Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Nature of Operations
FNB United Corp., we or us (which also refers to FNB and our subsidiaries on a consolidated basis) ("FNB"), is a bank holding company incorporated in 1984 under the laws of the State of North Carolina. We own
two
bank subsidiaries: CommunityOne Bank, N.A. (“CommunityOne”), a national banking association headquartered in Asheboro, North Carolina and, through Bank of Granite Corporation (“Granite Corp.”), Bank of Granite (“Granite”), a state chartered bank headquartered in Granite Falls, North Carolina.
Through our bank subsidiaries, we offer a complete line of consumer, wealth management, mortgage and business banking services, including loan, deposit, cash management, investment management and trust services, to individual and business customers through operations located throughout central, southern and western North Carolina, including the counties of Alamance, Alexander, Ashe, Burke, Caldwell, Catawba, Chatham, Gaston, Guilford, Iredell, Mecklenburg, Montgomery, Moore, Orange, Randolph, Richmond, Rowan, Scotland, Watauga and Wilkes. Management believes that the banks have a relatively stable deposit base and no material amount of deposits is obtained from a single depositor or group of depositors, including federal, state and local governments.
CommunityOne owns
two
subsidiaries: Dover Mortgage Company (“Dover”) and First National Investor Services, Inc. Dover previously engaged in the business of originating, underwriting and closing mortgage loans for sale in the secondary market. Dover ceased operations in the first quarter of 2011 and filed for Chapter 11 bankruptcy on February 15, 2012. First National Investor Services, Inc. holds deeds of trust for CommunityOne. Through Granite Corp., we also own Granite Mortgage, Inc., which ceased mortgage operations in 2009 and filed for Chapter 11 bankruptcy on February 15, 2012. FNB also owns FNB United Statutory Trust I, FNB United Statutory Trust II, and Catawba Valley Capital Trust II, which were formed to facilitate the issuance of trust preferred securities.
On October 21, 2011, as part of the recapitalization of FNB, FNB acquired Granite Corp., through the merger of a wholly owned subsidiary of FNB merging into Granite Corp. (the "Merger"). The Merger was part of FNB's recapitalization strategy.
General
The accompanying consolidated financial statements, prepared without audit, include the accounts of FNB and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Descriptions of the organization and business of FNB, accounting policies followed by FNB and other relevant information are contained in FNB's Annual Report on Form 10-K for the year ended
December 31, 2011
, as amended by its Amendment No. 1 (the "Form 10-K"), including the notes to the consolidated financial statements filed as part of that report. This quarterly report should be read in conjunction with the Form 10-K.
In the opinion of management, the accompanying condensed consolidated financial statements contain all the adjustments, all of which are normal recurring adjustments, necessary to present fairly the financial position of FNB as of
September 30, 2012
and
December 31, 2011
, and the results of its operations and cash flows for the three and nine months ended
September 30, 2012
and
2011
, respectively.
All financial information is reported on a continuing operations basis, unless otherwise noted. See Note 2 to the consolidated financial statements for a discussion regarding discontinued operations and certain assets and liabilities at
September 30, 2012
and
December 31, 2011
.
Use of Estimates
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"). Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowances for loan losses (“ALL”), the carrying value of other real estate owned (“OREO”), the carrying value of intangible assets, the fair value of net assets acquired in the Merger and the realization of deferred tax assets.
Reclassification
Certain reclassifications have been made to the prior period consolidated financial statements to place them on a comparable basis with the current period consolidated financial statements. These reclassifications have no effect on net income or shareholders' equity as previously reported.
During the first quarter of
2012
, FNB implemented a purchased loan accounting system and finalized its methodology to allocate the fair value of purchased impaired loans in pools to individual loans for purposes of several of the loan disclosure tables in Note 5 to the
consolidated financial statements. In order to present these tables for prior periods on a comparable basis to current period tables in these consolidated financial statements, we have reclassified certain amounts as of
December 31, 2011
in the tables between loan portfolio segments and classes, between purchased contractual and purchased impaired loans, and between risk grade categories. These reclassifications have no effect on net income, the loan fair value mark, total loans or shareholders' equity as of or for the period ended
December 31, 2011
.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date of this filing and has concluded that no subsequent events have occurred requiring accrual or disclosure in addition to that included herein.
Recent Accounting Pronouncements
Disclosures about Fair Value
-
Accounting Standards Update ("ASU") 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the Accounting Standards Codification ("ASC") by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendment was effective for FNB on January 1, 2012, and the related disclosures are presented in Note 9.
Comprehensive Income
- The Comprehensive Income topic of the ASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in shareholders' equity and requires consecutive presentation of the statement of net income and other comprehensive income. The amendments were to become applicable to FNB on January 1, 2012 and were to be applied retrospectively. In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements. Companies should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the amendments while FASB redeliberates future requirements. The remaining provisions of this update took effect for FNB on January 1, 2012.
Goodwill
- The Intangibles - Goodwill and Other topic of the ASC was amended in September 2011. The amendments in this Update allow an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessment, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, they will have to perform the first step of the two-step impairment test. Under the amendments in this Update, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The amendment was effective for FNB on January 1, 2012, and has not had a material impact on the financial statements of FNB.
2. Discontinued Operations
All operations of Dover, a subsidiary of CommunityOne, were discontinued as of March 17, 2011. Dover, acquired by FNB in 2003, originated, underwrote and closed mortgage loans for sale into the secondary market. It maintained a retail origination network based in Charlotte, North Carolina, which originated loans for properties located in North Carolina. Dover also engaged in the wholesale mortgage origination business and conducted retail mortgage origination business outside of North Carolina. Operations outside of the State of North Carolina and the wholesale mortgage origination business were discontinued in February 2011, and all remaining operations were discontinued on March 17, 2011. Dover filed for Chapter 11 bankruptcy on February 15, 2012 in the United States Bankruptcy Court for the Western District of North Carolina. All of the assets and liabilities of Dover were written off at that time.
The results of operations of a component of an entity that has been disposed of shall be reported in discontinued operations if both the operations and cash flows of the component have been, or will be, eliminated from ongoing operations of the entity as a result of the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. As a result, the Consolidated Balance Sheets, Statements of Operations and Statement of Cash Flows for all periods reflect retrospective application of Dover's classification as a discontinued operation.
Assets and liabilities of discontinued operations at the dates indicated were as follows:
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
September 30,
2012
|
|
December 31,
2011
|
Assets
|
|
|
|
|
Loans held for sale
|
|
$
|
—
|
|
|
$
|
233
|
|
Premises and equipment, net
|
|
—
|
|
|
5
|
|
Other real estate owned
|
|
—
|
|
|
—
|
|
Other assets
|
|
—
|
|
|
7
|
|
Assets of discontinued operations
|
|
$
|
—
|
|
|
$
|
245
|
|
Liabilities
|
|
|
|
|
Other liabilities
|
|
$
|
—
|
|
|
$
|
1,092
|
|
Liabilities of discontinued operations
|
|
$
|
—
|
|
|
$
|
1,092
|
|
Net loss from discontinued operations, net of tax, at the dates indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Interest Income
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
67
|
|
Total interest income
|
|
—
|
|
|
12
|
|
|
—
|
|
|
67
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
Other borrowed funds
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total interest expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net Interest Income before Provision for Loan Losses
|
|
—
|
|
|
12
|
|
|
—
|
|
|
67
|
|
Provision for loan losses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net Interest Income after Provision for Loan Losses
|
|
—
|
|
|
12
|
|
|
—
|
|
|
67
|
|
Noninterest Income
|
|
|
|
|
|
|
|
|
Mortgage loan loss
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(167
|
)
|
Other service charges, commissions and fees, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
Other income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Total noninterest loss
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(168
|
)
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
Personnel expense
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
1,442
|
|
Net occupancy expense
|
|
—
|
|
|
5
|
|
|
1
|
|
|
216
|
|
Furniture, equipment and data processing expense
|
|
—
|
|
|
14
|
|
|
—
|
|
|
185
|
|
Professional fees
|
|
—
|
|
|
31
|
|
|
25
|
|
|
209
|
|
Stationery, printing and supplies
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Advertising and marketing
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
27
|
|
Other real estate owned expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
166
|
|
Provision for recourse loans
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
3,317
|
|
Other expense
|
|
—
|
|
|
10
|
|
|
—
|
|
|
264
|
|
Total noninterest expense
|
|
—
|
|
|
50
|
|
|
27
|
|
|
5,834
|
|
Loss before income taxes
|
|
—
|
|
|
(40
|
)
|
|
(27
|
)
|
|
(5,935
|
)
|
Income tax (benefit)/expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(213
|
)
|
Net loss from discontinued operations, net of tax
|
|
$
|
—
|
|
|
$
|
(40
|
)
|
|
$
|
(27
|
)
|
|
$
|
(5,722
|
)
|
All financial information in the consolidated financial statements and notes to the consolidated financial statements reflects continuing operations, unless otherwise noted.
3. Goodwill and Other Intangible Assets
We have accounted for the Merger as a business combination under the acquisition method of accounting. As a result, we have recognized in our financial statements the identifiable net assets acquired and an amount of goodwill (representing the difference between the purchase price and the identifiable net assets). During the measurement period following a business combination, the amount of identifiable net assets recognized is subject to further adjustment to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. GAAP requires that the measurement period cannot exceed
one
year from the acquisition date.
Goodwill and other intangible assets deemed to have indefinite lives generated from purchase business combinations are not subject to amortization and are instead tested for impairment no less than annually. Impairment exists when the carrying value of goodwill exceeds its implied fair value. An impairment loss would be recognized in an amount equal to that excess and would be included in noninterest expense in the Consolidated Statements of Operations. None of the goodwill recognized in the Merger is expected to be deductible for income tax purposes.
During the first quarter of 2012, we recognized $
0.3 million
in additional goodwill from the Merger. This additional amount was due to new valuations received on OREO acquired in the Merger, which were written down to our best estimate of fair value.
Our intangible assets with definite lives are core deposit premiums ("CDP") and mortgage servicing rights ("MSR"). CDPs are amortized over their useful lives to their estimated residual value and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits. MSRs are amortized over the expected lives of the underlying mortgages including prepayment estimates.
4. Investment Securities
The primary objective of FNB's management of the investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding competitive returns. FNB is required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. FNB maintains investment balances based on a continuing assessment of cash flows, the level of loan production, current interest rate risk strategies and an assessment of the potential future direction of market interest rate changes. Investment securities differ in terms of default, interest rate, liquidity and expected rate of return risks.
The following table summarizes the amortized cost and estimated fair value of available-for-sale investment securities and presents the related gross unrealized gains and losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Obligations of:
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
6,648
|
|
|
$
|
274
|
|
|
$
|
—
|
|
|
$
|
6,922
|
|
U.S. government sponsored enterprises
|
|
22,128
|
|
|
57
|
|
|
—
|
|
|
22,185
|
|
States and political subdivisions
|
|
5,952
|
|
|
110
|
|
|
—
|
|
|
6,062
|
|
Residential mortgage-backed securities-GSE
|
|
359,241
|
|
|
8,666
|
|
|
140
|
|
|
367,767
|
|
Residential mortgage-backed securities-Private
|
|
23,601
|
|
|
594
|
|
|
473
|
|
|
23,722
|
|
Commercial mortgage backed securities-GSE
|
|
23,245
|
|
|
3
|
|
|
—
|
|
|
23,248
|
|
Commercial mortgage-backed securities-Private
|
|
5,312
|
|
|
48
|
|
|
—
|
|
|
5,360
|
|
Corporate notes
|
|
36,852
|
|
|
308
|
|
|
40
|
|
|
37,120
|
|
Total
|
|
$
|
482,979
|
|
|
$
|
10,060
|
|
|
$
|
653
|
|
|
$
|
492,386
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Obligations of:
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
7,081
|
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
7,188
|
|
U.S. government sponsored enterprises
|
|
32,479
|
|
|
36
|
|
|
151
|
|
|
32,364
|
|
States and political subdivisions
|
|
6,075
|
|
|
16
|
|
|
1
|
|
|
6,090
|
|
Residential mortgage-backed securities-GSE
|
|
348,884
|
|
|
2,611
|
|
|
1,222
|
|
|
350,273
|
|
Residential mortgage-backed securities-Private
|
|
33,111
|
|
|
73
|
|
|
967
|
|
|
32,217
|
|
Corporate notes
|
|
3,206
|
|
|
—
|
|
|
32
|
|
|
3,174
|
|
Total
|
|
$
|
430,836
|
|
|
$
|
2,843
|
|
|
$
|
2,373
|
|
|
$
|
431,306
|
|
CommunityOne and Granite, as members of the Federal Home Loan Bank of Atlanta (“FHLB”), are required to own capital stock in the FHLB based generally upon the balances of total assets and FHLB advances. FHLB capital stock is pledged to secure FHLB advances. This investment is carried at cost since no ready market exists for FHLB stock and there is
no
quoted market value. However, redemption of this stock has historically been at par value. The combined banks owned a total of
$6.3 million
of FHLB stock at
September 30, 2012
and at
December 31, 2011
. Due to the redemption provisions of FHLB stock, FNB estimated that fair value approximated cost and that this investment was not impaired at
September 30, 2012
. FHLB stock is included in other assets at its original cost basis.
