financial
measures, such as return on average tangible equity, return on
average tangible common equity and return on average tangible
assets. The Corporation believes these non-GAAP financial
measures provide information useful to investors in
understanding the Corporations operating performance and
trends, and facilitates comparisons with the performance of the
Corporations peers. The non-GAAP financial measures the
Corporation uses may differ from the non-GAAP financial measures
other financial institutions use to measure their results of
operations. The following tables
33
summarize the Corporations non-GAAP financial measures for
2009 and 2008 derived from amounts reported in the
Corporations financial statements (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Return on average tangible equity:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41,111
|
|
|
$
|
35,595
|
|
Amortization of intangibles, net of tax
|
|
|
4,607
|
|
|
|
4,187
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,718
|
|
|
$
|
39,782
|
|
|
|
|
|
|
|
|
|
|
Average total stockholders equity
|
|
$
|
1,063,104
|
|
|
$
|
847,417
|
|
Less: Average intangibles
|
|
|
(571,492
|
)
|
|
|
(473,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
491,612
|
|
|
$
|
374,189
|
|
|
|
|
|
|
|
|
|
|
Return on average tangible equity
|
|
|
9.30
|
%
|
|
|
10.63
|
%
|
|
|
|
|
|
|
|
|
|
Return on average tangible common equity:
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
32,803
|
|
|
$
|
35,595
|
|
Amortization of intangibles, net of tax
|
|
|
4,607
|
|
|
|
4,187
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,410
|
|
|
$
|
39,782
|
|
|
|
|
|
|
|
|
|
|
Average total stockholders equity
|
|
$
|
1,063,104
|
|
|
$
|
847,417
|
|
Less: Average preferred stockholders equity
|
|
|
(63,602
|
)
|
|
|
|
|
Less: Average intangibles
|
|
|
(571,492
|
)
|
|
|
(473,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
428,010
|
|
|
$
|
374,189
|
|
|
|
|
|
|
|
|
|
|
Return on average tangible common equity
|
|
|
8.74
|
%
|
|
|
10.63
|
%
|
|
|
|
|
|
|
|
|
|
Return on average tangible assets:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41,111
|
|
|
$
|
35,595
|
|
Amortization of intangibles, net of tax
|
|
|
4,607
|
|
|
|
4,187
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,718
|
|
|
$
|
39,782
|
|
|
|
|
|
|
|
|
|
|
Average total assets
|
|
$
|
8,606,188
|
|
|
$
|
7,696,894
|
|
Less: Average intangibles
|
|
|
(571,492
|
)
|
|
|
(473,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,034,696
|
|
|
$
|
7,223,666
|
|
|
|
|
|
|
|
|
|
|
Return on average tangible assets
|
|
|
0.57
|
%
|
|
|
0.55
|
%
|
|
|
|
|
|
|
|
|
|
34
The following table provides information regarding the average
balances and yields earned on interest earning assets and the
average balances and rates paid on interest bearing liabilities
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
|
Average
|
|
|
Income/
|
|
|
Yield/
|
|
Assets
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Balance
|
|
|
Expense
|
|
|
Rate
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with banks
|
|
$
|
2,553
|
|
|
$
|
8
|
|
|
|
0.33
|
%
|
|
$
|
4,344
|
|
|
$
|
89
|
|
|
|
2.04
|
%
|
|
$
|
1,588
|
|
|
$
|
78
|
|
|
|
4.89
|
%
|
Federal funds sold
|
|
|
14,110
|
|
|
|
69
|
|
|
|
0.48
|
|
|
|
14,596
|
|
|
|
304
|
|
|
|
2.05
|
|
|
|
10,429
|
|
|
|
547
|
|
|
|
5.17
|
|
Taxable investment securities (1)
|
|
|
1,210,817
|
|
|
|
50,551
|
|
|
|
4.13
|
|
|
|
1,038,815
|
|
|
|
49,775
|
|
|
|
4.77
|
|
|
|
874,130
|
|
|
|
44,188
|
|
|
|
5.04
|
|
Non-taxable investment securities (1)(2)
|
|
|
188,627
|
|
|
|
10,857
|
|
|
|
5.76
|
|
|
|
181,957
|
|
|
|
10,225
|
|
|
|
5.62
|
|
|
|
165,406
|
|
|
|
8,795
|
|
|
|
5.32
|
|
Loans (2)(3)
|
|
|
5,831,176
|
|
|
|
332,587
|
|
|
|
5.69
|
|
|
|
5,410,022
|
|
|
|
355,426
|
|
|
|
6.57
|
|
|
|
4,305,158
|
|
|
|
319,940
|
|
|
|
7.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
7,247,283
|
|
|
|
394,072
|
|
|
|
5.42
|
|
|
|
6,649,734
|
|
|
|
415,819
|
|
|
|
6.25
|
|
|
|
5,356,711
|
|
|
|
373,548
|
|
|
|
6.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
342,573
|
|
|
|
|
|
|
|
|
|
|
|
146,615
|
|
|
|
|
|
|
|
|
|
|
|
113,314
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(107,015
|
)
|
|
|
|
|
|
|
|
|
|
|
(67,962
|
)
|
|
|
|
|
|
|
|
|
|
|
(52,346
|
)
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
120,747
|
|
|
|
|
|
|
|
|
|
|
|
108,768
|
|
|
|
|
|
|
|
|
|
|
|
84,106
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
1,002,600
|
|
|
|
|
|
|
|
|
|
|
|
859,739
|
|
|
|
|
|
|
|
|
|
|
|
553,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,606,188
|
|
|
|
|
|
|
|
|
|
|
$
|
7,696,894
|
|
|
|
|
|
|
|
|
|
|
$
|
6,055,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
$
|
2,192,844
|
|
|
|
14,229
|
|
|
|
0.65
|
|
|
$
|
1,849,808
|
|
|
|
26,307
|
|
|
|
1.42
|
|
|
$
|
1,441,316
|
|
|
|
36,734
|
|
|
|
2.55
|
|
Savings
|
|
|
841,999
|
|
|
|
2,875
|
|
|
|
0.34
|
|
|
|
746,570
|
|
|
|
6,610
|
|
|
|
0.89
|
|
|
|
589,298
|
|
|
|
9,881
|
|
|
|
1.68
|
|
Certificates and other time
|
|
|
2,258,551
|
|
|
|
68,595
|
|
|
|
3.04
|
|
|
|
2,137,555
|
|
|
|
78,651
|
|
|
|
3.68
|
|
|
|
1,744,691
|
|
|
|
77,661
|
|
|
|
4.45
|
|
Treasury management accounts
|
|
|
472,628
|
|
|
|
4,596
|
|
|
|
0.96
|
|
|
|
373,200
|
|
|
|
7,771
|
|
|
|
2.05
|
|
|
|
266,726
|
|
|
|
12,150
|
|
|
|
4.49
|
|
Other short-term borrowings
|
|
|
114,341
|
|
|
|
3,924
|
|
|
|
3.38
|
|
|
|
143,154
|
|
|
|
5,259
|
|
|
|
3.61
|
|
|
|
147,439
|
|
|
|
7,285
|
|
|
|
4.87
|
|
Long-term debt
|
|
|
419,570
|
|
|
|
17,202
|
|
|
|
4.10
|
|
|
|
498,262
|
|
|
|
21,044
|
|
|
|
4.22
|
|
|
|
467,047
|
|
|
|
19,360
|
|
|
|
4.15
|
|
Junior subordinated debt
|
|
|
205,045
|
|
|
|
9,758
|
|
|
|
4.76
|
|
|
|
192,060
|
|
|
|
12,347
|
|
|
|
6.43
|
|
|
|
151,031
|
|
|
|
10,982
|
|
|
|
7.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
6,504,978
|
|
|
|
121,179
|
|
|
|
1.86
|
|
|
|
5,940,609
|
|
|
|
157,989
|
|
|
|
2.66
|
|
|
|
4,807,548
|
|
|
|
174,053
|
|
|
|
3.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
|
940,808
|
|
|
|
|
|
|
|
|
|
|
|
825,083
|
|
|
|
|
|
|
|
|
|
|
|
634,537
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
97,298
|
|
|
|
|
|
|
|
|
|
|
|
83,785
|
|
|
|
|
|
|
|
|
|
|
|
72,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,543,084
|
|
|
|
|
|
|
|
|
|
|
|
6,849,477
|
|
|
|
|
|
|
|
|
|
|
|
5,514,915
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,063,104
|
|
|
|
|
|
|
|
|
|
|
|
847,417
|
|
|
|
|
|
|
|
|
|
|
|
540,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,606,188
|
|
|
|
|
|
|
|
|
|
|
$
|
7,696,894
|
|
|
|
|
|
|
|
|
|
|
$
|
6,055,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of interest earning assets over interest bearing
liabilities
|
|
$
|
742,305
|
|
|
|
|
|
|
|
|
|
|
$
|
709,125
|
|
|
|
|
|
|
|
|
|
|
$
|
549,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (FTE)
|
|
|
|
|
|
|
272,893
|
|
|
|
|
|
|
|
|
|
|
|
257,830
|
|
|
|
|
|
|
|
|
|
|
|
199,495
|
|
|
|
|
|
Tax-equivalent adjustment
|
|
|
|
|
|
|
6,350
|
|
|
|
|
|
|
|
|
|
|
|
6,038
|
|
|
|
|
|
|
|
|
|
|
|
4,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
266,543
|
|
|
|
|
|
|
|
|
|
|
$
|
251,792
|
|
|
|
|
|
|
|
|
|
|
$
|
194,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.56
|
%
|
|
|
|
|
|
|
|
|
|
|
3.60
|
%
|
|
|
|
|
|
|
|
|
|
|
3.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (2)
|
|
|
|
|
|
|
|
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
3.88
|
%
|
|
|
|
|
|
|
|
|
|
|
3.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The average balances and yields
earned on securities are based on historical cost.
|
|
(2)
|
|
The interest income amounts are
reflected on a fully taxable equivalent (FTE) basis which
adjusts for the tax benefit of income on certain tax-exempt
loans and investments using the federal statutory tax rate of
35.0% for each period presented. The yield on earning assets and
the net interest margin are presented on an FTE basis. The
Corporation believes this measure to be the preferred industry
measurement of net interest income and provides relevant
comparison between taxable and non-taxable amounts.
|
|
(3)
|
|
Average balances include
non-accrual loans. Loans consist of average total loans less
average unearned income. The amount of loan fees included in
interest income on loans is immaterial.
|
35
Net
Interest Income
Net interest income, which is the Corporations major
source of revenue, is the difference between interest income
from earning assets (loans, securities and federal funds sold)
and interest expense paid on liabilities (deposits, treasury
management accounts and short- and long-term borrowings). In
2009, net interest income, which comprised 71.6% of net revenue
(net interest income plus non-interest income) compared to 74.5%
in 2008, was affected by the general level of interest rates,
changes in interest rates, the shape of the yield curve, the
level of non-accrual loans and changes in the amount and mix of
interest earning assets and interest bearing liabilities.
Net interest income, on an FTE basis, increased
$15.1 million or 5.8% from $257.8 million for 2008 to
$272.9 million for 2009. Average interest earning assets
increased $597.5 million or 9.0% and average interest
bearing liabilities increased $564.4 million or 9.5% from
2008 due to organic loan and deposit growth and the Omega and
IRGB acquisitions. The Corporations net interest margin
decreased by 13 basis points from 2008 to 3.75% for 2009 as
loan yields declined faster than deposit rates, reflecting the
actions taken by the FRB to lower interest rates during the
fourth quarter of 2008 combined with competitive pressures on
deposit rates. Details on changes in tax equivalent net interest
income attributed to changes in interest earning assets,
interest bearing liabilities, yields and cost of funds are set
forth in the preceding table.
The following table provides certain information regarding
changes in net interest income attributable to changes in the
average volumes and yields earned on interest earning assets and
the average volume and rates paid for interest bearing
liabilities for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 vs 2008
|
|
|
2008 vs 2007
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with banks
|
|
$
|
(26
|
)
|
|
$
|
(55
|
)
|
|
$
|
(81
|
)
|
|
$
|
76
|
|
|
$
|
(65
|
)
|
|
$
|
11
|
|
Federal funds sold
|
|
|
(10
|
)
|
|
|
(225
|
)
|
|
|
(235
|
)
|
|
|
167
|
|
|
|
(410
|
)
|
|
|
(243
|
)
|
Securities
|
|
|
7,452
|
|
|
|
(6,044
|
)
|
|
|
1,408
|
|
|
|
8,771
|
|
|
|
(1,754
|
)
|
|
|
7,017
|
|
Loans
|
|
|
23,502
|
|
|
|
(46,341
|
)
|
|
|
(22,839
|
)
|
|
|
75,991
|
|
|
|
(40,505
|
)
|
|
|
35,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,918
|
|
|
|
(52,665
|
)
|
|
|
(21,747
|
)
|
|
|
85,005
|
|
|
|
(42,734
|
)
|
|
|
42,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand
|
|
|
4,426
|
|
|
|
(16,504
|
)
|
|
|
(12,078
|
)
|
|
|
7,050
|
|
|
|
(17,477
|
)
|
|
|
(10,427
|
)
|
Savings
|
|
|
720
|
|
|
|
(4,455
|
)
|
|
|
(3,735
|
)
|
|
|
1,641
|
|
|
|
(4,912
|
)
|
|
|
(3,271
|
)
|
Certificates and other time
|
|
|
4,547
|
|
|
|
(14,603
|
)
|
|
|
(10,056
|
)
|
|
|
15,641
|
|
|
|
(14,651
|
)
|
|
|
990
|
|
Treasury management accounts
|
|
|
1,693
|
|
|
|
(4,868
|
)
|
|
|
(3,175
|
)
|
|
|
3,754
|
|
|
|
(8,133
|
)
|
|
|
(4,379
|
)
|
Other short-term borrowings
|
|
|
(404
|
)
|
|
|
(931
|
)
|
|
|
(1,335
|
)
|
|
|
(179
|
)
|
|
|
(1,847
|
)
|
|
|
(2,026
|
)
|
Long-term debt
|
|
|
(3,241
|
)
|
|
|
(601
|
)
|
|
|
(3,842
|
)
|
|
|
1,313
|
|
|
|
371
|
|
|
|
1,684
|
|
Junior subordinated debt
|
|
|
790
|
|
|
|
(3,379
|
)
|
|
|
(2,589
|
)
|
|
|
2,769
|
|
|
|
(1,404
|
)
|
|
|
1,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,531
|
|
|
|
(45,341
|
)
|
|
|
(36,810
|
)
|
|
|
31,989
|
|
|
|
(48,053
|
)
|
|
|
(16,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
$
|
22,387
|
|
|
$
|
(7,324
|
)
|
|
$
|
15,063
|
|
|
$
|
53,016
|
|
|
$
|
5,319
|
|
|
$
|
58,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amount of change not solely due
to rate or volume was allocated between the change due to rate
and the change due to volume based on the net size of the rate
and volume changes.
|
|
(2)
|
|
Interest income amounts are
reflected on an FTE basis which adjusts for the tax benefit of
income on certain tax-exempt loans and investments using the
federal statutory tax rate of 35.0% for each period presented.
The Corporation believes this measure to be the preferred
industry measurement of net interest income and provides
relevant comparison between taxable and non-taxable amounts.
|
Interest income, on an FTE basis, of $394.1 million in 2009
decreased by $21.7 million or 5.2% from 2008. Average
interest earning assets of $7.2 billion for 2009 grew
$597.5 million or 9.0% from the same period of 2008
36
primarily driven by the Omega and IRGB acquisitions, which
increased loans by $1.1 billion and $160.2 million,
respectively, at the time of each acquisition. The yield on
interest earning assets decreased 83 basis points to 5.42%
for 2009 reflecting changes in interest rates as the FRB has
lowered its federal funds target rate from 4.25% at the
beginning of 2008 to a current range of 0.00% to 0.25%.
Interest expense of $121.2 million for 2009 decreased by
$36.8 million or 23.3% from 2008. The rate paid on interest
bearing liabilities decreased 80 basis points to 1.86%
during 2009 reflecting changes in interest rates and a favorable
shift in mix. Average interest bearing liabilities increased
$564.4 million or 9.5% to average $6.5 billion for
2009. This growth was primarily attributable to the Omega and
IRGB acquisitions combined with organic growth. The Omega and
IRGB acquisitions increased deposits by $1.3 billion and
$256.8 million, respectively, at the time of each
acquisition. The Corporation also recognized organic average
deposit and treasury management account growth of
$279.7 million or 4.7% for 2009, compared to 2008, driven
by success with ongoing marketing campaigns designed to attract
new customers to the Corporations local approach to
banking combined with customer preferences to keep funds in
banks due to uncertainties in the market.
Provision
for Loan Losses
The provision for loan losses is determined based on
managements estimates of the appropriate level of
allowance for loan losses needed to absorb probable losses
inherent in the existing loan portfolio, after giving
consideration to charge-offs and recoveries for the period.
The provision for loan losses of $66.8 million in 2009
decreased $5.6 million from 2008. In 2009, net charge-offs
increased $34.3 million as allowances provided in 2008 were
charged off in 2009, while the allowance for loan losses ended
2009 at $104.7 million, flat with December 31, 2008.
The $66.8 million provision for loan losses for 2009 was
comprised of $35.1 million relating to FNBPAs Florida
region, $6.7 million relating to Regency and
$25.0 million relating to the remainder of the
Corporations portfolio, which is predominantly in
Pennsylvania. The increase in net charge-offs reflects continued
weakness in the Corporations Florida portfolio, and, to a
much lesser extent, the slowing economy in Pennsylvania. During
2009, net charge-offs were $66.9 million or 1.15% of
average loans compared to $32.6 million or 0.60% of average
loans for 2008. The net charge-offs for 2009 were comprised of
$43.8 million or 15.80% of average loans relating to
FNBPAs Florida region, $6.3 million or 4.04% of
average loans relating to Regency and $16.7 million or
0.30% of average loans relating to the remainder of the
Corporations portfolio. For additional information, refer
to the Allowance and Provision for Loan Losses section of this
Managements Discussion and Analysis.
Non-Interest
Income
Total non-interest income of $106.0 million in 2009
increased $19.9 million or 23.1% from 2008. This increase
resulted primarily from increases in both service charges and
insurance commissions and fees reflecting organic growth and the
impact of acquisitions combined with lower OTTI charges, a gain
recognized on the sale of a building acquired in a previous
acquisition and higher gains on the sale of residential mortgage
loans. These items were partially offset by decreases in
securities commissions and fees, trust fees, income from bank
owned life insurance and gains on the sales of securities. These
items are further explained in the following paragraphs.
Service charges on loans and deposits of $57.7 million for
2009 increased $3.0 million or 5.6% from 2008, reflecting
organic growth as the Corporation took advantage of competitor
disruption in the marketplace, with ongoing marketing campaigns
designed to attract new customers to the Corporations
local approach to banking. Additionally, the Corporations
customer base expanded as a result of the Omega and IRGB
acquisitions during 2008.
Insurance commissions and fees of $16.7 million for 2009
increased $1.1 million or 7.1% from 2008 primarily as a
result of the acquisition of Omega during 2008.
37
Securities commissions of $7.5 million for 2009 decreased
by $0.7 million or 8.2% from 2008 primarily due to lower
activity due to market conditions, partially offset by the
impact of the acquisition of Omega during 2008.
Trust fees of $11.8 million in 2009 decreased by
$0.3 million or 2.3% from 2008 due to the negative effect
of market conditions on assets under management, partially
offset by growth in assets under management resulting from the
Omega acquisition during 2008.
Income from bank owned life insurance (BOLI) of
$5.7 million for 2009 decreased by $0.7 million or
11.4% from 2008. This decrease was primarily attributable to
death claims, lower yields and a $13.7 million withdrawal
from the policy due to the unfavorable market conditions during
2009.
Gain on sale of residential mortgage loans of $3.1 million
for 2009 increased by $1.2 million or 67.8% from 2008 due
to a higher volume of loan sales resulting from increased loan
refinancing in a lower rate environment. The Corporation sold
$196.2 million of residential mortgage loans during 2009
compared to $117.8 million during 2008.
Gains on sales of securities of $0.5 million decreased
$0.3 million or 36.7% from 2008. During 2009, the
Corporation recognized a gain of $0.2 million relating to
the acquisition of a company in which the Corporation owned
stock. Additionally, the Corporation recognized a gain of
$0.2 million relating to called securities during 2009.
During 2008, most of the gain related to the Visa, Inc. initial
public offering. The Corporation is a member of Visa USA since
it issues Visa debit cards. As such, a portion of the
Corporations ownership interest in Visa was redeemed in
exchange for $0.7 million. This entire amount was recorded
as gain on sale of securities in 2008 since the
Corporations cost basis in Visa is zero.
Net impairment losses on securities of $7.9 million
decreased by $9.3 million from 2008. Impairment losses on
securities during 2009 consisted of $7.1 million related to
investments in pooled TPS and $0.7 million related to
investments in bank stocks, while impairment losses on
securities during 2008 consisted of $16.0 million related
to investments in pooled TPS and $1.2 million related to
investments in bank stocks.
Other income of $10.9 million for 2009 increased
$7.2 million or 191.2% from 2008. The primary items
contributing to this increase were $1.0 million more in
gains relating to payments received on impaired loans acquired
in previous acquisitions, a gain of $0.8 million on the
sale of a building acquired in a previous acquisition and an
increase of $0.3 million in fees earned through an interest
rate swap program for larger commercial customers who desire
fixed rate loans while the Corporation benefits from a variable
rate asset, thereby helping to reduce volatility in its net
interest income. Additionally, impairment losses associated with
the Corporations merchant banking subsidiary decreased by
$2.9 million.
Non-Interest
Expense
Total non-interest expense of $255.3 million in 2009
increased $32.6 million or 14.7% from 2008. This increase
was primarily attributable to operating expenses resulting from
the Omega and IRGB acquisitions in 2008 combined with increases
in salaries and employee benefits, other real estate owned
(OREO) expense and FDIC insurance.
Salaries and employee benefits of $126.9 million in 2009
increased $10.0 million or 8.6% from 2008. This increase
was primarily attributable to the acquisitions of Omega and IRGB
during 2008 combined with $1.1 million in additional
pension expense during 2009 resulting from an increase in the
actuarial valuation amount.
Combined net occupancy and equipment expense of
$38.2 million in 2009 increased $4.0 million or 11.7%
from the combined 2008 level, primarily due to the Omega and
IRGB acquisitions during 2008.
38
Amortization of intangibles expense of $7.1 million in 2009
increased $0.6 million or 10.0% from 2008 primarily due to
higher intangible balances resulting from the Omega and IRGB
acquisitions during 2008.
Outside services expense of $23.6 million in 2009 increased
$2.7 million or 12.8% from 2008 primarily due to the Omega
and IRGB acquisitions during 2008, combined with higher fees for
professional services, including legal fees incurred for loan
workout efforts.
FDIC insurance of $13.9 million for 2009 increased
$13.0 million from 2008 due to a one-time special
assessment of $4.0 million paid during 2009, combined with
an increase in FDIC insurance premium rates for 2009 and FNBPA
having utilized its FDIC insurance premium credits in prior
periods.
State tax expense of $6.8 million in 2009 increased
$0.3 million or 4.0% from 2008 primarily due to higher net
worth based taxes resulting from the Corporations
acquisitions of Omega and IRGB in 2008.
OREO expense of $6.2 million in 2009 increased
$4.0 million from 2008, due to increased foreclosure
activity and write-downs of OREO property, particularly in the
Florida market, during 2009.
Advertising and promotional expense of $5.3 million in 2009
increased $0.7 million or 16.0% from 2008 due to increased
advertising in connection with the Corporations efforts to
attract new customers to the Corporations local approach
to banking during a time of competitor disruption in the
marketplace, combined with the Corporations acquisitions
of Omega and IRGB in 2008.
The Corporation recorded merger-related expenses of
$4.7 million in 2008 relating to the acquisitions of Omega
and IRGB. No merger-related expenses were recorded during 2009.
Information relating to the Corporations acquisitions is
discussed in the Mergers and Acquisitions footnote in the Notes
to Consolidated Financial Statements, which is included in
Item 8 of this Report.
Other non-interest expenses of $27.4 million in 2009
increased $2.0 million or 7.8% from 2008. This increase
reflects additional operating costs associated with the
Corporations acquisitions of Omega and IRGB in 2008.
Additionally, loan-related expense of $3.8 million in 2009
increased $0.8 million from 2008 primarily due to costs
associated with the Florida commercial loan portfolio in 2009.
Also, the Corporation recorded net expense of $1.1 million
during 2009 associated with a litigation settlement.
Income
Taxes
The Corporations income tax expense of $9.3 million
for 2009 increased by $2.0 million or 28.1% from 2008. The
effective tax rate of 18.4% for 2009 increased from 16.9% for
the prior year, primarily due to higher pre-tax income for 2009.
The income tax expense for 2009 and 2008 were favorably impacted
by $0.4 million and $0.3 million, respectively, due to
the resolution of previously uncertain tax positions. The lower
effective tax rate also reflects benefits resulting from
tax-exempt income on investments, loans and bank owned life
insurance. Both periods tax rates are lower than the 35.0%
federal statutory tax rate due to the tax benefits primarily
resulting from tax-exempt instruments and excludable dividend
income.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Net income for 2008 was $35.6 million or $0.44 per diluted
share, a decrease of $34.1 million or 48.9% from net income
for 2007 of $69.7 million or $1.15 per diluted share. The
decrease in net income is largely a result of an increase of
$59.7 million in the provision for loan losses combined
with $20.1 million of non-cash impairment charges relating
to certain investments.
The Corporations return on average equity was 4.20% and
its return on average assets was 0.46% for 2008, compared to
12.89% and 1.15%, respectively, for 2007.
39
Net
Interest Income
Net interest income, which is the Corporations major
source of revenue, is the difference between interest income
from earning assets and interest expense paid on liabilities. In
2008, net interest income, which comprised 74.5% of net revenue
compared to 70.5% in 2007, was affected by the general level of
interest rates, changes in interest rates, the shape of the
yield curve and changes in the amount and mix of interest
earning assets and interest bearing liabilities.
Net interest income, on an FTE basis, increased
$58.3 million or 29.2% from $199.5 million for 2007 to
$257.8 million for 2008. Average interest earning assets
increased $1.3 billion or 24.1% and average interest
bearing liabilities increased $1.1 billion or 23.6% from
2007 due to organic loan and deposit growth and the Omega and
IRGB acquisitions. The Corporations net interest margin
increased by 15 basis points from 2007 to 3.88% for 2008 as
lower yields on interest earning assets were more than offset by
lower rates paid on interest bearing liabilities.
Interest income, on an FTE basis, of $415.8 million in
2008, increased by $42.3 million or 11.3% from 2007.
Average interest earning assets of $6.6 billion for the
2008 grew $1.3 billion or 24.1% from the same period of
2007 primarily driven by the Omega and IRGB acquisitions which
added average loans of $860.8 million and
$64.5 million, respectively, in 2008. The Corporation also
recognized organic average loan growth of $179.6 million
during 2008. The yield on interest earning assets decreased
72 basis points to 6.25% for 2008 reflecting changes in
interest rates.
Interest expense of $158.0 million for 2008 decreased by
$16.1 million or 9.2% from 2007. The rate paid on interest
bearing liabilities decreased 95 basis points to 2.66%
during 2008 reflecting changes in interest rates and a favorable
shift in mix. Average interest bearing liabilities increased
$1.1 billion or 23.6% to average $5.9 billion for
2008. This growth was primarily attributable to the Omega and
IRGB acquisitions combined with organic growth. The Omega
acquisition added $946.1 million in average deposits in
2008, while the IRGB acquisition added $99.3 million in
average deposits in 2008. The Corporation also recognized
organic average deposit growth of $103.8 million during
2008.
Provision
for Loan Losses
The provision for loan losses of $72.4 million in 2008
increased $59.7 million from 2007 due to higher net
charge-offs, additional specific reserves and increased
allocations for a weaker economic environment. The significant
increases primarily reflect continued deterioration in the
Corporations Florida market, and, to a much lesser extent,
the slowing economy in Pennsylvania. The $72.4 million
provision for loan losses for 2008 was comprised of
$32.0 million relating to FNBPAs Florida region,
$5.7 million relating to Regency and $34.7 million
relating to the remainder of the Corporations portfolio,
which is predominantly in Pennsylvania. During 2008, net
charge-offs were $32.6 million or 0.60% of average loans
compared to $12.5 million or 0.29% of average loans for
2007. The net charge-offs for 2008 were comprised of
$15.0 million or 5.02% of average loans relating to
FNBPAs Florida region, $5.8 million or 3.78% of
average loans relating to Regency and $11.8 million or
0.24% of average loans relating to the remainder of the
Corporations portfolio. For additional information, refer
to the Allowance and Provision for Loan Losses section of this
Managements Discussion and Analysis.
Non-Interest
Income
Total non-interest income of $86.1 million in 2008
increased $4.5 million or 5.5% from 2007. This increase
resulted primarily from increases in all major fee businesses
reflecting organic growth and the impact of acquisitions,
partially offset by decreases in gain on sale of securities,
impairment loss on securities and other non-interest income.
Service charges on loans and deposits of $54.7 million for
2008 increased $13.9 million or 34.0% from 2007, reflecting
organic growth and the expansion of the Corporations
customer base as a result of the Omega and
40
IRGB acquisitions during 2008. Insurance commissions and fees of
$15.6 million for 2008 increased $1.6 million or 11.3%
from 2007 primarily as a result of the acquisition of Omega
during 2008 partially offset by a decrease in contingent fee
income. Securities commissions of $8.1 million for 2008
increased by $1.8 million or 28.5% from 2007 primarily due
to the acquisition of Omega during 2008 and an increase in
annuity revenue due to the declining interest rate environment,
partially offset by lower activity due to market conditions.
Trust fees of $12.1 million in 2008 increased by
$3.5 million or 41.0% from 2007 due to growth in assets
under management resulting from the Omega acquisition during
2008 combined with increases in estate accounts, partially
offset by the negative effect of market conditions on assets
under management. Income from BOLI of $6.4 million for 2008
increased by $2.3 million or 55.6% from 2007. This increase
was primarily attributable to the Omega and IRGB acquisitions in
2008 combined with increases in crediting rates paid on the
insurance policies. Gain on sale of residential mortgage loans
of $1.8 million for 2008 increased by $0.1 million or
6.4% from 2007 due to higher volume and increased prices on
mortgage sales in 2008, partially offset by a loss on the sale
of student loans during 2007. Gain on sale of securities of
$0.8 million decreased $0.3 million or 27.8% from 2007
as management did not sell as many equity securities during 2008
due to unfavorable market prices in the bank stock portfolio.
During 2008, most of the gain related to the Visa, Inc. initial
public offering. The Corporation is a member of Visa USA since
it issues Visa debit cards. As such, a portion of the
Corporations ownership interest in Visa was redeemed in
exchange for $0.7 million. This entire amount was recorded
as gain on sale of securities since the Corporations cost
basis in Visa is zero. Impairment loss on securities of
$17.2 million increased by $17.1 million from 2007 due
to impairment losses during 2008 of $16.0 million related
to investments in pooled TPS and $1.2 million related to
investments in bank stocks. Other income of $3.8 million
for 2008 decreased $1.3 million or 25.2% from 2007. The
primary reason for this decrease was due to a $3.4 million
impairment loss primarily relating to two mezzanine loans made
by the Corporations merchant banking subsidiary, with
$2.1 million related to a Florida-based company and the
other $1.0 million related to a company with substantial
exposure to the automobile industry. These decreases were
partially offset by an increase of $2.6 million in swap fee
income during 2008.
Non-Interest
Expense
Total non-interest expense of $222.7 million in 2008
increased $57.1 million or 34.5% from 2007. This increase
was primarily attributable to operating expenses resulting from
the Omega and IRGB acquisitions in 2008.
Salaries and employee benefits of $116.8 million in 2008
increased $29.6 million or 33.9% from 2007. This increase
was primarily attributable to the acquisitions of Omega and IRGB
during 2008 combined with normal annual compensation and benefit
increases, additional costs associated with the transition of
the Corporations senior leadership and higher accrued
expense for the Corporations long-term restricted stock
program. The Corporations full-time equivalent employees
increased 33.4% from 1,762 at December 31, 2007 to 2,350 at
December 31, 2008, primarily due to the Omega and IRGB
acquisitions. The Corporation also recorded $1.1 million in
additional expense relating to the retirement of an executive
during the second quarter of 2008. Additionally, 2007 included a
credit of $1.6 million relating to the restructuring of the
Corporations postretirement benefit plan. Combined net
occupancy and equipment expense of $34.2 million in 2008
increased $6.5 million or 23.5% from the combined 2007
level, primarily due to the Omega and IRGB acquisitions during
2008. Amortization of intangibles expense of $6.4 million
in 2008 increased $2.0 million or 46.2% from 2007 primarily
due to higher intangible balances resulting from the Omega and
IRGB acquisitions during 2008. Outside services expense of
$20.9 million in 2008 increased $5.0 million or 31.1%
from 2007 primarily due to the Omega and IRGB acquisitions
during 2008, combined with higher fees for professional
services. State tax expense of $6.6 million in 2008
increased $1.1 million or 20.2% from 2007 primarily due to
higher net worth based taxes resulting from the
Corporations acquisitions of Omega and IRGB in 2008.
Advertising and promotional expense of $4.6 million in 2008
increased $1.7 million or 57.5% from 2007 due to increased
advertising in connection with the Corporations
acquisitions of Omega and IRGB in 2008. The Corporation recorded
merger-related expenses of $4.7 million in 2008 relating to
the acquisitions of Omega and IRGB compared to $0.2 million
in 2007. Information relating to the Corporations
acquisitions is discussed in the Mergers and Acquisitions
footnote in the Notes to Consolidated Financial Statements,
which is included in Item 8 of this Report. Other
non-interest expenses of $26.3 million in 2008 increased
$5.1 million or 24.0% from 2007. This increase was
primarily due to additional operating costs associated
41
with the Corporations acquisitions of Omega and IRGB in
2008. Additionally, OREO expense of $2.1 million in 2008
increased $1.6 million from 2007 due to increased
foreclosure activity and write-downs of OREO property.
Income
Taxes
The Corporations income tax expense of $7.2 million
for 2008 decreased by $21.2 million or 74.6% from 2007. The
effective tax rate of 16.9% for 2008 declined from 29.0% for the
prior year, primarily due to lower pre-tax income for 2008. The
income tax expense for 2008 and 2007 were favorably impacted by
$0.3 million and $0.9 million, respectively, due to
the resolution of previously uncertain tax positions. The lower
effective tax rate also reflects benefits resulting from
tax-exempt income on investments, loans and bank owned life
insurance. Both periods tax rates are lower than the 35.0%
federal statutory tax rate due to the tax benefits primarily
resulting from tax-exempt instruments and excludable dividend
income.
Liquidity
The Corporations goal in liquidity management is to
satisfy the cash flow requirements of depositors and borrowers
as well as the operating cash needs of the Corporation with
cost-effective funding. The Board of Directors of the
Corporation has established an Asset/Liability Management Policy
in order to achieve and maintain earnings performance consistent
with long-term goals while maintaining acceptable levels of
interest rate risk, a well-capitalized balance sheet
and adequate levels of liquidity. The Board of Directors of the
Corporation has also established a Contingency Funding Policy to
address liquidity crisis conditions. These policies designate
the Corporate Asset/Liability Committee (ALCO) as the body
responsible for meeting these objectives. The ALCO, which
includes members of executive management, reviews liquidity on a
periodic basis and approves significant changes in strategies
that affect balance sheet or cash flow positions. Liquidity is
centrally managed on a daily basis by the Corporations
Treasury Department.
The principal sources of the parent companys liquidity are
its strong existing cash resources plus dividends it receives
from its subsidiaries. These dividends may be impacted by the
parents or its subsidiaries capital needs, statutory
laws and regulations, corporate policies, contractual
restrictions, profitability and other factors. Cash on hand at
the parent at December 31, 2009 was $74.9 million, up
from $66.8 million at December 31, 2008, as the
Corporation took a number of actions to bolster its cash
position. On January 9, 2009, the Corporation completed the
sale of 100,000 shares of newly issued Series C
Preferred Stock valued at $100.0 million as part of the
USTs CPP. The Corporation redeemed the Series C
Preferred Stock on September 9, 2009. Additionally, on
January 21, 2009, the Corporations Board of Directors
elected to reduce the common stock dividend rate from $0.24 to
$0.12 per quarter, thus reducing 2009s liquidity needs by
approximately $43.1 million. Finally, on June 16,
2009, the Corporation completed a common stock offering that
raised $125.8 million in total capital, $98.0 million
of which has been invested in FNBPA. The parent also may draw on
an approved line of credit with a major domestic bank. This
unused line was $15.0 million as of December 31, 2009
and $25.0 million as of December 31, 2008. During
2009, a $25.0 million committed line of credit was
negotiated with a major domestic bank on behalf of Regency. At
December 31, 2009, $10.0 million was outstanding. In
addition, the Corporation also issues subordinated notes through
Regency on a regular basis. Subordinated note growth for 2009
was $36.2 million or 23.7%, with one customer accounting
for $16.3 million of such growth.
