FNB CORP/PA/ - Quarter Report: 2021 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, 2021


☐			Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-31940

F.N.B. CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania						25-1255406
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One North Shore Center,

12 Federal Street,

Pittsburgh,

15212

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: 800-555-5455

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 Filer	☒	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller reporting company	☐

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Exchange on which Registered

Common Stock, par value $0.01 per share

FNB

New 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

FNBPrE

New 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.


Class	Outstanding at	October 31, 2021
Common Stock, $0.01 Par Value	318,927,908	Shares

F.N.B. CORPORATION

FORM 10-Q

September 30, 2021

INDEX


		PAGE
PART I – FINANCIAL INFORMATION

	Glossary of Acronyms and Terms	4

Item 1.	Financial Statements

	Consolidated Balance Sheets	5
	Consolidated Statements of Income	6
	Consolidated Statements of Comprehensive Income	7
	Consolidated Statements of Stockholders’ Equity	8
	Consolidated Statements of Cash Flows	10
	Notes to Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	90

Item 4.	Controls and Procedures	90

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	90

Item 1A.	Risk Factors	90

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93

Item 3.	Defaults Upon Senior Securities	93

Item 4.	Mine Safety Disclosures	93

Item 5.	Other Information	93

Item 6.	Exhibits	94

Signatures		95

Glossary of Acronyms and Terms

Acronym

Description

Acronym

Description

ACL

Allowance for credit losses

Howard

Howard Bancorp, Inc.

AFS

Available for sale

HTM

Held to maturity

ALCO

Asset/Liability Committee

LGD

Loss given default

AOCI

Accumulated other comprehensive income

LIBOR

London Inter-bank Offered Rate

ASC

Accounting Standards Codification

LIHTC

Low income housing tax credit

ASU

Accounting Standards Update

MD&A

Management's Discussion and Analysis of

Financial Condition and Results of Operations

AULC

Allowance for unfunded loan commitments

MSRs

Mortgage servicing rights

BOLI

Bank owned life insurance

OCC

Office of the Comptroller of the Currency

CARES Act

Coronavirus Aid, Relief and Economic Security Act

OREO

Other real estate owned

CECL

Current expected credit losses

PCD

Purchased credit deteriorated

CET1

Common equity tier 1

PPP

Paycheck Protection Program

COVID-19

Novel coronavirus disease of 2019

R&S

Reasonable and Supportable

EVE

Economic value of equity

RRR

Reference Rate Reform

FASB

Financial Accounting Standards Board

SBA

Small Business Administration

FDIC

Federal Deposit Insurance Corporation

SEC

Securities and Exchange Commission

FHLB

Federal Home Loan Bank

SOFR

Secured Overnight Financing Rate

FNB

F.N.B. Corporation

TDR

Troubled debt restructuring

FNBPA

First National Bank of Pennsylvania

TPS

Trust preferred securities

FRB

Board of Governors of the Federal Reserve

System

U.S.

United States of America

FTE

Fully taxable equivalent

UST

U.S. Department of the Treasury

GAAP

U.S. generally accepted accounting principles

VIE

Variable interest entity

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, 2021		December 31, 2020
	(Unaudited)
Assets
Cash and due from banks	$	402	$	369
Interest-bearing deposits with banks	3,708		1,014
Cash and Cash Equivalents	4,110		1,383
Debt securities available for sale (amortized cost of $3,162 and $3,380; allowance for credit losses of $0 and $0)	3,208		3,463
Debt securities held to maturity (fair value of $3,267 and $2,973; allowance for credit losses of $0 and $0)	3,202		2,868
Loans held for sale (includes $227 and $144 measured at fair value) (1)	253		154
Loans and leases, net of unearned income of $51 and $77	24,716		25,459
Allowance for credit losses on loans and leases	(349)		(363)
Net Loans and Leases	24,367		25,096
Premises and equipment, net	342		332
Goodwill	2,262		2,262
Core deposit and other intangible assets, net	45		54
Bank owned life insurance	545		549
Other assets	1,027		1,193
Total Assets	$	39,361	$	37,354
Liabilities
Deposits:
Non-interest-bearing demand	$	10,502	$	9,042
Interest-bearing demand	14,360		13,157
Savings	3,537		3,261
Certificates and other time deposits	3,045		3,662
Total Deposits	31,444		29,122
Short-term borrowings	1,563		1,804
Long-term borrowings	886		1,095

Other liabilities	370		374
Total Liabilities	34,263		32,395
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 – 329,449,382 and 328,057,368 shares	3		3
Additional paid-in capital	4,106		4,087
Retained earnings	1,051		869
Accumulated other comprehensive loss	(52)		(39)
Treasury stock – 10,527,766 and 6,427,839 shares at cost	(117)		(68)
Total Stockholders’ Equity	5,098		4,959
Total Liabilities and Stockholders’ Equity	$	39,361	$	37,354

(1)Amount represents loans for which we have elected the fair value option. See Note 18.

See accompanying Notes to Consolidated Financial Statements (unaudited)

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,
	2021		2020		2021		2020
Interest Income
Loans and leases, including fees	$	226	$	239	$	671	$	750
Securities:
Taxable	22		25		65		84
Tax-exempt	7		8		22		24

Other	1		1		2		2
Total Interest Income	256		273		760		860
Interest Expense
Deposits	11		27		38		111
Short-term borrowings	7		9		21		31
Long-term borrowings	6		10		18		30
Total Interest Expense	24		46		77		172
Net Interest Income	232		227		683		688
Provision for credit losses	(2)		27		3		105
Net Interest Income After Provision for Credit Losses	234		200		680		583
Non-Interest Income
Service charges	31		24		89		78
Trust services	10		8		28		23
Insurance commissions and fees	7		7		20		19
Securities commissions and fees	5		5		17		13
Capital markets income	12		8		27		32
Mortgage banking operations	8		18		31		34
Dividends on non-marketable equity securities	2		2		7		10
Bank owned life insurance	3		4		11		11

Loss on debt extinguishment	—		(4)		—		(4)
Other	10		8		21		10
Total Non-Interest Income	88		80		251		226
Non-Interest Expense
Salaries and employee benefits	105		100		314		298
Net occupancy	13		14		45		49
Equipment	18		17		52		49
Amortization of intangibles	3		3		9		10
Outside services	18		16		54		50

FDIC insurance	4		4		13		15
Bank shares and franchise taxes	3		4		11		12
Merger-related	1		—		1		—

Other	19		22		52		68
Total Non-Interest Expense	184		180		551		551
Income Before Income Taxes	138		100		380		258
Income taxes	27		17		74		44
Net Income	111		83		306		214
Preferred stock dividends	2		2		6		6
Net Income Available to Common Stockholders	$	109	$	81	$	300	$	208
Earnings per Common Share
Basic	$	0.34	$	0.25	$	0.94	$	0.64
Diluted	0.34		0.25		0.93		0.64

See accompanying Notes to Consolidated Financial Statements (unaudited)

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,
	2021		2020		2021		2020
Net income	$	111	$	83	$	306	$	214
Other comprehensive income (loss):
Securities available for sale:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $(3), $(1), $(8) and $18	(10)		(3)		(29)		63


Derivative instruments:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $0, $2, $1 and $(9)	(1)		8		3		(32)
Reclassification adjustment for gains included in net income, net of tax expense of $1, $1, $3 and $2	4		4		11		7
Pension and postretirement benefit obligations:
Unrealized gains arising during the period, net of tax expense of $1, $0, $1 and $0	1		—		2		1
Other Comprehensive Income (Loss)	(6)		9		(13)		39
Comprehensive Income	$	105	$	92	$	293	$	253

See accompanying Notes to Consolidated Financial Statements (unaudited)

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, 2020
Balance at beginning of period	$	107	$	3	$	4,081	$	796	$	(35)	$	(55)	$	4,897
Comprehensive income							83		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 compensation					2								2


Balance at end of period	$	107	$	3	$	4,084	$	838	$	(26)	$	(55)	$	4,951
Three Months Ended September 30, 2021
Balance at beginning of period	$	107	$	3	$	4,101	$	981	$	(46)	$	(109)	$	5,037
Comprehensive income							111		(6)				105
Dividends declared:
Preferred stock: $18.13/share							(2)						(2)
Common stock: $0.12/share							(39)						(39)
Issuance of common stock			—		—		—				(1)		(1)

Repurchase of common stock											(7)		(7)

Restricted stock compensation					5								5


Balance at end of period	$	107	$	3	$	4,106	$	1,051	$	(52)	$	(117)	$	5,098


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
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 compensation					13								13

Adoption of new accounting standards							(50)		—				(50)
Balance at end of period	$	107	$	3	$	4,084	$	838	$	(26)	$	(55)	$	4,951
Nine Months Ended September 30, 2021
Balance at beginning of period	$	107	$	3	$	4,087	$	869	$	(39)	$	(68)	$	4,959
Comprehensive income							306		(13)				293
Dividends declared:
Preferred stock: $54.39/share							(6)						(6)
Common stock: $0.36/share							(117)						(117)
Issuance of common stock			—		3		(1)				(6)		(4)

Repurchase of common stock											(43)		(43)

Restricted stock compensation					16								16

Balance at end of period	$	107	$	3	$	4,106	$	1,051	$	(52)	$	(117)	$	5,098

See accompanying Notes to Consolidated Financial Statements (unaudited)

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

Unaudited


	Nine Months Ended September 30,
	2021		2020
Operating Activities
Net income	$	306	$	214
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation, amortization and accretion	(1)		5
Provision for credit losses	3		105
Deferred tax expense (benefit)	8		(24)


Loans originated for sale	(1,593)		(1,351)
Loans sold	1,533		1,258
Net gain on sale of loans	(39)		(28)
Net change in:
Interest receivable	14		18
Interest payable	(5)		(7)
Bank owned life insurance, excluding purchases	4		(6)
Other, net	154		(265)
Net cash flows provided by (used in) operating activities	384		(81)
Investing Activities
Net change in loans and leases, excluding sales and transfers	800		(2,809)
Debt securities available for sale:
Purchases	(1,207)		(1,168)

Maturities/payments	1,415		1,429
Debt securities held to maturity:
Purchases	(993)		(163)

Maturities/payments	652		469


Increase in premises and equipment	(43)		(33)


Other, net	—		1
Net cash flows provided by (used in) investing activities	624		(2,274)
Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts	2,939		4,753
Time deposits	(617)		(702)
Short-term borrowings	(240)		(1,316)
Proceeds from issuance of long-term borrowings	18		322
Repayment of long-term borrowings	(227)		(266)
Repurchases of common stock	(43)		(25)
Cash dividends paid:
Preferred stock	(6)		(6)
Common stock	(117)		(118)
Other, net	12		14
Net cash flows provided by financing activities	1,719		2,656
Net Increase in Cash and Cash Equivalents	2,727		301
Cash and cash equivalents at beginning of period	1,383		599
Cash and Cash Equivalents at End of Period	$	4,110	$	900

See accompanying Notes to Consolidated Financial Statements (unaudited)

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2021

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, 2021, we had 332 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina, Washington D.C. 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, F.N.B. Capital Corporation, LLC and Waubank Securities, 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 or the cost method when we do not 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. Events occurring subsequent to September 30, 2021 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 SEC.

Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results FNB expects for the full year. These interim unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021.

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, fair value of financial instruments, goodwill and other intangible assets, income taxes and deferred tax assets and litigation reserves, which are listed in the critical accounting estimates. For a detailed description of our significant accounting policies and critical accounting estimates, see Note 1, "Summary of Significant Accounting Policies" and the "Application of Critical Accounting Policies" section in the MD&A, both in our 2020 Annual Report on Form 10-K.

NOTE 2. NEW ACCOUNTING STANDARDS

The following table summarizes accounting pronouncements issued by the FASB that we recently adopted.

TABLE 2.1

Standard

Description

Financial Statements Impact

Reference Rate Reform

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

ASU 2021-01, Reference Rate Reform (Topic 848): Scope

These Updates provide temporary optional expedients and exceptions for applying GAAP to financial contracts, hedging relationships and other transactions affected by RRR if certain criteria are met.

The following optional expedients, exceptions and elections are permitted for certain contracts that are modified because of RRR and meet certain scope guidance:

•Contract modifications may be accounted for prospectively as a continuation of existing contracts rather than a new contract without re-measurement or reassessment of significant contract amendments

•modifications of leases to be accounted for as a continuation of the existing contracts without reassessment of lease classification and discount rate or re-measurement of lease payments

•to not reassess the original conclusion about whether a contract contains an embedded derivative that is clearly and closely related to the host contract

•changes to critical terms of hedging relationships, on a hedge-by-hedge basis, without designation of the hedging relationship and various practical expedients and elections designed to allow hedge accounting to continue uninterrupted

•modifications of certain derivatives modified to change the rate used for margining, discounting or contract price alignment.

For securities affected by RRR that were classified as HTM before January 1, 2020, the Updates also allow an entity to make a one-time election to sell and/or transfer these securities to AFS or Trading.

RRR Updates are effective for all entities from the beginning of an interim period that includes or is subsequent to March 12, 2020 and terminates on December 31, 2022 on a full retrospective or prospective basis.

Although we do not expect RRR to have a material accounting impact on our consolidated financial position or results of operations, the Updates will ease the administrative burden in accounting for the effects of RRR.

We adopted these updates on October 1, 2020 by retrospective application. The adoption did not have a material impact on our consolidated financial position or results of operations.

We will continue to assess the impact of adoption through the termination date of these Updates on December 31, 2022.

NOTE 3. SECURITIES

The amortized cost and fair value of AFS debt securities are presented in the table below. There was no ACL in the AFS portfolio at September 30, 2021 and December 31, 2020. Accrued interest receivable on AFS debt securities totaled $5.8 million and $6.2 million at September 30, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses and assessed 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, 2021
U.S. Treasury	$	49	$	—	$	—	$	49
U.S. government agencies	152		2		—		154
U.S. government-sponsored entities	170		1		(1)		170
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,286		26		(1)		1,311
Agency collateralized mortgage obligations	1,171		18		(6)		1,183

Commercial mortgage-backed securities	299		8		(1)		306
States of the U.S. and political subdivisions (municipals)	33		—		—		33
Other debt securities	2		—		—		2
Total debt securities AFS	$	3,162	$	55	$	(9)	$	3,208


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities AFS:
December 31, 2020
U.S. Treasury	$	600	$	—	$	—	$	600
U.S. government agencies	172		—		—		172
U.S. government-sponsored entities	160		1		—		161
Residential mortgage-backed securities:
Agency mortgage-backed securities	959		35		—		994
Agency collateralized mortgage obligations	1,094		31		(1)		1,124

Commercial mortgage-backed securities	361		17		—		378
States of the U.S. and political subdivisions (municipals)	32		—		—		32
Other debt securities	2		—		—		2
Total debt securities AFS	$	3,380	$	84	$	(1)	$	3,463

The amortized cost and fair value of HTM debt securities are presented in the table below. The ACL for the HTM municipal bond portfolio was $0.06 million and $0.04 million at September 30, 2021 and December 31, 2020, respectively. Accrued interest receivable on HTM debt securities totaled $10.9 million and $12.5 million at September 30, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses and assessed 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 HTM debt securities.

TABLE 3.2


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities HTM:
September 30, 2021
U.S. Treasury	$	1	$	—	$	—	$	1
U.S. government agencies	1		—		—		1
U.S. government-sponsored entities	20		—		—		20
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,174		21		(2)		1,193
Agency collateralized mortgage obligations	690		9		(4)		695

Commercial mortgage-backed securities	284		5		(2)		287
States of the U.S. and political subdivisions (municipals)	1,032		39		(1)		1,070
Total debt securities HTM	$	3,202	$	74	$	(9)	$	3,267


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities HTM:
December 31, 2020
U.S. Treasury	$	1	$	—	$	—	$	1
U.S. government agencies	1		—		—		1
U.S. government-sponsored entities	120		1		—		121
Residential mortgage-backed securities:
Agency mortgage-backed securities	769		29		—		798
Agency collateralized mortgage obligations	562		17		—		579

Commercial mortgage-backed securities	307		10		—		317
States of the U.S. and political subdivisions (municipals)	1,108		48		—		1,156
Total debt securities HTM	$	2,868	$	105	$	—	$	2,973

There were no significant gross gains or gross losses realized on securities during the nine months ended September 30, 2021 or 2020.

As of September 30, 2021, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:

TABLE 3.3


	Available for Sale				Held to Maturity
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	45	$	46	$	21	$	21
Due after one year but within five years	194		194		22		22
Due after five years but within ten years	103		103		122		125
Due after ten years	64		65		889		924
	406		408		1,054		1,092
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,286		1,311		1,174		1,193
Agency collateralized mortgage obligations	1,171		1,183		690		695

Commercial mortgage-backed securities	299		306		284		287
Total debt securities	$	3,162	$	3,208	$	3,202	$	3,267

Actual maturities may differ from contractual terms because security issuers may have the right to call or prepay obligations with or without penalties. Periodic principal 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 3.4


(dollars in millions)	September 30, 2021			December 31, 2020
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law	$	5,714		$	5,384
As collateral for short-term borrowings	412			402
Securities pledged as a percent of total securities	95.6		%	91.4		%

At September 30, 2021, 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.

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 security type and length of continuous loss position:

TABLE 3.5


	Less than 12 Months					12 Months or More					Total
(dollars in millions)	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Debt Securities AFS
September 30, 2021
U.S. Treasury	1	$	49	$	—	—	$	—	$	—	1	$	49	$	—
U.S. government agencies	—	—		—		9	9		—		9	9		—
U.S. government-sponsored entities	3	74		(1)		—	—		—		3	74		(1)
Residential mortgage-backed securities:
Agency mortgage-backed securities	9	428		(1)		—	—		—		9	428		(1)
Agency collateralized mortgage obligations	14	534		(6)		—	—		—		14	534		(6)

Commercial mortgage-backed securities	3	91		(1)		—	—		—		3	91		(1)
States of the U.S. and political subdivisions (municipals)	5	11		—		—	—		—		5	11		—
Other debt securities	—	—		—		1	2		—		1	2		—
Total	35	$	1,187	$	(9)	10	$	11	$	—	45	$	1,198	$	(9)
	Less than 12 Months					12 Months or More					Total
(dollars in millions)	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Debt Securities AFS
December 31, 2020
U.S. government agencies	1	$	13	$	—	16	$	69	$	—	17	$	82	$	—
U.S. government-sponsored entities	1	25		—		—	—		—		1	25		—
Residential mortgage-backed securities:

Agency collateralized mortgage obligations	5	130		(1)		—	—		—		5	130		(1)



Other debt securities	—	—		—		1	2		—		1	2		—
Total	7	$	168	$	(1)	17	$	71	$	—	24	$	239	$	(1)

We evaluated the AFS debt securities that were in an unrealized loss position at September 30, 2021. 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 and does not reflect any expected credit losses. 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 and the most recent financial information to help evaluate the credit quality of our credit-related AFS and HTM securities portfolios. Management reviews the credit profile of each issuer on a quarterly basis. Based on the nature of the issuers and current conditions, we have determined that securities backed by the UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA have zero expected credit loss.

Our municipal bond portfolio, with a carrying amount of $1.1 billion as of September 30, 2021 is highly rated with an average rating of AA and 100% of the portfolio having an A or better rating. All of the securities in the municipal portfolio are general obligation bonds. Geographically, municipal bonds support our primary footprint as 63% 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, 60% of the municipal bonds have some formal credit enhancement (e.g., insurance) that strengthens the creditworthiness of the bond.