CommunityOne, as a member bank of the Federal Reserve Bank of Richmond (“FRBR”), is required to own capital stock of the FRBR based upon a percentage of the bank's common stock and surplus. This investment is carried at cost since no ready market exists for FRBR stock and there is no quoted market value. At both
September 30, 2012
and
December 31, 2011
, CommunityOne owned a total of
$3.7 million
, of FRBR stock. Due to the nature of this investment in an entity of the U.S. government, FNB estimated that fair value approximated the cost and that this investment was not impaired at
September 30, 2012
. FRBR stock is included in other assets at its original cost basis.
At
September 30, 2012
,
$93.4 million
of the investment securities portfolio was pledged to secure public deposits,
$14.5 million
was pledged to retail repurchase agreements,
$4.0 million
was pledged to the FRBR and
$2.1 million
was pledged to others, leaving
$378.4 million
available as lendable collateral.
During the
three and nine
months ended
September 30, 2012
, the banks sold securities with a book value of
$21.4 million
and
$134.1 million
respectively, and recognized a loss of $
(33) thousand
and a gain of
$1.9 million
, respectively. The banks sold these securities in order to modify our interest rate sensitivity profile and to eliminate below-investment grade securities. During the
three and nine
months ended
September 30, 2011
, the banks sold securities with a book value of
$252.7 million
and
$282.9 million
respectively, and recognized a gain of
$7.4 million
and
$7.3 million
, respectively.
The following tables show our investments' estimated fair value and gross unrealized losses, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at
September 30, 2012
and
December 31, 2011
. All unrealized losses on investment securities are considered by management to be temporary given the credit ratings on these investment securities or the short duration of the unrealized loss or both.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(dollars in thousands)
|
Estimated Fair Value
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Gross Unrealized Losses
|
September 30, 2012
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities-GSE
|
$
|
5,599
|
|
$
|
24
|
|
|
$
|
19,275
|
|
$
|
117
|
|
|
$
|
24,874
|
|
$
|
141
|
|
Residential mortgage-backed securities-Private
|
7,858
|
|
472
|
|
|
—
|
|
—
|
|
|
7,858
|
|
472
|
|
Corporate notes
|
3,219
|
|
40
|
|
|
—
|
|
—
|
|
|
3,219
|
|
40
|
|
Total
|
$
|
16,676
|
|
$
|
536
|
|
|
$
|
19,275
|
|
$
|
117
|
|
|
$
|
35,951
|
|
$
|
653
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(dollars in thousands)
|
Estimated Fair Value
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Gross Unrealized Losses
|
|
Estimated Fair Value
|
Gross Unrealized Losses
|
December 31, 2011
|
|
|
|
|
|
|
|
|
Obligations of:
|
|
|
|
|
|
|
|
|
U.S. government sponsored enterprises
|
$
|
21,248
|
|
$
|
151
|
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
21,248
|
|
$
|
151
|
|
States and political subdivisions
|
1,907
|
|
1
|
|
|
—
|
|
—
|
|
|
1,907
|
|
1
|
|
Residential mortgage-backed securities-GSE
|
89,730
|
|
1,042
|
|
|
16,552
|
|
180
|
|
|
106,282
|
|
1,222
|
|
Residential mortgage-backed securities-Private
|
21,519
|
|
967
|
|
|
—
|
|
—
|
|
|
21,519
|
|
967
|
|
Corporate notes
|
3,173
|
|
32
|
|
|
—
|
|
—
|
|
|
3,173
|
|
32
|
|
Total
|
$
|
137,577
|
|
$
|
2,193
|
|
|
$
|
16,552
|
|
$
|
180
|
|
|
$
|
154,129
|
|
$
|
2,373
|
|
At
September 30, 2012
,
7
available-for-sale securities were in an unrealized loss position less than 12 months compared to
32
at
December 31, 2011
. At
September 30, 2012
, there were
4
available-for-sale securities that were in an unrealized loss position for longer than 12 months, compared to
seven
at December 31, 2011.
If an entity intends to sell a debt security or cannot assert it is more likely than not that it will not have to sell the security before recovery, other than temporary impairment ("OTTI") must be taken. If the entity does not intend to sell the debt security before recovery, but the entity does not expect to recover the entire amortized cost basis, then OTTI must be taken, but the amount of impairment is to be bifurcated between impairment due to credit (which is recorded through earnings) and noncredit impairment (which becomes a component of other comprehensive income (“OCI”) for both available-for-sale and held-to-maturity securities). For held-to-maturity securities, the amount in OCI will be amortized prospectively over the security's remaining life. FNB did not have any OTTI during the
three and nine
months ended
September 30, 2012
and
September 30, 2011
.
FNB analyzed its securities portfolio at
September 30, 2012
, paying particular attention to its private label mortgage-backed securities. After considering ratings, fair value, cash flows and other factors, FNB does not believe securities to be other-than-temporary impaired.
The aggregate amortized cost and fair value of securities at
September 30, 2012
, by remaining contractual maturity, are shown in the following table. Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
(dollars in thousands)
|
|
Amortized Cost
|
|
Estimated Fair Value
|
Due in one year or less
|
|
$
|
8,372
|
|
|
$
|
8,412
|
|
Due after one one year through five years
|
|
53,301
|
|
|
53,736
|
|
Due after five years through 10 years
|
|
3,259
|
|
|
3,219
|
|
Due after 10 years
|
|
6,648
|
|
|
6,922
|
|
Total
|
|
71,580
|
|
|
72,289
|
|
Mortgage-backed securities
|
|
411,399
|
|
|
420,097
|
|
Total
|
|
$
|
482,979
|
|
|
$
|
492,386
|
|
5. Loans and Allowance for Loan Losses
General
Loans held for investment are stated at the principal amounts outstanding adjusted for purchase premiums/discounts, deferred net loan fees and costs, and unearned income. FNB reports its loan portfolio by segment and classes, which are disaggregations of portfolio segments. FNB's portfolio segments are: Commercial and agricultural, Real estate, and Consumer loans. The Commercial and agricultural loan and Consumer loan portfolios are not further segregated into classes. The classes within the Real estate portfolio segment include Real estate - construction and Real estate mortgage, broken into 1-4 family residential mortgage and Commercial real estate mortgage loans.
Loan fees and the incremental direct costs associated with originating loans are deferred and subsequently recognized over the life of the loan as an adjustment to interest income.
In addition to originating loans we also purchase loans. At acquisition purchased loans are designated as either purchased contractual loans ("PC loans") or purchased impaired loans ("PI loans"). PC loans are acquired loans where management believes it is probable that it will receive all principal as of the date of acquisition. These loans are accounted for under the contractual cash flow method, under ASC 310-20. Any discount or premium paid on PC loans is recorded in interest income using the effective yield method over the expected life of the loans.
PI loans are acquired loans where management believes, at acquisition date, it is probable that all principal on the acquired loans will not be received. PI loans are placed in homogeneous risk based pools where accounting for projected cash flows is performed, as allowed under ASC 310-30. Once a pool is established the individual loans within each pool do not change. As management obtains new information related to changes in expected principal loss and expected cash flows, by pool, we record either an increase in yield when new expected cash flows increase, an allowance for loan losses when new expected cash flows decline, or a decrease in yield when there is only a timing difference in expected cash flows.
Loans acquired in the Merger ("Granite Purchased Loans") included PI loans and PC loans. Loans designated as PC loans included performing revolving consumer and performing revolving commercial loans on acquisition date.
During the
nine
months ended
September 30, 2012
, CommunityOne purchased
$137.4 million
of performing residential mortgage loans, including premiums of
$3.7 million
. During the
three and nine
months ended
September 30, 2012
, Granite purchased
$35.8 million
of performing residential mortgage loans, including a premium of
$0.3 million
, These loan purchases are accounted for as PC loans.
ALL Methodology
FNB's Allowance for Loan Losses ("ALL"), which is utilized to absorb actual losses in the loan portfolio, is maintained at a level consistent with management's best estimate of probable loan losses to be incurred as of the balance sheet date. Management assesses FNB's ALL quarterly. This assessment includes a methodology that separates the total loan portfolio into homogeneous loan classifications for purposes of evaluating risk. The required allowance is calculated by applying a risk adjusted reserve requirement to the dollar volume of loans within a homogenous group. For purposes of the ALL, FNB has grouped its loans into pools according to the loan segmentation regime employed on schedule RC-C of the FFIEC's Consolidated Report of Condition and Income. Major loan portfolio subgroups include: risk graded commercial loans, mortgage loans, home equity loans, retail loans and retail credit lines. Management also analyzes the loan portfolio on an ongoing basis to evaluate current risk levels, and risk grades are adjusted accordingly. While management uses the best information available to make evaluations, future adjustments may be necessary, if economic or other conditions differ substantially from the assumptions used.
As of September 30, 2012, FNB has elected to change the method it uses to calculate the historical loss rates and qualitative and environmental factors in its ALL. FNB had previously calculated the ALL using historical loss factors based on the risk-graded pool to which the loss was assigned at quarter-end four quarters prior to the loss. Historical loss rates are now calculated by associating losses to the risk-graded pool to which they relate for each of the previous eight quarters. Then, using a 24-quarter look back period, loss factors are calculated for each risk-graded pool.
In addition to FNB's ability to use its own historical loss data and migration between risk grades, it has also set up a more rigorous process for computing the qualitative factors that impact the ALL. A committee, independent of the historical loss migration team, reviews risk factors that may impact the ALL. Some factors are statistically quantifiable, such as concentration, growth, delinquency, and nonaccrual risk by loan type, while other factors are qualitative in nature, such as staff competency, competition within our markets, economic and regulatory changes impacting the loans held for investment.
The impact of the change in methodology to the third quarter earnings and to the ALL was to reduce the provision for loan losses and the ALL by an immaterial amount.
FNB lends primarily in North Carolina. As of
September 30, 2012
, a substantial majority of the principal amount of the loans held for investment in its portfolio was to businesses and individuals in North Carolina. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. The risks created by this concentration have been considered by management in the determination of the adequacy of the ALL. Management believes the ALL is adequate to cover estimated losses on loans at each balance sheet date.
During the three month period ended
September 30, 2012
, FNB charged off
$9.3 million
in loans and realized
$1.6 million
in recoveries, for
$7.7 million
of net charge-offs. The majority of the loans charged off were loans that had been in impairment status and had specific reserves assigned in prior periods.
The ALL, as a percentage of loans held for investment, was
2.51%
at
September 30, 2012
, compared to
4.95%
at
September 30, 2011
. At
December 31, 2011
, the ALL, as a percentage of loans held for investment, was
3.23%
.
Risk Grades
The risk-grade categories presented in the following table, which are standard categories used by the bank regulators, are:
Pass
- Loans categorized as Pass are higher quality loans that have adequate sources of repayment and little risk of collection.
Special Mention
- A Special Mention loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard
- A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that FNB will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of Substandard loans, does not have to exist in individual assets classified Substandard.
Doubtful
- A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors, which may work to the advantage of strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.
Loans categorized as Special Mention or worse are considered Criticized. Loans categorized as Substandard or Doubtful are considered Classified. Purchased loans acquired in the Merger are recorded at estimated fair value on the date of acquisition without the carryover of related ALL. The table below includes
$70.0 million
and
$63.6 million
in Granite Purchased Loans categorized as Substandard or Doubtful at
September 30, 2012
and
December 31, 2011
, respectively.