FNBPA generates liquidity from its normal business operations.
Liquidity sources from assets include payments from loans and
investments as well as the ability to securitize, pledge or sell
loans, investment securities and other assets. Liquidity sources
from liabilities are generated primarily through the 224 banking
offices of FNBPA in the form of deposits and treasury management
accounts. The Corporation also has access to reliable and
cost-effective wholesale sources of liquidity. Short-term and
long-term funds can be acquired to help fund normal business
operations as well as serve as contingency funding in the event
that the Corporation would be faced with a liquidity crisis.
The liquidity position of the Corporation continues to be strong
as evidenced by its ability to generate strong growth in
deposits and treasury management accounts. As a result, the
Corporation is less reliant on capital
42
markets funding as witnessed by its ratio of total deposits and
treasury management accounts to total assets of 79.4% and 77.3%
as of December 31, 2009 and 2008, respectively. Over this
time period, growth in deposits and treasury management accounts
was $447.7 million or 6.9%. The Corporation had unused
wholesale credit availability of $2.9 billion or 33.2% of
total assets at December 31, 2009 and $2.7 billion or
32.0% of total assets at December 31, 2008. These sources
include the availability to borrow from the FHLB, the FRB,
correspondent bank lines and access to certificates of deposit
issued through brokers. During 2009, the Corporation expanded
its borrowing capacity at the FRB by approximately
$342.0 million by pledging loans as collateral. Further,
the Corporations election not to opt out of the
FDICs TLGP resulted in $140.0 million of increased
funding availability which expired on October 31, 2009.
Finally, the Corporations ratio of unpledged securities to
total securities improved to 16.9% at December 31, 2009
compared to 4.4% at December 31, 2008.
In addition, the ALCO regularly monitors various liquidity
ratios and forecasts of the Corporations liquidity
position. Management believes the Corporation has sufficient
liquidity available to meet its normal operating and contingency
funding cash needs.
Market
Risk
Market risk refers to potential losses arising from changes in
interest rates, foreign exchange rates, equity prices and
commodity prices. The Corporation is susceptible to current and
future impairment charges on holdings in its investment
portfolio. The Securities footnote, in the Notes to Consolidated
Financial Statements, which is included in Item 8 of this
Report, discusses the impairment charges taken during both 2009
and 2008 relating to the pooled TPS and bank stock portfolios.
The Securities footnote also discusses the ongoing process
management utilizes to determine whether impairment exists.
The Corporation is primarily exposed to interest rate risk
inherent in its lending and deposit-taking activities as a
financial intermediary. To succeed in this capacity, the
Corporation offers an extensive variety of financial products to
meet the diverse needs of its customers. These products
sometimes contribute to interest rate risk for the Corporation
when product groups do not complement one another. For example,
depositors may want short-term deposits while borrowers desire
long-term loans.
Changes in market interest rates may result in changes in the
fair value of the Corporations financial instruments, cash
flows and net interest income. The ALCO is responsible for
market risk management which involves devising policy
guidelines, risk measures and limits, and managing the amount of
interest rate risk and its effect on net interest income and
capital. The Corporation uses derivative financial instruments
for interest rate risk management purposes and not for trading
or speculative purposes.
Interest rate risk is comprised of repricing risk, basis risk,
yield curve risk and options risk. Repricing risk arises from
differences in the cash flow or repricing between asset and
liability portfolios. Basis risk arises when asset and liability
portfolios are related to different market rate indexes, which
do not always change by the same amount. Yield curve risk arises
when asset and liability portfolios are related to different
maturities on a given yield curve; when the yield curve changes
shape, the risk position is altered. Options risk arises from
embedded options within asset and liability products
as certain borrowers have the option to prepay their loans when
rates fall while certain depositors can redeem their
certificates of deposit early when rates rise.
The Corporation uses a sophisticated asset/liability model to
measure its interest rate risk. Interest rate risk measures
utilized by the Corporation include earnings simulation,
economic value of equity (EVE) and gap analysis.
Gap analysis and EVE are static measures that do not incorporate
assumptions regarding future business. Gap analysis, while a
helpful diagnostic tool, displays cash flows for only a single
rate environment. EVEs long-term horizon helps identify
changes in optionality and longer-term positions. However,
EVEs liquidation perspective does not translate into the
earnings-based measures that are the focus of managing and
valuing a going concern. Net interest income simulations
explicitly measure the exposure to earnings from changes in
market
43
rates of interest. In these simulations, the Corporations
current financial position is combined with assumptions
regarding future business to calculate net interest income under
various hypothetical rate scenarios. The ALCO reviews earnings
simulations over multiple years under various interest rate
scenarios on a periodic basis. Reviewing these various measures
provides the Corporation with a comprehensive view of its
interest rate profile.
The following gap analysis compares the difference between the
amount of interest earning assets (IEA) and interest bearing
liabilities (IBL) subject to repricing over a period of time. A
ratio of more than one indicates a higher level of repricing
assets over repricing liabilities for the time period.
Conversely, a ratio of less than one indicates a higher level of
repricing liabilities over repricing assets for the time period.
The following table presents the amounts of IEA and IBL as of
December 31, 2009 that are subject to repricing within the
periods indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
2-3
|
|
|
4-6
|
|
|
7-12
|
|
|
Total
|
|
|
|
1 Month
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
1 Year
|
|
|
Interest Earning Assets (IEA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,354,740
|
|
|
$
|
864,683
|
|
|
$
|
352,612
|
|
|
$
|
557,842
|
|
|
$
|
3,129,877
|
|
Investments
|
|
|
245,534
|
|
|
|
131,279
|
|
|
|
163,042
|
|
|
|
257,706
|
|
|
|
797,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600,274
|
|
|
|
995,962
|
|
|
|
515,654
|
|
|
|
815,548
|
|
|
|
3,927,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Liabilities (IBL)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-maturity deposits
|
|
|
1,655,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,655,113
|
|
Time deposits
|
|
|
130,138
|
|
|
|
233,946
|
|
|
|
341,223
|
|
|
|
587,243
|
|
|
|
1,292,550
|
|
Borrowings
|
|
|
629,980
|
|
|
|
46,168
|
|
|
|
57,654
|
|
|
|
92,830
|
|
|
|
826,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,415,231
|
|
|
|
280,114
|
|
|
|
398,877
|
|
|
|
680,073
|
|
|
|
3,774,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Gap
|
|
$
|
(814,957
|
)
|
|
$
|
715,848
|
|
|
$
|
116,777
|
|
|
$
|
135,475
|
|
|
$
|
153,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Gap
|
|
$
|
(814,957
|
)
|
|
$
|
(99,109
|
)
|
|
$
|
17,668
|
|
|
$
|
153,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IEA/IBL (Cumulative)
|
|
|
0.66
|
|
|
|
0.96
|
|
|
|
1.01
|
|
|
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Gap to IEA
|
|
|
(10.9
|
)%
|
|
|
(1.3
|
)%
|
|
|
0.2
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cumulative twelve-month IEA to IBL ratio changed to 1.04 for
December 31, 2009 from 1.08 for December 31, 2008.
The allocation of non-maturity deposits to the one-month
maturity category is based on the estimated sensitivity of each
product to changes in market rates. For example, if a
products rate is estimated to increase by 50% as much as
the market rates, then 50% of the account balance was placed in
this category. The current allocation is representative of the
estimated sensitivities for a +/- 100 basis point change in
market rates.
The measures were calculated using rate shocks, representing
immediate rate changes that move all market rates by the same
amount. The variance percentages represent the change between
the net interest income or EVE calculated under the particular
rate shock versus the net interest income or EVE that was
calculated assuming market rates as of December 31, 2009.
44
The following table presents an analysis of the potential
sensitivity of the Corporations net interest income and
EVE to changes in interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALCO
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Guidelines
|
|
|
Net interest income change (12 months):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+ 200 basis points
|
|
|
(1.1
|
)%
|
|
|
(0
|
.3)
|
%
|
|
|
+/−5.0
|
%
|
+ 100 basis points
|
|
|
(0.4
|
)%
|
|
|
0
|
.2
|
%
|
|
|
+/−5.0
|
%
|
− 100 basis points
|
|
|
(1.9
|
)%
|
|
|
(2
|
.4)
|
%
|
|
|
+/−5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic value of equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+ 200 basis points
|
|
|
(5.9
|
)%
|
|
|
(0
|
.1)
|
%
|
|
|
|
|
+ 100 basis points
|
|
|
(2.3
|
)%
|
|
|
1
|
.1
|
%
|
|
|
|
|
− 100 basis points
|
|
|
(0.9
|
)%
|
|
|
6
|
.3
|
%
|
|
|
|
|
The Corporation has a relatively neutral interest rate risk
position. The Corporation has maintained a relatively stable net
interest margin despite the recent market rate volatility.
During 2009, the ALCO utilized several strategies to maintain
the Corporations interest rate risk position at a
relatively neutral level. For example, the Corporation
successfully achieved growth in longer-term certificates of
deposit. On the lending side, the Corporation regularly sells
long-term fixed-rate residential mortgages to the secondary
market and has been successful in the origination of commercial
loans with short-term repricing characteristics. Total variable
and adjustable-rate loans increased from 54.6% of total loans as
of December 31, 2008 to 57.4% of total loans as of
December 31, 2009. The investment portfolio is used, in
part, to improve the Corporations interest rate risk
position. The average life of the investment portfolio is
relatively low at 2.6 years at December 31, 2009
versus 2.7 years at December 31, 2008. Finally, the
Corporation has made use of interest rate swaps to lessen its
interest rate risk position. The $185.9 million in notional
swap principal originated in 2009 accounted for the majority of
the increase in adjustable loans during 2009. For additional
information regarding interest rate swaps, see the Derivative
Instruments footnote in the Notes to Consolidated Financial
Statements, which is included in Item 8 of this Report.
OCC
Bulletin 2000-16
mandates that banks have their asset/liability models
independently validated on a periodic basis. The
Corporations Asset/Liability Management Policy states that
the model will be validated at least every three years. A
leading asset/liability consulting firm issued a report as of
December 31, 2009 after conducting a validation of the
model for FNBPA. The model was given an Excellent
rating, which according to the consultant, indicates that the
overall model implementation meets FNBPAs earnings
performance assessment and interest rate risk analysis needs.
However, the Corporation recognizes that all asset/liability
models have some inherent shortcomings. Furthermore,
asset/liability models require certain assumptions to be made,
such as prepayment rates on interest earning assets and pricing
impact on non-maturity deposits, which may differ from actual
experience. These business assumptions are based upon the
Corporations experience, business plans and available
industry data. While management believes such assumptions to be
reasonable, there can be no assurance that modeled results will
be achieved.
Risk
Management
The key to effective risk management is to be proactive in
identifying, measuring, evaluating and monitoring risk on an
ongoing basis. Risk management practices support
decision-making, improve the success rate for new initiatives,
and strengthen the markets confidence in the Corporation
and its affiliates.
The Corporation supports its risk management process through a
governance structure involving its Board of Directors and senior
management. The Corporations Risk Committee, which is
comprised of various members
45
of the Board of Directors, helps insure that management executes
business decisions within the Corporations desired risk
profile. The Risk Committee has the following key roles:
|
|
|
|
|
facilitate the identification, assessment and monitoring of risk
across the Corporation;
|
|
|
provide support and oversight to the Corporations
businesses; and
|
|
|
identify and implement risk management best practices, as
appropriate.
|
FNBPA has a Risk Management Committee comprised of senior
management to provide
day-to-day
oversight to specific areas of risk with respect to the level of
risk and risk management structure. FNBPAs Risk Management
Committee reports on a regular basis to the Corporations
Risk Committee regarding the enterprise risk profile of the
Corporation and other relevant risk management issues.
The Corporations audit function performs an independent
assessment of the internal control environment. Moreover, the
Corporations audit function plays a critical role in risk
management, testing the operation of internal control systems
and reporting findings to management and to the
Corporations Audit Committee. Both the Corporations
Risk Committee and FNBPAs Risk Management Committee
regularly assess the Corporations enterprise-wide risk
profile and provide guidance on actions needed to address key
risk issues.
Contractual
Obligations, Commitments and Off-Balance Sheet
Arrangements
The following table sets forth contractual obligations of
principal that represent required and potential cash outflows as
of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Deposits without a stated maturity
|
|
$
|
4,175,207
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,175,207
|
|
Certificates and other time deposits
|
|
|
1,279,383
|
|
|
|
651,007
|
|
|
|
266,416
|
|
|
|
8,210
|
|
|
|
2,205,016
|
|
Operating leases
|
|
|
5,118
|
|
|
|
8,295
|
|
|
|
5,517
|
|
|
|
15,472
|
|
|
|
34,402
|
|
Long-term debt
|
|
|
206,580
|
|
|
|
115,727
|
|
|
|
1,310
|
|
|
|
1,260
|
|
|
|
324,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,666,288
|
|
|
$
|
775,029
|
|
|
$
|
273,243
|
|
|
$
|
24,942
|
|
|
$
|
6,739,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the amounts and expected
maturities of commitments to extend credit and standby letters
of credit as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Commitments to extend credit
|
|
$
|
1,227,105
|
|
|
$
|
47,414
|
|
|
$
|
19,712
|
|
|
$
|
117,634
|
|
|
$
|
1,411,865
|
|
Standby letters of credit
|
|
|
44,755
|
|
|
|
29,182
|
|
|
|
13,793
|
|
|
|
187
|
|
|
|
87,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,271,860
|
|
|
$
|
76,596
|
|
|
$
|
33,505
|
|
|
$
|
117,821
|
|
|
$
|
1,499,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit and standby letters of credit do
not necessarily represent future cash requirements because while
the borrower has the ability to draw upon these commitments at
any time, these commitments often expire without being drawn
upon. For additional information relating to commitments to
extend credit and standby letters of credit, see the
Commitments, Credit Risk and Contingencies footnote in the Notes
to Consolidated Financial Statements, which is included in
Item 8 of this Report.
Lending
Activity
The loan portfolio consists principally of loans to individuals
and small- and medium-sized businesses within the
Corporations primary market area of Pennsylvania and
northeastern Ohio. The portfolio also consists of commercial
loans in Florida, which totaled $243.9 million or 4.2% of
total loans as of December 31, 2009 compared to
$294.2 million or 5.1% of total loans as of
December 31, 2008. In addition, the portfolio contains
consumer
46
finance loans to individuals in Pennsylvania, Ohio and
Tennessee, which totaled $162.0 million or 2.8% of total
loans as of December 31, 2009.
Following is a summary of loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Commercial
|
|
$
|
3,234,738
|
|
|
$
|
3,173,941
|
|
|
$
|
2,232,860
|
|
|
$
|
2,111,752
|
|
|
$
|
1,613,960
|
|
Direct installment
|
|
|
985,746
|
|
|
|
1,070,791
|
|
|
|
941,249
|
|
|
|
926,766
|
|
|
|
890,288
|
|
Residential mortgages
|
|
|
605,219
|
|
|
|
638,356
|
|
|
|
465,881
|
|
|
|
490,215
|
|
|
|
485,542
|
|
Indirect installment
|
|
|
527,818
|
|
|
|
531,430
|
|
|
|
427,663
|
|
|
|
461,214
|
|
|
|
493,740
|
|
Consumer lines of credit
|
|
|
408,469
|
|
|
|
340,750
|
|
|
|
251,100
|
|
|
|
254,054
|
|
|
|
262,969
|
|
Other
|
|
|
87,371
|
|
|
|
65,112
|
|
|
|
25,482
|
|
|
|
9,143
|
|
|
|
2,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,849,361
|
|
|
$
|
5,820,380
|
|
|
$
|
4,344,235
|
|
|
$
|
4,253,144
|
|
|
$
|
3,749,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial is comprised of both commercial real estate loans and
commercial and industrial loans. 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 written by third parties, primarily
automobile loans. Consumer lines of credit includes 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 commercial leases,
mezzanine loans and student loans.
Total loans were essentially unchanged at $5.8 billion for
both the periods ended December 31, 2009 and 2008. However,
the Corporation saw a favorable shift in the loan mix as
commercial and consumer lines of credit increased by 1.9% and
19.9%, respectively, while direct installment, residential
mortgages and indirect installment declined 7.9%, 5.2% and 0.7%,
respectively. Additionally, other increased by 34.2%, primarily
due to an increase of $20.6 million in commercial leases.
Total loans at December 31, 2008 increased by
$1.5 billion or 34.0% to $5.8 billion as compared to
December 31, 2007. This growth primarily relates to the
acquisitions of Omega and IRGB, which added loans of
$1.1 billion and $168.8 million, respectively, at the
time of each acquisition, combined with organic growth.
The composition of the Florida loan portfolio consisted of the
following as of December 31, 2009: unimproved residential
land (13.0%), unimproved commercial land (23.5%), improved land
(3.7%), income producing commercial real estate (35.1%),
residential construction (7.6%), commercial construction
(13.3%), commercial and industrial (2.5%) and owner-occupied
(1.3%). The weighted average
loan-to-value
ratio for this portfolio was 76.8% and 73.7% as of
December 31, 2009 and 2008, respectively.
The majority of the Corporations loan portfolio consists
of commercial loans, which is comprised of both commercial real
estate loans and commercial and industrial loans. As of
December 31, 2009 and 2008, commercial real estate loans
were $2.1 billion and $2.0 billion, or 35.4% and 34.3%
of total loans, respectively. As of December 31, 2009,
approximately 47.0% of the commercial real estate loans are
owner-occupied, while the remaining 53.0% are
non-owner-occupied. As of December 31, 2009 and 2008, the
Corporation had construction loans of $184.1 million and
$176.7 million, respectively, representing 3.1% and 3.0% of
total loans, respectively. As of December 31, 2009 and
2008, there were no concentrations of loans relating to any
industry in excess of 10% of total loans.
47
Following is a summary of the maturity distribution of certain
loan categories based on remaining scheduled repayments of
principal as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
1-5
|
|
|
Over
|
|
|
|
|
|
|
1 Year
|
|
|
Years
|
|
|
5 Years
|
|
|
Total
|
|
|
Commercial
|
|
$
|
235,867
|
|
|
$
|
861,948
|
|
|
$
|
2,136,923
|
|
|
$
|
3,234,738
|
|
Residential mortgages
|
|
|
752
|
|
|
|
26,573
|
|
|
|
577,894
|
|
|
|
605,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
236,619
|
|
|
$
|
888,521
|
|
|
$
|
2,714,817
|
|
|
$
|
3,839,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total amount of loans due after one year includes
$2.8 billion with floating or adjustable rates of interest
and $836.3 million with fixed rates of interest.
For additional information relating to lending activity, see the
Loans footnote in the Notes to Consolidated Financial
Statements, which is included in Item 8 of this Report.
Non-Performing
Assets
Non-performing loans include non-accrual loans and restructured
loans. Non-accrual loans represent loans for which interest
accruals have been discontinued. Restructured loans are loans in
which the borrower has been granted a concession on the interest
rate or the original repayment terms due to financial distress.
Non-performing assets also include debt securities on which OTTI
has been taken in the current or prior periods.
The Corporation discontinues interest accruals when principal or
interest is due and has remained unpaid for 90 to 180 days
depending on the loan type. 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 has been paid and the ultimate collectibility of
the remaining principal and interest is reasonably assured.
Non-performing loans are closely monitored on an ongoing basis
as part of the Corporations loan review and work-out
process. The potential risk of loss on these loans is evaluated
by comparing the loan balance to the fair value of any
underlying collateral or the present value of projected future
cash flows. Losses on non-accrual and restructured loans are
recognized when appropriate.
Following is a summary of non-performing assets (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Non-accrual loans
|
|
$
|
133,891
|
|
|
$
|
139,607
|
|
|
$
|
29,211
|
|
|
$
|
24,636
|
|
|
$
|
28,100
|
|
Restructured loans
|
|
|
11,624
|
|
|
|
3,872
|
|
|
|
3,288
|
|
|
|
3,314
|
|
|
|
4,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
145,515
|
|
|
|
143,479
|
|
|
|
32,499
|
|
|
|
27,950
|
|
|
|
32,900
|
|
Other real estate owned (OREO)
|
|
|
21,367
|
|
|
|
9,177
|
|
|
|
8,052
|
|
|
|
5,948
|
|
|
|
6,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans and OREO
|
|
|
166,882
|
|
|
|
152,656
|
|
|
|
40,551
|
|
|
|
33,898
|
|
|
|
39,237
|
|
Non-performing investments
|
|
|
4,825
|
|
|
|
10,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
171,707
|
|
|
$
|
163,112
|
|
|
$
|
40,551
|
|
|
$
|
33,898
|
|
|
$
|
39,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans/total loans
|
|
|
2.49
|
%
|
|
|
2.47
|
%
|
|
|
0.75
|
%
|
|
|
0.66
|
%
|
|
|
0.88
|
%
|
Non-performing loans + OREO/ total loans + OREO
|
|
|
2.84
|
%
|
|
|
2.62
|
%
|
|
|
0.93
|
%
|
|
|
0.80
|
%
|
|
|
1.04
|
%
|
Non-performing assets/total assets
|
|
|
1.97
|
%
|
|
|
1.95
|
%
|
|
|
0.67
|
%
|
|
|
0.56
|
%
|
|
|
0.70
|
%
|
The increase in non-performing loans from 2007 to 2008 is
primarily a result of the significant deterioration in Florida,
and to a much lesser extent, the slowing economy in Pennsylvania.
48
Following is a summary of loans 90 days or more past due on
which interest accruals continue (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Loans 90 days or more past due
|
|
$
|
12,471
|
|
|
$
|
13,677
|
|
|
$
|
7,173
|
|
|
$
|
5,171
|
|
|
$
|
5,316
|
|
As a percentage of total loans
|
|
|
0.21
|
%
|
|
|
0.23
|
%
|
|
|
0.17
|
%
|
|
|
0.12
|
%
|
|
|
0.14
|
%
|
The following tables provide additional information relating to
non-performing loans for the Corporations core portfolios
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNBPA (PA)
|
|
FNBPA (FL)
|
|
Regency
|
|
Total
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans
|
|
$
|
66,160
|
|
|
$
|
71,737
|
|
|
$
|
7,618
|
|
|
$
|
145,515
|
|
Other real estate owned (OREO)
|
|
|
9,836
|
|
|
|
10,341
|
|
|
|
1,190
|
|
|
|
21,367
|
|
Total past due loans
|
|
|
52,493
|
|
|
|
|
|
|
|
5,416
|
|
|
|
57,909
|
|
Non-performing loans/total loans
|
|
|
1.22
|
%
|
|
|
29.41
|
%
|
|
|
4.70
|
%
|
|
|
2.49
|
%
|
Non-performing loans + OREO/ total loans + OREO
|
|
|
1.39
|
%
|
|
|
32.28
|
%
|
|
|
5.40
|
%
|
|
|
2.84
|
%
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans
|
|
$
|
45,458
|
|
|
$
|
93,116
|
|
|
$
|
4,905
|
|
|
$
|
143,479
|
|
Other real estate owned (OREO)
|
|
|
7,054
|
|
|
|
1,138
|
|
|
|
985
|
|
|
|
9,177
|
|
Total past due loans
|
|
|
51,458
|
|
|
|
|
|
|
|
5,613
|
|
|
|
57,071
|
|
Non-performing loans/total loans
|
|
|
0.85
|
%
|
|
|
31.65
|
%
|
|
|
3.10
|
%
|
|
|
2.47
|
%
|
Non-performing loans + OREO/ total loans + OREO
|
|
|
0.98
|
%
|
|
|
31.91
|
%
|
|
|
3.70
|
%
|
|
|
2.62
|
%
|
FNBPA (PA) reflects FNBPAs total portfolio excluding the
Florida portfolio which is presented separately.
Following is a table showing the amounts of contractual interest
income and actual interest income related to non-accrual and
restructured loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Gross interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per contractual terms
|
|
$
|
8,788
|
|
|
$
|
6,408
|
|
|
$
|
2,378
|
|
|
$
|
2,046
|
|
|
$
|
3,179
|
|
Recorded during the year
|
|
|
698
|
|
|
|
347
|
|
|
|
362
|
|
|
|
458
|
|
|
|
528
|
|
Allowance
and Provision for Loan Losses
The allowance for loan losses represents managements
estimate of probable loan losses inherent in the loan portfolio
at a specific point in time. This estimate includes losses
associated with specifically identified loans, as well as
estimated probable credit losses inherent in the remainder of
the loan portfolio. Additions are made to the allowance through
both periodic provisions charged to income and recoveries of
losses previously incurred. Reductions to the allowance occur as
loans are charged off. Management evaluates the adequacy of the
allowance at least quarterly, and in doing so relies on various
factors including, but not limited to, assessment of historical
loss experience, delinquency and non-accrual trends, portfolio
growth, underlying collateral coverage and current economic
conditions. This evaluation is subjective and requires material
estimates that may change over time.
The components of the allowance for loan losses represent
estimates based upon ASC Topic 450, Contingencies, and
ASC Topic 310, Receivables. ASC Topic 450 applies to
homogeneous loan pools such as consumer installment, residential
mortgages and consumer lines of credit, as well as commercial
loans that are not
49
individually evaluated for impairment under ASC Topic 310. ASC
Topic 310 is applied to commercial loans that are individually
evaluated for impairment.
Under ASC Topic 310, a loan is impaired when, based upon current
information and events, it is probable that the loan will not be
repaid according to its original contractual terms, including
both principal and interest. Management performs individual
assessments of impaired loans to determine the existence of loss
exposure and, where applicable, the extent of loss exposure
based upon the present value of expected future cash flows
available to pay the loan, or based upon the fair value of the
collateral less estimated selling costs where a loan is
collateral dependent.
In estimating loan loss contingencies, management considers
numerous factors, including historical charge-off rates and
subsequent recoveries. Management also considers, but is not
limited to, qualitative factors that influence the
Corporations credit quality, such as delinquency and
non-performing loan trends, changes in loan underwriting
guidelines and credit policies, as well as the results of
internal loan reviews. Finally, management considers the impact
of changes in current local and regional economic conditions in
the markets that the Corporation serves. Assessment of relevant
economic factors indicates that the Corporations primary
markets historically tend to lag the national economy, with
local economies in the Corporations primary market areas
also improving or weakening, as the case may be, but at a more
measured rate than the national trends. Regional economic
factors influencing managements estimate of reserves
include uncertainty of the labor markets in the regions the
Corporation serves and a contracting labor force due, in part,
to productivity growth and industry consolidations. Homogeneous
loan pools are evaluated using similar criteria that are based
upon historical loss rates for various loan types. Historical
loss rates are adjusted to incorporate changes in existing
conditions that may impact, both positively or negatively, the
degree to which these loss histories may vary. This
determination inherently involves a high degree of uncertainty
and considers current risk factors that may not have occurred in
the Corporations historical loan loss experience.
During the fourth quarter of 2009, the Corporation updated the
allowance methodology to place a greater emphasis on losses
realized within the past two years. The previous methodology
relied a rolling 15 quarter experience method. This change did
not have a material impact on the 2009 provision and allowance,
but could indicate higher provisions in future periods if higher
losses are experienced.
During the fourth quarter of 2008, the Corporation began
applying its methodology for establishing the allowance for loan
losses to the Pennsylvania and Florida loan portfolios
separately instead of continuing to evaluate the portfolios on a
combined basis. This decision was based on the fact that the two
loan portfolios have different risk characteristics and that the
Florida economic environment was deteriorating at an accelerated
rate in the fourth quarter of 2008.
In evaluating its Florida loan portfolio at that time, the
Corporation increased the allowance to address the heightened
level of inherent risk in that portfolio given the significant
deterioration in that market. In applying the methodology to
this portfolio, the Corporation utilized quantitative loss
factors provided by the OCC based on a prior recession. The
OCC-supplied
rates are more appropriate than historical loss history due to
the limited age and relatively small size of the portfolio;
furthermore, all non-performing loans within this pool have been
evaluated for impairment under ASC Topic 310. The combined
impact of the significant deterioration in the Florida market
and separately evaluating the Florida loan portfolio utilizing
these quantitative factors was a $12.3 million increase in
the Corporations allowance for loan losses for the Florida
loan portfolio at December 31, 2008, with the predominant
factor being the impact of the significant deterioration in the
Florida market.
The Corporation also increased qualitative allocations to
address increased inherent risk associated with its Florida
loans including, but not limited to, current levels and trends
of the Florida portfolio, collateral valuations, charge-offs,
non-performing assets, delinquency, risk rating migration,
competition, legal and regulatory issues and local economic
trends. The combined impact of the significant deterioration in
the Florida market and separately evaluating the Florida loan
portfolio utilizing these qualitative factors was a
$2.3 million increase in the Corporations allowance
for loan losses for the Florida loan portfolio at
December 31, 2008.
50
Following is a summary of changes in the allowance for loan
losses (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of period
|
|
$
|
104,730
|
|
|
$
|
52,806
|
|
|
$
|
52,575
|
|
|
$
|
50,707
|
|
|
$
|
50,467
|
|
Additions due to acquisitions
|
|
|
16
|
|
|
|
12,150
|
|
|
|
21
|
|
|
|
3,035
|
|
|
|
4,996
|
|
Reductions due to branch sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(52,850
|
)
|
|
|
(21,578
|
)
|
|
|
(3,327
|
)
|
|
|
(2,813
|
)
|
|
|
(3,480
|
)
|
Direct installment
|
|
|
(8,907
|
)
|
|
|
(8,382
|
)
|
|
|
(7,351
|
)
|
|
|
(6,502
|
)
|
|
|
(8,671
|
)
|
Residential mortgages
|
|
|
(1,288
|
)
|
|
|
(573
|
)
|
|
|
(297
|
)
|
|
|
(902
|
)
|
|
|
(967
|
)
|
Indirect installment
|
|
|
(3,881
|
)
|
|
|
(2,833
|
)
|
|
|
(2,181
|
)
|
|
|
(2,778
|
)
|
|
|
(3,959
|
)
|
Consumer lines of credit
|
|
|
(1,444
|
)
|
|
|
(1,240
|
)
|
|
|
(1,373
|
)
|
|
|
(1,026
|
)
|
|
|
(1,379
|
)
|
Other
|
|
|
(1,297
|
)
|
|
|
(1,308
|
)
|
|
|
(684
|
)
|
|
|
(659
|
)
|
|
|
(1,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(69,667
|
)
|
|
|
(35,914
|
)
|
|
|
(15,213
|
)
|
|
|
(14,680
|
)
|
|
|
(19,707
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
912
|
|
|
|
1,326
|
|
|
|
481
|
|
|
|
821
|
|
|
|
650
|
|
Direct installment
|
|
|
1,024
|
|
|
|
1,030
|
|
|
|
1,241
|
|
|
|
1,523
|
|
|
|
988
|
|
Residential mortgages
|
|
|
69
|
|
|
|
181
|
|
|
|
158
|
|
|
|
187
|
|
|
|
145
|
|
Indirect installment
|
|
|
625
|
|
|
|
638
|
|
|
|
683
|
|
|
|
345
|
|
|
|
757
|
|
Consumer lines of credit
|
|
|
122
|
|
|
|
121
|
|
|
|
117
|
|
|
|
126
|
|
|
|
145
|
|
Other
|
|
|
22
|
|
|
|
21
|
|
|
|
50
|
|
|
|
99
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
2,774
|
|
|
|
3,317
|
|
|
|
2,730
|
|
|
|
3,101
|
|
|
|
2,834
|
|
Net charge-offs
|
|
|
(66,893
|
)
|
|
|
(32,597
|
)
|
|
|
(12,483
|
)
|
|
|
(11,579
|
)
|
|
|
(16,873
|
)
|
Provision for loan losses
|
|
|
66,802
|
|
|
|
72,371
|
|
|
|
12,693
|
|
|
|
10,412
|
|
|
|
12,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
104,655
|
|
|
$
|
104,730
|
|
|
$
|
52,806
|
|
|
$
|
52,575
|
|
|
$
|
50,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs/average loans
|
|
|
1.15
|
%
|
|
|
0.60
|
%
|
|
|
0.29
|
%
|
|
|
0.29
|
%
|
|
|
0.46
|
%
|
Allowance for loan losses/total loans
|
|
|
1.79
|
%
|
|
|
1.80
|
%
|
|
|
1.22
|
%
|
|
|
1.24
|
%
|
|
|
1.35
|
%
|
Allowance for loan losses/non-performing loans
|
|
|
71.92
|
%
|
|
|
72.99
|
%
|
|
|
162.48
|
%
|
|
|
188.10
|
%
|
|
|
154.12
|
%
|
The national trends in the economy and real estate market
deteriorated during 2008, and the deterioration accelerated
significantly in the fourth quarter of 2008. These trends were
particularly evident in the Florida market where excess
inventory built up, new construction slowed dramatically and
credit markets stopped functioning normally. With economic
activity turning negative across all sectors of the economy,
sales activity in the Florida real estate market virtually
ceased during the fourth quarter of 2008. The significant
deterioration in the Florida market during the fourth quarter of
2008 also reflected increased stress on borrowers cash
flow streams and increased stress on guarantors characterized by
significant reductions in their liquidity positions.
During 2009, activity throughout the Florida marketplace
increased across various asset classes as price points had been
reduced to levels that generated interest from buyers. The
Corporation experienced increased activity and levels of
interest in condominiums and developed residential lots. In
addition, the Corporation also experienced increased interest in
land as a number of clients pursued sales opportunities for
further development.
51
The following tables provide additional information relating to
the provision and allowance for loan losses for the
Corporations core portfolios (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNBPA (PA)
|
|
|
FNBPA (FL)
|
|
|
Regency
|
|
|
Total
|
|
|
At or for the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
$
|
25,045
|
|
|
$
|
35,090
|
|
|
$
|
6,667
|
|
|
$
|
66,802
|
|
Allowance for loan losses
|
|
|
78,061
|
|
|
|
19,789
|
|
|
|
6,805
|
|
|
|
104,655
|
|
Net charge-offs
|
|
|
16,744
|
|
|
|
43,807
|
|
|
|
6,342
|
|
|
|
66,893
|
|
Net charge-offs/average loans
|
|
|
0.30
|
%
|
|
|
15.80
|
%
|
|
|
4.04
|
%
|
|
|
1.15
|
%
|
Allowance for loan losses/total loans
|
|
|
1.43
|
%
|
|
|
8.11
|
%
|
|
|
4.20
|
%
|
|
|
1.79
|
%
|
Allowance for loan losses/non-performing loans
|
|
|
117.99
|
%
|
|
|
27.59
|
%
|
|
|
89.33
|
%
|
|
|
71.92
|
%
|
At or for the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
$
|
34,694
|
|
|
$
|
32,035
|
|
|
$
|
5,642
|
|
|
$
|
72,371
|
|
Allowance for loan losses
|
|
|
69,745
|
|
|
|
28,506
|
|
|
|
6,479
|
|
|
|
104,730
|
|
Net charge-offs
|
|
|
11,795
|
|
|
|
15,049
|
|
|
|
5,753
|
|
|
|
32,597
|
|
Net charge-offs/average loans
|
|
|
0.24
|
%
|
|
|
5.02
|
%
|
|
|
3.78
|
%
|
|
|
0.60
|
%
|
Allowance for loan losses/total loans
|
|
|
1.30
|
%
|
|
|
9.69
|
%
|
|
|
4.10
|
%
|
|
|
1.80
|
%
|
Allowance for loan losses/non-performing loans
|
|
|
153.43
|
%
|
|
|
30.61
|
%
|
|
|
132.09
|
%
|
|
|
72.99
|
%
|
FNBPA (PA) reflects FNBPAs total portfolio excluding the
Florida portfolio which is presented separately.
During 2009, the Corporation was able to reduce its Florida
land-related
portfolio including OREO by $46.9 million or 31.2%,
reducing total
land-related
exposure including OREO to $103.2 million at
December 31, 2009. In addition, the condominium portfolio
exposure is down $17.1 million since December 31, 2008
to stand at $0.1 million. Including OREO, the condominium
portfolio was reduced by $12.8 million during 2009,
representing a 74.3% decline since December 31, 2008.
Including OREO, the condominium portfolio stands at
$4.4 million at December 31, 2009. These reductions
are consistent with the Corporations objective to reduce
this exposure in the Florida portfolio.
