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EX-31.2 - EXHIBIT 31.2 - FNB CORP/PA/fnb10-qex312q12018.htm
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Table of Contents             

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


For the quarterly period ended March 31, 2018
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 001-31940
 
 
 
F.N.B. CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Pennsylvania
25-1255406
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One North Shore Center, 12 Federal Street, Pittsburgh, PA
15212
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: 800-555-5455

(Former name, former address and former fiscal year, if changed since last report)
 
 
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated Filer
 
 
 
 
Non-accelerated Filer
Smaller reporting company
 
 
 
 
 
 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at

April 30, 2018
Common Stock, $0.01 Par Value
323,851,407

Shares



Table of Contents             

F.N.B. CORPORATION
FORM 10-Q
March 31, 2018
INDEX
 
 
PAGE
PART I – FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


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Glossary of Acronyms and Terms
AFS
Available for sale
ALCO
Asset/Liability Committee
AOCI
Accumulated other comprehensive income
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
BOLI
Bank owned life insurance
Basel III
Basel III Capital Rules
EVE
Economic value of equity
FDIC
Federal Deposit Insurance Corporation
FHLB
Federal Home Loan Bank
FNB
F.N.B. Corporation
FNBPA
First National Bank of Pennsylvania
FRB
Board of Governors of the Federal Reserve System
FTE
Fully taxable equivalent
FVO
Fair value option
GAAP
U.S. generally accepted accounting principles
HTM
Held to maturity
IRLC
Interest rate lock commitments
LCR
Liquidity Coverage Ratio
LIBOR
London Inter-bank Offered Rate
MCH
Months of Cash on Hand
MSR
Mortgage servicing rights
OCC
Office of the Comptroller of the Currency
OREO
Other real estate owned
OTTI
Other-than-temporary impairment
Regency
Regency Finance Company
SBA
Small Business Administration
SEC
Securities and Exchange Commission
TCJA
Tax Cuts and Jobs Act of 2017
TDR
Troubled debt restructuring
TPS
Trust preferred securities
UST
U.S. Department of the Treasury
YDKN
Yadkin Financial Corporation


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PART I – FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except share and per share data
 
March 31,
2018
 
December 31,
2017
 
(Unaudited)
 
 
Assets
 
 
 
Cash and due from banks
$
325,101

 
$
408,718

Interest bearing deposits with banks
61,228

 
70,725

Cash and Cash Equivalents
386,329

 
479,443

Securities available for sale
2,927,463

 
2,764,562

Debt securities held to maturity (fair value of $3,131,964 and $3,218,379)
3,224,000

 
3,242,268

Loans held for sale (includes $21,610 and $56,458 measured at fair value) (1)
37,982

 
92,891

Loans and leases, net of unearned income of $43,791 and $50,680
21,262,397

 
20,998,766

Allowance for credit losses
(179,247
)
 
(175,380
)
Net Loans and Leases
21,083,150

 
20,823,386

Premises and equipment, net
333,424

 
336,540

Goodwill
2,251,281

 
2,249,188

Core deposit and other intangible assets, net
87,858

 
92,075

Bank owned life insurance
529,843

 
526,818

Other assets
791,023

 
810,464

Total Assets
$
31,652,353

 
$
31,417,635

Liabilities
 
 
 
Deposits:
 
 
 
Non-interest-bearing demand
$
5,748,568

 
$
5,720,030

Interest-bearing demand
9,407,111

 
9,571,038

Savings
2,600,151

 
2,488,178

Certificates and other time deposits
4,741,259

 
4,620,479

Total Deposits
22,497,089

 
22,399,725

Short-term borrowings
3,802,480

 
3,678,337

Long-term borrowings
659,890

 
668,173

Other liabilities
259,441

 
262,206

Total Liabilities
27,218,900

 
27,008,441

Stockholders’ Equity
 
 
 
Preferred stock - $0.01 par value; liquidation preference of $1,000 per share
 
 
 
Authorized – 20,000,000 shares
 
 
 
Issued – 110,877 shares
106,882

 
106,882

Common stock - $0.01 par value
 
 
 
Authorized – 500,000,000 shares
 
 
 
Issued – 325,319,503 and 325,095,055 shares
3,255

 
3,253

Additional paid-in capital
4,037,847

 
4,033,567

Retained earnings
413,340

 
367,658

Accumulated other comprehensive loss
(108,724
)
 
(83,052
)
Treasury stock – 1,632,510 and 1,629,915 shares at cost
(19,147
)
 
(19,114
)
Total Stockholders’ Equity
4,433,453

 
4,409,194

Total Liabilities and Stockholders’ Equity
$
31,652,353

 
$
31,417,635

 
(1)
Amount represents loans for which we have elected the fair value option. See Note 18.
See accompanying Notes to Consolidated Financial Statements (unaudited)

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F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Dollars in thousands, except per share data
Unaudited
 
Three Months Ended March 31,
 
2018
 
2017
Interest Income
 
 
 
Loans and leases, including fees
$
239,094

 
$
168,629

Securities:
 
 
 
Taxable
26,879

 
22,466

Tax-exempt
6,594

 
3,401

Dividends

 
9

Other
360

 
188

Total Interest Income
272,927

 
194,693

Interest Expense
 
 
 
Deposits
26,469

 
11,740

Short-term borrowings
15,207

 
6,674

Long-term borrowings
5,146

 
3,527

Total Interest Expense
46,822

 
21,941

Net Interest Income
226,105

 
172,752

Provision for credit losses
14,495

 
10,850

Net Interest Income After Provision for Credit Losses
211,610

 
161,902

Non-Interest Income
 
 
 
