Annual Statements Open main menu

FNB CORP/PA/ - Quarter Report: 2020 September (Form 10-Q)


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

For the quarterly period ended September 30, 2020
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 001-31940  
 
F.N.B. CORPORATION
(Exact name of registrant as specified in its charter) 
 
Pennsylvania25-1255406
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One North Shore Center, 12 Federal Street, Pittsburgh, PA15212
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 800-555-5455

(Former name, former address and former fiscal year, if changed since last report) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller reporting company
Emerging Growth Company
1


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on which Registered
Common Stock, par value $0.01 per shareFNBNew York Stock Exchange
Depositary Shares each representing 1/40th interest in a
share of Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series E
FNBPrENew York Stock Exchange
  
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding atOctober 31, 2020
Common Stock, $0.01 Par Value322,634,816 Shares

2


F.N.B. CORPORATION
FORM 10-Q
September 30, 2020
INDEX
 
 PAGE
PART I – FINANCIAL INFORMATION 
Item 1.Financial Statements
Item 2.
Item 3.
Item 4.
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
3



Glossary of Acronyms and Terms
Acronym
Description
Acronym
Description
ACL
Allowance for credit losses
HTM
Held to maturity
AFS
Available for sale
LGD
Loss given default
ALCO
Asset/Liability Committee
LIBOR
London Inter-bank Offered Rate
AOCI
Accumulated other comprehensive income
LIHTC
Low income housing tax credit
ASC
Accounting Standards Codification
MD&A
Management's Discussion and Analysis of
Financial Condition and Results of Operations
ASU
Accounting Standards Update
MSRs
Mortgage servicing rights
AULC
Allowance for unfunded loan commitments
OCC
Office of the Comptroller of the Currency
BOLI
Bank owned life insurance
OREO
Other real estate owned
CARES Act
Coronavirus Aid, Relief and Economic Security Act
PCD
Purchase credit deteriorated
CECL
Current expected credit losses
PCI
Purchase credit impaired
COVID-19
Novel coronavirus disease of 2019
PDProbability of default
EAD
Exposure at default
PPPPaycheck Protection Program
EVE
Economic value of equity
PPPLF
Paycheck Protection Program Liquidity Fund
FASB
Financial Accounting Standards Board
R&S
Reasonable and Supportable
FDIC
Federal Deposit Insurance Corporation
SBA
Small Business Administration
FHLB
Federal Home Loan Bank
SEC
Securities and Exchange Commission
FNB
F.N.B. Corporation
TDR
Troubled debt restructuring
FNBPA
First National Bank of Pennsylvania
TPS
Trust preferred securities
FOMC
Federal Open Market Committee
U.S.
United States of America
FRB
Board of Governors of the Federal Reserve
System
UST
U.S. Department of the Treasury
FTE
Fully taxable equivalent
VIE
Variable interest entity
GAAP
U.S. generally accepted accounting principles
4


PART I – FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share and per share data)
September 30,
2020
December 31,
2019
 (Unaudited) 
Assets
Cash and due from banks$396 $407 
Interest-bearing deposits with banks504 192 
Cash and Cash Equivalents900 599 
Debt securities available for sale (amortized cost of $3,006 and $3,275; allowance for credit losses of $0)
3,101 3,289 
Debt securities held to maturity (fair value of $3,072 and $3,305; allowance for credit losses of $0)
2,966 3,275 
Loans held for sale (includes $138 and $41 measured at fair value) (1)
680 51 
Loans and leases, net of unearned income of $111 and $1
25,689 23,289 
Allowance for credit losses(373)(196)
Net Loans and Leases25,316 23,093 
Premises and equipment, net335 333 
Goodwill2,262 2,262 
Core deposit and other intangible assets, net57 67 
Bank owned life insurance548 544 
Other assets1,276 1,102 
Total Assets$37,441 $34,615 
Liabilities
Deposits:
Non-interest-bearing demand$8,741 $6,384 
Interest-bearing demand13,063 11,049 
Savings3,007 2,625 
Certificates and other time deposits4,025 4,728 
Total Deposits28,836 24,786 
Short-term borrowings1,899 3,216 
Long-term borrowings1,397 1,340 
Other liabilities358 390 
Total Liabilities32,490 29,732 
Stockholders’ Equity
Preferred stock - $0.01 par value; liquidation preference of $1,000 per share
Authorized – 20,000,000 shares
Issued – 110,877 shares
107 107 
Common stock - $0.01 par value
Authorized – 500,000,000 shares
Issued – 328,004,096 and 327,242,364 shares
3 
Additional paid-in capital4,084 4,067 
Retained earnings838 798 
Accumulated other comprehensive loss(26)(65)
Treasury stock – 4,791,698 and 2,227,804 shares at cost
(55)(27)
Total Stockholders’ Equity4,951 4,883 
Total Liabilities and Stockholders’ Equity$37,441 $34,615 
(1)Amount represents loans for which we have elected the fair value option. See Note 19.
See accompanying Notes to Consolidated Financial Statements (unaudited)
5


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
Unaudited
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Interest Income
Loans and leases, including fees$239 $274 $750 $819 
Securities:
Taxable25 30 84 95 
Tax-exempt8 24 24 
Other1 2 
Total Interest Income273 314 860 941 
Interest Expense
Deposits27 56 111 161 
Short-term borrowings9 18 31 66 
Long-term borrowings10 10 30 23 
Total Interest Expense46 84 172 250 
Net Interest Income227 230 688 691 
Provision for credit losses27 12 105 37 
Net Interest Income After Provision for Credit Losses200 218 583 654 
Non-Interest Income
Service charges24 33 78 95 
Trust services8 23 21 
Insurance commissions and fees7 19 15 
Securities commissions and fees5 13 13 
Capital markets income8 32 25 
Mortgage banking operations18 34 21 
Dividends on non-marketable equity securities2 10 14 
Bank owned life insurance4 11 
Other4 6 
Total Non-Interest Income
80 80 226 220 
Non-Interest Expense
Salaries and employee benefits100 93 298 279 
Net occupancy14 13 49 44 
Equipment17 15 49 45 
Amortization of intangibles3 10 11 
Outside services16 16 50 47 
FDIC insurance4 15 18 
Bank shares and franchise taxes4 12 10 
Other22 27 68 65 
Total Non-Interest Expense
180 178 551 519 
Income Before Income Taxes100 120 258 355 
Income taxes17 17 44 63 
Net Income83 103 214 292 
Preferred stock dividends2 6 
Net Income Available to Common Stockholders$81 $101 $208 $286 
Earnings per Common Share
Basic$0.25 $0.31 $0.64 $0.88 
Diluted0.25 0.31 0.64 0.88 
See accompanying Notes to Consolidated Financial Statements (unaudited)
6


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
Unaudited
 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net income$83 $103 $214 $292 
Other comprehensive income (loss):
Securities available for sale:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $(1) and $1, $18 and $17
(3)63 60 
Derivative instruments:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $2 and $(1), $(9) and $(7)
8 (4)(32)(24)
Reclassification adjustment for gains (losses) included in net income, net of tax expense (benefit) of $(1) and $0, $(2) and $0
4 — 7 (1)
Pension and postretirement benefit obligations:
Unrealized gains arising during the period, net of tax expense of $0 and $0, $0 and $0
 1 
Other Comprehensive Income9 39 37 
Comprehensive Income$92 $106 $253 $329 
See accompanying Notes to Consolidated Financial Statements (unaudited)

7


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions, except per share data)
Unaudited
 
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Three Months Ended September 30, 2019
Balance at beginning of period$107 $$4,057 $683 $(72)$(25)$4,753 
Comprehensive income103 106 
Dividends declared:
Preferred stock: $18.13/share
(2)(2)
Common stock: $0.12/share
(40)(40)
Issuance of common stock— (2)
Restricted stock compensation
Balance at end of period$107 $$4,062 $744 $(69)$(27)$4,820 
Three Months Ended September 30, 2020
Balance at beginning of period$107 $3 $4,081 $796 $(35)$(55)$4,897 
Comprehensive income83 9 92 
Dividends declared:
Preferred stock: $18.13/share
(2)(2)
Common stock: $0.12/share
(39)(39)
Issuance of common stock 1  1 
Restricted stock compensation2 2 
Balance at end of period$107 $3 $4,084 $838 $(26)$(55)$4,951 
8


Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Nine Months Ended September 30, 2019
Balance at beginning of period$107 $$4,049 $576 $(106)$(21)$4,608 
Comprehensive income 292 37 329 
Dividends declared:
Preferred stock: $54.39/share
(6)(6)
Common stock: $0.36/share
(118)(118)
Issuance of common stock— (6)(1)
Restricted stock compensation
Balance at end of period$107 $$4,062 $744 $(69)$(27)$4,820 
Nine Months Ended September 30, 2020
Balance at beginning of period$107 $3 $4,067 $798 $(65)$(27)$4,883 
Comprehensive income 214 39 253 
Dividends declared:
Preferred stock: $54.39/share
(6)(6)
Common stock: $0.36/share
(118)(118)
Issuance of common stock 4 (3)1 
Repurchase of common stock(25)(25)
Restricted stock compensation13 13 
Adoption of new accounting standards(50) (50)
Balance at end of period$107 $3 $4,084 $838 $(26)$(55)$4,951 
See accompanying Notes to Consolidated Financial Statements (unaudited)

9


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Unaudited
 
 Nine Months Ended
September 30,
 20202019
Operating Activities
Net income$214 $292 
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion5 33 
Provision for credit losses105 37 
Deferred tax expense (benefit)(24)36 
Loans originated for sale(1,351)(983)
Loans sold1,258 984 
Net gain on sale of loans(28)(17)
Net change in:
   Interest receivable18 (8)
   Interest payable(7)
   Bank owned life insurance, excluding purchases(6)(5)
Other, net(265)(234)
Net cash flows (used in) provided by operating activities(81)137 
Investing Activities
Net change in loans and leases, excluding sales and transfers(2,809)(1,200)
Debt securities available for sale:
Purchases(1,168)(395)
Maturities/payments1,429 543 
Debt securities held to maturity:
Purchases(163)(264)
Maturities/payments469 323 
Increase in premises and equipment(33)(31)
Loans sold, not originated for sale 262 
Other, net1 (9)
Net cash flows used in investing activities(2,274)(771)
Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts4,753 1,286 
Time deposits(702)(145)
Short-term borrowings(1,316)(984)
Proceeds from issuance of long-term borrowings322 947 
Repayment of long-term borrowings(266)(232)
Repurchases of common stock(25) 
Other, net14 
Cash dividends paid:
Preferred stock(6)(6)
Common stock(118)(118)
Net cash flows provided by financing activities2,656 755 
Net Increase in Cash and Cash Equivalents301 121 
Cash and cash equivalents at beginning of period599 488 
Cash and Cash Equivalents at End of Period$900 $609 
See accompanying Notes to Consolidated Financial Statements (unaudited)
10


F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2020
The terms “FNB,” “the Corporation,” “we,” “us” and “our” throughout this Report mean F.N.B. Corporation and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, F.N.B. Corporation. When we refer to "FNBPA" in this Report, we mean our bank subsidiary, First National Bank of Pennsylvania, and its subsidiaries.
NATURE OF OPERATIONS
F.N.B. Corporation, headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in seven states and the District of Columbia. Our market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. As of September 30, 2020, we had 355 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina and Virginia.
We provide a full range of commercial banking, consumer banking and wealth management solutions through our subsidiary network which is led by our largest affiliate, FNBPA, founded in 1864. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, government banking, business credit, capital markets and lease financing. Consumer banking provides a full line of consumer banking products and services, including deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. Wealth management services include asset management, private banking and insurance.

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements (unaudited) include subsidiaries in which we have a controlling financial interest. We own and operate FNBPA, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, Bank Capital Services, LLC and F.N.B. Capital Corporation, LLC, and include results for each of these entities in the accompanying Consolidated Financial Statements.
Companies in which we hold a controlling financial interest, or are a VIE in which we have the power to direct the activities of an entity that most significantly impact the entity’s economic performance and have an obligation to absorb losses or the right to receive benefits which could potentially be significant to the VIE, are consolidated. For a voting interest entity, a controlling financial interest is generally where we hold more than 50% of the outstanding voting shares. VIEs in which we do not hold the power to direct the activities of the entity that most significantly impact the entity’s economic performance or an obligation to absorb losses or the right to receive benefits which could potentially be significant to the VIE are not consolidated. Investments in companies that are not consolidated are accounted for using the equity method when we have the ability to exert significant influence. Investments in private investment partnerships that are accounted for under the equity method or the cost method are included in other assets and our proportional interest in the equity investments’ earnings are included in other non-interest income. Investment interests accounted for under the cost and equity methods are periodically evaluated for impairment.
The accompanying interim unaudited Consolidated Financial Statements include all adjustments that are necessary, in the opinion of management, to fairly reflect our financial position and results of operations in accordance with GAAP. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on our net income and stockholders’ equity. Events occurring subsequent to September 30, 2020 have been evaluated for potential recognition or disclosure in the Consolidated Financial Statements through the date of the filing of the Consolidated Financial Statements with the Securities and Exchange Commission.
Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results FNB expects for the full year. These interim unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020.
11


Use of Estimates
Our accounting and reporting policies conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements (unaudited). Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the ACL, accounting for loans acquired in a business combination prior to January 1, 2020, fair value of financial instruments, goodwill and other intangible assets, income taxes and deferred tax assets.
Adoption of New Accounting Standards
On January 1, 2020, we adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which replaces the incurred credit loss impairment methodology with a methodology that reflects lifetime current expected credit losses (commonly referred to as CECL) for most financial assets measured at amortized cost, including loans, HTM debt securities, net investment in leases and certain off-balance sheet credit exposure. We adopted CECL using the modified retrospective method for financial assets measured at amortized cost, net investments in leases and off-balance sheet credit exposures. As a result, we recorded a reduction of $50.6 million in retained earnings as of January 1, 2020 for the cumulative effect of the adoption. The transition adjustment was primarily driven by longer duration commercial and consumer real estate loans. Results for reporting periods prior to January 1, 2020 continue to be reported in accordance with previously applicable GAAP.
We used the prospective transition method for PCD financial assets that were previously classified as PCI and accounted for under ASC 310-30, including loans accounted for by analogy under ASC 310-30. In accordance with the transition guidance, we did not reassess whether PCI assets met the criteria for PCD assets nor did we reassess whether modifications to individual acquired financial assets previously accounted for in pools were TDRs as of the date of adoption. We discontinued the use of pools beyond transition accounting and account for these loans on an individual loan basis. After transition, loans previously accounted for in pools are grouped with other loans with similar risk characteristics for purposes of estimating expected credit losses. As a result, beginning in 2020 certain credit metrics and ratios which previously excluded PCI loans now include PCD loans. On January 1, 2020, the amortized cost basis of the PCD assets was adjusted to reflect the addition of an ACL for $50.3 million. The net noncredit discount, after the adjustment for the ACL, will be accreted into interest income at the loan’s effective interest rate over the remaining contractual life.
We made an accounting policy election to write-off accrued interest receivable balances by reversing interest income in accordance with our non-accrual policies instead of measuring an ACL for accrued interest receivable for all classes of financing receivables and major security types.
We do not hold any securities at adoption for which other-than-temporary impairment had been recognized prior to January 1, 2020.
12


The following table illustrates the impact of the adoption of ASC 326:
TABLE 1.1
January 1, 2020
(in millions)As Reported Under ASC 326Pre-ASC 326 AdoptionImpact of ASC 326 Adoption
Assets:
Allowance for credit losses on debt securities held-to-maturity
   States of the U.S. and political subdivisions (municipals)$— $— $— 
Loans
   Commercial real estate$138 $60 $78 
   Commercial and industrial65 53 12 
   Commercial leases11 11 — 
   Commercial other— (9)
   Direct installment24 13 11 
   Residential mortgages32 22 10 
   Indirect installment21 19 
   Consumer lines of credit10 
Allowance for credit losses on loans$301 $196 $105 
Liabilities:
Allowance for credit losses on off-balance sheet credit exposures$13 $$10 

For a detailed description of our significant accounting policies, see Note 1 "Summary of Significant Accounting Policies" in our 2019 Annual Report on Form 10-K. The accounting policies presented below have been added or amended for newly material items or the adoption of new accounting standards.
Debt Securities
Debt securities comprise a significant portion of our Consolidated Balance Sheets. Such securities can be classified as trading, HTM or AFS. As of September 30, 2020 and December 31, 2019, we did not hold any trading debt securities. Interest income on debt securities includes amortization of purchase premiums or accretion of discounts. Premiums and discounts on debt securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. A debt security is placed on non-accrual when principal or interest becomes greater than 90 days delinquent. Interest accrued but not received for a security placed on non-accrual is reversed against interest income. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
HTM debt securities are securities that management has the positive intent and ability to hold until their maturity. Such securities are carried at amortized cost. Beginning in 2020, for certain HTM securities we have an expectation of zero expected credit losses. Based on a long history with no credit losses, high credit ratings, guarantees, and/or implied risk-free characteristics, we expect the nonpayment of our UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA securities to be zero, and accordingly, have no ACL on those securities. We believe that these qualitative factors are indicators that historical credit loss information should be nominally impacted, if at all, by current conditions and reasonable and supportable forecasts. As such, we believe that without a change in these indicators, we may continue to assume zero credit losses on securities concluded to exhibit those factors. We also have a portfolio of HTM debt securities where we do not expect credit losses to be zero. This portfolio consists of high-grade municipal securities. To calculate the expected credit losses on these securities we group securities by major security type, rating and maturity and apply respective cumulative default rates from a third party data provider. The baseline credit loss estimate is adjusted using a qualitative approach to account for potential variability in probabilities of default data for current conditions and reasonable and supportable forecasts. Where available, expected credit losses take into consideration any enhancement a security has such as insurance or state aid.
13


Debt securities that are not classified as trading or HTM are classified as AFS and are carried at fair value. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. Impairment may result from credit deterioration of the issuer or collateral underlying the security. In performing an assessment of whether any decline in fair value is due to a credit loss, all relevant information is considered at the individual security level.
Beginning in 2020, for AFS debt securities in an unrealized loss position, we first determine whether we have the intent to sell, or it is more likely than not that we will be required to sell, the security before recovery of its amortized cost basis. If the criteria for intent or requirement to sell is met, the security’s amortized cost is written down to fair value and the write down is charged against the ACL with any incremental impairment reported in earnings in the Provision for Credit Losses line on the Consolidated Statements of Income. For AFS debt securities that do not meet the criteria for intent or requirement to sell, we evaluate whether the decline in fair value has resulted from credit losses or other factors. We first qualitatively evaluate each security to assess whether a potential credit loss exists. If as a result of this qualitative analysis we expect to get all of our principal back, then we conclude that the present value of expected cash flows equals or exceeds its amortized cost and no credit loss exists. If it was determined a potential credit loss exists, we compare the present value of cash flows expected to be collected with our amortized cost basis to measure its value. The credit loss is recorded through the ACL and limited to the amount the fair value is less than the amortized cost basis. We have made an accounting policy election for each major security type of AFS debt securities to adjust the effective interest rate used to discount expected cash flows to consider the timing of expected cash flows resulting from expected prepayments. Impairment for noncredit-related factors is recorded in OCI, net of income taxes.
Changes in the ACL are recorded as a provision for credit loss expense. Losses are charged against the ACL when an AFS debt security is not collectible or when we believe the criteria regarding the intent or requirement to sell is met.
Loans and Leases
Loans we intend to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the ACL. Amortized cost primarily consists of the principal balances outstanding, deferred origination fees or costs and premiums or discounts on purchased loans. Interest income on loans is computed over the term of the loans using the effective interest method. Loan origination fees or costs, premiums or discounts are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.
Non-performing Loans
We place loans on non-accrual status and discontinue interest accruals on loans generally when principal or interest is due and has remained unpaid for a certain number of days, unless the loan is both well secured and in the process of collection. Commercial loans and leases are placed on non-accrual at 90 days, installment loans are placed on non-accrual at 120 days and residential mortgages and consumer lines of credit are generally placed on non-accrual at 180 days, though we may place a loan on non-accrual prior to these past due thresholds as warranted. When a loan is placed on non-accrual status, all unpaid accrued interest is reversed against interest income and the amortization of deferred fees and costs is suspended. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate ability to collect the remaining principal and interest is reasonably assured. Loans are charged-off against the ACL and recoveries of amounts previously charged-off are credited to the ACL when realized.
Prior to 2020, PCI loans were not classified as non-performing assets as the loans were considered to be performing. Beginning in 2020, PCI loans previously accounted for in pools are grouped with other loans with similar risk characteristics for purposes of estimating expected credit losses and non-performing classification.
Troubled Debt Restructured Loans
Debt restructurings or loan modifications for a borrower occur in the normal course of business and do not necessarily constitute TDRs. In general, the modification or restructuring of a debt constitutes a TDR, including reasonably expected TDR, if, for economic or legal reasons related to the borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider under current market conditions or once we have determined that a loan modification for a financially troubled borrower is the most appropriate strategy. Additionally, a loan designated as a TDR does not necessarily result in the automatic placement of the loan on non-accrual status. When the full collection of principal and interest is reasonably assured on a loan designated as a TDR and where the borrower would not otherwise meet the criteria for non-accrual status, we will continue to accrue interest on the loan. Prior to 2020, we did not consider a restructured acquired loan as a TDR if the loan was accounted for as a component of a pool.
14


TDR classification does not include short-term assistance to borrowers who are current at the time of a natural disaster or other extreme event (e.g. floods, hurricanes and pandemics). These borrowers are considered to not be experiencing financial difficulty at the time of modification, therefore not meeting the criteria for determining TDR status. For modifications of leases related to the effects of the COVID-19 pandemic that do not result in a substantial increase in our rights as lessor or the obligations of the lessee, we elected to account for these lease concessions as though enforceable rights and obligations for those concessions existed in the original contracts. We will account for these concessions as if no changes were made to the lease contract.
Allowance for Credit Losses on Loans and Leases
We estimate the ACL on loans and leases using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts under the CECL methodology effective January 1, 2020. The ACL is measured on a collective (pool) basis when similar risk characteristics exist. Our portfolio segmentation is characterized by similarities in initial measurement, risk attributes, and the manner in which we monitor and assess credit risk and is comprised of commercial real estate, commercial and industrial, commercial leases, commercial - other, direct installment, residential mortgages, indirect installment and consumer lines of credit.
The ACL on loans and leases represents our current estimate of lifetime credit losses inherent in our loan portfolio at the balance sheet date. In determining the ACL, we estimate expected future losses for the loan's entire contractual term adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications. The ACL is the sum of three components: quantitative (formulaic or pooled) reserves; asset specific / individual loan reserves; and qualitative (judgmental) reserves.
Quantitative Component
We use a non-discounted cash flow factor-based approach to estimate expected credit losses that include component PD/LGD/EAD models as well as less complex estimation methods for smaller loan portfolios.

PD: This component model is used to estimate the likelihood that a borrower will cease making payments as agreed. The major contributors to this are the borrower credit attributes and macro-economic trends.
LGD: This component model is used to estimate the loss on a loan once a loan is in default.
EAD: Estimates the loan balance at the time the borrower stops making payments. For all term loans, an amortization based formulaic approach is used for account level EAD estimates. We calculate EAD using a portfolio specific method in each of our revolving product portfolios.
Asset Specific / Individual Component
Loans that do not share risk characteristics are generally evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. We have elected to apply the practical expedient to measure expected credit losses of a collateral dependent asset using the fair value of the collateral, less any costs to sell.
Individual reserves are determined as follows:
For commercial loans in default which are greater than or equal to $1.0 million, individual reserves are determined based on an analysis of the present value of the loan's expected future cash flows, the loan's observable market value, or the fair value of the collateral less costs to sell.
For commercial and consumer loans in default which are below $1.0 million, an established LGD percentage is multiplied by the loan balance and the results are aggregated for purposes of measuring specific reserve impairment.

Qualitative Component
The ACL also includes identified qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not be reflected in quantitatively derived results, and other relevant factors to ensure the ACL reflects our best estimate of current expected credit losses.

While our reserve methodologies strive to reflect all relevant risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal
15


variations between estimates and actual outcomes. We provide additional reserves that are designed to provide coverage for losses attributable to such risks. The ACL also includes factors that may not be directly measured in the determination of individual or collective reserves. Such qualitative factors may include:

Lending policies and procedures, including changes in policies and underwriting standards and practices for collections, write-offs, and recoveries;
The experience, ability, and depth of lending, investment, collection, and other relevant personnel;
The quality of the institution’s credit review function;
Concentrations of credit or changes in the level of such concentration;
The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters (e.g., pandemics); and
Forecast uncertainty and imprecision.
Liability for Credit Losses on Unfunded Lending-Related Commitments
The AULC, such as letters of credit, is included in other liabilities on the Consolidated Balance Sheets. Expected credit losses are estimated over the contractual period in which we are exposed to credit risk via a contractual obligation including home equity lines of credit. We do not reserve for other obligations which are unconditionally cancellable by us. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated useful life. Consistent with our estimation process on our loan and lease portfolio, we use a non-discounted cash flow factor-based approach to estimate expected credit losses that include component PD/LGD/EAD models as well as less complex estimation methods for smaller portfolios.

Purchased Credit Deteriorated Loans and Leases
We have purchased loans and leases, some of which have experienced more than insignificant credit deterioration since origination.
Beginning in 2020, we have established criteria to assess whether a purchased financial asset, or group of assets, should be accounted for as PCD on the acquisition date. The selection of which criteria to apply, or the addition of new criteria, to a specific acquisition will be based on the facts and circumstances at the time of review, as well as the availability of information supplied by the acquiree. Generally, more-than-insignificant deterioration in credit quality since origination would include risk ratings of special mention or below, inconsistency of loan payments, non-accrual status at the time of acquisition, or loans modified in a TDR, in bankruptcy or for regulatory purposes.
PCD loans are recorded at the amount paid. The initial ACL is determined using the same methodology as other loans held for investment on a collective basis and is allocated to individual loans. The sum of the loan’s purchase price and the ACL becomes the initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized or accreted into interest income over the life of the loan. Subsequent changes to the ACL are recorded through the provision credit losses.
16


NOTE 2.    NEW ACCOUNTING STANDARDS
The following table summarizes accounting pronouncements issued by the FASB that we recently adopted.
TABLE 2.1
StandardDescriptionFinancial Statements Impact
Credit Losses
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses

ASU 2019-04,
Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

ASU 2019-05,
Financial Instruments-Credit Losses, (Topic 326): Targeted Transition Relief

ASU 2019-11,
Codification Improvements to Topic 326, Financial Instruments - Credit Losses
These Updates replace the current long-standing incurred loss impairment methodology with a methodology that reflects current expected credit losses (commonly referred to as CECL) for most financial assets measured at amortized cost and certain other instruments, including loans, HTM debt securities, net investments in leases and off-balance sheet credit exposures except for unconditionally cancellable commitments. CECL requires loss estimates for the remaining life of the financial asset at the time the asset is originated or acquired, considering historical experience, current conditions and reasonable and supportable forecasts. In addition, the Update will require the use of a modified AFS debt security impairment model and eliminate the current accounting for PCI loans and debt securities.
On January 1, 2020, we adopted CECL using the modified retrospective method for financial assets measured at amortized cost, net investments in leases and off-balance sheet credit exposures. While these Updates change the measurement of the ACL, it does not change the credit risk of our lending portfolios or the ultimate losses in those portfolios. However, the CECL ACL methodology will produce higher volatility in the quarterly provision for credit losses than our prior reserve process.