The ACL on the HTM municipal bond portfolio is calculated on each bond using:

•The bond’s underlying credit rating, time to maturity and exposure amount;

•Credit enhancements that improve the bond’s credit rating (e.g., insurance); and

•Moody’s U.S. Bond Defaults and Recoveries, 1970-2020 study.

By using these components, we derive the expected credit loss on the HTM general obligation bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our Commercial and Industrial Non-Manufacturing loan portfolio forecast adjustment as derived through our assessment of the loan portfolio as a proxy for our municipal bond portfolio.

For the year-to-date periods ending September 30, 2021 and 2020, we had no significant provision expense and no charge-offs or recoveries. The ACL on the HTM portfolio was $0.06 million and $0.04 million as of September 30, 2021 and December 31, 2020, respectively. No other securities portfolios had an ACL. At September 30, 2021 and December 31, 2020, there were no securities that were past due or on non-accrual.

NOTE 4. LOANS AND LEASES

Accrued interest receivable on loans and leases, which totaled $51.4 million at September 30, 2021 and $62.9 million at December 31, 2020, is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets for both periods and not included in the tables below. Upon adoption of CECL on January 1, 2020, 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. The remaining noncredit discount was $34.2 million and $50.9 million at September 30, 2021 and December 31, 2020, respectively.

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, 2021		December 31, 2020
Commercial real estate	$	9,871	$	9,731
Commercial and industrial	5,960		7,214
Commercial leases	489		485
Other	81		40
Total commercial loans and leases	16,401		17,470
Direct installment	2,250		2,020
Residential mortgages	3,588		3,433
Indirect installment	1,230		1,218
Consumer lines of credit	1,247		1,318
Total consumer loans	8,315		7,989
Total loans and leases, net of unearned income	$	24,716	$	25,459

The loans and leases portfolio categories are comprised of the following types of loans, where in each case the LGD 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 operational cash flows on owner-occupied properties or 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. PPP loans are included in the commercial and industrial category and comprise $0.7 billion and $2.2 billion of this category's outstanding balance at September 30, 2021 and December 31, 2020, respectively. The PPP loans are 100% guaranteed by the SBA, which provides a reduced risk of loss to us on these loans;

•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.

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.

The following table shows occupancy information relating to commercial real estate loans:

TABLE 4.2


(dollars in millions)	September 30, 2021		December 31, 2020
Commercial real estate:
Percent owner-occupied	28.2	%	28.1	%
Percent non-owner-occupied	71.8		71.9

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 Category			Definition
Pass			in general, the condition of the borrower and the performance of the loan is satisfactory or better

Special Mention			in general, the condition of the borrower has deteriorated, requiring an increased level of monitoring

Substandard			in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected

Doubtful			in 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 a basis which is then impacted by quantitative inputs from our econometric model forecasts over the R&S period. 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.

The following tables summarize the designated loan rating category by loan class including term loans on an amortized cost basis by origination year:

TABLE 4.4


September 30, 2021	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
Pass	$	1,290	$	1,817	$	1,706	$	964	$	797	$	2,385	$	148	$	9,107
Special Mention	15		16		45		111		115		175		2		479
Substandard	—		8		34		38		44		158		3		285

Total commercial real estate	1,305		1,841		1,785		1,113		956		2,718		153		9,871
Commercial and Industrial:
Risk Rating:
Pass	1,500		980		788		422		200		293		1,335		5,518
Special Mention	—		31		15		5		18		64		35		168
Substandard	2		6		22		61		65		21		97		274

Total commercial and industrial	1,502		1,017		825		488		283		378		1,467		5,960
Commercial Leases:
Risk Rating:
Pass	139		124		107		58		43		2		—		473
Special Mention	—		—		—		2		3		2		—		7
Substandard	—		4		3		2		—		—		—		9

Total commercial leases	139		128		110		62		46		4		—		489
Other Commercial:
Risk Rating:
Pass	23		—		—		—		—		9		49		81

Substandard	—		—		—		—		—		—		—		—

Total other commercial	23		—		—		—		—		9		49		81
Total commercial	2,969		2,986		2,720		1,663		1,285		3,109		1,669		16,401

CONSUMER
Direct Installment:
Current	707		585		240		141		106		458		—		2,237
Past due	—		—		1		1		—		11		—		13
Total direct installment	707		585		241		142		106		469		—		2,250
Residential Mortgages:
Current	996		986		445		167		240		715		2		3,551
Past due	—		2		4		4		3		24		—		37
Total residential mortgages	996		988		449		171		243		739		2		3,588
Indirect Installment:
Current	415		290		180		210		80		45		—		1,220
Past due	2		2		2		2		1		1		—		10
Total indirect installment	417		292		182		212		81		46		—		1,230
Consumer Lines of Credit:
Current	13		3		4		6		3		126		1,078		1,233
Past due	—		—		—		—		—		12		2		14
Total consumer lines of credit	13		3		4		6		3		138		1,080		1,247
Total consumer	2,133		1,868		876		531		433		1,392		1,082		8,315
Total loans and leases	$	5,102	$	4,854	$	3,596	$	2,194	$	1,718	$	4,501	$	2,751	$	24,716


December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
Pass	$	1,879	$	1,854	$	1,135	$	927	$	888	$	1,911	$	163	$	8,757
Special Mention	9		30		80		158		70		163		4		514
Substandard	4		32		29		81		116		192		6		460

Total commercial real estate	1,892		1,916		1,244		1,166		1,074		2,266		173		9,731
Commercial and Industrial:
Risk Rating:
Pass	3,286		1,007		590		304		120		311		1,095		6,713
Special Mention	30		23		13		28		10		35		79		218
Substandard	8		26		65		44		6		37		97		283

Total commercial and industrial	3,324		1,056		668		376		136		383		1,271		7,214
Commercial Leases:
Risk Rating:
Pass	178		134		83		56		5		3		—		459
Special Mention	1		1		4		4		1		2		—		13
Substandard	7		2		2		1		1		—		—		13

Total commercial leases	186		137		89		61		7		5		—		485
Other Commercial:
Risk Rating:
Pass	—		—		—		—		—		4		35		39

Substandard	—		—		—		—		—		1		—		1

Total other commercial	—		—		—		—		—		5		35		40
Total commercial	5,402		3,109		2,001		1,603		1,217		2,659		1,479		17,470

CONSUMER
Direct Installment:
Current	706		337		200		143		171		442		1		2,000
Past due	—		1		2		1		2		14		—		20
Total direct installment	706		338		202		144		173		456		1		2,020
Residential Mortgages:
Current	1,079		707		283		378		330		603		1		3,381
Past due	1		5		7		4		6		29		—		52
Total residential mortgages	1,080		712		290		382		336		632		1		3,433
Indirect Installment:
Current	372		260		332		147		67		27		—		1,205
Past due	1		3		4		2		2		1		—		13
Total indirect installment	373		263		336		149		69		28		—		1,218
Consumer Lines of Credit:
Current	4		7		8		3		5		127		1,146		1,300
Past due	—		—		—		—		—		15		3		18
Total consumer lines of credit	4		7		8		3		5		142		1,149		1,318
Total consumer	2,163		1,320		836		678		583		1,258		1,151		7,989
Total loans and leases	$	7,565	$	4,429	$	2,837	$	2,281	$	1,800	$	3,917	$	2,630	$	25,459

We use delinquency transition matrices within the consumer and other loan classes to establish the basis for the R&S 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.

Non-Performing and Past Due

The following tables provide an analysis of the aging of loans by class.

TABLE 4.5


(in millions)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans and Leases		Non-accrual with No ACL
September 30, 2021
Commercial real estate	$	6	$	—	$	55	$	61	$	9,810	$	9,871	$	20
Commercial and industrial	13		—		23		36		5,924		5,960		4
Commercial leases	4		—		1		5		484		489		—
Other	—		—		1		1		80		81		—
Total commercial loans and leases	23		—		80		103		16,298		16,401		24
Direct installment	4		1		8		13		2,237		2,250		—
Residential mortgages	18		5		14		37		3,551		3,588		—
Indirect installment	8		—		2		10		1,220		1,230		—
Consumer lines of credit	6		2		6		14		1,233		1,247		—
Total consumer loans	36		8		30		74		8,241		8,315		—
Total loans and leases	$	59	$	8	$	110	$	177	$	24,539	$	24,716	$	24


(in millions)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans and Leases		Non-accrual with No ACL
December 31, 2020
Commercial real estate	$	13	$	—	$	85	$	98	$	9,633	$	9,731	$	36
Commercial and industrial	8		—		44		52		7,162		7,214		16
Commercial leases	2		—		2		4		481		485		—
Other	—		—		1		1		39		40		—
Total commercial loans and leases	23		—		132		155		17,315		17,470		52
Direct installment	7		2		11		20		2,000		2,020		—
Residential mortgages	23		11		18		52		3,381		3,433		—
Indirect installment	10		1		2		13		1,205		1,218		—
Consumer lines of credit	9		2		7		18		1,300		1,318		—
Total consumer loans	49		16		38		103		7,886		7,989		—
Total loans and leases	$	72	$	16	$	170	$	258	$	25,201	$	25,459	$	52

Following is a summary of non-performing assets:

TABLE 4.6


(dollars in millions)	September 30, 2021			December 31, 2020
Non-accrual loans	$	110		$	170
Total non-performing loans	110			170
Other real estate owned	8			10
Total non-performing assets	$	118		$	180
Asset quality ratios:
Non-performing loans / total loans and leases	0.45		%	0.67		%
Non-performing assets + 90 days past due + OREO / total loans and leases + OREO	0.51			0.77

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 $1.1 million at September 30, 2021 and $2.5 million at December 31, 2020. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at September 30, 2021 and December 31, 2020 totaled $6.3 million and $8.2 million, respectively. During 2020 and 2021, we extended the residential mortgage foreclosure moratorium beyond the requirements for government-backed loans, under the CARES Act, to all residential mortgage loan customers.