Service charges
30,077

 
24,581

Trust services
6,448

 
5,747

Insurance commissions and fees
5,135

 
5,141

Securities commissions and fees
4,319

 
3,623

Capital markets income
5,214

 
3,847

Mortgage banking operations
5,529

 
3,790

Bank owned life insurance
3,285

 
2,153

Net securities gains

 
2,625

Other
7,496

 
3,609

Total Non-Interest Income
67,503

 
55,116

Non-Interest Expense
 
 
 
Salaries and employee benefits
89,326

 
73,578

Net occupancy
15,568

 
11,349

Equipment
14,465

 
9,630

Amortization of intangibles
4,218

 
3,098

Outside services
14,725

 
13,043

FDIC insurance
8,834

 
5,387

Supplies
1,684

 
2,196

Bank shares and franchise taxes
3,452

 
2,980

Merger-related

 
52,724

Other
18,811

 
13,570

Total Non-Interest Expense
171,083

 
187,555

Income Before Income Taxes
108,030

 
29,463

Income taxes
21,268

 
6,484

Net Income
86,762

 
22,979

Preferred stock dividends
2,010

 
2,010

Net Income Available to Common Stockholders
$
84,752

 
$
20,969

Earnings per Common Share
 
 
 
Basic
$
0.26

 
$
0.09

Diluted
$
0.26

 
$
0.09

Cash Dividends per Common Share
$
0.12

 
$
0.12

See accompanying Notes to Consolidated Financial Statements (unaudited)

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F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in thousands
Unaudited
 
 
 
Three Months Ended
March 31,
 
 
2018
 
2017
Net income
 
$
86,762

 
$
22,979

Other comprehensive (loss) income:
 
 
 
 
Securities available for sale:
 
 
 
 
Unrealized (losses) gains arising during the period, net of tax (benefit) expense of $(8,467) and $3,248
 
(29,787
)
 
6,032

Reclassification adjustment for gains included in net income, net of tax expense of $0 and $424
 

 
(787
)
Derivative instruments:
 
 
 
 
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $1,082 and $(550)
 
3,804

 
(1,022
)
Reclassification adjustment for gains included in net income, net of tax expense of $49 and $125
 
(173
)
 
(233
)
Pension and postretirement benefit obligations:
 
 
 
 
Unrealized (losses) gains arising during the period, net of tax (benefit) expense of $136 and $221 
 
484

 
410

Other comprehensive (loss) income
 
(25,672
)
 
4,400

Comprehensive income
 
$
61,090

 
$
27,379

See accompanying Notes to Consolidated Financial Statements (unaudited)


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Table of Contents             

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

 
$
2,125

 
$
2,234,366

 
$
304,397

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

Comprehensive income
 
 
 
 
 
 
22,979

 
4,400

 
 
 
27,379

Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
 
 
(2,010
)
 
 
 
 
 
(2,010
)
Common stock: $0.12/share
 
 
 
 
 
 
(25,548
)
 
 
 
 
 
(25,548
)
Issuance of common stock
 
 
5

 
2,117

 
 
 
 
 
(2,925
)
 
(803
)
Issuance of common stock - acquisitions
 
 
1,116

 
1,780,891

 
 
 
 
 
 
 
1,782,007

Restricted stock compensation
 
 
 
 
1,394

 
 
 
 
 
 
 
1,394

Tax benefit of stock-based compensation
 
 
 
 
1,759

 
 
 
 
 
 
 
1,759

Balance at March 31, 2017
$
106,882

 
$
3,246

 
$
4,020,527

 
$
299,818

 
$
(56,969
)
 
$
(17,709
)
 
$
4,355,795

Balance at January 1, 2018
$
106,882

 
$
3,253

 
$
4,033,567

 
$
367,658

 
$
(83,052
)
 
$
(19,114
)
 
$
4,409,194

Comprehensive income
 
 
 
 
 
 
86,762

 
(25,672
)
 
 
 
61,090

Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
 
 
(2,010
)
 
 
 
 
 
(2,010
)
Common stock: $0.12/share
 
 
 
 
 
 
(39,070
)
 
 
 
 
 
(39,070
)
Issuance of common stock
 
 
2

 
2,341

 
 
 
 
 
(33
)
 
2,310

Restricted stock compensation
 
 
 
 
1,939

 
 
 
 
 
 
 
1,939

Balance at March 31, 2018
$
106,882

 
$
3,255

 
$
4,037,847

 
$
413,340

 
$
(108,724
)
 
$
(19,147
)
 
$
4,433,453

See accompanying Notes to Consolidated Financial Statements (unaudited)


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F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
Unaudited
 
 
Three Months Ended
March 31,
 
2018
 
2017
Operating Activities
 
 
 
Net income
$
86,762

 
$
22,979

Adjustments to reconcile net income to net cash flows provided by operating activities:
 
 
 
Depreciation, amortization and accretion
23,676

 
17,276

Provision for credit losses
14,495

 
10,850

Deferred tax expense
1,864

 
11,224

Net securities gains

 
(2,625
)
Tax benefit of stock-based compensation
(233
)
 
(720
)
Loans originated for sale
(208,990
)
 
(182,771
)
Loans sold
269,235

 
135,405

Gain on sale of loans
(5,336
)
 
(3,344
)
Net change in:
 
 
 
Interest receivable
(828
)
 
(1,527
)
Interest payable
282

 
444

Bank owned life insurance
(3,093
)
 
(1,962
)
Other, net
32,559

 
13,403

Net cash flows provided by operating activities
210,393

 
18,632

Investing Activities
 
 
 
Net change in loans and leases
(284,196
)
 
(208,958
)
Securities available for sale:
 
 
 
Purchases
(357,784
)
 