We created a cross-functional management steering group to govern implementation and the Audit and Risk Committees and the Board of Directors received regular updates. For financial assets measured at amortized cost we have implemented a new modeling platform and integrated other auxiliary models to support a calculation of expected credit losses under CECL. We have made decisions on segmentation, a reasonable and supportable forecast period, a reversion method and period and a historical loss forecast covering the remaining contractual life, adjusted for prepayments as well as other criteria.
 
Based on our portfolio composition and forecasts of relatively stable macroeconomic conditions over the next two years at the adoption date, we recorded an overall ACL of $301 million. This reflected an increase on the originated portfolio of $55 million, primarily driven by our longer duration commercial and consumer real estate loans and a "gross-up" for PCI loans of $50 million. There is no capital impact related to the PCI loans at adoption. The impact for the adoption of CECL was a reduction to retained earnings of $51 million, which included a $10 million increase to the AULC.

The impact upon adoption was dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates at the time of adoption.

The impact to our AFS and HTM debt securities was immaterial.

Model development, as well as the development of policies and procedures and, internal controls were complete at the time of adoption.
17



NOTE 3.    SECURITIES
The amortized cost and fair value of AFS debt securities for the current period are as follows. There was no ACL in the AFS portfolio during the nine months ended September 30, 2020. Accrued interest receivable on AFS debt securities totaled $5.8 million at September 30, 2020 and is excluded from the estimate of credit losses and recorded separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and the amortized cost basis of AFS debt securities.
TABLE 3.1
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities AFS:
September 30, 2020
U.S. Treasury$300 $ $ $300 
U.S. government agencies161  (1)160 
U.S. government-sponsored entities135 2  137 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,057 39  1,096 
Agency collateralized mortgage obligations941 35  976 
Commercial mortgage-backed securities396 20  416 
States of the U.S. and political subdivisions (municipals)14   14 
Other debt securities2   2 
Total debt securities AFS$3,006 $96 $(1)$3,101 
The amortized cost and fair value of debt securities AFS for December 31, 2019 are as follows:
TABLE 3.2
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities AFS:
December 31, 2019
U.S. government agencies$152 $— $(1)$151 
U.S. government-sponsored entities225 — 226 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,310 (3)1,314 
Agency collateralized mortgage obligations1,234 10 (4)1,240 
Commercial mortgage-backed securities341 (2)345 
States of the U.S. and political subdivisions (municipals)11 — — 11 
Other debt securities— — 
Total debt securities AFS$3,275 $24 $(10)$3,289 
18


The amortized cost and fair value of HTM debt securities for the current period are presented in the table below. The ACL for the HTM municipal bond portfolio was $0.05 million at September 30, 2020. Accrued interest receivable on HTM debt securities totaled $12.2 million at September 30, 2020 and is excluded from the estimate of credit losses and recorded separately in other assets in the Consolidated Balance Sheets.
TABLE 3.3
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities HTM:
September 30, 2020
U.S. Treasury$1 $ $ $1 
U.S. government agencies1   1 
U.S. government-sponsored entities160 1  161 
Residential mortgage-backed securities:
Agency mortgage-backed securities811 32  843 
Agency collateralized mortgage obligations571 19  590 
Commercial mortgage-backed securities278 12  290 
States of the U.S. and political subdivisions (municipals)1,144 42  1,186 
Total debt securities HTM$2,966 $106 $ $3,072 
The amortized cost and fair value of HTM debt securities for December 31, 2019 are as follows:
TABLE 3.4
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities HTM:
December 31, 2019
U.S. Treasury$$— $— $
U.S. government agencies— — 
U.S. government-sponsored entities175 — — 175 
Residential mortgage-backed securities:
Agency mortgage-backed securities949 (2)955 
Agency collateralized mortgage obligations721 (6)720 
Commercial mortgage-backed securities308 (2)309 
States of the U.S. and political subdivisions (municipals)1,120 26 (2)1,144 
Total debt securities HTM$3,275 $42 $(12)$3,305 
There were no significant gross gains or gross losses realized on securities during the nine months ended September 30, 2020 or 2019.

19


As of September 30, 2020, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:
TABLE 3.5
Available for SaleHeld to Maturity
(in millions)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due in one year or less$343 $343 $142 $143 
Due after one year but within five years107 108 41 41 
Due after five years but within ten years69 69 144 148 
Due after ten years93 93 979 1,017 
612 613 1,306 1,349 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,057 1,096 811 843 
Agency collateralized mortgage obligations941 976 571 590 
Commercial mortgage-backed securities396 416 278 290 
Total debt securities$3,006 $3,101 $2,966 $3,072 
Maturities may differ from contractual terms because borrowers may have the right to call or prepay obligations with or without penalties. Periodic payments are received on residential mortgage-backed securities based on the payment patterns of the underlying collateral.
Following is information relating to securities pledged:
TABLE 3.6
(dollars in millions)September 30,
2020
December 31,
2019
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law$5,427 $4,494 
As collateral for short-term borrowings390 285 
Securities pledged as a percent of total securities95.9 %72.8 %
At September 30, 2020, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in any amount greater than 10% of stockholders’ equity.

20


Following are summaries of the fair values of AFS debt securities in an unrealized loss position for which an ACL has not been recorded, segregated by surety type and length of continuous loss position:

TABLE 3.7
Less than 12 Months12 Months or MoreTotal
(dollars in millions)#Fair
Value
Unrealized
Losses
#Fair
Value
Unrealized
Losses
#Fair
Value
Unrealized
Losses
Debt Securities AFS
September 30, 2020
U.S. Treasury1 $100 $  $ $ 1 $100 $ 
U.S. government agencies1 13  17 74 (1)18 87 (1)
Residential mortgage-backed securities:
Agency collateralized mortgage obligations2 5     2 5  
Other debt securities   1 2  1 2  
Total 4 $118 $ 18 $76 $(1)22 $194 $(1)
Less than 12 Months12 Months or MoreTotal
(dollars in millions)#Fair
Value
Unrealized
Losses
#Fair
Value
Unrealized
Losses
#Fair
Value
Unrealized
Losses
Debt Securities AFS
December 31, 2019
U.S. government agencies$48 $— 15 $61 $(1)20 $109 $(1)
U.S. government-sponsored entities— — — 130 — 130 — 
Residential mortgage-backed securities:
Agency mortgage-backed securities13 200 (1)24 314 (2)37 514 (3)
Agency collateralized mortgage obligations11 323 (1)32 205 (3)43 528 (4)
Commercial mortgage-backed securities114 (2)— — — 114 (2)
Other debt securities— — — — — 
Total temporarily impaired debt securities AFS32 $685 $(4)78 $712 $(6)110 $1,397 $(10)
21


We evaluated the AFS debt securities that were in an unrealized loss position at September 30, 2020. Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the movement of interest rates. We do not intend to sell the AFS debt securities and it is not more likely than not that we will be required to sell the securities before the recovery of their amortized cost basis.
Credit Quality Indicators
We use credit ratings to help evaluate the credit quality of our HTM municipal bond portfolio. The ratings are updated quarterly with the last update on September 30, 2020. The remainder of the HTM portfolio is backed by the UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA and we have designated these securities as having zero expected credit loss, and therefore, are not subject to an estimate of expected credit loss under CECL.
Our municipal bond portfolio with a carrying amount of $1.2 billion as of September 30, 2020 is highly rated with an average rating of AA and 100% of the portfolio rated A or better, while 99% have stand-alone ratings of A or better. All of the securities in the municipal portfolio are general obligation bonds. Geographically, municipal bonds support our primary footprint as 67% of the securities are from municipalities located in the primary states within which we conduct business. The average holding size of the securities in the municipal bond portfolio is $3.5 million. In addition to the strong stand-alone ratings, 63% of the municipalities have some formal credit enhancement insurance that strengthens the creditworthiness of their issue. Management reviews the credit profile of each issuer on a quarterly basis.
The credit analysis on the municipal bond portfolio is completed on each bond using:
The bond’s credit rating;
Credit enhancements that improve the bond’s credit rating, for example insurance; and
Moody’s U.S. Bond Defaults and Recoveries, 1970-2019.
By using these components, we derive the expected credit loss on the general obligation bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our Commercial and Industrial Non-Manufacturing PD adjustment as derived through our assessment of the loan portfolio.
For the year-to-date period ending September 30, 2020, we had a provision expense of $0.01 million, with no charge-offs or recoveries. The ACL on the HTM portfolio as of September 30, 2020 was $0.05 million. No other securities portfolios had an ACL. At September 30, 2020, there were no securities that were past due or on non-accrual.
22


NOTE 4.    LOANS AND LEASES
The loan and lease portfolio categories were generally unchanged with the CECL adoption. Accrued interest receivable on loans and leases, which totaled $64.5 million at September 30, 2020, is excluded from the estimate of credit losses and recorded separately in other assets in the Consolidated Balance Sheets for both periods and not included in the tables below. Upon adoption of CECL, PCD assets were adjusted to reflect the addition of a $50.3 million ACL and a remaining noncredit discount of $110.0 million included in the amortized cost.
Loans and Leases by Portfolio Segment
Following is a summary of total loans and leases, net of unearned income:
TABLE 4.1
(in millions)September 30, 2020December 31, 2019
Commercial real estate$9,521 $8,960 
Commercial and industrial7,547 5,308 
Commercial leases487 432 
Other65 21 
Total commercial loans and leases17,620 14,721 
Direct installment1,977 1,821 
Residential mortgages3,531 3,374 
Indirect installment1,219 1,922 
Consumer lines of credit1,342 1,451 
Total consumer loans8,069 8,568 
Total loans and leases, net of unearned income$25,689 $23,289 

The loans and leases portfolio categories are comprised of the following types of loans, where in each case the loss given default is dependent on the nature and value of the respective collateral:

Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties where rents received by our borrowers from their tenant(s) on both a property and global basis are the primary default risk drivers, including rents paid by stand-alone business customers for owner-occupied properties;
Commercial and industrial includes loans to businesses that are not secured by real estate where the borrower's leverage and cash flows from operations are the primary default risk drivers;
Commercial leases consist of leases for new or used equipment where the borrower's cash flow from operations is the primary default risk driver;
Other is comprised primarily of credit cards and mezzanine loans where the borrower's cash flow from operations is the primary default risk driver;
Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans where the primary default risk driver is the borrower's employment status and income;
Residential mortgages consist of conventional and jumbo mortgage loans for 1-4 family properties where the primary default risk driver is the borrower's employment status and income;
Indirect installment is comprised of loans originated by approved third parties and underwritten by us, primarily automobile loans where the primary default risk driver is the borrower's employment status and income; and
Consumer lines of credit include home equity lines of credit and consumer lines of credit that are either unsecured or secured by collateral other than home equity where the primary default risk driver is the borrower's employment status and income.
23


The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market in seven states and the District of Columbia. Our primary market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. During September 2020, $508 million of indirect installment loans were transferred to loans held for sale in anticipation of a loan sale expected to close in the fourth quarter of 2020.
The following table shows certain information relating to commercial real estate loans:
TABLE 4.2
(dollars in millions)September 30,
2020
December 31,
2019
Commercial real estate:
Percent owner-occupied28.3 %30.6 %
Percent non-owner-occupied71.8 69.4 

Paycheck Protection Program

The CARES Act included an allocation of $349 billion for loans to be issued by financial institutions through the SBA, utilizing the PPP. The Paycheck Protection Program and Health Care Enhancement Act (PPP/HCE Act) was passed by Congress on April 23, 2020 and signed into law on April 24, 2020. The PPP/HCE Act authorized an additional $320 billion of funding for PPP loans.
PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. Loans closed prior to June 5 2020, carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. Payments are deferred until after a forgiveness determination is made, if submitted within ten months of the end of the loan forgiveness covered period. The loans are 100% guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. This fee is recognized in interest income over the contractual life of the loan under the effective yield method. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act (Flexibility Act) which extended the term for new PPP loans to 5 years and permitted a lender to extend a 2-year PPP loan up to a 5-year term by mutual agreement of the lender and borrower. The Flexibility Act also gives the borrower the option of 24 weeks to distribute the funds, and a borrower can remain eligible for loan forgiveness by using at least 60% of the funds for payroll costs. The SBA announced that lenders will have 60 days to review PPP loan forgiveness applications and that the SBA will remit the forgiveness payments within 90 days of receipt of approved forgiveness applications. The SBA has also stated that it will commence the loan forgiveness process in October 2020.

As of September 30, 2020, we had approximately $2.5 billion of PPP net loans outstanding. PPP loan balances are included in the commercial and industrial category. Loan origination fees or costs, premiums or discounts are deferred and amortized over the contractual term of the loan or loan commitment period as an adjustment to the related loan yield. Given the 100% guarantee by the SBA, there is reduced risk of loss to us on these loans.


24


Credit Quality
Management monitors the credit quality of our loan portfolio using several performance measures based on payment activity and borrower performance. We use an internal risk rating assigned to a commercial loan or lease at origination, summarized below.
TABLE 4.3
Rating CategoryDefinition
Passin general, the condition of the borrower and the performance of the loan is satisfactory or better
Special Mentionin general, the condition of the borrower has deteriorated, requiring an increased level of monitoring
Substandardin general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected
Doubtfulin general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable
The use of these internally assigned credit quality categories within the commercial loan and lease portfolio permits management’s use of transition matrices to establish the basis for the reasonable and supportable forecast portion of the credit risk. Our internal credit risk grading system is based on past experiences with similarly graded loans and leases and conforms to regulatory categories. In general, loan and lease risk ratings within each category are reviewed on an ongoing basis according to our policy for each class of loans and leases. Each quarter, management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the commercial loan and lease portfolio. Loans and leases within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans and leases that migrate toward the Substandard or Doubtful credit categories. Accordingly, management applies higher risk factors to Substandard and Doubtful credit categories.
During the first quarter of 2020, the World Health Organization declared COVID-19 a pandemic. Subsequent to that declaration, the U.S. declared a national emergency concerning the COVID-19 contagion and certain states and local governments within our market footprint have likewise declared emergency conditions that have resulted in orders and guidelines that prohibited or imposed significant restriction on the operations of non-essential businesses. Interagency guidance was released to encourage bankers to work with their customers to provide some relief through loan modifications or other temporary concessions. We have been working with borrowers throughout 2020 to provide them with certain relief that falls within this guidance and within our underwriting standards. Therefore, for any payment or interest deferrals and modifications relating to COVID-19 for borrowers who were in good standing before COVID-19, they are not included in any TDR data presented in the following tables.

25


The following table summarizes the designated loan rating category by loan class including term loans on an amortized cost basis by origination year:
TABLE 4.4
September 30, 202020202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
   Pass$1,343 $1,810 $1,194 $1,086 $936 $2,071 $144 $8,584 
   Special Mention10 31 58 74 60 166 402 
   Substandard25 32 87 133 252 535 
Total commercial real estate1,354 1,866 1,284 1,247 1,129 2,489 152 9,521 
Commercial and Industrial:
Risk Rating:
   Pass3,355 1,092 655 363 138 422 1,052 7,077 
   Special Mention26 40 38 12 28 59 208 
   Substandard31 55 40 46 79 262 
Total commercial and industrial3,364 1,149 750 441 157 496 1,190 7,547 
Commercial Leases:
Risk Rating:
   Pass114 179 94 61 — 459 
   Special Mention— — 13 
   Substandard— — 15 
Total commercial leases122 183 101 66 — 487 
Other Commercial:
Risk Rating:
   Pass21 — — — — 40 64 
   Substandard— — — — — — 
Total other commercial21 — — — — 40 65 
Total commercial4,861 3,198 2,135 1,754 1,295 2,995 1,382 17,620 
CONSUMER
Direct Installment:
   Current525 370 226 160 188 489 — 1,958 
   Past due— 14 — 19 
Total direct installment525 371 227 161 190 503 — 1,977 
Residential Mortgages:
   Current862 803 344 437 367 661 3,476 
   Past due32 — 55 
Total residential mortgages863 808 349 443 373 693 3,531 
Indirect Installment:
   Current249 273 364 169 83 69 — 1,207 
   Past due— — 12 
Total indirect installment249 274 366 171 84 75 — 1,219 
Consumer Lines of Credit:
   Current133 1,166 1,328 
   Past due— — — — 12 14 
Total consumer lines of credit145 1,167 1,342 
Total consumer1,640 1,461 951 779 653 1,416 1,169 8,069 
Total loans and leases$6,501 $4,659 $3,086 $2,533 $1,948 $4,411 $2,551 $25,689 
26


We use delinquency transition matrices within the consumer and other loan classes to establish the basis for the reasonable and supportable forecast portion of the credit risk. Each month, management analyzes payment and volume activity, Fair Isaac Corporation (FICO) scores and Debt-to-Income (DTI) scores and other external factors such as unemployment, to determine how consumer loans are performing.
The following tables present the December 31, 2019 summary of our commercial loans and leases by credit quality category segregated by loans and leases originated and loans acquired:
TABLE 4.5
Commercial Loan and Lease Credit Quality Categories
(in millions)PassSpecial
Mention
SubstandardDoubtfulTotal
Originated Loans and Leases
December 31, 2019
Commercial real estate$6,821 $171 $121 $$7,114 
Commercial and industrial4,768 149 144 5,063 
Commercial leases423 — 432 
Other20 — — 21 
Total originated commercial loans
and leases
$12,032 $323 $272 $$12,630 
Loans Acquired in a Business Combination
December 31, 2019
Commercial real estate$1,603 $116 $127 $— $1,846 
Commercial and industrial201 19 25 — 245 
Total commercial loans acquired in a business combination$1,804 $135 $152 $— $2,091 
Following is a table showing the December 31, 2019 consumer loans by payment status:
TABLE 4.6
Consumer Loan Credit Quality
by Payment Status
(in millions)PerformingNon-
Performing
Total
Originated Loans
December 31, 2019
Direct installment$1,745 $13 $1,758 
Residential mortgages2,978 17 2,995 
Indirect installment1,919 1,922 
Consumer lines of credit1,086 1,092 
Total originated consumer loans$7,728 $39 $7,767 
Loans Acquired in a Business Combination
December 31, 2019
Direct installment$63 $— $63 
Residential mortgages379 — 379 
Consumer lines of credit358 359 
Total consumer loans acquired in a business combination$800 $$801 

27


Non-Performing and Past Due
The following tables provide an analysis of the aging of loans by class.
TABLE 4.7
(in millions)30-89 Days
Past Due
> 90 Days
Past Due
and Still
Accruing
Non-
Accrual
Total
Past Due
CurrentTotal
Loans and
Leases
Non-accrual with No ACL
September 30, 2020
Commercial real estate$16 $ $90 $106 $9,415 $9,521 $29 
Commercial and industrial8  55 63 7,484 7,547 14 
Commercial leases1  2 3 484 487  
Other 1 1 2 63 65  
Total commercial loans and leases25 1 148 174 17,446 17,620 43 
Direct installment8 2 9 19 1,958 1,977  
Residential mortgages31 13 11 55 3,476 3,531  
Indirect installment9  3 12 1,207 1,219  
Consumer lines of credit5 2 7 14 1,328 1,342  
Total consumer loans53 17 30 100 7,969 8,069  
Total loans and leases$78 $18 $178 $274 $25,415 $25,689 $43 
(in millions)30-89 Days
Past Due
> 90 Days
Past Due
and Still
Accruing
Non-
Accrual
Total
Past Due
CurrentTotal
Loans and
Leases
Originated Loans and Leases
December 31, 2019
Commercial real estate$10 $— $26 $36 $7,078 $7,114 
Commercial and industrial— 28 37 5,026 5,063 
Commercial leases— 426 432 
Other— — 20 21 
Total commercial loans and leases24 — 56 80 12,550 12,630 
Direct installment15 1,743 1,758 
Residential mortgages12 22 2,973 2,995 
Indirect installment15 19 1,903 1,922 
Consumer lines of credit1,083 1,092 
Total consumer loans39 21 65 7,702 7,767 
Total originated loans and leases$63 $$77 $145 $20,252 $20,397 
28


(in millions)30-89
Days
Past Due
> 90 Days
Past Due
and Still
Accruing
Non-
Accrual
Total
Past Due
(1) (2)
Current(Discount) PremiumTotal
Loans
Loans Acquired in a Business Combination
December 31, 2019
Commercial real estate$12 $28 $$43 $1,942 $(139)$1,846 
Commercial and industrial— 259 (19)245 
Total commercial loans14 31 48 2,201 (158)2,091 
Direct installment— — 60 — 63 
Residential mortgages— 12 382 (15)379 
Consumer lines of credit10 357 (8)359 
Total consumer loans18 25 799 (23)801 
Total loans acquired in a business combination$32 $37 $$73 $3,000 $(181)$2,892 

(1) Prior to the adoption of CECL on January 1, 2020, loans acquired in a business combination were considered performing upon acquisition, regardless of whether the customer was contractually delinquent, if we could reasonably estimate the timing and amount of expected cash flows on such loans. In these instances, we did not consider acquired contractually delinquent loans to be non-accrual or non-performing and continued to recognize interest income on these loans using the accretion method. After the adoption of CECL on January 1, 2020, loans acquired in a business combination are considered non-accrual or non-performing when, due to credit deterioration or other factors, we determine we are no longer able to reasonably estimate the timing and amount of expected cash flows on such loans. We do not recognize interest income on loans acquired in a business combination considered non-accrual or non-performing.
(2)    Past due information for loans acquired in a business combination is based on the contractual balance outstanding at December 31, 2019.
Following is a summary of non-performing assets:
TABLE 4.8
(dollars in millions)September 30,
2020
December 31,
2019
Non-accrual loans$178 $81 
Troubled debt restructurings 22 
Total non-performing loans
178 103 
Other real estate owned 20 26 
Total non-performing assets
$198 $129 
Asset quality ratios:
Non-performing loans / total loans and leases
0.69 %0.44 %
Non-performing assets + 90 days past due + OREO / total loans and leases + OREO
0.84 %0.73 %
The carrying value of residential-secured consumer OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $2.9 million at September 30, 2020 and $3.3 million at December 31, 2019. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at September 30, 2020 and December 31, 2019 totaled $10.7 million and $9.2 million, respectively.
Approximately $112 million of commercial loans are collateral dependent at September 30, 2020. Repayment is expected to be substantially through the operation or sale of the collateral on the loan. These loans are primarily secured by business assets or commercial real estate.





29


Troubled Debt Restructurings
TDRs are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs typically result from loss mitigation activities and could include the extension of a maturity date, interest rate reduction, principal forgiveness, deferral or decrease in payments for a period of time and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Consistent with the CARES Act and interagency guidance which allows temporary relief for current borrowers affected by COVID-19, we are working with borrowers and granting certain modifications through programs related to COVID-19 relief. As of September 30, 2020, we had $792 million in loans that have been granted short-term modifications as a result of financial disruptions associated with the COVID-19 pandemic. Also, consistent with the CARES Act and the interagency guidelines, such modifications are not included in our TDR totals.
Following is a summary of the composition of total TDRs:
TABLE 4.9
(in millions)September 30,
2020
December 31,
2019
Accruing$61 $41 
Non-accrual33 15 
Total TDRs$94 $56 

TDRs that are accruing and performing include loans that met the criteria for non-accrual of interest prior to restructuring for which we can reasonably estimate the timing and amount of the expected cash flows on such loans and for which we expect to fully collect the new carrying value of the loans. During the nine months ended September 30, 2020, we returned to accruing status $6.9 million in restructured residential mortgage loans that have consistently met their modified obligations for more than six months. TDRs that are on non-accrual are not placed on accruing status until all delinquent principal and interest have been paid and the ultimate collectability of the remaining principal and interest is reasonably assured. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and may result in potential incremental losses which are factored into the ACL.
Commercial loans over $1.0 million whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured based on the fair value of the underlying collateral. Our ACL includes specific reserves for commercial TDRs of $1.6 million at September 30, 2020 compared to less than $0.5 million at December 31, 2019, and pooled reserves for individual loans of $3.4 million and $0.8 million for those same periods, respectively, based on loan segment loss given default. Upon default, the amount of the recorded investment in the TDR in excess of the fair value of the collateral, less estimated selling costs, is generally considered a confirmed loss and is charged-off against the ACL.
All other classes of loans whose terms have been modified in a TDR are pooled and measured based on the loan segment loss given default. Our ACL included pooled reserves for these classes of loans of $4.6 million for September 30, 2020 and $4.1 million for December 31, 2019. Upon default of an individual loan, our charge-off policy is followed for that class of loan.

30


Following is a summary of TDR loans, by class, for loans that were modified during the periods indicated:
TABLE 4.10
Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
(dollars in millions)Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Commercial real estate7 $2 $2 23 $8 $6 
Commercial and industrial4   19 3 2 
Other   1   
Total commercial loans11 2 2 43 11 8 
Direct installment14 1 1 50 3 3 
Residential mortgages2 1 1 18 3 2 
Consumer lines of credit9   36 1 1 
Total consumer loans25 2 2 104 7 6 
Total36 $4 $4 147 $18 $14 

 Three Months Ended September 30, 2019Nine Months Ended September 30, 2019
(dollars in millions)Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Commercial real estate$— $— 16 $$
Commercial and industrial— — 14 
Total commercial loans— — 30 
Direct installment15 47 
Residential mortgages14 
Consumer lines of credit— — 20 
Total consumer loans26 81 
Total31 $$111 $13 $11 
The year-to-date items in the above tables have been adjusted for loans that have been paid off and/or sold.

31


Following is a summary of TDRs, by class, for which there was a payment default, excluding loans that have been paid off and/or sold. Default occurs when a loan is 90 days or more past due and is within 12 months of restructuring.
TABLE 4.11
 Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
(dollars in millions)Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
Commercial real estate $ 8 $3 
Commercial and industrial1  3  
Total commercial loans1  11 3 
Direct installment4 $ 12 $1 
Residential mortgages  2  
Consumer lines of credit1  3  
Total consumer loans5  17 1 
Total6 $ 28 $4 

Following is a summary of originated TDRs, by class, for which there was a payment default, excluding loans that have been paid off and/or sold.
TABLE 4.12
 Three Months Ended
September 30, 2019
Nine Months Ended
September 30, 2019
(dollars in millions)Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
Commercial real estate$— $
Commercial and industrial— — — 
Total commercial loans— 
Direct installment— — 
Residential mortgages— — — 
Consumer lines of credit— — 
Total consumer loans— — 
Total$— 12 $

Loans Acquired in a Business Combination
Prior to January 1, 2020, all loans acquired in a business combination were initially recorded at fair value at the acquisition date with no associated ACL. Refer to the Loans Acquired in a Business Combination section in Note 1 to the Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K for a discussion of ASC 310-20 and ASC 310-30 loans.