The following table presents loans held for investment balances by risk grade as of
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
|
|
|
(Ratings 1-5)
|
|
(Rating 6)
|
|
(Rating 7)
|
|
(Rating 8)
|
|
Total
|
Commercial and agricultural
|
|
$
|
60,547
|
|
|
$
|
3,964
|
|
|
$
|
8,154
|
|
|
$
|
4
|
|
|
$
|
72,669
|
|
Real estate - construction
|
|
38,622
|
|
|
1,944
|
|
|
20,697
|
|
|
—
|
|
|
61,263
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
534,269
|
|
|
17,873
|
|
|
37,844
|
|
|
265
|
|
|
590,251
|
|
Commercial
|
|
302,943
|
|
|
57,647
|
|
|
102,439
|
|
|
144
|
|
|
463,173
|
|
Consumer
|
|
43,612
|
|
|
188
|
|
|
374
|
|
|
265
|
|
|
44,439
|
|
Total
|
|
$
|
979,993
|
|
|
$
|
81,616
|
|
|
$
|
169,508
|
|
|
$
|
678
|
|
|
$
|
1,231,795
|
|
The following table presents loans held for investment balances by risk grade as of
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Pass
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
|
|
|
(Ratings 1-5)
|
|
(Rating 6)
|
|
(Rating 7)
|
|
(Rating 8)
|
|
Total
|
Commercial and agricultural
|
|
$
|
77,305
|
|
|
$
|
7,373
|
|
|
$
|
9,921
|
|
|
$
|
490
|
|
|
$
|
95,089
|
|
Real estate - construction
|
|
53,105
|
|
|
5,797
|
|
|
33,886
|
|
|
18
|
|
|
92,806
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
385,022
|
|
|
25,864
|
|
|
42,630
|
|
|
209
|
|
|
453,725
|
|
Commercial
|
|
351,731
|
|
|
91,364
|
|
|
87,971
|
|
|
317
|
|
|
531,383
|
|
Consumer
|
|
43,487
|
|
|
279
|
|
|
387
|
|
|
379
|
|
|
44,532
|
|
Total
|
|
$
|
910,650
|
|
|
$
|
130,677
|
|
|
$
|
174,795
|
|
|
$
|
1,413
|
|
|
$
|
1,217,535
|
|
Loans included in the preceding loan composition table are net of participations sold. Loans are increased by net loan premiums and deferred loan discounts or fees of
$2.6 million
at
September 30, 2012
. Loans are decreased by net deferred loan discounts or fees of
$1.8 million
at
December 31, 2011
.
At
September 30, 2012
loans held for sale consisted of originated residential mortgage loans held for sale at the lower of cost or fair market value. At December 31, 2011, loans held for sale consisted of nonperforming loans transferred from loans held for investment under sales contracts recorded at the contractual sales price.
Loans serviced for others are not included in the consolidated balance sheet. The unpaid principal balance of loans serviced for others amounted to
$33.6 million
at
September 30, 2012
and
$2.0 million
at
December 31, 2011
.
Loans Pledged
To borrow from the FHLB, members must pledge collateral to secure advances and letters of credit. Acceptable collateral includes, among other types of collateral, a variety of residential, multifamily, home equity lines and second mortgages, and commercial loans. Gross loans of
$293.1 million
and
$339.4 million
were pledged to collateralize FHLB advances and letters of credit at
September 30, 2012
and
December 31, 2011
, respectively, of which there was
$23.9 million
and
$69.5 million
of credit availability for borrowing, respectively. At
September 30, 2012
,
$40.9 million
of loans and
$4.0 million
of securities were pledged to collateralize potential borrowings from the Federal Reserve Discount Window, of which
$26.2 million
was available as borrowing capacity.
Nonaccruing and Impaired Loans
Interest income on loans is calculated by using the interest method based on the daily outstanding balance. The recognition of interest income is discontinued when, in management's opinion, the collection of all or a portion of interest becomes doubtful. Loans are returned to accrual status when the factors indicating doubtful collectability cease to exist and the loan has performed in accordance with its terms for a demonstrated period of time. The past due status of loans is based on the contractual payment terms. Had nonaccruing loans been on accruing status, interest income would have been higher by
$1.5 million
and
$3.5 million
for the three months ended
September 30, 2012
and
September 30, 2011
, respectively, and higher by
$2.9 million
and
$7.6 million
for the
nine
months ended
September 30, 2012
and
September 30, 2011
, respectively. At
September 30, 2012
and
December 31, 2011
, FNB had certain impaired loans of
$85.1 million
and
$103.0 million
, respectively, which were on nonaccruing interest status.
All loan classes are considered past due when the contractual amounts due with respect to principal and interest are not received within 30 days of the contractual due date. When FNB cannot reasonably expect full and timely repayment of its loan, the loan is placed on nonaccrual.
All loan classes on which principal or interest is in default for 90 days or more are put on nonaccrual status, unless there is sufficient documentation to conclude that the loan is well secured and in the process of collection. A debt is "well-secured" if collateralized by liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt in full; or by the guarantee of a financially responsible party. A debt is "in process of collection" if collection is proceeding in due course either through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not involving legal action that are reasonably expected to result in repayment of the debt or its restoration to a current status.
Loans that are less than 90 days delinquent may also be placed on nonaccrual if deterioration in the financial condition of the borrower has increased the probability of less than full repayment.
At the time a loan is placed on nonaccrual, all accrued, unpaid interest is charged off, unless it is documented that repayment of all principal and presently accrued but unpaid interest is probable. Charge-offs of accrued and unpaid interest are charged against the current year's interest income and not against the current ALL.
For all loan classes, a nonaccrual loan may be returned to accrual status when FNB can reasonably expect continued timely payments until payment in full. All prior arrearage does not have to be eliminated, nor do all previously charged-off amounts need to have been recovered, but the loan can still be returned to accrual status if the following conditions are met: (1) all principal and interest amounts contractually due (including arrearage) are reasonably assured of repayment within a reasonable period; and (2) there is a sustained period of repayment performance (generally a minimum of six months) by the borrower, in accordance with the contractual terms involving payments of cash or cash equivalents.
For all classes within all loan portfolios, cash receipts received on nonaccrual loans are applied entirely against principal until the loan or lease has been collected in full, after which time any additional cash receipts are recognized as interest income.
For all loan classes, as soon as any loan becomes uncollectible, the loan will be charged down or charged off as follows:
|
|
•
|
If unsecured, the loan must be charged off in full.
|
|
|
•
|
If secured, the outstanding principal balance of the loan should be charged down to the net liquidation value of the collateral.
|
Loans should be considered uncollectible when:
|
|
•
|
No regularly scheduled payment has been made within four months and the determination is made that any further payment is unlikely, or
|
|
|
•
|
The loan is unsecured, the borrower has filed for bankruptcy protection and there is no other (guarantor, etc.) support from an entity outside of the bankruptcy proceedings.
|
Based on a variety of credit, collateral and documentation issues, loans with lesser degrees of delinquency or obvious loss may also be deemed uncollectible.
The following table presents an aging analysis of accruing and nonaccruing loans as of
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
PI Loans
|
|
|
|
90 or more
|
|
|
30-59 Days
|
|
60-89 Days
|
|
90 or More Days
|
|
Total
|
|
Current
|
|
No credit deterior- ation
|
|
Credit deterior-ation
|
|
Total Loans
|
|
days past due and Accruing
|
Commercial and agricultural
|
|
$
|
927
|
|
|
$
|
832
|
|
|
$
|
2,511
|
|
|
$
|
4,270
|
|
|
$
|
51,718
|
|
|
$
|
1,021
|
|
|
$
|
15,660
|
|
|
$
|
72,669
|
|
|
$
|
671
|
|
Real estate - construction
|
|
605
|
|
|
1,503
|
|
|
15,842
|
|
|
17,950
|
|
|
40,549
|
|
|
543
|
|
|
2,221
|
|
|
61,263
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
972
|
|
|
2,772
|
|
|
13,942
|
|
|
17,686
|
|
|
530,027
|
|
|
39,943
|
|
|
2,595
|
|
|
590,251
|
|
|
58
|
|
Commercial
|
|
3,221
|
|
|
1,872
|
|
|
31,316
|
|
|
36,409
|
|
|
237,940
|
|
|
177,533
|
|
|
11,291
|
|
|
463,173
|
|
|
339
|
|
Consumer
|
|
174
|
|
|
13
|
|
|
113
|
|
|
300
|
|
|
42,741
|
|
|
1,364
|
|
|
34
|
|
|
44,439
|
|
|
3
|
|
Total
|
|
$
|
5,899
|
|
|
$
|
6,992
|
|
|
$
|
63,724
|
|
|
$
|
76,615
|
|
|
$
|
902,975
|
|
|
$
|
220,404
|
|
|
$
|
31,801
|
|
|
$
|
1,231,795
|
|
|
$
|
1,071
|
|
The following table presents an aging analysis of accruing and nonaccruing loans as of
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
PI Loans
|
|
|
|
90 or more
|
|
|
30-59 Days
|
|
60-89 Days
|
|
90 or More Days
|
|
Total
|
|
Current
|
|
No credit deterior- ation
|
|
Credit deterior-ation
|
|
Total Loans
|
|
days past due and Accruing
|
Commercial and agricultural
|
|
$
|
335
|
|
|
$
|
425
|
|
|
$
|
2,755
|
|
|
$
|
3,515
|
|
|
$
|
62,702
|
|
|
$
|
28,872
|
|
|
$
|
—
|
|
|
$
|
95,089
|
|
|
$
|
305
|
|
Real estate - construction
|
|
1,850
|
|
|
2,206
|
|
|
21,438
|
|
|
25,494
|
|
|
59,671
|
|
|
7,641
|
|
|
—
|
|
|
92,806
|
|
|
1,400
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
4,544
|
|
|
2,253
|
|
|
14,125
|
|
|
20,922
|
|
|
379,909
|
|
|
52,894
|
|
|
—
|
|
|
453,725
|
|
|
292
|
|
Commercial
|
|
2,926
|
|
|
6,645
|
|
|
16,330
|
|
|
25,901
|
|
|
265,861
|
|
|
239,621
|
|
|
—
|
|
|
531,383
|
|
|
1,003
|
|
Consumer
|
|
740
|
|
|
278
|
|
|
63
|
|
|
1,081
|
|
|
41,643
|
|
|
1,808
|
|
|
—
|
|
|
44,532
|
|
|
—
|
|
Total
|
|
$
|
10,395
|
|
|
$
|
11,807
|
|
|
$
|
54,711
|
|
|
$
|
76,913
|
|
|
$
|
809,786
|
|
|
$
|
330,836
|
|
|
$
|
—
|
|
|
$
|
1,217,535
|
|
|
$
|
3,000
|
|
A loan is considered impaired, based on current information and events, if it is probable that FNB will be unable to collect the scheduled payments or principal and interest when due according to the contractual terms of the loan agreement.If the loan has been modified to provide relief to the borrower, the loan is deemed to be impaired if all principal and interest will not be repaid according to the original contract. All loans meeting the definition of Doubtful should be considered impaired.
When a loan has been determined to be impaired, the amount of the impairment is measured using the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, the observable market price of the loan, or the fair value of the collateral if the loan is collateral dependent. When the present value of expected future cash flows is used, the effective interest rate is the original contractual interest rate of the loan adjusted for any premium or discount. When the contractual interest rate is variable, the effective interest rate of the loan changes over time. A specific reserve is established as a component of the ALL when a loan has been determined to be impaired. Subsequent to the initial measurement of impairment, if there is a significant change to the impaired loan's expected future cash flows, or if actual cash flows are significantly different from the cash flows previously estimated, FNB recalculates the impairment and appropriately adjusts the specific reserve. Similarly, if FNB measures impairment based on the observable market price of an impaired loan or the fair value of the collateral of an impaired collateral-dependent loan, FNB will adjust the specific reserve if there is a significant change in either of those bases.
When a loan is impaired and principal and interest is in doubt when contractually due, interest income is not recognized. Cash receipts received on nonaccruing impaired loans within any class are generally applied entirely against principal until the loan has been collected in full, after which time any additional cash receipts are recognized as interest income. Cash receipts received on accruing impaired loans within any class are applied in the same manner as accruing loans that are not considered impaired.