(492,227
)
Sales

 
549,460

Maturities
153,401

 
119,867

Debt securities held to maturity:
 
 
 
Purchases
(63,918
)
 
(531,560
)
Sales

 
1,574

Maturities
80,492

 
119,324

Increase in premises and equipment
(9,347
)
 
(23,186
)
Net cash received in business combinations

 
197,682

Net cash flows used in investing activities
(481,352
)
 
(268,024
)
Financing Activities
 
 
 
Net change in:
 
 
 
Demand (non-interest bearing and interest bearing) and savings accounts
(23,416
)
 
73,291

Time deposits
122,040

 
11,421

Short-term borrowings
124,143

 
286,765

Proceeds from issuance of long-term borrowings
10,122

 
65,998

Repayment of long-term borrowings
(18,213
)
 
(82,506
)
Net proceeds from issuance of common stock
4,249

 
957

Cash dividends paid:
 
 
 
Preferred stock
(2,010
)
 
(2,010
)
Common stock
(39,070
)
 
(25,548
)
Net cash flows provided by financing activities
177,845

 
328,368

Net Increase (Decrease) in Cash and Cash Equivalents
(93,114
)
 
78,976

Cash and cash equivalents at beginning of period
479,443

 
371,407

Cash and Cash Equivalents at End of Period
$
386,329

 
$
450,383

See accompanying Notes to Consolidated Financial Statements (unaudited)

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Table of Contents             

F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2018
The terms “FNB,” “the Corporation,” “we,” “us” and “our” throughout this Report mean F.N.B. Corporation and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, F.N.B. Corporation. When we refer to "FNBPA" in this Report, we mean our only bank subsidiary, First National Bank of Pennsylvania, and its subsidiaries.
NATURE OF OPERATIONS
F.N.B. Corporation, headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in eight states. Through FNBPA, we have over 150 years of serving the financial and banking needs of our customers. We hold a significant retail deposit market share in attractive markets including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; and Charlotte, Raleigh-Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. As of March 31, 2018, we had 417 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina and South Carolina. We provide a full range of commercial banking, consumer banking and wealth management solutions through our subsidiary network which is led by our largest affiliate, FNBPA. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, business credit, capital markets and lease financing. Consumer banking provides a full line of consumer banking products and services including deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. Wealth management services include fiduciary and brokerage services, asset management, private banking and insurance. We also operate Regency Finance Company, which had 77 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee as of March 31, 2018.

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our accompanying Consolidated Financial Statements and these Notes to the Financial Statements include subsidiaries in which we have a controlling financial interest. We own and operate FNBPA, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, Regency, Bank Capital Services, LLC and F.N.B. Capital Corporation, LLC, and include results for each of these entities in the accompanying Consolidated Financial Statements.
The accompanying Consolidated Financial Statements include all adjustments that are necessary, in the opinion of management, to fairly reflect our financial position and results of operations in accordance with U.S. generally accepted accounting principles. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on our net income and stockholders’ equity. Events occurring subsequent to the date of the March 31, 2018 Balance Sheet have been evaluated for potential recognition or disclosure in the Consolidated Financial Statements through the date of the filing of the Consolidated Financial Statements with the Securities and Exchange Commission.
Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results FNB expects for the full year. These interim unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in FNB’s 2017 Annual Report on Form 10-K filed with the SEC on February 28, 2018. For a detailed description of our significant accounting policies, see Note 1 "Summary of Significant Accounting Policies" in the 2017 Form 10-K. The accounting policies presented below have been added or amended for newly material items or the adoption of new accounting standards.
Use of Estimates
Our accounting and reporting policies conform with GAAP. The preparation of Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes. Actual results could materially differ from those estimates. Material estimates that are particularly

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susceptible to significant changes include the allowance for credit losses, accounting for acquired loans, fair value of financial instruments, goodwill and other intangible assets, income taxes and deferred tax assets and litigation.
Revenue from Contracts with Customers
We earn certain revenues from contracts with customers. These revenues are recognized when control of the promised services is transferred to the customers in an amount that reflects the consideration we expect to be entitled to in an exchange for those services.
In determining the appropriate revenue recognition for our contracts with customers, we consider whether the contract has commercial substance and is approved by both parties with identifiable contractual rights, payment terms, and the collectability of consideration is probable. Generally, we satisfy our performance obligations upon the completion of services at the amount to which we have the right to invoice or charge under contracts with an original expected duration of one year or less. We apply this guidance on a portfolio basis to contracts with similar characteristics and for which we believe the results would not differ materially from applying this guidance to individual contracts.
Our services provided under contracts with customers are transferred at the point in time when the services are rendered. Generally, we do not defer incremental direct costs to obtain contracts with customers that would be amortized in one year or less under the practical expedient. These costs are recognized as expense, primarily salary and benefit expense, in the period incurred.
Deposit Services. We recognize revenue on deposit services based on published fees for services provided. Demand and savings deposit customers have the right to cancel their depository arrangements and withdraw their deposited funds at any time without prior notice. When services involve deposited funds that can be retrieved by customers without penalties, we consider the service contract term to be day-to-day, where each day represents the renewal of the contract. The contract does not extend beyond the services performed and revenue is recognized at the end of the contract term (daily) as the performance obligation is satisfied.
No deposit services fees exist for long-term deposit products beyond early withdrawal penalties, which are earned on these products at the time of early termination.
Revenue from deposit services fees are reduced where we have a history of waived or reduced fees by customer request or due to a customer service issue, by historical experience, or another acceptable method in the same period as the related revenues. Revenues from deposit services are reported in the Consolidated Statements of Income as service charges and in the Community Banking segment as non-interest income.
Wealth Management Services. Wealth advisory and trust services are provided on a month-to-month basis and invoiced as services are rendered. Fees are based on a fixed amount or a scale based on the level of services provided or assets under management. The customer has the right to terminate their services agreement at any time. We determine the value of services performed based on the fee schedule in effect at the time the services are performed. Revenues from wealth advisory and trust services are reported in the Consolidated Statements of Income as trust services and securities commissions and fees, and in the Wealth segment as non-interest income.
Insurance Services. Insurance services include full-service insurance brokerage services offering numerous lines of commercial and personal insurance through major carriers to businesses and individuals within our geographic markets. We recognize revenue on insurance contracts in effect based on contractually specified commission payments on premiums that are paid by the customer to the insurance carrier. Contracts are cancellable at any time and we have no performance obligation to the customers beyond the time the insurance is placed into effect. Revenues from insurance services are reported in the Consolidated Statements of Income as insurance commissions and fees, and in the Insurance segment as non-interest income.
Debt Securities                            
Debt securities comprise a significant portion of our Consolidated Balance Sheets. Such securities can be classified as trading, HTM or AFS. As of March 31, 2018 and 2017, we did not hold any trading debt securities.
Debt securities HTM are the securities that management has the positive intent and ability to hold 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 subject to evaluation for OTTI.