NOTE 5.    ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
Beginning January 1, 2020, the former incurred loss method was replaced with the CECL method to calculate estimated loan loss. The ACL addresses credit losses expected in the existing loan and lease portfolio and is presented as a reserve against loans and leases on the Consolidated Balance Sheets. Loan and lease losses are charged off against the ACL, with recoveries of amounts previously charged off credited to the ACL. Provisions for credit losses are charged to operations based on management’s periodic evaluation of the appropriate level of the ACL. Included in Table 5.1 is the impact to the ACL from our CECL (ASC 326) adoption on January 1, 2020. All prior periods are presented using the incurred loss method which was the accounting method in place at the time of the respective financial statements.
32


Following is a summary of changes in the ACL, by loan and lease class:
TABLE 5.1

(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
Charge-
Offs
Provision for Credit LossesBalance at
End of
Period
Three Months Ended September 30, 2020
Commercial real estate$163 $(3)$1 $(2)$23 $184 
Commercial and industrial98 (17)1 (16)11 93 
Commercial leases17     17 
Other1 (1) (1)1 1 
Total commercial loans and leases279 (21)2 (19)35 295 
Direct installment25    (1)24 
Residential mortgages33 (1)1  (2)31 
Indirect installment17 (1)1  (5)12 
Consumer lines of credit11     11 
Total consumer loans86 (2)2  (8)78 
Total allowance for credit losses on loans and leases$365 $(23)$4 $(19)$27 $373 

(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
Charge-
Offs
Provision for Credit LossesASC 326 Adoption ImpactInitial ACL on PCD LoansBalance at
End of
Period
Nine Months Ended September 30, 2020
Commercial real estate$60 $(8)$6 $(2)$48 $38 $40 $184 
Commercial and industrial53 (25)3 (22)50 8 4 93 
Commercial leases11    6   17 
Other9 (3) (3)4 (9) 1 
Total commercial loans and leases133 (36)9 (27)108 37 44 295 
Direct installment13 (1) (1)1 10 1 24 
Residential mortgages22 (1)1  (1)6 4 31 
Indirect installment19 (6)3 (3)(6)2  12 
Consumer lines of credit9 (2) (2)3  1 11 
Total consumer loans63 (10)4 (6)(3)18 6 78 
Total allowance on loans and leases$196 $(46)$13 $(33)$105 $55 $50 $373 


33


This expected loss model takes into consideration the expected losses over the expected life of the loan compared to the incurred loss model under the prior standard. At the time of CECL adoption, we recorded a one-time cumulative-effect adjustment of $50.6 million as a reduction to Retained Earnings. The ACL balance increased by $105 million and included a “gross-up" to PCI loan balances and the ACL of $50 million. Included in the CECL adoption impact was an increase to our AULC of $10 million. The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation:
a third-party macroeconomic forecast scenario;
a 24-month R&S forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 12-month period; and
the historical through-the-cycle mean was calculated using an expanded period to include a prior recessionary period.
COVID-19 Impacts
Beginning in March 2020, the broader economy experienced a significant deterioration in the macroeconomic environment driven by the COVID-19 pandemic resulting in notable adverse changes to forecasted economic variables utilized in our ACL modeling process. Based on these changes, we are utilizing a third-party recessionary macroeconomic forecast scenario for ACL modeling purposes. This scenario captures forecasted macroeconomic variables as of mid-September to ensure our ACL calculation considers the most recently available macroeconomic data in a quickly evolving environment at quarter-end. Macroeconomic variables that we utilized from this scenario include but are not limited to: (i) gross domestic product, which reflects a contraction of up to 7.0% from the beginning of 2020 with average annual increases not occurring until mid-2021, (ii) the Dow Jones Industrial Average, which remains below peak levels throughout the R&S forecast period, (iii) unemployment, which averages 10% over the R&S forecast period and (iv) the Volatility Index, which remains elevated in the fourth quarter of 2020 before declining to pre-pandemic levels in mid-2021.

The ACL of $373.0 million at September 30, 2020 increased $177.1 million, or 90.4%, from December 31, 2019 and reflects the Day 1 CECL adoption increase to the ACL of $105.3 million on January 1, 2020. Our ending ACL coverage ratio at September 30, 2020 was 1.45%. Total provision for credit losses for the three months ended September 30, 2020 was $27.2 million. Net charge-offs were $19.3 million during the three months ended September 30, 2020, compared to $6.4 million during the three months ended September 30, 2019, with the increase primarily due to commercial charge-offs taken against credits that were somewhat impacted by COVID-19. Total provision for credit losses for the nine months ended September 30, 2020 was $105.2 million. Net charge-offs were $33.4 million during the nine months ended September 30, 2020, compared to $23.0 million during the nine months ended September 30, 2019, with the increase primarily due to the aforementioned commercial charge-offs that occurred during the third quarter, which was partially offset by higher commercial recoveries in the current period as compared to the prior year.

34


Following is a summary of changes in the ACL, by loan and lease class:

TABLE 5.2
(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
Charge-
Offs
Provision
for Credit
Losses
Balance at
End of
Period
Three Months Ended September 30, 2019
Commercial real estate$61 $(1)$— $(1)$(2)$58 
Commercial and industrial52 (3)(2)57 
Commercial leases— — — 10 
Other— — — 
Total commercial loans and leases123 (4)(3)127 
Direct installment13 — — — (1)12 
Residential mortgages20 — — — 23 
Indirect installment18 (3)(2)18 
Consumer lines of credit— — — — 
Total consumer loans60 (3)(2)62 
Total allowance for credit losses on originated loans and leases183 (7)(5)11 189 
Purchased credit-impaired loans— — — — 
Other acquired loans(2)(1)
Total allowance for credit losses on acquired loans(2)(1)
Total allowance for credit losses$188 $(9)$$(6)$12 $194 
Nine Months Ended September 30, 2019
Commercial real estate$55 $(3)$$(2)$$58 
Commercial and industrial49 (7)(4)12 57 
Commercial leases— — — 10 
Other(2)— (2)
Total commercial loans and leases114 (12)(8)21 127 
Direct installment14 (1)— (1)(1)12 
Residential mortgages20 (1)— (1)23 
Indirect installment15 (8)(5)18 
Consumer lines of credit10 (1)— (1)— 
Total consumer loans59 (11)(8)11 62 
Total allowance on originated loans and leases173 (23)(16)32 189 
Purchased credit-impaired loans— — — — 
Other loans acquired in a business combination(9)(7)
Total allowance on loans acquired in a business combination(9)(7)
Total allowance for credit losses$180 $(32)$$(23)$37 $194 
35


Following is a summary of the individual and collective ACL and corresponding loan and lease balances by class:
TABLE 5.3
 Allowance for Credit LossesLoans and Leases Outstanding
(in millions)Individually
Evaluated for
Impairment
Collectively
Evaluated for
Impairment
Loans and
Leases
Individually
Evaluated for
Impairment
Collectively
Evaluated for
Impairment
December 31, 2019
Commercial real estate$$58 $7,114 $13 $7,101 
Commercial and industrial51 5,063 17 5,046 
Commercial leases— 11 432 — 432 
Other— 21 — 21 
Total commercial loans and leases122 12,630 30 12,600 
Direct installment— 13 1,758 — 1,758 
Residential mortgages— 22 2,995 — 2,995 
Indirect installment— 19 1,922 — 1,922 
Consumer lines of credit— 1,092 — 1,092 
Total consumer loans— 63 7,767 — 7,767 
Total$$185 $20,397 $30 $20,367 

The above table excludes loans acquired in a business combination that were pooled into groups of loans for evaluating impairment.

NOTE 6.    LOAN SERVICING
Mortgage Loan Servicing
We retain the servicing rights on certain mortgage loans sold. The unpaid principal balance of mortgage loans serviced for others is listed below:
TABLE 6.1
(in millions)September 30,
2020
December 31,
2019
Mortgage loans sold with servicing retained$4,626 $4,686 

The following table summarizes activity relating to mortgage loans sold with servicing retained:
TABLE 6.2
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2020201920202019
Mortgage loans sold with servicing retained$466 $354 $1,142 $937 
Pretax net gains resulting from above loan sales (1)
25 10 47 23 
Mortgage servicing fees (1)
3 9 
(1) Recorded in mortgage banking operations on the Consolidated Statements of Income.
36


Following is a summary of activity relating to MSRs:
TABLE 6.3
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2020201920202019
Balance at beginning of period$34.0 $38.0 $42.6 $36.8 
Additions4.5 3.5 11.0 9.8 
Payoffs and curtailments(4.6)(0.5)(10.5)(1.8)
(Impairment) / recovery0.5 (0.3)(7.5)(2.9)
Amortization(0.6)(1.9)(1.8)(3.1)
Balance at end of period$33.8 $38.8 $33.8 $38.8 
Fair value, beginning of period$34.0 $39.8 $45.0 $41.1 
Fair value, end of period33.8 40.5 33.8 40.5 
The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third-party valuations. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSRs and as interest rates increase, mortgage loan prepayments decline, which results in an increase in the fair value of MSRs. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.
Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions:
TABLE 6.4
(dollars in millions)September 30,
2020
December 31,
2019
Weighted average life (months)62.378.9
Constant prepayment rate (annualized)14.5 %10.6 %
Discount rate9.6 %9.7 %
Effect on fair value due to change in interest rates:
+0.25%$2 $
+0.50%5 
-0.25%(2)(3)
-0.50%(3)(5)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. Also, in this table, the effects of an adverse variation in a particular assumption on the fair value of MSRs is calculated without changing any other assumptions, while in reality, changes in one factor may result in changing another, which may magnify or contract the effect of the change. We had a $9.1 million valuation allowance for MSRs as of September 30, 2020, compared to $1.5 million at December 31, 2019.

37


NOTE 7.      GOODWILL AND OTHER INTANGIBLE ASSETS
In performing our quarterly goodwill impairment assessment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors include, among other things, macroeconomic conditions, industry and market considerations, financial performance of the respective reporting unit and other relevant entity- and reporting-unit specific considerations. If we conclude it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed. If the quantitative assessment results in the fair value of the reporting unit exceeding its carrying value, goodwill of the reporting unit is considered not impaired; however, if the carrying value of the reporting unit exceeds its fair value an impairment charge is recorded for the excess, limited to the amount of goodwill assigned to a reporting unit.
In connection with the preparation of the third quarter 2020 financial statements, we concluded that it was more likely than not that the fair value of our Community Banking reporting unit was below its carrying amount due to a sustained decline in bank stock valuations, which was primarily attributable to the systemic near-term uncertainty of COVID-19 and its full impact on the global economy which caused an unprecedented shock in interest rates and equity valuations. Therefore, we performed an interim quantitative assessment of our Community Banking reporting unit as of September 30, 2020. Factors considered in the interim quantitative analysis included: the uncertainty due to the COVID-19 pandemic on our customers and our businesses and revisions to our 2020 annual operating plan due to the COVID-19 pandemic, which established revised expectations and priorities for the remainder of 2020 in response to current market factors, such as lower revenue growth and net interest margin expectations.
The September 30, 2020 interim quantitative assessment for our Community Banking reporting unit, with $2.2 billion of allocated goodwill, resulted in an excess fair value over its carrying amount of less than 5%, which is stable from June 30, 2020. Based on the results of the interim quantitative impairment assessments, there were no impairments for the periods presented. Although not impaired, the fair value of our Community Banking reporting unit remains relatively close to carrying value. As margins for fair value over carrying amount decline, the risk of future impairment increases if any assumptions, estimates, or market factors change in the future. The annual test for impairment is performed in the fourth quarter each year and will include an update to our long-range forecast.
Other intangible assets are tested annually for impairment, and more frequently if events or changes in circumstances indicate the carrying value may not be recoverable. We completed this annual test in 2019 and determined that our other intangible assets are not impaired. There were no impairment indicators for other intangible assets as of September 30, 2020.

NOTE 8.    OPERATING LEASES

We have operating leases primarily for certain branches, office space, land, and office equipment. Our operating leases expire at various dates through the year 2046 and generally include one or more options to renew. The exercise of lease renewal options is at our sole discretion. As of September 30, 2020, we had operating lease right-of-use assets and operating lease liabilities of $116.6 million and $124.2 million, respectively.
Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As of September 30, 2020, we have certain operating lease agreements, primarily for administrative office space, that have not yet commenced. At commencement, it is expected that these leases will add approximately $28 million in right-of-use assets and other liabilities. These operating leases are currently expected to commence in 2020 with lease terms of 11 years to 16 years.

38


The components of lease expense were as follows:
TABLE 8.1
Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in millions)2020201920202019
Operating lease cost$7 $$20 $20 
Short-term lease cost1 1 
Variable lease cost1 3 
Total lease cost$9 $$24 $24 

Other information related to leases is as follows:
TABLE 8.2
Nine Months Ended
September 30,
(dollars in millions)20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$19 $19 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases5 22 
Weighted average remaining lease term (years):
Operating leases9.519.78
Weighted average discount rate:
Operating leases2.8 %3.0 %

Maturities of operating lease liabilities were as follows:
TABLE 8.3
(in millions)September 30,
2020
2020$6 
202124 
202219 
202315 
202413 
Later years67 
Total lease payments144 
Less: imputed interest(20)
Present value of lease liabilities$124 

As a lessor we offer commercial leasing services to customers in need of new or used equipment primarily within our market areas of Pennsylvania, Ohio, Maryland, North Carolina, South Carolina and West Virginia. Additional information relating to commercial leasing is provided in Note 4, “Loans and Leases” in the Notes to Consolidated Financial Statements.


39


NOTE 9.     VARIABLE INTEREST ENTITIES
We evaluate our interest in certain entities to determine if these entities meet the definition of a VIE and whether we are the primary beneficiary and required to consolidate the entity based on the variable interest we hold both at inception and when there is a change in circumstances that requires a reconsideration.
Unconsolidated VIEs

The following tables provide a summary of the assets and liabilities included in our Consolidated Financial Statements, as well as the maximum exposure to losses, associated with its interests related to unconsolidated VIEs for which we hold an interest, but are not the primary beneficiary, at September 30, 2020 and December 31, 2019.
TABLE 9.1
(in millions)Total AssetsTotal LiabilitiesMaximum Exposure to Loss
September 30, 2020
Trust preferred securities (1)
$1 $66 $ 
Affordable housing tax credit partnerships121 51 121 
Other investments32 8 32 
Total $154 $125 $153 
December 31, 2019
Trust preferred securities (1)
$$66 $— 
Affordable housing tax credit partnerships120 60 120 
Other investments33 10 33 
Total $154 $136 $153 
(1) Represents our investment in unconsolidated subsidiaries.

Trust-Preferred Securities

We have certain wholly-owned trusts whose assets, liabilities, equity, income and expenses are not included within our Consolidated Financial Statements. These trusts have been formed for the sole purpose of issuing TPS, from which the proceeds are then invested in our junior subordinated debentures, which are reflected in our Consolidated Balance Sheets as subordinated notes. The TPS are the obligations of the trusts, and as such, are not consolidated within our Consolidated Financial Statements. See the Borrowings footnote for additional information relating to our TPS.

Each issue of the junior subordinated debentures has an interest rate equal to the corresponding TPS distribution rate. We have the right to defer payment of interest on the debentures at any time, or from time-to-time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the related debentures. During any such extension period, distributions to the TPS will also be deferred and our ability to pay dividends on our common stock will be restricted. Periodic cash payments and payments upon liquidation or redemption with respect to TPS are guaranteed by us to the extent of funds held by the trusts. The guarantee ranks subordinate and junior in right of payment to all of our indebtedness to the same extent as the junior subordinated debt. The guarantee does not place a limitation on the amount of additional indebtedness that may be incurred by us.
Affordable Housing Tax Credit Partnerships
We make equity investments as a limited partner in various partnerships that sponsor affordable housing projects utilizing the LIHTC pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to support initiatives associated with the Community Reinvestment Act while earning a satisfactory return. The activities of these LIHTC partnerships include the development and operation of multi-family housing that is leased to qualifying residential tenants. These partnerships are generally located in communities where we have a banking presence and meet the definition of a VIE; however, we are not the primary beneficiary of the entities, as the general partner or managing member has both the power to
40


direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses beyond our own equity investment. We record our investment in LIHTC partnerships as a component of other assets.
We use the proportional amortization method to account for a majority of our investments in LIHTC partnerships. Investments that do not meet the requirements of the proportional amortization method are recognized using the equity method. Amortization related to investments under the proportional amortization method are recorded on a net basis as a component of the provision of income taxes on the Consolidated Statements of Income, while write-downs and losses related to investments under the equity method are included in non-interest expense.
The following table presents the balances of our affordable housing tax credit investments and related unfunded commitments:
TABLE 9.2
(in millions)September 30,
2020
December 31,
2019
Proportional amortization method investments included in other assets$67 $55 
Equity method investments included in other assets3 
Total LIHTC investments included in other assets$70 $60 
Unfunded LIHTC commitments$51 $60 
The following table summarizes the impact of these LIHTC investments on specific line items of our Consolidated Statements of Income:
TABLE 9.3
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2020201920202019
Non-interest income:
Amortization of tax credit investments under equity method, net of tax benefit$ $— $1 $
Provision for income taxes:
Amortization of LIHTC investments under proportional method$2 $$8 $
Low-income housing tax credits(3)(3)(9)(7)
Other tax benefits related to tax credit investments — (2)(1)
Total provision for income taxes$(1)$(1)$(3)$(2)
Other Investments
Other investments we also consider to be unconsolidated VIE’s include investments in Small Business Investment Companies, Historic Tax Credit Investments, and other equity method investments.


41


NOTE 10.    BORROWINGS
Following is a summary of short-term borrowings:
TABLE 10.1
(in millions)September 30,
2020
December 31,
2019
Securities sold under repurchase agreements$405 $278 
Federal Home Loan Bank advances1,380 2,255 
Federal funds purchased 575 
Subordinated notes114 108 
Total short-term borrowings$1,899 $3,216 
Borrowings with original maturities of one year or less are classified as short-term. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are sweep accounts with next-day maturities utilized by larger commercial customers to earn interest on their funds. Securities are pledged to these customers in an amount at least equal to the outstanding balance. We did not have any short-term FHLB advances with overnight maturities as of September 30, 2020 or December 31, 2019. At September 30, 2020, $1.4 billion, or 100.0%, of the short-term FHLB advances were swapped to a fixed rate with maturities ranging from 2020 through 2024. This compares to $1.5 billion, or 64.5%, as of December 31, 2019.
Following is a summary of long-term borrowings:
TABLE 10.2
(in millions)September 30,
2020
December 31,
2019
Federal Home Loan Bank advances$700 $935 
Senior notes298 — 
Subordinated notes84 90 
Junior subordinated debt66 66 
Other subordinated debt249 249 
Total long-term borrowings$1,397 $1,340 
Our banking affiliate has available credit with the FHLB of $8.4 billion, of which $2.1 billion was utilized as of September 30, 2020. These advances are secured by loans collateralized by residential mortgages, home equity lines of credit, commercial real estate and FHLB stock and are scheduled to mature in various amounts periodically through the year 2022. Effective interest rates paid on the long-term advances ranged from 0.30% to 2.45% for the nine months ended September 30, 2020 and 1.62% to 2.71% for the year ended December 31, 2019.
During the third quarter of 2020, we reduced higher rate outstanding FHLB borrowings by $415.0 million, which resulted in a loss on debt extinguishment and related hedge termination costs of $13.3 million reported in other non-interest income on the Consolidated Statements of Income.
During the first quarter of 2020, we completed a debt offering in which we issued $300 million aggregate principal amount of senior notes due in 2023. The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering costs were $297.9 million. These proceeds were used for general corporate purposes, which included investments at the holding company level, capital to support the growth of FNBPA, repurchase of our common shares and refinancing of outstanding indebtedness.
42


The following table provides information relating to our senior debt and other subordinated debt as of September 30, 2020. These debt issuances are fixed-rate, with the exception of the debt offering in 2019, which is fixed-to-floating rate after February 14, 2024. The subordinated notes are eligible for treatment as tier 2 capital for regulatory capital purposes.
TABLE 10.3
(dollars in millions)Aggregate Principal Amount Issued
Net Proceeds (2)
Carrying ValueStated Maturity DateInterest
Rate
2.20% Senior Notes due February 24, 2023
$300 $298 $298 2/24/20232.20 %
4.95% Fixed-To-Floating Rate Subordinated Notes due 2029
120 118 119 2/14/20294.95 %
4.875% Subordinated Notes due 2025
100 98 99 10/2/20254.875 %
7.625% Subordinated Notes due August 12, 2023 (1)
38 46 31 8/12/20237.625 %
Total$558 $560 $547 
(1) Assumed from a prior acquisition and adjusted to fair value at the time of acquisition.
(2) After deducting underwriting discounts and commissions and offering costs. For the debt assumed from a prior acquisition, this is the fair value of the debt at the time of the acquisition.
The junior subordinated debt is comprised of the debt securities issued by FNB in relation to our unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated VIEs, and are included on the Consolidated Balance Sheets in long-term borrowings. Since third-party investors are the primary beneficiaries, the Trusts are not consolidated in our Financial Statements. We record the distributions on the junior subordinated debt issued to the Trusts as interest expense.
The following table provides information relating to the Trusts as of September 30, 2020:
TABLE 10.4
(dollars in millions)Trust
Preferred
Securities
Common
Securities
Junior
Subordinated
Debt
Stated
Maturity
Date
Interest Rate
Rate Reset Factor
F.N.B. Statutory Trust II$22 $1 $22 6/15/20361.90 %
LIBOR + 165 basis points (bps)
Yadkin Valley Statutory Trust I25 1 22 12/15/20371.57 %
LIBOR + 132 bps
FNB Financial Services Capital Trust I25 1 22 9/30/20351.68 %
LIBOR + 146 bps
Total$72 $3 $66 

NOTE 11.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate risk, primarily by managing the amount, source, and duration of our assets and liabilities, and through the use of derivative instruments. Derivative instruments are used to reduce the effects that changes in interest rates may have on net income and cash flows. We also use derivative instruments to facilitate transactions on behalf of our customers.
All derivatives are carried on the Consolidated Balance Sheets at fair value and do not take into account the effects of master netting arrangements we have with other financial institutions. Credit risk is included in the determination of the estimated fair value of derivatives. Derivative assets are reported in the Consolidated Balance Sheets in other assets and derivative liabilities are reported in the Consolidated Balance Sheets in other liabilities. Changes in fair value are recognized in earnings except for certain changes related to derivative instruments designated as part of a cash flow hedging relationship.
43


The following table presents notional amounts and gross fair values of our derivative assets and derivative liabilities which are not offset in the Consolidated Balance Sheets:
TABLE 11.1
September 30, 2020December 31, 2019
NotionalFair ValueNotionalFair Value
(in millions)AmountAssetLiabilityAmountAssetLiability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated$1,580 $3 $ $1,655 $$— 
Interest rate swaps – not designated4,601  42 3,640 — 23 
Total subject to master netting arrangements6,181 3 42 5,295 23 
Not subject to master netting arrangements:
Interest rate swaps – not designated4,601 397  3,640 149 
Interest rate lock commitments – not designated532 22  163 — 
Forward delivery commitments – not designated479 1 2 195 
Credit risk contracts – not designated445  1 265 — — 
Total not subject to master netting arrangements6,057 420 3 4,263 153 
Total$12,238 $423 $45 $9,558 $154 $25 
Certain derivative exchanges have enacted a rule change which in effect results in the legal characterization of variation margin payments for certain derivative contracts as settlement of the derivatives mark-to-market exposure and not collateral. Accordingly, we have changed our reporting of certain derivatives to record variation margin on trades cleared through these exchanges as settled.  The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument. The fair value of interest rate swaps - not designated has increased from December 31, 2019 primarily due to the significantly lower interest rate environment since year-end.
Derivatives Designated as Hedging Instruments under GAAP
Interest Rate Contracts. We entered into interest rate derivative agreements to modify the interest rate characteristics of certain commercial loans and certain of our FHLB advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges, hedging the exposure to variability in expected future cash flows. The derivative’s gain or loss, including any ineffectiveness, is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same line item associated with the forecasted transaction when the forecasted transaction affects earnings. Prior to 2019, any ineffective portion of the gain or loss was reported in earnings immediately.
The following table shows amounts reclassified from AOCI:
TABLE 11.2
Amount of Gain (Loss) Recognized in OCI on DerivativesLocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
Nine Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2020201920202019
Derivatives in cash flow hedging relationships:
   Interest rate contracts $(42)$(31)Interest income (expense)$(9)$
Other income (expense)(9)$— 
44


The following table represents gains (losses) recognized in the Consolidated Statements of Income on cash flow hedging relationships:
TABLE 11.3
Nine months ended September 30,
20202019
(in millions)Interest Income - Loans and LeasesInterest Expense - Short-Term BorrowingsInterest Income - Loans and LeasesInterest Expense - Short-Term Borrowings
Total amounts of income and expense line items presented in the Consolidated Statements of Income (the effects of cash flow hedges are included in these line items)$750 $31 $819 $66 
The effects of cash flow hedging:
     Gain (loss) on cash flow hedging relationships   — — 
     Interest rate contracts  — — 
        Amount of gain (loss) reclassified from AOCI into net income2 (11)(1)
        Amount of gain (loss) reclassified from AOCI into income as a
result of that a forecasted transaction is no longer probable of
occurring
  — — 
As of September 30, 2020, the maximum length of time over which forecasted interest cash flows are hedged is 4.1 years. In the twelve months that follow September 30, 2020, we expect to reclassify from the amount currently reported in AOCI net derivative losses of $18.7 million ($14.5 million net of tax), in association with interest on the hedged loans and FHLB advances. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2020. During the third quarter of 2020, we terminated $225.0 million notional value of interest rate contracts - designated subject to master netting arrangements.
There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to these cash flow hedges. Also, during the nine months ended September 30, 2020 and 2019, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transactions would not occur.
Derivatives Not Designated as Hedging Instruments under GAAP
A description of interest rate swaps, interest rate lock commitments, forward delivery commitments and credit risk contracts can be found in Note 14 "Derivative Instruments and Hedging Activities" in the Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020.
Interest rate swap agreements with loan customers and with the offsetting counterparties are reported at fair value in other assets and other liabilities on the Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as other income or other expense.
Risk participation agreements sold with notional amounts totaling $302.5 million as of September 30, 2020 have remaining terms ranging from one month to twenty years. Under these agreements, our maximum exposure assuming a customer defaults on their obligation to perform under certain derivative swap contracts with third parties would be $0.7 million at September 30, 2020 and $0.3 million at December 31, 2019. The fair values of risk participation agreements purchased and sold were $0.3 million and $0.7 million, respectively, at September 30, 2020 and $0.1 million and $0.3 million, respectively at December 31, 2019.
45


The following table presents the effect of certain derivative financial instruments on the Consolidated Statements of Income:
TABLE 11.4
Nine Months Ended
September 30,
(in millions)Consolidated Statements of Income Location20202019
Interest rate swapsNon-interest income - other$ $— 
Interest rate lock commitmentsMortgage banking operations — 
Forward delivery contractsMortgage banking operations(1)(1)
Credit risk contractsNon-interest income - other — 
Counterparty Credit Risk
We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash to our clearing agency. Collateral positions are settled or valued daily, and adjustments to amounts received and pledged by us are made as appropriate to maintain proper collateralization for these transactions.
Certain master netting agreements contain provisions that, if violated, could cause the counterparties to request immediate settlement or demand full collateralization under the derivative instrument. If we had breached our agreements with our derivative counterparties we would be required to settle our obligations under the agreements at the termination value and would be required to pay an additional $0.3 million and $0.1 million as of September 30, 2020 and December 31, 2019, respectively, in excess of amounts previously posted as collateral with the respective counterparty.