The following table summarizes information relative to impaired loans for the quarters ended on the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
December 31, 2011
|
(dollars in thousands)
|
|
Balance
|
Associated Reserves
|
|
Balance
|
Associated Reserves
|
Impaired loans, held for sale
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
4,529
|
|
$
|
—
|
|
Impaired loans, not individually reviewed for impairment
|
|
7,274
|
|
—
|
|
|
5,127
|
|
—
|
|
Impaired loans, individually reviewed, with no impairment
|
|
72,402
|
|
—
|
|
|
53,884
|
|
—
|
|
Impaired loans, individually reviewed, with impairment
|
|
14,769
|
|
4,522
|
|
|
42,357
|
|
11,090
|
|
Total impaired loans, excluding purchased impaired *
|
|
$
|
94,445
|
|
$
|
4,522
|
|
|
$
|
105,897
|
|
$
|
11,090
|
|
|
|
|
|
|
|
|
Purchased impaired loans with subsequent deterioration
|
|
$
|
31,801
|
|
3,296
|
|
|
$
|
—
|
|
—
|
|
Purchased impaired loans with no subsequent deterioration
|
|
$
|
220,404
|
|
—
|
|
|
$
|
330,836
|
|
—
|
|
Total Reserves
|
|
|
$
|
7,818
|
|
|
|
$
|
11,090
|
|
|
|
|
|
|
|
|
Average impaired loans calculated using a simple average
|
|
$
|
98,567
|
|
|
|
$
|
112,600
|
|
|
* Included at September 30, 2012 and December 31, 2011 were
$3.6 million
and
$2.9 million
, respectively, in restructured and performing loans.
The following table presents loans held for investment on nonaccrual status by loan class for the dates indicated below:
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
September 30,
|
|
December 31,
|
|
|
2012
|
|
2011
|
Loans held for investment:
|
|
|
|
|
Commercial and agricultural
|
|
$
|
2,476
|
|
|
$
|
4,636
|
|
Real estate - construction
|
|
18,506
|
|
|
30,844
|
|
Real estate - mortgage:
|
|
|
|
|
1-4 family residential
|
|
22,073
|
|
|
26,048
|
|
Commercial
|
|
41,794
|
|
|
36,666
|
|
Consumer
|
|
223
|
|
|
250
|
|
Total nonaccrual loans
|
|
$
|
85,072
|
|
|
$
|
98,444
|
|
Loans more than 90 days delinquent, still on accrual
|
|
$
|
1,071
|
|
|
$
|
3,000
|
|
Total nonperforming loans
|
|
$
|
86,143
|
|
|
$
|
101,444
|
|
The following table presents loans held for sale on nonaccrual status by loan class for the dates indicated below:
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
September 30,
|
|
December 31,
|
|
|
2012
|
|
2011
|
Loans held for sale:
|
|
|
|
|
Real estate - construction
|
|
$
|
—
|
|
|
$
|
1,807
|
|
Real estate - mortgage:
|
|
|
|
|
1-4 family residential
|
|
—
|
|
|
517
|
|
Commercial
|
|
—
|
|
|
2,205
|
|
Consumer
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
4,529
|
|
The following table presents individually reviewed impaired loans and purchased impaired loans with subsequent credit deterioration, segregated by portfolio segment, and the corresponding reserve for impaired loan losses as of
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
(dollars in thousands)
|
|
Recorded
|
|
Principal
|
|
Related
|
|
|
Investment
|
|
Balance
|
|
Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
1,295
|
|
|
$
|
2,017
|
|
|
$
|
—
|
|
Real estate - construction
|
|
14,887
|
|
|
20,816
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
1-4 family residential
|
|
13,923
|
|
|
16,640
|
|
|
—
|
|
Commercial
|
|
42,297
|
|
|
50,861
|
|
|
—
|
|
Consumer
|
|
—
|
|
|
234
|
|
|
—
|
|
Total
|
|
$
|
72,402
|
|
|
$
|
90,568
|
|
|
$
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
1,272
|
|
|
$
|
1,280
|
|
|
$
|
815
|
|
Real estate - construction
|
|
2,623
|
|
|
2,914
|
|
|
1,158
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
1-4 family residential
|
|
6,091
|
|
|
7,272
|
|
|
1,797
|
|
Commercial
|
|
4,683
|
|
|
4,758
|
|
|
652
|
|
Consumer
|
|
100
|
|
|
100
|
|
|
100
|
|
Total
|
|
$
|
14,769
|
|
|
$
|
16,324
|
|
|
$
|
4,522
|
|
Total individually evaluated impaired loans
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
2,567
|
|
|
$
|
3,297
|
|
|
$
|
815
|
|
Real estate - construction
|
|
17,510
|
|
|
23,730
|
|
|
1,158
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
1-4 family residential
|
|
20,014
|
|
|
23,912
|
|
|
1,797
|
|
Commercial
|
|
46,980
|
|
|
55,619
|
|
|
652
|
|
Consumer
|
|
100
|
|
|
334
|
|
|
100
|
|
Total
|
|
$
|
87,171
|
|
|
$
|
106,892
|
|
|
$
|
4,522
|
|
|
|
|
|
|
|
|
PI loans with subsequent credit deterioration:
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
15,660
|
|
|
$
|
15,685
|
|
|
$
|
1,774
|
|
Real estate - construction
|
|
2,221
|
|
|
2,195
|
|
|
135
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
1-4 family residential
|
|
2,595
|
|
|
2,879
|
|
|
604
|
|
Commercial
|
|
11,291
|
|
|
11,829
|
|
|
749
|
|
Consumer
|
|
34
|
|
|
44
|
|
|
34
|
|
Total
|
|
$
|
31,801
|
|
|
$
|
32,632
|
|
|
$
|
3,296
|
|
The following table presents individually reviewed impaired loans, segregated by portfolio segment, and the corresponding reserve for impaired loan losses as of
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
(dollars in thousands)
|
|
Recorded
|
|
Principal
|
|
Related
|
|
|
Investment
|
|
Balance
|
|
Allowance
|
With no related allowance recorded:
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
2,354
|
|
|
$
|
4,346
|
|
|
$
|
—
|
|
Real estate - construction
|
|
16,351
|
|
|
25,714
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
1-4 family residential
|
|
13,003
|
|
|
19,657
|
|
|
—
|
|
Commercial
|
|
22,176
|
|
|
26,964
|
|
|
—
|
|
Consumer
|
|
—
|
|
|
102
|
|
|
—
|
|
Total
|
|
$
|
53,884
|
|
|
$
|
76,783
|
|
|
$
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
1,536
|
|
|
$
|
2,047
|
|
|
$
|
1,506
|
|
Real estate - construction
|
|
14,109
|
|
|
14,718
|
|
|
4,899
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
1-4 family residential
|
|
11,883
|
|
|
12,328
|
|
|
2,140
|
|
Commercial
|
|
14,659
|
|
|
14,943
|
|
|
2,415
|
|
Consumer
|
|
170
|
|
|
172
|
|
|
130
|
|
Total
|
|
$
|
42,357
|
|
|
$
|
44,208
|
|
|
$
|
11,090
|
|
Total individually evaluated impaired loans
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
3,890
|
|
|
$
|
6,393
|
|
|
$
|
1,506
|
|
Real estate - construction
|
|
30,460
|
|
|
40,432
|
|
|
4,899
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
1-4 family residential
|
|
24,886
|
|
|
31,985
|
|
|
2,140
|
|
Commercial
|
|
36,835
|
|
|
41,907
|
|
|
2,415
|
|
Consumer
|
|
170
|
|
|
274
|
|
|
130
|
|
Total
|
|
$
|
96,241
|
|
|
$
|
120,991
|
|
|
$
|
11,090
|
|
There were no PI loans with subsequent credit deterioration at December 31, 2011.
The following summary includes impaired loans individually reviewed as well as impaired loans held for sale. Average recorded investment and interest income recognized on impaired loans, segregated by portfolio segment, is shown in the following table as of
September 30, 2012
and
September 30, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months Ended
|
|
For Three Months Ended
|
|
|
September 30, 2012
|
|
September 30, 2011
|
|
|
Average
|
|
Interest
|
|
Average
|
|
Interest
|
(dollars in thousands)
|
|
Recorded
|
|
Income
|
|
Recorded
|
|
Income
|
|
|
Investment
|
|
Recognized
|
|
Investment
|
|
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
1,557
|
|
|
$
|
56
|
|
|
$
|
2,417
|
|
|
$
|
—
|
|
Real estate - construction
|
|
15,484
|
|
|
104
|
|
|
29,789
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
14,265
|
|
|
81
|
|
|
13,585
|
|
|
—
|
|
Commercial
|
|
44,480
|
|
|
567
|
|
|
29,453
|
|
|
—
|
|
Consumer
|
|
162
|
|
|
4
|
|
|
98
|
|
|
—
|
|
Total
|
|
$
|
75,948
|
|
|
$
|
812
|
|
|
$
|
75,342
|
|
|
$
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
1,274
|
|
|
$
|
6
|
|
|
$
|
2,751
|
|
|
$
|
—
|
|
Real estate - construction
|
|
2,802
|
|
|
9
|
|
|
47,884
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
6,436
|
|
|
41
|
|
|
16,268
|
|
|
—
|
|
Commercial
|
|
4,689
|
|
|
27
|
|
|
21,647
|
|
|
—
|
|
Consumer
|
|
100
|
|
|
1
|
|
|
311
|
|
|
—
|
|
Total
|
|
$
|
15,301
|
|
|
$
|
84
|
|
|
$
|
88,861
|
|
|
$
|
—
|
|
Total:
|
|
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
2,831
|
|
|
$
|
62
|
|
|
$
|
5,168
|
|
|
$
|
—
|
|
Real estate - construction
|
|
18,286
|
|
|
113
|
|
|
77,673
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
20,701
|
|
|
122
|
|
|
29,853
|
|
|
—
|
|
Commercial
|
|
49,169
|
|
|
594
|
|
|
51,100
|
|
|
—
|
|
Consumer
|
|
262
|
|
|
5
|
|
|
409
|
|
|
—
|
|
Total
|
|
$
|
91,249
|
|
|
$
|
896
|
|
|
$
|
164,203
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Nine Months Ended
|
|
For Nine Months Ended
|
|
|
September 30, 2012
|
|
September 30, 2011
|
|
|
Average
|
|
Interest
|
|
Average
|
|
Interest
|
(dollars in thousands)
|
|
Recorded
|
|
Income
|
|
Recorded
|
|
Income
|
|
|
Investment
|
|
Recognized
|
|
Investment
|
|
Recognized
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
1,879
|
|
|
$
|
152
|
|
|
$
|
3,305
|
|
|
$
|
—
|
|
Real estate - construction
|
|
18,140
|
|
|
350
|
|
|
49,617
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
15,096
|
|
|
292
|
|
|
18,628
|
|
|
1
|
|
Commercial
|
|
46,051
|
|
|
1,388
|
|
|
49,736
|
|
|
1
|
|
Consumer
|
|
279
|
|
|
6
|
|
|
196
|
|
|
—
|
|
Total
|
|
$
|
81,445
|
|
|
$
|
2,188
|
|
|
$
|
121,482
|
|
|
$
|
2
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
1,266
|
|
|
$
|
36
|
|
|
$
|
5,803
|
|
|
$
|
—
|
|
Real estate - construction
|
|
2,873
|
|
|
32
|
|
|
60,131
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
6,869
|
|
|
163
|
|
|
16,027
|
|
|
—
|
|
Commercial
|
|
4,687
|
|
|
145
|
|
|
42,990
|
|
|
1
|
|
Consumer
|
|
95
|
|
|
2
|
|
|
231
|
|
|
—
|
|
Total
|
|
$
|
15,790
|
|
|
$
|
378
|
|
|
$
|
125,182
|
|
|
$
|
1
|
|
Total:
|
|
|
|
|
|
|
|
|
Commercial and agricultural
|
|
$
|
3,145
|
|
|
$
|
188
|
|
|
$
|
9,108
|
|
|
$
|
—
|
|
Real estate - construction
|
|
21,013
|
|
|
382
|
|
|
109,748
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
21,965
|
|
|
455
|
|
|
34,655
|
|
|
1
|
|
Commercial
|
|
50,738
|
|
|
1,533
|
|
|
92,726
|
|
|
2
|
|
Consumer
|
|
374
|
|
|
8
|
|
|
427
|
|
|
—
|
|
Total
|
|
$
|
97,235
|
|
|
$
|
2,566
|
|
|
$
|
246,664
|
|
|
$
|
3
|
|
Impaired loans also include loans for which FNB may elect to grant a concession, providing terms more favorable than those prevalent in the market (e.g., rate, amortization term), and formally restructure due to the weakening credit status of a borrower. Restructuring is designed to facilitate a repayment plan that minimizes the potential losses that FNB otherwise may have to incur. If these impaired loans are on nonaccruing status as of the date of restructuring, the loans are included in nonperforming loans. Nonperforming restructured loans will remain as nonperforming until the borrower can demonstrate adherence to the restructured terms for a period of no less than six months and when it is otherwise determined that continued adherence is reasonably assured. Some restructured loans continue as accruing loans after restructuring if the borrower is not past due at the time of restructuring, adequate collateral valuations support the restructured loans, and the cash flows of the underlying business appear adequate to support the restructured debt service. Not included in nonperforming loans are loans that have been restructured that were performing as of the restructure date. At
September 30, 2012
, there was
$21.4 million
in restructured loans, of which
$3.6 million
in loans were accruing and in a performing status. At
December 31, 2011
, there was
$28.3 million
in restructured loans, of which
$2.9 million
in loans were accruing and in a performing status.