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Debt securities that are not classified as trading or HTM are classified as AFS. Such securities are carried at fair value with net unrealized gains and losses deemed to be temporary and OTTI attributable to non-credit factors reported separately as a component of other comprehensive income, net of tax.
We evaluate our debt securities in a loss position for OTTI on a quarterly basis at the individual security level based on our intent to sell. If we intend to sell the debt security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, OTTI must be recognized in earnings equal to the entire difference between the investments’ amortized cost basis and its fair value. If we do not intend to sell the debt security and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis, OTTI must be separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss will be recognized in earnings. The amount related to other market factors will be recognized in other comprehensive income, net of applicable taxes.
We perform our OTTI evaluation process in a consistent and systematic manner and include an evaluation of all available evidence. This process considers factors such as length of time and anticipated recovery period of the impairment, recent events specific to the issuer and recent experience regarding principal and interest payments.
Low Income Housing Tax Credit (LIHTC) Partnerships
We invest in various affordable housing projects that qualify for LIHTCs. The net investments are recorded in other assets on the Consolidated Balance Sheets. These investments generate a return through the realization of federal tax credits. We use the proportional amortization method to account for a majority of our investments in these entities. LIHTCs that do not meet the requirements of the proportional amortization method are recognized using the equity method. Our net investment in LIHTCs was $26.1 million and $20.9 million at March 31, 2018 and December 31, 2017, respectively. Our unfunded commitments in LIHTCs were $60.1 million and $67.2 million at March 31, 2018 and December 31, 2017, respectively.
 
NOTE 2.    NEW ACCOUNTING STANDARDS
The following table summarizes accounting pronouncements issued by the Financial Accounting Standards Board that we recently adopted or will be adopting in the future.
Standard
 
Description
 
Required Date of Adoption
 
Financial Statements Impact
Derivative and Hedging Activities
 
 
 
 
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
 
This Update improves the financial reporting of hedging to better align with a company’s risk management activities. In addition, this Update makes certain targeted improvements to simplify the application of the current hedge accounting guidance.
 
January 1, 2019
Early adoption is permitted.
 
This Update is to be applied using a modified retrospective method. The presentation and disclosure guidance are applied prospectively. We are currently assessing the potential impact to our Consolidated Financial Statements.
Securities
 
 
 
 
 
 
ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
 
This Update shortens the amortization period for the premium on certain purchased callable securities to the earliest call date. The accounting for purchased callable debt securities held at a discount does not change.
 
January 1, 2019
Early adoption is permitted.
 
This Update is to be applied using a modified retrospective transition method. The adoption of this Update is not expected to have a material effect on our Consolidated Financial Statements.


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Table of Contents             

Standard
 
Description
 
Required Date of Adoption
 
Financial Statements Impact
Retirement Benefits
 
 
 
 
 
 
ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
 
This Update requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization.
 
January 1, 2018
 
We adopted this Update in the first quarter of 2018 by a retrospective transition method. The adoption of this Update did not have a material effect on our Consolidated Financial Statements.

Statement of Cash Flows
 
 
 
 
 
 
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
 
This Update adds or clarifies guidance on eight cash flow issues.
 
January 1, 2018
 
We adopted this Update in the first quarter of 2018 by retrospective application. The adoption of this Update did not have a material effect on our Consolidated Financial Statements.

Credit Losses
 
 
 
 
 
 
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
 
This Update replaces the current incurred loss impairment methodology with a methodology that reflects current expected credit losses (commonly referred to as CECL) for most financial assets measured at amortized cost and certain other instruments, including loans, HTM debt securities, net investments in leases and off-balance sheet credit exposures. CECL requires loss estimates for the remaining life of the financial asset at the time the asset is originated or acquired, considering historical experience, current conditions and reasonable and supportable forecasts. In addition, the Update will require the use of a modified AFS debt security impairment model and eliminate the current accounting for purchased credit impaired loans and debt securities.
 
January 1, 2020
Early adoption is permitted for fiscal years beginning after December 15, 2018
 
This Update is to be applied using a cumulative-effect adjustment to retained earnings. The CECL model is a significant change from existing GAAP and may result in a material change to our accounting for financial instruments. We are reviewing our business processes, information systems and controls to support recognition and disclosures under this Update. This review includes an assessment of our existing credit models and the financial statement disclosure requirements. The impact of this Update will be dependent on the portfolio composition, credit quality and economic conditions at the time of adoption.
Extinguishments of Liabilities
 
 
 
 
 
 
ASU 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force)
 
This Update requires entities that sell prepaid stored-value products redeemable for goods, services or cash at third-party merchants to recognize breakage.
 