46


The following table presents a reconciliation of the net amounts of derivative assets and derivative liabilities presented in the Consolidated Balance Sheets to the net amounts that would result in the event of offset:
TABLE 11.5
  Amount Not Offset in the
Consolidated Balance Sheets
 
(in millions)Net Amount
Presented in
the Consolidated Balance
Sheets
Financial
Instruments
Cash
Collateral
Net
Amount
September 30, 2020
Derivative Assets
Interest rate contracts:
Designated$3 $ $3 $ 
Total$3 $ $3 $ 
Derivative Liabilities
Interest rate contracts:
Not designated$42 $ $42 $ 
Total$42 $ $42 $ 
December 31, 2019
Derivative Assets
Interest rate contracts:
Designated$$$— $— 
Total$$$— $— 
Derivative Liabilities
Interest rate contracts:
Not designated$23 $23 $— $— 
Total$23 $23 $— $— 


NOTE 12.    COMMITMENTS, CREDIT RISK AND CONTINGENCIES
We have commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the Consolidated Balance Sheets. Our exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loans and leases to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
Following is a summary of off-balance sheet credit risk information:
TABLE 12.1
(in millions)September 30,
2020
December 31,
2019
Commitments to extend credit$9,121 $8,089 
Standby letters of credit156 150 
At September 30, 2020, funding of 75.5% of the commitments to extend credit was dependent on the financial condition of the customer. We have the ability to withdraw such commitments at our discretion. Commitments generally have fixed expiration
47


dates or other termination clauses and may require payment of a fee. Based on management’s credit evaluation of the customer, collateral may be deemed necessary. Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by us that may require payment at a future date. The credit risk involved in issuing letters of credit is actively monitored through review of the historical performance of our portfolios.
Our AULC for commitments that are not unconditionally cancellable, which is included in other liabilities on the Consolidated Balance Sheets, was $14.8 million at September 30, 2020.
In addition to the above commitments, subordinated notes issued by FNB Financial Services, LP, a wholly-owned finance subsidiary, are fully and unconditionally guaranteed by FNB. These subordinated notes are included in the summaries of short-term borrowings and long-term borrowings in Note 10.
Other Legal Proceedings
In the ordinary course of business, we may assert claims in legal proceedings against another party or parties, and we are routinely named as defendants in, or made parties to, pending and potential legal actions. Also, as regulated entities, we are subject to governmental and regulatory examinations, information-gathering requests, and may be subject to investigations and proceedings (both formal and informal). Such threatened claims, litigation, investigations, regulatory and administrative proceedings typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted in many of these types of legal actions, while claims for disgorgement, restitution, penalties and/or other remedial actions or sanctions may be sought in regulatory matters. In these instances, if we determine that we have meritorious defenses, we will engage in an aggressive defense. However, if management determines, in consultation with counsel, that settlement of a matter is in the best interest of FNB and our shareholders, we may do so. It is inherently difficult to predict the eventual outcomes of such matters given their complexity and the particular facts and circumstances at issue in each of these matters. However, on the basis of current knowledge and understanding, and advice of counsel, we do not believe that judgments, sanctions, settlements or orders, if any, that may arise from these matters (either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage) will have a material adverse effect on our financial position or liquidity, although they could have a material effect on net income in a given period.
In view of the inherent unpredictability of outcomes in litigation and governmental and regulatory matters, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel legal theories or a large number of parties, as a matter of course, there is considerable uncertainty surrounding the timing or ultimate resolution of litigation and governmental and regulatory matters, including a possible eventual loss, fine, penalty, business or adverse reputational impact, if any, associated with each such matter. In accordance with applicable accounting guidance, we establish accruals for litigation and governmental and regulatory matters when those matters proceed to a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. We will continue to monitor such matters for developments that could affect the amount of the accrual, and will adjust the accrual amount as appropriate. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. We believe that our accruals for legal proceedings are appropriate and, in the aggregate, are not material to our consolidated financial position, although future accruals could have a material effect on net income in a given period.

NOTE 13.    STOCK INCENTIVE PLANS
Restricted Stock
We issue restricted stock awards to key employees under our Incentive Compensation Plan (Plan). We issue time-based awards and performance-based awards under this Plan, both of which are based on a three-year vesting period. The grant date fair value of the time-based awards is equal to the price of our common stock on the grant date. The fair value of the performance-based awards is based on a Monte-Carlo simulation valuation of our common stock as of the grant date. The assumptions used for this valuation include stock price volatility, risk-free interest rate and dividend yield. We issued 2,004,895 and 1,182,197 restricted stock units during the nine months ended September 30, 2020 and 2019, respectively, including 571,932 and 353,656 performance-based restricted stock units during those same periods, respectively. As of September 30, 2020, we had available up to 5,525,700 shares of common stock to issue under this Plan, which includes 4,640,000 additional shares registered during the third quarter of 2020.
48


The unvested restricted stock unit awards are eligible to receive cash dividends or dividend equivalents which are ultimately used to purchase additional shares of stock and are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met. These awards are subject to certain accelerated vesting provisions upon retirement, death, disability or in the event of a change of control as defined in the award agreements.
The following table summarizes the activity relating to restricted stock units during the periods indicated:
TABLE 13.1
Nine Months Ended September 30,
20202019
UnitsWeighted
Average
Grant
Price per
Share
UnitsWeighted
Average
Grant
Price per
Share
Unvested units outstanding at beginning of period2,858,357 $12.56 2,556,174 $13.51 
Granted2,004,895 5.95 1,182,197 10.94 
Net adjustment due to performance47,290 13.00 — — 
Vested(592,602)14.50 (655,208)13.15 
Forfeited/expired(169,552)13.05 (325,253)12.72 
Dividend reinvestment173,990 6.99 80,738 11.62 
Unvested units outstanding at end of period4,322,378 9.45 2,838,648 12.54 
The following table provides certain information related to restricted stock units:
TABLE 13.2
(in millions)Nine Months Ended
September 30,
 20202019
Stock-based compensation expense$13 $
Tax benefit related to stock-based compensation expense3 
Fair value of units vested4 

As of September 30, 2020, there was $13.8 million of unrecognized compensation cost related to unvested restricted stock units, including $0.9 million that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement. Stock-based compensation expense increased $5.4 million, or 65% for the nine months ended September 30, 2020, compared to the same period of 2019, as we made a change to long-term stock-based compensation retirement vesting that resulted in accelerated grant date expense recognition for certain 2020 awards, with full expense recognition on grant date instead of recognizing the same expense amount over a 36-month vesting period. These awards are not released until the three-year service period is complete or the specified performance criteria is met over the three-year period.
The components of the restricted stock units as of September 30, 2020 are as follows:
TABLE 13.3
(dollars in millions)Service-
Based
Units
Performance-
Based
Units
Total
Unvested restricted stock units2,987,784 1,334,594 4,322,378 
Unrecognized compensation expense$11 $3 $14 
Intrinsic value$20 $9 $29 
Weighted average remaining life (in years)1.861.311.69
49


Stock Options
All outstanding stock options were assumed from acquisitions and are fully vested. Upon consummation of our acquisitions, all outstanding stock options issued by the acquired companies were converted into equivalent FNB stock options. We issue shares of treasury stock or authorized but unissued shares to satisfy stock options exercised.
As of September 30, 2020, we had 207,030 stock options outstanding and exercisable at a weighted average exercise price per share of $8.42, compared to 397,628 stock options outstanding and exercisable at a weighted average exercise price per share of $8.10 as of September 30, 2019.
The intrinsic value of outstanding and exercisable stock options at September 30, 2020 was $0.1 million. The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price.

NOTE 14.      INCOME TAXES
Income Tax Expense
Federal and state income tax expense and the statutory tax rate and the actual effective tax rate consist of the following:
TABLE 14.1
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2020201920202019
Current income taxes:
Federal taxes$16 $(3)$62 $24 
State taxes1 — 6 
Total current income taxes17 (3)68 27 
Deferred income taxes:
Federal taxes 19 (24)34 
State taxes  
Total deferred income taxes 20 (24)36 
Total income taxes$17 $17 $44 $63 
Statutory tax rate21.0 %21.0 %21.0 %21.0 %
Effective tax rate17.0 %14.5 %17.0 %17.8 %
The effective tax rate for the nine months ended September 30, 2020 and September 30, 2019 was lower than the statutory tax rate of 21% due to tax benefits resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. The lower effective tax rate for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 is primarily due to lower pre-tax income levels in the 2020 COVID-19 environment. However, the higher effective tax rate of 17.0% in the third quarter of 2020 compared to 14.5% in the third quarter of 2019 is due to the recognition of renewable energy investment tax credits in the third quarter of 2019.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Deferred tax assets and liabilities are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Net deferred tax assets were $52.6 million and $25.1 million at September 30, 2020 and December 31, 2019, respectively.

50


NOTE 15.    OTHER COMPREHENSIVE INCOME
The following table presents changes in AOCI, net of tax, by component:
TABLE 15.1
(in millions)Unrealized
Net Gains (Losses) on
Debt Securities
Available
for Sale
Unrealized
Net Gains
(Losses) on
Derivative
Instruments
Unrecognized
Pension and
Postretirement
Obligations
Total
Nine Months Ended September 30, 2020
Balance at beginning of period$11 $(18)$(58)$(65)
Other comprehensive (loss) income before reclassifications63 (32)1 32 
Amounts reclassified from AOCI 7  7 
Net current period other comprehensive (loss) income63 (25)1 39 
Balance at end of period$74 $(43)$(57)$(26)
The amounts reclassified from AOCI related to debt securities AFS are included in net securities gains on the Consolidated Statements of Income, while the amounts reclassified from AOCI related to derivative instruments in cash flow hedge programs are included in interest income on loans and leases on the Consolidated Statements of Income.
The tax (benefit) expense amounts reclassified from AOCI in connection with the debt securities AFS and derivative instruments reclassifications are included in income taxes on the Consolidated Statements of Income.

NOTE 16.    EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding net of unvested shares of restricted stock.
Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options and restricted shares, as calculated using the treasury stock method. Diluted weighted average common shares for 2019 have also been adjusted for the dilutive effect of potential common shares issuable for warrants, which have all been exercised or forfeited during 2019. Adjustments to the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.
The following table sets forth the computation of basic and diluted earnings per common share:
TABLE 16.1
Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in millions, except per share data)
2020201920202019
Net income$83 $103 $214 $292 
Less: Preferred stock dividends2 6 
Net income available to common stockholders$81 $101 $208 $286 
Basic weighted average common shares outstanding323,379,720 325,031,140 323,642,925 324,875,436 
Net effect of dilutive stock options, warrants and restricted stock2,283,060 1,068,730 2,051,221 893,725 
Diluted weighted average common shares outstanding325,662,780 326,099,870 325,694,146 325,769,161 
Earnings per common share:
Basic$0.25 $0.31 $0.64 $0.88 
Diluted$0.25 $0.31 $0.64 $0.88 
51


The following table shows the average shares excluded from the above calculation as their effect would have been anti-dilutive: 
TABLE 16.2
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Average shares excluded from the diluted earnings per common share calculation44,755 22,263 122 


NOTE 17.    CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information:
TABLE 17.1
Nine Months Ended
September 30,
20202019
(in millions)  
Interest paid on deposits and other borrowings$179 $248 
Income taxes paid34 40 
Transfers of loans to other real estate owned2 
Loans transferred to held for sale from portfolio508 389 
Loans transferred to portfolio from held for sale110 


NOTE 18.    BUSINESS SEGMENTS
We operate in three reportable segments: Community Banking, Wealth Management and Insurance.

The Community Banking segment provides commercial and consumer banking services. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, business credit, capital markets and lease financing. Consumer banking products and services include deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services.
The Wealth Management segment provides a broad range of personal and corporate fiduciary services including the administration of decedent and trust estates. In addition, it offers various alternative products, including securities brokerage and investment advisory services, mutual funds and annuities.
The Insurance segment includes a full-service insurance agency offering all lines of commercial and personal insurance through major carriers. The Insurance segment also includes a reinsurer.

52


The following tables provide financial information for these segments of FNB. The information provided under the caption “Parent and Other” represents operations not considered to be reportable segments and/or general operating expenses of FNB, and includes the parent company, other non-bank subsidiaries and eliminations and adjustments to reconcile to the Consolidated Financial Statements.
TABLE 18.1
(in millions)Community
Banking
Wealth
Management
InsuranceParent and
Other
Consolidated
At or for the Three Months Ended September 30, 2020
Interest income$273 $ $ $ $273 
Interest expense41   5 46 
Net interest income232   (5)227 
Provision for credit losses27    27 
Non-interest income63 12 7 (2)80 
Non-interest expense (1)
162 8 5 2 177 
Amortization of intangibles3    3 
Income tax expense (benefit)18 1 1 (3)17 
Net income (loss)85 3 1 (6)83 
Total assets37,315 36 36 54 37,441 
Total intangibles2,282 9 28  2,319 
At or for the Three Months Ended September 30, 2019
Interest income$314 $— $— $— $314 
Interest expense79 — — 84 
Net interest income235 — — (5)230 
Provision for credit losses12 — — — 12 
Non-interest income65 12 (2)80 
Non-interest expense (1)
158 174 
Amortization of intangibles— — 
Income tax expense (benefit)19 — (3)17 
Net income (loss)108 — (8)103 
Total assets34,207 29 36 57 34,329 
Total intangibles2,294 10 29 — 2,333 
(1) Excludes amortization of intangibles, which is presented separately.
53


(in millions)Community
Banking
Wealth
Management
InsuranceParent and
Other
Consolidated
At or for the Nine Months Ended September 30, 2020
Interest income$859 $ $ $1 $860 
Interest expense155   17 172 
Net interest income704   (16)688 
Provision for credit losses105    105 
Non-interest income180 36 18 (8)226 
Non-interest expense (1)
495 26 14 6 541 
Amortization of intangibles9  1  10 
Income tax expense (benefit)47 2 1 (6)44 
Net income (loss)228 8 2 (24)214 
Total assets37,315 36 36 54 37,441 
Total intangibles2,282 9 28  2,319 
At or for the Nine Months Ended September 30, 2019
Interest income$940 $— $— $$941 
Interest expense236 — — 14 250 
Net interest income704 — — (13)691 
Provision for credit losses37 — — — 37 
Non-interest income177 35 14 (6)220 
Non-interest expense (1)
462 26 12 508 
Amortization of intangibles10 — — 11 
Income tax expense (benefit)66 — (5)63 
Net income (loss)306 (22)292 
Total assets34,207 29 36 57 34,329 
Total intangibles2,294 10 29 — 2,333 
(1) Excludes amortization of intangibles, which is presented separately.
54


NOTE 19.    FAIR VALUE MEASUREMENTS
Refer to Note 24 "Fair Value Measurements" to the Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020 for a description of additional valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:
TABLE 19.1
(in millions)Level 1Level 2Level 3Total
September 30, 2020
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury$300 $ $ $300 
U.S. government agencies 160  160 
U.S. government-sponsored entities 137  137 
Residential mortgage-backed securities:
Agency mortgage-backed securities 1,096  1,096 
Agency collateralized mortgage obligations 976  976 
Commercial mortgage-backed securities 416  416 
States of the U.S. and political subdivisions (municipals) 14  14 
Other debt securities 2  2 
Total debt securities available for sale300 2,801  3,101 
Loans held for sale 138  138 
Derivative financial instruments
Trading 397  397 
Not for trading 4 22 26 
Total derivative financial instruments 401 22 423 
Total assets measured at fair value on a recurring basis$300 $3,340 $22 $3,662 
Liabilities Measured at Fair Value
Derivative financial instruments
Trading$ $42 $ $42 
Not for trading 3  3 
Total derivative financial instruments 45  45 
Total liabilities measured at fair value on a recurring basis$ $45 $ $45 
55


(in millions)Level 1Level 2Level 3Total
December 31, 2019
Assets Measured at Fair Value
Debt securities available for sale
U.S. government agencies$— $151 $— $151 
U.S. government-sponsored entities— 226 — 226 
Residential mortgage-backed securities:
Agency mortgage-backed securities— 1,314 — 1,314 
Agency collateralized mortgage obligations— 1,240 — 1,240 
Commercial mortgage-backed securities— 345 — 345 
States of the U.S. and political subdivisions (municipals)— 11 — 11 
Other debt securities— — 
Total debt securities available for sale— 3,289 — 3,289 
Loans held for sale— 41 — 41 
Derivative financial instruments
Trading— 149 — 149 
Not for trading— 
Total derivative financial instruments— 151 154 
Total assets measured at fair value on a recurring basis$— $3,481 $$3,484 
Liabilities Measured at Fair Value
Derivative financial instruments
Trading$— $24 $— $24 
Not for trading— — 
Total derivative financial instruments— 25 — 25 
Total liabilities measured at fair value on a recurring basis$— $25 $— $25 

The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:
TABLE 19.2 
(in millions)Interest
Rate
Lock
Commitments
Total
Nine Months Ended September 30, 2020
Balance at beginning of period$3 $3 
Purchases, issuances, sales and settlements:
Issuances22 22 
Settlements(3)(3)
Balance at end of period$22 $22 
Year Ended December 31, 2019
Balance at beginning of period$$
Purchases, issuances, sales and settlements:
Issuances
Settlements(1)(1)
Balance at end of period$$
56


We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. There were no transfers of assets or liabilities between the hierarchy levels during the first nine months of 2020 or 2019.
From time to time, we measure certain assets at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of the lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were described in Note 24 "Fair Value Measurements" to the Consolidated Financial Statements included in 2019 Annual Report on Form 10-K. For assets measured at fair value on a non-recurring basis still held at the Balance Sheet date, the following table provides the hierarchy level and the fair value of the related assets or portfolios:
TABLE 19.3
(in millions)Level 1Level 2Level 3Total
September 30, 2020
Collateral dependent loans$ $ $45 $45 
Other real estate owned  9 9 
Other assets - SBA servicing asset  3 3 
Other assets - MSRs  34 34 
December 31, 2019
Impaired loans$— $— $$
Other real estate owned— — 
Other assets - SBA servicing asset— — 
Other assets - MSRs— — 30 30 

Substantially all of the fair value amounts in the table above were estimated at a date during the nine months or twelve months ended September 30, 2020 and December 31, 2019, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end. MSRs measured at fair value on a non-recurring basis of $42.7 million had a valuation allowance of $9.1 million, bringing the September 30, 2020 carrying value to $33.7 million. The valuation allowance includes a provision expense of $7.5 million included in earnings for the nine months ended September 30, 2020.
Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during the nine months ended September 30, 2020 had a carrying amount of $45.3 million, which includes an allocated ACL of $25.4 million. The ACL includes a provision applicable to the current period fair value measurements of $32.0 million, which was included in provision for credit losses for the nine months ended September 30, 2020.
OREO with a carrying amount of $10.4 million was written down to $9.2 million, resulting in a loss of $1.2 million, which was included in earnings for the nine months ended September 30, 2020.
Fair Value of Financial Instruments
Refer to Note 24 "Fair Value Measurements" to the Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020 for a description of methods and assumptions that were used to estimate the fair value of each financial instrument.





57


The fair values of our financial instruments are as follows:
TABLE 19.4
  Fair Value Measurements
(in millions)Carrying
Amount
Fair
Value
Level 1Level 2Level 3
September 30, 2020
Financial Assets
Cash and cash equivalents$900 $900 $900 $ $ 
Debt securities available for sale3,101 3,101 300 2,801  
Debt securities held to maturity2,966 3,072  3,072  
Net loans and leases, including loans held for sale25,996 25,872  138 25,734 
Loan servicing rights37 37   37 
Derivative assets423 423  401 22 
Accrued interest receivable90 90 90   
Financial Liabilities
Deposits28,836 28,882 24,811 4,071  
Short-term borrowings1,899 1,904 1,904   
Long-term borrowings1,397 1,379   1,379 
Derivative liabilities45 45  45  
Accrued interest payable14 14 14   
December 31, 2019
Financial Assets
Cash and cash equivalents$599 $599 $599 $— $— 
Debt securities available for sale3,289 3,289 — 3,289 — 
Debt securities held to maturity3,275 3,305 — 3,305 — 
Net loans and leases, including loans held for sale23,144 22,930 — 41 22,889 
Loan servicing rights46 48 — — 48 
Derivative assets154 154 — 151 
Accrued interest receivable109 109 109 — — 
Financial Liabilities
Deposits24,786 24,797 20,058 4,739 — 
Short-term borrowings3,216 3,219 3,219 — — 
Long-term borrowings1,340 1,355 — — 1,355 
Derivative liabilities25 25 — 25 — 
Accrued interest payable21 21 21 — — 


58


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the three- and nine-month periods ended September 30, 2020 and 2019. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020. Our results of operations for the nine months ended September 30, 2020 are not necessarily indicative of results expected for the full year.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
We make statements in this Report and may from time-to-time make other statements regarding our outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset quality levels, financial position and other matters regarding or affecting our current or future business and operations. These statements can be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve various assumptions, risks and uncertainties which can change over time. Actual results or future events may be different from those anticipated in our forward-looking statements and may not align with historical performance and events. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance upon such statements. Forward-looking statements are typically identified by words such as "believe," "plan," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "will," "should," "project," "goal," and other similar words and expressions. We do not assume any duty to update forward-looking statements, except as required by federal securities laws.
Our forward-looking statements are subject to the following principal risks and uncertainties:
Our business, financial results and balance sheet values are affected by business and economic circumstances, including, but not limited to: (i) developments with respect to the U.S. and global financial markets; (ii) actions by the FRB, UST, OCC and other governmental agencies, especially those that impact money supply, market interest rates or otherwise affect business activities of the financial services industry; (iii) a slowing of the U.S. economic environment; and (iv) the impacts of tariffs or other trade policies of the U.S. or its global trading partners.
Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards.
Competition can have an impact on customer acquisition, growth and retention, and on credit spreads, deposit gathering and product pricing, which can affect market share, deposits and revenues. Our ability to anticipate and continue to respond to technological changes and COVID-19 challenges can also impact our ability to respond to customer needs and meet competitive demands.
Business and operating results can also be affected by widespread natural and other disasters, pandemics, including the COVID-19 pandemic crisis, dislocations, terrorist activities, system failures, security breaches, significant political events, cyber-attacks or international hostilities through impacts on the economy and financial markets generally, or on us or our counterparties specifically.
Legal, regulatory and accounting developments could have an impact on our ability to operate and grow our businesses, financial condition, results of operations, competitive position, and reputation. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and the ability to attract and retain management. These developments could include:
Changes resulting from a U.S. presidential administration or legislative and regulatory reforms, including changes affecting oversight of the financial services industry, regulatory obligations or restrictions, consumer protection, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.
Changes to regulations governing bank capital and liquidity standards.
Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to FNB.
Results of the regulatory examination and supervision process, including our failure to satisfy requirements imposed by the federal bank regulatory agencies or other governmental agencies.
59


The impact on our financial condition, results of operations, financial disclosures and future business strategies related to the implementation of the new FASB ASU 2016-13 Financial Instruments - Credit Losses commonly referred to as the “current expected credit loss” standard, or CECL.
A failure or disruption in or breach of our operational or security systems or infrastructure, or those of third parties, including as a result of cyber-attacks or campaigns.
The COVID-19 pandemic and the regulatory and governmental actions implemented in response to COVID-19 have resulted in significant deterioration and disruption in financial markets, national and local economic conditions and record levels of unemployment and could have a material impact on, among other things, our business, financial condition, results of operations or liquidity, or on our management, employees, customers and critical vendors and suppliers. In view of the many unknowns associated with the COVID-19 pandemic, our forward-looking statements continue to be subject to various conditions that may be substantially different than what we are currently expecting, including, but not limited to, a weakened U.S. economic recovery, prolonged economic recovery, deterioration of commercial and consumer customer fundamentals and sentiments, and impairment of the recovery of the U.S. labor market. As a result, the COVID-19 outbreaks and its consequences, including responsive measures to manage it and the uncertainty regarding its duration, may possibly have a material adverse impact on our business, operations and financial performance.
The risks identified here are not exclusive. Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties described under Item 1A. Risk Factors and Risk Management sections of our 2019 Annual Report on Form 10-K (including the MD&A section), our subsequent 2020 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other subsequent filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-relations-shareholder-services. More specifically, our forward-looking statements may be subject to the evolving risks and uncertainties related to the COVID-19 pandemic and its macro-economic impact and the resulting governmental, business and societal responses to it. We have included our web address as an inactive textual reference only. Information on our website is not part of this Report.

APPLICATION OF CRITICAL ACCOUNTING POLICIES
A description of our critical accounting policies is included in the MD&A section of our 2019 Annual Report on Form 10-K filed with the SEC on February 27, 2020 under the heading “Application of Critical Accounting Policies”. On January 1, 2020, we adopted CECL. Under the CECL methodology, the ACL represents the expected lifetime credit losses on loans and leases that we don't expect to collect. Additionally, see our critical accounting policy on goodwill and other intangible assets.

Allowance for Credit Losses
The ACL is a valuation account that is deducted from the amortized cost basis of loans and leases resulting in the net amount expected to be collected. We charge off loans against the ACL in accordance with our policies or if a loss confirming event occurs. Expected recoveries do not exceed the aggregate of the amounts previously charged off and expected to be charged off.

The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation: a third-party macroeconomic forecast scenario; a 24-month R&S forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 12-month period; and the historical through-the-cycle mean calculated using an expanded period to include a prior recessionary period.

Adjustments to historical loss information, where applicable, are made for differences in current loan-specific risk characteristics such as differences in lending policies and procedures, underwriting standards, experience and depth of relevant personnel, the quality of our credit review function, concentrations of credit, external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters and other relevant factors. Such factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management's expectation of future conditions based on a R&S forecast. To the extent the lives of the loans in the portfolio extend beyond the period for which a R&S forecast can be made, the model reverts over 12 months on a straight-line basis back to the historical rates of default and severity of loss over the remaining life of the loans.

Determining the appropriateness of the ACL is complex and requires significant management judgment about the effect of matters that are inherently uncertain. Due to those significant management judgments and the factors included in the calculation, significant changes to the ACL level could occur in future periods.
60


See Note 1, “Summary of Significant Accounting Policies” and the Financial Condition, Allowance for Credit Losses section later in this MD&A for further allowance for credit losses information.
Goodwill and Other Intangible Assets
As a result of acquisitions, we have recorded goodwill and other identifiable intangible assets on our Consolidated Balance Sheets. Goodwill represents the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date. Our recorded goodwill relates to value inherent in our Community Banking, Wealth Management and Insurance segments.

The value of goodwill and other identifiable intangibles is dependent upon our ability to provide high-quality, cost-effective services in the face of competition. As such, these values are supported ultimately by revenue that is driven by the volume of business transacted. A decline in earnings as a result of a lack of growth or our inability to deliver cost-effective services over sustained periods can lead to impairment in value, which could result in additional expense and adversely impact earnings in future periods.