Approximately $40 million of commercial loans are collateral dependent at September 30, 2021. 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.

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 bank regulatory 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, 2021, we had $54 million in loans that have been granted short-term modifications as a result of financial disruptions associated with the COVID-19 pandemic, compared to $397 million as of December 31, 2020 and $2.4 billion as of June 30, 2020, the highest point during the pandemic. Also, consistent with the CARES Act and the interagency bank regulatory guidelines, such modifications are not included in our TDR totals.

Following is a summary of the composition of total TDRs:

TABLE 4.7


(in millions)	September 30, 2021		December 31, 2020
Accruing	$	58	$	58
Non-accrual	35		33
Total TDRs	$	93	$	91

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, 2021, we returned to accruing status $7.8 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 $1.4 million at September 30, 2021 compared to $2.8 million at December 31, 2020, and pooled reserves for individual loans of $1.8 million and $2.5 million for those same periods, respectively, based on loan segment LGD. 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 LGD. Our ACL included pooled reserves for these classes of loans of $3.8 million for September 30, 2021 and $4.1 million for December 31, 2020. Upon default of an individual loan, our charge-off policy is followed for that class of loan.

Following is a summary of TDR loans, by class, for loans that were modified during the periods indicated:

TABLE 4.8


	Three Months Ended September 30, 2021					Nine Months Ended September 30, 2021
(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	5	$	2	$	2	21	$	20	$	20
Commercial and industrial	3	—		—		8	1		—
Other	1	—		—		1	—		—
Total commercial loans	9	2		2		30	21		20
Direct installment	8	—		—		26	1		1
Residential mortgages	12	2		2		15	2		2

Consumer lines of credit	7	—		—		31	2		2
Total consumer loans	27	2		2		72	5		5
Total	36	$	4	$	4	102	$	26	$	25


	Three Months Ended September 30, 2020					Nine 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 estate	7	$	2	$	2	23	$	8	$	6
Commercial and industrial	4	—		—		19	3		2
Other	—	—		—		1	—		—
Total commercial loans	11	2		2		43	11		8
Direct installment	14	1		1		50	3		3
Residential mortgages	2	1		1		18	3		2

Consumer lines of credit	9	—		—		36	1		1
Total consumer loans	25	2		2		104	7		6
Total	36	$	4	$	4	147	$	18	$	14

The year-to-date items in the above tables have been adjusted for loans that have been paid off and/or sold.

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 4.9


	Three Months Ended September 30, 2021			Nine Months Ended September 30, 2021
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment

Commercial and industrial	—	$	—	1	$	—
Total commercial loans	—	—		1	—
Direct installment	1	—		1	—
Residential mortgages	—	—		1	—


Total consumer loans	1	—		2	—
Total	1	$	—	3	$	—


	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 industrial	1	—		3	—
Total commercial loans	1	—		11	3
Direct installment	4	—		12	1
Residential mortgages	—	—		2	—

Consumer lines of credit	1	—		3	—
Total consumer loans	5	—		17	1
Total	6	$	—	28	$	4

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 losses. The CECL model takes into consideration the expected credit 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 purchased credit impaired (PCD under CECL) loan balances and the ACL of $50 million. Included in the CECL adoption impact was a Day 1 increase to our AULC of $10 million.

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.

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		Recoveries		Net Charge- Offs		Provision for Credit Losses		Balance at End of Period
Three Months Ended September 30, 2021
Commercial real estate	$	176	$	(3)	$	2	$	(1)	$	(14)	$	161
Commercial and industrial	81		(2)		2		—		6		87
Commercial leases	16		—		—		—		—		16
Other	1		—		—		—		1		2
Total commercial loans and leases	274		(5)		4		(1)		(7)		266
Direct installment	27		(1)		—		(1)		—		26
Residential mortgages	33		—		—		—		—		33
Indirect installment	12		—		—		—		1		13
Consumer lines of credit	11		(1)		1		—		—		11
Total consumer loans	83		(2)		1		(1)		1		83
Total allowance for credit losses on loans and leases	357		(7)		5		(2)		(6)		349
Allowance for unfunded loan commitments	14		—		—		—		4		18
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	371	$	(7)	$	5	$	(2)	$	(2)	$	367
Nine Months Ended September 30, 2021
Commercial real estate	$	181	$	(9)	$	5	$	(4)	$	(16)	$	161
Commercial and industrial	81		(11)		4		(7)		13		87
Commercial leases	17		—		1		1		(2)		16
Other	1		(2)		1		(1)		2		2
Total commercial loans and leases	280		(22)		11		(11)		(3)		266
Direct installment	26		(1)		—		(1)		1		26
Residential mortgages	34		—		—		—		(1)		33
Indirect installment	11		(3)		2		(1)		3		13
Consumer lines of credit	12		(1)		1		—		(1)		11
Total consumer loans	83		(5)		3		(2)		2		83
Total allowance for credit losses on loans and leases	363		(27)		14		(13)		(1)		349
Allowance for unfunded loan commitments	14		—		—		—		4		18
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	377	$	(27)	$	14	$	(13)	$	3	$	367


(in millions)	Balance at Beginning of Period		Charge- Offs		Recoveries		Net Charge- Offs		Provision for Credit Losses		ASC 326 Adoption Impact		Initial ACL on PCD Loans		Balance at End of Period
Three Months Ended September 30, 2020
Commercial real estate	$	163	$	(3)	$	1	$	(2)	$	23	$	—	$	—	$	184
Commercial and industrial	98		(17)		1		(16)		11		—		—		93
Commercial leases	17		—		—		—		—		—		—		17
Other	1		(1)		—		(1)		1		—		—		1
Total commercial loans and leases	279		(21)		2		(19)		35		—		—		295
Direct installment	25		—		—		—		(1)		—		—		24
Residential mortgages	33		(1)		1		—		(2)		—		—		31
Indirect installment	17		(1)		1		—		(5)		—		—		12
Consumer lines of credit	11		—		—		—		—		—		—		11
Total consumer loans	86		(2)		2		—		(8)		—		—		78
Total allowance for credit losses on loans and leases	365		(23)		4		(19)		27		—		—		373
Allowance for unfunded loan commitments (1)	15		—		—		—		—		—		—		15
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	380	$	(23)	$	4	$	(19)	$	27	$	—	$	—	$	388
Nine Months Ended September 30, 2020
Commercial real estate	$	60	$	(8)	$	6	$	(2)	$	48	$	38	$	40	$	184
Commercial and industrial	53		(25)		3		(22)		50		8		4		93
Commercial leases	11		—		—		—		6		—		—		17
Other	9		(3)		—		(3)		4		(9)		—		1
Total commercial loans and leases	133		(36)		9		(27)		108		37		44		295
Direct installment	13		(1)		—		(1)		1		10		1		24
Residential mortgages	22		(1)		1		—		(1)		6		4		31
Indirect installment	19		(6)		3		(3)		(6)		2		—		12
Consumer lines of credit	9		(2)		—		(2)		3		—		1		11
Total consumer loans	63		(10)		4		(6)		(3)		18		6		78
Total allowance for credit losses on loans and leases	196		(46)		13		(33)		105		55		50		373
Allowance for unfunded loan commitments (1)	3		—		—		—		2		10		—		15
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	199	$	(46)	$	13	$	(33)	$	107	$	65	$	50	$	388
(1) The net benefit of $0.3 million for the quarter and $2 million for the year-to-date provision for the AULC is included in other non-interest expense on the Consolidated Statements of Income.

Following is a summary of changes in the AULC by portfolio segment:

TABLE 5.2


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
(in millions)
Balance at beginning of period	$	14	$	15	$	14	$	3
Provision for unfunded loan commitments and letters of credit:
Commercial portfolio	4		—		4		—
Consumer portfolio	—		—		—		—
Other adjustments:
Commercial portfolio	—		—		—		2

ASC 326 adoption impact:
Commercial portfolio	—		—		—		8
Consumer portfolio	—		—		—		2
Balance at end of period	$	18	$	15	$	18	$	15

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 on the ACL

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 utilized a third-party pandemic recessionary scenario from the first quarter of 2020 through the third quarter of 2020 for ACL modeling purposes. At September 30, 2021 and December 31, 2020, we utilized a third-party consensus macroeconomic forecast due to the improving macroeconomic environment. Macroeconomic variables that we utilized from this scenario for our ACL calculation as of December 31, 2020 included, but were not limited to: (i) gross domestic product, which reflects growth of 4% in 2021, (ii) the Dow Jones Total Stock Market Index, which grows steadily throughout the R&S forecast period, (iii) unemployment, which steadily declines and averages 6% over the R&S forecast period and (iv) the Volatility Index, which remains stable over the R&S forecast period. For our ACL calculation at September 30, 2021, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which reflects growth of 6.1% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which reflects growth of 9.5% over our R&S forecast period, (iii) S&P Volatility, which increases 7.7% in 2022 before declining 2.7% in 2023 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical levels. While we have not changed our ACL modeling methodology, we continually assess our key macroeconomic variables and their correlation to our historical and expected portfolio performance. During the quarter, we changed certain macroeconomic variables used for ACL modeling purposes as the new variables better correlate to our historical performance over the economic cycles.

The ACL of $349.3 million at September 30, 2021 decreased $13.9 million, or 3.8%, from December 31, 2020 due to the improving macroeconomic environment and positive credit quality trends. Our ending ACL coverage ratio at September 30, 2021 was 1.41%, compared to 1.43% at December 31, 2020. Total provision for credit losses for the three months ended September 30, 2021 was a net benefit of $1.8 million. Net charge-offs were $1.6 million during the three months ended September 30, 2021, compared to $19.3 million during the three months ended September 30, 2020, reflecting COVID-19 impacts on certain segments of the loan portfolio. Total provision for credit losses for the nine months ended September 30,

2021 was $3.0 million. Net charge-offs were $12.5 million during the nine months ended September 30, 2021, compared to $33.4 million during the nine months ended September 30, 2020.