January 1, 2018
 
We adopted this Update in the first quarter of 2018. The adoption of this Update did not have a material effect on our Consolidated Financial Statements.

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Table of Contents             

Standard
 
Description
 
Required Date of Adoption
 
Financial Statements Impact
Leases
 
 
 
 
 
 
ASU 2016-02, Leases (Topic 842)
 
This Update requires lessees to put most leases on their balance sheets but recognize expenses in the income statement similar to current accounting. In addition, the Update changes the guidance for sale-leaseback transactions, initial direct costs and lease executory costs for most entities. All entities will classify leases to determine how to recognize lease related revenue and expense.
 
January 1, 2019
Early adoption is permitted.
 
This Update is to be applied using a modified retrospective application including a number of optional practical expedients. We are in the process of reviewing our existing lease portfolios, implementing a software solution and assessing the potential impact to our Consolidated Financial Statements.
Financial Instruments – Recognition and Measurement
 
 
 
 
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
 
This Update amends the presentation and accounting for certain financial instruments, including liabilities measured at fair value under the FVO, and equity investments. The guidance also updates fair value presentation and disclosure requirements for financial instruments measured at amortized cost.
 
January 1, 2018
 
We adopted this Update in the first quarter of 2018 by a cumulative-effect adjustment. The adoption of this Update did not have a material effect on our Consolidated Financial Statements. During the first quarter of 2018, we transferred marketable equity securities totaling $1.1 million from securities AFS to other assets.
Revenue Recognition
 
 
 
 
 
 
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
 
This Update modifies the guidance used to recognize revenue from contracts with customers for transfers of goods and services and transfers of nonfinancial assets, unless those contracts are within the scope of other guidance. The guidance also requires new qualitative and quantitative disclosures about contract balances and performance obligations.
 
January 1, 2018
 
We adopted this Update in the first quarter of 2018 under the modified retrospective method. The adoption of this Update did not have a material effect on our Consolidated Financial Statements.

NOTE 3.    MERGERS AND ACQUISITIONS
Yadkin Financial Corporation
On March 11, 2017, we completed our acquisition of YDKN, a bank holding company based in Raleigh, North Carolina. YDKN’s banking affiliate, Yadkin Bank, was merged into FNBPA on March 11, 2017. YDKN’s results of operations have been included in our Consolidated Statements of Income since that date. The acquisition enabled us to enter several North Carolina markets, including Raleigh, Charlotte and the Piedmont Triad, which is comprised of Winston-Salem, Greensboro and High Point. We also completed the core systems conversion activities during the first quarter of 2017.
On the acquisition date, the fair values of YDKN included $6.8 billion in assets, of which there was $5.1 billion in loans, and $5.2 billion in deposits. The acquisition was valued at $1.8 billion based on the acquisition date FNB common stock closing price of $15.97 and resulted in FNB issuing 111,619,622 shares of our common stock in exchange for 51,677,565 shares of YDKN common stock. Under the terms of the merger agreement, shareholders of YDKN received 2.16 shares of FNB common stock for each share of YDKN common stock and cash in lieu of fractional shares. YDKN’s fully vested and outstanding stock options were converted into options to purchase and receive FNB common stock. In conjunction with the acquisition, we assumed a warrant that was issued by YDKN to the UST under the Capital Purchase Program. Based on the exchange ratio, this

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warrant, which expires in 2019, was converted into a warrant to purchase up to 207,320 shares of FNB common stock with an exercise price of $9.63.
The acquisition of YDKN constituted a business combination and has been accounted for using the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments, which can be updated for up to a year following the acquisition. As of March 31, 2018, all fair values and related adjustments to goodwill have been recorded.

NOTE 4.    SECURITIES
The amortized cost and fair value of securities are as follows:
 
(in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
 Value
Securities Available for Sale:
 
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
 
 
U.S. government-sponsored entities
$
364,600

 
$

 
$
(5,952
)
 
$
358,648

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
1,713,036

 
458

 
(41,921
)
 
1,671,573

Agency collateralized mortgage obligations
860,902

 
28

 
(28,580
)
 
832,350

Non-agency collateralized mortgage obligations
1

 

 

 
1

Commercial mortgage-backed securities
39,183

 
30

 

 
39,213

States of the U.S. and political subdivisions
21,138

 
3

 
(118
)
 
21,023

Other debt securities
4,916

 

 
(261
)
 
4,655

Total debt securities available for sale
$
3,003,776

 
$
519

 
$
(76,832
)
 
$
2,927,463

December 31, 2017
 
 
 
 
 
 
 
U.S. government-sponsored entities
$
347,767

 
$
52

 
$
(3,877
)
 
$
343,942

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
1,615,168

 
1,225

 
(17,519
)
 
1,598,874

Agency collateralized mortgage obligations
813,034

 

 
(18,077
)
 
794,957

Non-agency collateralized mortgage obligations
1

 

 

 
1

States of the U.S. and political subdivisions
21,151

 
6

 
(64
)
 
21,093

Other debt securities
4,913

 

 
(243
)
 
4,670

Total debt securities
2,802,034

 
1,283

 
(39,780
)
 
2,763,537

Equity securities
587

 
438

 

 
1,025

Total securities available for sale
$
2,802,621

 
$
1,721

 
$
(39,780
)
 
$
2,764,562


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Table of Contents             

(in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
 Value
Debt Securities Held to Maturity:
 
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
 
 
U.S. Treasury
$
500

 
$
114

 
$

 
$
614

U.S. government-sponsored entities
247,272

 
81

 
(5,716
)
 