The allowance for loan losses was $104.7 million at both
December 31, 2009 and 2008. For 2009, net charge-offs
totaled $66.9 million compared to $32.6 million during
2008, an increase of $34.3 million due to continued
economic deterioration in Florida, and to some extent, the
slowing economy in Pennsylvania. The total net charge-offs for
2009 include $43.8 million related to the Florida loan
portfolio. Additionally, during 2009, the Corporation provided
$35.1 million to the reserve related to Florida, bringing
the total allowance for loan losses for the Florida portfolio to
$19.8 million or 8.11% of total loans in that portfolio.
The allowance for loan losses as a percentage of non-performing
loans decreased slightly from 72.99% as of December 31,
2008 to 71.92% as of December 31, 2009. While the allowance
for loan losses remained constant at $104.7 million,
non-performing loans increased $2.0 million or 1.4% over
the same period. The reduction in the allowance coverage of
non-performing loans relates to the nature of the loans that
were added to non-performing status which were supported to a
large extent by real estate collateral at current valuations and
therefore did not require a 100% reserve allocation given the
estimated loss exposure on the loans.
The allowance for loan losses ended 2009 flat with 2008 as
specific reserves established in 2008 on several sizable Florida
credits were released when the credits were charged down during
2009. The allowance for loan losses at December 31, 2009
included $19.8 million or 18.9% of the total related to the
Corporations Florida loan portfolio. Net charge-offs
increased $34.3 million or 105.2%, with the Florida loan
portfolio comprising $28.8 million of that total increase.
52
The allowance for loan losses increased $51.9 million
during 2008 representing a 98.3% increase in reserves for loan
losses between December 31, 2007 and December 31,
2008, due to higher net charge-offs, additional specific
reserves and increased allocations for a weaker environment. The
significant increase primarily reflects continued deterioration
in Florida, and to a much lesser extent, the slowing economy in
Pennsylvania. The allowance for loan losses at December 31, 2008
included $28.5 million or 27.2% of the total relating to
the Corporations Florida loan portfolio. Net charge-offs
increased $20.1 million or 161.1% reflecting higher loan
charge-offs, including $15.0 million in charge-offs in the
Florida market during 2008.
The allowance for loan losses increased $0.2 million during
2007 representing a 0.4% increase in reserves for loan losses
between December 31, 2006 and December 31, 2007. Net
charge-offs increased $0.9 million or 7.8% reflecting
higher commercial loan charge-offs, including $0.9 million
relating to a Florida loan, and higher residential mortgage loan
charge-offs, partially offset by lower installment loan
charge-offs. These actions included the charge-off of
$0.9 million relating to one project and the recording of
another specific reserve of $2.0 million relating to a
second project during 2007.
At December 31, 2009 and 2008, there were $8.0 million
and $16.1 million of loans, respectively, that were
impaired loans acquired and have no associated allowance for
loan losses as they were accounted for in accordance with ASC
Topic
310-30,
Receivables - Loans and Debt Securities Acquired with
Deteriorated Credit Quality.
Management considers numerous factors when estimating reserves
for loan losses, including historical charge-off rates and
subsequent recoveries. Consideration is given to the impact of
changes in qualitative factors that influence the
Corporations credit quality, such as the local and
regional economies that the Corporation serves. Assessment of
relevant economic factors indicates that the Corporations
primary markets historically tend to lag the national economy,
with local economies in the Corporations market areas also
improving or weakening, as the case may be, but at a more
measured rate than the national trends. Regional economic
factors influencing managements estimate of reserves
include uncertainty of the labor markets in the regions the
Corporation serves and a contracting labor force due, in part,
to productivity growth and industry consolidations. Credit risk
and loss exposures are evaluated using a combination of
historical loss experience and an analysis of the rate at which
delinquent loans ultimately result in charge-offs to estimate
credit quality migration and expected losses within the
homogeneous loan pools.
Following is a summary of the allocation of the allowance for
loan losses (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Loans
|
|
|
|
|
|
% of Loans
|
|
|
|
|
|
% of Loans
|
|
|
|
|
|
% of Loans
|
|
|
|
|
|
% of Loans
|
|
|
|
|
|
|
in each
|
|
|
|
|
|
in each
|
|
|
|
|
|
in each
|
|
|
|
|
|
in each
|
|
|
|
|
|
in each
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
Category to
|
|
|
|
|
|
Category to
|
|
|
|
|
|
Category to
|
|
|
|
|
|
Category to
|
|
|
|
Dec 31,
|
|
|
Total
|
|
|
Dec 31,
|
|
|
Total
|
|
|
Dec. 31,
|
|
|
Total
|
|
|
Dec. 31,
|
|
|
Total
|
|
|
Dec. 31,
|
|
|
Total
|
|
|
|
2009
|
|
|
Loans
|
|
|
2008
|
|
|
Loans
|
|
|
2007
|
|
|
Loans
|
|
|
2006
|
|
|
Loans
|
|
|
2005
|
|
|
Loans
|
|
|
Commercial
|
|
$
|
71,789
|
|
|
|
55
|
%
|
|
$
|
76,071
|
|
|
|
55
|
%
|
|
$
|
32,607
|
|
|
|
51
|
%
|
|
$
|
30,813
|
|
|
|
50
|
%
|
|
$
|
27,112
|
|
|
|
43
|
%
|
Direct installment
|
|
|
14,707
|
|
|
|
17
|
|
|
|
14,022
|
|
|
|
18
|
|
|
|
11,387
|
|
|
|
21
|
|
|
|
11,445
|
|
|
|
22
|
|
|
|
11,631
|
|
|
|
24
|
|
Residential mortgages
|
|
|
4,204
|
|
|
|
10
|
|
|
|
3,659
|
|
|
|
11
|
|
|
|
2,621
|
|
|
|
11
|
|
|
|
3,068
|
|
|
|
11
|
|
|
|
2,958
|
|
|
|
13
|
|
Indirect installment
|
|
|
6,204
|
|
|
|
9
|
|
|
|
5,012
|
|
|
|
9
|
|
|
|
3,766
|
|
|
|
10
|
|
|
|
4,649
|
|
|
|
11
|
|
|
|
6,324
|
|
|
|
13
|
|
Consumer lines of credit
|
|
|
4,176
|
|
|
|
7
|
|
|
|
4,851
|
|
|
|
6
|
|
|
|
2,310
|
|
|
|
6
|
|
|
|
2,343
|
|
|
|
6
|
|
|
|
2,486
|
|
|
|
7
|
|
Other
|
|
|
3,575
|
|
|
|
2
|
|
|
|
1,115
|
|
|
|
1
|
|
|
|
115
|
|
|
|
1
|
|
|
|
257
|
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
104,655
|
|
|
|
100
|
%
|
|
$
|
104,730
|
|
|
|
100
|
%
|
|
$
|
52,806
|
|
|
|
100
|
%
|
|
$
|
52,575
|
|
|
|
100
|
%
|
|
$
|
50,707
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of the allowance allocated to commercial loans
decreased in 2009 due to the release of specific reserves on
certain Florida loans in conjunction with the $43.8 million
in charge-offs within that portfolio that occurred during 2009.
53
The amount of the allowance allocated to commercial loans
increased in 2008 primarily due to increased asset quality
deterioration and allocations for a weaker environment,
primarily a result of the continued deterioration in the Florida
market with $28.5 million of the commercial allowance for
the Florida portfolio.
The amount of the allowance allocated to commercial loans
increased in 2007 due to a combination of the increased loan
balance and the additional $2.0 million in specific
reserves recorded in relation to a developer relationship in the
Florida market.
The amount of the allowance allocated to commercial loans
increased in 2006 due to the increased loan balance, while the
amount allocated to indirect installment loans decreased due to
an improvement in credit quality as a result of improved
underwriting guidelines and a planned run-off in loan balances.
Investment
Activity
Investment activities serve to enhance net interest income while
supporting interest rate sensitivity and liquidity positions.
Securities purchased with the intent and ability to retain until
maturity are categorized as securities held to maturity and
carried at amortized cost. All other securities are categorized
as securities available for sale and are recorded at fair value.
Securities, like loans, are subject to similar interest rate and
credit risk. In addition, by their nature, securities classified
as available for sale are also subject to fair value risks that
could negatively affect the level of liquidity available to the
Corporation, as well as stockholders equity. A change in
the value of securities held to maturity could also negatively
affect the level of stockholders equity if there was a
decline in the underlying creditworthiness of the issuers and an
OTTI is deemed to have occurred or a change in the
Corporations intent and ability to hold the securities to
maturity.
As of December 31, 2009, securities totaling
$715.3 million and $775.3 million were classified as
available for sale and held to maturity, respectively. During
2009, securities available for sale increased by
$233.1 million and securities held to maturity decreased by
$68.6 million from December 31, 2008. This change in
the mix between available for sale and held to maturity
securities is a result of managements decision to increase
the allocation in available for sale securities with short
duration securities.
54
The following table indicates the respective maturities and
weighted-average yields of securities as of December 31,
2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Amount
|
|
|
Yield
|
|
|
Obligations of U.S. Treasury and other U.S. Government agencies:
|
|
|
|
|
|
|
|
|
Maturing after one year but within five years
|
|
$
|
247,781
|
|
|
|
2.27
|
%
|
Maturing after ten years
|
|
|
10,061
|
|
|
|
2.05
|
|
States of the U.S. and political subdivisions:
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
|
7,766
|
|
|
|
2.90
|
|
Maturing after one year but within five years
|
|
|
34,785
|
|
|
|
5.30
|
|
Maturing after five years but within ten years
|
|
|
37,904
|
|
|
|
5.94
|
|
Maturing after ten years
|
|
|
116,676
|
|
|
|
6.16
|
|
Collateralized debt obligations:
|
|
|
|
|
|
|
|
|
Maturing after ten years
|
|
|
8,414
|
|
|
|
2.86
|
|
Other debt securities:
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
|
25
|
|
|
|
4.82
|
|
Maturing after ten years
|
|
|
12,023
|
|
|
|
5.13
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
892,647
|
|
|
|
4.30
|
|
Agency collateralized mortgage obligations
|
|
|
70,771
|
|
|
|
2.37
|
|
Non-agency collateralized mortgage obligations
|
|
|
49,045
|
|
|
|
5.03
|
|
Equity securities
|
|
|
2,732
|
|
|
|
5.25
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,490,630
|
|
|
|
4.07
|
|
|
|
|
|
|
|
|
|
|
The weighted average yields for tax-exempt securities are
computed on a tax equivalent basis using the federal statutory
tax rate of 35.0%. The weighted average yields for securities
available for sale are based on amortized cost.
For additional information relating to investment activity, see
the Securities footnote in the Notes to Consolidated Financial
Statements, which is included in Item 8 of this Report.
Deposits
and Short-Term Borrowings
As a bank holding company, the Corporations primary source
of funds is deposits. Those deposits are provided by businesses,
municipalities and individuals located within the markets served
by the Corporations Community Banking subsidiary.
Total deposits increased $0.3 billion to $6.4 billion
at December 31, 2009 compared to December 31, 2008,
primarily as a result of an increase in transaction accounts,
which is comprised of non-interest bearing, savings and NOW
accounts (which includes money market deposit accounts), which
was partially offset by a decline in certificates of deposit.
The increase in transaction accounts is a result of the
Corporations ability to capitalize on competitor
disruption in the marketplace, with ongoing marketing campaigns
designed to attract new customers to the Corporations
local approach to banking. Certificates of deposit are down by
design reflecting the Corporations continuing strategy to
focus on growing transaction accounts.
Short-term borrowings, made up of treasury management accounts
(also referred to as securities sold under repurchase
agreements), federal funds purchased, subordinated notes and
other short-term borrowings, increased by $72.9 million to
$669.2 million at December 31, 2009 compared to
December 31, 2008. This increase
55
is the result of increases of $122.1 million,
$26.9 million and $9.9 million in treasury management
accounts, subordinated notes and other short-term borrowings,
respectively, partially offset by a decrease of
$86.0 million in federal funds purchased. The increase in
treasury management accounts is the result of the
Corporations strong growth in new commercial client
relationships.
Treasury management accounts are the largest component of
short-term borrowings. The treasury management accounts have
next day maturities. At December 31, 2009 and 2008,
treasury management accounts represented 80.2% and 69.6%,
respectively, of total short-term borrowings.
Following is a summary of selected information relating to
treasury management accounts (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at year-end
|
|
$
|
536,784
|
|
|
$
|
414,705
|
|
|
$
|
276,552
|
|
Maximum month-end balance
|
|
|
551,779
|
|
|
|
433,411
|
|
|
|
291,200
|
|
Average balance during year
|
|
|
472,628
|
|
|
|
373,200
|
|
|
|
266,726
|
|
Weighted average interest rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
0.84
|
%
|
|
|
1.20
|
%
|
|
|
3.71
|
%
|
During the year
|
|
|
0.97
|
|
|
|
2.08
|
|
|
|
4.56
|
|
For additional information relating to deposits and short-term
borrowings, see the Deposits and Short-Term Borrowings footnotes
in the Notes to Consolidated Financial Statements, which is
included in Item 8 of this Report.
Capital
Resources
The access to, and cost of, funding for new business
initiatives, including acquisitions, the ability to engage in
expanded business activities, the ability to pay dividends, the
level of deposit insurance costs and the level and nature of
regulatory oversight depend, in part, on the Corporations
capital position.
The assessment of capital adequacy depends on a number of
factors such as asset quality, liquidity, earnings performance,
changing competitive conditions and economic forces. The
Corporation seeks to maintain a strong capital base to support
its growth and expansion activities, to provide stability to
current operations and to promote public confidence.
The Corporation has an effective shelf registration statement
filed with the SEC. Pursuant to this registration statement, the
Corporation may, from time to time, issue and sell in one or
more offerings any combination of common stock, preferred stock,
debt securities or TPS. As of December 31, 2009, the
Corporation has issued 24,150,000 common shares in a public
equity offering.
Capital management is a continuous process. Both the Corporation
and FNBPA are subject to various regulatory capital requirements
administered by federal banking agencies. For additional
information, see the Regulatory Matters footnote in the Notes to
the Consolidated Financial Statements, which is included in
Item 8 of this Report. From time to time, the Corporation
issues shares initially acquired by the Corporation as treasury
stock under its various benefit plans. The Corporation may
continue to grow through acquisitions, which can potentially
impact its capital position. The Corporation may issue
additional common stock in order maintain its well-capitalized
status.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The information called for by this item is provided in the
Market Risk section of Managements Discussion and Analysis
of Financial Condition and Results of Operations, which is
included in Item 7 of this Report.
56
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Managements
Report on F.N.B. Corporations Internal Control Over
Financial Reporting - Reporting at a Bank Holding Company
Level
February 26, 2010
F.N.B. Corporations (the Company) internal control over
financial reporting is a process effected by the board of
directors, management, and other personnel, designed to provide
reasonable assurance regarding the preparation of reliable
financial statements in accordance with U.S. generally
accepted accounting principles. An entitys internal
control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the entity;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted
accounting principles and the instructions to the Consolidated
Financial Statements for Bank Holding Companies (Form FR
Y-9C) (FR Y-9C instructions), and that receipts and
expenditures of the entity are being made only in accordance
with authorizations of management and the board of directors;
and (3) provide reasonable assurance regarding prevention,
or timely detection and correction of unauthorized acquisition,
use, or disposition of the entitys assets that could have
a material effect on the financial statements.
Management is responsible for establishing and maintaining
effective internal control over financial reporting. Management
assessed the effectiveness of the Companys internal
control over financial reporting as of December 31, 2009
based on the framework set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control
- Integrated Framework. Based on that assessment, management
concluded that, as of December 31, 2009 the Companys
internal control over financial reporting is effective based on
the criteria established in Internal Control - Integrated
Framework.
F.N.B.
Corporation
|
|
|
/s/Stephen J. Gurgovits
|
|
|
|
|
|
By: Stephen J. Gurgovits
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
/s/Vincent J. Calabrese
|
|
|
|
|
|
By: Vincent J. Calabrese
Chief Financial Officer
|
|
|
57
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
F.N.B. Corporation
We have audited the accompanying consolidated balance sheets of
F.N.B. Corporation and subsidiaries as of December 31, 2009
and 2008, and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of F.N.B. Corporation and subsidiaries at
December 31, 2009 and 2008, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
As discussed in footnote 2 to the consolidated financial
statements, during 2009 F.N.B. Corporation changed its method of
accounting for other than temporary impairment of investments,
in accordance with Financial Accounting Standards Board
Statement No,
115-2 and
124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments (codified in ASC
320-10 and
928-205),
and changed its method of accounting for uncertain tax
positions on January 1, 2007, in accordance with FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (codified in ASC
740-10).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
F.N.B. Corporations internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2010 expressed
an unqualified opinion thereon.
/s/Ernst & Young LLP
Pittsburgh, Pennsylvania
February 26, 2010
58
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
F.N.B. Corporation
We have audited F.N.B. Corporations internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). F.N.B.
Corporations management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying Report of
Management. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Because
managements assessment and our audit were conducted to
also meet the reporting requirements of Section 112 of the
Federal Deposit Insurance Corporation Improvement Act (FDICIA),
managements assessment and our audit of F.N.B.
Corporations internal control over financial reporting
included controls over the preparation of financial statements
in accordance with the instructions for the preparation of
Consolidated Financial Statements for Bank Holding Companies
(Form FR Y-9C). A companys internal control over
financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, F.N.B. Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of F.N.B. Corporation as of
December 31, 2009 and 2008, and the related statements of
income, stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2009, of
F.N.B. Corporation and our report dated February 26, 2010
expressed an unqualified opinion thereon.
/s/Ernst & Young LLP
Pittsburgh, Pennsylvania
February 26, 2010
59
F.N.B. Corporation and Subsidiaries
Consolidated Balance Sheets
Dollars in thousands, except par values
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
305,163
|
|
|
$
|
169,224
|
|
Interest bearing deposits with banks
|
|
|
5,387
|
|
|
|
2,979
|
|
Securities available for sale
|
|
|
715,349
|
|
|
|
482,270
|
|
Securities held to maturity (fair value of $796,537 and $851,251)
|
|
|
775,281
|
|
|
|
843,863
|
|
Residential mortgage loans held for sale
|
|
|
12,754
|
|
|
|
10,708
|
|
Loans, net of unearned income of $38,173 and $33,962
|
|
|
5,849,361
|
|
|
|
5,820,380
|
|
Allowance for loan losses
|
|
|
(104,655
|
)
|
|
|
(104,730
|
)
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
|
5,744,706
|
|
|
|
5,715,650
|
|
Premises and equipment, net
|
|
|
117,921
|
|
|
|
122,599
|
|
Goodwill
|
|
|
528,710
|
|
|
|
528,278
|
|
Core deposit and other intangible assets, net
|
|
|
39,141
|
|
|
|
46,229
|
|
Bank owned life insurance
|
|
|
205,447
|
|
|
|
217,737
|
|
Other assets
|
|
|
259,218
|
|
|
|
225,274
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
8,709,077
|
|
|
$
|
8,364,811
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$
|
992,298
|
|
|
$
|
919,539
|
|
Savings and NOW
|
|
|
3,182,909
|
|
|
|
2,816,628
|
|
Certificates and other time deposits
|
|
|
2,205,016
|
|
|
|
2,318,456
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
|
6,380,223
|
|
|
|
6,054,623
|
|
Other liabilities
|
|
|
86,797
|
|
|
|
92,305
|
|
Short-term borrowings
|
|
|
669,167
|
|
|
|
596,263
|
|
Long-term debt
|
|
|
324,877
|
|
|
|
490,250
|
|
Junior subordinated debt
|
|
|
204,711
|
|
|
|
205,386
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
7,665,775
|
|
|
|
7,438,827
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common stock - $0.01 par value
|
|
|
|
|
|
|
|
|
Authorized - 500,000,000 shares
|
|
|
|
|
|
|
|
|
Issued - 114,214,951 and 89,726,592 shares
|
|
|
1,138
|
|
|
|
894
|
|
Additional paid-in capital
|
|
|
1,087,369
|
|
|
|
953,200
|
|
Retained earnings
|
|
|
(12,833
|
)
|
|
|
(1,143
|
)
|
Accumulated other comprehensive loss
|
|
|
(30,633
|
)
|
|
|
(26,505
|
)
|
Treasury stock - 103,256 and 26,440 shares at cost
|
|
|
(1,739
|
)
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
1,043,302
|
|
|
|
925,984
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
8,709,077
|
|
|
$
|
8,364,811
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
60
F.N.B. Corporation and Subsidiaries
Consolidated Statements of Income
Dollars in thousands, except per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
329,841
|
|
|
$
|
352,687
|
|
|
$
|
318,015
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
50,527
|
|
|
|
49,742
|
|
|
|
44,128
|
|
Nontaxable
|
|
|
7,131
|
|
|
|
6,686
|
|
|
|
5,828
|
|
Dividends
|
|
|
146
|
|
|
|
274
|
|
|
|
294
|
|
Other
|
|
|
77
|
|
|
|
392
|
|
|
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income
|
|
|
387,722
|
|
|
|
409,781
|
|
|
|
368,890
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
85,699
|
|
|
|
111,568
|
|
|
|
124,276
|
|
Short-term borrowings
|
|
|
8,520
|
|
|
|
13,030
|
|
|
|
19,435
|
|
Long-term debt
|
|
|
17,202
|
|
|
|
21,044
|
|
|
|
19,360
|
|
Junior subordinated debt
|
|
|
9,758
|
|
|
|
12,347
|
|
|
|
10,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense
|
|
|
121,179
|
|
|
|
157,989
|
|
|
|
174,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
266,543
|
|
|
|
251,792
|
|
|
|
194,837
|
|
Provision for loan losses
|
|
|
66,802
|
|
|
|
72,371
|
|
|
|
12,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Loan Losses
|
|
|
199,741
|
|
|
|
179,421
|
|
|
|
182,144
|
|
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses on securities
|
|
|
(25,232
|
)
|
|
|
(17,189
|
)
|
|
|
(118
|
)
|
Non-credit related losses on securities not expected to be sold
(recognized in other comprehensive income)
|
|
|
17,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses on securities
|
|
|
(7,893
|
)
|
|
|
(17,189
|
)
|
|
|
(118
|
)
|
Service charges
|
|
|
57,736
|
|
|
|
54,691
|
|
|
|
40,827
|
|
Insurance commissions and fees
|
|
|
16,672
|
|
|
|
15,572
|
|
|
|
13,994
|
|
Securities commissions and fees
|
|
|
7,460
|
|
|
|
8,128
|
|
|
|
6,326
|
|
Trust
|
|
|
11,811
|
|
|
|
12,095
|
|
|
|
8,577
|
|
Bank owned life insurance
|
|
|
5,677
|
|
|
|
6,408
|
|
|
|
4,117
|
|
Gain on sale of mortgage loans
|
|
|
3,061
|
|
|
|
1,824
|
|
|
|
1,715
|
|
Gain on sale of securities
|
|
|
528
|
|
|
|
834
|
|
|
|
1,155
|
|
Other
|
|
|
10,926
|
|
|
|
3,752
|
|
|
|
5,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
|
105,978
|
|
|
|
86,115
|
|
|
|
81,609
|
|
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
126,865
|
|
|
|
116,819
|
|
|
|
87,219
|
|
Net occupancy
|
|
|
20,258
|
|
|
|
17,888
|
|
|
|
14,676
|
|
Equipment
|
|
|
17,991
|
|
|
|
16,357
|
|
|
|
13,061
|
|
Amortization of intangibles
|
|
|
7,088
|
|
|
|
6,442
|
|
|
|
4,406
|
|
Outside services
|
|
|
23,587
|
|
|
|
20,918
|
|
|
|
15,956
|
|
FDIC insurance
|
|
|
13,881
|
|
|
|
898
|
|
|
|
516
|
|
State taxes
|
|
|
6,813
|
|
|
|
6,550
|
|
|
|
5,451
|
|
Other real estate owned
|
|
|
6,183
|
|
|
|
2,138
|
|
|
|
521
|
|
Telephone
|
|
|
5,255
|
|
|
|
5,336
|
|
|
|
4,035
|
|
Advertising and promotional
|
|
|
5,321
|
|
|
|
4,589
|
|
|
|
2,914
|
|
Insurance claims paid
|
|
|
2,528
|
|
|
|
2,768
|
|
|
|
2,309
|
|
Merger related
|
|
|
|
|
|
|
4,724
|
|
|
|
210
|
|
Other
|
|
|
19,569
|
|
|
|
17,277
|
|
|
|
14,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
|
255,339
|
|
|
|
222,704
|
|
|
|
165,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
50,380
|
|
|
|
42,832
|
|
|
|
98,139
|
|
Income taxes
|
|
|
9,269
|
|
|
|
7,237
|
|
|
|
28,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
41,111
|
|
|
|
35,595
|
|
|
|
69,678
|
|
Preferred stock dividends and discount amortization
|
|
|
8,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common Stockholders
|
|
$
|
32,803
|
|
|
$
|
35,595
|
|
|
$
|
69,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
$
|
0.44
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
0.44
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends Paid per Common Share
|
|
$
|
0.48
|
|
|
$
|
0.96
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
61
F.N.B. Corporation and Subsidiaries
Consolidated Statements of Stockholders Equity
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumu-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Compre-
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Compre-
|
|
|
|
|
|
|
|
|
|
hensive
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
hensive
|
|
|
Treasury
|
|
|
|
|
|
|
Income
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Stock
|
|
|
Total
|
|
|
Balance at January 1, 2007
|
|
|
|
|
|
$
|
|
|
|
$
|
601
|
|
|
$
|
506,024
|
|
|
$
|
33,321
|
|
|
$
|
(1,546
|
)
|
|
$
|
(1,028
|
)
|
|
$
|
537,372
|
|
Net income
|
|
$
|
69,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,678
|
|
|
|
|
|
|
|
|
|
|
|
69,678
|
|
Change in other comprehensive income (loss)
|
|
|
(5,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,192
|
)
|
|
|
|
|
|
|
(5,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
64,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common dividends declared: $0.95/share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,450
|
)
|
|
|
|
|
|
|
|
|
|
|
(57,450
|
)
|
Purchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,175
|
)
|
|
|
(9,175
|
)
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(1,949
|
)
|
|
|
|
|
|
|
9,379
|
|
|
|
7,432
|
|
Restricted stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,231
|
|
Tax benefit of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
635
|
|
Adjustment to initially apply ASC Topic 740, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
602
|
|
|
|
508,891
|
|
|
|
42,426
|
|
|
|
(6,738
|
)
|
|
|
(824
|
)
|
|
|
544,357
|
|
Net income
|
|
$
|
35,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,595
|
|
|
|
|
|
|
|
|
|
|
|
35,595
|
|
Change in other comprehensive income (loss)
|
|
|
(19,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,767
|
)
|
|
|
|
|
|
|
(19,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
15,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common dividends declared: $0.96/share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,283
|
)
|
|
|
|
|
|
|
|
|
|
|
(78,283
|
)
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
441,403
|
|
|
|
(275
|
)
|
|
|
|
|
|
|
362
|
|
|
|
441,782
|
|
Restricted stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,049
|
|
Tax benefit of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
857
|
|
Adjustment to initially apply Revised ASC Topic 715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(606
|
)
|
|
|
|
|
|
|
|
|
|
|
(606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
894
|
|
|
|
953,200
|
|
|
|
(1,143
|
)
|
|
|
(26,505
|
)
|
|
|
(462
|
)
|
|
|
925,984
|
|
Net income
|
|
$
|
41,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,111
|
|
|
|
|
|
|
|
|
|
|
|
41,111
|
|
Change in other comprehensive income (loss)
|
|
|
(4,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,128
|
)
|
|
|
|
|
|
|
(4,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
36,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,333
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,333
|
)
|
Common stock: $0.48/share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,042
|
)
|
|
|
|
|
|
|
|
|
|
|
(49,042
|
)
|
Issuance of preferred stock (CPP)
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Repurchase of preferred stock (CPP)
|
|
|
|
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,000
|
)
|
Issuance of warrant/discount (CPP)
|
|
|
|
|
|
|
(4,441
|
)
|
|
|
|
|
|
|
4,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjust warrant/discount valuation (CPP)
|
|
|
|
|
|
|
(282
|
)
|
|
|
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalize issuance costs (CPP)
|
|
|
|
|
|
|
(252
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(251
|
)
|
Amortization of CPP discount
|
|
|
|
|
|
|
4,975
|
|
|
|
|
|
|
|
|
|
|
|
(4,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
127,829
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(1,277
|
)
|
|
|
126,781
|
|
Restricted stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,775
|
|
Tax expense of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(158
|
)
|
Adoption of Revised ASC Topic 320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,563
|
|
|
|
|
|
|
|
|
|
|
|
4,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
$
|
1,138
|
|
|
$
|
1,087,369
|
|
|
$
|
(12,833
|
)
|
|
$
|
(30,633
|
)
|
|
$
|
(1,739
|
)
|
|
$
|
1,043,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
62
F.N.B. Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41,111
|
|
|
$
|
35,595
|
|
|
$
|
69,678
|
|
Adjustments to reconcile net income to net cash flows provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
|
25,858
|
|
|
|
20,970
|
|
|
|
13,433
|
|
Provision for loan losses
|
|
|
66,802
|
|
|
|
72,371
|
|
|
|
12,693
|
|
Deferred income taxes
|
|
|
(9,463
|
)
|
|
|
(10,998
|
)
|
|
|
3,080
|
|
Gain on sale of securities
|
|
|
(528
|
)
|
|
|
(834
|
)
|
|
|
(1,155
|
)
|
Other-than-temporary
impairment losses on securities
|
|
|
7,893
|
|
|
|
17,189
|
|
|
|
118
|
|
Tax expense (benefit) of stock-based compensation
|
|
|
158
|
|
|
|
(857
|
)
|
|
|
(635
|
)
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest receivable
|
|
|
2,619
|
|
|
|
4,171
|
|
|
|
117
|
|
Interest payable
|
|
|
(3,782
|
)
|
|
|
(320
|
)
|
|
|
(3,095
|
)
|
Residential mortgage loans held for sale
|
|
|
(2,046
|
)
|
|
|
(5,071
|
)
|
|
|
(1,682
|
)
|
Trading securities
|
|
|
|
|
|
|
264,416
|
|
|
|
|
|
Bank owned life insurance
|
|
|
(1,395
|
)
|
|
|
(4,648
|
)
|
|
|
(2,494
|
)
|
Other, net
|
|
|
(11,421
|
)
|
|
|
(15,047
|
)
|
|
|
9,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
115,806
|
|
|
|
376,937
|
|
|
|
99,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with banks
|
|
|
(2,407
|
)
|
|
|
4,126
|
|
|
|
990
|
|
Loans
|
|
|
(119,902
|
)
|
|
|
(271,604
|
)
|
|
|
(108,119
|
)
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
(529,780
|
)
|
|
|
(345,885
|
)
|
|
|
(265,278
|
)
|
Sales
|
|
|
812
|
|
|
|
2,521
|
|
|
|
3,162
|
|
Maturities
|
|
|
289,996
|
|
|
|
221,255
|
|
|
|
158,805
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
(179,898
|
)
|
|
|
(302,794
|
)
|
|
|
(87,600
|
)
|
Maturities
|
|
|
247,352
|
|
|
|
149,762
|
|
|
|
195,454
|
|
Purchase of bank owned life insurance
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
Withdrawal/surrender of bank owned life insurance
|
|
|
13,700
|
|
|
|
|
|
|
|
|
|
Increase in premises and equipment
|
|
|
(7,997
|
)
|
|
|
(14,194
|
)
|
|
|
(2,761
|
)
|
Acquisitions, net of cash acquired
|
|
|
47
|
|
|
|
57,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
|
(288,093
|
)
|
|
|
(499,401
|
)
|
|
|
(105,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits, savings, and NOW accounts
|
|
|
439,040
|
|
|
|
162,097
|
|
|
|
63,977
|
|
Time deposits
|
|
|
(113,441
|
)
|
|
|
(50,299
|
)
|
|
|
(39,135
|
)
|
Short-term borrowings
|
|
|
72,905
|
|
|
|
118,658
|
|
|
|
85,913
|
|
Increase in long-term debt
|
|
|
39,328
|
|
|
|
121,630
|
|
|
|
230,428
|
|
Decrease in long-term debt
|
|
|
(204,701
|
)
|
|
|
(120,746
|
)
|
|
|
(268,952
|
)
|
Decrease in junior subordinated debt
|
|
|
(675
|
)
|
|
|
(506
|
)
|
|
|
|
|
Issuance of preferred stock and common stock warrant
|
|
|
99,749
|
|
|
|
|
|
|
|
|
|
Redemption of preferred stock
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
128,554
|
|
|
|
8,045
|
|
|
|
(2,021
|
)
|
Tax (expense) benefit of stock-based compensation
|
|
|
(158
|
)
|
|
|
857
|
|
|
|
635
|
|
Cash dividends paid
|
|
|
(52,375
|
)
|
|
|
(78,283
|
)
|
|
|
(57,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by financing activities
|
|
|
308,226
|
|
|
|
161,453
|
|
|
|
13,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Due from Banks
|
|
|
135,939
|
|
|
|
38,989
|
|
|
|
7,873
|
|
Cash and due from banks at beginning of year
|
|
|
169,224
|
|
|
|
130,235
|
|
|
|
122,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Due from Banks at End of Year
|
|
$
|
305,163
|
|
|
$
|
169,224
|
|
|
$
|
130,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
63
F.N.B.
Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Nature of
Operations
The Corporation is a diversified financial services company
headquartered in Hermitage, Pennsylvania. Its primary businesses
include community banking, consumer finance, wealth management
and insurance. The Corporation also conducts leasing and
merchant banking activities. The Corporation operates its
community banking business through a full service branch network
in Pennsylvania and Ohio and loan production offices in
Pennsylvania and Florida. The Corporation operates its wealth
management and insurance businesses within the existing branch
network. It also conducts selected consumer finance business in
Pennsylvania, Ohio and Tennessee.
|
|
1.
|
Summary
of Significant Accounting Policies
|
Basis of
Presentation
The Corporations accompanying consolidated financial
statements and these notes to the financial statements include
subsidiaries in which the Corporation has a controlling
financial interest. Companies in which the Corporation controls
operating and financing decisions (principally defined as owning
a voting or economic interest greater than 50%) are also
consolidated. Variable interest entities are consolidated if the
Corporation is exposed to the majority of the variable interest
entitys expected losses
and/or
residual returns (i.e., the Corporation is considered to be the
primary beneficiary). The Corporation owns and operates First
National Bank of Pennsylvania (FNBPA), First National
Trust Company, First National Investment Services Company,
LLC, F.N.B. Investment Advisors, Inc., First National Insurance
Agency, LLC, Regency Finance Company (Regency), F.N.B. Capital
Corporation, LLC and Bank Capital Services, 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 Corporations financial position and
results of operations. 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
February 26, 2010, the date of the filing of the
consolidated financial statements with the SEC.
The Corporation completed acquisitions during 2008. These
acquisitions are discussed in the Mergers and Acquisitions
footnote. The accompanying consolidated financial statements
include the results of operations of the acquired entities from
their respective dates of acquisition.
Use of
Estimates
The accounting and reporting policies of the Corporation conform
with GAAP. The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could
materially differ from those estimates. Material estimates that
are particularly susceptible to significant changes include the
allowance for loan losses, securities valuation, goodwill and
other intangible assets and income taxes.
Business
Combinations
Business combinations are accounted for by applying the
acquisition method in accordance with ASC Topic 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 statement of income from the
date of acquisition.
64
Cash
Equivalents
The Corporation considers cash and demand balances due from
banks as cash and cash equivalents.
Securities
Investment securities, which consist of debt securities and
certain equity securities, comprise a significant portion of the
Corporations consolidated balance sheet. Such securities
can be classified as trading, securities held
to maturity or securities available for sale.
Securities are classified as trading securities when management
intends to sell such securities in the near term and are carried
at fair value, with unrealized gains (losses) reflected through
the consolidated statement of income. The Corporation acquired
securities in conjunction with the Omega acquisition that the
Corporation classified as trading securities. The Corporation
both acquired and sold these trading securities during the
second quarter of 2008. As of December 31, 2009 and 2008,
the Corporation did not hold any trading securities.
Securities held to maturity are comprised of debt securities,
for which management has the positive intent and ability to hold
such securities until their maturity. Such securities are
carried at cost, adjusted for related amortization of premiums
and accretion of discounts through interest income from
securities, and OTTI, if any.
Securities that are not classified as trading or held to
maturity are classified as available for sale. The
Corporations available for sale securities portfolio is
comprised of debt securities and marketable equity securities.