Goodwill and other intangibles are subject to impairment testing at the reporting unit level, which must be conducted at least annually. We perform impairment testing during the fourth quarter of each year, or more frequently if impairment indicators exist. We also continue to monitor other intangibles for impairment and to evaluate carrying amounts, as necessary. In connection with the preparation of the third quarter 2020 financial statements, we concluded that it was more likely than not that the fair value of our Community Banking reporting unit was below its carrying amount due to a sustained decline in bank stock valuations, which was primarily attributable to the systemic near-term uncertainty of COVID-19 and its full impact on the global economy which caused an unprecedented shock in interest rates and equity valuations. Therefore, we performed an interim quantitative assessment of our Community Banking reporting unit. The September 30, 2020 interim quantitative assessment for our Community Banking reporting unit, with $2.2 billion of allocated goodwill, resulted in an excess fair value over its carrying amount of less than 5%, which is stable from June 30, 2020. Based on the results of the interim quantitative impairment assessments, there were no impairments for the periods presented. Although not impaired, the fair value of our Community Banking reporting unit remains relatively close to carrying value.

As margins for fair value over carrying amount decline, the risk of future impairment increases if any assumptions, estimates, or market factors change in the future. We expect COVID-19 will continue to have a significant impact during the remainder of 2020 resulting in lower revenue growth and compressed net interest margins. Given the uncertainty related to the severity and length of the pandemic, and the impact across the financial services industry, we may be required to record impairment in the future. Any impairment charge would not affect our capital ratios, tangible common equity, tangible book value per share or liquidity position. Determining fair values of each reporting unit, of its individual assets and liabilities, and also of other identifiable intangible assets requires considering market information that is publicly available, as well as the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge. Inputs and assumptions used in estimating fair value include projected future cash flows, discount rates reflecting the risk inherent in future cash flows, long-term growth rates and an evaluation of market comparables and recent transactions. The annual test for impairment is performed in the fourth quarter each year and will include an update to our long-range forecast.

See Note 1, “Summary of Significant Accounting Policies” and Note 7, “Goodwill and Other Intangible Assets” in the Notes to Consolidated Financial Statements for further discussion of accounting for goodwill and other intangible assets.

USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS
To supplement our Consolidated Financial Statements presented in accordance with GAAP, we use certain non-GAAP financial measures, such as operating net income available to common stockholders, operating earnings per diluted common share, return on average tangible common equity, return on average tangible assets, tangible book value per common share, the ratio of tangible equity to tangible assets, the ratio of tangible common equity to tangible assets, allowance for credit losses to loans and leases, excluding PPP loans, pre-provision net revenue to average tangible common equity, efficiency ratio and net interest margin (FTE) to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers. Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities. The non-GAAP financial measures and key performance indicators we use may differ from the non-GAAP financial measures and key performance indicators other financial institutions use to assess their performance and trends.
61


These non-GAAP financial measures should be viewed as supplemental in nature, and not as a substitute for or superior to, our reported results prepared in accordance with GAAP. When non-GAAP financial measures are disclosed, the SEC's Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included later in this report under the heading “Reconciliations of Non-GAAP Financial Measures and Key Performance Indicators to GAAP”.
Management believes charges such as branch consolidation costs, certain service charge refunds and COVID-19 expenses are not organic costs to run our operations and facilities. These charges are considered significant items impacting earnings as they are deemed to be outside of ordinary banking activities. The branch consolidation charges principally represent expenses to satisfy contractual obligations of the closed branches without any useful ongoing benefit to us. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction. Similarly, gains derived from the sale of Visa class B stock and losses on FHLB debt extinguishment and related hedge terminations are not organic to our operations. The COVID-19 expenses represent special Company initiatives to support our front-line employees and the communities we serve during an unprecedented time of a pandemic.
To provide more meaningful comparisons of net interest margin and efficiency ratio, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets (loans and investments) to make it fully equivalent to interest income earned on taxable investments (this adjustment is not permitted under GAAP).  Taxable-equivalent amounts for the 2020 and 2019 periods were calculated using a federal statutory income tax rate of 21%.

FINANCIAL SUMMARY
Net income available to common stockholders for the third quarter of 2020 was $80.8 million or $0.25 per diluted common share, compared to net income available to common stockholders for the third quarter of 2019 of $100.7 million or $0.31 per diluted common share. On an operating basis, the third quarter of 2020 earnings per diluted common share (non-GAAP) was $0.26, excluding $0.01 for significant items.
We achieved positive third quarter financial results during this challenging economic environment prompted by the global pandemic. Our performance is directly attributable to our resilient business model, which is based upon the deployment of technology and expansion into attractive new markets. The financial results reflect continued average loan and deposit growth and record fee income levels. We also strengthened our capital ratios while sustaining our quarterly dividend.
Income Statement Highlights (Third quarter of 2020 compared to third quarter of 2019, except as noted)
Total revenue of $307.1 million, compared to $309.8 million, down 0.9%, and up 0.5% compared to $305.6 million in the second quarter of 2020.

Net income available to common stockholders was $80.8 million, compared to $100.7 million, down 19.8% from the third quarter of 2019, and down slightly compared to $81.6 million in the second quarter of 2020.

Earnings per diluted common share were $0.25, compared to $0.31, down 19.4% in the third quarter of 2019, and flat compared to $0.25 in the second quarter of 2020.
Net interest margin (FTE) (non-GAAP) declined 38 basis points to 2.79% from 3.17%, attributable to lower levels of interest rates as the quarterly average 1-month LIBOR rate decreased from 2.18% in the third quarter of 2019 to 0.16% in the third quarter of 2020. These decreases were largely offset by growth in average earning assets, reductions in the cost of interest-bearing deposits and strong growth in non-interest-bearing deposits.
Non-interest income was stable at $80.0 million, with an increase of $9.1 million, or 93.1%, in record levels of mortgage banking income offset by a decrease of $8.9 million, or 26.7%, in service charges, given significantly lower transaction volumes in the COVID-19 environment and service charge refunds of $3.8 million.
The termination of $415 million in higher-rate FHLB borrowings with an average rate of 2.59% resulted in a loss on debt extinguishment and related hedge termination costs of $13.3 million.
62


There was a $13.8 million gain on the sale of all of the Bank's holdings of Visa Class B shares.
Provision for credit losses of $27.2 million exceeded net charge-offs of $19.3 million. The annualized net charge-offs to total average loans ratio was 0.29%, compared to 0.11%.
Income tax expense decreased $0.4 million, or 2.5%, and the effective tax rate was 17.0%, compared to 14.5%, primarily due to a greater benefit from renewable energy investment tax credits realized during the third quarter of 2019.
The efficiency ratio (non-GAAP) equaled 55.26%, compared to 54.11%.
Return on average tangible common equity ratio (non-GAAP) was 13.34%, compared to 17.41%.
Balance Sheet Highlights (period-end balances, September 30, 2020 compared to December 31, 2019, unless otherwise indicated)
Total assets were $37.4 billion, compared to $34.6 billion, an increase of $2.8 billion, or 8.2%, primarily due to the origination of PPP loans, of which $2.5 billion was outstanding as of September 30, 2020.
Growth in total average loans compared to the third quarter of 2019 was $3.3 billion, or 14.7%, with average commercial loan growth of $3.3 billion, or 22.9%, and average consumer loan growth of $57.1 million, or 0.7%. Total loan growth included $2.6 billion of net PPP commercial loans originated in 2020.
Total average deposits grew $4.3 billion, or 17.8%, compared to the third quarter of 2019, primarily due to an increase in average non-interest-bearing deposits of $2.5 billion, or 39.7%, and an increase in interest-bearing demand deposits of $2.6 billion, or 25.9%, partially offset by a managed decrease in average time deposits of $1.2 billion, or 22.4%. Growth in average deposits reflected inflows from the PPP and government stimulus activities, in addition to organic growth in new and existing customer relationships.
The ratio of loans to deposits was 89.1%, compared to 94.0%, as deposit growth outpaced loan growth and $508 million of indirect auto installment loans were transferred to loans held for sale in September 2020 in anticipation of a loan sale expected to close in the fourth quarter.
Additionally, the dividend payout ratio for the third quarter of 2020 was 48.7%, compared to 39.0%.
The ratio of the ACL to total loans and leases increased to 1.45% from 0.84% at December 31, 2019, representing the impact of the CECL adoption and COVID-19 related impacts on our ACL modeling results in the first nine months of 2020. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loan and leases ratio (non-GAAP) equaled 1.61%, or an impact of 16 basis points.
Tangible book value per share (non-GAAP) of $7.81 increased 7% from September 30, 2019.
The ratio of tangible common equity to tangible assets (non-GAAP) decreased 25 basis points to 7.19%, due primarily to the PPP loan impact and the Day 1 CECL adoption impact compared to the year-ago quarter. The ratio increased 22 basis points compared to 6.97% at June 30, 2020 with net PPP loan balances negatively impacting the September 30, 2020 and June 30, 2020 TCE ratios by 56 and 53 basis points, respectively.

63


TABLE 1
Quarterly Results Summary3Q203Q19
Reported results
Net income available to common stockholders (millions)$80.8 $100.7 
Net income per diluted common share0.25 0.31 
Book value per common share (period-end)14.99 14.51 
Pre-provision net revenue (reported) (millions)126.9 132.0 
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)85.5 100.7 
Operating net income per diluted common share0.26 0.31 
Tangible common equity to tangible assets (period-end)7.19 %7.44 %
Tangible book value per common share (period-end)$7.81 $7.33 
Pre-provision net revenue (operating) (millions)$132.9 $135.2 
Average diluted common shares outstanding (thousands)325,663 326,100 
Significant items impacting earnings(1) (millions)
Pre-tax COVID-19 expense$(2.7)$— 
After-tax impact of COVID-19 expense(2.1)— 
Pre-tax gain on sale of Visa class B stock13.8 — 
After-tax impact of gain on sale of Visa class B stock10.9 — 
Pre-tax loss on FHLB debt extinguishment and related hedge terminations(13.3)— 
After-tax impact of loss on FHLB debt extinguishment and related hedge terminations(10.5)— 
Pre-tax service charge refunds(3.8)— 
After-tax impact of service charge refunds(3.0)— 
Total significant items pre-tax$(6.0)$— 
Total significant items after-tax$(4.7)$— 
Year-to-Date Results Summary20202019
Reported results
Net income available to common stockholders (millions)$207.8 $286.0 
Net income per diluted common share0.64 0.88 
Pre-provision net revenue (reported) (millions)362.8 392.3 
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)222.1 289.6 
Operating net income per diluted common share0.68 0.89 
Pre-provision net revenue (operating) (millions)385.1 400.0 
Average diluted common shares outstanding (thousands)325,694 325,769 
Significant items impacting earnings(1) (millions)
Pre-tax COVID-19 expense$(6.6)$— 
After-tax impact of COVID-19 expense(5.2)— 
Pre-tax gain on sale of Visa class B stock13.8 — 
After-tax impact of gain on sale of Visa class B stock10.9 — 
Pre-tax loss on FHLB debt extinguishment and related hedge terminations(13.3)— 
After-tax impact of loss on FHLB debt extinguishment and related hedge terminations(10.5)— 
Pre-tax branch consolidation costs(8.3)(4.5)
After-tax impact of branch consolidation costs(6.5)(3.6)
Pre-tax service charge refunds(3.8)— 
After-tax impact of service charge refunds(3.0)— 
Total significant items pre-tax$(18.2)$(4.5)
Total significant items after-tax$(14.3)$(3.6)
(1) Favorable (unfavorable) impact on earnings
64


Industry Developments

COVID-19
The COVID-19 pandemic has had an immense human and economic impact on the global economy. On March 22, 2020, the UST announced that financial institution employees are part of the critical infrastructure workforce and stated that these employees have a “special responsibility to maintain your normal work schedule.” As a result, financial institutions were confronted with the challenge of protecting the health and safety of their employees, while also ensuring that critical financial services such as providing consumer access to banking and lending services, maintaining core systems and the integrity and security of data, continuing the processing of payments and services, such as clearing and settlement services, wholesale funding, insurance services and capital markets activities, for the duration of the pandemic crisis period.
Our crisis and risk management processes were critical to our preparedness for the COVID-19 pandemic since we had the necessary plans in place and had conducted a pandemic emergency event scenario (involving key management and operations employees) in the fourth quarter of 2019 to test the efficacy of our pandemic response plans and to improve these plans. We are well positioned to continue providing critical financial services to our customers through multiple channels such as interactive teller machines, automated teller machines, our mobile application, and our interactive website. We adjusted our physical retail locations by focusing on “drive up” services and closed our lobbies, reverting to “by appointment only” practices, while maintaining appropriate health, sanitization, social distancing and other safety protocols consistent with the Centers for Disease Control and Prevention (CDC) and state guidelines. Based on the available COVID-19 federal data, we began to re-open our branch lobbies to customers in July 2020 while adhering to CDC safety measures, including employee and customer safety (i.e., masks), social distancing and cleaning protocols, while continuing to regularly monitor and adjust branch hours based on local COVID-19 conditions and circumstances.
We leveraged our information technology infrastructure by making accommodations to give employees the ability to work remotely where appropriate. Our executive and senior management worked rotating schedules or from remote offices or home in order to mitigate the risk of wide-spread occurrence of the COVID-19 contagion among this group. With respect to our other employees, approximately half of our workforce worked remotely. We will continue to actively monitor case levels and consider guidance from government agencies to determine when we activate further "return-to-the workplace" schedules. Our remote and rotational working arrangements and implementation of CDC health and safety protocols have not impaired our ability to continue to operate our business. We do rely on some third parties for certain services. At this time, we have not experienced a disruption in those services.
To protect our customers and communities from economic disruption, we:
developed a formal loan deferral program and other measures to support customers who may be enduring financial hardships; and
actively participated in the SBA PPP, which authorized financial institutions to make federally guaranteed loans that are eligible to be forgiven to qualifying small businesses and nonprofits on the terms set forth in the CARES Act and related regulations.
We continue to evaluate other COVID-19 related FRB and federal government relief and stimulus programs to determine their suitability for our customers and communities.
COVID-19 has had a significant impact on the provision for credit losses during 2020 after the adoption of CECL. The uncertainty in the market, a significant increase in unemployment, and adverse economic forecasts all point to the volatility of the expected additional losses in the loan portfolio. We would expect inherent volatility in the COVID-19 impact on our provision for credit losses for the duration of the current COVID-19 pandemic environment and immediate periods following the mitigation of the pandemic crisis.
The federal banking regulators have offered certain measures to assist financial institutions during this time. Some of these that impact us are as follows:
As part of Section 4013 of the CARES Act and in accordance with federal bank regulatory interagency guidance, financial institutions have been granted temporary relief from reporting TDRs caused by COVID-19.  To be eligible for TDR relief, a loan modification must be due to impacts from COVID-19, not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the national emergency.  Interagency guidance encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of
65


COVID-19, and will not criticize financial institutions for working with borrowers in a safe and sound manner. Loan modification programs are considered positive actions that can mitigate adverse effects on borrowers due to COVID-19. Institutions generally do not need to categorize COVID-19-related loan modifications as TDRs if the loan modifications are short-term in nature and are made on a good-faith basis in response to COVID-19 to borrowers who were current at the time the modification program was implemented. For borrowers who were current prior to COVID-19 that have requested and been granted a concession while experiencing a hardship during the pandemic, we will not be including those modifications as past due or a TDR at the time of the concession. As of June 30, 2020, approximately $2.4 billion, or 10%, of our loan portfolio was approved during the initial deferment request window. Over 98% of the $2.4 billion of loans in deferment were current and in good standing at December 31, 2019. As of September 30, 2020, total deferrals decreased to $792 million or 3.4% of total loans and leases (excluding PPP loans) which includes second deferrals of $464 million, or 2.0% of total loans and leases (excluding PPP loans). The remaining loans in deferral were still in their first deferral period. Total deferrals decreased to 2.90% at October 15, 2020.
The regulatory agencies have agreed to allow an option to delay the effects of CECL on regulatory capital by two years for those financial institutions that adopt in 2020.  This delay will be followed by a three-year transition period of 75%, 50%, and 25% respectively.  We adopted CECL in January 2020 and have elected this option.
The FRB initiated a facility to provide liquidity to financial institutions participating and funding loans for the PPP.  The non-recourse loans are available to institutions eligible to make PPP loans, with the SBA-guaranteed loans pledged as collateral to the FRB.  Financial institutions can also pledge PPP loans to the discount window.  Each liquidity option is set at different rates and terms. PPP loans pledged to the PPPLF may be excluded from leverage ratio calculations.  We have not utilized this facility, as we have ample liquidity.
As we continue to manage through the COVID-19 challenges and meet the needs of our various constituents, our focus continues to be on our four key pillars. The pillars are: employee protection and assistance; operational response and preparedness; customer and community support; and risk management and actions taken to preserve shareholder value given the extreme challenges presented.

LIBOR
The United Kingdom’s Financial Conduct Authority (FCA), who is the regulator of LIBOR, expects LIBOR to cease to exist by the end of 2021. The FRB of New York has created a working group called the Alternative Reference Rate Committee (ARRC) that will help U.S. institutions transition away from using LIBOR as a benchmark interest rate. Similarly, we created an internal working group that is managing our transition away from LIBOR. This working group is a cross-functional team composed of representatives from the commercial, retail and mortgage banking lines of business, loan operations, information technology, legal, finance and other support functions. The committee has completed an assessment of tasks needed for the transition, identified contracts that contain LIBOR language, is in process of reviewing existing contract language, developed loan fallback language for when LIBOR ceases to exist and identified risks associated with the transition. The financial impact regarding pricing, valuation and operations of the transition is not yet known. Our transition team will work within the guidelines established by the FCA and ARRC to allow a smooth transition away from LIBOR. During the third quarter of 2020, we finalized the transition of new adjustable rate mortgages away from the LIBOR index to the Standard Overnight Financing Rate (SOFR). The effective date for this change is October 1, 2020.


66


RESULTS OF OPERATIONS

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Net income available to common stockholders for the three months ended September 30, 2020 was $80.8 million or $0.25 per diluted common share, compared to net income available to common stockholders for the three months ended September 30, 2019 of $100.7 million or $0.31 per diluted common share. The results for the third quarter of 2020 reflect a provision for credit losses of $27.2 million in a recessionary environment under the CECL requirements, compared to $11.9 million for the third quarter of 2019. Non-interest income for the third quarter of 2020 included record mortgage banking income of $18.8 million and the following significant items: a $13.8 million gain on the sale of all of the Bank's holdings of Visa class B shares, a loss on debt extinguishment and related hedge termination costs of $13.3 million and $3.8 million of service charge refunds. Non-interest expense for the third quarter of 2020 included COVID-19 related expenses of $2.7 million.
Financial highlights are summarized below:
TABLE 2
Three Months Ended
September 30,
$%
(in thousands, except per share data)20202019ChangeChange
Net interest income$227,098 $229,802 $(2,704)(1.2)%
Provision for credit losses 27,227 11,910 15,317 128.6 
Non-interest income80,038 80,000 38 — 
Non-interest expense180,209 177,784 2,425 1.4 
Income taxes16,924 17,366 (442)(2.5)
Net income82,776 102,742 (19,966)(19.4)
Less: Preferred stock dividends2,010 2,010 — — 
Net income available to common stockholders$80,766 $100,732 $(19,966)(19.8)%
Earnings per common share – Basic$0.25 $0.31 $(0.06)(19.4)%
Earnings per common share – Diluted0.25 0.31 (0.06)(19.4)
Cash dividends per common share0.12 0.12 — — 
The following table presents selected financial ratios and other relevant data used to analyze our performance:
TABLE 3
 Three Months Ended
September 30,
 20202019
Return on average equity6.70 %8.49 %
Return on average tangible common equity (2)
13.34 17.41 
Return on average assets0.88 1.20 
Return on average tangible assets (2)
0.97 1.33 
Book value per common share (1)
$14.99 $14.51 
Tangible book value per common share (1) (2)
7.81 7.33 
Equity to assets (1)
13.22 %14.04 %
Average equity to average assets13.12 14.19 
Common equity to assets (1)
12.94 13.73 
Tangible equity to tangible assets (1) (2)
7.49 7.78 
Tangible common equity to tangible assets (1) (2)
7.19 7.44 
Dividend payout ratio48.65 39.04 
(1) Period-end
(2) Non-GAAP
67


The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities:
TABLE 4
 Three Months Ended September 30,
 20202019
(dollars in thousands)Average
Balance
Interest
Income/
Expense
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Assets
Interest-earning assets:
Interest-bearing deposits with banks$543,731 $226 0.17 %$90,389 $1,597 7.01 %
Taxable investment securities (1)
4,849,384 24,710 2.04 5,145,079 30,601 2.38 
Tax-exempt investment securities (1)(2)
1,142,971 10,101 3.54 1,126,343 10,095 3.59 
Loans held for sale282,917 3,349 4.72 216,520 2,206 4.07 
Loans and leases (2)(3)
26,063,431 237,063 3.62 22,727,470 273,440 4.78 
Total interest-earning assets (2)
32,882,434 275,449 3.34 29,305,801 317,939 4.31 
Cash and due from banks369,263 388,864 
Allowance for credit losses(371,199)(192,726)
Premises and equipment335,711 330,208 
Other assets4,250,497 4,018,177 
Total assets$37,466,706 $33,850,324 
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand$12,584,154 10,041 0.32 $9,999,164 26,577 1.05 
Savings2,991,381 261 0.03 2,540,462 2,299 0.36 
Certificates and other time4,149,263 17,119 1.64 5,350,198 27,374 2.03 
            Total interest-bearing deposits19,724,798 27,421 0.55 17,889,824 56,250 1.25 
Short-term borrowings2,217,640 8,893 1.59 3,231,378 17,958 2.19 
Long-term borrowings1,526,968 9,019 2.35 1,338,716 10,401 3.08 
Total interest-bearing liabilities23,469,406 45,333 0.77 22,459,918 84,609 1.49 
Non-interest-bearing demand8,671,940 6,207,299 
Total deposits and borrowings32,141,346 0.56 28,667,217 1.17 
Other liabilities409,427 380,390 
Total liabilities32,550,773 29,047,607 
Stockholders’ equity4,915,933 4,802,717 
Total liabilities and stockholders’ equity$37,466,706 $33,850,324 
Net interest-earning assets$9,413,028 $6,845,883 
Net interest income (FTE) (2)
230,116 233,330 
Tax-equivalent adjustment(3,018)(3,528)
Net interest income$227,098 $229,802 
Net interest spread2.57 %2.82 %
Net interest margin (2)
2.79 %3.17 %
(1)The average balances and yields earned on securities are based on historical cost.
(2)The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. The yield on earning assets and the net interest margin are presented on an FTE basis. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
(3)Average balances include non-accrual loans. Loans and leases consist of average total loans less average unearned income.
68


Net Interest Income
Net interest income on an FTE basis (non-GAAP) decreased $3.2 million, or 1.4%, from $233.3 million for the third quarter of 2019 to $230.1 million for the third quarter of 2020. Average interest-earning assets of $32.9 billion increased $3.6 billion, or 12.2%, from 2019, due to solid origination activity across our footprint and benefits from PPP activity. Average interest-bearing liabilities of $23.5 billion increased $1.0 billion, or 4.5%, from 2019, driven by deposits for PPP funding and government stimulus activities, as well as solid organic growth in customer relationships, which was partially offset by reduced levels of borrowings. Our net interest margin FTE (non-GAAP) declined 38 basis points to 2.79%, as earning asset yields decreased 97 basis points primarily reflecting the impact on the variable rate loans of significant reductions in 1-month LIBOR and the Prime rate. Partially offsetting the lower earning asset yields, the total cost of funds improved 61 basis points to 0.56%, compared to 1.17%, due to a 70 basis point reduction in interest-bearing deposit costs and lower borrowing costs.
The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended September 30, 2020, compared to the three months ended September 30, 2019:
TABLE 5
(in thousands)VolumeRateNet
Interest Income (1)
Interest-bearing deposits with banks$189 $(1,560)$(1,371)
Securities (2)
(2,100)(3,785)(5,885)
Loans held for sale250 893 1,143 
Loans and leases (2)
34,338 (70,715)(36,377)
Total interest income (2)
32,677 (75,167)(42,490)
Interest Expense (1)
Deposits:
Interest-bearing demand2,795 (19,331)(16,536)
Savings48 (2,086)(2,038)
Certificates and other time(5,650)(4,605)(10,255)
Short-term borrowings(3,154)(5,911)(9,065)
Long-term borrowings1,129 (2,511)(1,382)
Total interest expense(4,832)(34,444)(39,276)
Net change (2)
$37,509 $(40,723)$(3,214)
 
(1)The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the net size of the rate and volume changes.
(2)Interest income amounts are reflected on an FTE basis (non-GAAP) which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
Interest income on an FTE basis (non-GAAP) of $275.4 million for the third quarter of 2020, decreased $42.5 million or 13.4% from the same quarter of 2019, primarily due to the repricing impact from lower interest rates, partially offset by increased interest-earning assets of $3.6 billion. The increase in interest-earning assets was primarily driven by a $3.3 billion, or 14.7%, increase in average loans and leases, which included $2.6 billion of PPP commercial loans originated in 2020. Average commercial loan growth totaled $3.3 billion, or 22.9%. Excluding the PPP loans, commercial loan origination activity remained solid with organic growth in the Pittsburgh, Pennsylvania, Cleveland, Ohio and Mid-Atlantic (Washington D.C., northern Virginia and Maryland markets) regions. Average consumer loan growth was $57.1 million, or 0.7%, with growth in residential mortgage loans of $338.0 million, or 10.6%, and direct installment loans of $202.6 million, or 11.5%, partially offset by declines in consumer lending heavily impacted by COVID-19 as indirect auto loans decreased $348.1 million, or 17.8%, and consumer lines of credit decreased $135.4 million, or 9.1%. During September 2020, $508 million of indirect auto installment loans were transferred to loans held for sale in anticipation of a loan sale expected to close in the fourth quarter. Additionally, average securities decreased $279.1 million, or 4.4%, due to higher loan growth in 2020 and less attractive reinvestment yields. The yield on average interest-earning assets (non-GAAP) decreased 97 basis points from 4.31% for the third quarter of 2019 to
69


3.34% for the third quarter of 2020, primarily reflecting the impact on the variable rate loans of significant reductions in 1-month LIBOR and the Prime rate.
Interest expense of $45.3 million for the third quarter of 2020 decreased $39.3 million, or 46.4%, from the same quarter of 2019, due to a decrease in rates paid on average interest-bearing liabilities and growth in average non-interest-bearing deposits over the same quarter of 2019. Average interest-bearing deposits increased $1.8 billion, or 10.3%, and average non-interest-bearing deposits increased $2.5 billion, or 39.7%. The growth in non-interest-bearing deposits and interest-bearing deposits was driven by deposits for PPP funding and government stimulus activities, as well as solid organic growth in customer relationships. Average short-term borrowings decreased $1.0 billion, or 31.4%, primarily as a result of a decrease of $1.2 billion in federal funds purchased, partially offset by increases of $78.0 million in short-term FHLB advances and $118.8 million in customer repurchase accounts. Average long-term borrowings increased $188.3 million, or 14.1%, primarily resulting from an increase of $298.2 million in senior debt, partially offset by a decrease of $106.1 million in long-term FHLB advances. The increase in senior debt is due to the February 2020 issuance of $300 million in fixed rate senior notes, while the decrease in long-term FHLB advances is due to the prepayment of higher rate borrowings during the third quarter of 2020. The funding of both fixed and adjustable borrowings was opportunistically transacted to take advantage of the lower interest rate environment and add liquidity to support loan growth. The rate paid on interest-bearing liabilities decreased 72 basis points from 1.49% to 0.77% for the third quarter of 2020, primarily due to the interest rate actions made by the FOMC and our actions taken to reduce the cost of interest-bearing deposits.