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, 2021		December 31, 2020
Mortgage loans sold with servicing retained	$	4,797	$	4,653

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)	2021		2020		2021		2020
Mortgage loans sold with servicing retained	$	382	$	466	$	1,406	$	1,142
Pretax net gains resulting from above loan sales (1)	10		25		36		47
Mortgage servicing fees (1)	3		3		9		9

(1) Recorded in mortgage banking operations on the Consolidated Statements of Income.

Following is a summary of activity relating to MSRs:

TABLE 6.3


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Balance at beginning of period	$	40.5	$	34.0	$	35.6	$	42.6

Additions	4.4		4.5		15.3		11.0
Payoffs and curtailments	(2.8)		(4.6)		(10.4)		(10.5)
(Impairment charge) / recovery	1.0		0.5		3.8		(7.5)
Amortization	(0.6)		(0.6)		(1.8)		(1.8)
Balance at end of period	$	42.5	$	33.8	$	42.5	$	33.8
Fair value, beginning of period	$	40.8	$	34.0	$	35.6	$	45.0
Fair value, end of period	43.2		33.8		43.2		33.8

We had a $3.5 million valuation allowance for MSRs as of September 30, 2021, compared to $7.3 million at December 31, 2020.

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, 2021			December 31, 2020
Weighted average life (months)	74.3			66.6
Constant prepayment rate (annualized)	11.8		%	13.4		%
Discount rate	9.5		%	9.5		%
Effect on fair value due to change in interest rates:
+0.25%	$	3		$	2
+0.50%	5			4
-0.25%	(3)			(2)
-0.50%	(6)			(3)

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.

NOTE 7. LEASES

We have operating leases primarily for certain branches, office space, land and office equipment. We have finance leases for certain branches. Our operating leases expire at various dates through the year 2046 and generally include one or more options to renew. Our finance leases expire at various dates through the year 2051 and generally include one or more options to renew. The exercise of lease renewal options is at our sole discretion. As of September 30, 2021, we had operating lease right-of-use assets and operating lease liabilities of $122.6 million and $130.8 million, respectively. We have finance leases of $9.6 million.

Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As of September 30, 2021, 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 $69.2 million and $109.8 million in right-of-use assets and other liabilities, respectively. These operating leases are currently expected to commence in 2021 - 2023 with lease terms up to 16 years. These operating leases include the lease, with a related party, of the future new FNB headquarters building in Pittsburgh, Pennsylvania. The related party operating the lease is accounted for in a manner consistent with all other leases on the basis of the legally enforceable terms and conditions of the lease and represents a VIE for which we are not the primary beneficiary.

The components of lease expense were as follows:

TABLE 7.1


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2021		2020		2021		2020
Operating lease cost	$	7	$	7	$	21	$	20
Short-term lease cost	—		1		—		1
Variable lease cost	1		1		3		3


Total lease cost	$	8	$	9	$	24	$	24

Other information related to leases is as follows:

TABLE 7.2


	Nine Months Ended September 30,
(dollars in millions)	2021			2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7		$	19
Operating cash flows from finance leases	$	—		$	—
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	7		$	5
Finance leases	$	—		$	—
Weighted average remaining lease term (years):
Operating leases	9.05			9.51
Finance leases	24.13			0
Weighted average discount rate:
Operating leases	2.5		%	2.8		%
Finance leases	1.9		%	—		%

Maturities of lease liabilities were as follows:

TABLE 7.3


(in millions)	Operating Leases		Finance Leases		Total Leases
September 30, 2021
2021	$	7	$	—	$	7
2022	23		—		23
2023	19		—		19
2024	17		—		17
2025	13		—		13
Later years	67		12		79
Total lease payments	146		12		158
Less: imputed interest	(15)		(2)		(17)
Present value of lease liabilities	$	131	$	10	$	141

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.

NOTE 8. 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 held both at inception and when there is a change in circumstances that requires a reconsideration.

Unconsolidated VIEs

The following table provides a summary of the assets and liabilities included in our Consolidated Financial Statements, as well as the maximum exposure to losses, associated with our interests related to VIEs for which we hold an interest, but are not the primary beneficiary, at September 30, 2021 and December 31, 2020.

TABLE 8.1


(in millions)	Total Assets		Total Liabilities		Maximum Exposure to Loss
September 30, 2021
Trust preferred securities (1)	$	1	$	67	$	—
Affordable housing tax credit partnerships	113		37		113
Other investments	26		4		26
Total	$	140	$	108	$	139
December 31, 2020
Trust preferred securities (1)	$	1	$	66	$	—
Affordable housing tax credit partnerships	119		45		119
Other investments	26		8		26
Total	$	146	$	119	$	145
(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. For additional information relating to our TPS, see Note 9, “Borrowings” in the Notes to Consolidated Financial Statements.

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 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 is recorded on a net basis as a component of the provision for 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 8.2


(in millions)	September 30, 2021		December 31, 2020
Proportional amortization method investments included in other assets	$	74	$	71
Equity method investments included in other assets	2		3
Total LIHTC investments included in other assets	$	76	$	74
Unfunded LIHTC commitments	$	37	$	45

The following table summarizes the impact of these LIHTC investments on specific line items of our Consolidated Statements of Income:

TABLE 8.3


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2021		2020		2021		2020
Non-interest income:
Amortization of tax credit investments under equity method, net of tax benefit	$	—	$	—	$	1	$	1
Provision for income taxes:
Amortization of LIHTC investments under proportional method	$	3	$	2	$	10	$	8
Low-income housing tax credits	(4)		(3)		(11)		(9)
Other tax benefits related to tax credit investments	—		—		(2)		(2)
Total impact on provision for income taxes	$	(1)	$	(1)	$	(3)	$	(3)

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.

NOTE 9. BORROWINGS

Following is a summary of short-term borrowings:

TABLE 9.1


(in millions)	September 30, 2021		December 31, 2020
Securities sold under repurchase agreements	$	407	$	403
Federal Home Loan Bank advances	1,030		1,280

Subordinated notes	126		121
Total short-term borrowings	$	1,563	$	1,804

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, 2021 or December 31, 2020. At September 30, 2021, $1.0 billion, or 100.0%, of the short-term FHLB advances were swapped to fixed rates with various maturities through 2024. This compares to $1.3 billion, or 100.0%, as of December 31, 2020.

Following is a summary of long-term borrowings:

TABLE 9.2


(in millions)	September 30, 2021		December 31, 2020
Federal Home Loan Bank advances	$	200	$	400
Senior notes	299		299
Subordinated notes	72		81
Junior subordinated debt	67		66
Other subordinated debt	248		249
Total long-term borrowings	$	886	$	1,095

Our banking affiliate has available credit with the FHLB of $8.3 billion, of which $1.2 billion was utilized as of September 30, 2021. 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 2021. Effective interest rates paid on the long-term advances ranged from 0.26% to 0.29% for the nine months ended September 30, 2021 and 0.30% to 0.34% for the year ended December 31, 2020.

The following table provides information relating to our senior debt and other subordinated debt as of September 30, 2021. These debt issuances are fixed-rate, with the exception of the Subordinated Notes due in 2029, which are fixed-rate and become floating-rate after February 14, 2024. The subordinated notes are eligible for treatment as tier 2 capital for regulatory capital purposes.

TABLE 9.3


(dollars in millions)	Aggregate Principal Amount Issued		Net Proceeds (2)		Carrying Value		Stated Maturity Date	Interest Rate
2.20% Senior Notes due February 24, 2023	$	300	$	298	$	299	2/24/2023	2.20	%
4.95% Fixed-To-Floating Rate Subordinated Notes due 2029	120		118		119		2/14/2029	4.95	%
4.875% Subordinated Notes due 2025	100		98		99		10/2/2025	4.875	%
7.625% Subordinated Notes due August 12, 2023 (1)	38		46		30		8/12/2023	7.625	%
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, 2021:

TABLE 9.4


(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	6/15/2036	1.77	%	LIBOR + 165 basis points (bps)

Yadkin Valley Statutory Trust I	25		1		22		12/15/2037	1.44	%	LIBOR + 132 bps
FNB Financial Services Capital Trust I	25		1		23		9/30/2035	1.59	%	LIBOR + 146 bps


Total	$	72	$	3	$	67

NOTE 10. 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 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.

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 10.1


	September 30, 2021						December 31, 2020
	Notional		Fair Value				Notional		Fair Value
(in millions)	Amount		Asset		Liability		Amount		Asset		Liability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated	$	1,580	$	2	$	—	$	1,430	$	3	$	—
Interest rate swaps – not designated	5,332		2		25		4,791		—		37

Total subject to master netting arrangements	6,912		4		25		6,221		3		37
Not subject to master netting arrangements:
Interest rate swaps – not designated	5,332		211		16		4,791		349		—
Interest rate lock commitments – not designated	524		13		—		531		24		—
Forward delivery commitments – not designated	575		2		—		500		—		2
Credit risk contracts – not designated	390		—		—		437		—		1

Total not subject to master netting arrangements	6,821		226		16		6,259		373		3
Total	$	13,733	$	230	$	41	$	12,480	$	376	$	40

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.

We adopted RRR on October 1, 2020, and the guidance will be followed until the Update terminates on December 31, 2022. As of October 16, 2020, we changed our valuation methodology to reflect changes made by central clearinghouses that changed the discounting methodology and interest calculation of cash migration from overnight index swap (OIS) to SOFR for U.S. dollar cleared interest rate swaps to better reflect prices obtainable in the markets in which we transact. Certain of these valuation methodology changes were applied to eligible hedging relationships. Accordingly, we have updated our hedge documentation to reflect the election of certain expedients and exceptions related to our cash flow hedging programs. The change in valuation methodology was applied prospectively as a change in accounting estimate and did not have a material impact on our consolidated financial position or results of operations.