Such securities are carried at fair value with net unrealized
gains and losses deemed to be temporary and unrealized losses
deemed to be
other-than-temporary
and attributable to non-credit factors reported separately as a
component of other comprehensive income, net of tax. Realized
gains and losses on the sale of available for sale securities
and credit-related OTTI charges are recorded within non-interest
income in the consolidated statement of income. Realized gains
and losses on the sale of securities are determined using the
specific-identification method.
The Corporation evaluates its investment securities portfolio
for OTTI on a quarterly basis. Impairment is assessed at the
individual security level. The Corporation considers an
investment security impaired if its fair value is less than its
cost or amortized cost basis.
When impairment of an equity security is considered to be
other-than-temporary,
the security is written down to its fair value and an impairment
loss is recorded as a loss within non-interest income in the
consolidated statement of income. When impairment of a debt
security is considered to be
other-than-temporary,
the amount of the OTTI recorded as a loss within non-interest
income and thereby recognized in earnings depends on whether the
Corporation intends to sell the security or whether it is more
likely than not that the Corporation will be required to sell
the security before recovery of its amortized cost basis.
If the Corporation intends to (has decided to) sell the debt
security or more likely than not will be required to sell the
security before recovery of its amortized cost basis, OTTI shall
be recognized in earnings equal to the entire difference between
the investments amortized cost basis and its fair value.
If the Corporation does not intend to sell the debt security and
it is not more likely than not the Corporation will be required
to sell the security before recovery of its amortized cost
basis, OTTI shall be separated into the amount representing
credit loss and the amount related to all other market factors.
The amount related to credit loss shall be recognized in
earnings. The amount related to other market factors shall be
recognized in other comprehensive income, net of applicable
taxes.
The Corporation performs its OTTI evaluation process in a
consistent and systematic manner and includes an evaluation of
all available evidence. Documentation of the process is as
extensive as necessary to support a conclusion as to whether a
decline in fair value below cost or amortized cost is
other-than-temporary
and includes documentation supporting both observable and
unobservable inputs and a rationale for conclusions reached.
65
This process considers factors such as the severity, length of
time and anticipated recovery period of the impairment,
recoveries or additional declines in fair value subsequent to
the balance sheet date, recent events specific to the issuer,
including investment downgrades by rating agencies and economic
conditions in its industry, and the issuers financial
condition, repayment capacity, capital strength and near-term
prospects.
For debt securities, the Corporation also considers the payment
structure of the debt security, the likelihood of the issuer
being able to make future payments, failure of the issuer of the
security to make scheduled interest and principal payments,
whether the Corporation has made a decision to sell the security
and whether the Corporations cash or working capital
requirements or contractual or regulatory obligations indicate
that the debt security will be required to be sold before a
forecasted recovery occurs. For equity securities, the
Corporation also considers its intent and ability to retain the
security for a period of time sufficient to allow for a recovery
in fair value. Among the factors that the Corporation considers
in determining its intent and ability to retain the security is
a review of its capital adequacy, interest rate risk position
and liquidity. The assessment of a securitys ability to
recover any decline in fair value, the ability of the issuer to
meet contractual obligations, the Corporations intent and
ability to retain the security, and whether it is more likely
than not the Corporation will be required to sell the security
before recovery of its amortized cost basis require considerable
judgment.
Securities
Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are accounted for
as collateralized financing transactions and are recorded at the
amounts at which the securities were sold plus accrued interest.
Securities, generally U.S. government and federal agency
securities, pledged as collateral under these financing
arrangements cannot be sold or repledged by the secured party.
The fair value of collateral either received from or provided to
a third party is continually monitored and additional collateral
is obtained or is requested to be returned to the Corporation as
deemed appropriate.
Derivative
Instruments and Hedging Activities
From time to time, the Corporation may enter into derivative
transactions principally to protect against the risk of adverse
price or interest rate movements on the value of certain assets
and liabilities and on future cash flows. The Corporation
formally documents all relationships between hedging instruments
and hedged items, as well as its risk management objective and
strategy for undertaking each hedge transaction. All derivative
instruments are carried at fair value on the balance sheet in
accordance with the requirements of ASC Topic 815,
Derivatives and Hedging.
Cash flow hedges are accounted for by recording the fair value
of the derivative instrument on the balance sheet as either a
freestanding asset or liability, with a corresponding offset
recorded in accumulated other comprehensive income within
stockholders equity, net of tax. Amounts are reclassified
from accumulated other comprehensive income to the consolidated
statement of income in the period or periods in which the hedged
transaction affects earnings.
Derivative gains and losses under cash flow hedges not effective
in hedging the change in fair value or expected cash flows of
the hedged item are recognized immediately in the consolidated
statement of income. At the hedges inception and at least
quarterly thereafter, a formal assessment is performed to
determine whether changes in the fair values or cash flows of
the derivative instruments have been highly effective in
offsetting changes in fair values or cash flows of the hedged
items and whether they are expected to be highly effective in
the future. If it is determined a derivative instrument has not
been or will not continue to be highly effective as a hedge,
hedge accounting is discontinued. The Corporation did not enter
into any transactions qualifying as hedging instruments during
2009.
The Corporation periodically enters into interest rate swap
agreements to meet the financing, interest rate and equity risk
management needs of its commercial loan customers. These
agreements provide the customer the ability to convert from
variable to fixed interest rates. The Corporation then enters
into positions with a derivative
66
counterparty in order to offset its exposure on the variable and
fixed components of the customer agreements. These agreements
meet the definition of derivatives, but are not designated as
hedging instruments. These instruments and their offsetting
positions are 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.
Mortgage
Loans Held for Sale and Loan Commitments
Certain residential mortgage loans are originated for sale in
the secondary mortgage loan market and typically sold with
servicing rights released. These loans are classified as loans
held for sale and are carried at the lower of cost or estimated
market value on an aggregate basis. Market value is determined
on the basis of rates obtained in the respective secondary
market for the type of loan held for sale. Loans are generally
sold at a premium or discount from the carrying amount of the
loan. Such premium or discount is recognized at the date of
sale. Gain or loss on the sale of loans is recorded in
non-interest income at the time consideration is received and
all other criteria for sales treatment have been met.
The Corporation routinely issues commitments to make loans as a
part of its residential lending operations. These commitments
are considered derivatives. The Corporation also enters into
commitments to sell loans to mitigate the risk that the market
value of residential loans may decline between the time the rate
commitment is issued to the customer and the time the
Corporation contracts to sell the loan. These commitments and
sales contracts are also derivatives. Both types of derivatives
are recorded at fair value. Sales contracts and commitments to
sell loans are not designated as hedges of the fair value of
loans held for sale. Fair value adjustments related to
derivatives are recorded in current period earnings as an
adjustment to net gains on sale of loans.
Loans and
the Allowance for Loan Losses
Loans are reported at their principal amount outstanding net of
unearned income, unamortized premiums or discounts, acquisition
fair value adjustments and any deferred origination fees or
costs.
Interest income on loans is accrued on the principal
outstanding. It is the Corporations policy to discontinue
interest accruals generally when principal or interest is due
and has remained unpaid for 90 days or more unless the loan
is both well secured and in the process of collection. When a
loan is placed on non-accrual status, all unpaid interest is
reversed. Payments on non-accrual loans are generally applied to
either principal or interest or both, depending on
managements evaluation of collectibility. Consumer
installment loans are generally charged off against the
allowance for loan losses upon reaching 120 to 180 days
past due, depending on the loan type. Commercial loan
charges-offs, either in whole or in part, are generally made as
soon as facts and circumstances raise a serious doubt as to the
collectibility of all or a portion of the principal. Loan
origination fees and related costs are deferred and recognized
over the life of the loans as an adjustment of yield in interest
income.
The allowance for loan losses is maintained at a level that, in
managements judgment, is believed adequate to absorb
probable losses associated with specifically identified loans,
as well as estimated probable credit losses inherent in the
remainder of the loan portfolio at the balance sheet date. The
allowance for loan losses is based on managements
evaluation of potential loan losses in the loan portfolio, which
includes an assessment of past experience, current economic
conditions in specific industries and geographic areas, general
economic conditions, known and inherent risks in the loan
portfolio, the estimated value of underlying collateral and
residuals and changes in the composition of the loan portfolio.
Determination of the allowance is inherently subjective as it
requires significant estimates, including the amounts and timing
of expected future cash flows on impaired loans, estimated
losses on pools of homogeneous loans based on historical loss
experience and consideration of current environmental factors
and economic trends, all of which are susceptible to significant
change. Loan losses are charged off against the allowance when
the loss actually occurs or when a determination is made that a
loss is probable while recoveries of amounts previously charged
off are credited to the allowance. A provision for credit losses
is recorded based on managements periodic evaluation of
the factors previously mentioned as well as other pertinent
factors. Evaluations are conducted at least quarterly and more
often as deemed necessary.
67
Management estimates the allowance for loan losses pursuant to
ASC Topic 310 and ASC Topic 450. Larger balance commercial and
commercial real estate loans that are considered impaired as
defined in ASC Topic 310 are reviewed individually to assess the
likelihood and severity of loss exposure. Loans subject to
individual review are, where appropriate, reserved for according
to the present value of expected future cash flows available to
repay the loan, or the estimated fair value less estimated
selling costs of the collateral. Commercial loans excluded from
individual assessment, as well as smaller balance homogeneous
loans, such as consumer, residential real estate and home equity
loans, are evaluated for loss exposure under ASC Topic 450 based
upon historical loss rates for each of these categories of
loans. Historical loss rates for each of these loan categories
may be adjusted to reflect managements estimates of the
impacts of current economic conditions, trends in delinquencies
and non-performing loans, volume, concentrations and mergers and
acquisitions, as well as changes in credit underwriting and
approval requirements. The accrual of interest on impaired loans
is discontinued when the loan is 90 to 180 days past due or
in managements opinion the account should be placed on
non-accrual status (loans partially charged off are immediately
placed on non-accrual status). When interest accrual is
discontinued, all unpaid accrued interest is reversed against
interest income. Interest income is subsequently recognized only
to the extent that cash payments are received.
Acquired
Loans
Any loans acquired through the completion of a transfer,
including loans acquired in a business combination, that have
evidence of deterioration of credit quality since origination
and for which it is probable at acquisition, that the
Corporation will be unable to collect all contractually required
payments receivable, are initially recorded at fair value (as
determined by the present value of expected future cash flows)
with no valuation allowance. The difference between the
undiscounted cash flows expected at acquisition and the
investment in the loan, or the accretable yield, is
recognized as interest income on a level-yield method over the
life of the loan. Contractually required payments for interest
and principal that exceed the undiscounted cash flows expected
at acquisition, or the nonaccretable difference, are
recorded in other non-interest income. Increases in expected
cash flows subsequent to the initial investment are recognized
prospectively through adjustment of the yield on the loan over
its remaining life. Decreases in expected cash flows are
recognized as impairment. Valuation allowances on these impaired
loans reflect only losses incurred after the acquisition.
Premises
and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line
method over the assets estimated useful life. Leasehold
improvements are expensed over the lesser of the assets
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 operating expense over the identified useful life.
Other
Real Estate Owned
OREO is comprised principally of commercial and residential real
estate properties obtained in partial or total satisfaction of
loan obligations. OREO acquired in settlement of indebtedness is
included in other assets initially at the lower of estimated
fair value of the asset less estimated selling costs or the
carrying amount of the loan. Changes to the value subsequent to
transfer are recorded in non-interest expense along with direct
operating expenses. Gains or losses not previously recognized
resulting from sales of OREO are recognized in non-interest
expense on the date of sale.
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
68
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 straight line and
accelerated methods. Customer and renewal lists and other
intangible assets are amortized over their estimated useful
lives which range from ten to twelve years.
Goodwill and other intangibles are subject to impairment
testing, which must be conducted at least annually. The
Corporation performs impairment testing during the fourth
quarter of each year. Due to ongoing uncertainty regarding
market conditions surrounding the banking industry, the
Corporation continues to monitor goodwill and other intangibles
for impairment and to evaluate carrying amounts, as necessary.
Based on the results of testing performed, the Corporation
concluded that no impairment existed at December 31, 2009.
However, future events could cause the Corporation 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 the
Corporations financial condition and result of operations.
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, growth rates and
determination and evaluation of appropriate market comparables.
Income
Taxes
The Corporation and a majority of its subsidiaries file a
consolidated federal income tax return. The provision for
federal and state income taxes is based on income reported on
the consolidated financial statements, rather than the amounts
reported on the respective income tax returns. Deferred tax
assets and liabilities are computed using tax rates expected to
apply to taxable income in the years in which those assets and
liabilities are expected to be realized. The effect on deferred
tax assets and liabilities resulting from a change in tax rates
is recognized as income or expense in the period that the change
in tax rates is enacted.
The Corporation makes certain estimates and judgments in
determining income tax expense for financial statement purposes.
These estimates and judgments are applied in the calculation of
certain tax credits and in the calculation of the deferred
income tax expense or benefit associated with certain deferred
tax assets and liabilities. Significant changes to these
estimates may result in an increase or decrease to the
Corporations tax provision in a subsequent period. The
Corporation recognizes interest
and/or
penalties related to income tax matters in income tax expense.
The Corporation assesses the likelihood that it will be able to
recover its deferred tax assets. If recovery is not likely, the
Corporation will increase its provision for income taxes by
recording a valuation allowance against the deferred tax assets
that are unlikely to be recovered. The Corporation believes that
it will ultimately recover a substantial majority of the
deferred tax assets recorded on the balance sheet. However,
should there be a change in the Corporations ability to
recover its deferred tax assets, the effect of this change would
be recorded through the provision for income taxes in the period
during which such change occurs.
The Corporation adopted the revised provisions of ASC Topic 740,
Income Taxes, as of January 1, 2007. The Corporation
periodically reviews its tax position and applies a more
likely than not recognition threshold for all tax
uncertainties. The amount recognized is the largest amount of
tax benefit that is greater than 50% likely of being realized on
examination. For tax positions not meeting the more likely
than not test, no tax benefit is recorded. Details
relating to the adoption of revised ASC Topic 740 and the impact
on the Corporations consolidated financial statements are
more fully discussed in the Income Taxes footnote.
69
Advertising
and Promotional Costs
Advertising and promotional costs are generally expensed as
incurred.
Per Share
Amounts
Earnings per common share is computed using net income available
to common stockholders, which is net income adjusted for the
preferred stock dividend and discount amortization.
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 adjusted for interest
expense on convertible debt by the weighted average number of
shares of common stock outstanding, adjusted for the dilutive
effect of potential common shares issuable for stock options,
warrants, restricted shares and convertible debt, as calculated
using the treasury stock method. Adjustments to the weighted
average number of shares of common stock outstanding are made
only when such adjustments dilute earnings per common share.
Pension
and Postretirement Benefit Plans
The Corporation sponsors pension and other postretirement
benefit plans for its employees. The expense associated with the
plans is calculated in accordance with ASC Topic 715,
Compensation - Retirement Benefits. The plans utilize
assumptions and methods determined in accordance with ASC Topic
715, including reflecting trust assets at their fair market
value for the qualified pension plans and recognizing the
overfunded and underfunded status of the plans on its
consolidated balance sheet. Gains and losses, prior service
costs and credits are recognized in accumulated other
comprehensive income, net of tax, until they are amortized.
Stock
Based Compensation
The Corporation accounts for its stock based compensation awards
in accordance with ASC Topic 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 Topic 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 Corporations consolidated
statement of income over the shorter of requisite service
periods or the period through the date that the employee first
becomes eligible to retire. 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.
Capital
On January 9, 2009, the Corporation received from the UST
under the CPP proceeds of $100.0 million in exchange for
100,000 shares of Series C Preferred Stock and a
warrant to purchase up to 1,302,083 shares of the
Corporations common stock.
On June 16, 2009, the Corporation completed a public
offering of 24,150,000 shares of common stock at a price of
$5.50 per share, including 3,150,000 shares of common stock
purchased by the underwriters pursuant to an over-allotment
option, which the underwriters exercised in full. The net
proceeds of the offering after deducting underwriting discounts
and commissions and offering expenses were $125.8 million.
70
On September 9, 2009, the Corporation utilized a portion of
the proceeds of its public offering to redeem all of the
Series C Preferred Stock issued to the UST and to pay the
related final accrued dividend. Since receiving the CPP funds,
the Corporation paid the UST $3.3 million in cash
dividends. Upon redemption, the remaining difference of
$4.3 million between the Series C Preferred Stock
redemption amount and the recorded amount was charged to
retained earnings as non-cash deemed preferred stock dividends.
The non-cash deemed preferred stock dividends had no impact on
total equity, but reduced earnings per diluted common share by
$0.04.
The number of shares of common stock issuable upon exercise of
the warrant that was issued to the UST in association with the
CPP has been reduced by one-half to 651,042 shares as a
result of the capital raised in the June 2009 offering. The
warrant has a ten-year term and an exercise price of $11.52 per
share.
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2.
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New
Accounting Standards
|
Accounting
Standards Codification (the Codification or ASC)
In June 2009, the Financial Accounting Standards Board (FASB)
issued an accounting standard which established the Codification
as the sole source of authoritative GAAP recognized by the FASB
to be applied to nongovernmental entities, with the exception of
guidance issued by the SEC and its staff. Adoption of this
accounting standard as of September 30, 2009 had no impact
on the Corporations consolidated financial position or
results of operations as the Codification does not alter
existing GAAP.
Determining
Whether Impairment of a Debt Security is
Other-Than-Temporary
In January 2009, the FASB issued an accounting standard which
aligned OTTI guidance applicable to purchased or retained
beneficial interests with guidance pertaining to OTTI on other
debt and equity securities.
This accounting standard eliminated key distinctions that
existed previously and promotes a more consistent determination
of whether OTTI has occurred. The provisions of this accounting
standard are effective for interim and annual reporting periods
ending after December 15, 2008, and are to be applied
prospectively. The Corporation adopted this accounting standard
beginning October 1, 2008 and considered this guidance in
determining OTTI beginning December 31, 2008. This
accounting standard was subsequently codified into ASC Topic
325, Investments - Other.
Recognition
and Presentation of
Other-Than-Temporary
Impairment
In April 2009, the FASB issued an accounting standard which
significantly changes requirements for recognizing OTTI on debt
securities, presentation of OTTI losses and modifies and expands
disclosures about OTTI for debt and equity securities.
Under this accounting standard, a debt security is considered to
be
other-than-temporarily
impaired if the present value of cash flows expected to be
collected are less than the securitys amortized cost basis
(the difference defined as the credit loss) or if the fair value
of the security is less than the securitys amortized cost
basis and the investor intends, or more-likely-than-not will be
required, to sell the security before recovery of the
securitys amortized cost basis. When OTTI exists, if the
investor does not intend to sell the security, and it is
more-likely-than-not that it will not be required to sell the
security before recovery of the securitys amortized cost
basis, the charge to earnings is limited to the amount of credit
loss. Any remaining difference between fair value and amortized
cost (the difference defined as the non-credit portion) is
recognized in other comprehensive income, net of applicable
taxes. Otherwise, the entire difference between fair value and
amortized cost is charged to earnings.
Upon adoption of this accounting standard on April 1, 2009,
the Corporation recorded a cumulative effect adjustment of
$4.6 million (after-tax) to reclassify from retained
earnings to accumulated other comprehensive income the
non-credit portion of OTTI loss previously recognized on debt
securities it holds that it does not intend
71
to sell, and it is more-likely-than-not it will not be required
to sell, before recovery of the securitys amortized cost
basis. This accounting standard was subsequently codified into
ASC Topic 320, Investments - Debt Securities.
Disclosures
about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued an accounting standard which
amends and expands the disclosure requirements for derivative
financial instruments and hedging activities. Expanded
disclosures under this accounting standard include (a) how
and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted
for under GAAP and (c) how derivative instruments and
related hedged items affect an entitys financial position,
financial performance and cash flows. The standard also requires
qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about the fair value
of and gains and losses on derivative instruments and
disclosures about credit-risk-related contingent features in
derivative instruments. The Corporation adopted this accounting
standard effective January 1, 2009. This accounting
standard relates to disclosures only and its adoption did not
have any effect on the financial condition, results of
operations or liquidity of the Corporation. This accounting
standard was subsequently codified into ASC Topic 815,
Derivatives and Hedging.
Business
Combinations
In December 2007, the FASB issued an accounting standard which
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill
acquired. The standard also establishes disclosure requirements
which will enable users to evaluate the nature and financial
effects of the business combination. This accounting standard is
effective for the Corporation for acquisitions made after
January 1, 2009 and, accordingly, was not used by the
Corporation in recognizing and measuring the Omega and IRGB
acquisitions in 2008. This accounting standard was subsequently
codified into ASC Topic 805, Business Combinations.
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued an accounting standard which
establishes accounting and reporting standards for ownership
interests in a subsidiary and for the deconsolidation of a
subsidiary. The Corporation adopted this accounting standard
effective January 1, 2009. The adoption of this standard
did not have a material effect on the financial condition,
results of operations or liquidity of the Corporation. This
accounting standard was subsequently codified into ASC Topic
810, Consolidation.
Fair
Value Measurements
In September 2006, the FASB issued an accounting standard which
replaced the different definitions of fair value in then
existing accounting literature with a single definition, sets
out a framework for measuring fair value and requires additional
disclosures about fair value measurements. The standard
clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing the asset
or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions.
The Corporation adopted this accounting standard on
January 1, 2008. This accounting standard was subsequently
codified into ASC Topic 820, Fair Value Measurements and
Disclosures.
In April 2009, the FASB issued an accounting standard which
provided guidance on estimating fair value when the volume and
level of activity for an asset or liability have significantly
decreased and on identifying circumstances that indicate a
transaction is not orderly. The standard provides additional
guidance on when multiple valuation techniques may be warranted
and considerations for determining the weight that should be
applied to the various techniques. The Corporation applied this
accounting standard prospectively beginning on April 1,
2009. Application of this accounting standard did not result in
significant changes to the Corporations valuation
techniques. This accounting standard was subsequently codified
into ASC Topic 820.
72
In April 2009, the FASB extended disclosures about the fair
value of financial instruments to interim financial statements
of publicly traded companies that were previously only required
to be disclosed in annual financial statements. The Corporation
adopted this accounting standard as of June 30, 2009. As
this accounting standard amended only the disclosure
requirements about the fair value of financial instruments in
interim periods, the adoption did not have any effect on the
financial condition, results of operations or liquidity of the
Corporation. This accounting standard was subsequently codified
into ASC Topic 825, Financial Instruments.
In December 2008, the FASB issued an accounting standard to
require more detailed disclosures about employers plan
assets, including employers investment strategies, major
categories of plan assets, concentrations of risk within plan
assets and valuation techniques used to measure the fair value
of plan assets. This accounting standard was effective for
fiscal years ending after December 15, 2009. This standard
relates to disclosures only and its adoption at
December 31, 2009 did not have any effect on the financial
condition, results of operations or liquidity of the
Corporation. This standard was subsequently codified into ASC
Topic 715.
Subsequent
Events
In May 2009, the FASB issued an accounting standard which
establishes standards under which an entity shall recognize and
disclose events that occur after a balance sheet date but before
the related financial statements are issued or are available to
be issued. This standard is effective for fiscal years and
interim periods ending after June 15, 2009. Adoption of
this accounting standard, subsequently codified into ASC Topic
855, Subsequent Events, as of June 30, 2009, had no
impact on the Corporations consolidated financial
condition, results of operations or liquidity.
Future
Application of Accounting Pronouncements
In June 2009, the FASB issued an accounting standard which
amends current GAAP related to the accounting for transfers and
servicing of financial assets and extinguishments of
liabilities, including the removal of the concept of a
qualifying special-purpose entity from GAAP. This accounting
standard also clarifies that a transferor must evaluate whether
it has maintained effective control of a financial asset by
considering its continuing involvement with the transferred
financial asset. This accounting standard is effective for
interim and annual reporting periods that begin after
November 15, 2009. The Corporation does not expect the
adoption of this standard to have a material impact on its
consolidated financial statements.
In June 2009, the FASB issued an accounting standard which will
require a qualitative rather than a quantitative analysis to
establish the primary beneficiary for determining whether the
consolidation of a variable interest entity (VIE) is required.
The primary beneficiary of a VIE is the enterprise that has:
(a) the power to direct the activities of the VIE that most
significantly impact its economic performance, and (b) the
obligation to absorb losses of the VIE that could potentially be
significant to the VIE or the right to receive benefits of the
VIE that could potentially be significant to the VIE. This
accounting standard is effective for interim and annual
reporting periods that begin after November 15, 2009. The
Corporation does not expect the adoption of this standard to
have a material impact on its consolidated financial statements.
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3.
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Mergers
and Acquisitions
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On August 16, 2008, the Corporation completed its
acquisition of IRGB, a bank holding company based in Pittsburgh,
Pennsylvania. On the acquisition date, IRGB had
$301.7 million in assets, which included
$168.8 million in loans, and $252.3 million in
deposits. The transaction, valued at $83.7 million,
resulted in the Corporation paying $36.7 million in cash
and issuing 3,176,990 shares of its common stock in
exchange for 1,125,026 shares of IRGB common stock. The
assets and liabilities of IRGB were recorded on the
Corporations balance sheet at their fair values as of
August 16, 2008, the acquisition date, and IRGBs
results of operations have been included in the
Corporations consolidated statement of income since that
date. IRGBs banking subsidiary, Iron and Glass Bank, was
merged into FNBPA on August 16, 2008. Based on the purchase
price allocation, the
73
Corporation recorded $47.6 million in goodwill and
$3.6 million in core deposit intangible as a result of the
acquisition. None of the goodwill is deductible for income tax
purposes.
On April 1, 2008, the Corporation completed its acquisition
of Omega, a diversified financial services company based in
State College, Pennsylvania. On the acquisition date, Omega had
$1.8 billion in assets, which included $1.1 billion in
loans, and $1.3 billion in deposits. The all-stock
transaction, valued at approximately $388.2 million,
resulted in the Corporation issuing 25,362,525 shares of
its common stock in exchange for 12,544,150 shares of Omega
common stock. The assets and liabilities of Omega were recorded
on the Corporations balance sheet at their fair values as
of April 1, 2008, the acquisition date, and Omegas
results of operations have been included in the
Corporations consolidated statement of income since that
date. Omegas banking subsidiary, Omega Bank, was merged
into FNBPA on April 1, 2008. Based on the purchase price
allocation, the Corporation recorded $237.7 million in
goodwill and $31.2 million in core deposit and other
intangibles as a result of the acquisition. None of the goodwill
is deductible for income tax purposes.
The assets and liabilities of these acquired entities were
recorded on the balance sheet at their estimated fair values as
of their respective acquisition dates. The consolidated
financial statements include the results of operations of these
entities from their respective dates of acquisition.
The Corporation recorded merger and integration charges of
$4.7 million and $0.2 million in 2008 and 2007,
respectively, associated with the acquisitions of Omega and IRGB.
The following table shows the calculation of the purchase price
and the resulting goodwill relating to the Omega acquisition (in
thousands):
|
|
|
|
|
|
|
|
|
Fair value of stock issued and stock options assumed
|
|
|
|
|
|
$
|
388,176
|
|
Fair value of:
|
|
|
|
|
|
|
|
|
Tangible assets acquired
|
|
$
|
1,531,917
|
|
|
|
|
|
Core deposit and other intangible assets acquired
|
|
|
31,191
|
|
|
|
|
|
Liabilities assumed
|
|
|
(1,463,325
|
)
|
|
|
|
|
Net cash received in the acquisition
|
|
|
50,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
|
|
|
|
150,219
|
|
|
|
|
|
|
|
|
|
|
Goodwill recognized
|
|
|
|
|
|
$
|
237,657
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the estimated fair value of the
net assets that the Corporation acquired from Omega (in
thousands):
|
|
|
|
|
Assets
|
|
|
|
|
Cash and due from banks
|
|
$
|
57,039
|
|
Federal funds sold
|
|
|
52,400
|
|
Securities
|
|
|
256,837
|
|
Loans
|
|
|
1,074,856
|
|
Goodwill and other intangible assets
|
|
|
268,848
|
|
Accrued income and other assets
|
|
|
141,521
|
|
|
|
|
|
|
Total assets
|
|
|
1,851,501
|
|
Liabilities
|
|
|
|
|
Deposits
|
|
|
1,291,483
|
|
Borrowings
|
|
|
157,241
|
|
Accrued expenses and other liabilities
|
|
|
14,601
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,463,325
|
|
|
|
|
|
|
Purchase price
|
|
$
|
388,176
|
|
|
|
|
|
|
74
The following unaudited summary financial information presents
the consolidated results of operations of the Corporation on a
pro forma basis, as if the Omega acquisition had occurred at the
beginning of each of the periods presented (dollars in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
December 31
|
|
2008
|
|
|
2007
|
|
|
Net interest income
|
|
$
|
267,934
|
|
|
$
|
259,409
|
|
Provision for loan losses
|
|
|
75,806
|
|
|
|
14,848
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
192,128
|
|
|
|
244,561
|
|
Non-interest income
|
|
|
92,986
|
|
|
|
109,691
|
|
Non-interest expense
|
|
|
239,953
|
|
|
|
229,953
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
45,161
|
|
|
|
124,299
|
|
Income taxes
|
|
|
7,518
|
|
|
|
34,497
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,643
|
|
|
$
|
89,802
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.47
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.46
|
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
|
The pro forma results include the amortization of the fair value
adjustments on loans, deposits and debt and the amortization of
the newly created intangible assets and post-merger acquisition
related expenses. The pro forma results for 2008 also include
$3.9 million pre-tax for certain non-recurring items,
including personnel expense for retention bonuses and severance
payments. The pro forma results do not reflect cost savings or
revenue enhancements anticipated from the acquisition, and are
not necessarily indicative of what actually would have occurred
if the acquisition had been completed as of the beginning of the
periods presented, nor are they necessarily indicative of future
consolidated results. Actual results of operations of the
Corporation for the periods noted above are listed in the
Corporations consolidated statement of income provided
elsewhere in this Report.
Due to the immateriality of the IRGB acquisition, it has not
been included in the pro forma financial information presented
above.
75
The amortized cost and fair value of securities are as follows
(in thousands):
Securities Available For Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other U.S. government agencies and corporations
|
|
$
|
251,192
|
|
|
$
|
1,563
|
|
|
$
|
(299
|
)
|
|
$
|
252,456
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
319,902
|
|
|
|
6,035
|
|
|
|
(166
|
)
|
|
|
325,771
|
|
Agency collateralized mortgage obligations
|
|
|
43,985
|
|
|
|
54
|
|
|
|
(531
|
)
|
|
|
43,508
|
|
Non-agency collateralized mortgage obligations
|
|
|
47
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
45
|
|
States of the U.S. and political subdivisions
|
|
|
74,177
|
|
|
|
1,495
|
|
|
|
(89
|
)
|
|
|
75,583
|
|
Collateralized debt obligations
|
|
|
21,590
|
|
|
|
|
|
|
|
(16,766
|
)
|
|
|
4,824
|
|
Other debt securities
|
|
|
12,999
|
|
|
|
|
|
|
|
(2,569
|
)
|
|
|
10,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
723,892
|
|
|
|
9,147
|
|
|
|
(20,422
|
)
|
|
|
712,617
|
|
Equity securities
|
|
|
2,656
|
|
|
|
224
|
|
|
|
(148
|
)
|
|
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
726,548
|
|
|
$
|
9,371
|
|
|
$
|
(20,570
|
)
|
|
$
|
715,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other U.S. government agencies and corporations
|
|
$
|
249,370
|
|
|
$
|
3,925
|
|
|
$
|
|
|
|
$
|
253,295
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
131,337
|
|
|
|
1,969
|
|
|
|
(306
|
)
|
|
|
133,000
|
|
Non-agency collateralized mortgage obligations
|
|
|
53
|
|
|
|
3
|
|
|
|
|
|
|
|
56
|
|
States of the U.S. and political subdivisions
|
|
|
71,065
|
|
|
|
254
|
|
|
|
(2,138
|
)
|
|
|
69,181
|
|
Collateralized debt obligations
|
|
|
20,869
|
|
|
|
|
|
|
|
(6,242
|
)
|
|
|
14,627
|
|
Other debt securities
|
|
|
13,350
|
|
|
|
|
|
|
|
(4,737
|
)
|
|
|
8,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
486,044
|
|
|
|
6,151
|
|
|
|
(13,423
|
)
|
|
|
478,772
|
|
Equity securities
|
|
|
3,609
|
|
|
|
157
|
|
|
|
(268
|
)
|
|
|
3,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
489,653
|
|
|
$
|
6,308
|
|
|
$
|
(13,691
|
)
|
|
$
|
482,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other U.S. government agencies and corporations
|
|
$
|
161,969
|
|
|
$
|
870
|
|
|
$
|
|
|
|
$
|
162,839
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
71,329
|
|
|
|
1,076
|
|
|
|
(138
|
)
|
|
|
72,267
|
|
States of the U.S. and political subdivisions
|
|
|
71,169
|
|
|
|
676
|
|
|
|
(355
|
)
|
|
|
71,490
|
|
Collateralized debt obligations
|
|
|
37,056
|
|
|
|
2
|
|
|
|
(3,756
|
)
|
|
|
33,302
|
|
Other debt securities
|
|
|
13,424
|
|
|
|
55
|
|
|
|
(574
|
)
|
|
|
12,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
354,947
|
|
|
|
2,679
|
|
|
|
(4,823
|
)
|
|
|
352,803
|
|
Equity securities
|
|
|
5,526
|
|
|
|
404
|
|
|
|
(312
|
)
|
|
|
5,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
360,473
|
|
|
$
|
3,083
|
|
|
$
|
(5,135
|
)
|
|
$
|
358,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
Securities Held To Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other U.S. government agencies and corporations
|
|
$
|
5,386
|
|
|
$
|
81
|
|
|
$
|
|
|
|
$
|
5,467
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
566,876
|
|
|
|
23,141
|
|
|
|
(261
|
)
|
|
|
589,756
|
|
Agency collateralized mortgage obligations
|
|
|
27,263
|
|
|
|
406
|
|
|
|
|
|
|
|
27,669
|
|
Non-agency collateralized mortgage obligations
|
|
|
49,000
|
|
|
|
|
|
|
|
(3,245
|
)
|
|
|
45,755
|
|
States of the U.S. and political subdivisions
|
|
|
121,548
|
|
|
|
2,477
|
|
|
|
(399
|
)
|
|
|
123,626
|
|
Collateralized debt obligations
|
|
|
3,590
|
|
|
|
|
|
|
|
(812
|
)
|
|
|
2,778
|
|
Other debt securities
|
|
|
1,618
|
|
|
|
11
|
|
|
|
(143
|
)
|
|
|
1,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
775,281
|
|
|
$
|
26,116
|
|
|
$
|
(4,860
|
)
|
|
$
|
796,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other U.S. government agencies and corporations
|
|
$
|
506
|
|
|
$
|
154
|
|
|
$
|
|
|
|
$
|
660
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
658,260
|
|
|
|
15,915
|
|
|
|
(694
|
)
|
|
|
673,481
|
|
Non-agency collateralized mortgage obligations
|
|
|
63,422
|
|
|
|
|
|
|
|
(6,748
|
)
|
|
|
56,674
|
|
States of the U.S. and political subdivisions
|
|
|
115,766
|
|
|
|
376
|
|
|
|
(928
|
)
|
|
|
115,214
|
|
Collateralized debt obligations
|
|
|
3,785
|
|
|
|
|
|
|
|
(572
|
)
|
|
|
3,213
|
|
Other debt securities
|
|
|
2,124
|
|
|
|
|
|
|
|
(115
|
)
|
|
|
2,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
843,863
|
|
|
$
|
16,445
|
|
|
$
|
(9,057
|
)
|
|
$
|
851,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other U.S. government agencies and corporations
|
|
$
|
11,004
|
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
11,051
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
471,058
|
|
|
|
2,059
|
|
|
|
(2,561
|
)
|
|
|
470,556
|
|
Non-agency collateralized mortgage obligations
|
|
|
75,988
|
|
|
|
|
|
|
|
(1,304
|
)
|
|
|
74,684
|
|
States of the U.S. and political subdivisions
|
|
|
102,179
|
|
|
|
335
|
|
|
|
(134
|
)
|
|
|
102,380
|
|
Collateralized debt obligations
|
|
|
3,931
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
3,831
|
|
Other debt securities
|
|
|
3,393
|
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
3,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
667,553
|
|
|
$
|
2,461
|
|
|
$
|
(4,100
|
)
|
|
$
|
665,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation classifies securities as trading securities when
management intends to sell such securities in the near term and
are carried at fair value, with unrealized gains (losses)
reflected through the consolidated statement of income. The
Corporation acquired securities in conjunction with the Omega
acquisition that the Corporation classified as trading
securities. The Corporation both acquired and sold these trading
securities during the second quarter of 2008. As of
December 31, 2009, 2008 and 2007, the Corporation did not
hold any trading securities.