241,637

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
1,174,426

 
491

 
(27,472
)
 
1,147,445

Agency collateralized mortgage obligations
783,151

 
257

 
(29,971
)
 
753,437

Commercial mortgage-backed securities
79,476

 
32

 
(1,245
)
 
78,263

States of the U.S. and political subdivisions
939,175

 
2,483

 
(31,090
)
 
910,568

Total debt securities held to maturity
$
3,224,000

 
$
3,458

 
$
(95,494
)
 
$
3,131,964

December 31, 2017
 
 
 
 
 
 
 
U.S. Treasury
$
500

 
$
134

 
$

 
$
634

U.S. government-sponsored entities
247,310

 
93

 
(4,388
)
 
243,015

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
1,219,802

 
3,475

 
(9,058
)
 
1,214,219

Agency collateralized mortgage obligations
777,146

 
32

 
(20,095
)
 
757,083

Commercial mortgage-backed securities
80,786

 
414

 
(575
)
 
80,625

States of the U.S. and political subdivisions
916,724

 
13,209

 
(7,130
)
 
922,803

Total debt securities held to maturity
$
3,242,268

 
$
17,357

 
$
(41,246
)
 
$
3,218,379


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

 
Three Months Ended
March 31,
(in thousands)
2018
 
2017
Gross gains
$

 
$
3,400

Gross losses

 
(775
)
Net gains
$

 
$
2,625

As of March 31, 2018, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:

 
Available for Sale
 
Held to Maturity
(in thousands)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in one year or less
$
65,814

 
$
65,498

 
$
45,461

 
$
45,221

Due from one to five years
262,236

 
256,811

 
210,014

 
204,580

Due from five to ten years
7,876

 
7,725

 
94,022

 
93,225

Due after ten years
54,728

 
54,292

 
837,450

 
809,793

 
390,654

 
384,326

 
1,186,947

 
1,152,819

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Agency mortgage-backed securities
1,713,036

 
1,671,573

 
1,174,426

 
1,147,445

Agency collateralized mortgage obligations
860,902

 
832,350

 
783,151

 
753,437

Non-agency collateralized mortgage obligations
1

 
1

 

 

Commercial mortgage-backed securities
39,183

 
39,213

 
79,476

 
78,263

Total debt securities
$
3,003,776

 
$
2,927,463

 
$
3,224,000

 
$
3,131,964


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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.
Following is information relating to securities pledged:

(dollars in thousands)
March 31,
2018
 
December 31,
2017
Securities pledged (carrying value):
 
 
 
To secure public deposits, trust deposits and for other purposes as required by law
$
3,532,023

 
$
3,491,634

As collateral for short-term borrowings
298,233

 
263,756

Securities pledged as a percent of total securities
62.3
%
 
62.5
%

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

 
Less than 12 Months
 
12 Months or More
 
Total
(dollars in thousands)
#
 
Fair
 Value
 
Unrealized
Losses
 
#
 
Fair
 Value
 
Unrealized
Losses
 
#
 
Fair
 Value
 
Unrealized
Losses
Debt Securities Available for Sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored entities
8

 
$
158,212

 
$
(1,389
)
 
10

 
$
200,436

 
$
(4,563
)
 
18

 
$
358,648

 
$
(5,952
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed securities
59

 
1,212,767

 
(25,545
)
 
28

 
444,583

 
(16,376
)
 
87

 
1,657,350

 
(41,921
)
Agency collateralized mortgage obligations
16

 
470,878

 
(13,274
)
 
33

 
312,687

 
(15,306
)
 
49

 
783,565

 
(28,580
)
States of the U.S. and political subdivisions
7

 
11,434

 
(108
)
 
1

 
877

 
(10
)
 
8

 
12,311

 
(118
)
Other debt securities

 

 

 
3

 
4,655

 
(261
)
 
3

 
4,655

 
(261
)
Total temporarily impaired debt securities AFS
90

 
$
1,853,291

 
$
(40,316
)
 
75

 
$
963,238

 
$
(36,516
)
 
165

 
$
2,816,529

 
$
(76,832
)
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored entities
7

 
$
106,809

 
$
(363
)
 
10

 
$
201,485

 
$
(3,514
)
 
17

 
$
308,294

 
$
(3,877
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed securities
43

 
976,738

 
(7,723
)
 
28

 
473,625

 
(9,796
)
 
71

 
1,450,363

 
(17,519
)
Agency collateralized mortgage obligations
14

 
409,005

 
(6,231
)
 
33

 
335,452

 
(11,846
)
 
47

 
744,457

 
(18,077
)
States of the U.S. and political subdivisions
7

 
11,254

 
(55
)
 
1

 
879

 
(9
)
 
8

 
12,133

 
(64
)
Other debt securities

 

 

 
3

 
4,670

 
(243
)
 
3

 
4,670

 
(243
)
Total temporarily impaired debt securities AFS
71

 
$
1,503,806

 
$
(14,372
)
 
75

 
$
1,016,111

 
$
(25,408
)
 
146

 
$
2,519,917

 
$
(39,780
)

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Table of Contents             

 
Less than 12 Months
 
12 Months or More
 
Total
(dollars in thousands)
#
 
Fair
 Value
 
Unrealized
Losses
 
#
 
Fair
 Value
 
Unrealized
Losses
 
#
 
Fair
 Value
 
Unrealized
Losses
Debt Securities Held to Maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored entities
4

 
$
54,558

 
$
(465
)
 
10

 
$
184,750

 
$
(5,251
)
 
14

 
$
239,308

 
$
(5,716
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed securities
73

 
935,246

 
(20,410
)
 