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.

The following table shows amounts reclassified from AOCI:

TABLE 10.2


	Amount of Gain (Loss) Recognized in OCI on Derivatives				Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income
	Nine Months Ended September 30,					Nine Months Ended September 30,
(in millions)	2021		2020			2021		2020
Derivatives in cash flow hedging relationships:
Interest rate contracts	$	3	$	(42)	Interest income (expense)	$	(14)	$	(9)
					Other income	—		(9)

The following table represents gains (losses) recognized in the Consolidated Statements of Income on cash flow hedging relationships:

TABLE 10.3


	Nine months ended September 30,
	2021				2020

(in millions)	Interest Income - Loans and Leases		Interest Expense - Short-Term Borrowings		Interest Income - Loans and Leases		Interest 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)	$	671	$	21	$	750	$	31
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 income	1		(15)		2		(11)

As of September 30, 2021, the maximum length of time over which forecasted interest cash flows are hedged is 4.0 years. In the twelve months that follow September 30, 2021, we expect to reclassify from the amount currently reported in AOCI net

derivative losses of $14.5 million ($11.3 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, 2021. During the third quarter of 2020, we terminated $225.0 million of 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, 2021 and 2020, 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 15, "Derivative Instruments and Hedging Activities" in the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021.

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 $261.8 million as of September 30, 2021 have remaining terms ranging from nine months 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 $0.3 million at September 30, 2021 and $0.6 million at December 31, 2020. The fair values of risk participation agreements purchased and sold were $0.1 million and $0.3 million, respectively, at September 30, 2021 and $0.2 million and $0.6 million, respectively at December 31, 2020.

The following table presents the effect of certain derivative financial instruments on the Consolidated Statements of Income:

TABLE 10.4


		Nine Months Ended September 30,
(in millions)	Consolidated Statements of Income Location	2021		2020
Interest rate swaps	Non-interest income - other	$	—	$	—
Interest rate lock commitments	Mortgage banking operations	—		—
Forward delivery contracts	Mortgage banking operations	2		(1)
Credit risk contracts	Non-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 $0.5 million and $0.3 million as of September 30, 2021 and December 31, 2020, respectively, in excess of amounts previously posted as collateral with the respective counterparty.

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 10.5


			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, 2021
Derivative Assets
Interest rate contracts:
Designated	$	2	$	—	$	2	$	—
Not designated	2		—		2		—

Total	$	4	$	—	$	4	$	—


Derivative Liabilities
Interest rate contracts:

Not designated	$	25	$	—	$	24	$	1
Total	$	25	$	—	$	24	$	1


December 31, 2020
Derivative Assets
Interest rate contracts:
Designated	$	3	$	—	$	3	$	—


Total	$	3	$	—	$	3	$	—


Derivative Liabilities
Interest rate contracts:

Not designated	$	37	$	—	$	37	$	—
Total	$	37	$	—	$	37	$	—

NOTE 11. 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 11.1


(in millions)	September 30, 2021		December 31, 2020
Commitments to extend credit	$	11,015	$	9,285
Standby letters of credit	200		158

At September 30, 2021, funding of 70.7% 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

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 $18.0 million at September 30, 2021 and $13.7 million at December 31, 2020. Additional information relating to the AULC is provided in Note 5, "Allowance for Credit Losses on Loans and Leases" in the Notes to Consolidated Financial Statements.

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 9, “Borrowings” in the Notes to Consolidated Financial Statements.

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, reimbursement, 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, settlement resolutions, regulatory actions, investigations, settlements or orders, if any, that have or 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 potentially 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, restitution, 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 12. 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 1,113,314 and 2,004,895 restricted stock units during the nine months ended September 30, 2021 and 2020, respectively, including 325,284 and 571,932

performance-based restricted stock units during those same periods, respectively. As of September 30, 2021, we had available up to 4,137,909 shares of common stock to issue under this Plan.

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 12.1


	Nine Months Ended September 30,
	2021			2020
	Units	Weighted Average Grant Price per Share		Units	Weighted Average Grant Price per Share
Unvested units outstanding at beginning of period	4,322,115	$	9.46	2,858,357	$	12.56
Granted	1,113,314	12.65		2,004,895	5.95
Net adjustment due to performance	412,540	11.72		47,290	13.00
Vested	(1,309,476)	12.10		(592,602)	14.50
Forfeited/expired/canceled	(112,002)	10.94		(169,552)	13.05
Dividend reinvestment	134,600	12.26		173,990	6.99
Unvested units outstanding at end of period	4,561,091	9.74		4,322,378	9.45

The following table provides certain information related to restricted stock units:

TABLE 12.2


(in millions)	Nine Months Ended September 30,
	2021		2020
Stock-based compensation expense	$	17	$	13
Tax benefit related to stock-based compensation expense	4		3
Fair value of units vested	16		4

As of September 30, 2021, there was $11.7 million of unrecognized compensation cost related to unvested restricted stock units, including $1.0 million that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement.

The components of the restricted stock units as of September 30, 2021 are as follows:

TABLE 12.3


(dollars in millions)	Service- Based Units		Performance- Based Units		Total
Unvested restricted stock units	2,933,219		1,627,872		4,561,091
Unrecognized compensation expense	$	10	$	2	$	12
Intrinsic value	$	34	$	19	$	53
Weighted average remaining life (in years)	1.86		0.88		1.51

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, 2021, we had 170,529 stock options outstanding and exercisable at a weighted average exercise price per share of $8.75, compared to 207,030 stock options outstanding and exercisable at a weighted average exercise price per share of $8.42 as of September 30, 2020.

The intrinsic value of outstanding and exercisable stock options at September 30, 2021 was $0.5 million. The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price.

NOTE 13. 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 13.1


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2021			2020			2021			2020
Current income taxes:
Federal taxes	$	22		$	16		$	62		$	62
State taxes	1			1			4			6
Total current income taxes	23			17			66			68
Deferred income taxes:
Federal taxes	4			—			7			(24)
State taxes	—			—			1			—
Total deferred income taxes	4			—			8			(24)
Total income taxes	$	27		$	17		$	74		$	44
Statutory tax rate	21.0		%	21.0		%	21.0		%	21.0		%
Effective tax rate	19.7			17.0			19.5			17.0

The effective tax rates for the nine months ended September 30, 2021 and 2020 were lower than the statutory federal tax rate primarily due to tax benefits resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. The lower tax effective tax rate in 2020 is primarily due to lower pre-tax income levels and the impact from renewable energy investment tax credits.

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 $47.4 million and $51.0 million at September 30, 2021 and December 31, 2020, respectively.

NOTE 14. OTHER COMPREHENSIVE INCOME

The following table presents changes in AOCI, net of tax, by component:

TABLE 14.1


(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, 2021
Balance at beginning of period	$	65	$	(40)	$	(64)	$	(39)
Other comprehensive (loss) income before reclassifications	(29)		3		2		(24)
Amounts reclassified from AOCI	—		11		—		11
Net current period other comprehensive (loss) income	(29)		14		2		(13)
Balance at end of period	$	36	$	(26)	$	(62)	$	(52)

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 generally 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 15. 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. 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 15.1


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions, except per share data)	2021		2020		2021		2020
Net income	$	111	$	83	$	306	$	214
Less: Preferred stock dividends	2		2		6		6
Net income available to common stockholders	$	109	$	81	$	300	$	208
Basic weighted average common shares outstanding	319,512,598		323,379,720		320,023,695		323,642,925
Net effect of dilutive stock options, warrants and restricted stock	3,348,329		2,283,060		3,611,960		2,051,221
Diluted weighted average common shares outstanding	322,860,927		325,662,780		323,635,655		325,694,146
Earnings per common share:
Basic	$	0.34	$	0.25	$	0.94	$	0.64
Diluted	$	0.34	$	0.25	$	0.93	$	0.64

The following table shows the average shares excluded from the above calculation as their effect would have been anti-dilutive:

TABLE 15.2


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Average shares excluded from the diluted earnings per common share calculation	—	44,755	—	22,263

NOTE 16. CASH FLOW INFORMATION

Following is a summary of supplemental cash flow information:

TABLE 16.1


	Nine Months Ended September 30,
(in millions)	2021		2020
Interest paid on deposits and other borrowings	$	82	$	179
Income taxes paid	53		34
Transfers of loans to other real estate owned	3		2

Loans transferred to held for sale from portfolio	—		508

NOTE 17. 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 brokerage service offering all lines of commercial and personal insurance through major carriers. The Insurance segment also includes a reinsurer.

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 17.1



(in millions)	Community Banking		Wealth Management		Insurance		Parent and Other		Consolidated
At or for the Three Months Ended September 30, 2021
Interest income	$	255	$	—	$	—	$	1	$	256
Interest expense	20		—		—		4		24
Net interest income	235		—		—		(3)		232
Provision for credit losses	(2)		—		—		—		(2)
Non-interest income	68		15		6		(1)		88
Non-interest expense (1)	164		10		5		2		181
Amortization of intangibles	3		—		—		—		3
Income tax expense (benefit)	27		1		—		(1)		27
Net income (loss)	111		4		1		(5)		111
Total assets	39,238		43		34		46		39,361
Total intangibles	2,271		9		27		—		2,307
At or for the Three Months Ended September 30, 2020
Interest income	$	273	$	—	$	—	$	—	$	273
Interest expense	41		—		—		5		46
Net interest income	232		—		—		(5)		227
Provision for credit losses	27		—		—		—		27
Non-interest income	63		12		7		(2)		80
Non-interest expense (1)	162		8		5		2		177
Amortization of intangibles	3		—		—		—		3
Income tax expense (benefit)	18		1		1		(3)		17
Net income (loss)	85		3		1		(6)		83
Total assets	37,315		36		36		54		37,441
Total intangibles	2,282		9		28		—		2,319
(1) Excludes amortization of intangibles, which is presented separately.