The Corporation recognized a gain of $0.2 million during
2009 relating to the acquisition of a company in which the
Corporation owned stock. Also, the Corporation sold
$0.8 million of securities at a gain of $0.1 million
during 2009 and sold $1.8 million of securities at a gain
of $0.1 million during 2008. The Corporation also
recognized a gain of $0.2 million relating to called
securities during 2009. Additionally, the Corporation recognized
a gain of $0.7 million relating to the VISA, Inc. initial
public offering during 2008. No security sales were at a loss.
77
Gross gains and gross losses were realized on sales of
securities as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Gross gains
|
|
$
|
546
|
|
|
$
|
839
|
|
|
$
|
1,155
|
|
Gross losses
|
|
|
(18
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
528
|
|
|
$
|
834
|
|
|
$
|
1,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the amortized cost and fair value
of securities, by contractual maturities, were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Due in one year or less
|
|
$
|
5,211
|
|
|
$
|
5,196
|
|
|
$
|
2,594
|
|
|
$
|
2,610
|
|
Due from one to five years
|
|
|
249,421
|
|
|
|
250,858
|
|
|
|
31,708
|
|
|
|
32,558
|
|
Due from five to ten years
|
|
|
15,417
|
|
|
|
15,997
|
|
|
|
21,908
|
|
|
|
22,450
|
|
Due after ten years
|
|
|
89,909
|
|
|
|
71,242
|
|
|
|
75,932
|
|
|
|
75,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
359,958
|
|
|
|
343,293
|
|
|
|
132,142
|
|
|
|
133,357
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
319,902
|
|
|
|
325,771
|
|
|
|
566,876
|
|
|
|
589,756
|
|
Agency collateralized mortgage obligations
|
|
|
43,985
|
|
|
|
43,508
|
|
|
|
27,263
|
|
|
|
27,669
|
|
Non-agency collateralized mortgage obligations
|
|
|
47
|
|
|
|
45
|
|
|
|
49,000
|
|
|
|
45,755
|
|
Equity securities
|
|
|
2,656
|
|
|
|
2,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
726,548
|
|
|
$
|
715,349
|
|
|
$
|
775,281
|
|
|
$
|
796,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 residential
mortgage-backed securities based on the payment patterns of the
underlying collateral.
At December 31, 2009, 2008 and 2007, securities with a
carrying value of $598.1 million, $670.2 million and
$522.0 million, respectively, were pledged to secure public
deposits, trust deposits and for other purposes as required by
law. Securities with a carrying value of $616.0 million,
$585.0 million and $360.6 million at December 31,
2009, 2008 and 2007, respectively, were pledged as collateral
for short-term borrowings.
78
Following are summaries of the fair values and unrealized losses
of securities, segregated by length of impairment (in thousands):
Securities Available For Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
Greater than 12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other U.S. government agencies and corporations
|
|
$
|
46,501
|
|
|
$
|
(299
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
46,501
|
|
|
$
|
(299
|
)
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
68,313
|
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
68,313
|
|
|
|
(166
|
)
|
Agency collateralized mortgage obligations
|
|
|
29,516
|
|
|
|
(531
|
)
|
|
|
|
|
|
|
|
|
|
|
29,516
|
|
|
|
(531
|
)
|
Non-agency collateralized mortgage obligations
|
|
|
45
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
(2
|
)
|
States of the U.S. and political subdivisions
|
|
|
12,357
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
12,357
|
|
|
|
(89
|
)
|
Collateralized debt obligations
|
|
|
3,755
|
|
|
|
(12,023
|
)
|
|
|
1,069
|
|
|
|
(4,743
|
)
|
|
|
4,824
|
|
|
|
(16,766
|
)
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
10,430
|
|
|
|
(2,569
|
)
|
|
|
10,430
|
|
|
|
(2,569
|
)
|
Equity securities
|
|
|
789
|
|
|
|
(99
|
)
|
|
|
721
|
|
|
|
(49
|
)
|
|
|
1,510
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
161,276
|
|
|
$
|
(13,209
|
)
|
|
$
|
12,220
|
|
|
$
|
(7,361
|
)
|
|
$
|
173,496
|
|
|
$
|
(20,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
$
|
33,856
|
|
|
$
|
(306
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,856
|
|
|
$
|
(306
|
)
|
States of the U.S. and political subdivisions
|
|
|
54,230
|
|
|
|
(2,138
|
)
|
|
|
|
|
|
|
|
|
|
|
54,230
|
|
|
|
(2,138
|
)
|
Collateralized debt obligations
|
|
|
|
|
|
|
|
|
|
|
4,181
|
|
|
|
(6,242
|
)
|
|
|
4,181
|
|
|
|
(6,242
|
)
|
Other debt securities
|
|
|
4,797
|
|
|
|
(1,375
|
)
|
|
|
3,678
|
|
|
|
(3,362
|
)
|
|
|
8,475
|
|
|
|
(4,737
|
)
|
Equity securities
|
|
|
1,053
|
|
|
|
(258
|
)
|
|
|
32
|
|
|
|
(10
|
)
|
|
|
1,085
|
|
|
|
(268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93,936
|
|
|
$
|
(4,077
|
)
|
|
$
|
7,891
|
|
|
$
|
(9,614
|
)
|
|
$
|
101,827
|
|
|
$
|
(13,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
Securities Held To Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
Greater than 12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
$
|
20,650
|
|
|
$
|
(261
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,650
|
|
|
$
|
(261
|
)
|
Non-agency collateralized mortgage obligations
|
|
|
15,534
|
|
|
|
(80
|
)
|
|
|
30,221
|
|
|
|
(3,165
|
)
|
|
|
45,755
|
|
|
|
(3,245
|
)
|
States of the U.S. and political subdivisions
|
|
|
13,055
|
|
|
|
(362
|
)
|
|
|
1,968
|
|
|
|
(37
|
)
|
|
|
15,023
|
|
|
|
(399
|
)
|
Collateralized debt obligations
|
|
|
|
|
|
|
|
|
|
|
2,778
|
|
|
|
(812
|
)
|
|
|
2,778
|
|
|
|
(812
|
)
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
1,192
|
|
|
|
(143
|
)
|
|
|
1,192
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,239
|
|
|
$
|
(703
|
)
|
|
$
|
36,159
|
|
|
$
|
(4,157
|
)
|
|
$
|
85,398
|
|
|
$
|
(4,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
$
|
47,371
|
|
|
$
|
(694
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
47,371
|
|
|
$
|
(694
|
)
|
Non-agency collateralized mortgage obligations
|
|
|
48,842
|
|
|
|
(5,837
|
)
|
|
|
7,832
|
|
|
|
(911
|
)
|
|
|
56,674
|
|
|
|
(6,748
|
)
|
States of the U.S. and political subdivisions
|
|
|
44,555
|
|
|
|
(928
|
)
|
|
|
|
|
|
|
|
|
|
|
44,555
|
|
|
|
(928
|
)
|
Collateralized debt obligations
|
|
|
|
|
|
|
|
|
|
|
3,213
|
|
|
|
(572
|
)
|
|
|
3,213
|
|
|
|
(572
|
)
|
Other debt securities
|
|
|
277
|
|
|
|
(7
|
)
|
|
|
1,232
|
|
|
|
(108
|
)
|
|
|
1,509
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
141,045
|
|
|
$
|
(7,466
|
)
|
|
$
|
12,277
|
|
|
$
|
(1,591
|
)
|
|
$
|
153,322
|
|
|
$
|
(9,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, securities with unrealized losses
for less than 12 months include 5 investments in
U.S. Treasury and other U.S. government agencies and
corporations, 18 investments in residential mortgage-backed
securities (10 investments in agency mortgage-backed securities,
2 investments in agency collateralized mortgage obligations
(CMOs) and 6 investments in non-agency CMOs), 19 investments in
states of the U.S. and political subdivision securities, 11
investments in collateralized debt obligations (CDOs) and 10
investments in equity securities. Securities with unrealized
losses of greater than 12 months include 7 investments in
residential mortgage-backed securities (non-agency CMOs), 3
investments in states of the U.S. and political subdivision
securities, 5 investments in CDOs, 8 investments in other debt
securities and 3 investments in equity securities. The
Corporation has concluded that it has both the intent and
ability to hold these securities for the time necessary to
recover the amortized cost or until maturity.
The Corporations unrealized losses on CDOs primarily
relate to investments in TPS. The Corporations portfolio
of TPS consists of single-issuer and pooled securities. The
single-issuer securities are primarily from money-center and
large regional banks. The pooled securities consist of
securities issued primarily by banks, with some of the pools
including a limited number of insurance companies. Investments
in pooled securities are all in mezzanine tranches except for
one investment in a senior tranche, and are secured by
over-collateralization or default protection provided by
subordinated tranches. The non-credit portion of unrealized
losses on investments in TPS are attributable to temporary
illiquidity and the uncertainty affecting these markets, as well
as changes in interest rates.
80
Other-Than-Temporary
Impairment
The Corporation evaluates its investment securities portfolio
for OTTI on a quarterly basis. Impairment is assessed at the
individual security level. The Corporation considers an
investment security impaired if the fair value of the security
is less than its cost or amortized cost basis.
When impairment of an equity security is considered to be
other-than-temporary,
the security is written down to its fair value and an impairment
loss is recorded as a loss within non-interest income in the
consolidated statement of income. When impairment of a debt
security is considered to be
other-than-temporary,
the amount of the OTTI recorded as a loss within non-interest
income and thereby recognized in earnings depends on whether the
entity intends to sell the security or whether it is more likely
than not that the entity will be required to sell the security
before recovery of its amortized cost basis.
If the Corporation intends to (has decided to) sell the debt
security or more likely than not will be required to sell the
security before recovery of its amortized cost basis, OTTI shall
be recognized in earnings equal to the entire difference between
the investments amortized cost basis and its fair value.
If the Corporation does not intend to sell the debt security and
it is not more likely than not the Corporation will be required
to sell the security before recovery of its amortized cost
basis, OTTI shall be separated into the amount representing
credit loss and the amount related to all other market factors.
The amount related to credit loss shall be recognized in
earnings. The amount related to other market factors shall be
recognized in other comprehensive income, net of applicable
taxes.
The Corporation performs its OTTI evaluation process in a
consistent and systematic manner and includes an evaluation of
all available evidence. Documentation of the process is as
extensive as necessary to support a conclusion as to whether a
decline in fair value below cost or amortized cost is
other-than-temporary
and includes documentation supporting both observable and
unobservable inputs and a rationale for conclusions reached. In
making these determinations for pooled TPS, the Corporation
consults with third-party advisory firms to provide additional
valuation assistance.
This process considers factors such as the severity, length of
time and anticipated recovery period of the impairment,
recoveries or additional declines in fair value subsequent to
the balance sheet date, recent events specific to the issuer,
including investment downgrades by rating agencies and economic
conditions of its industry, and the issuers financial
condition, repayment capacity, capital strength and near-term
prospects.
For debt securities, the Corporation also considers the payment
structure of the debt security, the likelihood of the issuer
being able to make future payments, failure of the issuer of the
security to make scheduled interest and principal payments,
whether the Corporation has made a decision to sell the security
and whether the Corporations cash or working capital
requirements or contractual or regulatory obligations indicate
that the debt security will be required to be sold before a
forecasted recovery occurs. For equity securities, the
Corporation also considers its intent and ability to retain the
security for a period of time sufficient to allow for a recovery
in fair value. Among the factors that are considered in
determining the Corporations intent and ability to retain
the security is a review of its capital adequacy, interest rate
risk position and liquidity. The assessment of a securitys
ability to recover any decline in fair value, the ability of the
issuer to meet contractual obligations, the Corporations
intent and ability to retain the security, and whether it is
more likely than not the Corporation will be required to sell
the security before recovery of its amortized cost basis require
considerable judgment.
Debt securities with credit ratings below AA at the time of
purchase that are repayment-sensitive securities are evaluated
using the guidance of ASC Topic 325. All other securities are
required to be evaluated under ASC Topic 320.
The Corporation invested in TPS issued by special purpose
vehicles (SPVs) which hold pools of collateral consisting of
trust preferred and subordinated debt securities issued by
banks, bank holding companies and
81
insurance companies. The securities issued by the SPVs are
generally segregated into several classes known as tranches.
Typically, the structure includes senior, mezzanine and equity
tranches. The equity tranche represents the first loss position.
The Corporation generally holds interests in mezzanine tranches.
Interest and principal collected from the collateral held by the
SPVs are distributed with a priority that provides the highest
level of protection to the senior-most tranches. In order to
provide a high level of protection to the senior tranches, cash
flows are diverted to higher-level tranches if certain tests are
not met.
The Corporation prices its holdings of TPS using Level 3
inputs in accordance with ASC Topic 820 and guidance issued by
the SEC. In this regard, the Corporation evaluates current
available information in estimating the future cash flows of
these securities and determines whether there have been
favorable or adverse changes in estimated cash flows from the
cash flows previously projected. The Corporation considers the
structure and term of the pool and the financial condition of
the underlying issuers. Specifically, the evaluation
incorporates factors such as over-collateralization and interest
coverage tests, interest rates and appropriate risk premiums,
the timing and amount of interest and principal payments and the
allocation of payments to the various tranches. Current
estimates of cash flows are based on the most recent trustee
reports, announcements of deferrals or defaults, and assumptions
regarding expected future default rates, prepayment and recovery
rates and other relevant information. In constructing these
assumptions, the Corporation considers the following:
|
|
|
|
|
that current defaults would have no recovery;
|
|
|
that some individually analyzed deferrals will cure at a 50%
rate after five years, while others are expected to exhibit
minimal recovery;
|
|
|
recent historical performance metrics, including profitability,
capital ratios, loan charge-offs and loan reserve ratios, for
the underlying institutions that would indicate a higher
probability of default by the institution;
|
|
|
that institutions identified as possessing a higher probability
of default would recover at a rate of 10% for banks and 15% for
insurance companies;
|
|
|
that financial performance of the financial sector continues to
be affected by the economic environment resulting in an
expectation of additional deferrals and defaults in the future;
|
|
|
whether the security is currently deferring interest; and
|
|
|
the external rating of the security and recent changes to its
external rating.
|
The primary evidence utilized by the Corporation is the level of
current deferrals and defaults, the level of excess
subordination that allows for receipt of full principal and
interest, the credit rating for each security and the likelihood
that future deferrals and defaults will occur at a level that
will fully erode the excess subordination based on an assessment
of the underlying collateral. The Corporation combines the
results of these factors considered in estimating the future
cash flows of these securities to determine whether there has
been an adverse change in estimated cash flows from the cash
flows previously projected.
The Corporations portfolio of trust preferred CDOs
consists of 13 pooled issues and seven single issue securities.
One of the pooled issues is a senior tranche; the remaining 12
are mezzanine tranches. At December 31, 2009, the 13 pooled
TPS had an estimated fair value of $7.6 million while the
single-issuer TPS had an estimated fair value of
$11.6 million. The Corporation has concluded from the
analysis performed at December 31, 2009 that it is probable
that the Corporation will collect all contractual principal and
interest payments on all of its single-issuer and pooled TPS,
except for those on which OTTI was recognized.
In 2008, the Corporation concluded that it was probable that
there had been an adverse change in estimated cash flows for
eight of the 13 pooled trust preferred security investments.
Accordingly, the Corporation recognized OTTI on these securities
of $15.9 million at December 31, 2008. Upon adoption
of ASC Topic 320, the Corporation determined that
$7.0 million of those OTTI charges were non-credit related.
As such, a $4.6 million (net of $2.4 million of taxes)
increase to retained earnings and a corresponding decrease to
accumulated other comprehensive income were recorded as the
cumulative effect of adopting ASC Topic 320 as of April 1,
2009.
82
The Corporation recognized impairment losses on securities of
$7.9 million and $17.2 million for the years ended
December 31, 2009 and 2008, respectively, due to the
write-down to fair value of securities that the Corporation
deemed to be
other-than-temporarily
impaired. Impairment losses related to bank stocks for the years
ended December 31, 2009 and 2008 amounted to
$0.7 million and $1.2 million, respectively. For the
year ended December 31, 2009, impairment losses on pooled
TPS amounted to $24.2 million, which includes
$17.3 million ($11.3 million, net of tax) for
non-credit related impairment losses recognized directly in
other comprehensive income and $7.1 million of
credit-related impairment losses recognized in earnings.
The $0.7 million in impairment losses on bank stocks during
2009 relate to securities that have been in an unrealized loss
position for an extended period of time or the percentage of
unrealized loss is such that management believes it will be
unlikely to recover in the near term. In accordance with GAAP,
management has deemed these impairments to be
other-than-temporary
given the low likelihood that they will recover in value in the
foreseeable future. At December 31, 2009, the Corporation
held 22 bank stocks with an adjusted cost basis and fair value
of $2.7 million.
At December 31, 2009, all 11 of the pooled trust preferred
security investments on which OTTI has been recognized are
classified as non-performing investments.
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 at December 31, 2009 (in
thousands):
|
|
|
|
|
Beginning balance of the amount related to credit loss for which
a portion of OTTI was recognized in other comprehensive income
|
|
$
|
|
|
Amount of OTTI related to credit loss on April 1, 2009(1)
|
|
|
(8,953
|
)
|
Additions related to credit loss for securities with previously
recognized OTTI
|
|
|
(2,315
|
)
|
Additions related to credit loss for securities with initial OTTI
|
|
|
(4,783
|
)
|
|
|
|
|
|
Ending balance of the amount related to credit loss for which a
portion of OTTI was recognized in other comprehensive income
|
|
$
|
(16,051
|
)
|
|
|
|
|
|
|
|
|
(1) |
|
Amount represents the OTTI charges recorded during the year
ended December 31, 2008 for pooled trust preferred
securities, net of the Corporations cumulative effect
adjustment upon adoption of ASC Topic 320, effective
April 1, 2009. |
TPS continue to experience price declines due to uncertainties
surrounding these securities in the current market environment
and the currently limited secondary market for such securities,
in addition to issuer-specific credit deterioration. Write-downs
were based on the individual securities credit performance
and its ability to make its contractual principal and interest
payments. Should credit quality deteriorate to a greater extent
than projected, it is possible that additional write-downs may
be required. The Corporation monitors actual deferrals and
defaults as well as expected future deferrals and defaults to
determine if there is a high probability for expected losses and
contractual shortfalls of interest or principal, which could
warrant further impairment. The Corporation evaluates its entire
portfolio each quarter to determine if additional write-downs
are warranted.
83
The following table provides information relating to the
Corporations TPS as of December 31, 2009 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Expected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Recovery
|
|
|
Deferrals/
|
|
|
Excess
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Deferrals/
|
|
|
Rates of
|
|
|
Defaults (as a
|
|
|
Subordination
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Lowest
|
|
Issuers
|
|
|
Defaults (as
|
|
|
Current
|
|
|
% of remaining
|
|
|
(as a % of
|
|
|
|
|
|
Par
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Credit
|
|
Currently
|
|
|
a % of original
|
|
|
Deferrals/
|
|
|
performing
|
|
|
current
|
|
Security
|
|
Class
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Loss
|
|
|
Ratings
|
|
Performing
|
|
|
collateral)
|
|
|
Defaults
|
|
|
collateral)(1)
|
|
|
collateral)(2)
|
|
|
Pooled TPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P1
|
|
C1
|
|
$
|
5,500
|
|
|
$
|
2,266
|
|
|
$
|
456
|
|
|
$
|
(1,810
|
)
|
|
Ca
|
|
|
47
|
|
|
|
32.72
|
%
|
|
|
7.60
|
%
|
|
|
15.52
|
%
|
|
|
0.00
|
%
|
P2
|
|
C1
|
|
|
4,889
|
|
|
|
3,604
|
|
|
|
652
|
|
|
|
(2,952
|
)
|
|
Ca
|
|
|
52
|
|
|
|
23.85
|
|
|
|
17.13
|
|
|
|
20.89
|
|
|
|
0.00
|
|
P3
|
|
C1
|
|
|
5,561
|
|
|
|
4,218
|
|
|
|
1,127
|
|
|
|
(3,091
|
)
|
|
Ca
|
|
|
56
|
|
|
|
18.19
|
|
|
|
8.72
|
|
|
|
15.48
|
|
|
|
0.00
|
|
P4
|
|
C1
|
|
|
3,994
|
|
|
|
2,852
|
|
|
|
604
|
|
|
|
(2,248
|
)
|
|
C
|
|
|
55
|
|
|
|
21.77
|
|
|
|
4.83
|
|
|
|
18.84
|
|
|
|
0.00
|
|
P5
|
|
MEZ
|
|
|
483
|
|
|
|
381
|
|
|
|
198
|
|
|
|
(183
|
)
|
|
CC
|
|
|
26
|
|
|
|
22.76
|
|
|
|
22.32
|
|
|
|
14.79
|
|
|
|
0.00
|
|
P6
|
|
MEZ
|
|
|
1,909
|
|
|
|
1,087
|
|
|
|
376
|
|
|
|
(711
|
)
|
|
Ca
|
|
|
23
|
|
|
|
32.17
|
|
|
|
13.16
|
|
|
|
15.29
|
|
|
|
0.00
|
|
P7
|
|
B3
|
|
|
2,000
|
|
|
|
726
|
|
|
|
171
|
|
|
|
(555
|
)
|
|
C
|
|
|
23
|
|
|
|
36.48
|
|
|
|
5.85
|
|
|
|
16.84
|
|
|
|
0.00
|
|
P8
|
|
B1
|
|
|
3,028
|
|
|
|
2,472
|
|
|
|
753
|
|
|
|
(1,719
|
)
|
|
Ca
|
|
|
57
|
|
|
|
23.58
|
|
|
|
9.87
|
|
|
|
18.48
|
|
|
|
0.00
|
|
P9
|
|
C
|
|
|
5,048
|
|
|
|
1,513
|
|
|
|
117
|
|
|
|
(1,396
|
)
|
|
Ca
|
|
|
42
|
|
|
|
30.08
|
|
|
|
12.55
|
|
|
|
21.21
|
|
|
|
0.00
|
|
P10
|
|
C
|
|
|
2,011
|
|
|
|
1,321
|
|
|
|
85
|
|
|
|
(1,236
|
)
|
|
Ca
|
|
|
53
|
|
|
|
23.01
|
|
|
|
10.00
|
|
|
|
18.94
|
|
|
|
0.00
|
|
P11
|
|
A4L
|
|
|
2,000
|
|
|
|
645
|
|
|
|
171
|
|
|
|
(474
|
)
|
|
C
|
|
|
32
|
|
|
|
27.01
|
|
|
|
17.46
|
|
|
|
18.59
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OTTI
|
|
|
|
|
36,423
|
|
|
|
21,085
|
|
|
|
4,710
|
|
|
|
(16,375
|
)
|
|
|
|
|
466
|
|
|
|
25.80
|
|
|
|
10.75
|
|
|
|
17.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P12
|
|
C
|
|
|
505
|
|
|
|
505
|
|
|
|
114
|
|
|
|
(391
|
)
|
|
Ca
|
|
|
60
|
|
|
|
16.42
|
|
|
|
7.65
|
|
|
|
16.08
|
|
|
|
3.46
|
|
P13
|
|
SNR
|
|
|
3,391
|
|
|
|
3,590
|
|
|
|
2,778
|
|
|
|
(812
|
)
|
|
A3
|
|
|
23
|
|
|
|
15.46
|
|
|
|
18.18
|
|
|
|
18.33
|
|
|
|
43.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Not OTTI
|
|
|
|
|
3,896
|
|
|
|
4,095
|
|
|
|
2,892
|
|
|
|
(1,203
|
)
|
|
|
|
|
83
|
|
|
|
16.14
|
|
|
|
10.52
|
|
|
|
16.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pooled TPS
|
|
|
|
$
|
40,319
|
|
|
$
|
25,180
|
|
|
$
|
7,602
|
|
|
$
|
(17,578
|
)
|
|
|
|
|
549
|
|
|
|
24.49
|
%
|
|
|
10.73
|
%
|
|
|
17.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single Issuer TPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S1
|
|
|
|
$
|
2,000
|
|
|
$
|
1,944
|
|
|
$
|
1,405
|
|
|
$
|
(539
|
)
|
|
B
|
|
|
1
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
0.00
|
%
|
|
|
|
|
S2
|
|
|
|
|
2,000
|
|
|
|
1,904
|
|
|
|
1,408
|
|
|
|
(496
|
)
|
|
BBB+
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
S3
|
|
|
|
|
2,000
|
|
|
|
2,056
|
|
|
|
1,785
|
|
|
|
(271
|
)
|
|
B+
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
S4
|
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
1,420
|
|
|
|
(580
|
)
|
|
B+
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
S5
|
|
|
|
|
4,000
|
|
|
|
4,096
|
|
|
|
3,670
|
|
|
|
(426
|
)
|
|
Baa2
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
S6
|
|
|
|
|
1,000
|
|
|
|
999
|
|
|
|
742
|
|
|
|
(257
|
)
|
|
BB
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
S7
|
|
|
|
|
1,300
|
|
|
|
1,335
|
|
|
|
1,192
|
|
|
|
(143
|
)
|
|
BB
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Single Issuer TPS
|
|
|
|
$
|
14,300
|
|
|
$
|
14,334
|
|
|
$
|
11,622
|
|
|
$
|
(2,712
|
)
|
|
|
|
|
7
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TPS
|
|
|
|
$
|
54,619
|
|
|
$
|
39,514
|
|
|
$
|
19,224
|
|
|
$
|
(20,290
|
)
|
|
|
|
|
556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Some current deferrals and defaults will cure at a 50% rate
after five years, while others are expected to exhibit minimal
recovery. Future deferrals and defaults are generally assumed to
have recovery rates of 10% for banks and 15% for insurance
companies. |
(2) |
|
Excess subordination represents the additional defaults in
excess of both current and projected defaults that the CDO can
absorb before the bond experiences any credit impairment. |
84
Non-Agency
CMOs
The Corporation purchased $161.2 million of non-agency CMOs
from 2003 through 2005. These securities, which are classified
as held to maturity, have paid down to a balance of
$49.0 million, including $14.4 million of paydowns
during 2009. At the time of purchase, these securities were all
rated AAA, with an original average
loan-to-value
(LTV) ratio of 66.1% and original credit score of 724. At
origination, the credit support, or the amount of loss the
collateral pool could absorb before the AAA securities would
incur a credit loss ranged from 1.3% to 7.0%. This credit
support has grown to a range of 4.5% to 18.6%, due to paydowns
and good credit performance through the first half of 2008.
Beginning in the second half of 2008, national delinquencies, an
early warning sign of potential default, began to accelerate on
the collateral pools, peaking at 9.8% in November 2009. December
2009 delinquencies declined and the rate of growth in
delinquencies in the fourth quarter of 2009 was the slowest of
the year.
The rating agencies monitor these non-agency CMOs and the
underlying collateral performance for delinquencies,
foreclosures and defaults. They also factor in trends in
bankruptcies and housing values to ultimately arrive at an
expected loss for a given piece of defaulted collateral. Based
on deteriorating performance of the collateral, many of these
types of securities have been downgraded by the rating agencies.
For the Corporations portfolio, three of the twelve
non-agency CMOs have been downgraded from AAA.
The Corporation determines its credit related losses by running
scenario analysis on the underlying collateral. This analysis
applies default assumptions to delinquencies already in the
pipeline, projects future defaults based in part on the
historical trends for the collateral, applies a rate of severity
and estimates prepayment rates. Because of the limited
historical trends for the collateral, multiple default scenarios
were analyzed including scenarios that significantly elevate
defaults over the next 24 months. Based on the results of
the analysis, the Corporations management has concluded
that there are currently no credit-related losses in its
non-agency CMO portfolio.
85
The following table provides information relating to the
Corporations non-agency CMOs as of December 31, 2009
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Rating
|
|
|
Credit Support %
|
|
|
December Subordination Data
|
|
|
|
Original
|
|
|
Book
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency %
|
|
|
%
|
|
|
%
|
|
|
|
|
|
Total
|
|
|
|
|
|
Credit
|
|
Security
|
|
Year
|
|
|
Value
|
|
|
S&P
|
|
|
Moodys
|
|
|
Original
|
|
|
Current
|
|
|
30 Day
|
|
|
60 Day
|
|
|
90 Day
|
|
|
Foreclosure
|
|
|
OREO
|
|
|
Bankruptcy
|
|
|
Delinquency
|
|
|
LTV
|
|
|
Score
|
|
|
|
1
|
|
|
|
2005
|
|
|
$
|
8,201
|
|
|
|
CCC
|
|
|
|
B3
|
|
|
|
5.1
|
|
|
|
6.7
|
|
|
|
3.1
|
|
|
|
1.3
|
|
|
|
7.9
|
|
|
|
5.8
|
|
|
|
1.1
|
|
|
|
1.9
|
|
|
|
21.1
|
|
|
|
66.0
|
%
|
|
|
709
|
|
|
2
|
|
|
|
2005
|
|
|
|
6,755
|
|
|
|
CCC
|
|
|
|
B2
|
|
|
|
4.7
|
|
|
|
5.3
|
|
|
|
3.4
|
|
|
|
1.9
|
|
|
|
3.8
|
|
|
|
5.3
|
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
16.4
|
|
|
|
66.8
|
|
|
|
728
|
|
|
3
|
|
|
|
2004
|
|
|
|
5,540
|
|
|
|
AAA
|
|
|
|
Aa3
|
|
|
|
7.0
|
|
|
|
18.6
|
|
|
|
2.1
|
|
|
|
1.0
|
|
|
|
1.8
|
|
|
|
3.0
|
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
11.2
|
|
|
|
57.8
|
|
|
|
692
|
|
|
4
|
|
|
|
2004
|
|
|
|
3,950
|
|
|
|
AAA
|
|
|
|
n/a
|
|
|
|
5.3
|
|
|
|
10.4
|
|
|
|
0.0
|
|
|
|
0.3
|
|
|
|
1.4
|
|
|
|
2.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
3.8
|
|
|
|
49.7
|
|
|
|
738
|
|
|
5
|
|
|
|
2004
|
|
|
|
2,924
|
|
|
|
n/a
|
|
|
|
Aaa
|
|
|
|
2.5
|
|
|
|
6.3
|
|
|
|
0.0
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
1.4
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
2.7
|
|
|
|
57.9
|
|
|
|
743
|
|
|
6
|
|
|
|
2004
|
|
|
|
2,819
|
|
|
|
AAA
|
|
|
|
Aaa
|
|
|
|
4.4
|
|
|
|
8.9
|
|
|
|
1.2
|
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
1.4
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
5.0
|
|
|
|
56.9
|
|
|
|
733
|
|
|
7
|
|
|
|
2003
|
|
|
|
6,486
|
|
|
|
AAA
|
|
|
|
n/a
|
|
|
|
2.5
|
|
|
|
4.5
|
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
0.0
|
|
|
|
0.3
|
|
|
|
2.1
|
|
|
|
53.9
|
|
|
|
742
|
|
|
8
|
|
|
|
2003
|
|
|
|
3,197
|
|
|
|
AAA
|
|
|
|
n/a
|
|
|
|
4.3
|
|
|
|
15.1
|
|
|
|
2.2
|
|
|
|
1.6
|
|
|
|
1.9
|
|
|
|
2.0
|
|
|
|
0.4
|
|
|
|
0.7
|
|
|
|
8.7
|
|
|
|
58.1
|
|
|
|
713
|
|
|
9
|
|
|
|
2003
|
|
|
|
3,186
|
|
|
|
AAA
|
|
|
|
n/a
|
|
|
|
2.0
|
|
|
|
5.1
|
|
|
|
0.8
|
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
0.5
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
2.7
|
|
|
|
49.4
|
|
|
|
744
|
|
|
10
|
|
|
|
2003
|
|
|
|
2,772
|
|
|
|
AAA
|
|
|
|
n/a
|
|
|
|
2.7
|
|
|
|
15.2
|
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
2.2
|
|
|
|
52.3
|
|
|
|
n/a
|
|
|
11
|
|
|
|
2003
|
|
|
|
1,867
|
|
|
|
AAA
|
|
|
|
n/a
|
|
|
|
2.4
|
|
|
|
8.3
|
|
|
|
0.7
|
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
1.6
|
|
|
|
0.0
|
|
|
|
0.3
|
|
|
|
3.7
|
|
|
|
53.1
|
|
|
|
737
|
|
|
12
|
|
|
|
2003
|
|
|
|
1,303
|
|
|
|
AAA
|
|
|
|
Aaa
|
|
|
|
1.3
|
|
|
|
7.0
|
|
|
|
1.0
|
|
|
|
0.0
|
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
0.0
|
|
|
|
0.2
|
|
|
|
2.1
|
|
|
|
39.0
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,000
|
|
|
|
|
|
|
|
|
|
|
|
3.8
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57.7
|
%
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
5.
|
Federal
Home Loan Bank Stock
|
The Corporation is a member of the FHLB of Pittsburgh. The FHLB
requires members to purchase and hold a specified minimum level
of FHLB stock based upon their level of borrowings, collateral
balances and participation in other programs offered by the
FHLB. Stock in the FHLB is non-marketable and is redeemable at
the discretion of the FHLB. Both cash and stock dividends are
reported as income.
Members do not purchase stock in the FHLB for the same reasons
that traditional equity investors acquire stock in an
investor-owned enterprise. Rather, members purchase stock to
obtain access to the low-cost products and services offered by
the FHLB. Unlike equity securities of traditional for-profit
enterprises, the stock of FHLB does not provide its holders with
an opportunity for capital appreciation because, by regulation,
FHLB stock can only be purchased, redeemed and transferred at
par value.
At both December 31, 2009 and December 31, 2008, the
Corporations FHLB stock totaled $28.0 million and is
included in other assets on the balance sheet. The Corporation
accounts for the stock in accordance with ASC Topic 325, which
requires the investment to be carried at cost and evaluated for
impairment based on the ultimate recoverability of the par value.
The Corporation periodically evaluates its FHLB investment for
possible impairment based on, among other things, the capital
adequacy of the FHLB and its overall financial condition. The
Federal Housing Finance Agency, the regulator of the FHLB,
requires it to maintain a total
capital-to-assets
ratio of at least 4.0%. At September 30, 2009, the
FHLBs capital ratio of 6.6% exceeded the regulatory
requirement. Failure by the FHLB to meet this regulatory capital
requirement would require an in-depth analysis of other factors
including:
|
|
|
|
|
the members ability to access liquidity from the FHLB;
|
|
|
the members funding cost advantage with the FHLB compared
to alternative sources of funds;
|
|
|
a decline in the market value of FHLBs net assets relative
to book value which may or may not affect future financial
performance or cash flow;
|
|
|
the FHLBs ability to obtain credit and source liquidity,
for which one indicator is the credit rating of the FHLB;
|
|
|
the FHLBs commitment to make payments taking into account
its ability to meet statutory and regulatory payment obligations
and the level of such payments in relation to the FHLBs
operating performance; and
|
|
|
the prospects of amendments to laws that affect the rights and
obligations of the FHLB.
|
At December 31, the Corporation believes its holdings in
the stock are ultimately recoverable at par value and,
therefore, determined that FHLB stock was not
other-than-temporarily
impaired. In addition, the Corporation has ample liquidity and
does not require redemption of its FHLB stock in the foreseeable
future.
Following is a summary of loans, net of unearned income (in
thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Commercial
|
|
$
|
3,234,738
|
|
|
$
|
3,173,941
|
|
Direct installment
|
|
|
985,746
|
|
|
|
1,070,791
|
|
Residential mortgages
|
|
|
605,219
|
|
|
|
638,356
|
|
Indirect installment
|
|
|
527,818
|
|
|
|
531,430
|
|
Consumer lines of credit
|
|
|
408,469
|
|
|
|
340,750
|
|
Other
|
|
|
87,371
|
|
|
|
65,112
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,849,361
|
|
|
$
|
5,820,380
|
|
|
|
|
|
|
|
|
|
|
87
Commercial is comprised of both commercial real estate loans and
commercial and industrial loans. 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 written by third parties, primarily
automobile loans. Consumer lines of credit includes 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 commercial leases,
mezzanine loans and student loans.
Unearned income on loans was $38.2 million and
$34.0 million at December 31, 2009 and 2008,
respectively.
The loan portfolio consists principally of loans to individuals
and small- and medium-sized businesses within the
Corporations primary market area of Pennsylvania and
northeastern Ohio. The portfolio also consists of commercial
loans in Florida, which totaled $243.9 million or 4.2% of
total loans as of December 31, 2009 compared to
$294.2 million or 5.1% of total loans as of
December 31, 2008. In addition, the portfolio contains
consumer finance loans to individuals in Pennsylvania, Ohio and
Tennessee, which totaled $162.0 million or 2.8% of total
loans as of December 31, 2009.