11

 
173,759

 
(7,062
)
 
84

 
1,109,005

 
(27,472
)
Agency collateralized mortgage obligations
16

 
267,299

 
(5,862
)
 
35

 
444,572

 
(24,109
)
 
51

 
711,871

 
(29,971
)
Commercial mortgage-backed securities
6

 
48,737

 
(637
)
 
3

 
19,909

 
(608
)
 
9

 
68,646

 
(1,245
)
States of the U.S. and political subdivisions
148

 
517,101

 
(16,245
)
 
37

 
112,879

 
(14,845
)
 
185

 
629,980

 
(31,090
)
Total temporarily impaired debt securities HTM
247

 
$
1,822,941

 
$
(43,619
)
 
96

 
$
935,869

 
$
(51,875
)
 
343

 
$
2,758,810

 
$
(95,494
)
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-sponsored entities
4

 
$
54,790

 
$
(239
)
 
10

 
$
185,851

 
$
(4,149
)
 
14

 
$
240,641

 
$
(4,388
)
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency mortgage-backed securities
36

 
648,485

 
(4,855
)
 
11

 
183,989

 
(4,203
)
 
47

 
832,474

 
(9,058
)
Agency collateralized mortgage obligations
14

 
275,290

 
(1,701
)
 
35

 
473,257

 
(18,394
)
 
49

 
748,547

 
(20,095
)
Commercial mortgage-backed securities
3

 
26,399

 
(123
)
 
2

 
19,443

 
(452
)
 
5

 
45,842

 
(575
)
States of the U.S. and political subdivisions
16

 
56,739

 
(933
)
 
37

 
121,536

 
(6,197
)
 
53

 
178,275

 
(7,130
)
Total temporarily impaired debt securities HTM
73

 
$
1,061,703

 
$
(7,851
)
 
95

 
$
984,076

 
$
(33,395
)
 
168

 
$
2,045,779

 
$
(41,246
)
We do not intend to sell the debt securities and it is not more likely than not that we will be required to sell the securities before recovery of their amortized cost basis.
Other-Than-Temporary Impairment
We evaluate our investment securities portfolio for OTTI on a quarterly basis. Impairment is assessed at the individual security level. We consider an investment security impaired if the fair value of the security is less than its cost or amortized cost basis. We did not recognize any OTTI losses on securities for the three months ended March 31, 2018 or 2017.
States of the U.S. and Political Subdivisions
Our municipal bond portfolio with a carrying amount of $960.2 million as of March 31, 2018 is highly rated with an average entity-specific rating of AA and 100% of the portfolio rated A or better. All of the securities in the municipal portfolio except one are general obligation bonds. Geographically, municipal bonds support our primary footprint as 65% of the securities are from municipalities located throughout Pennsylvania, Ohio, Maryland, North Carolina and South Carolina. The average holding size of the securities in the municipal bond portfolio is $3.0 million. In addition to the strong stand-alone ratings, 62% of the municipalities have some formal credit enhancement insurance that strengthens the creditworthiness of their issue. Management reviews the credit profile of each issuer on a quarterly basis.


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Table of Contents             

NOTE 5.    LOANS AND LEASES
Following is a summary of loans and leases, net of unearned income:

(in thousands)
Originated
Loans and
Leases
 
Acquired
Loans
 
Total
Loans and
Leases
March 31, 2018
 
 
 
 
 
Commercial real estate
$
5,465,150

 
$
3,346,325

 
$
8,811,475

Commercial and industrial
3,688,120

 
591,849

 
4,279,969

Commercial leases
279,582

 

 
279,582

Other
39,347

 

 
39,347

Total commercial loans and leases
9,472,199

 
3,938,174

 
13,410,373

Direct installment
1,737,242

 
134,397

 
1,871,639

Residential mortgages
2,131,338

 
630,763

 
2,762,101

Indirect installment
1,524,330

 
171

 
1,524,501

Consumer lines of credit
1,135,488

 
558,295

 
1,693,783

Total consumer loans
6,528,398

 
1,323,626

 
7,852,024

Total loans and leases, net of unearned income
$
16,000,597

 
$
5,261,800

 
$
21,262,397

December 31, 2017
 
 
 
 
 
Commercial real estate
$
5,174,783

 
$
3,567,081

 
$
8,741,864

Commercial and industrial
3,495,247

 
675,420

 
4,170,667

Commercial leases
266,720

 

 
266,720

Other
17,063

 

 
17,063

Total commercial loans and leases
8,953,813

 
4,242,501

 
13,196,314

Direct installment
1,755,713

 
149,822

 
1,905,535

Residential mortgages
2,036,226

 
666,465

 
2,702,691

Indirect installment
1,448,268

 
165

 
1,448,433

Consumer lines of credit
1,151,470

 
594,323

 
1,745,793

Total consumer loans
6,391,677

 
1,410,775

 
7,802,452

Total loans and leases, net of unearned income
$
15,345,490

 
$
5,653,276

 
$
20,998,766

The loans and leases portfolio categories are comprised of the following:
Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties;
Commercial and industrial includes loans to businesses that are not secured by real estate;
Commercial leases consist of leases for new or used equipment;
Other is comprised primarily of credit cards and mezzanine 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 1-4 family properties;
Indirect installment is comprised of loans originated by approved third parties and underwritten by us, primarily automobile loans; and
Consumer lines of credit include home equity lines of credit and consumer lines of credit that are either unsecured or secured by collateral other than home equity.