Provision for Credit Losses
Provision for credit losses is determined based on management’s estimates of the appropriate level of allowance for credit losses needed to absorb probable life-of-loan losses in the loan and lease portfolio, after giving consideration to charge-offs and recoveries for the period. The following table presents information regarding the credit loss expense and net charge-offs:
TABLE 6
Three Months Ended
September 30,
$%
(dollars in thousands)20202019ChangeChange
Provision for credit losses (on loans and leases)$27,233 $11,910 $15,323 128.7 %
Net loan charge-offs19,256 6,430 12,826 199.5 
Net loan charge-offs (annualized) / total average loans and leases0.29 %0.11 %

Provision for credit losses of $27.2 million during the third quarter of 2020 increased 128.7% from the same period of 2019, as we built reserves against COVID-19 impacted businesses, specifically lodging and hotels, restaurants and retail investment real estate. Net loan charge-offs were $19.3 million, an increase of $12.8 million, with the increase primarily due to higher commercial charge-offs taken against credits that were somewhat impacted by COVID-19 during the third quarter. For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses section of this Management’s Discussion and Analysis.

70


Non-Interest Income
The breakdown of non-interest income for the three months ended September 30, 2020 and 2019 is presented in the following table:
TABLE 7
Three Months Ended
September 30,
$%
(dollars in thousands)20202019ChangeChange
Service charges$24,296 $33,158 $(8,862)(26.7)%
Trust services7,733 6,932 801 11.6 
Insurance commissions and fees6,401 6,141 260 4.2 
Securities commissions and fees4,494 4,115 379 9.2 
Capital markets income8,202 8,713 (511)(5.9)
Mortgage banking operations18,831 9,754 9,077 93.1 
Dividends on non-marketable equity securities2,496 4,565 (2,069)(45.3)
Bank owned life insurance3,867 2,720 1,147 42.2 
Net securities gains112 35 77 220.0 
Other3,606 3,867 (261)(6.7)
Total non-interest income$80,038 $80,000 $38 — %
Total non-interest income was stable at $80.0 million for both the third quarter of 2020 and 2019. Excluding significant items, non-interest income increased $3.3 million, or 4.1%. The variances in the individual non-interest income items are explained in the following paragraphs.
Service charges on loans and deposits of $24.3 million for the third quarter of 2020 decreased $8.9 million, or 26.7%, from the same period of 2019, partially due to $3.8 million of service charge refunds, combined with lower transaction volumes given COVID-19, although customer transaction volume has started to increase over the last few months.
Trust services of $7.7 million for the third quarter of 2020 increased $0.8 million, or 11.6%, from the same period of 2019, primarily driven by strong organic revenue production and market valuation impacts. We continued to generate strong organic growth in accounts and services, while the market value of assets under management increased $405.7 million, or 6.7%, to $6.5 billion at September 30, 2020.
Record mortgage banking operations income of $18.8 million for the third quarter of 2020 increased $9.1 million, or 93.1%, from the same period of 2019, primarily due to increased saleable volume and expanding margins. During the third quarter of 2020, we sold $478.3 million of residential mortgage loans, compared to $416.6 million for the same period of 2019, an increase of 14.8%, excluding the $151.8 million portfolio bulk sale for third quarter of 2019. Additionally, the mortgage banking results included a $0.5 million favorable interest rate-related valuation adjustment on MSRs in the third quarter of 2020 compared to an unfavorable $0.3 million valuation adjustment in the third quarter of 2019. We also recognized $2.8 million of higher MSR amortization due to higher prepayment speeds during the third quarter of 2020.
Dividends on non-marketable equity securities of $2.5 million for the third quarter of 2020 decreased $2.1 million, or 45.3%, from the same period of 2019, primarily due to a decrease in the FHLB dividend rate and lower levels of FHLB borrowings given the strong growth in deposits.
BOLI income of $3.9 million for the third quarter of 2020 increased $1.1 million, or 42.2%, from the same period of 2019, primarily due to life insurance claims.
Other non-interest income was $3.6 million and $3.9 million for the third quarter of 2020 and 2019, respectively. The third quarter of 2020 included a $13.8 million gain on the sale of Visa class B stock, partially offset by a $4.4 million loss on FHLB debt extinguishment and $8.9 million in related hedge termination costs.
71


The following table presents non-interest income excluding significant items for the three months ended September 30, 2019:
TABLE 8
Three Months Ended
September 30,
$%
(dollars in thousands)20202019ChangeChange
Total non-interest income, as reported $80,038 $80,000 $38 — %
Significant items:
   Gain on sale of Visa class B stock(13,818)— (13,818)
   Loss on FHLB debt extinguishment and related hedge terminations13,316 — 13,316 
   Service charge refunds 3,780 — 3,780 
Total non-interest income, excluding significant items(1)
$83,316 $80,000 $3,316 4.1 %
(1) Non-GAAP

Non-Interest Expense
The breakdown of non-interest expense for the three months ended September 30, 2020 and 2019 is presented in the following table:
TABLE 9
Three Months Ended
September 30,
$%
(dollars in thousands)20202019ChangeChange
Salaries and employee benefits$100,265 $93,598 $6,667 7.1 %
Net occupancy13,837 13,702 135 1.0 
Equipment17,005 15,114 1,891 12.5 
Amortization of intangibles3,339 3,602 (263)(7.3)
Outside services16,676 15,866 810 5.1 
FDIC insurance4,064 5,710 (1,646)(28.8)
Bank shares and franchise taxes3,778 3,548 230 6.5 
Other21,245 26,644 (5,399)(20.3)
Total non-interest expense$180,209 $177,784 $2,425 1.4 %
Total non-interest expense of $180.2 million for the third quarter of 2020 increased $2.4 million, or 1.4%, from the same period of 2019. Non-interest expense decreased $0.2 million, or 0.1%, when excluding $2.7 million of COVID-19 expenses in the third quarter of 2020. The variances in the individual non-interest expense items are further explained in the following paragraphs.
Salaries and employee benefits of $100.3 million for the third quarter of 2020 increased $6.7 million, or 7.1%, from the same period of 2019, primarily due to higher production-related commissions and the normal impact from annual merit increases.
Net occupancy and equipment expense of $30.8 million for the third quarter of 2020 increased $2.0 million, or 7.0%, from $28.8 million from the same period of 2019, reflecting expansion in key regions such as the Mid-Atlantic (Washington D.C., northern Virginia and Maryland markets) and South Carolina.
FDIC insurance of $4.1 million for the third quarter of 2020 decreased $1.6 million, or 28.8%, from the same period of 2019 as deposit growth provided additional liquidity and resulted in a lower FDIC assessment rate.
Other non-interest expense was $21.2 million and $26.6 million for the third quarter of 2020 and 2019, respectively. During the third quarter of 2020, we recorded $2.2 million in COVID-19 expenses in other non-interest expense. During the third quarter of 2019, we recorded an impairment charge of $3.2 million from a renewable energy investment tax credit transaction. The related renewable energy investment tax credits were recognized during the same quarter as a benefit to income taxes. These
72


items were partially offset by decreases in several other items in other non-interest expense, including marketing, business development expenses and miscellaneous losses, which were somewhat impacted by the COVID-19 operating environment.
The following table presents non-interest expense excluding significant items for the three months ended September 30, 2020 and 2019:
TABLE 10
Three Months Ended September 30,$%
(dollars in thousands)20202019ChangeChange
Total non-interest expense, as reported $180,209 $177,784 $2,425 1.4 %
Significant items:
   COVID-19 expense (2,671)— (2,671)
Total non-interest expense, excluding significant items (1)
$177,538 $177,784 $(246)(0.1)%
(1) Non-GAAP

Income Taxes
The following table presents information regarding income tax expense and certain tax rates:
TABLE 11
 Three Months Ended
September 30,
(dollars in thousands)20202019
Income tax expense$16,924 $17,366 
Effective tax rate17.0 %14.5 %
Statutory federal tax rate21.0 21.0 
Both periods’ tax rates are lower than the federal statutory tax rates of 21% due to tax benefits primarily resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. The lower effective tax rate in 2019 is due to the impact from renewable energy investment tax credits realized in the third quarter of 2019.

Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net income available to common stockholders for the first nine months of 2020 was $100.7 million or $0.64 per diluted common share, compared to net income available to common stockholders for the first nine months of 2019 of $286.0 million or $0.88 per diluted common share. Non-interest income totaled $226.2 million, increasing $6.0 million, or 2.7%. On an operating basis, non-interest income increased $7.5 million, or 3.4%, primarily attributable to the fee-based businesses of mortgage banking and capital markets. Significant items during the first nine months of 2020 included a loss on FHLB debt extinguishment and related hedge termination costs of $13.3 million and a $13.8 million gain on the sale of the Bank's holdings of Visa Class B shares and were both recorded in other non-interest income. Additionally, we recorded $3.8 million of service charge refunds. Non-interest expense totaled $551.0 million, increasing $32.3 million, or 6.2%. Excluding significant items totaling $14.9 million year-to-date in 2020 and $2.8 million for the same period in 2019, non-interest expense increased $20.2 million, or 3.9%. Significant items in non-interest expense for the first nine months of 2020 included branch consolidation costs of $8.3 million and COVID-19 expense of $6.6 million.


73


Financial highlights are summarized below:
TABLE 12
Nine Months Ended
September 30,
$%
(in thousands, except per share data)20202019ChangeChange
Net interest income$687,690 $690,802 $(3,112)(0.5)%
Provision for credit losses 105,242 37,017 68,225 184.3 
Non-interest income226,192 220,225 5,967 2.7 
Non-interest expense551,033 518,763 32,270 6.2 
Income taxes43,804 63,191 (19,387)(30.7)
Net income213,803 292,056 (78,253)(26.8)
Less: Preferred stock dividends6,030 6,030 — — 
Net income available to common stockholders$207,773 $286,026 $(78,253)(27.4)%
Earnings per common share – Basic$0.64 $0.88 $(0.24)(27.3)%
Earnings per common share – Diluted0.64 0.88 (0.24)(27.3)
Cash dividends per common share0.36 0.36 — — 
The following table presents selected financial ratios and other relevant data used to analyze our performance:
TABLE 13
 Nine Months Ended
September 30,
20202019
Return on average equity5.84 %8.26 %
Return on average tangible common equity (2)
11.72 17.20 
Return on average assets0.79 1.16 
Return on average tangible assets (2)
0.87 1.28 
Book value per common share (1)
$14.99 $14.51 
Tangible book value per common share (1) (2)
7.81 7.33 
Equity to assets (1)
13.22 %14.04 %
Average equity to average assets13.46 14.04 
Common equity to assets (1)
12.94 13.73 
Tangible equity to tangible assets (1) (2)
7.49 7.78 
Tangible common equity to tangible assets (1) (2)
7.19 7.44 
Dividend payout ratio56.66 41.20 
(1) Period-end
(2) Non-GAAP
74


The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities:
TABLE 14          
 Nine Months Ended September 30,
 20202019
(dollars in thousands)Average
Balance
Interest
Income/
Expense
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Assets
Interest-earning assets:
Interest-bearing deposits with banks$336,541 $1,606 0.64 %$70,426 $3,047 5.78 %
Taxable investment securities (1)
5,075,865 83,385 2.19 5,294,381 95,191 2.40 
Tax-exempt investment securities (1)(2)
1,128,327 30,179 3.57 1,118,964 30,076 3.58 
Loans held for sale155,713 5,389 4.62 113,721 3,778 4.43 
Loans and leases (2) (3)
25,061,913 748,328 3.99 22,623,558 819,510 4.84 
Total interest-earning assets (2)
31,758,359 868,887 3.65 29,221,050 951,602 4.35 
Cash and due from banks361,171 377,486 
Allowance for credit losses(342,081)(188,830)
Premises and equipment334,879 330,541 
Other assets4,205,752 3,925,050 
Total assets$36,318,080 $33,665,297 
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand$11,839,283 49,358 0.56 $9,816,506 75,272 1.03 
Savings2,818,593 2,651 0.13 2,523,533 6,532 0.35 
Certificates and other time4,404,265 59,345 1.80 5,390,266 79,239 1.97 
            Total interest-bearing deposits19,062,141 111,354 0.78 17,730,305 161,043 1.21 
Short-term borrowings2,716,076 30,973 1.52 3,749,324 65,908 2.34 
Long-term borrowings1,538,425 29,400 2.55 1,030,067 23,202 3.01 
Total interest-bearing liabilities23,316,642 171,727 0.98 22,509,696 250,153 1.48 
Non-interest-bearing demand7,707,562 6,057,545 
Total deposits and borrowings31,024,204 0.74 28,567,241 1.17 
Other liabilities403,762 372,276 
Total liabilities31,427,966 28,939,517 
Stockholders’ equity4,890,114 4,725,780 
Total liabilities and stockholders’ equity$36,318,080 $33,665,297 
Net interest-earning assets$8,441,717 $6,711,354 
Net interest income (FTE) (2)
697,160 701,449 
Tax-equivalent adjustment(9,470)(10,647)
Net interest income$687,690 $690,802 
Net interest spread2.67 %2.87 %
Net interest margin (2)
2.93 %3.21 %
(1)The average balances and yields earned on securities are based on historical cost.
(2)The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. The yield on earning assets and the net interest margin are presented on an FTE basis. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
(3)Average balances include non-accrual loans. Loans and leases consist of average total loans less average unearned income.
75


Net Interest Income
Net interest income totaled $687.7 million, decreasing $3.1 million, or 0.5%. Lower interest rates contributed to this decline as 1-month LIBOR averaged 0.66% for the first nine months of 2020, compared to 1.54% in the same period of 2019. Partially offsetting this decline was 8.7% growth in interest-earning assets. The net interest margin (FTE) (non-GAAP) declined 28 basis points to 2.93%.
The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019:
TABLE 15
(in thousands)VolumeRateNet
Interest Income (1)
Interest-bearing deposits with banks$1,267 $(2,708)$(1,441)
Securities (2)
(3,658)(8,045)(11,703)
Loans held for sale810 801 1,611 
Loans and leases (2)
74,948 (146,130)(71,182)
Total interest income (2)
73,367 (156,082)(82,715)
Interest Expense (1)
Deposits:
Interest-bearing demand11,574 (37,488)(25,914)
Savings649 (4,530)(3,881)
Certificates and other time(14,093)(5,801)(19,894)
Short-term borrowings(16,138)(18,797)(34,935)
Long-term borrowings9,412 (3,214)6,198 
Total interest expense(8,596)(69,830)(78,426)
Net change (2)
$81,963 $(86,252)$(4,289)
(1)The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the net size of the rate and volume changes.
(2)Interest income amounts are reflected on an FTE basis (non-GAAP) which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
Interest income on an FTE basis (non-GAAP) of $868.9 million for the first nine months of 2020, decreased $82.7 million, or 8.7%, from the same period of 2019, resulting from the decrease in benchmark interest rates, partially offset by an increase in interest-earning assets of $2.5 billion. The increase in interest-earning assets was primarily driven by a $2.4 billion, or 10.8%, increase in average total loans due to PPP activity and solid origination activity across the footprint. Average commercial loan growth totaled $2.3 billion, or 16.5%, including growth of $1.6 billion, or 33.2%, in commercial and industrial loans. Commercial loan growth was led by strong commercial activity in the Pittsburgh, Cleveland, South Carolina, and Mid-Atlantic regions. Average consumer loan growth of $93.7 million, or 1.1%, was led by increases in residential mortgage loans of $256.2 million, or 8.0%, and direct installment balances of $155.2 million, or 8.9%, partially offset by a decline of $131.7 million, or 8.6%, in consumer credit lines and $186.1 million, or 9.5%, in indirect auto installment loans. Additionally, the net reduction in the securities portfolio was a result of management's strategy to deploy excess liquidity into higher yielding loans, as average securities decreased $209.2 million, or 3.3%, given historically low and unattractive interest rates. For the first nine months of 2020, the yield on average interest-earning assets (non-GAAP) decreased 70 basis points to 3.65%, compared to the first nine months of 2019, primarily due the lower interest rate environment.
Interest expense of $171.7 million for the first nine months of 2020 decreased $78.4 million, or 31.4%, from the same period of 2019 primarily due to a decrease in rates paid, partially offset by an increase in average interest-bearing deposits and borrowings. Average interest-bearing deposits increased $1.3 billion, or 7.5%, which reflects the benefit of organic growth, as well as deposits for PPP funding and government stimulus activities. Average long-term borrowings increased $508.4 million, or 49.4%, primarily due to increases of $274.1 million in long-term FHLB borrowings and $239.5 million in senior debt. The
76


funding of both fixed and adjustable longer-term borrowings was opportunistically transacted to take advantage of the lower interest rate environment and add liquidity to support loan growth. During the third quarter of 2020, we terminated $415 million of higher-rate FHLB borrowings. During the first quarter of 2020, we issued $300 million of 2.20% fixed rate senior notes due in 2023. During the first quarter of 2019, we issued $120.0 million of 4.950% fixed-to-floating rate subordinated notes due in 2029. The rate paid on interest-bearing liabilities decreased 50 basis points to 0.98% for the first nine months of 2020, compared to the first nine months of 2019 due to reduced costs on interest-bearing deposits and lower borrowing costs.

Provision for Credit Losses
The following table presents information regarding the provision for credit losses and net charge-offs:
TABLE 16
Nine Months Ended
September 30,
$%
(dollars in thousands)20202019ChangeChange
Provision for credit losses (on loans and leases)$105,238 $37,017 $68,221 184.3 %
Net loan charge-offs33,428 23,029 10,399 45.2 
Net loan charge-offs (annualized) / total average loans and leases0.18 %0.14 %
Provision for credit losses for the nine months ended September 30, 2020 was $105.2 million, an increase of $68.2 million from the year-ago quarter, and reflected CECL and COVID-19 related provision in the first nine months of 2020. Net charge-offs were $33.4 million during the nine months ended September 30, 2020, compared to $23.0 million during the nine months ended September 30, 2019.
Non-Interest Income
The breakdown of non-interest income for the nine months ended September 30, 2020 and 2019 is presented in the following table:
TABLE 17
Nine Months Ended
September 30,
$%
(dollars in thousands)20202019ChangeChange
Service charges$78,362 $95,443 $(17,081)(17.9)%
Trust services23,045 20,734 2,311 11.1 
Insurance commissions and fees18,788 15,449 3,339 21.6 
Securities commissions and fees12,796 13,131 (335)(2.6)
Capital markets income31,830 24,616 7,214 29.3 
Mortgage banking operations34,348 21,272 13,076 61.5 
Dividends on non-marketable equity securities9,940 13,723 (3,783)(27.6)
Bank owned life insurance10,968 8,664 2,304 26.6 
Net securities gains262 35 227 648.6 
Other5,853 7,158 (1,305)(18.2)
Total non-interest income$226,192 $220,225 $5,967 2.7 %
Total non-interest income increased $6.0 million, to $226.2 million for the first nine months of 2020, a 2.7% increase from the same period of 2019. Excluding significant items, non-interest income increased $7.5 million, or 3.4%. The variances in significant individual non-interest income items are further explained in the following paragraphs.
Service charges on loans and deposits of $78.4 million for the first nine months of 2020 decreased $17.1 million, or 17.9%, as there were noticeably lower customer transaction volumes in the COVID-19 environment, although volumes have steadily increased since late in the second quarter of 2020. Additionally, during the first nine months of 2020, we recorded $3.8 million of service charge refunds.
77


Trust services of $23.0 million for the first nine months of 2020 increased $2.3 million, or 11.1%, from the same period of 2019, primarily driven by strong organic revenue production, and the market value of assets under management increased $405.7 million, or 6.7%, to $6.5 billion at September 30, 2020.
Insurance commissions and fees of $18.8 million for the first nine months of 2020 increased $3.3 million, or 21.6%, from the same period of 2019, primarily due to new business in the Carolina regions of our footprint, as well as organic growth in commercial lines.
Capital markets income of $31.8 million for the first nine months of 2020 increased $7.2 million, or 29.3%, from $24.6 million for the same period of 2019, reflecting strong relationships with new and existing commercial customers.
Mortgage banking operations income of $34.3 million for the first nine months of 2020 increased $13.1 million, or 61.5%, from the same period of 2019, due to increased saleable volume and meaningfully expanding margins. During the first nine months of 2020, we sold $1.2 billion of residential mortgage loans, a 24.4% increase compared to $0.9 billion, excluding the $110.1 million and $151.8 million portfolio bulk sales, for the same period of 2019. The higher origination and secondary marketing revenues were partially offset by $4.6 million higher MSR impairment related to unfavorable interest-rate valuation adjustments and $7.5 million of higher MSR amortization due to higher prepayment speeds.
Dividends on equity securities of $9.9 million for the first nine months of 2020 decreased $3.8 million, or 27.6%, from the same period of 2019, primarily due to a decrease in the FHLB dividend rate and lower levels of FHLB borrowings given the strong growth in deposits.
Income from BOLI of $11.0 million for the first nine months of 2020 increased $2.3 million, or 26.6%, primarily due to life insurance claims.
Other non-interest income was $5.9 million and $7.2 million for the first nine months of 2020 and 2019, respectively. The first nine months of 2020 included a $13.8 million gain on the sale of Visa class B stock, partially offset by a $4.4 million loss on FHLB debt extinguishment and $8.9 million in related hedge termination costs. During the first nine months of 2019, we recognized $1.9 million in net gains on Small Business Investment Company (SBIC) investments, compared to a net loss of $0.2 million for the first nine months of 2020.
The following table presents non-interest income excluding significant items for the nine months ended September 30, 2020 and 2019:
TABLE 18
Nine Months Ended
September 30,
$%
(dollars in thousands)20202019ChangeChange
Total non-interest income, as reported $226,192 $220,225 $5,967 2.7 %
Significant items:
   Gain on sale of Visa class B stock(13,818)— (13,818)
   Loss on FHLB debt extinguishment and related hedge terminations13,316 — 13,316 
   Loss on fixed assets related to branch consolidations— 1,722 (1,722)
   Service charge refunds3,780 — 3,780 
Total non-interest income, excluding significant items(1)
$229,470 $221,947 $7,523 3.4 %
(1) Non-GAAP

78


Non-Interest Expense
The breakdown of non-interest expense for the nine months ended September 30, 2020 and 2019 is presented in the following table:
TABLE 19
Nine Months Ended
September 30,
$%
(dollars in thousands)20202019ChangeChange
Salaries and employee benefits$298,062 $279,171 $18,891 6.8 %
Net occupancy48,879 44,360 4,519 10.2 
Equipment48,661 45,412 3,249 7.2 
Amortization of intangibles10,021 10,560 (539)(5.1)
Outside services50,572 46,721 3,851 8.2 
FDIC insurance14,990 17,673 (2,683)(15.2)
Bank shares and franchise taxes11,899 10,145 1,754 17.3 
Other67,949 64,721 3,228 5.0 
Total non-interest expense$551,033 $518,763 $32,270 6.2 %
Total non-interest expense of $551.0 million for the first nine months of 2020 increased $32.3 million, an 6.2% increase from the same period of 2019. Non-interest expense increased $20.2 million, or 3.9%, when excluding significant items, including $6.6 million of expenses associated with COVID-19, $8.3 million of branch consolidation costs, and $5.6 million of retirement vesting changes for certain 2020 stock awards, compared to $2.8 million of branch consolidation costs in the first nine months of 2019. The variances in the individual non-interest expense items are further explained in the following paragraphs.
Salaries and employee benefits of $298.1 million for the first nine months of 2020 increased $18.9 million or 6.8% from the same period of 2019, primarily related to production-related commissions, normal merit increases and stock-based compensation. We made a change to long-term stock-based compensation retirement vesting that resulted in accelerated grant date expense recognition for certain 2020 awards, with full expense recognition on grant date instead of recognizing the same expense amount over a 36-month vesting period. These awards are not released until the three-year service period is complete or the specified performance criteria is met over the three-year period. Additionally, we recorded $1.5 million relating to COVID-19 expenses.
Net occupancy and equipment expense of $97.5 million for the first nine months of 2020 increased $7.8 million, or 8.7%, from $89.8 million from the same period of 2019, primarily due to $8.3 million of branch consolidation costs, compared to $2.2 million in the first nine months of 2019.
Outside services expense of $50.6 million for the first nine months of 2020 increased $3.9 million, or 8.2%, from the first nine months of 2019, primarily due to increases in data processing costs.
FDIC insurance expense of $15.0 million for the first nine months of 2020 decreased $2.7 million, or 15.2%, from the first nine months of 2019, primarily due to increased subordinated debt at FNBPA and improved liquidity metrics.
Bank shares and franchise taxes of $11.9 million for the first nine months of 2020 increased $1.8 million, or 17.3%, from the first nine months of 2019, primarily due to the 2020 capital base increase and higher tax credits in 2019.
Other non-interest expense was $67.9 million and $64.7 million for the first nine months of 2020 and 2019, respectively. During the first nine months of 2020, we recorded $2.3 million more in unfunded loan commitment expenses, compared to the same period of 2019. The first nine months of 2020 also included $4.3 million in COVID-19-related expenses. The COVID-19 related expenses included a $1.0 million contribution to our foundation for relief assistance to our communities, benefiting food banks and providing funding for essential medical supplies. These items were partially offset by decreases in several other items in other non-interest expense, including marketing and business development expenses, which were somewhat impacted by the COVID-19 operating environment.

79


The following table presents non-interest expense excluding significant items for the nine months ended September 30, 2020 and 2019:
TABLE 20
Nine Months Ended
September 30,
$%
(dollars in thousands)20202019ChangeChange
Total non-interest expense, as reported $551,033 $518,763 $32,270 6.2 %
Significant items:
   Branch consolidations (8,262)(2,783)(5,479)
   COVID-19 expense (6,622)— (6,622)
Total non-interest expense, excluding significant items (1)
$536,149 $515,980 $20,169 3.9 %
(1) Non-GAAP

Income Taxes
The following table presents information regarding income tax expense and certain tax rates:
TABLE 21
 Nine Months Ended
September 30,
(dollars in thousands)20202019
Income tax expense$43,804 $63,191 
Effective tax rate17.0 %17.8 %
Statutory federal tax rate21.0 21.0 
Both periods’ tax rates are lower than the federal statutory tax rates of 21% due to tax benefits primarily resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. The lower effective tax rate in the first nine months of 2020 compared to 2019 was primarily due to lower pretax income levels in a COVID-19 environment.