The composition of the Florida loan portfolio consisted of the
following as of December 31, 2009: unimproved residential
land (13.0%), unimproved commercial land (23.5%), improved land
(3.7%), income producing commercial real estate (35.1%),
residential construction (7.6%), commercial construction
(13.3%), commercial and industrial (2.5%) and owner-occupied
(1.3%). The weighted average
loan-to-value
ratio for this portfolio was 76.8% and 73.7% as of
December 31, 2009 and 2008, respectively.
The majority of the Corporations loan portfolio consists
of commercial loans, which is comprised of both commercial real
estate loans and commercial and industrial loans. As of
December 31, 2009 and 2008, commercial real estate loans
were $2.1 billion and $2.0 billion, or 35.4% and 34.3%
of total loans, respectively. As of December 31, 2009,
approximately 47.0% of the commercial real estate loans are
owner-occupied, while the remaining 53.0% are
non-owner-occupied. As of December 31, 2009 and 2008, the
Corporation had construction loans of $184.1 million and
$176.7 million, respectively, representing 3.1% and 3.0% of
total loans, respectively. As of December 31, 2009 and
2008, there were no concentrations of loans relating to any
industry in excess of 10% of total loans.
At December 31, 2009 and 2008, there were $8.0 million
and $16.1 million of loans, respectively, that were
impaired loans acquired and have no associated allowance for
loan losses as they were accounted for in accordance with ASC
Topic 310-30.
Certain directors and executive officers of the Corporation and
its significant subsidiaries, as well as associates of such
persons, are loan customers. Loans to such persons were made in
the ordinary course of business under normal credit terms and do
not have more than a normal risk of collection. Following is a
summary of the aggregate amount of loans to any such persons who
had loans in excess of $60,000 during 2009 (in thousands):
|
|
|
|
|
Total loans at December 31, 2008
|
|
$
|
44,864
|
|
New loans
|
|
|
53,680
|
|
Repayments
|
|
|
(35,223
|
)
|
Other
|
|
|
10,934
|
|
|
|
|
|
|
Total loans at December 31, 2009
|
|
$
|
74,255
|
|
|
|
|
|
|
Other represents the net change in loan balances resulting from
changes in related parties during 2009.
88
Following is a summary of non-performing assets (in thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Non-accrual loans
|
|
$
|
133,891
|
|
|
$
|
139,607
|
|
Restructured loans
|
|
|
11,624
|
|
|
|
3,872
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
145,515
|
|
|
|
143,479
|
|
Other real estate owned (OREO)
|
|
|
21,367
|
|
|
|
9,177
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans and OREO
|
|
|
166,882
|
|
|
|
152,656
|
|
Non-performing investments
|
|
|
4,825
|
|
|
|
10,456
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
171,707
|
|
|
$
|
163,112
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009, 2008 and 2007,
income that would have been recognized on non-performing loans
if they were paid in accordance with their original terms was
$8.8 million, $6.4 million and $2.4 million,
respectively. Interest recorded on non-performing loans was
$0.7 million, $0.3 million and $0.4 million for
2009, 2008 and 2007, respectively. Loans past due 90 days
or more and still accruing (see the Loans and the Allowance
for Loan Losses section of the Summary of Significant
Accounting Policies footnote) were $12.5 million,
$14.1 million and $7.5 million at December 31,
2009, 2008 and 2007, respectively.
The Corporation discontinues interest accruals when principal or
interest is due and has remained unpaid for 90 to 180 days
depending on the loan type. 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.
Following is a summary of information pertaining to loans
considered to be impaired (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended
December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Impaired loans with an allocated allowance
|
|
$
|
38,608
|
|
|
$
|
78,823
|
|
|
$
|
16,925
|
|
Impaired loans without an allocated allowance
|
|
|
91,955
|
|
|
|
59,323
|
|
|
|
10,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
130,563
|
|
|
$
|
138,146
|
|
|
$
|
27,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated allowance on impaired loans
|
|
$
|
10,644
|
|
|
$
|
20,505
|
|
|
$
|
5,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average impaired loans
|
|
$
|
134,401
|
|
|
$
|
82,611
|
|
|
$
|
24,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income recognized on impaired loans
|
|
$
|
594
|
|
|
$
|
59
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of the loans deemed impaired were evaluated using
the fair value of the collateral as the measurement method.
|
|
8.
|
Allowance
for Loan Losses
|
Following is an analysis of changes in the allowance for loan
losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
104,730
|
|
|
$
|
52,806
|
|
|
$
|
52,575
|
|
Additions from acquisitions
|
|
|
16
|
|
|
|
12,150
|
|
|
|
21
|
|
Charge-offs
|
|
|
(69,667
|
)
|
|
|
(35,914
|
)
|
|
|
(15,213
|
)
|
Recoveries
|
|
|
2,774
|
|
|
|
3,317
|
|
|
|
2,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(66,893
|
)
|
|
|
(32,597
|
)
|
|
|
(12,483
|
)
|
Provision for loan losses
|
|
|
66,802
|
|
|
|
72,371
|
|
|
|
12,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
104,655
|
|
|
$
|
104,730
|
|
|
$
|
52,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
9.
|
Premises
and Equipment
|
Following is a summary of premises and equipment (in thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
26,740
|
|
|
$
|
26,765
|
|
Premises
|
|
|
117,565
|
|
|
|
119,615
|
|
Equipment
|
|
|
77,256
|
|
|
|
76,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,561
|
|
|
|
222,847
|
|
Accumulated depreciation
|
|
|
(103,640
|
)
|
|
|
(100,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117,921
|
|
|
$
|
122,599
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense of premises and equipment
was $11.9 million for 2009, $10.7 million for 2008 and
$8.8 million for 2007.
The Corporation has operating leases extending to 2046 for
certain land, office locations and equipment, many of which have
renewal options. Leases that expire are generally expected to be
replaced by other leases. Lease costs are expensed in accordance
with ASC Topic 840, Leases, taking into account
escalation clauses. Rental expense was $6.0 million for
2009, $5.7 million for 2008 and $5.2 million for 2007.
Total minimum rental commitments under such leases were
$34.4 million at December 31, 2009. Following is a
summary of future minimum lease payments for years following
December 31, 2009 (in thousands):
|
|
|
|
|
2010
|
|
$
|
5,118
|
|
2011
|
|
|
4,545
|
|
2012
|
|
|
3,750
|
|
2013
|
|
|
3,196
|
|
2014
|
|
|
2,321
|
|
Later years
|
|
|
15,472
|
|
|
|
10.
|
Goodwill
and Other Intangible Assets
|
The following table shows a rollforward of goodwill by line of
business (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community
|
|
|
Wealth
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
Banking
|
|
|
Management
|
|
|
Insurance
|
|
|
Finance
|
|
|
Total
|
|
|
Balance at January 1, 2008
|
|
$
|
231,592
|
|
|
$
|
984
|
|
|
$
|
7,735
|
|
|
$
|
1,809
|
|
|
$
|
242,120
|
|
Goodwill additions
|
|
|
277,561
|
|
|
|
7,086
|
|
|
|
1,511
|
|
|
|
|
|
|
|
286,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
509,153
|
|
|
|
8,070
|
|
|
|
9,246
|
|
|
|
1,809
|
|
|
|
528,278
|
|
Goodwill additions
|
|
|
788
|
|
|
|
(50
|
)
|
|
|
(306
|
)
|
|
|
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
509,941
|
|
|
$
|
8,020
|
|
|
$
|
8,940
|
|
|
$
|
1,809
|
|
|
$
|
528,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation recorded goodwill during 2008 as a result of the
purchase accounting adjustments relating to the acquisitions of
Omega and IRGB and during 2009 as a result of the final purchase
accounting adjustments related to those acquisitions.
90
The following table shows a summary of core deposit intangibles,
customer and renewal lists and other intangible assets (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Customer
|
|
|
Other
|
|
|
Finite-
|
|
|
|
Core Deposit
|
|
|
and Renewal
|
|
|
Intangible
|
|
|
lived
|
|
|
|
Intangibles
|
|
|
Lists
|
|
|
Assets
|
|
|
Intangibles
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
66,239
|
|
|
$
|
10,970
|
|
|
$
|
890
|
|
|
$
|
78,099
|
|
Accumulated amortization
|
|
|
(34,753
|
)
|
|
|
(3,419
|
)
|
|
|
(786
|
)
|
|
|
(38,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,486
|
|
|
$
|
7,551
|
|
|
$
|
104
|
|
|
$
|
39,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
66,239
|
|
|
$
|
10,970
|
|
|
$
|
890
|
|
|
$
|
78,099
|
|
Accumulated amortization
|
|
|
(28,548
|
)
|
|
|
(2,625
|
)
|
|
|
(697
|
)
|
|
|
(31,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,691
|
|
|
$
|
8,345
|
|
|
$
|
193
|
|
|
$
|
46,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation recorded $27.5 million in core deposit
intangibles and $7.2 million in customer and renewal list
intangibles during 2008 as a result of the acquisitions of Omega
and IRGB.
Core deposit intangibles are being amortized primarily over
10 years using straight-line and accelerated methods.
Customer and renewal lists and other intangible assets are being
amortized over their estimated useful lives which range from ten
to twelve years.
Amortization expense on finite-lived intangible assets totaled
$7.1 million, $6.4 million and $4.4 million for
2009, 2008 and 2007, respectively. Amortization expense on
finite-lived intangible assets, assuming no new additions, is
expected to total $6.7 million, $6.2 million,
$5.7 million, $5.1 million and $4.7 million for
the years 2010 through 2014, respectively.
Goodwill and other intangible assets are reviewed annually for
impairment, and more frequently if impairment indicators exist.
The Corporation completed this review in 2009 and 2008 and
determined that its intangible assets are not impaired.
Following is a summary of deposits (in thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Non-interest bearing demand
|
|
$
|
992,298
|
|
|
$
|
919,539
|
|
Savings and NOW
|
|
|
3,182,909
|
|
|
|
2,816,628
|
|
Certificates and other time deposits
|
|
|
2,205,016
|
|
|
|
2,318,456
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,380,223
|
|
|
$
|
6,054,623
|
|
|
|
|
|
|
|
|
|
|
Time deposits of $100,000 or more were $573.7 million and
$569.7 million at December 31, 2009 and 2008,
respectively. Following is a summary of these time deposits by
remaining maturity at December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
|
|
|
Other Time
|
|
|
|
|
|
|
Deposit
|
|
|
Deposits
|
|
|
Total
|
|
|
Three months or less
|
|
$
|
58,390
|
|
|
$
|
7,650
|
|
|
$
|
66,040
|
|
Three to six months
|
|
|
74,423
|
|
|
|
5,440
|
|
|
|
79,863
|
|
Six to twelve months
|
|
|
120,039
|
|
|
|
13,162
|
|
|
|
133,201
|
|
Over twelve months
|
|
|
189,724
|
|
|
|
104,856
|
|
|
|
294,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
442,576
|
|
|
$
|
131,108
|
|
|
$
|
573,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
Following is a summary of the scheduled maturities of
certificates and other time deposits for each of the five years
following December 31, 2009 (in thousands):
|
|
|
|
|
2010
|
|
$
|
1,279,383
|
|
2011
|
|
|
457,863
|
|
2012
|
|
|
193,144
|
|
2013
|
|
|
216,475
|
|
2014
|
|
|
49,941
|
|
Later years
|
|
|
8,210
|
|
|
|
12.
|
Short-Term
Borrowings
|
Following is a summary of short-term borrowings (in thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Securities sold under repurchase agreements
|
|
$
|
536,784
|
|
|
$
|
414,705
|
|
Federal funds purchased
|
|
|
|
|
|
|
86,000
|
|
Subordinated notes
|
|
|
121,938
|
|
|
|
95,032
|
|
Other short-term borrowings
|
|
|
10,445
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
669,167
|
|
|
$
|
596,263
|
|
|
|
|
|
|
|
|
|
|
The Corporation also has available an approved line of credit
with a major domestic bank. This unused line was
$15.0 million as of December 31, 2009 and
$25.0 million as of December 31, 2008. This line of
credit is periodically reviewed by the issuing bank and is
generally subject to withdrawal at their discretion. During
2009, a $25.0 million committed line of credit was
negotiated with a major domestic bank on behalf of Regency. At
December 31, 2009, $10.0 million was outstanding. The
weighted average interest rates on short-term borrowings during
2009, 2008 and 2007 were 1.43%, 2.49% and 4.63%, respectively.
The weighted average interest rates on short-term borrowings at
December 31, 2009, 2008 and 2007 were 1.27%, 1.59% and
3.98%, respectively.
Following is a summary of long-term debt (in thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Federal Home Loan Bank advances
|
|
$
|
256,921
|
|
|
$
|
431,398
|
|
Subordinated notes
|
|
|
67,343
|
|
|
|
58,028
|
|
Convertible subordinated notes
|
|
|
613
|
|
|
|
613
|
|
Other long-term debt
|
|
|
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
324,877
|
|
|
$
|
490,250
|
|
|
|
|
|
|
|
|
|
|
The Corporations banking affiliate has available credit
with the FHLB of $1.9 billion, of which $256.9 million
was used as of December 31, 2009. These advances are
secured by loans collateralized by 1-4 family mortgages and FHLB
stock and are scheduled to mature in various amounts
periodically through the year 2019. Interest rates paid on these
advances range from 2.28% to 5.54% in 2009, 2.12% to 5.54% in
2008 and 2.79% to 5.75% in 2007.
Subordinated notes are unsecured and subordinated to other
indebtedness of the Corporation. The long-term subordinated
notes mature in various amounts periodically through the year
2019. At December 31, 2009, all of the long-term
subordinated debt is redeemable by the holders prior to maturity
at a discount equal to three months of interest. The Corporation
may require the holder to give 30 days prior written
notice. No sinking fund is required and none has been
established to retire the debt. The weighted average interest
rate on long-term subordinated debt was 4.91% at
December 31, 2009, 4.08% at December 31, 2008 and
5.58% at December 31, 2007.
92
The Corporation assumed 5% convertible subordinated notes in
conjunction with an acquisition. The subordinated notes mature
in 2018 and are convertible into shares of the
Corporations common stock at any time prior to maturity at
$12.50 per share. As of December 31, 2009, the Corporation
has reserved 49,000 shares of common stock for issuance in
the event the convertible subordinated notes are converted.
Scheduled annual maturities for all of the long-term debt for
each of the five years following December 31, 2009 are as
follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
206,580
|
|
2011
|
|
|
52,531
|
|
2012
|
|
|
63,196
|
|
2013
|
|
|
407
|
|
2014
|
|
|
903
|
|
Later years
|
|
|
1,260
|
|
|
|
14.
|
Junior
Subordinated Debt
|
The Corporation has four unconsolidated subsidiary trusts
(collectively, the Trusts): F.N.B. Statutory Trust I,
F.N.B. Statutory Trust II, Omega Financial Capital
Trust I and Sun Bancorp Statutory Trust I. One hundred
percent of the common equity of each Trust is owned by the
Corporation. The Trusts were formed for the purpose of issuing
Corporation-obligated mandatorily redeemable capital securities
(TPS) to third-party investors. The proceeds from the sale of
TPS and the issuance of common equity by the Trusts were
invested in junior subordinated debt securities (subordinated
debt) issued by the Corporation, which are the sole assets of
each Trust. Since the third-party investors are the primary
beneficiaries, the Trusts qualify as VIEs and are not
consolidated in the Corporations 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
and Sun Bancorp Statutory Trust I were acquired as a result
of the Omega acquisition.
Distributions on the subordinated debt issued to the Trusts are
recorded as interest expense by the Corporation. The TPS are
subject to mandatory redemption, in whole or in part, upon
repayment of the subordinated debt. The subordinated debt, net
of the Corporations investment in the Trusts, qualifies as
Tier 1 capital under the FRB guidelines subject to certain
limitations beginning March 31, 2011. 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.
The following table provides information relating to the Trusts
as of December 31, 2009 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F.N.B.
|
|
|
F.N.B.
|
|
|
Omega
|
|
|
Sun Bancorp
|
|
|
|
Statutory
|
|
|
Statutory
|
|
|
Financial
|
|
|
Statutory
|
|
|
|
Trust I
|
|
|
Trust II
|
|
|
Capital Trust I
|
|
|
Trust I
|
|
|
Trust preferred securities
|
|
$
|
125,000
|
|
|
$
|
21,500
|
|
|
$
|
36,000
|
|
|
$
|
16,500
|
|
Common securities
|
|
|
3,866
|
|
|
|
665
|
|
|
|
1,114
|
|
|
|
511
|
|
Junior subordinated debt
|
|
|
128,866
|
|
|
|
22,165
|
|
|
|
35,820
|
|
|
|
17,860
|
|
Stated maturity date
|
|
|
3/31/33
|
|
|
|
6/15/36
|
|
|
|
10/18/34
|
|
|
|
2/22/31
|
|
Optional redemption date
|
|
|
3/31/08
|
|
|
|
6/15/11
|
|
|
|
10/18/09
|
|
|
|
2/22/11
|
|
Interest rate
|
|
|
3.53
|
%
|
|
|
7.17
|
%
|
|
|
3.07
|
%
|
|
|
10.20
|
%
|
|
|
|
variable;
|
|
|
|
fixed until 6/15/11;
|
|
|
|
variable;
|
|
|
|
|
|
|
|
|
LIBOR plus
|
|
|
|
then LIBOR plus
|
|
|
|
LIBOR plus 219
|
|
|
|
|
|
|
|
|
325 basis points
|
|
|
|
165 basis points
|
|
|
|
basis points
|
|
|
|
|
|
93
|
|
15.
|
Derivative
Instruments
|
The Corporation is exposed to certain risks arising from both
its business operations and economic conditions. The Corporation
principally manages its exposures to a wide variety of business
and operational risks through management of its core business
activities. The Corporation manages economic risks, including
interest rate, liquidity, and credit risk, primarily by managing
the amount, sources, and duration of its assets and liabilities.
The Corporations existing interest rate derivatives result
from a service provided to certain qualifying customers. The
Corporation manages a matched book with respect to its
derivative instruments in order to minimize its net risk
exposure resulting from such transactions.
The Corporation periodically enters into interest rate swap
agreements to meet the financing, interest rate and equity risk
management needs of its commercial loan customers. These
agreements provide the customer the ability to convert from
variable to fixed interest rates. The Corporation then enters
into positions with a derivative counterparty in order to offset
its exposure on the variable and fixed components of the
customer agreements. These agreements meet the definition of
derivatives, but are not designated as hedging instruments under
ASC Topic 815. These instruments and their offsetting positions
are 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.
At December 31, 2009, the Corporation was party to 90 swaps
with notional amounts totaling approximately $379.5 million
with customers, and 90 swaps with notional amounts totaling
approximately $379.5 million with derivative
counterparties. The following table presents the fair value of
the Corporations derivative financial instruments as well
as their classification on the balance sheet (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
Sheet
|
|
December 31
|
|
|
Location
|
|
2009
|
|
2008
|
|
Interest Rate Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivatives
|
|
|
Other assets
|
|
|
$
|
13,305
|
|
|
$
|
19,394
|
|
Liability derivatives
|
|
|
Other liabilities
|
|
|
|
12,497
|
|
|
|
18,781
|
|
The following table presents the effect of the
Corporations derivative financial instruments on the
income statement (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
Statement
|
|
Year Ended December 31
|
|
|
Location
|
|
2009
|
|
2008
|
|
2007
|
|
Interest rate products
|
|
|
Other income
|
|
|
$
|
196
|
|
|
$
|
612
|
|
|
|
|
|
The Corporation has agreements with each of its derivative
counterparties that contain a provision where if the Corporation
defaults on any of its indebtedness, including default where
repayment of the indebtedness has not been accelerated by the
lender, then the Corporation could also be declared in default
on its derivative obligations. The Corporation also has
agreements with certain of its derivative counterparties that
contain a provision if the Corporation fails to maintain its
status as a well capitalized institution, then the counterparty
could terminate the derivative positions and the Corporation
would be required to settle its obligations under the
agreements. Certain of the Corporations agreements with
its derivative counterparties contain provisions where if a
material or adverse change occurs that materially changes the
Corporations creditworthiness in an adverse manner the
Corporation may be required to fully collateralize its
obligations under the derivative instrument.
Interest rate swap agreements generally require posting of
collateral by either party under certain conditions. As of
December 31, 2009 the fair value of counterparty
derivatives in a net liability position, which includes accrued
interest but excludes any adjustment for non-performance risk
related to these agreements, was $11.8 million. At
December 31, 2009, the Corporation has posted collateral
with derivative counterparties with a fair value of
$5.9 million, of which $1.5 million is cash
collateral. Additionally, if the Corporation had breached its
94
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
$5.9 million in excess of amounts previously posted as
collateral with the respective counterparty.
The Corporation has entered into interest rate lock commitments
to originate residential mortgage loans held for sale and
forward commitments to sell residential mortgage loans to
secondary market investors. These arrangements are considered
derivative instruments. The fair values of the
Corporations rate lock commitments to customers and
commitments with investors at December 31, 2009 are not
material.
|
|
16.
|
Commitments,
Credit Risk and Contingencies
|
The Corporation has commitments to extend credit and standby
letters of credit that involve certain elements of credit risk
in excess of the amount stated in the consolidated balance
sheet. The Corporations exposure to credit loss in the
event of non-performance by the customer is represented by the
contractual amount of those instruments. The credit risk
associated with loan commitments and standby letters of credit
is essentially the same as that involved in extending loans to
customers and is subject to normal credit policies. Since many
of these commitments expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash flow
requirements.
Following is a summary of off-balance sheet credit risk
information (in thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
2008
|
|
Commitments to extend credit
|
|
$
|
1,411,865
|
|
|
$
|
1,254,470
|
|
Standby letters of credit
|
|
|
87,917
|
|
|
|
97,016
|
|
At December 31, 2009, funding of approximately 79.0% of the
commitments to extend credit was dependent on the financial
condition of the customer. The Corporation has the ability to
withdraw such commitments at its discretion. Commitments
generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Based on
managements credit evaluation of the customer, collateral
may be deemed necessary. Collateral requirements vary and may
include accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by
the Corporation that may require payment at a future date. The
credit risk involved in issuing letters of credit is quantified
on a quarterly basis, through the review of historical
performance of the Corporations portfolios and allocated
as a liability on the Corporations balance sheet.
The Corporation and its subsidiaries are involved in various
pending and threatened legal proceedings in which claims for
monetary damages and other relief are asserted. These actions
include claims brought against the Corporation and its
subsidiaries where the Corporation or a subsidiary acted as one
or more of the following: a depository bank, lender,
underwriter, fiduciary, financial advisor, broker or was engaged
in other business activities. Although the ultimate outcome for
any asserted claim cannot be predicted with certainty, the
Corporation believes that it and its subsidiaries have valid
defenses for all asserted claims. Reserves are established for
legal claims when losses associated with the claims are judged
to be probable and the amount of the loss can be reasonably
estimated.
Based on information currently available, advice of counsel,
available insurance coverage and established reserves, the
Corporation does not anticipate, at the present time, that the
aggregate liability, if any, arising out of such legal
proceedings will have a material adverse effect on the
Corporations consolidated financial position. However, the
Corporation cannot determine whether or not any claims asserted
against it will have a material adverse effect on its
consolidated results of operations in any future reporting
period.
On December 29, 2009, FNBPA and Regency reached an
agreement covering an action in which the plaintiffs alleged
that FNBPA and Regency violated the Pennsylvania commercial
code. The agreement
95
contemplates the settlement of the claims on a class wide basis
and is subject to approval of the court. Under the terms of the
settlement, FNBPA and Regency established a settlement fund for
distribution to settlement class members on a pro rata basis and
release certain deficiency balances owed by class members, in
exchange for a complete release of all claims by the plaintiffs
and the class. Attorney fees also will be paid out of the
settlement fund. Class members will receive notice of the
settlement agreement and be afforded an opportunity to opt out
of the settlement class. The Corporation anticipates that the
proposed settlement will be approved by the court, at the agreed
upon terms. The Corporation recorded net expense of
$1.1 million during 2009 associated with the proposed
settlement.
|
|
17.
|
Stock
Incentive Plans
|
Restricted
Stock
The Corporation issues restricted stock awards, consisting of
both restricted stock and restricted stock units, to key
employees under its Incentive Compensation Plans (Plans). The
grant date fair value of the restricted stock awards is equal to
the price of the Corporations common stock on the grant
date. During 2009, 2008 and 2007, the Corporation issued
469,346, 245,255 and 146,885 restricted shares of common stock,
respectively, with weighted average grant date fair values of
$2.8 million, $3.3 million and $2.4 million,
respectively, under these Plans. The Corporation has available
up to 2,998,062 shares of common stock to issue under these
Plans.
Under the Plans, more than half of the restricted stock awards
granted to management are earned if the Corporation meets or
exceeds certain financial performance results when compared to
its peers. These performance-related awards are expensed ratably
from the date that the likelihood of meeting the performance
measure is probable through the end of a four-year vesting
period. The service-based awards are expensed ratably over a
three-year vesting period. The Corporation also issues
discretionary service-based awards to certain employees that
vest over five years.
The unvested restricted stock awards are eligible to receive
cash dividends or dividend equivalents which are ultimately used
to purchase additional shares of stock. Any additional shares of
stock ultimately received as a result of cash dividends are
subject to forfeiture if the requisite service period is not
completed or the specified performance criteria are not met.
These awards are subject to certain accelerated vesting
provisions upon retirement, death, disability or in the event of
a change of control as defined in the award agreements.
Share-based compensation expense related to restricted stock
awards was $1.8 million, $2.1 million and
$1.9 million for the years ended December 31, 2009,
2008 and 2007, the tax benefit of which was $0.6 million,
$0.7 million and $0.6 million, respectively.
The following table summarizes certain information concerning
restricted stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
|
2009
|
|
|
Price
|
|
|
2008
|
|
|
Price
|
|
|
2007
|
|
|
Price
|
|
|
Unvested shares outstanding at beginning of year
|
|
|
527,101
|
|
|
$
|
15.34
|
|
|
|
387,064
|
|
|
$
|
17.59
|
|
|
|
302,264
|
|
|
$
|
18.54
|
|
Granted
|
|
|
469,346
|
|
|
|
5.99
|
|
|
|
245,255
|
|
|
|
13.51
|
|
|
|
146,885
|
|
|
|
16.13
|
|
Vested
|
|
|
(99,369
|
)
|
|
|
17.59
|
|
|
|
(114,675
|
)
|
|
|
18.58
|
|
|
|
(54,448
|
)
|
|
|
18.56
|
|
Forfeited
|
|
|
(90,926
|
)
|
|
|
13.04
|
|
|
|
(27,991
|
)
|
|
|
14.69
|
|
|
|
(26,847
|
)
|
|
|
17.16
|
|
Dividend reinvestment
|
|
|
48,288
|
|
|
|
6.69
|
|
|
|
37,448
|
|
|
|
13.48
|
|
|
|
19,210
|
|
|
|
15.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares outstanding at end of year
|
|
|
854,440
|
|
|
|
9.69
|
|
|
|
527,101
|
|
|
|
15.34
|
|
|
|
387,064
|
|
|
|
17.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of shares vested was $1.0 million,
$1.5 million and $0.9 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
96
As of December 31, 2009, there was $4.5 million of
unrecognized compensation cost related to unvested restricted
stock awards granted, none of which is subject to accelerated
vesting under the plans immediate vesting upon retirement
provision for awards granted prior to the adoption of ASC Topic
718 on January 1, 2006. The components of the restricted
stock awards as of December 31, 2009 are as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service-
|
|
Performance-
|
|
|
|
|
Based
|
|
Based
|
|
|
|
|
Awards
|
|
Awards
|
|
Total
|
|
Unvested shares
|
|
|
316,504
|
|
|
|
537,936
|
|
|
|
854,440
|
|
Unrecognized compensation expense
|
|
$
|
1,337
|
|
|
$
|
3,198
|
|
|
$
|
4,535
|
|
Intrinsic value
|
|
$
|
2,149
|
|
|
$
|
3,653
|
|
|
$
|
5,802
|
|
Weighted average remaining life (in years)
|
|
|
2.02
|
|
|
|
2.46
|
|
|
|
2.30
|
|
Stock
Options
The Corporation did not grant stock options during 2009, 2008 or
2007. All outstanding stock options were granted at prices equal
to the fair market value at the date of the grant, are primarily
exercisable within ten years from the date of the grant and were
fully vested as of January 1, 2006. The Corporation issues
shares of treasury stock or authorized but unissued shares to
satisfy stock options exercised. Shares issued upon the exercise
of stock options were 1,979, 543,591 and 304,545 for 2009, 2008
and 2007, respectively.
The following table summarizes certain information concerning
stock option awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Price per
|
|
|
|
|
|
Price per
|
|
|
|
|
|
Price per
|
|
|
|
2009
|
|
|
Share
|
|
|
2008
|
|
|
Share
|
|
|
2007
|
|
|
Share
|
|
|
Options outstanding at beginning of year
|
|
|
1,299,317
|
|
|
$
|
14.00
|
|
|
|
1,139,844
|
|
|
$
|
11.75
|
|
|
|
1,450,225
|
|
|
$
|
11.69
|
|
Assumed in acquisitions
|
|
|
|
|
|
|
|
|
|
|
845,969
|
|
|
|
16.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,979
|
)
|
|
|
15.53
|
|
|
|
(543,591
|
)
|
|
|
11.41
|
|
|
|
(310,381
|
)
|
|
|
11.48
|
|
Forfeited
|
|
|
(329,248
|
)
|
|
|
14.96
|
|
|
|
(142,905
|
)
|
|
|
17.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable at end of year
|
|
|
968,090
|
|
|
|
13.67
|
|
|
|
1,299,317
|
|
|
|
14.00
|
|
|
|
1,139,844
|
|
|
|
11.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon consummation of the Corporations acquisitions, all
outstanding options issued by the acquired companies were
converted into equivalent Corporation options.
The following table summarizes information about stock options
outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
Range of Exercise
|
|
Options
|
|
|
Remaining
|
|
|
Average
|
|
Prices
|
|
Outstanding
|
|
|
Contractual Years
|
|
|
Exercise Price
|
|
|
$ 2.68 - $ 4.02
|
|
|
16,778
|
|
|
|
|
3.20
|
|
|
$
|
2.68
|
|
4.03 - 6.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.06 - 9.09
|
|
|
28,288
|
|
|
|
|
1.00
|
|
|
|
8.98
|
|
9.10 - 13.65
|
|
|
397,791
|
|
|
|
|
1.26
|
|
|
|
11.66
|
|
13.66 - 19.65
|
|
|
525,233
|
|
|
|
|
2.55
|
|
|
|
15.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
968,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of outstanding and exercisable stock options
at December 31, 2009 was $(6.5) million, since the
fair value of the stock was less than the exercise price.
97
The following table shows proceeds from stock options exercised,
related tax benefits realized from stock option exercises and
the intrinsic value of the stock options exercised (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Proceeds from stock options exercised
|
|
$
|
13
|
|
|
$
|
6,192
|
|
|
$
|
3,422
|
|
Tax benefit recognized from stock options exercised
|
|
|
|
|
|
|
988
|
|
|
|
613
|
|
Intrinsic value of stock options exercised
|
|
|
|
|
|
|
2,823
|
|
|
|
1,751
|
|
Warrants
In conjunction with its participation in the CPP, the
Corporation issued to the UST a warrant to purchase up to
1,302,083 shares of the Corporations common stock.
Pursuant to Section 13(H) of the Warrant to Purchase Common
Stock, the number of shares of common stock issuable upon
exercise of the warrant has been reduced in half to 651,042
shares as of June 16, 2009, the date the Corporation
completed a public offering. The warrant has an exercise price
of $11.52 per share.
The Corporation sponsors the Retirement Income Plan (RIP), a
qualified noncontributory defined benefit pension plan covering
substantially all salaried employees hired prior to
January 1, 2008. The RIP covers employees who satisfy
minimum age and length of service requirements. During 2006, the
Corporation amended the RIP such that effective January 1,
2007 benefits are earned based on the employees
compensation each year. The plan amendment resulted in a
remeasurement that produced a net unrecognized service credit of
$14.0 million, which is being amortized over the average
period of future service of active employees of 13.5 years.
Benefits of the RIP for service provided prior to
December 31, 2006 are generally based on years of service
and the employees highest compensation for five
consecutive years during their last ten years of employment.
During 2007, the Corporation amended the RIP such that it is
closed to participants who commence employment with the
Corporation on or after January 1, 2008. The
Corporations funding guideline has been to make annual
contributions to the RIP each year, if necessary, such that
minimum funding requirements have been met. Based on the funded
status of the plan, the Corporation did not make a contribution
to the RIP in 2009.
The Corporation also sponsors two supplemental non-qualified
retirement plans. The ERISA Excess Retirement Plan provides
retirement benefits equal to the difference, if any, between the
maximum benefit allowable under the Internal Revenue Code and
the amount that would be provided under the RIP, if no limits
were applied. The Basic Retirement Plan (BRP) is applicable to
certain officers whom the Board of Directors designates.
Officers participating in the BRP receive a benefit based on a
target benefit percentage based on years of service at
retirement and a designated tier as determined by the Board of
Directors. When a participant retires, the basic benefit under
the BRP is a monthly benefit equal to the target benefit
percentage times the participants highest average monthly
cash compensation during five consecutive calendar years within
the last ten calendar years of employment. This monthly benefit
is reduced by the monthly benefit the participant receives from
Social Security, the RIP, the ERISA Excess Retirement Plan and
the annuity equivalent of the two percent automatic
contributions to the qualified 401(k) defined contribution plan
and the ERISA Excess Lost Match Plan. The BRP was frozen as of
December 31, 2008, at which time the Corporation recognized
a one-time charge of $0.8 million. The Corporation expects
an annual savings of approximately $0.3 million as a result
of freezing the BRP.
98
The following tables provide information relating to the
accumulated benefit obligation, change in benefit obligation,
change in plan assets, the plans funded status and the
amount included in the consolidated balance sheet for the
qualified and non-qualified plans described above (collectively,
the Plans) (in thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Accumulated benefit obligation
|
|
$
|
119,080
|
|
|
$
|
111,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
113,226
|
|
|
$
|
105,291
|
|
Service cost
|
|
|
3,352
|
|
|
|
3,292
|
|
Interest cost
|
|
|
7,014
|
|
|
|
6,648
|
|
IRGB-related
|
|
|
(2,988
|
)
|
|
|
2,336
|
|
Actuarial loss
|
|
|
5,867
|
|
|
|
1,507
|
|
Special termination benefits
|
|
|
|
|
|
|
358
|
|
Curtailment gain
|
|
|
|
|
|
|
(1,642
|
)
|
Benefits paid
|
|
|
(5,201
|
)
|
|
|
(4,564
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
121,270
|
|
|
$
|
113,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
92,677
|
|
|
$
|
111,037
|
|
Actual return on plan assets
|
|
|
8,412
|
|
|
|
(16,475
|
)
|
Corporation contribution
|
|
|
2,709
|
|
|
|
750
|
|
IRGB-related
|
|
|
(2,988
|
)
|
|
|
1,929
|
|
Benefits paid
|
|
|
(5,201
|
)
|
|
|
(4,564
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
95,609
|
|
|
$
|
92,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Funded status of plan
|
|
$
|
(25,661
|
)
|
|
$
|
(20,549
|
)
|
|
|
|
|
|
|
|
|
|
The unrecognized actuarial loss, prior service cost and net
transition obligation are required to be recognized into
earnings over the average remaining service period, which may,
on a net basis reduce future earnings.
Actuarial assumptions used in the determination of the projected
benefit obligation in the Plans are as follows:
|
|
|
|
|
|
|
|
|
Assumptions at December
31
|
|
2009
|
|
|
2008
|
|
|
Weighted average discount rate
|
|
|
5.79
|
%
|
|
|
6.09
|
%
|
Rates of average increase in compensation levels
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
The discount rate assumption at December 31, 2009 and 2008
was determined using a yield-curve based approach. A yield curve
was produced for a universe containing the majority of
U.S.-issued
Aa-graded corporate bonds, all of which were non-callable (or
callable with make-whole provisions), and after excluding the
10% of the bonds with the highest yields and the 10% of the
bonds with the lowest yields. The discount rate was developed as
the level equivalent rate that would produce the same present
value as that using spot rates aligned with the projected
benefit payments.