Sale of Problem Loans
During 2011 and 2012, FNB sold loans to third party buyers in order to reduce its problem loan exposure. These loans were transferred to loans held for sale at the time FNB received a signed contract for the purchase of the loans. Prior to transferring these loans to loans held for sale, the loans were marked down to the contract price less associated selling costs. All transactions were conducted at arm's length and loans were sold without recourse.
The following table presents sold loans by portfolio segment for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months Ended September 30, 2012
|
|
For Three Months Ended September 30, 2011
|
(dollars in thousands)
|
Number
|
|
Recorded
|
|
Contract
|
|
Number
|
|
Recorded
|
|
Contract
|
|
of Loans
|
|
Investment
|
|
Pricing
|
|
of Loans
|
|
Investment
|
|
Pricing
|
Commercial and agricultural
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
9
|
|
|
$
|
217
|
|
|
$
|
1,238
|
|
Real estate - construction
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
6,406
|
|
|
4,927
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial
|
1
|
|
|
602
|
|
|
540
|
|
|
5
|
|
|
6,723
|
|
|
4,839
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
96
|
|
|
190
|
|
Total
|
1
|
|
|
$
|
602
|
|
|
$
|
540
|
|
|
23
|
|
|
$
|
13,442
|
|
|
$
|
11,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Nine Months Ended September 30, 2012
|
|
For Nine Months Ended September 30, 2011
|
(dollars in thousands)
|
Number
|
|
Recorded
|
|
Contract
|
|
Number
|
|
Recorded
|
|
Contract
|
|
of Loans
|
|
Investment
|
|
Pricing
|
|
of Loans
|
|
Investment
|
|
Pricing
|
Commercial and agricultural
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
14
|
|
|
$
|
3,505
|
|
|
$
|
3,190
|
|
Real estate - construction
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
16,723
|
|
|
11,899
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
7
|
|
|
1,865
|
|
|
1,896
|
|
|
1
|
|
|
1,335
|
|
|
900
|
|
Commercial
|
2
|
|
|
4,402
|
|
|
4,590
|
|
|
8
|
|
|
12,071
|
|
|
10,186
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
96
|
|
|
190
|
|
Total
|
9
|
|
|
$
|
6,267
|
|
|
$
|
6,486
|
|
|
37
|
|
|
$
|
33,730
|
|
|
$
|
26,365
|
|
During the three-month period ending
September 30, 2012
, one non-performing loan was placed under contract for sale, and was sold during the quarter.
Granite Purchased Loans
Granite Purchased Loans include PI Loans and PC Loans. PC Loans included performing revolving consumer and commercial loans on the acquisition date.
PI Loans are segregated into pools and recorded at estimated fair value on the date of acquisition without the carryover of the related ALL. PI Loans are accounted for under ASC 310-30 when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition we will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the date of acquisition may include statistics such as past due status, nonaccrual status and risk grade. PI Loans generally meet FNB's definition for nonaccrual status; however, even if the borrower is not currently making payments, FNB will classify loans as accruing if we can reasonably estimate the amount and timing of future cash flows.
The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference.
Periodically, we estimate the expected cash flows for each pool of the PI Loans and evaluate whether the expected cash flows for each pool have changed from prior estimates. Decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges, or reclassification from nonaccretable difference to accretable yield with a positive impact on future interest income. Excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows.
We have elected to account for the Granite Purchased PI Loans under ASC 310-30 and the Granite Purchased PC Loans under ASC 310-20.
At
September 30, 2012
, our financial statements reflected a PI Loan ALL of
$3.3 million
and an ALL for originated and PC Loans of
$0.5 million
. All Granite Purchased PI Loans are presented on an accruing basis.
The following table presents the balance of all Granite Purchased Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2012
|
(dollars in thousands)
|
|
Purchased Impaired
|
|
Purchased Contractual
|
|
Total Purchased Loans
|
|
Unpaid
Principal
Balance
|
Commercial and agricultural
|
|
$
|
16,681
|
|
|
$
|
6,425
|
|
|
$
|
23,106
|
|
|
$
|
22,955
|
|
Real estate - construction
|
|
2,764
|
|
|
—
|
|
|
2,764
|
|
|
2,833
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
42,538
|
|
|
28,672
|
|
|
71,210
|
|
|
74,075
|
|
Commercial
|
|
188,824
|
|
|
—
|
|
|
188,824
|
|
|
197,006
|
|
Consumer
|
|
1,398
|
|
|
—
|
|
|
1,398
|
|
|
1,284
|
|
Total
|
|
$
|
252,205
|
|
|
$
|
35,097
|
|
|
$
|
287,302
|
|
|
$
|
298,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011
|
(dollars in thousands)
|
|
Purchased Impaired
|
|
Purchased Contractual
|
|
Total
Purchased Loans
|
|
Unpaid
Principal
Balance
|
Commercial and agricultural
|
|
$
|
28,872
|
|
|
$
|
8,061
|
|
|
$
|
36,933
|
|
|
$
|
39,531
|
|
Real estate - construction
|
|
7,641
|
|
|
—
|
|
|
7,641
|
|
|
8,413
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
52,894
|
|
|
34,590
|
|
|
87,484
|
|
|
93,310
|
|
Commercial
|
|
239,621
|
|
|
—
|
|
|
239,621
|
|
|
261,076
|
|
Consumer
|
|
1,808
|
|
|
1
|
|
|
1,809
|
|
|
1,800
|
|
Total
|
|
$
|
330,836
|
|
|
$
|
42,652
|
|
|
$
|
373,488
|
|
|
$
|
404,130
|
|
The tables below include only those Granite Purchased Loans accounted for under the expected cash flow method (PI Loans) for the periods indicated. These tables do not include PC Loans, including Granite Purchased PC Loans or purchased performing residential mortgage loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Nine Months Ended September 30, 2012
|
|
For Nine Months Ended December 31, 2011
|
|
|
Purchased Impaired
|
|
Purchased Impaired
|
(dollars in thousands)
|
|
Carrying
Amount
|
|
Future
Accretion
|
|
Carrying
Amount
|
|
Future Accretion
|
Balance, beginning of period
|
|
$
|
330,836
|
|
|
$
|
47,804
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Addition from Bank of Granite Corp acquisition
|
|
—
|
|
|
—
|
|
|
351,121
|
|
|
52,581
|
|
Accretion
|
|
15,831
|
|
|
(15,831
|
)
|
|
4,777
|
|
|
(4,777
|
)
|
Increase in future accretion
|
|
—
|
|
|
4,592
|
|
|
—
|
|
|
—
|
|
Payments received
|
|
(84,944
|
)
|
|
—
|
|
|
(24,467
|
)
|
|
—
|
|
Foreclosed and transferred to OREO
|
|
(9,518
|
)
|
|
—
|
|
|
(595
|
)
|
|
—
|
|
Subtotal before allowance
|
|
252,205
|
|
|
36,565
|
|
|
330,836
|
|
|
47,804
|
|
Allowance for credit losses
|
|
(3,296
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net carrying amount, end of period
|
|
$
|
248,909
|
|
|
$
|
36,565
|
|
|
$
|
330,836
|
|
|
$
|
47,804
|
|
Allowance for Loan Losses
An analysis of the changes in the ALL is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months Ended
|
|
For Nine Months Ended
|
(dollars in thousands)
|
|
September 30,
|
|
September 30,
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Balance, beginning of period
|
|
$
|
38,551
|
|
|
$
|
59,366
|
|
|
$
|
39,360
|
|
|
$
|
93,687
|
|
Provision for losses charged to continuing operations
|
|
32
|
|
|
7,181
|
|
|
10,877
|
|
|
60,944
|
|
Net charge-offs:
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
(9,276
|
)
|
|
(24,376
|
)
|
|
(23,580
|
)
|
|
(115,948
|
)
|
Recoveries
|
|
1,552
|
|
|
1,950
|
|
|
4,202
|
|
|
5,438
|
|
Net charge-offs
|
|
(7,724
|
)
|
|
(22,426
|
)
|
|
(19,378
|
)
|
|
(110,510
|
)
|
Balance, end of period
|
|
$
|
30,859
|
|
|
$
|
44,121
|
|
|
$
|
30,859
|
|
|
$
|
44,121
|
|
Annualized net charge-offs during the period to average loans
|
|
2.46
|
%
|
|
9.07
|
%
|
|
2.06
|
%
|
|
13.09
|
%
|
Annualized net charge-offs during the period to ALL
|
|
100.12
|
%
|
|
201.66
|
%
|
|
83.73
|
%
|
|
334.88
|
%
|
Allowance for loan losses to loans held for investment (1)
|
|
2.51
|
%
|
|
4.95
|
%
|
|
2.51
|
%
|
|
4.95
|
%
|
(1) Excludes discontinued operations.