80


FINANCIAL CONDITION
The following table presents our condensed Consolidated Balance Sheets:
TABLE 22
(dollars in millions)September 30,
2020
December 31,
2019
$
Change
%
Change
Assets
Cash and cash equivalents$900 $599 $301 50.3 %
Securities6,067 6,564 (497)(7.6)
Loans held for sale680 51 629 1,233.3 
Loans and leases, net25,316 23,093 2,223 9.6 
Goodwill and other intangibles2,319 2,329 (10)(0.4)
Other assets2,159 1,979 180 9.1 
Total Assets$37,441 $34,615 $2,826 8.2 %
Liabilities and Stockholders’ Equity
Deposits$28,836 $24,786 $4,050 16.3 %
Borrowings3,296 4,556 (1,260)(27.7)
Other liabilities358 390 (32)(8.2)
Total liabilities32,490 29,732 2,758 9.3 
Stockholders’ equity4,951 4,883 68 1.4 
Total Liabilities and Stockholders’ Equity$37,441 $34,615 $2,826 8.2 %

Lending Activity
The loan and lease portfolio consists principally of loans and leases to individuals and small- and medium-sized businesses within our primary markets in seven states and the District of Columbia. Our market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. During 2020, we originated $2.6 billion of PPP loans. Additionally, during September, 2020, $508 million of indirect installment loans were transferred to loans held for sale in anticipation of a loan sale expected to close in the fourth quarter of 2020.

Following is a summary of loans and leases:

TABLE 23
September 30,
2020
December 31, 2019$
Change
%
Change
(in millions)
Commercial real estate$9,521 $8,960 $561 6.3 %
Commercial and industrial7,547 5,308 2,239 42.2 
Commercial leases487 432 55 12.7 
Other65 21 44 209.5 
Total commercial loans and leases17,620 14,721 2,899 19.7 
Direct installment1,977 1,821 156 8.6 
Residential mortgages3,531 3,374 157 4.7 
Indirect installment1,219 1,922 (703)(36.6)
Consumer lines of credit1,342 1,451 (109)(7.5)
Total consumer loans8,069 8,568 (499)(5.8)
Total loans and leases$25,689 $23,289 $2,400 10.3 %
81


Non-Performing Assets
Following is a summary of non-performing assets:
TABLE 24
(in millions)September 30,
2020
December 31,
2019
$
Change
%
Change
Commercial real estate$90 $32 $58 181.3 %
Commercial and industrial55 29 26 89.7 
Commercial leases2 100.0 
Other1 — — 
Total commercial loans and leases148 63 85 134.9 
Direct installment9 13 (4)(30.8)
Residential mortgages11 17 (6)(35.3)
Indirect installment3 — — 
Consumer lines of credit7 — — 
Total consumer loans30 40 (10)(25.0)
Total non-performing loans and leases178 103 75 72.8 
Other real estate owned20 26 (6)(23.1)
Non-performing assets$198 $129 $69 53.5 %
Non-performing assets increased $69.5 million, from $128.6 million at December 31, 2019 to $198.1 million at September 30, 2020. This reflects an increase of $74.8 million in non-performing loans and leases and a decrease of $5.3 million in OREO. Prior to the adoption of CECL, acquired PCD loans were excluded from our non-performing disclosures. PCD loans that meet the definition of non-accrual are now included in the disclosures and resulted in a $54 million CECL adoption Day 1 increase in non-accrual loans compared to December 31, 2019. The decrease in OREO was largely driven by the sale of multiple pieces of real estate.
During the first half of 2020, we saw significant macroeconomic changes due to the COVID-19 pandemic. Stay-at-home orders and non-essential business closures in many of our markets temporarily suspended the income generation of some of our borrowers. Government stimulus and support programs generated through the CARES Act, such as the PPP, began to assist our borrowers through the difficult financial disruptions. We continued to offer these programs during the third quarter of 2020. We offered short-term modifications to our customers to assist them through this period. The programs our customers have taken advantage of are:
Existing customers who were current prior to the start of the pandemic, can elect to defer loan principal and interest payments or interest payments for up to 90 days without late fees but will continue to accrue interest. As of September 30, 2020, approximately 6,000 commercial customers have elected this option.
Mortgage and consumer loan customers have up to a 90-day payment deferral option, depending on their loan type. As of September 30, 2020, approximately 9,100 of these customers have elected this option.
SBA disaster relief assistance, including the PPP.
The loan deferral programs can be extended on an individual basis. Most of the deferrals for our borrowers expired in July 2020. Second deferrals totaled $464 million at September 30, 2020. We had approximately $792 million, or 3.4%, of total loans and leases (excluding PPP loans), which included second deferrals previously mentioned.
As long as the borrower was not experiencing financial difficulties immediately prior to COVID-19, short-term modifications, such as principal and interest deferments, are not being included in TDRs. These modifications will be closely monitored for any future deterioration and included in the tables as the probability of collection deteriorates.
82


Troubled Debt Restructured Loans
Following is a summary of accruing and non-accrual TDRs, by class:

TABLE 25
(in millions)AccruingNon-
Accrual
Total
September 30, 2020
Commercial real estate$5 $18 $23 
Commercial and industrial1 4 5 
Total commercial loans 6 22 28 
Direct installment23 4 27 
Residential mortgages26 6 32 
Consumer lines of credit6 1 7 
Total consumer loans55 11 66 
Total TDRs$61 $33 $94 
December 31, 2019
Commercial real estate$$$
Commercial and industrial
Total commercial loans 12 
Direct installment18 21 
Residential mortgages14 17 
Consumer lines of credit
Total consumer loans37 44 
Total TDRs$41 $15 $56 

Allowance for Credit Losses on Loans and Leases
On January 1, 2020, we adopted CECL which changed how we calculate the ACL as more fully described in Note 1 to the Notes to Consolidated Financial Statements (unaudited). This expected credit loss model takes into consideration the expected losses over the life of the loan at the time the loan is originated compared to the incurred loss model under the prior standard. At the time of the adoption, we recorded a one-time cumulative-effect adjustment of $50.6 million as a reduction to Retained Earnings. The ACL balance increased by $105 million and included a “gross-up" to PCD loan balances and the ACL of $50 million. Included in the CECL adoption impact was an increase of $10 million to our AULC. The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation:
a third-party macroeconomic forecast scenario;
a 24-month R&S forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 12-month period; and
the historical through the cycle mean calculated using an expanded period to include a prior recessionary period.
COVID-19 Impacts
Starting in March 2020, the broader economy experienced a significant deterioration in the macroeconomic environment driven by the COVID-19 pandemic resulting in notable adverse changes to forecasted economic variables utilized in our ACL modeling process. Based on these changes, we are utilizing a third-party pandemic recessionary macroeconomic forecast scenario for ACL modeling purposes. This scenario captures forecasted macroeconomic variables as of mid-September to ensure our ACL calculation considers the most recently available macroeconomic data in a quickly evolving environment at quarter-end. Macroeconomic variables that we utilized from this scenario include but are not limited to: (i) gross domestic product, which reflects a contraction of up to 7% from the beginning of 2020 with average annual increases not occurring until
83


mid-2021, (ii) the Dow Jones Industrial Average, which remains below peak levels throughout the R&S period, (iii) unemployment, which averages 10% over the R&S period and (iv) the Volatility Index, which remains elevated in the fourth quarter of 2020 before declining to pre-pandemic levels in mid-2021.
The ACL of $373.0 million at September 30, 2020 increased $177.1 million, or 90.4%, from December 31, 2019 and reflects the immediate Day 1 CECL adoption increase to the ACL of $105.3 million on January 1, 2020. Our ending ACL coverage ratio at September 30, 2020 was 1.45%. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loan and leases ratio equaled 1.61%, or an impact of 16 basis points. Total provision for credit losses for the nine months ended September 30, 2020 was $105.2 million. Net charge-offs were $33.4 million for the nine months ended September 30, 2020, compared to $23.0 million for the nine months ended September 30, 2019, with the increase primarily due to higher commercial charge-offs taken against credits that were somewhat impacted by COVID-19 during the third quarter. The ACL as a percentage of non-performing loans for the total portfolio increased from 190% as of December 31, 2019 to 210% as of September 30, 2020, as provision exceeded net charge-offs and included ACL reserve build, while the level of non-performing loans increased.

Deposits
As a bank holding company, our primary source of funds is deposits. These deposits are provided by businesses, municipalities and individuals located within the markets served by our Community Banking subsidiary.
Following is a summary of deposits:
TABLE 26
(in millions)September 30,
2020
December 31,
2019
$
Change
%
Change
Non-interest-bearing demand$8,741 $6,384 $2,357 36.9 %
Interest-bearing demand13,063 11,049 2,014 18.2 
Savings3,007 2,625 382 14.6 
Certificates and other time deposits4,025 4,728 (703)(14.9)
Total deposits$28,836 $24,786 $4,050 16.3 %
Total deposits increased $4.1 billion, or 16.3%, from December 31, 2019, primarily as a result of growth in transaction deposits (including non-interest-bearing demand, interest-bearing demand and savings) that reflects the inflow of funds from the PPP and government stimulus activity, in addition to organic growth in customer relationships. This growth was partially offset by a managed decline of $703.0 million, or 14.9%, in time deposits. Generating growth in relationship-based transaction deposits remains a key focus for us and will help us manage to lower levels of short-term borrowings.

Capital Resources and Regulatory Matters
The access to, and cost of, funding for new business initiatives, the ability to engage in expanded business activities, the ability to pay dividends and the level and nature of regulatory oversight depend, in part, on our capital position.
The assessment of capital adequacy depends on a number of factors such as expected organic growth in the Consolidated Balance Sheet, asset quality, liquidity, earnings performance, changing competitive conditions, regulatory changes or actions, and economic forces. We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to current operations and to promote public confidence.
We have an effective shelf registration statement filed with the SEC. Pursuant to this registration statement, we may, from time to time, issue and sell in one or more offerings any combination of common stock, preferred stock, debt securities, depositary shares, warrants, stock purchase contracts or units. On February 24, 2020, we completed an offering of $300.0 million of 2.20% fixed rate senior notes due in 2023 under this registration statement. The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering expenses were $297.9 million. We will use the net proceeds from the sale of the notes for general corporate purposes, which may include investments at the holding company level, capital to support the growth of FNBPA, repurchase of our common shares and refinancing of outstanding indebtedness.
On February 14, 2019, we completed an offering of $120.0 million of 4.950% fixed-to-floating rate subordinated notes due in 2029 under this registration statement. The subordinated notes are treated as tier 2 capital for regulatory capital purposes. The
84


net proceeds of this debt offering after deducting underwriting discounts and commissions and offering expenses were $118.2 million. We used the net proceeds from the sale of the subordinated notes to redeem higher-rate long-term borrowings and for general corporate purposes.
On September 23, 2019, we announced that our Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $150 million of our common stock. The repurchases will be made from time to time on the open market at prevailing market prices or in privately negotiated transactions. The purchases will be funded from available working capital. There is no guarantee as to the exact number of shares that will be repurchased and we may discontinue purchases at any time. There were no repurchases made during the third quarter of 2020.
Capital management is a continuous process, with capital plans and stress testing for FNB and FNBPA updated at least annually. These capital plans include assessing the adequacy of expected capital levels assuming various scenarios by projecting capital needs for a forecast period of 2-3 years beyond the current year. From time to time, we issue shares initially acquired by us as treasury stock under our various benefit plans. We may issue additional preferred or common stock in order to maintain our well-capitalized status.
FNB and FNBPA are subject to various regulatory capital requirements administered by the federal banking agencies (see discussion under “Enhanced Regulatory Capital Standards”). Quantitative measures established by regulators to ensure capital adequacy require FNB and FNBPA to maintain minimum amounts and ratios of total, tier 1 and common equity tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and minimum leverage ratio (as defined). Failure to meet minimum capital requirements could lead to initiation of certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our Consolidated Financial Statements, dividends and future business and corporate strategies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FNB and FNBPA must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. FNB’s and FNBPA’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
At September 30, 2020, the capital levels of both FNB and FNBPA exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered “well-capitalized” for regulatory purposes.
In December 2018, the FRB and other U.S. banking agencies approved a final rule to address the impact of CECL on regulatory capital by allowing BHCs and banks, including FNB, the option to phase in the day-one impact of CECL over a three-year period. In March 2020, the FRB and other U.S. banking agencies issued an interim final rule that became effective on March 31, 2020, and that provides BHCs and banks with an alternative option to temporarily delay the estimate of the impact of CECL, relative to the incurred loss methodology for estimating the ACL, on regulatory capital. We have elected this alternative option instead of the one described in the December 2018 rule. As a result, under the interim final rule, we will delay recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extends through December 31, 2021. Beginning on January 1, 2022, we will be required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. Under the interim final rule, the estimated impact of CECL on regulatory capital that we will defer and later phase in is calculated as the entire day-one impact at adoption plus 25% of the subsequent change in the ACL during the two-year deferral period. During the third quarter of 2020, the total deferred impact on Common Equity Tier 1 capital related to our adoption of CECL was approximately $68.4 million, or 25 basis points.
In this unprecedented economic and uncertain environment, we frequently run stress tests for a variety of economic situations, including severely adverse scenarios that have economic conditions similar to the current conditions. Under these scenarios, the results of these stress tests indicate that our regulatory capital ratios would remain above the regulatory requirements and we would be able to maintain appropriate liquidity levels, demonstrating our expected ability to continue to support our constituencies under stressful financial conditions.

85


Following are the capital amounts and related ratios for FNB and FNBPA:
TABLE 27
 Actual
Well-Capitalized
Requirements (1)
Minimum Capital
Requirements plus Capital Conservation Buffer
(dollars in millions)AmountRatioAmountRatioAmountRatio
As of September 30, 2020
F.N.B. Corporation
Total capital$3,326 12.15 %$2,738 10.00 %$2,875 10.50 %
Tier 1 capital2,737 10.00 1,643 6.00 2,327 8.50 
Common equity tier 12,630 9.61 n/an/a1,917 7.00 
Leverage2,737 7.78 n/an/a1,407 4.00 
Risk-weighted assets27,379 
FNBPA
Total capital3,416 12.50 %2,733 10.00 %2,869 10.50 %
Tier 1 capital2,964 10.85 2,186 8.00 2,323 8.50 
Common equity tier 12,884 10.55 1,776 6.50 1,913 7.00 
Leverage2,964 8.44 1,756 5.00 1,405 4.00 
Risk-weighted assets27,327 
As of December 31, 2019
F.N.B. Corporation
Total capital$3,174 11.81 %$2,687 10.00 %$2,821 10.50 %
Tier 1 capital2,632 9.79 1,612 6.00 2,284 8.50 
Common equity tier 12,525 9.40 n/an/a1,881 7.00 
Leverage2,632 8.20 n/an/a1,283 4.00 
Risk-weighted assets26,866 
FNBPA
Total capital3,039 11.34 %2,681 10.00 %2,815 10.50 %
Tier 1 capital2,841 10.60 2,144 8.00 2,279 8.50 
Common equity tier 12,761 10.30 1,742 6.50 1,876 7.00 
Leverage2,841 8.87 1,601 5.00 1,281 4.00 
Risk-weighted assets26,806 
(1) Reflects the well-capitalized standard under Regulation Y for F.N.B. Corporation and the prompt corrective action framework for FNBPA.

In accordance with Basel III Capital Rules, the minimum capital requirements plus capital conservation buffer, which are presented for each period above, represent the minimum requirements needed to avoid limitations on distributions of dividends and certain discretionary bonus payments.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)
The Dodd-Frank Act broadly affects the financial services industry by establishing a framework for systemic risk oversight, creating a resolution authority for institutions determined to be systemically important, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies and containing numerous other provisions aimed at strengthening the sound operation of the financial services sector that significantly change the system of regulatory oversight as described in more detail under Part I, Item 1, “Business - Government Supervision and Regulation” included in our 2019 Annual Report on Form 10-K as filed with the SEC on February 27, 2020. Certain aspects of the Dodd-Frank Act remain subject to regulatory rulemaking and amendments to such previously promulgated rules, thereby making it difficult to anticipate with certainty the impact to us or the financial services industry resulting from this rulemaking process.
86


LIQUIDITY
Our goal in liquidity management is to satisfy the cash flow requirements of customers and the operating cash needs of FNB with cost-effective funding. Our Board of Directors has established an Asset/Liability Management Policy to guide management in achieving and maintaining earnings performance consistent with long-term goals, while maintaining acceptable levels of interest rate risk, a “well-capitalized” Balance Sheet and adequate levels of liquidity. Our Board of Directors has also established Liquidity and Contingency Funding Policies to guide management in addressing the ability to identify, measure, monitor and control both normal and stressed liquidity conditions. These policies designate our Asset/Liability Committee as the body responsible for meeting these objectives. The ALCO, which is comprised of members of executive management, reviews liquidity on a continuous basis and approves significant changes in strategies that affect Balance Sheet or cash flow positions. Liquidity is centrally managed daily by our Treasury Department.
FNBPA generates liquidity from its normal business operations. Liquidity sources from assets include payments from loans and investments, as well as the ability to securitize, pledge or sell loans, investment securities and other assets. Liquidity sources from liabilities are generated primarily through the banking offices of FNBPA in the form of deposits and customer repurchase agreements. FNB also has access to reliable and cost-effective wholesale sources of liquidity. Short- and long-term funds are used to help fund normal business operations, and unused credit availability can be utilized to serve as contingency funding if we would be faced with a liquidity crisis.
The principal sources of the parent company’s liquidity are its strong existing cash resources plus dividends it receives from its subsidiaries. These dividends may be impacted by the parent’s or its subsidiaries’ capital needs, statutory laws and regulations, corporate policies, contractual restrictions, profitability and other factors. In addition, through one of our subsidiaries, we regularly issue subordinated notes, which are guaranteed by FNB. Management has utilized various strategies to ensure sufficient cash on hand is available to meet the parent's funding needs.  On February 24, 2020, we completed a senior debt offering whereby we issued $300.0 million aggregate principal amount of 2.20% senior notes due in 2023. The proceeds from this transaction were used for general corporate purposes and were the primary factor resulting in an increase in our Months of Cash on Hand (MCH) liquidity metric as shown below.
Starting in March 2020, management incorporated potential liquidity impacts related to COVID-19 into our daily analysis. Management concluded that our cash levels remain appropriate given the current market environment. Two metrics that are used to gauge the adequacy of the parent company’s cash position are the Liquidity Coverage Ratio (LCR) and MCH. The LCR is defined as the sum of cash on hand plus projected cash inflows over the next 12 months divided by projected cash outflows over the next 12 months. The MCH is defined as the number of months of corporate expenses and dividends that can be covered by the cash on hand.
The LCR and MCH ratios are presented in the following table:
TABLE 28
September 30,
2020
December 31,
2019
Internal
limit
Liquidity coverage ratio 2.6 times2.2 times> 1 time
Months of cash on hand 19.0 months15.2 months> 12 months
Our liquidity position has been positively impacted by our ability to generate growth in relationship-based accounts. Organic growth in low-cost transaction deposits was complemented by management’s strategy of heightened deposit gathering efforts focused on attracting new customer relationships and deepening relationships with existing customers, in part through internal lead generation efforts leveraging data analytics capabilities.  Total deposits were $28.8 billion at September 30, 2020, an increase of $4.0 billion, or 21.8% annualized, from December 31, 2019. Total non-interest-bearing demand deposit accounts grew by $2.4 billion, or 49.3% annualized, and interest-bearing demand increased by $2.0 billion, or 24.4% annualized. Savings account balances increased $381.7 million, or 19.4% annualized. Time deposits declined $703.2 million, or 19.9% annualized. As mentioned earlier, inflows from PPP and government stimulus checks were a significant factor in the deposit growth during the second quarter.
FNBPA has significant unused wholesale credit availability sources that include the availability to borrow from the FHLB, the FRB, correspondent bank lines, access to brokered deposits, the PPPLF and multiple other channels. In addition to credit availability, FNBPA also possesses salable unpledged government and agency securities that could be utilized to meet funding needs. We currently also have excess cash to meet our pledging requirements. The ALCO is currently targeting a 1% guideline
87


level for salable unpledged government and agency securities due to an elevated influx of public fund related deposits, in part related to the PPP, combined with a strategic decline in the investment portfolio.
The following table presents certain information relating to FNBPA’s credit availability and salable unpledged securities:
TABLE 29
(dollars in millions)September 30,
2020
December 31,
2019
Unused wholesale credit availability$16,410 $11,154 
Unused wholesale credit availability as a % of FNBPA assets43.9 %32.3 %
Salable unpledged government and agency securities$250 $1,788 
Salable unpledged government and agency securities as a % of FNBPA assets0.7 %5.2 %
The PPPLF accounted for $2.5 billion of the increase in availability since December 31, 2019. This funding source has been extended to December 31, 2020. We also had $218.5 million in excess cash to meet our pledging requirements.
Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis as of September 30, 2020 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals. Management seeks to limit the size of the liquidity gaps so that sources and uses of funds are reasonably matched in the normal course of business. A reasonably matched position lays a better foundation for dealing with additional funding needs during a potential liquidity crisis. The twelve-month cumulative gap to total assets ratio was 5.2% as of September 30, 2020 compared to (0.3)% as of December 31, 2019. Management calculates this ratio at least quarterly and it is reviewed monthly by ALCO.
TABLE 30
(dollars in millions)Within
1 Month
2-3
Months
4-6
Months
7-12
Months
Total
1 Year
Assets
Loans$934 $1,836 $1,816 $3,396 $7,982 
Investments737 435 312 735 2,219 
1,671 2,271 2,128 4,131 10,201 
Liabilities
Non-maturity deposits592 1,184 1,021 1,623 4,420 
Time deposits342 676 865 954 2,837 
Borrowings13 473 133 367 986 
947 2,333 2,019 2,944 8,243 
Period Gap (Assets - Liabilities)$724 $(62)$109 $1,187 $1,958 
Cumulative Gap$724 $662 $771 $1,958 
Cumulative Gap to Total Assets1.9 %1.8 %2.1 %5.2 %
In addition, the ALCO regularly monitors various liquidity ratios and stress scenarios of our liquidity position. The stress scenarios forecast that adequate funding will be available even under severe conditions. Management believes we have sufficient liquidity available to meet our normal operating and contingency funding cash needs.
MARKET RISK
Market risk refers to potential losses arising predominately from changes in interest rates, foreign exchange rates, equity prices and commodity prices. We are primarily exposed to interest rate risk inherent in our lending and deposit-taking activities as a financial intermediary. To succeed in this capacity, we offer an extensive variety of financial products to meet the diverse needs of our customers. These products sometimes contribute to interest rate risk for us when product groups do not complement one another. For example, depositors may want short-term deposits, while borrowers may desire long-term loans.
88


Changes in market interest rates may result in changes in the fair value of our financial instruments, cash flows and net interest income. Subject to its ongoing oversight, the Board of Directors has given ALCO the responsibility for market risk management, which involves devising policy guidelines, risk measures and limits, and managing the amount of interest rate risk and its effect on net interest income and capital. We use derivative financial instruments for interest rate risk management purposes and not for trading or speculative purposes.
Interest rate risk is comprised of repricing risk, basis risk, yield curve risk and options risk. Repricing risk arises from differences in the cash flow or repricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are related to different market rate indexes, which do not always change by the same amount. Yield curve risk arises when asset and liability portfolios are related to different maturities on a given yield curve; when the yield curve changes shape, the risk position is altered. Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their loans, which may be with or without penalty, when rates fall, while certain depositors can redeem their certificates of deposit early, which may be with or without penalty, when rates rise.
We use an asset/liability model to measure our interest rate risk. Interest rate risk measures we utilize include earnings simulation, EVE and gap analysis. Gap analysis and EVE are static measures that do not incorporate assumptions regarding future business. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single rate environment. EVE’s long-term horizon helps identify changes in optionality and longer-term positions. However, EVE’s liquidation perspective does not translate into the earnings-based measures that are the focus of managing and valuing a going concern. Net interest income simulations explicitly measure the exposure to earnings from changes in market rates of interest. In these simulations, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. The ALCO reviews earnings simulations over multiple years under various interest rate scenarios on a periodic basis. Reviewing these various measures provides us with a comprehensive view of our interest rate risk profile, which provides the basis for balance sheet management strategies.
The following repricing gap analysis as of September 30, 2020 compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. Management utilizes the repricing gap analysis as a diagnostic tool in managing net interest income and EVE risk measures.
TABLE 31
(dollars in millions)Within
1 Month
2-3
Months
4-6
Months
7-12
Months
Total
1 Year
Assets
Loans$11,514 $1,556 $1,240 $2,307 $16,617 
Investments739 441 455 727 2,362 
12,253 1,997 1,695 3,034 18,979 
Liabilities
Non-maturity deposits8,935 — — — 8,935 
Time deposits453 675 863 950 2,941 
Borrowings1,409 857 10 21 2,297 
10,797 1,532 873 971 14,173 
Off-balance sheet300 730 (50)(100)880 
Period Gap (assets – liabilities + off-balance sheet)$1,756 $1,195 $772 $1,963 $5,686 
Cumulative Gap$1,756 $2,951 $3,723 $5,686 
Cumulative Gap to Assets5.3 %9.0 %11.3 %17.3 %
The twelve-month cumulative repricing gap to total assets was 17.3% and 7.0% as of September 30, 2020 and December 31, 2019, respectively. The positive cumulative gap positions indicate that we have a greater amount of repricing earning assets than repricing interest-bearing liabilities over the subsequent twelve months. If interest rates increase as modeled, net interest income will increase and, conversely, if interest rates decrease as modeled, net interest income will decrease. The change in the cumulative repricing gap at September 30, 2020 compared to December 31, 2019, is primarily related to growth and changes in the mix of loans, deposits and borrowings. Strong commercial and industrial loan growth, a portion of which was swapped to adjustable rates and the increased cash flow from the loan and investment portfolios, were partially offset by growth in and repricing of certain interest-bearing non-maturity deposit balances and the funding of FHLB advances. The funding and
89


redemption of both fixed and adjustable borrowings was opportunistically transacted to take advantage of the lower interest rate environment and add liquidity to support loan growth.
The allocation of non-maturity deposits and customer repurchase agreements to the one-month maturity category above is based on the estimated sensitivity of each product to changes in market rates. For example, if a product’s rate is estimated to increase by 50% as much as the market rates, then 50% of the account balance was placed in this category.
Utilizing net interest income simulations, the following net interest income metrics were calculated using rate shocks which move market rates in an immediate and parallel fashion. The variance percentages represent the change between the net interest income and EVE calculated under the particular rate scenario compared to the net interest income and EVE that was calculated assuming market rates as of September 30, 2020. Using a static Balance Sheet structure, the measures do not reflect all of management's potential counteractions.
The following table presents an analysis of the potential sensitivity of our net interest income and EVE to changes in interest rates using rate shocks:
TABLE 32
September 30,
2020
December 31,
2019
ALCO
Limits
Net interest income change (12 months):
+ 300 basis points17.1 %6.5 %n/a
+ 200 basis points11.5 4.6 (5.0)%
+ 100 basis points5.7 2.5 (5.0)
- 100 basis points(0.3)(4.1)(5.0)
Economic value of equity:
+ 300 basis points8.5 (2.0)(25.0)
+ 200 basis points7.0 (0.5)(15.0)
+ 100 basis points4.5 0.2 (10.0)
- 100 basis points(8.3)(3.8)(10.0)
We also model rate scenarios which move all rates gradually over twelve months (Rate Ramps) and model scenarios that gradually change the shape of the yield curve. Assuming a static Balance Sheet, a +100 basis point Rate Ramp increases net interest income (12 months) by 2.8% at September 30, 2020 and 1.5% at December 31, 2019. The corresponding metrics for a -100 basis point Rate Ramp are (0.1)% and (2.0)% at September 30, 2020 and December 31, 2019, respectively.
The FRB's rapid and large downward interest rate moves in March 2020 as a response to the COVID-19 pandemic lowered all market interest rates, specifically 1-month LIBOR. Thirty-six percent of our loans are indexed to LIBOR. Further, the yield curve flattened. These factors were the primary drivers of the decrease in base net interest income. Of this lower base net interest income, floors that are embedded in a portion of our loan portfolio contributed to the net interest income sensitivity. In this historically low rate environment, our strategy is to remain slightly asset sensitive.
There are multiple factors that influence our interest rate risk position and impact Net Interest Income. These include external factors such as the shape of the yield curve and expectations regarding future interest rates, as well as internal factors regarding product offerings, product mix and pricing of loans and deposits.
Management utilizes various tactics to achieve our desired interest rate risk (IRR) position. In response to the change in interest rates, management was proactive in addressing our IRR position. As mentioned earlier, we were successful in growing our transaction deposits which provides funding that is less interest rate-sensitive than short-term time deposits and wholesale borrowings. Also, we were able to lower rates on deposit products and shorten the term of the certificates of deposit volumes. This continues to be an intense focus of management. Further, during the first nine months of 2020, management took advantage of the interest rate environment to reduce borrowing costs. On the lending side, we regularly sell long-term fixed-rate residential mortgages to the secondary market and have been successful in the origination of consumer and commercial loans with short-term repricing characteristics. In particular, we have made use of interest rate swaps to commercial borrowers (commercial swaps) to manage our IRR position as the commercial swaps effectively increase adjustable-rate loans. Total variable and adjustable-rate loans were 53.5% and 59.1% of total loans as of September 30, 2020 and December 31, 2019, respectively, with 79.2% of these loans, or 42.4% of total loans, tied to the Prime or one-month LIBOR rates. As of
90


September 30, 2020, the commercial swaps totaled $4.6 billion of notional principal, with $1.2 million in original notional swap principal originated during the first nine months of 2020. For additional information regarding interest rate swaps, see Note 11 in this Report. The investment portfolio is also used, in part, to manage our IRR position. These purchases are predominately fixed rate in nature in which we seek to minimize prepayment risk.
We recognize that all asset/liability models have some inherent shortcomings. Asset/liability models require certain assumptions to be made, such as prepayment rates on interest-earning assets and repricing impact on non-maturity deposits, which may differ from actual experience. These business assumptions are based upon our experience, business plans, economic and market trends and available industry data. While management believes that its methodology for developing such assumptions is reasonable, there can be no assurance that modeled results will be achieved. Furthermore, the metrics are based upon the Balance Sheet structure as of the valuation date and do not reflect the planned growth or management actions that could be taken.