99
The net periodic pension cost and other comprehensive income for
the Plans included the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost
|
|
$
|
3,352
|
|
|
$
|
3,292
|
|
|
$
|
3,239
|
|
Interest cost
|
|
|
7,014
|
|
|
|
6,648
|
|
|
|
6,186
|
|
Expected return on plan assets
|
|
|
(7,186
|
)
|
|
|
(8,789
|
)
|
|
|
(8,567
|
)
|
Settlement charge
|
|
|
526
|
|
|
|
762
|
|
|
|
|
|
Special termination charge
|
|
|
|
|
|
|
358
|
|
|
|
|
|
Transition amount amortization
|
|
|
(93
|
)
|
|
|
(93
|
)
|
|
|
(93
|
)
|
Prior service credit amortization
|
|
|
(1,195
|
)
|
|
|
(1,091
|
)
|
|
|
(1,089
|
)
|
Actuarial loss amortization
|
|
|
3,063
|
|
|
|
1,083
|
|
|
|
879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
|
5,481
|
|
|
|
2,170
|
|
|
|
555
|
|
Other changes in plan assets and benefit obligations recognized
in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year actuarial loss (gain)
|
|
|
4,640
|
|
|
|
26,771
|
|
|
|
(380
|
)
|
Curtailment effects
|
|
|
|
|
|
|
(2,403
|
)
|
|
|
|
|
Amortization of actuarial loss
|
|
|
(3,589
|
)
|
|
|
(1,083
|
)
|
|
|
(879
|
)
|
Amortization of prior service credit
|
|
|
1,195
|
|
|
|
1,091
|
|
|
|
1,089
|
|
Amortization of transition asset
|
|
|
93
|
|
|
|
93
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
|
2,339
|
|
|
|
24,469
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic pension cost and other
comprehensive income
|
|
$
|
7,820
|
|
|
$
|
26,639
|
|
|
$
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The plans have an actuarial measurement date of
December 31. Actuarial assumptions used in the
determination of the net periodic pension cost in the Plans are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions for the Year Ended
December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average discount rate
|
|
|
6.09
|
%
|
|
|
6.21
|
%
|
|
|
5.90
|
%
|
Rates of increase in compensation levels
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Expected long-term rate of return on assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
The expected long-term rate of return on plan assets has been
established by considering historical and anticipated expected
returns on the asset classes invested in by the pension trust
and the allocation strategy currently in place among those
classes.
The change in plan assets reflects benefits paid from the
qualified pension plans of $4.0 million and
$3.8 million for 2009 and 2008, respectively, and employer
contributions to the qualified pension plans of
$1.6 million and $0 for 2009 and 2008, respectively. For
the non-qualified pension plans, the change in plan assets
reflects benefits paid and contributions to the plans in the
same amount. This amount represents the actual benefit payments
paid from general plan assets of $1.1 million for 2009 and
$0.7 million for 2008.
As of December 31, 2009 and 2008, the projected benefit
obligation, accumulated benefit obligation and fair value of
plan assets for the qualified and non-qualified pension plans
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified
|
|
|
|
Qualified Pension Plans
|
|
|
Pension Plans
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Projected benefit obligation
|
|
$
|
102,635
|
|
|
$
|
96,016
|
|
|
$
|
18,635
|
|
|
$
|
17,210
|
|
Accumulated benefit obligation
|
|
|
100,539
|
|
|
|
94,710
|
|
|
|
18,541
|
|
|
|
17,124
|
|
Fair value of plan assets
|
|
|
95,609
|
|
|
|
92,677
|
|
|
|
|
|
|
|
|
|
100
The impact of changes in the discount rate, expected long-term
rate of return on plan assets and compensation levels would have
had the following effects on 2009 pension expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
Increase in
|
|
|
|
|
Pension
|
|
|
|
|
Expense
|
|
|
|
0.5% decrease in the discount rate
|
|
$
|
600
|
|
|
|
|
|
0.5% decrease in the expected long-term rate of return on plan
assets
|
|
|
447
|
|
|
|
|
|
The following table provides information regarding estimated
future cash flows relating to the Plans at December 31,
2009 (in thousands):
|
|
|
|
|
|
|
Expected employer contributions:
|
|
2010
|
|
$
|
1,288
|
|
Expected benefit payments:
|
|
2010
|
|
|
5,373
|
|
|
|
2011
|
|
|
5,722
|
|
|
|
2012
|
|
|
6,096
|
|
|
|
2013
|
|
|
6,485
|
|
|
|
2014
|
|
|
6,924
|
|
|
|
2015 - 2019
|
|
|
43,761
|
|
The qualified pension plan contributions are deposited into a
trust and the qualified benefit payments are made from trust
assets. For the non-qualified plans, the contributions and the
benefit payments are the same and reflect expected benefit
amounts, which are paid from general assets.
The Corporations subsidiaries participate in a qualified
401(k) defined contribution plan under which eligible employees
may contribute a percentage of their salary. The Corporation
matches 50 percent of an eligible employees
contribution on the first 6 percent that the employee
defers. Employees are generally eligible to participate upon
completing 90 days of service and having attained
age 21. Beginning with 2007, in light of the change to the
RIP benefit, the Corporation began making an automatic two
percent contribution and may make an additional contribution of
up to two percent depending on the Corporation achieving its
performance goals for the plan year. Effective January 1,
2008, in lieu of the RIP benefit, the automatic contribution for
substantially all new full-time employees was increased from two
percent to four percent. The Corporations contribution
expense was $4.6 million for 2009, $4.3 million for
2008 and $3.1 million for 2007.
The Corporation also sponsors an ERISA Excess Lost Match Plan
for certain officers. This plan provides retirement benefits
equal to the difference, if any, between the maximum benefit
allowable under the Internal Revenue Code and the amount that
would have been provided under the qualified 401(k) defined
contribution plan, if no limits were applied.
Pension
Plan Investment Policy and Strategy
The Corporations investment strategy is to diversify plan
assets between a wide mix of securities within the equity and
debt markets in an effort to allow the plan the opportunity to
meet the plans expected long-term rate of return
requirements while minimizing short-term volatility. In this
regard, the plan has targeted allocations within the equity
securities category for domestic large cap, domestic mid cap,
domestic small cap, real estate investment trusts, emerging
market and international securities. Within the debt securities
category, the plan has targeted allocation levels for
U.S. Treasury, U.S. agency, domestic investment grade
bonds, high yield bonds, inflation protected securities and
international bonds.
101
Following are asset allocations for the Corporations
pension plans as of December 31, 2009 and 2008, and the
target allocation for 2010, by asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
|
|
Allocation
|
|
|
Percentage of Plan Assets
|
|
December 31
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
45 - 65
|
%
|
|
|
50
|
%
|
|
|
43
|
%
|
Debt securities
|
|
|
35 - 55
|
%
|
|
|
42
|
%
|
|
|
45
|
%
|
Cash equivalents
|
|
|
0 - 10
|
%
|
|
|
8
|
%
|
|
|
12
|
%
|
At December 31, 2009 and 2008, equity securities included
420,128 and 303,128 shares of the Corporations common
stock, respectively, totaling $2.9 million (3.0% of total
plan assets) at December 31, 2009 and $4.0 million
(4.4% of total plan assets) at December 31, 2008. The plan
acquired 117,000 shares during 2009. Dividends received on
the Corporations common stock held by the Plan were
$0.2 million for 2009 and $0.3 million for 2008.
The fair values of the Corporations pension plan assets at
December 31, 2009, by asset category are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Asset Category
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Cash
|
|
$
|
8,073
|
|
|
$
|
8,073
|
|
|
$
|
|
|
|
|
|
|
Equity securities
|
|
|
27,206
|
|
|
|
27,206
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
|
|
36,945
|
|
|
|
|
|
|
|
36,945
|
|
|
|
|
|
Mutual funds
|
|
|
23,385
|
|
|
|
23,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
95,609
|
|
|
$
|
58,664
|
|
|
$
|
36,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities include investments in large-cap
U.S.-based
companies representing 98% of the total. Obligations of
U.S. government agencies represent 96% of investments in
fixed income securities; the remaining consists of obligations
of large,
U.S.-based
companies. Mutual fund investments include U.S. equity
index funds (37%), U.S. equity funds (21%),
non-U.S. equity
funds (26%), U.S. investment-grade fixed income funds (10%)
and other (6%).
|
|
19.
|
Other
Postretirement Benefit Plans
|
The Corporation sponsors a pre-Medicare eligible postretirement
medical insurance plan for retirees of certain affiliates
between the ages of 62 and 65. During 2006, the Corporation
amended the plan such that only employees who were age 60
or older as of January 1, 2007 are eligible for employer
paid coverage. The Corporation has no plan assets attributable
to this plan and funds the benefits as claims arise. Benefit
costs related to this plan are recognized in the periods in
which employees provide service for such benefits. The
Corporation reserves the right to terminate the plan or make
plan changes at any time.
102
The following tables provide information relating to the change
in benefit obligation, change in plan assets, the Plans
funded status and the liability reflected in the consolidated
balance sheet (in thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,997
|
|
|
$
|
2,262
|
|
Service cost
|
|
|
|
|
|
|
24
|
|
Interest cost
|
|
|
90
|
|
|
|
115
|
|
Plan participants contributions
|
|
|
47
|
|
|
|
67
|
|
Actuarial (gain) loss
|
|
|
(127
|
)
|
|
|
23
|
|
Benefits paid
|
|
|
(413
|
)
|
|
|
(510
|
)
|
Acquisitions
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
1,594
|
|
|
$
|
1,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
|
|
|
$
|
|
|
Corporation contribution
|
|
|
366
|
|
|
|
443
|
|
Plan participants contributions
|
|
|
47
|
|
|
|
67
|
|
Benefits paid
|
|
|
(413
|
)
|
|
|
(510
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Funded status of plan
|
|
$
|
(1,594
|
)
|
|
$
|
(1,997
|
)
|
|
|
|
|
|
|
|
|
|
Actuarial assumptions used in the determination of the benefit
obligation in the Plan are as follows:
|
|
|
|
|
|
|
|
|
Assumptions at December
31
|
|
2009
|
|
|
2008
|
|
|
Discount rate
|
|
|
4.65
|
%
|
|
|
5.70
|
%
|
Assumed healthcare cost trend:
|
|
|
|
|
|
|
|
|
Initial trend
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Ultimate trend
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year ultimate trend reached
|
|
|
2018
|
|
|
|
2017
|
|
The discount rate assumption at December 31, 2009 was
determined using the same yield-curve based approach as
previously described in the Retirement Plans footnote.
Net periodic postretirement benefit (income) cost and other
comprehensive income included the following components (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
24
|
|
|
$
|
57
|
|
Interest cost
|
|
|
90
|
|
|
|
115
|
|
|
|
134
|
|
Actuarial loss amortization
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Prior service credit amortization
|
|
|
|
|
|
|
|
|
|
|
(1,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit (income) cost
|
|
|
90
|
|
|
|
141
|
|
|
|
(1,491
|
)
|
Other changes in plan assets and benefit obligations recognized
in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year actuarial (gain) loss
|
|
|
(127
|
)
|
|
|
23
|
|
|
|
96
|
|
Amortization of actuarial loss
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Amortization of prior service credit
|
|
|
|
|
|
|
|
|
|
|
1,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
|
(127
|
)
|
|
|
21
|
|
|
|
1,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic postretirement income and other
comprehensive income
|
|
$
|
(37
|
)
|
|
$
|
162
|
|
|
$
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
Actuarial assumptions used in the determination of the net
periodic postretirement cost in the Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions for the Year Ended
December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average discount rate
|
|
|
5.70
|
%
|
|
|
5.50
|
%
|
|
|
5.90
|
%
|
Assumed healthcare cost trend:
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial trend
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
9.00
|
%
|
Ultimate trend
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year ultimate cost trend reached
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2011
|
|
A one percentage point change in the assumed health care cost
trend rate would have had the following effects on 2009 service
and interest cost and the accumulated postretirement benefit
obligation at December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
1% Decrease
|
|
Effect on service and interest components of net periodic cost
|
|
$
|
4
|
|
|
$
|
(3
|
)
|
Effect on accumulated postretirement benefit obligation
|
|
|
79
|
|
|
|
(73
|
)
|
The following table provides information regarding estimated
future cash flows relating to the postretirement benefit plan at
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
Expected employer contributions:
|
|
2010
|
|
$
|
332
|
|
Expected benefit payments:
|
|
2010
|
|
|
372
|
|
|
|
2011
|
|
|
260
|
|
|
|
2012
|
|
|
198
|
|
|
|
2013
|
|
|
186
|
|
|
|
2014
|
|
|
176
|
|
|
|
2015 - 2019
|
|
|
693
|
|
The contributions and the benefit payments for the
postretirement benefit plan are the same and represent expected
benefit amounts, net of participant contributions, which are
paid from general plan assets.
Income tax expense, allocated based on a separate tax return
basis, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal taxes
|
|
$
|
11,460
|
|
|
$
|
21,186
|
|
|
$
|
26,442
|
|
State taxes
|
|
|
115
|
|
|
|
117
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,575
|
|
|
|
21,303
|
|
|
|
26,610
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal taxes
|
|
|
(2,283
|
)
|
|
|
(14,017
|
)
|
|
|
1,889
|
|
State taxes
|
|
|
(23
|
)
|
|
|
(49
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,306
|
)
|
|
|
(14,066
|
)
|
|
|
1,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,269
|
|
|
$
|
7,237
|
|
|
$
|
28,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) related to gains (losses) on the
sale of securities was $0.2 million, $0.3 million and
$0.4 million for 2009, 2008 and 2007, respectively.
Income tax expense and the effective tax rate for 2009 were
favorably impacted by $0.4 million due to the outcome of
examinations
and/or the
expiration of an uncertain tax position in the current period.
The effective tax
104
rates for 2009, 2008 and 2007 were all lower than the 35.0%
federal statutory tax rate due to tax benefits resulting from
tax-exempt income on investments, loans, tax credits and income
from bank owned life insurance.
The following table provides a reconciliation between the
federal statutory tax rate and the actual effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effect of tax-free interest and dividend income
|
|
|
(12.2
|
)
|
|
|
(14.4
|
)
|
|
|
(4.5
|
)
|
Tax credits and settlements
|
|
|
(3.7
|
)
|
|
|
(3.8
|
)
|
|
|
(1.0
|
)
|
Other items
|
|
|
(0.7
|
)
|
|
|
0.1
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual effective tax rate
|
|
|
18.4
|
%
|
|
|
16.9
|
%
|
|
|
29.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the tax effects of temporary
differences that give rise to deferred tax assets and
liabilities (in thousands):
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
46,007
|
|
|
$
|
46,790
|
|
State net operating loss carryforwards
|
|
|
11,142
|
|
|
|
10,056
|
|
Deferred compensation
|
|
|
4,081
|
|
|
|
4,802
|
|
Intangibles
|
|
|
78
|
|
|
|
645
|
|
Tax credits
|
|
|
|
|
|
|
1,508
|
|
Securities impairments
|
|
|
6,223
|
|
|
|
7,308
|
|
Pension and other defined benefit plans
|
|
|
10,939
|
|
|
|
9,203
|
|
Net unrealized securities losses
|
|
|
3,775
|
|
|
|
2,343
|
|
Other
|
|
|
3,899
|
|
|
|
2,180
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
86,144
|
|
|
|
84,835
|
|
Valuation allowance
|
|
|
(13,232
|
)
|
|
|
(12,068
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
72,912
|
|
|
|
72,767
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Loan fees
|
|
|
(1,391
|
)
|
|
|
(1,636
|
)
|
Depreciation
|
|
|
(6,612
|
)
|
|
|
(6,771
|
)
|
Purchase accounting adjustments
|
|
|
(9,915
|
)
|
|
|
(11,226
|
)
|
Prepaid expenses
|
|
|
(406
|
)
|
|
|
(466
|
)
|
Other
|
|
|
(41
|
)
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(18,365
|
)
|
|
|
(20,313
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
54,547
|
|
|
$
|
52,454
|
|
|
|
|
|
|
|
|
|
|
The Corporation establishes a valuation allowance when it is
more likely than not that the Corporation will not be able to
realize the benefit of the deferred tax assets, or when future
deductibility is uncertain. Periodically, the valuation
allowance is reviewed and adjusted based on managements
assessment of realizable deferred tax assets. At
December 31, 2009, the Corporation had unused state net
operating loss carryforwards expiring from 2018 to 2029. The
Corporation anticipates that neither the state net operating
loss carryforwards nor the other net deferred tax assets at
certain of its subsidiaries will be utilized and, as such, has
recorded a valuation allowance against the deferred tax assets
related to these carryforwards.
The Corporation adopted the provisions of ASC Topic 740 on
January 1, 2007. As a result of the implementation of ASC
Topic 740, the Corporation recognized an increase of
$1.2 million in the liability for unrecognized tax benefits
including $0.1 million related to interest. The cumulative
effect of the adoption of ASC Topic 740 was accounted for as a
decrease to the January 1, 2007 balance of retained
earnings. On January 1, 2007, the Corporations
unrecognized tax benefits were $3.6 million, net of federal
income tax benefit, of which
105
$0.3 million relates to interest and $2.7 million
relates to tax positions, the recognition of which would affect
the Corporations effective income tax rate.
As of December 31, 2009 and 2008, the Corporation has
approximately $3.0 million and $3.2 million,
respectively, of unrecognized tax benefits, excluding interest
and the federal tax benefit of unrecognized state tax benefits.
Also, as of both December 31, 2009 and 2008, additional
unrecognized tax benefits relating to accrued interest, net of
the related federal tax benefit, amounted to $0.2 million.
As of December 31, 2009, $2.7 million of these tax
benefits would affect the effective tax rate if recognized. The
Corporation recognizes potential accrued interest and penalties
related to unrecognized tax benefits in income tax expense. To
the extent interest is not assessed with respect to uncertain
tax positions, amounts accrued will be reduced and reflected as
a reduction of the overall income tax provision.
The Corporation files numerous consolidated and separate income
tax returns in the U.S. federal jurisdiction and in several
state jurisdictions. The Corporation is no longer subject to
U.S. federal income tax examinations for years prior to
2008. The Corporations 2006 and 2007 federal examinations
have closed with no material impact to the Corporations
financial position. The Corporations tax year 2008 remains
open to federal examination. With limited exception, the
Corporation is no longer subject to state income tax
examinations for years prior to 2006 and state income tax
returns for 2006 through 2008 are currently subject to
examination. The Corporation anticipates that a reduction in the
unrecognized tax benefit of up to $0.5 million may occur in
the next twelve months from the expiration of statutes of
limitations which would result in a reduction in income taxes.
Unrecognized
Tax Benefits
A reconciliation of the beginning and ending amount of
unrecognized tax benefits (excluding interest and the federal
income tax benefit of unrecognized state tax benefits) is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
3,210
|
|
|
$
|
3,254
|
|
Additions based on tax positions related to current year
|
|
|
359
|
|
|
|
951
|
|
Additions based on tax positions of prior year
|
|
|
40
|
|
|
|
330
|
|
Reductions for tax positions of prior years
|
|
|
(8
|
)
|
|
|
(193
|
)
|
Reductions due to statute of limitations
|
|
|
(559
|
)
|
|
|
(952
|
)
|
Settlements
|
|
|
|
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
3,042
|
|
|
$
|
3,210
|
|
|
|
|
|
|
|
|
|
|
106
The components of comprehensive income, net of related tax, are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
41,111
|
|
|
$
|
35,595
|
|
|
$
|
69,678
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Arising during the period, net of tax benefit of $4,022, $7,713
and $1,384
|
|
|
(7,469
|
)
|
|
|
(14,324
|
)
|
|
|
(2,570
|
)
|
Less: reclassification adjustment for (gains) losses included in
net income, net of tax (benefit) expense of $(2,578), $(5,724)
and $363
|
|
|
4,787
|
|
|
|
10,606
|
|
|
|
(674
|
)
|
Unrealized losses on swap, net of tax benefit of $69 and $455
|
|
|
|
|
|
|
(128
|
)
|
|
|
(845
|
)
|
Minimum benefit plan liability adjustment, net of tax benefit of
$779, $8,573 and $594
|
|
|
(1,446
|
)
|
|
|
(15,921
|
)
|
|
|
(1,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(4,128
|
)
|
|
|
(19,767
|
)
|
|
|
(5,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
36,983
|
|
|
$
|
15,828
|
|
|
$
|
64,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2008, the amount of the reclassification adjustment for
losses (gains) included in net income differs from the amount
shown in the consolidated statement of income because it does
not include gains or losses realized on securities that were
both purchased and then sold during that year.
The accumulated balances related to each component of other
comprehensive income, net of tax, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net unrealized losses on securities
|
|
$
|
(7,020
|
)
|
|
$
|
(4,338
|
)
|
|
$
|
(621
|
)
|
Unrealized gain on swap
|
|
|
|
|
|
|
|
|
|
|
128
|
|
Net unrecognized pension and postretirement obligations
|
|
|
(23,613
|
)
|
|
|
(22,167
|
)
|
|
|
(6,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
(30,633
|
)
|
|
$
|
(26,505
|
)
|
|
$
|
(6,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables set forth the computation of basic and
diluted earnings per share (dollars in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net income available to common stockholders - basic
earnings per share
|
|
$
|
32,803
|
|
|
$
|
35,595
|
|
|
$
|
69,678
|
|
Interest expense on convertible debt
|
|
|
20
|
|
|
|
20
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders after assumed
conversion - diluted earnings per share
|
|
$
|
32,823
|
|
|
$
|
35,615
|
|
|
$
|
69,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
102,580,415
|
|
|
|
80,654,153
|
|
|
|
60,135,859
|
|
Net effect of dilutive stock options, warrants, restricted stock
and convertible debt
|
|
|
268,919
|
|
|
|
343,834
|
|
|
|
493,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
102,849,334
|
|
|
|
80,997,987
|
|
|
|
60,629,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.32
|
|
|
$
|
0.44
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.32
|
|
|
$
|
0.44
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
For the years ended December 31, 2009 and 2008, 1,549,205
and 118,619 shares of common stock, respectively, related
to stock options and warrants were excluded from the computation
of diluted earnings per share because the exercise price of the
shares was greater than the average market price of the common
shares and therefore, the effect would be antidilutive. For the
year ended December 31, 2007, all of the stock options and
warrants were dilutive.
On January 9, 2009, in conjunction with the USTs CPP,
the Corporation issued to the UST 100,000 shares of
Series C Preferred Stock and a warrant to purchase up to
1,302,083 shares of the Corporations common stock for
an aggregate purchase price of $100.0 million. The warrant
has a ten-year term and an exercise price of $11.52 per share.
On June 16, 2009, the Corporation completed a public
offering of 24,150,000 shares of common stock at a price of
$5.50 per share, including 3,150,000 shares of common stock
purchased by the underwriters pursuant to an over-allotment
option, which the underwriters exercised in full. The net
proceeds of the offering after deducting underwriting discounts
and commissions and offering expenses were $125.8 million.
As a result of the completion of the public stock offering, the
number of shares of the Corporations common stock
purchasable upon exercise of the warrant issued to the UST has
been reduced in half to 651,042 shares and the exercise
price was unchanged.
On September 9, 2009, the Corporation utilized a portion of
the proceeds of its public offering to redeem all of the
Series C Preferred Stock issued to the UST under the CPP
and to pay the related final accrued dividend. Since receiving
the CPP funds on January 9, 2009, the Corporation paid the
UST $3.3 million in cash dividends. Upon redemption, the
remaining difference of $4.3 million between the
Series C Preferred Stock redemption amount and the recorded
amount was charged to retained earnings as non-cash deemed
preferred stock dividends. The non-cash deemed preferred stock
dividends had no impact on total equity, but reduced earnings
per diluted common share by $0.04.
The remaining offering proceeds were used for general corporate
purposes and to enhance capital levels.
The Corporation and FNBPA are subject to various regulatory
capital requirements administered by the federal banking
agencies. Quantitative measures established by regulators to
ensure capital adequacy require the Corporation and FNBPA to
maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets
(as defined) and of leverage ratio (as defined). Failure to meet
minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions, by regulators that,
if undertaken, could have a direct material effect on the
Corporations consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and FNBPA must meet
specific capital guidelines that involve quantitative measures
of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. The
Corporations and FNBPAs capital amounts and
classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
The Corporations management believes that, as of
December 31, 2009 and 2008, the Corporation and FNBPA met
all capital adequacy requirements to which either of them was
subject.
As of December 31, 2009, the most recent notification from
the federal banking agencies categorized the Corporation and
FNBPA as well-capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events
since the notification which management believes have changed
this categorization.
108
Following are the capital ratios as of December 31, 2009
and 2008 for the Corporation and FNBPA (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-Capitalized
|
|
Minimum Capital
|
|
|
Actual
|
|
Requirements
|
|
Requirements
|
December 31,
2009
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F.N.B. Corporation
|
|
$
|
795,372
|
|
|
|
12.9
|
%
|
|
$
|
617,447
|
|
|
|
10.0
|
%
|
|
$
|
493,958
|
|
|
|
8.0
|
%
|
FNBPA
|
|
|
745,183
|
|
|
|
12.4
|
|
|
|
602,810
|
|
|
|
10.0
|
|
|
|
482,248
|
|
|
|
8.0
|
|
Tier 1 Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F.N.B. Corporation
|
|
|
705,188
|
|
|
|
11.4
|
|
|
|
370,468
|
|
|
|
6.0
|
|
|
|
246,979
|
|
|
|
4.0
|
|
FNBPA
|
|
|
669,543
|
|
|
|
11.1
|
|
|
|
361,686
|
|
|
|
6.0
|
|
|
|
241,124
|
|
|
|
4.0
|
|
Leverage Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F.N.B. Corporation
|
|
|
705,188
|
|
|
|
8.7
|
|
|
|
406,314
|
|
|
|
5.0
|
|
|
|
325,052
|
|
|
|
4.0
|
|
FNBPA
|
|
|
669,543
|
|
|
|
8.5
|
|
|
|
395,647
|
|
|
|
5.0
|
|
|
|
316,517
|
|
|
|
4.0
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F.N.B. Corporation
|
|
$
|
662,600
|
|
|
|
11.1
|
%
|
|
$
|
595,569
|
|
|
|
10.0
|
%
|
|
$
|
476,455
|
|
|
|
8.0
|
%
|
FNBPA
|
|
|
624,976
|
|
|
|
10.7
|
|
|
|
583,070
|
|
|
|
10.0
|
|
|
|
466,456
|
|
|
|
8.0
|
|
Tier 1 Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F.N.B. Corporation
|
|
|
577,317
|
|
|
|
9.7
|
|
|
|
357,342
|
|
|
|
6.0
|
|
|
|
238,228
|
|
|
|
4.0
|
|
FNBPA
|
|
|
551,931
|
|
|
|
9.5
|
|
|
|
349,842
|
|
|
|
6.0
|
|
|
|
233,228
|
|
|
|
4.0
|
|
Leverage Ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F.N.B. Corporation
|
|
|
577,317
|
|
|
|
7.3
|
|
|
|
393,141
|
|
|
|
5.0
|
|
|
|
314,513
|
|
|
|
4.0
|
|
FNBPA
|
|
|
551,931
|
|
|
|
7.2
|
|
|
|
385,201
|
|
|
|
5.0
|
|
|
|
308,161
|
|
|
|
4.0
|
|
FNBPA was required to maintain aggregate cash reserves with the
FRB amounting to $8.5 million at December 31, 2009.
The Corporation also maintains deposits for various services
such as check clearing.
Certain limitations exist under applicable law and regulations
by regulatory agencies regarding dividend distributions to a
parent by its subsidiaries. As of December 31, 2009, the
Corporations subsidiaries had $8.0 million of
retained earnings available for distribution to the Corporation
without prior regulatory approval.
Under current FRB regulations, FNBPA is limited in the amount it
may lend to non-bank affiliates, including the Corporation. Such
loans must be secured by specified collateral. In addition, any
such loans to a non-bank affiliate may not exceed 10% of
FNBPAs capital and surplus and the aggregate of loans to
all such affiliates may not exceed 20% of FNBPAs capital
and surplus. The maximum amount that may be borrowed by the
Corporation under these provisions was $135.6 million at
December 31, 2009.
The Corporation operates in four reportable
segments: Community Banking, Wealth Management,
Insurance and Consumer Finance.
|
|
|
|
|
The Community Banking segment offers services traditionally
offered by full-service commercial banks, including commercial
and individual demand, savings and time deposit accounts and
commercial, mortgage and individual installment loans.
|
|
|
The Wealth Management segment provides a broad range of personal
and corporate fiduciary services including the administration of
decedent and trust estates. In addition, it offers various
alternative products, including securities brokerage and
investment advisory services, mutual funds and annuities.
|
|
|
The Insurance segment includes a full-service insurance agency
offering all lines of commercial and personal insurance through
major carriers. The Insurance segment also includes a reinsurer.
|
109
|
|
|
|
|
The Consumer Finance segment is primarily involved in making
installment loans to individuals and purchasing installment
sales finance contracts from retail merchants. The Consumer
Finance segment activity is funded through the sale of the
Corporations subordinated notes at Regencys branch
offices.
|
The following tables provide financial information for these
segments of the Corporation (in thousands). The information
provided under the caption Parent and Other
represents operations not considered to be reportable segments
and/or
general operating expenses of the Corporation, and includes the
parent company, other non-bank subsidiaries and eliminations and
adjustments which are necessary for purposes of reconciling to
the consolidated amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
|
|
Community
|
|
Manage-
|
|
|
|
Consumer
|
|
Parent
|
|
|
|
|
Banking
|
|
ment
|
|
Insurance
|
|
Finance
|
|
and Other
|
|
Consolidated
|
|
At or for the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
352,264
|
|
|
$
|
13
|
|
|
$
|
280
|
|
|
$
|
32,511
|
|
|
$
|
2,654
|
|
|
$
|
387,722
|
|
Interest expense
|
|
|
104,281
|
|
|
|
|
|
|
|
|
|
|
|
5,561
|
|
|
|
11,337
|
|
|
|
121,179
|
|
Net interest income
|
|
|
247,983
|
|
|
|
13
|
|
|
|
280
|
|
|
|
26,950
|
|
|
|
(8,683
|
)
|
|
|
266,543
|
|
Provision for loan losses
|
|
|
59,462
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
673
|
|
|
|
66,802
|
|
Non-interest income
|
|
|
75,478
|
|
|
|
20,401
|
|
|
|
13,804
|
|
|
|
2,157
|
|
|
|
(5,862
|
)
|
|
|
105,978
|
|
Non-interest expense
|
|
|
203,411
|
|
|
|
15,858
|
|
|
|
12,135
|
|
|
|
15,429
|
|
|
|
1,418
|
|
|
|
248,251
|
|
Intangible amortization
|
|
|
6,295
|
|
|
|
366
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
7,088
|
|
Income tax expense (benefit)
|
|
|
10,829
|
|
|
|
1,505
|
|
|
|
545
|
|
|
|
2,449
|
|
|
|
(6,059
|
)
|
|
|
9,269
|
|
Net income (loss)
|
|
|
43,464
|
|
|
|
2,685
|
|
|
|
977
|
|
|
|
4,562
|
|
|
|
(10,577
|
)
|
|
|
41,111
|
|
Total assets
|
|
|
8,509,072
|
|
|
|
20,226
|
|
|
|
20,625
|
|
|
|
168,345
|
|
|
|
(9,191
|
)
|
|
|
8,709,077
|
|
Total intangibles
|
|
|
541,530
|
|
|
|
12,317
|
|
|
|
12,195
|
|
|
|
1,809
|
|
|
|
|
|
|
|
567,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
|
|
Community
|
|
Manage-
|
|
|
|
Consumer
|
|
Parent
|
|
|
|
|
Banking
|
|
ment
|
|
Insurance
|
|
Finance
|
|
and Other
|
|
Consolidated
|
|
At or for the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
375,876
|
|
|
$
|
50
|
|
|
$
|
408
|
|
|
$
|
32,287
|
|
|
$
|
1,160
|
|
|
$
|
409,781
|
|
Interest expense
|
|
|
140,473
|
|
|
|
7
|
|
|
|
|
|
|
|
5,837
|
|
|
|
11,672
|
|
|
|
157,989
|
|
Net interest income
|
|
|
235,403
|
|
|
|
43
|
|
|
|
408
|
|
|
|
26,450
|
|
|
|
(10,512
|
)
|
|
|
251,792
|
|
Provision for loan losses
|
|
|
66,110
|
|
|
|
|
|
|
|
|
|
|
|
5,642
|
|
|
|
619
|
|
|
|
72,371
|
|
Non-interest income
|
|
|
59,025
|
|
|
|
21,320
|
|
|
|
13,127
|
|
|
|
2,193
|
|
|
|
(9,550
|
)
|
|
|
86,115
|
|
Non-interest expense
|
|
|
174,681
|
|
|
|
14,953
|
|
|
|
11,585
|
|
|
|
14,965
|
|
|
|
78
|
|
|
|
216,262
|
|
Intangible amortization
|
|
|
5,675
|
|
|
|
274
|
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
6,442
|
|
Income tax expense (benefit)
|
|
|
9,280
|
|
|
|
2,187
|
|
|
|
552
|
|
|
|
2,852
|
|
|
|
(7,634
|
)
|
|
|
7,237
|
|
Net income (loss)
|
|
|
38,682
|
|
|
|
3,949
|
|
|
|
905
|
|
|
|
5,184
|
|
|
|
(13,125
|
)
|
|
|
35,595
|
|
Total assets
|
|
|
8,184,555
|
|
|
|
19,653
|
|
|
|
23,623
|
|
|
|
164,835
|
|
|
|
(27,855
|
)
|
|
|
8,364,811
|
|
Total intangibles
|
|
|
547,036
|
|
|
|
12,734
|
|
|
|
12,928
|
|
|
|
1,809
|
|
|
|
|
|
|
|
574,507
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
|
|
Community
|
|
Manage-
|
|
|
|
Consumer
|
|
Parent
|
|
|
|
|
Banking
|
|
ment
|
|
Insurance
|
|
Finance
|
|
and Other
|
|
Consolidated
|
|
At or for the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
338,847
|
|
|
$
|
121
|
|
|
$
|
466
|
|
|
$
|
31,780
|
|
|
$
|
(2,324
|
)
|
|
$
|
368,890
|
|
Interest expense
|
|
|
158,524
|
|
|
|
9
|
|
|
|
|
|
|
|
6,379
|
|
|
|
9,141
|
|
|
|
174,053
|
|
Net interest income
|
|
|
180,323
|
|
|
|
112
|
|
|
|
466
|
|
|
|
25,401
|
|
|
|
(11,465
|
)
|
|
|
194,837
|
|
Provision for loan losses
|
|
|
7,875
|
|
|
|
|
|
|
|
|
|
|
|
4,818
|
|
|
|
|
|
|
|
12,693
|
|
Non-interest income
|
|
|
55,946
|
|
|
|
16,034
|
|
|
|
11,769
|
|
|
|
2,083
|
|
|
|
(4,223
|
)
|
|
|
81,609
|
|
Non-interest expense
|
|
|
126,625
|
|
|
|
11,734
|
|
|
|
9,807
|
|
|
|
14,361
|
|
|
|
(1,319
|
)
|
|
|
161,208
|
|
Intangible amortization
|
|
|
3,936
|
|
|
|
25
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
4,406
|
|
Income tax expense (benefit)
|
|
|
28,497
|
|
|
|
1,569
|
|
|
|
732
|
|
|
|
3,006
|
|
|
|
(5,343
|
)
|
|
|
28,461
|
|
Net income (loss)
|
|
|
69,336
|
|
|
|
2,818
|
|
|
|
1,251
|
|
|
|
5,299
|
|
|
|
(9,026
|
)
|
|
|
69,678
|
|
Total assets
|
|
|
5,909,315
|
|
|
|
6,665
|
|
|
|
22,938
|
|
|
|
156,780
|
|
|
|
(7,677
|
)
|
|
|
6,088,021
|
|
Total intangibles
|
|
|
247,619
|
|
|
|
1,252
|
|
|
|
10,879
|
|
|
|
1,809
|
|
|
|
|
|
|
|
261,559
|
|
|
|
26.
|
Cash Flow
Information
|
Following is a summary of cash flow information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest paid on deposits and other borrowings
|
|
$
|
124,960
|
|
|
$
|
153,125
|
|
|
$
|
177,148
|
|
Income taxes paid
|
|
|
6,287
|
|
|
|
26,300
|
|
|
|
24,282
|
|
Transfers of loans to other real estate owned
|
|
|
22,023
|
|
|
|
11,973
|
|
|
|
5,462
|
|
Transfers of other real estate owned to loans
|
|
|
580
|
|
|
|
985
|
|
|
|
290
|
|
Supplemental non-cash information relating to the
Corporations acquisitions is included in the Mergers and
Acquisitions footnote included in this Item of the Report.
111
|
|
27.
|
Parent
Company Financial Statements
|
The following is condensed financial information of F.N.B.