The following table presents ALL activity by portfolio segment for the three months ended
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Mortgage
|
|
|
|
|
(dollars in thousands)
|
|
Commercial and Agricultural
|
|
Real Estate - Construction
|
|
1-4 Family Residential
|
|
Commercial
|
|
Consumer
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at July 1, 2012
|
|
$
|
7,151
|
|
|
$
|
11,320
|
|
|
$
|
8,784
|
|
|
$
|
9,218
|
|
|
$
|
2,078
|
|
|
$
|
38,551
|
|
Charge-offs
|
|
(1,156
|
)
|
|
(2,465
|
)
|
|
(1,646
|
)
|
|
(2,602
|
)
|
|
(1,407
|
)
|
|
(9,276
|
)
|
Recoveries
|
|
286
|
|
|
323
|
|
|
69
|
|
|
388
|
|
|
486
|
|
|
1,552
|
|
Provision
|
|
(1,128
|
)
|
|
(3,195
|
)
|
|
2,787
|
|
|
54
|
|
|
1,514
|
|
|
32
|
|
Ending balance at September 30, 2012
|
|
$
|
5,153
|
|
|
$
|
5,983
|
|
|
$
|
9,994
|
|
|
$
|
7,058
|
|
|
$
|
2,671
|
|
|
$
|
30,859
|
|
The following table presents ALL activity by portfolio segment for the three months ended
September 30, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Mortgage
|
|
|
|
|
(dollars in thousands)
|
|
Commercial and Agricultural
|
|
Real Estate - Construction
|
|
1-4 Family Residential
|
|
Commercial
|
|
Consumer
|
|
Total
|
ALL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at July 1, 2011
|
|
$
|
6,527
|
|
|
$
|
28,419
|
|
|
$
|
9,030
|
|
|
$
|
13,619
|
|
|
$
|
1,771
|
|
|
$
|
59,366
|
|
Charge-offs
|
|
(1,988
|
)
|
|
(13,740
|
)
|
|
(1,958
|
)
|
|
(5,848
|
)
|
|
(842
|
)
|
|
(24,376
|
)
|
Recoveries
|
|
226
|
|
|
1,217
|
|
|
59
|
|
|
96
|
|
|
352
|
|
|
1,950
|
|
Provision
|
|
204
|
|
|
4,606
|
|
|
(134
|
)
|
|
2,259
|
|
|
246
|
|
|
7,181
|
|
Ending balance at September 30, 2011
|
|
$
|
4,969
|
|
|
$
|
20,502
|
|
|
$
|
6,997
|
|
|
$
|
10,126
|
|
|
$
|
1,527
|
|
|
$
|
44,121
|
|
The following table presents ALL activity by portfolio segment for the
nine
months ended
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Mortgage
|
|
|
|
|
(dollars in thousands)
|
|
Commercial and Agricultural
|
|
Real Estate - Construction
|
|
1-4 Family Residential
|
|
Commercial
|
|
Consumer
|
|
Total
|
ALL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2012
|
|
$
|
5,776
|
|
|
$
|
11,995
|
|
|
$
|
8,885
|
|
|
$
|
11,063
|
|
|
$
|
1,641
|
|
|
$
|
39,360
|
|
Charge-offs
|
|
(2,774
|
)
|
|
(8,761
|
)
|
|
(4,805
|
)
|
|
(3,594
|
)
|
|
(3,646
|
)
|
|
(23,580
|
)
|
Recoveries
|
|
777
|
|
|
1,169
|
|
|
447
|
|
|
725
|
|
|
1,084
|
|
|
4,202
|
|
Provision
|
|
1,374
|
|
|
1,580
|
|
|
5,467
|
|
|
(1,136
|
)
|
|
3,592
|
|
|
10,877
|
|
Ending balance at September 30, 2012
|
|
$
|
5,153
|
|
|
$
|
5,983
|
|
|
$
|
9,994
|
|
|
$
|
7,058
|
|
|
$
|
2,671
|
|
|
$
|
30,859
|
|
The following table presents ALL activity by portfolio segment for the
nine
months ended
September 30, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Mortgage
|
|
|
|
|
(dollars in thousands)
|
|
Commercial and Agricultural
|
|
Real Estate - Construction
|
|
1-4 Family Residential
|
|
Commercial
|
|
Consumer
|
|
Total
|
ALL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1, 2011
|
|
$
|
11,144
|
|
|
$
|
46,792
|
|
|
$
|
7,742
|
|
|
$
|
26,851
|
|
|
$
|
1,158
|
|
|
$
|
93,687
|
|
Charge-offs
|
|
(10,455
|
)
|
|
(57,912
|
)
|
|
(8,579
|
)
|
|
(36,028
|
)
|
|
(2,974
|
)
|
|
(115,948
|
)
|
Recoveries
|
|
759
|
|
|
2,121
|
|
|
621
|
|
|
838
|
|
|
1,099
|
|
|
5,438
|
|
Provision
|
|
3,521
|
|
|
29,501
|
|
|
7,213
|
|
|
18,465
|
|
|
2,244
|
|
|
60,944
|
|
Ending balance at September 30, 2011
|
|
$
|
4,969
|
|
|
$
|
20,502
|
|
|
$
|
6,997
|
|
|
$
|
10,126
|
|
|
$
|
1,527
|
|
|
$
|
44,121
|
|
The following table details the recorded investment in loans related to each segment in the allowance for loan losses by portfolio segment and disaggregated on the basis of impairment methodology at
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Mortgage
|
|
|
|
|
(dollars in thousands)
|
|
Commercial and Agricultural
|
|
Real Estate - Construction
|
|
1-4 Family Residential
|
|
Commercial
|
|
Consumer
|
|
Total
|
ALL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
815
|
|
|
$
|
1,158
|
|
|
$
|
1,797
|
|
|
$
|
652
|
|
|
$
|
100
|
|
|
$
|
4,522
|
|
Collectively evaluated for impairment
|
|
2,564
|
|
|
4,690
|
|
|
7,593
|
|
|
5,657
|
|
|
2,537
|
|
|
23,041
|
|
PI loans evaluated for credit impairment
|
|
1,774
|
|
|
135
|
|
|
604
|
|
|
749
|
|
|
34
|
|
|
3,296
|
|
PI loans with no credit deterioration
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total ALL evaluated for impairment
|
|
$
|
5,153
|
|
|
$
|
5,983
|
|
|
$
|
9,994
|
|
|
$
|
7,058
|
|
|
$
|
2,671
|
|
|
$
|
30,859
|
|
Loans held for investment
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
2,567
|
|
|
$
|
17,510
|
|
|
$
|
20,014
|
|
|
$
|
46,980
|
|
|
$
|
100
|
|
|
$
|
87,171
|
|
Collectively evaluated for impairment
|
|
53,421
|
|
|
40,989
|
|
|
527,699
|
|
|
227,369
|
|
|
42,941
|
|
|
892,419
|
|
PI loans with subsequent credit deterioration
|
|
15,660
|
|
|
2,221
|
|
|
2,595
|
|
|
11,291
|
|
|
34
|
|
|
31,801
|
|
PI loans with no credit deterioration
|
|
1,021
|
|
|
543
|
|
|
39,943
|
|
|
177,533
|
|
|
1,364
|
|
|
220,404
|
|
Total loans evaluated for impairment
|
|
$
|
72,669
|
|
|
$
|
61,263
|
|
|
$
|
590,251
|
|
|
$
|
463,173
|
|
|
$
|
44,439
|
|
|
$
|
1,231,795
|
|
The following table details the recorded investment in loans related to each segment in the allowance for loan losses by portfolio segment and disaggregated on the basis of impairment methodology at
December 31, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate - Mortgage
|
|
|
|
|
(dollars in thousands)
|
|
Commercial and Agricultural
|
|
Real Estate - Construction
|
|
1-4 Family Residential
|
|
Commercial
|
|
Consumer
|
|
Total
|
ALL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
1,506
|
|
|
$
|
4,899
|
|
|
$
|
2,140
|
|
|
$
|
2,415
|
|
|
$
|
130
|
|
|
$
|
11,090
|
|
Collectively evaluated for impairment
|
|
4,270
|
|
|
7,096
|
|
|
6,745
|
|
|
8,648
|
|
|
1,511
|
|
|
28,270
|
|
PI loans evaluated for credit impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
PI loans with no credit deterioration
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total ALL evaluated for impairment
|
|
$
|
5,776
|
|
|
$
|
11,995
|
|
|
$
|
8,885
|
|
|
$
|
11,063
|
|
|
$
|
1,641
|
|
|
$
|
39,360
|
|
Loans held for investment
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
3,890
|
|
|
$
|
30,460
|
|
|
$
|
24,886
|
|
|
$
|
36,835
|
|
|
$
|
170
|
|
|
$
|
96,241
|
|
Collectively evaluated for impairment
|
|
62,327
|
|
|
54,705
|
|
|
375,945
|
|
|
254,927
|
|
|
42,554
|
|
|
790,458
|
|
PI loans with subsequent credit deterioration
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
PI loans with no credit deterioration
|
|
28,872
|
|
|
7,641
|
|
|
52,894
|
|
|
239,621
|
|
|
1,808
|
|
|
330,836
|
|
Total loans evaluated for impairment
|
|
$
|
95,089
|
|
|
$
|
92,806
|
|
|
$
|
453,725
|
|
|
$
|
531,383
|
|
|
$
|
44,532
|
|
|
$
|
1,217,535
|
|
Troubled Debt Restructuring
The following table presents a breakdown of troubled debt restructurings that were restructured during the three months ended
September 30, 2012
, segregated by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months Ended September 30, 2012
|
|
For Three Months Ended September 30, 2011
|
|
|
|
|
Pre-Modification
|
|
Post-Modification
|
|
|
|
Pre-Modification
|
|
Post-Modification
|
|
|
|
|
Outstanding
|
|
Outstanding
|
|
|
|
Outstanding
|
|
Outstanding
|
(dollars in thousands)
|
|
Number
|
|
Recorded
|
|
Recorded
|
|
Number
|
|
Recorded
|
|
Recorded
|
|
|
of Loans
|
|
Investment
|
|
Investment
|
|
of Loans
|
|
Investment
|
|
Investment
|
Commercial and agricultural
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Real estate - construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
1
|
|
|
202
|
|
|
202
|
|
|
1
|
|
|
155
|
|
|
155
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
1,651
|
|
|
1,651
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
1
|
|
|
$
|
202
|
|
|
$
|
202
|
|
|
$
|
3
|
|
|
$
|
1,806
|
|
|
$
|
1,806
|
|
The following table presents a breakdown of troubled debt restructurings that were restructured during the nine months ended
September 30, 2012
, segregated by portfolio segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Nine Months Ended September 30, 2012
|
|
For Nine Months Ended September 30, 2011
|
|
|
|
|
Pre-Modification
|
|
Post-Modification
|
|
|
|
Pre-Modification
|
|
Post-Modification
|
|
|
|
|
Outstanding
|
|
Outstanding
|
|
|
|
Outstanding
|
|
Outstanding
|
(dollars in thousands)
|
|
Number
|
|
Recorded
|
|
Recorded
|
|
Number
|
|
Recorded
|
|
Recorded
|
|
|
of Loans
|
|
Investment
|
|
Investment
|
|
of Loans
|
|
Investment
|
|
Investment
|
Commercial and agricultural
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
555
|
|
|
$
|
555
|
|
Real estate - construction
|
|
9
|
|
|
2,526
|
|
|
1,603
|
|
|
6
|
|
|
3,612
|
|
|
3,612
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
3
|
|
|
260
|
|
|
260
|
|
|
8
|
|
|
401
|
|
|
401
|
|
Commercial
|
|
8
|
|
|
1,356
|
|
|
1,353
|
|
|
13
|
|
|
7,904
|
|
|
7,904
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
20
|
|
|
$
|
4,142
|
|
|
$
|
3,216
|
|
|
$
|
33
|
|
|
$
|
12,472
|
|
|
$
|
12,472
|
|
During the three months ended
September 30, 2012
, FNB modified
1
loan that was considered to be a troubled debt restructuring. FNB extended the terms for this loan, but did not modify the interest rate. During the nine months ended
September 30, 2012
, FNB modified twenty loans that was considered to be troubled debt restructurings. FNB extended the terms for sixteen of these loans, the interest rate was lowered for two of these loans, and the two remaining loans were modified both ways.
There were
no
loans restructured in the twelve months prior to
September 30, 2012
that went into default during the three months or nine months ended
September 30, 2012
. There were also
no
loans restructured in the twelve months prior to
September 30, 2011
that went into default during the three months or nine months ended
September 30, 2011
.
In the determination of the ALL, management considers troubled debt restructurings and any subsequent defaults in these restructurings as impaired loans. The amount of the impairment is measured using the present value of expected future cash flows discounted at the loan's effective interest rate, the observable market price of the loan, or the fair value of the collateral if the loan is collateral dependent.
Unfunded Commitments
The reserve for unfunded commitments, which is included in other liabilities, is calculated by determining the type of commitment and the remaining unfunded commitment for each loan. Based on the type of commitment, an expected usage percentage to the remaining unfunded balance is applied. The expected usage percentage is multiplied by the historical losses and qualitative and environmental factors for each loans pool as defined in the regular ALL calculation to determine the appropriate level of reserve. The expected usage percentages for each commitment type are as follows:
|
|
•
|
Construction draws -
100%
|
|
|
•
|
Equity lines of credit -
50%
|
|
|
•
|
Letters of Credit -
10%
|
The reserve for unfunded commitments was
$0.9 million
as of
September 30, 2012
and
$0.6 million
at
December 31, 2011
.
6. Other Real Estate Owned and Personal Property Acquired in Settlement of Loans
Other Real Estate Owned ("OREO") consists of real estate acquired through foreclosure or deed in lieu thereof. The property is classified as held for sale. The property is initially carried at fair value based on recent appraisals, less estimated costs to sell. Declines in the fair value of properties included in other real estate below carrying value are recognized by a charge to income.
Total OREO and personal property acquired in settlement of loans decreased
$29.6 million
during the first
nine
months of
2012
from
$110.4 million
at
December 31, 2011
, to
$80.8 million
at
September 30, 2012
. This represents
48%
of total nonperforming assets. At
December 31, 2011
, OREO and personal property acquired in settlement of loans represented
51%
of total nonperforming assets.
The following table summarizes OREO and personal property acquired in settlement of loans at the periods indicated:
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
September 30, 2012
|
|
December 31, 2011
|
|
Real estate acquired in settlement of loans
|
|
$
|
80,482
|
|
|
$
|
110,009
|
|
Personal property acquired in settlement of loans
|
|
318
|
|
|
377
|
|
Total property acquired in settlement of loans
|
|
$
|
80,800
|
|
|
$
|
110,386
|
|
The following tables summarize the changes in real estate acquired in settlement of loans at the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
For Three Months Ended
|
(dollars in thousands)
|
|
September 30, 2012
|
|
September 30, 2011
|
Real estate acquired in settlement of loans, beginning of period
|
|
$
|
86,183
|
|
|
$
|
101,384
|
|
Plus: New real estate acquired in settlement of loans
|
|
9,746
|
|
|
27,278
|
|
Less: Sales of real estate acquired in settlement of loans
|
|
(13,826
|
)
|
|
(29,122
|
)
|
Less: Write-downs and net loss on sales charged to expense
|
|
(1,621
|
)
|
|
(3,441
|
)
|
Real estate acquired in settlement of loans, end of period
|
|
$
|
80,482
|
|
|
$
|
96,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Nine Months Ended
|
(dollars in thousands)
|
|
September 30, 2012
|
|
September 30, 2011
|
Real estate acquired in settlement of loans, beginning of period
|
|
$
|
110,009
|
|
|
$
|
62,058
|
|
Plus: New real estate acquired in settlement of loans
|
|
24,766
|
|
|
101,245
|
|
Less: Sales of real estate acquired in settlement of loans
|
|
(38,202
|
)
|
|
(39,521
|
)
|
Less: Write-downs and net loss on sales charged to expense
|
|
(16,091
|
)
|
|
(27,683
|
)
|
Real estate acquired in settlement of loans, end of period
|
|
$
|
80,482
|
|
|
$
|
96,099
|
|
At
September 30, 2012
,
58
assets with a net carrying amount of
$18.2 million
were under contract for sale. Estimated losses on these sales have been recognized in the Consolidated Statements of Operations in the first
nine
months of
2012
.