(in millions)	Community Banking		Wealth Management		Insurance		Parent and Other		Consolidated
At or for the Nine Months Ended September 30, 2021
Interest income	$	759	$	—	$	—	$	1	$	760
Interest expense	67		—		—		10		77
Net interest income	692		—		—		(9)		683
Provision for credit losses	2		—		—		1		3
Non-interest income	191		45		19		(4)		251
Non-interest expense (1)	491		30		15		6		542
Amortization of intangibles	8		—		1		—		9
Income tax expense (benefit)	75		3		1		(5)		74
Net income (loss)	307		12		2		(15)		306
Total assets	39,238		43		34		46		39,361
Total intangibles	2,271		9		27		—		2,307
At or for the Nine Months Ended September 30, 2020
Interest income	$	859	$	—	$	—	$	1	$	860
Interest expense	155		—		—		17		172
Net interest income	704		—		—		(16)		688
Provision for credit losses	105		—		—		—		105
Non-interest income	180		36		18		(8)		226
Non-interest expense (1)	495		26		14		6		541
Amortization of intangibles	9		—		1		—		10
Income tax expense (benefit)	47		2		1		(6)		44
Net income (loss)	228		8		2		(24)		214
Total assets	37,315		36		36		54		37,441
Total intangibles	2,282		9		28		—		2,319

(1) Excludes amortization of intangibles, which is presented separately.

NOTE 18. FAIR VALUE MEASUREMENTS

Refer to Note 25 "Fair Value Measurements" to the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 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 18.1


(in millions)	Level 1		Level 2		Level 3		Total
September 30, 2021
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury	$	49	$	—	$	—	$	49
U.S. government agencies	—		154		—		154
U.S. government-sponsored entities	—		170		—		170
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,311		—		1,311
Agency collateralized mortgage obligations	—		1,183		—		1,183

Commercial mortgage-backed securities	—		306		—		306
States of the U.S. and political subdivisions (municipals)	—		33		—		33
Other debt securities	—		2		—		2
Total debt securities available for sale	49		3,159		—		3,208
Loans held for sale	—		227		—		227





Derivative financial instruments
Trading	—		213		—		213
Not for trading	—		4		13		17
Total derivative financial instruments	—		217		13		230
Total assets measured at fair value on a recurring basis	$	49	$	3,603	$	13	$	3,665
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	41	$	—	$	41
Not for trading	—		—		—		—
Total derivative financial instruments	—		41		—		41
Total liabilities measured at fair value on a recurring basis	$	—	$	41	$	—	$	41


(in millions)	Level 1		Level 2		Level 3		Total
December 31, 2020
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury	$	600	$	—	$	—	$	600
U.S. government agencies	—		172		—		172
U.S. government-sponsored entities	—		161		—		161
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		994		—		994
Agency collateralized mortgage obligations	—		1,124		—		1,124

Commercial mortgage-backed securities	—		378		—		378
States of the U.S. and political subdivisions (municipals)	—		32		—		32
Other debt securities	—		2		—		2
Total debt securities available for sale	600		2,863		—		3,463
Loans held for sale	—		144		—		144





Derivative financial instruments
Trading	—		349		—		349
Not for trading	—		3		24		27
Total derivative financial instruments	—		352		24		376
Total assets measured at fair value on a recurring basis	$	600	$	3,359	$	24	$	3,983
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	37	$	—	$	37
Not for trading	—		3		—		3
Total derivative financial instruments	—		40		—		40
Total liabilities measured at fair value on a recurring basis	$	—	$	40	$	—	$	40

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 18.2


(in millions)	Interest Rate Lock Commitments		Total
Nine Months Ended September 30, 2021
Balance at beginning of period	$	24	$	24




Purchases, issuances, sales and settlements:

Issuances	13		13

Settlements	(24)		(24)


Balance at end of period	$	13	$	13
Year Ended December 31, 2020
Balance at beginning of period	$	3	$	3




Purchases, issuances, sales and settlements:

Issuances	24		24

Settlements	(3)		(3)


Balance at end of period	$	24	$	24

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 2021 or 2020.

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 25, "Fair Value Measurements" to the Consolidated Financial Statements included in 2020 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 18.3


(in millions)	Level 1		Level 2		Level 3		Total
September 30, 2021
Collateral dependent loans	$	—	$	—	$	9	$	9
Other assets - MSRs	—		—		15		15
Other assets - SBA servicing asset	—		—		4		4
Other real estate owned	—		—		1		1
December 31, 2020
Collateral dependent loans	$	—	$	—	$	45	$	45
Other assets - MSRs	—		—		36		36
Other assets - SBA servicing asset	—		—		3		3
Other real estate owned	—		—		3		3

The fair value amounts for collateral dependent loans and OREO in the table above were estimated at a date during the nine months or twelve months ended September 30, 2021 and December 31, 2020, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end. Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during the nine months ended September 30, 2021 had a carrying amount of $9.5 million, which

includes an allocated ACL of $8.2 million. The ACL includes a provision applicable to the current period fair value measurements of $2.1 million, which was included in provision for credit losses for the nine months ended September 30, 2021.

MSRs measured at fair value on a non-recurring basis had a carrying value of $15.5 million, which included a valuation allowance of $3.5 million, as of September 30, 2021. The valuation allowance includes a recovery of $3.8 million included in earnings for the nine months ended September 30, 2021. SBA servicing assets measured at fair value on a non-recurring basis had a carrying value of $5.3 million, which included a valuation allowance of $0.9 million, as of September 30, 2021. The valuation allowance includes a recovery of $0.2 million included in earnings for the nine months ended September 30, 2021.

OREO measured at fair value on a non-recurring basis during 2021 had a carrying amount of $1.1 million, which included a valuation allowance of $0.3 million, as of September 30, 2021. The valuation allowance includes a loss of $0.3 million, which was included in earnings for the nine months ended September 30, 2021.

Fair Value of Financial Instruments

Refer to Note 25, "Fair Value Measurements" to the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 for a description of methods and assumptions that were used to estimate the fair value of each financial instrument.

The fair values of our financial instruments are as follows:

TABLE 18.4


					Fair Value Measurements
(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2021
Financial Assets
Cash and cash equivalents	$	4,110	$	4,110	$	4,110	$	—	$	—
Debt securities available for sale	3,208		3,208		49		3,159		—
Debt securities held to maturity	3,202		3,267		1		3,266		—
Net loans and leases, including loans held for sale	24,620		24,224		—		227		23,997
Loan servicing rights	46		47		—		—		47

Derivative assets	230		230		—		217		13
Accrued interest receivable	76		76		76		—		—
Financial Liabilities
Deposits	31,444		31,456		28,399		3,057		—
Short-term borrowings	1,563		1,565		1,565		—		—
Long-term borrowings	886		906		—		—		906
Derivative liabilities	41		41		—		41		—
Accrued interest payable	8		8		8		—		—
December 31, 2020
Financial Assets
Cash and cash equivalents	$	1,383	$	1,383	$	1,383	$	—	$	—
Debt securities available for sale	3,463		3,463		600		2,863		—
Debt securities held to maturity	2,868		2,973		—		2,973		—
Net loans and leases, including loans held for sale	25,250		25,012		—		144		24,868
Loan servicing rights	39		39		—		—		39

Derivative assets	376		376		—		352		24
Accrued interest receivable	90		90		90		—		—
Financial Liabilities
Deposits	29,122		29,158		25,460		3,698		—
Short-term borrowings	1,804		1,809		1,809		—		—
Long-term borrowings	1,095		1,068		—		—		1,068
Derivative liabilities	40		40		—		40		—
Accrued interest payable	13		13		13		—		—

NOTE 19. MERGERS AND ACQUISITIONS

Pending Acquisition – Howard Bancorp, Inc.

On July 12, 2021, the Corporation entered into a definitive merger agreement to acquire Howard, a bank holding company based in Baltimore, Maryland with approximately $2.6 billion in total assets. The transaction is valued at approximately $418 million. Under the terms of the merger agreement, Howard voting common shareholders will be entitled to receive 1.8 shares of the Corporation’s common stock for each share of Howard common stock. The Corporation expects to issue approximately 33.8 million shares of its common stock in exchange for approximately 18.8 million shares of Howard common stock. Howard’s banking affiliate, Howard Bank, will be merged into FNBPA. We have received all regulatory clearances for the proposed merger to occur. The transaction is expected to be completed in early 2022, pending satisfaction of certain routine and customary closing conditions and approval by Howard's shareholders.

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, 2021 and 2020. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021. Our results of operations for the nine months ended September 30, 2021 are not necessarily indicative of results expected for the full year.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Report may contain 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, economic and political circumstances, including, but not limited to: (i) developments with respect to the U.S. and global financial markets; (ii) actions by the FRB, FDIC, 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; (iv) inflation concerns; (v) the impacts of tariffs or other trade policies of the U.S. or its global trading partners; and the sociopolitical environment in the U.S.

•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, loans, deposits and revenues. Our ability to anticipate, react quickly 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 ongoing COVID-19 pandemic crisis, dislocations, risks associated with a post-pandemic return to normalcy, including shortages of labor, supply chain disruptions and shipping delays, 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 new U.S. presidential administration, including legislative and regulatory reforms, different approaches to supervisory or enforcement priorities, changes affecting oversight of the financial services industry, regulatory obligations or restrictions, consumer protection, taxes, employee benefits, compensation practices, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.

◦Changes to regulations or accounting standards governing bank capital requirements, loan loss reserves 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.