Corporation (parent company only). In this information, the
parent companys investments in subsidiaries are stated at
cost plus equity in undistributed earnings of subsidiaries since
acquisition. This information should be read in conjunction with
the consolidated financial statements.
|
|
|
|
|
|
|
|
|
Balance
Sheets (in
thousands)
|
|
|
|
|
|
|
December 31
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
74,922
|
|
|
$
|
66,779
|
|
Securities available for sale
|
|
|
3,025
|
|
|
|
3,793
|
|
Premises and equipment
|
|
|
4,374
|
|
|
|
4,598
|
|
Other assets
|
|
|
15,977
|
|
|
|
21,715
|
|
Investment in and advance to bank subsidiary
|
|
|
1,194,814
|
|
|
|
1,086,232
|
|
Investments in and advances to non-bank subsidiaries
|
|
|
235,570
|
|
|
|
194,308
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,528,682
|
|
|
$
|
1,377,425
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
29,442
|
|
|
$
|
31,470
|
|
Advances from affiliates
|
|
|
238,458
|
|
|
|
201,058
|
|
Junior subordinated debt
|
|
|
205,156
|
|
|
|
205,156
|
|
Subordinated notes:
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
8,922
|
|
|
|
9,733
|
|
Long-term
|
|
|
3,402
|
|
|
|
4,024
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
485,380
|
|
|
|
451,441
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
1,043,302
|
|
|
|
925,984
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
1,528,682
|
|
|
$
|
1,377,425
|
|
|
|
|
|
|
|
|
|
|
112
Statements
of
Income
(in thousands)
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income from subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
$
|
45,650
|
|
|
$
|
123,700
|
|
|
$
|
65,500
|
|
Non-bank
|
|
|
7,800
|
|
|
|
10,075
|
|
|
|
5,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,450
|
|
|
|
133,775
|
|
|
|
71,000
|
|
Interest income
|
|
|
6,797
|
|
|
|
11,682
|
|
|
|
14,181
|
|
Other income
|
|
|
(312
|
)
|
|
|
(1,124
|
)
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income
|
|
|
59,935
|
|
|
|
144,333
|
|
|
|
85,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
20,109
|
|
|
|
23,271
|
|
|
|
22,951
|
|
Other expenses
|
|
|
7,227
|
|
|
|
5,218
|
|
|
|
4,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
27,336
|
|
|
|
28,489
|
|
|
|
27,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Taxes and Equity in Undistributed Income of
Subsidiaries
|
|
|
32,599
|
|
|
|
115,844
|
|
|
|
58,467
|
|
Income tax benefit
|
|
|
7,579
|
|
|
|
6,655
|
|
|
|
4,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,178
|
|
|
|
122,499
|
|
|
|
63,170
|
|
Equity in undistributed income (loss) of subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
1,050
|
|
|
|
(80,889
|
)
|
|
|
6,654
|
|
Non-bank
|
|
|
(117
|
)
|
|
|
(6,015
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
41,111
|
|
|
$
|
35,595
|
|
|
$
|
69,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
Statements
of Cash
Flows
(in thousands)
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41,111
|
|
|
$
|
35,595
|
|
|
$
|
69,678
|
|
Adjustments to reconcile net income to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings from subsidiaries
|
|
|
(933
|
)
|
|
|
86,904
|
|
|
|
(7,181
|
)
|
Other, net
|
|
|
8,219
|
|
|
|
7,901
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
48,397
|
|
|
|
130,400
|
|
|
|
62,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of securities available for sale
|
|
|
|
|
|
|
(3,035
|
)
|
|
|
(161
|
)
|
Proceeds from sale of securities available for sale
|
|
|
475
|
|
|
|
6,045
|
|
|
|
|
|
Net (increase) decrease in advances to subsidiaries
|
|
|
(40,584
|
)
|
|
|
54,035
|
|
|
|
(13,169
|
)
|
Investment in subsidiaries
|
|
|
(112,138
|
)
|
|
|
(540,454
|
)
|
|
|
2,093
|
|
Net cash paid for mergers and acquisitions
|
|
|
|
|
|
|
(23,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
|
(152,247
|
)
|
|
|
(507,278
|
)
|
|
|
(11,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in advance from affiliate
|
|
|
37,655
|
|
|
|
(9,738
|
)
|
|
|
12,699
|
|
Net decrease in short-term borrowings
|
|
|
(811
|
)
|
|
|
(2,110
|
)
|
|
|
(5,571
|
)
|
Decrease in long-term debt
|
|
|
(1,658
|
)
|
|
|
(2,746
|
)
|
|
|
(3,759
|
)
|
Increase in long-term debt
|
|
|
1,037
|
|
|
|
1,471
|
|
|
|
1,888
|
|
Issuance of preferred stock and common stock warrant
|
|
|
99,749
|
|
|
|
|
|
|
|
|
|
Redemption of preferred stock
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
128,554
|
|
|
|
512,508
|
|
|
|
(686
|
)
|
Tax (expense) benefit of stock-based compensation
|
|
|
(158
|
)
|
|
|
857
|
|
|
|
635
|
|
Cash dividends paid
|
|
|
(52,375
|
)
|
|
|
(78,283
|
)
|
|
|
(57,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
111,993
|
|
|
|
421,959
|
|
|
|
(52,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
8,143
|
|
|
|
45,081
|
|
|
|
(719
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
66,779
|
|
|
|
21,698
|
|
|
|
22,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
74,922
|
|
|
$
|
66,779
|
|
|
$
|
21,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
20,102
|
|
|
$
|
23,281
|
|
|
$
|
22,931
|
|
|
|
28.
|
Fair
Value Measurements
|
The Corporation uses fair value measurements to record fair
value adjustments to certain financial assets and liabilities
and to determine fair value disclosures. Securities available
for sale and derivatives are recorded at fair value on a
recurring basis. Additionally, from time to time, the
Corporation may be required to record at fair value other assets
on a nonrecurring basis, such as mortgage loans held for sale,
certain impaired loans, OREO and certain other assets.
Fair value is defined as an exit price, representing the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. Fair value
114
measurements are not adjusted for transaction costs. Fair value
is a market-based measure considered from the perspective of a
market participant who holds the asset or owes the liability
rather than an entity-specific measure.
In determining fair value, the Corporation uses various
valuation approaches, including market, income and cost
approaches. ASC Topic 820 establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs
by requiring that observable inputs be used when available.
Observable inputs are inputs that market participants would use
in pricing the asset or liability, which are developed based on
market data obtained from sources independent of the
Corporation. Unobservable inputs reflect the Corporations
assumptions about the assumptions that market participants would
use in pricing an asset or liability, which are developed based
on the best information available in the circumstances.
The fair value hierarchy gives the highest priority to
unadjusted quoted market prices in active markets for identical
assets or liabilities (Level 1 measurement) and the lowest
priority to unobservable inputs (Level 3 measurement). The
fair value hierarchy is broken down into three levels based on
the reliability of inputs as follows:
|
|
|
Level 1
|
|
valuation is based upon unadjusted quoted market prices for
identical instruments traded in active markets.
|
Level 2
|
|
valuation is based upon quoted market prices for similar
instruments traded in active markets, quoted market prices for
identical or similar instruments traded in markets that are not
active and model-based valuation techniques for which all
significant assumptions are observable in the market or can be
corroborated by market data.
|
Level 3
|
|
valuation is derived from other valuation methodologies
including discounted cash flow models and similar techniques
that use significant assumptions not observable in the market.
These unobservable assumptions reflect estimates of assumptions
that market participants would use in determining fair value.
|
A financial instruments level within the fair value
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
Following is a description of the valuation methodologies the
Corporation uses for financial instruments recorded at fair
value on either a recurring or nonrecurring basis:
Securities
Available For Sale
Securities available for sale consists of both debt and equity
securities. These securities are recorded at fair value on a
recurring basis. At December 31, 2009, approximately 98.0%
of these securities used valuation methodologies involving
market-based or market-derived information, collectively
Level 1 and Level 2 measurements, to measure fair
value. The remaining 2.0% of these securities were measured
using model-based techniques, with primarily unobservable
(Level 3) inputs.
The Corporation closely monitors market conditions involving
assets that have become less actively traded. If the fair value
measurement is based upon recent observable market activity of
such assets or comparable assets (other than forced or
distressed transactions) that occur in sufficient volume, and do
not require significant adjustment using unobservable inputs,
those assets are classified as Level 1 or Level 2; if
not, they are classified as Level 3. Making this assessment
requires significant judgment.
The Corporation uses prices from independent pricing services
and, to a lesser extent, indicative (non-binding) quotes from
independent brokers, to measure the fair value of investment
securities. The Corporation validates prices received from
pricing services or brokers using a variety of methods,
including, but not limited to, comparison to secondary pricing
services, corroboration of pricing by reference to other
independent market data such as secondary broker quotes and
relevant benchmark indices, and review of pricing by Corporate
personnel familiar with market liquidity and other
market-related conditions.
115
The Corporation determines the valuation of its investments in
trust preferred debt securities with the assistance of a
third-party independent financial consulting firm that
specializes in advisory services related to illiquid financial
investments. The consulting firm provides the Corporation
appropriate valuation methodology, performance assumptions,
modeling techniques, discounted cash flows, discount rates and
sensitivity analyses with respect to levels of defaults and
deferrals necessary to produce losses. Additionally, the
Corporation utilizes the firms expertise to reassess
assumptions to reflect actual conditions. Accessing the services
of a financial consulting firm with a focus on financial
instruments assists the Corporation in accurately valuing these
complex financial instruments and facilitates informed
decision-making with respect to such instruments.
Derivative
Financial Instruments
The Corporation determines its fair value for derivatives using
widely accepted valuation techniques including discounted cash
flow analysis on the expected cash flows of each derivative.
This analysis reflects contractual terms of the derivative,
including the period to maturity and uses observable market
based inputs, including interest rate curves and implied
volatilities.
The Corporation incorporates credit valuation adjustments to
appropriately reflect both its own non-performance risk and the
respective counterpartys non-performance risk in the fair
value measurements. In adjusting the fair value of its
derivative contracts for the effect of non-performance risk, the
Corporation considers the impact of netting and any applicable
credit enhancements, such as collateral postings, thresholds,
mutual puts and guarantees.
Although the Corporation has determined that the majority of the
inputs used to value its derivatives fall within Level 2 of
the fair value hierarchy, the credit valuation adjustments
associated with its derivatives utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the
likelihood of default by itself and its counterparties. However,
as of December 31, 2009, the Corporation has assessed the
significance of the impact of the credit valuation adjustments
on the overall valuation of its derivative positions and has
determined that the credit valuation adjustments are not
significant to the overall valuation of its derivatives. As a
result, the Corporation has determined that its derivative
valuations in their entirety are classified in Level 2 of
the fair value hierarchy.
Residential
Mortgage Loans Held For Sale
These loans are carried at the lower of cost or fair value.
Under lower of cost or fair value accounting, periodically, it
may be necessary to record nonrecurring fair value adjustments.
Fair value, when recorded, is based on independent quoted market
prices and is classified as Level 2.
Impaired
Loans
The Corporation reserves for commercial and commercial real
estate loans that the Corporation considers impaired as defined
in ASC Topic 310 at the time the Corporation identifies the loan
as impaired based upon the present value of expected future cash
flows available to pay the loan, or based upon the fair value of
the collateral less estimated selling costs where a loan is
collateral dependent. Collateral may be real estate
and/or
business assets including equipment, inventory and accounts
receivable.
The Corporation determines the value of real estate based on
appraisals by licensed or certified appraisers. The value of
business assets is generally based on amounts reported on the
businesss financial statements. Management must rely on
the financial statements prepared and certified by the borrower
or its accountants in determining the value of these business
assets on an ongoing basis which may be subject to significant
change over time. Based on the quality of information or
statements provided, management may require the use of business
asset appraisals and site-inspections to better value these
assets. The Corporation may discount appraised and reported
values based on managements historical knowledge, changes
in market conditions from the time of valuation or
managements knowledge of the borrower and the
borrowers business. Since not all valuation inputs are
116
observable, the Corporation classifies these nonrecurring fair
value determinations as Level 2 or Level 3 based on
the lowest level of input that is significant to the fair value
measurement.
The Corporation reviews and evaluates impaired loans no less
frequently than quarterly for additional impairment based on the
same factors identified above.
Other
Real Estate Owned
OREO is comprised of commercial and residential real estate
properties obtained in partial or total satisfaction of loan
obligations plus some bank owned real estate. OREO acquired in
settlement of indebtedness is recorded at the lower of carrying
amount of the loan or fair value less costs to sell.
Subsequently, these assets are carried at the lower of carrying
value or fair value less costs to sell. Accordingly, it may be
necessary to record nonrecurring fair value adjustments. Fair
value, when recorded, is generally based upon appraisals by
licensed or certified appraisers and is classified as
Level 2.
The following table presents the balances of assets and
liabilities measured at fair value on a recurring basis as of
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
$
|
1,014
|
|
|
$
|
698,748
|
|
|
$
|
15,587
|
|
|
$
|
715,349
|
|
Other assets (interest rate swaps)
|
|
|
|
|
|
|
13,305
|
|
|
|
|
|
|
|
13,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,014
|
|
|
$
|
712,053
|
|
|
$
|
15,587
|
|
|
$
|
728,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities (interest rate swaps)
|
|
|
|
|
|
$
|
12,497
|
|
|
|
|
|
|
$
|
12,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,497
|
|
|
|
|
|
|
$
|
12,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents additional information about assets
measured at fair value on a recurring basis and for which the
Corporation has utilized Level 3 inputs to determine fair
value (in thousands):
|
|
|
|
|
|
|
|
|
Year Ended December
31
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
23,394
|
|
|
$
|
14,339
|
|
Total gains (losses) - realized/unrealized:
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(7,098
|
)
|
|
|
(11,033
|
)
|
Included in other comprehensive income
|
|
|
(428
|
)
|
|
|
(9,884
|
)
|
Purchases, issuances and settlements
|
|
|
14,465
|
|
|
|
267
|
|
Transfers in and/or (out) of Level 3
|
|
|
(14,746
|
)
|
|
|
29,705
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
15,587
|
|
|
$
|
23,394
|
|
|
|
|
|
|
|
|
|
|
The Corporation reviews fair value hierarchy classifications on
a quarterly basis. Changes in the observability of the valuation
attributes may result in reclassification of certain financial
assets or liabilities. Such reclassifications are reported as
transfers in/out of Level 3 at fair value at the beginning
of the period in which the changes occur.
The amount of total losses included in earnings for 2009
attributable to the change in unrealized gains or losses
relating to assets still held at December 31, 2009 was
$7.1 million. These losses are included in the
$7.9 million net impairment losses on securities reported
as a component of non-interest income.
TPS were transferred between Level 2 and Level 3
during 2009. These transfers were primarily due to observability
of inputs used to establish a benchmark for valuation. Fair
values for these securities were determined using discounted
cash flow models, which incorporate certain assumptions and
projections in determining fair values assigned.
117
In accordance with GAAP, from time to time, the Corporation
measures certain assets at fair value on a nonrecurring basis.
These adjustments to fair value usually result from the
application of lower of cost or fair value accounting or
write-downs of individual assets. Valuation methodologies used
to measure these fair value adjustments were previously
described. For assets measured at fair value on a nonrecurring
basis during 2009 that were still held in the balance sheet at
December 31, 2009, the following table provides the
hierarchy level and the fair value of the related assets or
portfolios (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Losses For
|
|
|
|
|
|
|
Fair Value at December 31, 2009
|
|
|
The Year Ended
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
December 31,
2009
|
|
|
|
|
|
Impaired loans
|
|
|
|
|
|
$
|
2,794
|
|
|
$
|
21,981
|
|
|
$
|
24,775
|
|
|
$
|
4,866
|
|
|
|
|
|
Other real estate owned
|
|
|
|
|
|
|
6,929
|
|
|
|
7,687
|
|
|
|
14,616
|
|
|
|
10,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans measured or re-measured at fair value on a
nonrecurring basis during 2009 had a carrying amount of
$29.3 million and an allocated allowance for loan losses of
$8.6 million at December 31, 2009. The allocated
allowance is based on fair value of $24.8 million less
estimated costs to sell of $4.1 million. The allowance for
loan losses includes a provision applicable to the current
period fair value measurements of $4.9 million which was
included in the provision for loan losses for 2009.
OREO with a carrying amount of $25.3 million were written
down to $14.6 million (fair value of $16.9 million
less estimated costs to sell of $2.3 million), resulting in
a loss of $10.7 million, which was included in earnings for
2009.
Fair
Value of Financial Instruments
The estimated fair values of the Corporations financial
instruments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
December 31
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$
|
310,550
|
|
|
$
|
310,550
|
|
|
$
|
172,203
|
|
|
$
|
172,203
|
|
Securities available for sale
|
|
|
715,349
|
|
|
|
715,349
|
|
|
|
482,270
|
|
|
|
482,270
|
|
Securities held to maturity
|
|
|
775,281
|
|
|
|
796,537
|
|
|
|
843,863
|
|
|
|
851,251
|
|
Net loans, including loans held for sale
|
|
|
5,757,460
|
|
|
|
5,770,824
|
|
|
|
5,726,358
|
|
|
|
5,733,157
|
|
Bank owned life insurance
|
|
|
205,447
|
|
|
|
205,447
|
|
|
|
217,737
|
|
|
|
214,227
|
|
Accrued interest receivable
|
|
|
27,219
|
|
|
|
27,219
|
|
|
|
29,838
|
|
|
|
29,838
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
6,380,223
|
|
|
|
6,420,971
|
|
|
|
6,054,623
|
|
|
|
6,089,424
|
|
Short-term borrowings
|
|
|
669,167
|
|
|
|
669,712
|
|
|
|
596,263
|
|
|
|
596,263
|
|
Long-term debt
|
|
|
324,877
|
|
|
|
333,494
|
|
|
|
490,250
|
|
|
|
502,713
|
|
Junior subordinated debt
|
|
|
204,711
|
|
|
|
90,721
|
|
|
|
205,386
|
|
|
|
107,062
|
|
Accrued interest payable
|
|
|
8,951
|
|
|
|
8,951
|
|
|
|
12,732
|
|
|
|
12,732
|
|
The following methods and assumptions were used to estimate the
fair value of each financial instrument:
Cash and Due from Banks, Short-Term Investments, Accrued
Interest Receivable and Accrued Interest
Payable. For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Securities. For both securities available for
sale and securities held to maturity, fair value equals the
quoted market price from an active market, if available, and is
classified within Level 1. If a quoted market price is not
available, fair value is estimated using quoted market prices
for similar securities or pricing models, and is classified as
Level 2. Where there is limited market activity or
significant valuation inputs are unobservable,
118
securities are classified within Level 3. Under current
market conditions, assumptions used to determine the fair value
of Level 3 securities have greater subjectivity due to the
lack of observable market transactions.
Loans. The fair value of fixed rate loans is
estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
The fair value of variable and adjustable rate loans
approximates the carrying amount.
Bank Owned Life Insurance. The Corporation
owns both general account and separate account BOLI. The fair
value of general account BOLI is based on the insurance contract
cash surrender value. The fair value of separate account BOLI
equals the quoted market price of the underlying securities, if
available. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
In connection with the separate account BOLI, the Corporation
has purchased a stable value protection product that mitigates
the impact of market value fluctuations of the underlying
separate account assets.
Deposits. The fair value of demand deposits,
savings accounts and certain money market deposits is the amount
payable on demand at the reporting date. The fair value of
fixed-maturity deposits is estimated by discounting future cash
flows using rates currently offered for deposits of similar
remaining maturities.
Short-Term Borrowings. The carrying amounts
for short-term borrowings approximate fair value for amounts
that mature in 90 days or less. The fair value of
subordinated notes is estimated by discounting future cash flows
using rates currently offered.
Long-Term and Junior Subordinated Debt. The
fair value of long-term and junior subordinated debt is
estimated by discounting future cash flows based on the market
prices for the same or similar issues or on the current rates
offered to the Corporation for debt of the same remaining
maturities.
Loan Commitments and Standby Letters of
Credit. Estimates of the fair value of these
off-balance sheet items were not made because of the short-term
nature of these arrangements and the credit standing of the
counterparties. Also, unfunded loan commitments relate
principally to variable rate commercial loans, typically
non-binding, and fees are not normally assessed on these
balances.
119
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
NONE.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
DISCLOSURE CONTROLS AND PROCEDURES. The Corporation maintains
disclosure controls and procedures designed to ensure that the
information required to be disclosed in the reports that it
files or submits under the Securities Exchange Act of 1934, as
amended, are recorded, processed, summarized and reported within
the time periods specified in the SECs files and forms.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it
files or submits under the Securities Exchange Act of 1934 is
accumulated and communicated to the issuers management,
including its principal executive and principal financial
officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure. The Corporations management, with the
participation of its CEO and CFO, evaluated the effectiveness of
the Corporations disclosure controls and procedures (as
defined in Rules 13(a)-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of the end of the
period covered by this Report. Based upon such evaluation, the
Corporations CEO and CFO have concluded that, as of the
end of such period, the Corporations disclosure controls
and procedures were effective.
There have not been any significant changes in the
Corporations internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934) during the fiscal
quarter to which the report relates that have materially
affected, or are reasonably likely to materially affect, the
Corporations internal control over financial reporting.
INTERNAL CONTROL OVER FINANCIAL REPORTING. Information required
by this item is set forth in Managements Report on
F.N.B. Corporations Internal Control Over Financial
Reporting - Reporting at a Bank Holding Company Level
and Report of Independent Registered Public Accounting
Firm.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There have
not been any changes in the Corporations internal control
over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934) during the quarter ended December 31,
2009 to which this report relates that have materially affected,
or are reasonably likely to materially affect, internal control
over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
NONE.
120
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information relating to this item is provided in the
Corporations definitive proxy statement filed with the SEC
in connection with its annual meeting of stockholders to be held
May 19, 2010. Such information is incorporated herein by
reference. Certain information regarding executive officers is
included under the caption Executive Officers of the
Registrant after Part I, Item 4, of this Report.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information relating to this item is provided in the
Corporations definitive proxy statement filed with the SEC
in connection with its annual meeting of stockholders to be held
May 19, 2010. Such information is incorporated herein by
reference. Neither the Report of the Compensation Committee nor
the Report of the Audit Committee shall be deemed filed with the
SEC, but shall be deemed furnished to the SEC in this
Form 10-K
report, and will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Exchange
Act of 1934, except to the extent that the Corporation
specifically incorporates it by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
With the exception of the equity compensation plan information
provided below, the information relating to this item is
provided in the Corporations definitive proxy statement
filed with the SEC in connection with its annual meeting of
stockholders to be held May 19, 2010. Such information is
incorporated herein by reference.
The following table provides information related to equity
compensation plans as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
Securities to be
|
|
|
|
Securities
|
|
|
Issued Upon
|
|
Weighted
|
|
Remaining for
|
|
|
Exercise of
|
|
Average Exercise
|
|
Future Issuance
|
|
|
Outstanding
|
|
Price of Outstanding
|
|
Under Equity
|
Plan Category
|
|
Stock Options
|
|
Stock Options
|
|
Compensation Plans
|
|
Equity compensation plans approved
by security holders
|
|
|
968,090
|
(1)
|
|
$
|
13.67
|
|
|
|
2,998,062
|
(2)
|
Equity compensation plans not
approved by security holders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
Excludes 854,440 shares of restricted common stock awards
subject to forfeiture. The shares of restricted stock vest over
periods ranging from three to five years from the award date. |
|
(2) |
|
Represents shares of common stock registered with the SEC which
are eligible for issuance pursuant to stock option or restricted
stock awards granted under various plans. |
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information relating to this item is provided in the
Corporations definitive proxy statement filed with the SEC
in connection with its annual meeting of stockholders to be held
May 19, 2010. Such information is incorporated herein by
reference.
121
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Information relating to this item is provided in the
Corporations definitive proxy statement filed with the SEC
in connection with its annual meeting of stockholders to be held
May 19, 2010. Such information is incorporated herein by
reference.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
The consolidated financial statements of F.N.B. Corporation and
subsidiaries required in response to this item are incorporated
by reference to Item 8 of this Report.
The exhibits filed or incorporated by reference as a part of
this report are listed in the Index to Exhibits which appears at
page 125 and is incorporated by reference.
No financial statement schedules are being filed because of the
absence of conditions under which they are required or because
the required information is included in the Consolidated
Financial Statements and related notes thereto.
122
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
F.N.B. CORPORATION
|
|
|
|
By
|
/s/ Stephen
J. Gurgovits
|
Stephen J. Gurgovits
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Stephen
J. Gurgovits
Stephen
J. Gurgovits
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Vincent
J. Calabrese
Vincent
J. Calabrese
|
|
Chief Financial Officer (Principal Financial Officer)
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Timothy
G. Rubritz
Timothy
G. Rubritz
|
|
Corporate Controller (Principal Accounting Officer)
|
|
February 17, 2010
|
|
|
|
|
|
/s/ William
B. Campbell
William
B. Campbell
|
|
Chairman and Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Henry
M. Ekker
Henry
M. Ekker
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Philip
E. Gingerich
Philip
E. Gingerich
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Robert
B. Goldstein
Robert
B. Goldstein
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Dawne
S. Hickton
Dawne
S. Hickton
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ David
J. Malone
David
J. Malone
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ D.
Stephen Martz
D.
Stephen Martz
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Peter
Mortensen
Peter
Mortensen
|
|
Director
|
|
February 17, 2010
|
123
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Harry
F. Radcliffe
Harry
F. Radcliffe
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Arthur
J. Rooney II
Arthur
J. Rooney II
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ John
W. Rose
John
W. Rose
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Stanton
R. Sheetz
Stanton
R. Sheetz
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ William
J. Strimbu
William
J. Strimbu
|
|
Director
|
|
February 17, 2010
|
|
|
|
|
|
/s/ Earl
K. Wahl, Jr.
Earl
K. Wahl, Jr.
|
|
Director
|
|
February 17, 2010
|
124
INDEX TO
EXHIBITS
The following exhibits are filed or incorporated by reference as
part of this report:
|
|
|
|
|
|
3
|
.1.
|
|
Articles of Incorporation of the Corporation as currently in
effect. (Incorporated by reference to Exhibit 3.1. of the
Corporations Annual Report on Form 10-K for the year ended
December 31, 2006).
|
|
3
|
.2.
|
|
Amended by-laws of the Corporation as currently in effect.
(Incorporated by reference to Exhibit 3.1. of the
Corporations Current Report on Form 8-K filed on October
22, 2009).
|
|
4
|
.1.
|
|
The rights of holders of equity securities are defined in
portions of the Articles of Incorporation and By-laws. The
Corporation agrees to furnish to the Commission upon request
copies of all instruments not filed herewith defining the rights
of holders of long-term debt of the Corporation and its
subsidiaries.
|
|
4
|
.2.
|
|
Form of Certificate for the Series C Preferred Stock.
(Incorporated by reference to Exhibit 4.1. of the
Corporations Current Report on Form 8-K filed on January
14, 2009).
|
|
4
|
.3.
|
|
Warrant to purchase up to 1,302,083 shares of Common Stock,
issued to the United States Department of the Treasury.
(Incorporated by reference to Exhibit 4.2. of the
Corporations Current Report on Form 8-K filed on January
14, 2009).
|
|
10
|
.1.
|
|
Form of Deferred Compensation Agreement by and between First
National Bank of Pennsylvania and four of its executive
officers. (Incorporated by reference to Exhibit 10.3. of the
Corporations Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).*
|
|
10
|
.2.
|
|
Amended and Restated Employment Agreement between F.N.B.
Corporation, First National Bank of Pennsylvania and Stephen J.
Gurgovits. (Incorporated by reference to Exhibit 10.1. of the
Corporations Current Report on Form 8-K filed on June 24,
2008).*
|
|
10
|
.3.
|
|
Amended and Restated Consulting Agreement between F.N.B.
Corporation, First National Bank of Pennsylvania and Stephen J.
Gurgovits. (Incorporated by reference to Exhibit 10.2. of the
Corporations Current Report on Form 8-K filed on June 24,
2008).*
|
|
10
|
.4.
|
|
Form of Restricted Stock Units Agreement for Stephen J.
Gurgovits pursuant to the F.N.B. Corporation 2007 Incentive
Compensation Plan. (Incorporated by reference to Exhibit 10.2.
of the Corporations Current Report on Form 8-K filed on
January 23, 2008).*
|
|
10
|
.5.
|
|
Amended 2007 Performance-Based Restricted Stock Award for
Stephen J. Gurgovits pursuant to the F.N.B. Corporation 2007
Incentive Compensation Plan. (Incorporated by reference to
Exhibit 10.3. of the Corporations Current Report on Form
8-K filed on January 23, 2008).*
|
|
10
|
.6.
|
|
Amended 2007 Service-Based Restricted Stock Award for Stephen J.
Gurgovits pursuant to the F.N.B. Corporation 2007 Incentive
Compensation Plan. (Incorporated by reference to Exhibit 10.3.
of the Corporations Current Report on Form 8-K filed on
January 23, 2008).*
|
|
10
|
.7.
|
|
Amendment to Deferred Compensation Agreement of Stephen J.
Gurgovits. (Incorporated by reference to Exhibit 10.2. of the
Corporations Current Report on Form 8-K filed on December
22, 2008).*
|
|
10
|
.8.
|
|
Basic Retirement Plan (formerly the Supplemental Executive
Retirement Plan) of F.N.B. Corporation effective January 1,
1992. (Incorporated by reference to Exhibit 10.9. of the
Corporations Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).*
|
|
10
|
.9.
|
|
F.N.B. Corporation 1990 Stock Option Plan as amended effective
February 2, 1996. (Incorporated by reference to Exhibit 10.10.
of the Corporations Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).*
|
|
10
|
.10.
|
|
F.N.B. Corporation Restricted Stock Bonus Plan dated January 1,
1994. (Incorporated by reference to Exhibit 10.11. of the
Corporations Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).*
|
|
10
|
.11.
|
|
F.N.B. Corporation Restricted Stock and Incentive Bonus Plan.
(Incorporated by reference to Exhibit 10.14. of the
Corporations Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).*
|
|
10
|
.12.
|
|
F.N.B. Corporation 1996 Stock Option Plan. (Incorporated by
reference to Exhibit 10.15. of the Corporations Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).*
|
|
10
|
.13.
|
|
F.N.B. Corporation Directors Compensation Plan.
(Incorporated by reference to Exhibit 10.16. of the
Corporations Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996).*
|
125
|
|
|
|
|
|
10
|
.14.
|
|
F.N.B. Corporation 1998 Directors Stock Option Plan.
(Incorporated by reference to Exhibit 10.14. of the
Corporations Annual Report on Form 10-K for the fiscal
year ended December 31, 1998).*
|
|
10
|
.15.
|
|
F.N.B. Corporation 2001 Incentive Plan. (Incorporated by
reference to Exhibit 10.1. of the Corporations Form S-8
filed on June 14, 2001).*
|
|
10
|
.16.
|
|
Termination of Continuation of Employment Agreement between
F.N.B. Corporation and Peter Mortensen. (Incorporated by
reference to Exhibit 10.17. of the Corporations Annual
Report on Form 10-K for the fiscal year ended December 31,
2001).*
|
|
10
|
.17.
|
|
Employment Agreement between First National Bank of Pennsylvania
and David B. Mogle. (Incorporated by reference to Exhibit 10.1.
of the Corporations Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005).*
|
|
10
|
.18.
|
|
Employment Agreement between First National Bank of Pennsylvania
and James G. Orie. (Incorporated by reference to Exhibit 10.2.
of the Corporations Quarterly Report on Form 10-Q for the
quarter ended September 30, 2005).*
|
|
10
|
.19.
|
|
Employment Agreement between F.N.B. Corporation and Brian F.
Lilly. (Incorporated by reference to Exhibit 10.1. of the
Corporations Current Report on Form 8-K filed on October
23, 2007).*
|
|
10
|
.20.
|
|
Form of Amendment to Employment Agreements of Vincent Calabrese,
Vincent Delie, Scott Free, David Mogle, James Orie, Gary
Guerrieri and Louise Lowrey. (Incorporated by reference to
Exhibit 10.1. of the Corporations Current Report on Form
8-K filed on December 22, 2008).*
|
|
10
|
.21.
|
|
F.N.B. Corporation 2007 Incentive Compensation Plan.
(Incorporated by reference to Exhibit A of the
Corporations 2007 Proxy Statement filed on March 22,
2007).*
|
|
10
|
.22.
|
|
Employment Agreement between First National Bank of Pennsylvania
and Vincent J. Calabrese. (Incorporated by reference to Exhibit
10.1. of the Corporations Current Report on Form 8-K filed
on March 23, 2007).*
|
|
10
|
.23.
|
|
Severance Agreement between F.N.B. Corporation and Robert V.
New, Jr. (Incorporated by reference to Exhibit 10.1. of the
Corporations Current Report on Form 8-K filed on February
11, 2009).*
|
|
10
|
.24.
|
|
Restricted Stock Agreement. (Incorporated by reference to
Exhibit 10.1. of the Corporations Current Report on Form
8-K filed on July 19, 2007).*
|
|
10
|
.25.
|
|
Performance Restricted Stock Award Agreement. (Incorporated by
reference to Exhibit 10.2. of the Corporations Current
Report on Form 8-K filed on July 19, 2007).*
|
|
10
|
.26.
|
|
Retirement Agreement between F.N.B. Corporation, First National
Bank of Pennsylvania and Gary J. Roberts. (Incorporated by
reference to the Corporations Current Report on Form 8-K
filed on July 3, 2008).*
|
|
10
|
.27.
|
|
Form of Indemnification Agreement for directors. (Incorporated
by reference to Exhibit 10.1. of the Corporations Current
Report on Form 8-K filed on September 23, 2008).*
|
|
10
|
.28.
|
|
Form of Indemnification Agreement for officers. (Incorporated
by reference to Exhibit 10.1. of the Corporations Current
Report on Form 8-K filed on September 23, 2008).*
|
|
10
|
.29.
|
|
Letter Agreement between the Corporation and the United States
Department of Treasury relating to the TARP Capital Purchase
Program, including Securities Purchase Agreement - Standard
Terms, incorporated by reference therein. (Incorporated by
reference to Exhibit 10.1. of the Corporations Current
Report on Form 8-K filed on January 14, 2009).*
|
|
10
|
.30.
|
|
Form of Waiver executed by Robert V. New, Brian F. Lilly,
Stephen J. Gurgovits, Vincent J. Delie and Gary J. Guerrieri in
connection with TARP Capital Purchase Program. (Incorporated by
reference to Exhibit 10.2. of the Corporations Current
Report on Form 8-K filed on January 14, 2009).*
|
|
10
|
.31.
|
|
Form of Executive Compensation Agreement by and between F.N.B.
Corporation and each of Robert V. New, Brian F. Lilly, Stephen
J. Gurgovits, Vincent J. Delie and Gary J. Guerrieri in
connection with TARP Capital Purchase Program. (Incorporated by
reference to Exhibit 10.3. of the Corporations Current
Report on Form 8-K filed on January 14, 2009).*
|
|
10
|
.32.
|
|
Employment Agreement between First National Bank of Pennsylvania
and Timothy G. Rubritz. (Incorporated by reference to Exhibit
10.1. of the Corporations Current Report on Form 8-K filed
on December 22, 2009).*
|
|
11
|
|
|
Computation of Per Share Earnings**
|
|
12
|
|
|
Ratio of Earnings to Fixed Charges. (filed herewith).
|
|
14
|
|
|
Code of Ethics. (filed herewith).*
|
126
|
|
|
|
|
|
21
|
|
|
Subsidiaries of the Registrant. (filed herewith).
|
|
23
|
.1.
|
|
Consent of Ernst & Young LLP, Independent Registered Public
Accounting Firm. (filed herewith).
|
|
31
|
.1.
|
|
Certification of Chief Executive Officer Sarbanes-Oxley Act
Section 302. (filed herewith).
|
|
31
|
.2.
|
|
Certification of Chief Financial Officer Sarbanes-Oxley Act
Section 302. (filed herewith).
|
|
32
|
.1.
|
|
Certification of Chief Executive Officer Sarbanes-Oxley Act
Section 906. (filed herewith).
|
|
32
|
.2.
|
|
Certification of Chief Financial Officer Sarbanes-Oxley Act
Section 906. (filed herewith).
|
|
99
|
.1.
|
|
31 C.F.R. section 30.15 Certification of Principal
Executive Officer. (filed herewith).
|
|
99
|
.2.
|
|
31 C.F.R. section 30.15 Certification of Principal
Financial Officer. (filed herewith).
|
|
|
|
* |
|
Management contracts and compensatory plans or arrangements
required to be filed as exhibits pursuant to Item 15(a)(3)
of this Report. |
|
** |
|
This information is provided in the Earnings Per Share footnote
in the Notes to Consolidated Financial Statements, which is
included in Item 8 in this Report. |
127