7. Earnings Per Share
Basic net loss per share, or basic earnings/(loss) per share (“EPS”), is computed by dividing net loss to common shareholders by the weighted average number of common shares outstanding for the period. FNB retired its preferred stock in 2011 and there were no unpaid preferred dividends or accretion of preferred stock discount at
September 30, 2012
. At
September 30, 2011
, FNB had
$4.2 million
of unpaid cumulative dividends on its Series A preferred stock and had
$0.6 million
in accretion of the discount on the preferred stock.
Diluted EPS reflects the potential dilution that could occur if FNB's potential common stock, which consists of dilutive stock options and a common stock warrant, were issued. As required for entities with complex capital structures, a dual presentation of basic and diluted EPS is included on the face of the income statement, and a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation is provided in this note.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Net loss from continuing operations before cumulative dividends on preferred stock
|
|
$
|
(4,712
|
)
|
|
$
|
(13,890
|
)
|
|
$
|
(33,682
|
)
|
|
$
|
(100,889
|
)
|
Dividends on preferred stock
|
|
—
|
|
|
(1,093
|
)
|
|
—
|
|
|
(3,197
|
)
|
Loss from continuing operations, net of tax
|
|
(4,712
|
)
|
|
(14,983
|
)
|
|
(33,682
|
)
|
|
(104,086
|
)
|
Loss from discontinued operations, net of tax
|
|
—
|
|
|
(40
|
)
|
|
(27
|
)
|
|
(5,722
|
)
|
Net loss to common shareholders
|
|
$
|
(4,712
|
)
|
|
$
|
(15,023
|
)
|
|
$
|
(33,709
|
)
|
|
$
|
(109,808
|
)
|
Weighted average number of common shares outstanding - basic and diluted
|
|
21,588,027
|
|
|
114,320
|
|
|
21,294,727
|
|
|
114,277
|
|
Net loss per common share from continuing operations - basic and diluted
|
|
$
|
(0.22
|
)
|
|
$
|
(131.06
|
)
|
|
$
|
(1.58
|
)
|
|
$
|
(910.82
|
)
|
Net loss per common share from discontinued operations - basic and diluted
|
|
—
|
|
|
(0.35
|
)
|
|
—
|
|
|
(50.07
|
)
|
Net loss per common share - basic and diluted
|
|
(0.22
|
)
|
|
(131.41
|
)
|
|
(1.58
|
)
|
|
(960.89
|
)
|
As a result of the net loss for the
three and nine
months ended
September 30, 2012
and
2011
, all stock options and the common stock warrant were considered antidilutive and thus are not included in this calculation. For the three and
nine
months ended
September 30, 2012
there were
23,347
and
23,552
antidilutive shares, respectively. For the three and
nine
months ended
September 30, 2011
, there were
26,821
and
27,218
antidilutive shares, respectively. Of the antidilutive shares, the number of shares relating to stock options were
1,275
and
1,480
for the three months and nine months ended
September 30, 2012
, respectively, and
4,750
for the three months and nine months ended
September 30, 2011
.
Net loss to common shareholders increased for the three months ended
September 30, 2011
by
$1.1 million
, and for the
nine
months ended
September 30, 2011
by
$3.2 million
for preferred stock dividends. Accretion on the preferred stock discount associated with the preferred stock of
$0.2 million
and
$0.6 million
was recognized for the
three and nine
months ended
September 30, 2011
, respectively. FNB retired its preferred stock in 2011 and there were
no
preferred stock dividends or accretion on the preferred stock discount for the
three and nine
months ended
September 30, 2012
.
8. Derivatives and Financial Instruments
A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest rate swaps, caps, floors, collars, options or other financial instruments designed to hedge exposures to interest rate risk or for speculative purposes.
Accounting guidance requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet, and measure those instruments at fair value. Changes in the fair value of those derivatives are reported in current earnings or other comprehensive income depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge accounting.
For the
three and nine
months ended
September 30, 2011
, the interest rate swaps designated as a fair value hedge resulted in decreased interest expense of
$175,000
and
$629,000
, respectively, on FHLB advances than would otherwise have been recognized for the liability. The fair value of the swaps at
September 30, 2011
was recorded on the Consolidated Balance Sheets as an asset in the amount of
$0.8 million
.
Because the swaps were terminated in 2011, there were
no
net gains or losses recognized on the fair value swaps for the
three and nine
months ended
September 30, 2012
. However, net gains recognized on the fair value swaps during the
nine
months ended
September 30, 2011
were
$933,000
.
Mortgage banking derivatives used in the ordinary course of business consist of mandatory forward sales contracts or forward contracts and rate lock loan commitments. The fair value of FNB's derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants.
The table below provides data about the amount of gains and losses related to derivative instruments designated as hedges included in “
Other income
” in the FNB's Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain, Net of Tax
|
|
|
Recognized in Income
|
(dollars in thousands)
|
|
For Three Months Ended
|
|
For Nine Months Ended
|
|
|
September 30, 2012
|
|
September 30, 2011
|
|
September 30, 2012
|
|
September 30, 2011
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Interest rate swap contracts - FHLB advances
|
|
$
|
—
|
|
|
$
|
463
|
|
|
$
|
—
|
|
|
$
|
565
|
|
Continuing Operations
During 2012, FNB began originating residential mortgage loans for sale in the secondary market. FNB has established guidelines in originating, selling loans to Fannie Mae, and retaining or selling the loan servicing rights. The commitments to borrowers to originate residential mortgage loans and the forward sales commitments to investors are freestanding derivative instruments. As such, they do not qualify for hedge accounting treatment, and the fair value adjustments for these instruments is recorded through the income statement in mortgage loan income. The fair market value of mortgage banking derivatives at September 30, 2012 was recorded in the consolidated balance sheet under Other Assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized
|
(dollars in thousands)
|
|
For Three Months Ended
|
|
For Nine Months Ended
|
|
|
September 30, 2012
|
|
September 30, 2011
|
|
September 30, 2012
|
|
September 30, 2011
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Mortgage loan rate lock commitments (1)
|
|
$
|
134
|
|
|
$
|
—
|
|
|
$
|
311
|
|
|
$
|
55
|
|
Mortgage loan forward sales and MBS (1)
|
|
(134
|
)
|
|
—
|
|
|
(311
|
)
|
|
(44
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
(1) For 2011, recognized in "Net loss from discontinued operations" in FNB's Consolidated Statements of Operations.
Discontinued Operations
On April 7, 2009, Dover irrevocably opted to elect the fair value option for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. This election allowed Dover to enter into a hedging arrangement for the purpose of limiting risk inherent in the mortgage loan pipeline and loans held for sale portfolio.
Dover originated certain residential mortgage loans with the intention of selling these loans. Between the time that Dover entered into an interest rate lock or a commitment to originate a residential mortgage loan with a potential borrower and the time the closed loan is sold, FNB was subject to variability in market prices related to these commitments. FNB believed that it was prudent to limit the variability of expected proceeds from the future sales of these loans by entering into forward sales commitments and commitments to deliver loans into a mortgage-backed security. The commitments to originate residential mortgage loans and the forward sales commitments were freestanding derivative instruments. They did not qualify for hedge accounting treatment so their fair value adjustments were recorded through the income statement in income from mortgage loan sales.
9. Fair Values of Assets and Liabilities
FNB utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale, derivative assets and liabilities, certain FHLB advances hedged by interest rate swaps designated as fair value hedges, performing mortgage loans held for sale, and mortgage servicing rights are recorded at fair value on a recurring basis. Additionally, from time-to-time, FNB may be required to record at fair value other assets and liabilities on a nonrecurring basis, such as non-performing loans held for sale, loans held for investment, impaired loans and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets or liabilities.
Fair Value Hierarchy
FNB groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3: Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:
Investments Securities Available-for-Sale
Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 may include asset-backed securities in less liquid markets.
Liquidity is a significant factor in the determination of the fair values of available-for-sale debt securities. Market price quotes may not be readily available for some positions, or positions within a market sector where trading activity has slowed significantly or ceased. Some of these instruments are valued using a discounted cash flow model, which estimates the fair value of the securities using internal credit risk, interest rate and prepayment risk models that incorporate management's best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Principal and interest cash flows are discounted using an observable discount rate for similar instruments with adjustments that management believes a market participant would consider in determining fair value for the specific security. Underlying assets are valued using external pricing services, where available, or matrix pricing based on the vintages and ratings. Situations of illiquidity generally are triggered by the market's perception of credit uncertainty regarding a single company or a specific market sector. In these instances, fair value is determined based on limited available market information and other factors, principally from reviewing the issuer's financial statements and changes in credit ratings made by one or more ratings agencies.
Loans Held for Sale
At December 31, 2011, loans held for sale included problem commercial loans under contract to be sold. Problem commercial loans are reclassified from loans held for investment to held for sale when they are under contract to be sold, and are carried at the lower of cost or fair value, based on contractual agreements with independent third-party buyers, less estimated costs to sell. At December 31, 2011, FNB classified loans held for sale as nonrecurring Level 2.
Loans Held for Investment
FNB does not record loans held for investment at fair value on a recurring basis. However, from time to time, a loan is considered impaired and the related impairment is charged against the allowance or a specific allowance is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as impaired, management determines the fair value of the loan to quantify impairment, should such exist. The fair value of impaired loans is estimated using one of several methods, including collateral net liquidation value, market value of similar debt, enterprise value, and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of the expected repayments or collateral meet or exceed the recorded investments in such loans. At
September 30, 2012
and
December 31, 2011
, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. FNB records impaired loans as nonrecurring Level 3.
Other Real Estate Owned
OREO is adjusted to fair value upon transfer of the loans to OREO. Subsequently, OREO is carried at the lower of carrying value or fair value less estimated costs to sell. Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral. Given the lack of observable market prices for identical properties, FNB records the OREO as nonrecurring Level 3.
Derivative Assets and Liabilities
Substantially all derivative instruments held or issued by FNB for risk management or customer-initiated activities are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, FNB measures fair value using models that use primarily market observable inputs, such as yield curves and option volatilities, and include the value associated with counterparty credit risk. FNB classifies derivative instruments held or issued for risk management or customer-initiated activities as Level 2.