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Table of Contents             

The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market areas of Pennsylvania, eastern Ohio, Maryland, North Carolina, South Carolina and northern West Virginia.
The following table shows certain information relating to commercial real estate loans:
 
(dollars in thousands)
March 31,
2018
 
December 31,
2017
Commercial construction, acquisition and development loans
$
1,167,699

 
$
1,170,175

Percent of total loans and leases
5.5
%
 
5.6
%
Commercial real estate:
 
 
 
Percent owner-occupied
35.2
%
 
35.3
%
Percent non-owner-occupied
64.8
%
 
64.7
%
Acquired Loans
All acquired loans were initially recorded at fair value at the acquisition date. Refer to the Acquired Loans section in Note 1 of our 2017 Annual Report on Form 10-K for a discussion of ASC 310-20 and ASC 310-30 loans. The outstanding balance and the carrying amount of acquired loans included in the Consolidated Balance Sheets are as follows:
(in thousands)
March 31,
2018
 
December 31,
2017
Accounted for under ASC 310-30:
 
 
 
Outstanding balance
$
4,853,516

 
$
5,176,015

Carrying amount
4,521,926

 
4,834,256

Accounted for under ASC 310-20:
 
 
 
Outstanding balance
754,251

 
835,130

Carrying amount
733,037

 
812,322

Total acquired loans:
 
 
 
Outstanding balance
5,607,767

 
6,011,145

Carrying amount
5,254,963

 
5,646,578

The outstanding balance is the undiscounted sum of all amounts owed under the loan, including amounts deemed principal, interest, fees, penalties and other, whether or not currently due and whether or not any such amounts have been written or charged-off.
The carrying amount of purchased credit impaired loans included in the table above totaled $1.7 million at March 31, 2018 and $1.9 million at December 31, 2017, representing 0.03% of the carrying amount of total acquired loans as of each date.
The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30. Loans accounted for under ASC 310-20 are not included in this table.

 
Three Months Ended
March 31,
(in thousands)
2018
 
2017
Balance at beginning of period
$
708,481

 
$
467,070

Acquisitions

 
443,261

Reduction due to unexpected early payoffs
(25,833
)
 
(20,560
)
Reclass from non-accretable difference
64,216

 
23,106

Disposals/transfers
(57
)
 
(36
)
Other
(403
)
 

Accretion
(59,079
)
 
(25,241
)
Balance at end of period
$
687,325

 
$
887,600


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Table of Contents             

Cash flows expected to be collected on acquired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Improved cash flow expectations for loans or pools are recorded first as a reversal of previously recorded impairment, if any, and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as impairment through a charge to the provision for credit losses and credit to the allowance for credit losses.
During the three months ended March 31, 2018, there was an overall improvement in cash flow expectations which resulted in a net reclassification of $64.2 million from the non-accretable difference to accretable yield. This reclassification was $23.1 million for the three months ended March 31, 2017. The reclassification from the non-accretable difference to the accretable yield results in prospective yield adjustments on the loan pools.
Credit Quality
Management monitors the credit quality of our loan portfolio using several performance measures to do so based on payment activity and borrower performance.
Non-performing loans include non-accrual loans and non-performing TDRs. Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. We place originated loans on non-accrual status and discontinue interest accruals on originated loans generally when principal or interest is due and has remained unpaid for a certain number of days or when the full amount of principal and interest is due and has remained unpaid for a certain number of days, unless the loan is both well secured and in the process of collection. Commercial loans and leases are placed on non-accrual at 90 days, installment loans are placed on non-accrual at 120 days and residential mortgages and consumer lines of credit are generally placed on non-accrual at 180 days, though we may place a loan on non-accrual prior to these past due thresholds as warranted. When a loan is placed on non-accrual status, all unpaid accrued interest is reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate ability to collect the remaining principal and interest is reasonably assured. The majority of TDRs are loans in which we have granted a concession on the interest rate or the original repayment terms due to the borrower’s financial distress.
Following is a summary of non-performing assets:

(dollars in thousands)
March 31,
2018
 
December 31,
2017
Non-accrual loans
$
77,684

 
$
74,635

Troubled debt restructurings
24,452

 
23,481

Total non-performing loans
102,136

 
98,116

Other real estate owned
40,980

 
40,606

Total non-performing assets
$
143,116

 
$
138,722

Asset quality ratios:
 
 
 
Non-performing loans / total loans and leases
0.48
%
 
0.47
%
Non-performing loans + OREO / total loans and leases + OREO
0.67
%
 
0.66
%
Non-performing assets / total assets
0.45
%
 
0.44
%
The carrying value of residential other real estate owned held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $4.8 million at March 31, 2018 and $3.6 million at December 31, 2017. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at March 31, 2018 and December 31, 2017 totaled $13.8 million and $15.2 million, respectively.

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Table of Contents             

The following tables provide an analysis of the aging of loans by class segregated by loans and leases originated and loans acquired:
(in thousands)
30-89 Days
Past Due
 
> 90 Days
Past Due
and Still
Accruing
 
Non-
Accrual
 
Total
Past Due
 
Current
 
Total
Loans and
Leases
Originated Loans and Leases
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$
8,345

 
$
1

 
$
27,349

 
$
35,695

 
$
5,429,455

 
$
5,465,150

Commercial and industrial
6,793

 
3

 
19,705

 
26,501

 
3,661,619

 
3,688,120

Commercial leases
692

 

 
1,399

 
2,091

 
277,491

 
279,582

Other
183

 
73

 
1,000

 
1,256

 
38,091

 
39,347

Total commercial loans and leases
16,013

 
77

 
49,453

 
65,543

 
9,406,656

 
9,472,199

Direct installment
8,129

 
3,913

 
8,411

 
20,453

 
1,716,789

 
1,737,242

Residential mortgages
14,870

 
1,982

 
5,254

 
22,106

 
2,109,232