RISK MANAGEMENT
As a financial institution, we take on a certain amount of risk in every business decision, transaction and activity. Our Board of Directors and senior management have identified seven major categories of risk: credit risk, market risk, liquidity risk, reputational risk, operational risk, legal and compliance risk and strategic risk. In its oversight role of our risk management function, the Board of Directors focuses on the strategies, analyses and conclusions of management relating to identifying, understanding and managing risks so as to optimize total stockholder value, while balancing prudent business and safety and soundness considerations.
The Board of Directors adopted a risk appetite statement that defines acceptable risk levels and limits under which we seek to operate in order to optimize returns. As such, the board monitors a series of KRIs, or Key Risk Indicators, for various business lines, operational units, and risk categories, providing insight into how our performance aligns with our stated risk appetite. These results are reviewed periodically by the Board of Directors and senior management to ensure adherence to our risk appetite statement, and where appropriate, adjustments are made to applicable business strategies and tactics where risks are approaching stated tolerances or for emerging risks.
We support our risk management process through a governance structure involving our Board of Directors and senior management. The joint Risk Committee of our Board of Directors and the FNBPA Board of Directors helps ensure that business decisions are executed within appropriate risk tolerances. The Risk Committee has oversight responsibilities with respect to the following:

identification, measurement, assessment and monitoring of enterprise-wide risk;
development of appropriate and meaningful risk metrics to use in connection with the oversight of our businesses and strategies;
review and assessment of our policies and practices to manage our credit, market, liquidity, legal, regulatory and operating risk (including technology, operational, compliance and fiduciary risks); and
identification and implementation of risk management best practices.
The Risk Committee serves as the primary point of contact between our Board of Directors and the Risk Management Council, which is the senior management level committee responsible for risk management. Risk appetite is an integral element of our business and capital planning processes through our Board Risk Committee and Risk Management Council. We use our risk appetite processes to promote appropriate alignment of risk, capital and performance tactics, while also considering risk capacity and appetite constraints from both financial and non-financial risks. Our top-down risk appetite process serves as a limit for undue risk-taking for bottom-up planning from our various business functions. Our Board Risk Committee, in collaboration with our Risk Management Council, approves our risk appetite on an annual basis, or more frequently, as needed to reflect changes in the risk, regulatory, economic and strategic plan environments, with the goal of ensuring that our risk appetite remains consistent with our strategic plans and business operations, regulatory environment and our shareholders' expectations. Reports relating to our risk appetite and strategic plans, and our ongoing monitoring thereof, are regularly presented to our various management level risk oversight and planning committees and periodically reported up through our Board Risk Committee.
As noted above, we have a Risk Management Council comprised of senior management. The purpose of this committee is to provide regular oversight of specific areas of risk with respect to the level of risk and risk management structure. Management has also established an Operational Risk Committee that is responsible for identifying, evaluating and monitoring operational
91


risks across FNB, evaluating and approving appropriate remediation efforts to address identified operational risks and providing periodic reports concerning operational risks to the Risk Management Council. The Risk Management Council reports on a regular basis to the Risk Committee of our Board of Directors regarding our enterprise-wide risk profile and other significant risk management issues. Our Chief Risk Officer is responsible for the design and implementation of our enterprise-wide risk management strategy and framework through the multiple second line of defense areas, including the following departments: Enterprise-Wide Risk Management, Fraud Risk, Loan Review, Model Risk Management, Third-Party Risk Management, Anti-Money Laundering and Bank Secrecy Act, Community Reinvestment Act, Appraisal Review, Compliance and Information and Cyber Security. All second line of defense departments report to the Chief Risk Officer to ensure the coordinated and consistent implementation of risk management initiatives and strategies on a day-to-day basis. Our Enterprise-Wide Risk Management Department conducts risk and control assessments across all of our business and operational areas to ensure the appropriate risk identification, risk management and reporting of risks enterprise-wide. The Fraud Risk Department monitors for internal and external fraud risk across all of our business and operational units. The Loan Review Department conducts independent testing of our loan risk ratings to ensure their accuracy, which is instrumental to calculating our ACL. Our Model Risk Management Department oversees validation and testing of all models used in managing risk across our company. Our Third-Party Risk Management Department ensures effective risk management and oversight of third-party relationships throughout the vendor life cycle. The Anti-Money Laundering and Bank Secrecy Act Department monitors for compliance with money laundering risk and associated regulatory compliance requirements. Our Community Reinvestment Department monitors for compliance with the requirements of the Community Reinvestment Act. The Appraisal Review Department facilitates independent ordering and review of real estate appraisals obtained for determining the value of real estate pledged as collateral for loans to customers. Our Compliance Department is responsible for developing policies and procedures and monitoring compliance with applicable laws and regulations which govern our business operations. Our Information and Cyber Security Department is responsible for maintaining a risk assessment of our information and cyber security risks and ensuring appropriate controls are in place to manage and control such risks, through the use of the National Institute of Standards and Technology framework for improving critical infrastructure by measuring and evaluating the effectiveness of information and cyber security controls. As discussed in more detail under the COVID-19 section of this Report, we have in place various business and emergency continuity plans to respond to different crises and circumstances which include rapid deployment of our Crisis Management Team, Incident Management Team and Business Continuity Coordinators to activate the our plans for various type of emergency circumstance. Further, our audit function performs an independent assessment of our internal controls environment and plays an integral role in testing the operation of the internal controls systems and reporting findings to management and our Audit Committee. Each of the Risk, Audit and Credit Risk and CRA Committees of our Board of Directors regularly report on risk-related matters to the full Board of Directors. In addition, both the Risk Committee of our Board of Directors and our Risk Management Council regularly assess our enterprise-wide risk profile and provide guidance on actions needed to address key and emerging risk issues.
The Board of Directors believes that our enterprise-wide risk management process is effective and enables the Board of Directors to:

assess the quality of the information they receive;
understand the businesses, investments and financial, accounting, legal, regulatory and strategic considerations and the risks that FNB faces;
oversee and assess how senior management evaluates risk; and
assess appropriately the quality of our enterprise-wide risk management process.

92


RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS TO GAAP
Reconciliations of non-GAAP operating measures and key performance indicators discussed in this Report to the most directly comparable GAAP financial measures are included in the following tables.
TABLE 33
Operating net income available to common stockholders
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands)2020201920202019
Net income available to common stockholders$80,766 $100,732 $207,773 $286,026 
COVID-19 expense2,671 — 6,622 — 
Tax benefit of COVID-19 expense(561)— (1,391)— 
Gain on sale of Visa class B stock(13,818)— (13,818)— 
Tax expense of gain on sale of Visa class B stock2,902 — 2,902 — 
Loss on FHLB debt extinguishment and related hedge terminations13,316 — 13,316 — 
Tax benefit of loss on FHLB debt extinguishment and related hedge terminations(2,796)— (2,796)— 
Branch consolidation costs— — 8,262 4,505 
Tax benefit of branch consolidation costs— — (1,735)(946)
Service charge refunds3,780 — 3,780 — 
Tax benefit of service charge refunds(794)— (794)— 
Operating net income available to common stockholders (non-GAAP)$85,466 $100,732 $222,121 $289,585 
The table above shows how operating net income available to common stockholders (non-GAAP) is derived from amounts reported in our financial statements. We believe certain charges, such as branch consolidation costs, service charge refunds and COVID-19 expense, are not organic costs to run our operations and facilities. The branch consolidation charges principally represent expenses to satisfy contractual obligations of the closed branches without any useful ongoing benefit to us. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction. Similarly, gains derived from the sale of Visa class B stock and losses on FHLB debt extinguishment and related hedge terminations are not organic to our operations. The COVID-19 expenses represent special Company initiatives to support our front-line employees and the communities we serve during an unprecedented time of a pandemic.

93


TABLE 34
Operating earnings per diluted common share
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Net income per diluted common share$0.25 $0.31 $0.64 $0.88 
COVID-19 expense0.01 — 0.02 — 
Tax benefit of COVID-19 expense— — — — 
Gain on sale of Visa class B stock(0.04)— (0.04)— 
Tax expense of gain on sale of Visa class B stock0.01 — 0.01 — 
Loss on FHLB debt extinguishment and related hedge terminations0.04 — 0.04 — 
Tax benefit of loss on FHLB debt extinguishment and related hedge terminations(0.01)— (0.01)— 
Branch consolidation costs— — 0.03 0.01 
Tax benefit of branch consolidation costs— — (0.01)— 
Service charge refunds0.01 — 0.01 — 
Tax benefit of service charge refunds— — — — 
Operating earnings per diluted common share (non-GAAP)$0.26 $0.31 $0.68 $0.89 

TABLE 35
Return on average tangible common equity
 Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in thousands)2020201920202019
Net income available to common stockholders (annualized)$321,307 $399,644 $277,536 $382,416 
Amortization of intangibles, net of tax (annualized)10,495 11,289 10,575 11,154 
Tangible net income available to common stockholders (annualized) (non-GAAP)$331,802 $410,933 $288,111 $393,570 
Average total stockholders’ equity$4,915,933 $4,802,717 $4,890,114 $4,725,780 
Less: Average preferred stockholders' equity(106,882)(106,882)(106,882)(106,882)
Less: Average intangible assets (1)
(2,321,352)(2,335,273)(2,324,638)(2,330,850)
Average tangible common equity (non-GAAP)$2,487,699 $2,360,562 $2,458,594 $2,288,048 
Return on average tangible common equity (non-GAAP)13.34 %17.41 %11.72 %17.20 %
(1) Excludes loan servicing rights.

94


TABLE 36
Return on average tangible assets
 Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in thousands)2020201920202019
Net income (annualized)$329,305 $407,619 $285,591 $390,478 
Amortization of intangibles, net of tax (annualized)10,495 11,289 10,575 11,154 
Tangible net income (annualized) (non-GAAP)$339,800 $418,908 $296,166 $401,632 
Average total assets$37,466,706 $33,850,324 $36,318,080 $33,665,297 
Less: Average intangible assets (1)
(2,321,352)(2,335,273)(2,324,638)(2,330,850)
Average tangible assets (non-GAAP)$35,145,354 $31,515,051 $33,993,442 $31,334,447 
Return on average tangible assets (non-GAAP)0.97 %1.33 %0.87 %1.28 %
(1) Excludes loan servicing rights.

TABLE 37
Tangible book value per common share
 Three Months Ended
September 30,
(dollars in thousands, except per share data)20202019
Total stockholders’ equity$4,951,059 $4,820,309 
Less: Preferred stockholders’ equity(106,882)(106,882)
Less: Intangible assets (1)
(2,319,689)(2,332,469)
Tangible common equity (non-GAAP)$2,524,488 $2,380,958 
Ending common shares outstanding323,212,398 324,879,501 
Tangible book value per common share (non-GAAP)$7.81 $7.33 
(1) Excludes loan servicing rights.

TABLE 38
Tangible equity to tangible assets (period-end)
Three Months Ended
September 30,
(dollars in thousands)20202019
Total stockholders' equity$4,951,059 $4,820,309 
Less:  Intangible assets (1)
(2,319,689)(2,332,469)
Tangible equity (non-GAAP)$2,631,370 $2,487,840 
Total assets$37,440,672 $34,328,501 
Less:  Intangible assets (1)
(2,319,689)(2,332,469)
Tangible assets (non-GAAP)$35,120,983 $31,996,032 
Tangible equity / tangible assets (period-end) (non-GAAP)7.49 %7.78 %
(1) Excludes loan servicing rights.

95


TABLE 39
Tangible common equity / tangible assets (period-end)
Three Months Ended
September 30,
(dollars in thousands)20202019
Total stockholders' equity$4,951,059 $4,820,309 
Less:  Preferred stockholders' equity(106,882)(106,882)
Less:  Intangible assets (1)
(2,319,689)(2,332,469)
Tangible common equity (non-GAAP)$2,524,488 $2,380,958 
Total assets$37,440,672 $34,328,501 
Less:  Intangible assets (1)
(2,319,689)(2,332,469)
Tangible assets (non-GAAP)$35,120,983 $31,996,032 
Tangible common equity / tangible assets (period-end) (non-GAAP)7.19 %7.44 %
(1) Excludes loan servicing rights.
TABLE 40
Allowance for credit losses / loans and leases, excluding PPP loans (period-end)
Three Months Ended
September 30,
(dollars in thousands)2020
ACL - loans$372,970 
Loans and leases$25,688,502 
Less:  PPP loans outstanding(2,534,136)
Loans and leases, excluding PPP loans outstanding (non-GAAP)$23,154,366 
ACL loans / loans and leases, excluding PPP loans (non-GAAP)1.61 %




96


Key Performance Indicators
TABLE 41
Pre-provision net revenue to average tangible common equity
Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in thousands)2020201920202019
Net interest income$227,098 $229,802 $687,690 $690,802 
Non-interest income80,038 80,000 226,192 220,225 
Less: Non-interest expense(180,209)(177,784)(551,033)(518,763)
Pre-provision net revenue (as reported)$126,927 $132,018 $362,849 $392,264 
Pre-provision net revenue (as reported) (annualized) $504,948 $523,766 $484,681 $524,456 
Adjustments:
Add: Branch consolidation costs (non-interest income)$— $— $— $1,722 
Add: Service charge refunds (non-interest income)3,780 — 3,780 — 
Less: Gain on sale of Visa class B stock (non-interest income)(13,818)— (13,818)— 
Add: Loss on FHLB debt extinguishment and related hedge terminations (non-interest income)13,316 — 13,316 — 
Add: COVID-19 expense (non-interest expense)2,671 — 6,622 — 
Add: Branch consolidation costs (non-interest expense)— — 8,262 2,783 
Add: Tax credit-related impairment project (non-interest expense)— 3,213 4,101 3,213 
Pre-provision net revenue (operating) (non-GAAP)$132,876 $135,231 $385,112 $399,982 
Pre-provision net revenue (operating) (annualized)
(non-GAAP)
$528,614 $536,514 $514,419 $534,774 
Average total shareholders’ equity$4,915,933 $4,802,717 $4,890,114 $4,725,780 
Less: Average preferred shareholders’ equity(106,882)(106,882)(106,882)(106,882)
Less: Average intangible assets (1)
(2,321,352)(2,335,273)(2,324,638)(2,330,850)
Average tangible common equity (non-GAAP)$2,487,699 $2,360,562 $2,458,594 $2,288,048 
Pre-provision net revenue (reported) / average tangible common equity (non-GAAP)20.30 %22.19 %19.71 %22.92 %
Pre-provision net revenue (operating) / average tangible common equity (non-GAAP)21.25 %22.73 %20.92 %23.37 %
(1) Excludes loan servicing rights.
97


TABLE 42
Efficiency ratio
 Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in thousands)2020201920202019
Non-interest expense$180,209 $177,784 $551,033 $518,763 
Less: Amortization of intangibles(3,339)(3,602)(10,021)(10,560)
Less: OREO expense(1,061)(1,431)(3,347)(3,454)
Less: COVID-19 expense(2,671)— (6,622)— 
Less: Branch consolidation costs— — (8,262)(2,783)
Less: Tax credit-related project impairment— (3,213)(4,101)(3,213)
Adjusted non-interest expense$173,138 $169,538 $518,680 $498,753 
Net interest income$227,098 $229,802 $687,690 $690,802 
Taxable equivalent adjustment3,018 3,528 9,470 10,647 
Non-interest income80,038 80,000 226,192 220,225 
Less: Net securities gains(112)(35)(262)(35)
Less: Gain on sale of Visa class B stock(13,818)— (13,818)— 
Add: Loss on FHLB debt extinguishment and related hedge terminations13,316 — 13,316 — 
Add: Branch consolidation costs— — — 1,722 
Add: Service charge refunds3,780 — 3,780 — 
Adjusted net interest income (FTE) + non-interest income$313,320 $313,295 $926,368 $923,361 
Efficiency ratio (FTE) (non-GAAP)55.26 %54.11 %55.99 %54.01 %

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is provided in the Market Risk section of "MD&A," which is included in Item 2 of this Report, and is incorporated herein by reference.

ITEM 4.    CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. FNB’s management, with the participation of our principal executive and financial officers, evaluated our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective as of such date at the reasonable assurance level as discussed below to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. FNB’s management, including the CEO and the CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within FNB have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.
CHANGES IN INTERNAL CONTROLS. The CEO and the CFO have evaluated the changes to our internal controls over financial reporting that occurred during our fiscal quarter ended September 30, 2020, as required by paragraph (d) of Rules
98


13a–15 and 15d–15 under the Securities Exchange Act of 1934, as amended, and have concluded that there were no such changes that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS
The information required by this Item is set forth in the “Other Legal Proceedings” discussion in Note 12 of the Notes to the Consolidated Financial Statements, which is incorporated herein by reference in response to this Item.

ITEM 1A.    RISK FACTORS
For information regarding risk factors that could affect our results of operations, financial condition and liquidity, see the risk factors disclosed in the “Risk Factors” section of our 2019 Annual Report on Form 10-K. There were no material changes in risk factors relevant to our results of operations, financial condition or liquidity since December 31, 2019, except as discussed below.
The COVID-19 pandemic could adversely affect our business, financial condition and results of operations, and the ultimate impacts of the pandemic on our business, financial condition and results of operations will depend on future developments and other factors that are highly uncertain and will be impacted by the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and U.S. economies and financial markets and is having an adverse effect on our business, financial condition and results of operations. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability. In response to the COVID-19 pandemic, the governments of the states in which we have branch offices, and of most other states, have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes. These restrictions and other consequences of the pandemic have resulted in significant adverse effects for many different types of businesses, and have resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions in which we operate.
The ultimate effects of COVID-19 on the broader economy and the markets that we serve are not known nor is the ultimate length of the restrictions described above and any accompanying effects. Moreover, the FOMC has taken action to lower the Federal Funds rate, which may negatively affect our interest income and, therefore, earnings, financial condition and results of operations. Additional impacts of COVID-19 on our business could be widespread and material, and may include, or exacerbate, among other consequences, the following:

employees, including, key executives, contracting COVID-19;
reductions in our operating effectiveness as our employees work from home;
a work stoppage, forced quarantine, or other interruption of our business;
unavailability of key personnel necessary to conduct our business activities;
effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating our financial reporting and internal controls;
sustained longer-term closures of our branch lobbies or the offices of our customers;
declines in demand for loans and other banking services and products;
reduced consumer spending due to both job losses and other effects attributable to COVID-19;
unprecedented volatility in U.S. financial markets;
volatile performance of our investment securities portfolio;
99


decline in the credit quality of our loan portfolio, owing to the effects of COVID-19 in the markets we serve, leading to a need to increase our ACL and the potential for higher loan losses;
declines in the net worth and liquidity of borrowers and loan guarantors, impairing their ability to honor commitments to us; and
declines in demand resulting from businesses being deemed to be “non-essential” by governments in the markets we serve, and from “non-essential” and “essential” businesses suffering adverse effects from reduced levels of economic activity in our markets.
These factors, together or in combination with other events or occurrences that are not yet known or anticipated, may materially and adversely affect our business, financial condition and results of operations.
The ongoing COVID-19 pandemic has resulted in meaningfully lower stock prices for many companies, including the financial services sector, as well as the trading prices for many other securities. The further spread of the COVID-19 outbreak, as well as ongoing or new governmental, regulatory and private sector responses to the pandemic, may materially disrupt banking and other economic activity generally and in the geographic areas in which we operate. This could result in further decline in demand for our banking products and services, and could negatively impact, among other things, our liquidity, regulatory capital and our growth strategy. Any one or more of these developments could have a material adverse effect on our business, financial condition and results of operations.
We are taking precautions to protect the safety and well-being of our employees and customers. However, no assurance can be given that the steps being taken will be adequate or deemed to be appropriate, nor can we predict the level of disruption which will occur to our employee’s ability to provide customer support and service. If we are unable to recover from a business disruption on a timely basis, our business, financial condition and results of operations could be materially and adversely affected. We may also incur additional costs to remedy damages caused by such disruptions, which could further adversely affect our business, financial condition and results of operations.

As a participating lender in the SBA PPP, we are subject to additional risks of litigation from FNBPA’s clients or other parties regarding FNBPA’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.
On March 27, 2020, President Trump signed the CARES Act, which included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. FNBPA is participating as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP. This ambiguity, along with the continually evolving nature of the SBA rules, interpretations and guidelines concerning this program, exposes us to risks relating to noncompliance with the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress has approved additional funding for the PPP and President Trump signed the new legislation on April 24, 2020. Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. We may be exposed to the risk of litigation, from both clients and non-clients that approached FNBPA regarding PPP loans, regarding our process and procedures used in processing applications for the PPP. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in significant financial liability or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations.
FNBPA also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, underwritten, certified by the borrower, funded, or serviced by FNBPA, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, certified by the borrower, funded, or serviced by FNBPA, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

100


Declines in the fair value of our reporting units could result in a goodwill impairment charge and negatively affect our financial condition and results of operations.
COVID-19 impacts to worldwide economic conditions and the resulting adverse effects to stock market capitalization could negatively impact the carrying amount of goodwill assets. Goodwill is periodically tested for impairment by comparing the fair value of each reporting unit to its carrying amount. If the fair value is greater than the carrying amount, then the reporting unit’s goodwill is deemed not to be impaired. The fair value of a reporting unit is impacted by the reporting unit’s expected financial performance and susceptibility to adverse economic, regulatory and legislative changes. The most significant assumptions affecting our goodwill impairment evaluation are variables including the market price of our common stock, projections of earnings, the discount rates used in the income approach to fair value and the control premium above our current stock price that an acquirer would pay to obtain control of FNB. While these factors provide some relative market information about the estimated fair value of the reporting units, they are not individually determinative and need to be evaluated in the context of the current economic environment. However, significant and sustained declines in our market capitalization or other factors could be an indication of potential goodwill impairment.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. If any estimates, market factors, or assumptions change in the future, these amounts are susceptible to impairments. For additional discussion related to goodwill, refer to Note 7, Goodwill and Other Intangible Assets.
Additional COVID-19 outbreaks, spikes and "second or subsequent" waves may lead to efforts by federal, state and local governments and health authorities to engage in efforts to contain or mitigate the pandemic's impact.
The ongoing COVID-19 global and national health emergency may continue to cause significant disruption in the U.S. economy and the U.S. financial and labor markets by imposing or extending restrictions on movement or business activities. Additionally, the potential expiration of the current fiscal unemployment relief or the failure to provide for additional COVID-19 related stimulus relief may adversely impact our business and financial performance by prolonging the U.S. economic recovery and possibly adversely impact the demand and profitability of our products and services, the valuation of assets and our ability to meet the financial and banking needs of our clients.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 23, 2019, we announced that our Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $150 million of our common stock. The repurchases will be made from time to time on the open market at prevailing market prices or in privately negotiated transactions. The purchases will be funded from available working capital. There is no guarantee as to the exact number of shares that will be repurchased and we may discontinue purchases at any time. There were no repurchases made during the third quarter of 2020. Starting in the fourth quarter of 2020, we repurchased a small amount of shares to compensate for the annual long-term incentive compensation awards.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
NONE
101



ITEM 4.    MINE SAFETY DISCLOSURES
Not Applicable.

ITEM 5.    OTHER INFORMATION
NONE

ITEM 6.    EXHIBITS
Exhibit Index
Exhibit NumberDescription
31.1.
31.2.
32.1.
32.2.
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document (filed herewith).
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LABInline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
104Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

102



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  F.N.B. Corporation
Dated: November 3, 2020 /s/ Vincent J. Delie, Jr.
  Vincent J. Delie, Jr.
  Chairman, President and Chief Executive Officer
  (Principal Executive Officer)
Dated: November 3, 2020 /s/ Vincent J. Calabrese, Jr.
  Vincent J. Calabrese, Jr.
  Chief Financial Officer
  (Principal Financial Officer)
Dated: November 3, 2020 /s/ James L. Dutey
  James L. Dutey
  Corporate Controller
  (Principal Accounting Officer)
103