Mortgage Servicing Rights
The fair value of mortgage serving rights (MSR) is dependent upon a number of assumptions including the fee per loan, the cost to service, the expected loan prepayment rate, and the discount rate. In determining the fair value of the existing MSR management reviews the key assumptions, analyzes pricing in the market for comparable MSR, and uses a third party provider to independently calculate the fair value of its MSR. FNB records mortgage servicing rights as recurring Level 3.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Assets and liabilities carried at fair value on a recurring basis at
September 30, 2012
for continuing operations, including financial instruments that FNB accounts for under the fair value option, are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
6,922
|
|
|
—
|
|
|
$
|
6,922
|
|
|
—
|
|
U.S. government sponsored agencies
|
|
22,185
|
|
|
—
|
|
|
22,185
|
|
|
—
|
|
States and political subdivisions
|
|
6,062
|
|
|
—
|
|
|
6,062
|
|
|
—
|
|
Residential mortgage-backed securities-GSE
|
|
367,767
|
|
|
—
|
|
|
367,767
|
|
|
—
|
|
Residential mortgage-backed securities-Private
|
|
23,722
|
|
|
—
|
|
|
23,722
|
|
|
—
|
|
Commercial mortgage-backed securities-GSE
|
|
23,248
|
|
|
|
|
23,248
|
|
|
|
Commercial mortgage-backed securities-Private
|
|
5,360
|
|
|
—
|
|
|
5,360
|
|
|
—
|
|
Corporate notes
|
|
37,120
|
|
|
—
|
|
|
37,120
|
|
|
—
|
|
Total available-for-sale debt securities
|
|
492,386
|
|
|
—
|
|
|
492,386
|
|
|
—
|
|
Mortgage servicing rights
|
|
248
|
|
|
—
|
|
|
—
|
|
|
248
|
|
Total assets at fair value from continuing operations
|
|
$
|
492,634
|
|
|
$
|
—
|
|
|
$
|
492,386
|
|
|
$
|
248
|
|
Assets and liabilities carried at fair value on a recurring basis at
December 31, 2011
for continuing operations, including financial instruments that FNB accounts for under the fair value option, are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
Available-for-sale debt securities:
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
7,188
|
|
|
$
|
—
|
|
|
$
|
7,188
|
|
|
$
|
—
|
|
U.S. government sponsored agencies
|
|
32,364
|
|
|
—
|
|
|
32,364
|
|
|
—
|
|
States and political subdivisions
|
|
6,090
|
|
|
—
|
|
|
6,090
|
|
|
—
|
|
Residential mortgage-backed securities-GSE
|
|
350,273
|
|
|
—
|
|
|
350,273
|
|
|
—
|
|
Residential mortgage-backed securities-Private
|
|
32,217
|
|
|
—
|
|
|
32,217
|
|
|
—
|
|
Corporate notes
|
|
3,174
|
|
|
—
|
|
|
3,174
|
|
|
—
|
|
Total available-for-sale debt securities
|
|
431,306
|
|
|
—
|
|
|
431,306
|
|
|
—
|
|
Total assets at fair value from continuing operations
|
|
$
|
431,306
|
|
|
$
|
—
|
|
|
$
|
431,306
|
|
|
$
|
—
|
|
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant
|
|
|
Unobservable Inputs (Level 3)
|
|
|
Mortgage Servicing Rights
|
(dollars in thousands)
|
|
Three Months Ended September 30,
|
|
|
2012
|
|
2011
|
Beginning balance at July 1,
|
|
$
|
25
|
|
|
$
|
—
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
Included in earnings, net of amortization
|
|
223
|
|
|
—
|
|
Ending balance at September 30,
|
|
$
|
248
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant
|
|
|
Unobservable Inputs (Level 3)
|
|
|
Mortgage Servicing Rights
|
(dollars in thousands)
|
|
Nine Months Ended September 30,
|
|
|
2012
|
|
2011
|
Beginning balance at January 1,
|
|
$
|
—
|
|
|
$
|
2,359
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
Included in earnings, net of amortization
|
|
248
|
|
|
(117
|
)
|
Servicing rights sold
|
|
—
|
|
|
(2,242
|
)
|
Ending balance at September 30,
|
|
$
|
248
|
|
|
$
|
—
|
|
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
FNB may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. This is due to further deterioration in the value of the assets.
Assets measured at fair value on a nonrecurring basis are included in the following table at
September 30, 2012
for continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Impaired loans, net
|
|
$
|
10,247
|
|
|
—
|
|
|
—
|
|
|
$
|
10,247
|
|
Other real estate owned
|
|
56,431
|
|
|
—
|
|
|
—
|
|
|
56,431
|
|
Total assets at fair value from continuing operations
|
|
$
|
66,678
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66,678
|
|
Subsequent to their initial recognition at fair value during the quarter ended
December 31, 2011
, purchased impaired loans and purchased contractual loans are no longer recorded at their fair value and therefore these loans are not included in the above table of assets measured at fair value on a nonrecurring basis at
September 30, 2012
.
Assets measured at fair value on a nonrecurring basis are included in the following table at
December 31, 2011
for continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Loans held for sale
|
|
$
|
4,529
|
|
|
$
|
—
|
|
|
$
|
4,529
|
|
|
$
|
—
|
|
Impaired loans, net
|
|
31,266
|
|
|
—
|
|
|
—
|
|
|
31,266
|
|
Purchased impaired loans
|
|
308,594
|
|
|
—
|
|
|
—
|
|
|
308,594
|
|
Purchased contractual loans
|
|
65,283
|
|
|
—
|
|
|
—
|
|
|
65,283
|
|
Other real estate owned
|
|
84,794
|
|
|
—
|
|
|
—
|
|
|
84,794
|
|
Total assets at fair value from continuing operations
|
|
$
|
494,466
|
|
|
$
|
—
|
|
|
$
|
4,529
|
|
|
$
|
489,937
|
|
There are
no
assets measured at fair value on a nonrecurring basis at
September 30, 2012
for discontinued operations.
Assets measured at fair value on a nonrecurring basis are included in the following table at
December 31, 2011
for discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Loans held for sale
|
|
$
|
233
|
|
|
$
|
—
|
|
|
$
|
233
|
|
|
$
|
—
|
|
Total assets at fair value from discontinued operations
|
|
$
|
233
|
|
|
$
|
—
|
|
|
$
|
233
|
|
|
$
|
—
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Fair Value at
September 30, 2012
|
|
Valuation Techniques
|
|
Unobservable
Input
|
|
Range
|
Nonrecurring measurements:
|
|
|
|
|
|
|
|
|
Impaired loans, net
|
|
$
|
10,247
|
|
|
Discounted appraisals
|
|
Collateral discounts
|
|
6.00% - 40.00%
|
Other real estate owned
|
|
56,431
|
|
|
Discounted appraisals
|
|
Collateral discounts
|
|
6.00% - 40.00%
|
Mortgage servicing rights
|
|
248
|
|
|
Discounted cash flows
|
|
Prepayment rate
|
|
10.00% - 30.00%
|
Mortgage servicing rights
|
|
|
|
|
|
Discount rate
|
|
6.00% - 12.00%
|
Level 3 Valuation Methodologies.
Following is a description of the unobservable inputs used for Level 3 fair value measurements.
Disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value is required. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time FNB's entire holdings of a particular financial instrument.
Because no market exists for a portion of FNB's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value for each class of FNB's financial instruments.
Cash and cash equivalents.
Fair value equals the carrying value of such assets due to their nature and is classified as Level 1.
Investment securities.
The fair value of investment securities is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. The fair value of equity investments in the restricted stock of the FRBR and FHLB approximates the carrying value. The fair value of investment securities is classified as Level 2.
Loans held for sale
Substantially all residential mortgage loans held for sale are pre-sold and their carrying value approximates fair value. FNB classified the fair value of loans held for sale as Level 2.
Loans held for investment.
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. Substantially all residential mortgage loans held for sale are pre-sold and their carrying value approximates fair value. The fair value of variable rate loans with frequent repricing and negligible credit risk approximates book value. The fair value of loans is further discounted by credit and liquidity factors. FNB classified the fair value of loans as Level 3.
Accrued interest receivable and payable
. The carrying amounts of accrued interest payable and receivable approximate fair value and are classified as Level 2.
Deposits.
The fair value of noninterest-bearing and interest-bearing demand deposits and savings are the amounts payable on demand because these products have no stated maturity. The fair value of time deposits is estimated using the rates currently offered for deposits of similar remaining maturities and are classified as Level 2.
Borrowed funds
. The carrying value of retail repurchase agreements and federal funds purchased is considered to be a reasonable estimate of fair value. The fair value of FHLB advances and other borrowed funds is estimated using the rates currently offered for advances of similar remaining maturities and are classified as Level 2.
Junior subordinated debentures.
Included in junior subordinated debentures are variable rate trust preferred securities issued by FNB. Fair values for the trust preferred securities were estimated by developing cash flow estimates for each of these debt
instruments based on scheduled principal and interest payments and current interest rates. Once the cash flows were determined, a rate for comparable subordinated debt was used to discount the cash flows to the present value. The estimated fair value for FNB's junior subordinated debentures have declined due to wider credit spreads (i.e., spread to LIBOR) on similar trust preferred issues. This is due, in part, to proposed bank regulatory changes in bank capital structure. FNB classified the fair value of junior subordinated debentures as Level 3.
Financial instruments with off-balance sheet risk
. The fair value of financial instruments with off-balance sheet risk is considered to approximate carrying value, since the large majority of these future financing commitments would result in loans that have variable rates and/or relatively short terms to maturity. For other commitments, generally of a short-term nature, the carrying value is considered to be a reasonable estimate of fair value.
The estimated fair values of financial instruments for continuing operations are as follows at the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2012
|
(dollars in thousands)
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Assets of Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
327,870
|
|
|
$
|
327,870
|
|
|
$
|
327,870
|
|
|
$
|
—
|
|
|
—
|
|
Investment securities: Available-for-sale
|
|
492,386
|
|
|
492,386
|
|
|
—
|
|
|
492,386
|
|
|
—
|
|
Loans held for sale
|
|
8,212
|
|
|
8,212
|
|
|
—
|
|
|
8,212
|
|
|
—
|
|
Loans, net
|
|
1,200,936
|
|
|
1,192,784
|
|
|
—
|
|
|
—
|
|
|
1,192,784
|
|
Accrued interest receivable
|
|
7,424
|
|
|
7,424
|
|
|
—
|
|
|
7,424
|
|
|
—
|
|
Financial Liabilities of Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
1,982,253
|
|
|
1,987,807
|
|
|
—
|
|
|
1,987,807
|
|
|
—
|
|
Retail repurchase agreements
|
|
9,433
|
|
|
9,433
|
|
|
—
|
|
|
9,433
|
|
|
—
|
|
Federal Home Loan Bank advances
|
|
58,339
|
|
|
63,649
|
|
|
—
|
|
|
63,649
|
|
|
—
|
|
Junior subordinated debentures
|
|
56,702
|
|
|
37,068
|
|
|
—
|
|
|
—
|
|
|
37,068
|
|
Accrued interest payable
|
|
1,969
|
|
|
1,969
|
|
|
—
|
|
|
1,969
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011
|
(dollars in thousands)
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Assets of Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
553,416
|
|
|
$
|
553,416
|
|
|
$
|
553,416
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment securities: Available-for-sale
|
|
431,306
|
|
|
431,306
|
|
|
—
|
|
|
431,306
|
|
|
—
|
|
Loans held for sale
|
|
4,529
|
|
|
4,529
|
|
|
—
|
|
|
4,529
|
|
|
—
|
|
Loans, net
|
|
1,178,175
|
|
|
1,176,795
|
|
|
—
|
|
|
—
|
|
|
1,176,795
|
|
Accrued interest receivable
|
|
5,919
|
|
|
5,919
|
|
|
—
|
|
|
5,919
|
|
|
—
|
|
Financial Liabilities of Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
2,129,111
|
|
|
2,139,093
|
|
|
—
|
|
|
2,139,093
|
|
|
—
|
|
Retail repurchase agreements
|
|
8,838
|
|
|
8,838
|
|
|
—
|
|
|
8,838
|
|
|
—
|
|
Federal Home Loan Bank advances
|
|
58,370
|
|
|
62,555
|
|
|
—
|
|
|
62,555
|
|
|
—
|
|
Junior subordinated debentures
|
|
56,702
|
|
|
36,218
|
|
|
—
|
|
|
—
|
|
|
36,218
|
|
Accrued interest payable
|
|
1,654
|
|
|
1,654
|
|
|
—
|
|
|
1,654
|
|
|
—
|
|
The estimated fair values of financial instruments for discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2012
|
|
As of December 31, 2011
|
(dollars in thousands)
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
Financial Assets of Discontinued Operations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
233
|
|
|
$
|
233
|
|
Financial Liabilities of Discontinued Operations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
There were no transfers between valuation levels for any assets during the quarter ended
September 30, 2012
or the quarter ended
September 30, 2011
. If different valuation techniques are deemed necessary, we would consider those transfers to occur at the end of the period when the assets are valued.
10. Capital Raise
Between May 21, 2012 and June 26, 2012, FNB issued
485,788
shares of common stock at an average price of
$15.01
for total proceeds of
$7.29 million
through its “At The Market” (“ATM”) offering. Net proceeds from the offering of
$6.7 million
were contributed to CommunityOne. During July 2012, FNB sold a further
176
shares to holders of warrants issued in connection with the Merger, yielding net proceeds of approximately
$3,000
.
11. Termination of Retirement Plans
FNB elected to terminate the remaining supplemental executive retirement plans (SERP), that were frozen in prior years, by settling the remaining payments via lump sum payments that will be paid in October 2013. The gain on termination recognized of
$0.4 million
is recorded in other comprehensive income. As the cash payments are made the gain will be recognized in current earnings.