◦The impact on our financial condition, results of operations, financial disclosures and future business strategies related to the impact on the ACL due to changes in forecasted macroeconomic conditions as a result of applying the “current expected credit loss” accounting 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 federal, state, and local regulatory and governmental actions implemented in response to COVID-19 have resulted in a deterioration and disruption of the financial markets and national and local economic conditions, increased levels of unemployment and business failures, and the potential to have a material impact on, among other things, our business, financial condition, results of operations, 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 in the future than what we are currently experiencing or expecting, including, but not limited to, a prolonged recovery of the U.S. economy and labor market and the possible change in commercial and consumer customer fundamentals, expectations and sentiments. As a result, the COVID-19 impact, including uncertainty regarding the potential impact of variant mutations of the virus, U.S. government responsive measures to manage it or provide financial relief, the uncertainty regarding its duration and the success of vaccination efforts, it is possible the pandemic may have a material adverse impact on our business, operations and financial performance.

The risks identified here are not exclusive or the types of risks we may confront and 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 the Risk Management sections of our 2020 Annual Report on Form 10-K, our subsequent 2021 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other 2021 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 our SEC filings.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

A description of our critical accounting policies is included in the MD&A section of our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 under the heading “Application of Critical Accounting Policies”. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2020.

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, ACL 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.

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 items such as merger expenses, branch consolidation costs, loss on early debt extinguishment, COVID-19 expenses and gains on sale of Visa class B shares are not organic to run our operations and facilities. These items are considered significant items impacting earnings as they are deemed to be outside of ordinary banking activities. The merger expenses and branch consolidation charges principally represent expenses to satisfy contractual obligations of the closed operations and 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 employees and the communities we serve during an unprecedented time of a pandemic.

To facilitate peer 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 2021 and 2020 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 2021 was $109.5 million or $0.34 per diluted common share, compared to net income available to common stockholders for the third quarter of 2020 of $80.8 million or $0.25 per diluted common share. On an operating basis, the third quarter of 2021 earnings per diluted common share (non-GAAP) was also $0.34, while the third quarter of 2020, was $0.26, excluding $0.01 for significant items.

Total revenue increased to a record of $321.3 million. Our financial results were highlighted by a return on tangible common equity (non-GAAP) of 16.77% and sequential tangible book value per share growth of 11% annualized, to $8.42. We have executed our strategic plan as demonstrated by our growing diversity of revenue sources and our ability to have two consecutive quarters of high-single digit loan growth, excluding PPP.

Income Statement Highlights (Third quarter of 2021 compared to third quarter of 2020, except as noted)

•Record total revenue of $321.3 million, an increase of $14.1 million, or 4.6%, led to record operating net income available to common stockholders (non-GAAP) of $110.2 million, an increase of $24.8 million, or 29.0%.

•On a linked-quarter basis, operating pre-provision net revenue (non-GAAP) increased $10.2 million, or 8.0%, to a record $138.0 million due to growth in total revenue of $13.6 million, or 4.4%, led by higher non-interest income, partially offset by an increase in non-interest expense of $3.4 million, or 1.9%, largely tied to the revenue growth.

•Net interest income increased $5.3 million, or 2.3%, to $232.4 million due to higher PPP loan income and an improved funding mix offsetting lower yields on earnings assets. A $2.6 billion increase in low yielding interest-bearing deposits with banks was a significant contribution to the reduced earning asset yield.

•On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) increased 2 basis points to 2.72% as the cost of funds decreased 2 basis points offsetting the earning asset yield decline of 1 basis point. The yield on total loans and leases increased 10 basis points to 3.61% largely due to higher contribution from PPP loans, while the investment portfolio yields declined by 13 basis points largely driven by the impact of higher cash and cash equivalents balances. The cost of funds decrease was led by the cost of interest-bearing deposits improving 3 basis points to 0.21%.

•The annualized net charge-offs to total average loans ratio was 0.03%, compared to 0.29%, with favorable asset quality trends across the loan portfolio.

•The provision for credit losses was a net benefit of $1.8 million for the third quarter, compared to a net benefit of $1.1 million in the second quarter of 2021 and an expense of $27.2 million in the third quarter of 2020, with the third quarter of 2020 level primarily attributable to the impacts of the pandemic.

•Non-interest income was a record $88.9 million, an increase of $8.8 million, or 11.0%, due to strong contributions from capital markets and wealth management, as well as increased SBA premium income and higher service charges driven

by increased customer activity, partially offset by lower contributions from mortgage banking given its record levels in the third quarter of 2020.

•The effective tax rate was 19.7%, compared to 17.0%, reflecting residual benefits from renewable energy investment tax credits in the third quarter of 2020.

•The efficiency ratio (non-GAAP) equaled 55.4%, compared to 55.3%.

Balance Sheet Highlights (period-end balances, September 30, 2021 compared to December 31, 2020, unless otherwise indicated)

•Period-end total loans and leases, excluding PPP loans, increased $867.6 million, or 3.7%, as commercial loans increased $621.7 million, or 4.1%, and consumer loans increased $246.0 million, or 3.0%, inclusive of the sale of $0.5 billion in indirect auto loans in November 2020, compared to September 30, 2020. Total period-end loans and leases decreased $972.2 million, or 3.8%, due to a commercial loan decrease of $1.2 billion, or 6.9%, driven by PPP loan forgiveness compared to September 30, 2020.

•On a linked-quarter basis, excluding PPP loans, period-end total loans increased $462.8 million, or 7.8% annualized, with commercial loans and leases increasing $289.3 million, or 7.4% annualized, and consumer loans increasing $173.5 million, or 8.5% annualized.

•PPP loans outstanding totaled $0.7 billion at September 30, 2021, reflecting $2.9 billion in SBA loan forgiveness processed to date. There were $1.6 billion and $2.5 billion of PPP loans outstanding at June 30, 2021 and September 30, 2020, respectively.

•Total average deposits grew $2.5 billion, or 8.6%, compared to the third quarter of 2020, led by increases in average non-interest-bearing deposits of $1.7 billion, or 19.2%, and average interest-bearing demand deposits of $1.3 billion, or 10.4%, partially offset by a decrease in average time deposits of $1.0 billion, or 25.0%. Average deposit growth reflected inflows from the PPP and government stimulus activities, organic growth in new and existing customer relationships, as well as current customer preferences to maintain larger balances in their deposit accounts than before the pandemic.

•The ratio of loans to deposits was 78.6%, compared to 87.4%, as deposit growth outpaced loan growth. Additionally, the deposit funding mix continued to improve with non-interest-bearing deposits totaling 33% of total deposits, compared to 31%. Cash and cash equivalents balances increased $2.7 billion to $4.1 billion due primarily to PPP loan activity and government stimulus inflows.

•Total assets were $39.4 billion, compared to $37.4 billion, an increase of $2.0 billion, or 5.4%, primarily due to the increase in cash and cash equivalents due to significant deposit growth, primarily due to the PPP and government stimulus activities.

•The dividend payout ratio for the third quarter of 2021 was 35.4%, compared to 48.7% for the third quarter of 2020.

•The ratio of the ACL to total loans and leases decreased to 1.41% from 1.43%. 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 1.45%, compared to 1.56%. The ACL on loans and leases totaled $349 million at September 30, 2021, compared to $363 million.

•Tangible book value per share (non-GAAP) of $8.42, increased $0.61, or 8% from September 30, 2020, reflecting our continued strategy to build tangible book value per share while optimizing capital deployment. The CET1 regulatory capital ratio increased to 9.9%, up from 9.8%.

TABLE 1


	Three Months Ended September 30,
Quarterly Results Summary	2021			2020
Reported results
Net income available to common stockholders (millions)	$	109.5		$	80.8
Net income per diluted common share	0.34			0.25
Book value per common share (period-end)	15.65			14.99
Pre-provision net revenue (reported) (millions)	137.0			126.9
Common equity tier 1 capital ratio	9.9		%	9.6		%
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)	$	110.2		$	85.5
Operating net income per diluted common share	0.34			0.26
Tangible common equity to tangible assets (period-end)	7.24		%	7.19		%
Tangible book value per common share (period-end)	$	8.42		$	7.81
Pre-provision net revenue (operating) (millions)	$	138.0		$	132.9
Average diluted common shares outstanding (thousands)	322,861			325,663
Significant items impacting earnings(1) (millions)
Pre-tax merger-related expenses	$	(0.9)		$	—
After-tax impact of merger-related expenses	(0.7)			—

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 stock	—			13.8
After-tax impact of gain on sale of Visa class B stock	—			10.9
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	$	(0.9)		$	(6.0)
Total significant items after-tax	$	(0.7)		$	(4.7)


	Nine Months Ended September 30,
Year-to-Date Results Summary	2021		2020
Reported results
Net income available to common stockholders (millions)	$	300.1	$	207.8
Net income per diluted common share	0.93		0.64
Pre-provision net revenue (reported) (millions)	383.0		362.8
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)	302.9		222.1
Operating net income per diluted common share	0.94		0.68
Pre-provision net revenue (operating) (millions)	386.6		385.1
Average diluted common shares outstanding (thousands)	323,636		325,694
Significant items impacting earnings(1) (millions)
Pre-tax merger-related expenses	$	(0.9)	$	—
After-tax impact of merger-related expenses	(0.7)		—



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 stock	—		13.8
After-tax impact of gain on sale of Visa class B stock	—		10.9
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	(2.6)		(8.3)
After-tax impact of branch consolidation costs	(2.1)		(6.5)
Pre-tax service charge refunds	—		(3.8)
After-tax impact of service charge refunds	—		(3.0)
Total significant items pre-tax	$	(3.5)	$	(18.2)
Total significant items after-tax	$	(2.8)	$	(14.3)
(1) Favorable (unfavorable) impact on earnings

Industry Developments

LIBOR

The United Kingdom’s Financial Conduct Authority (FCA), who is the regulator of LIBOR, announced on March 5, 2021 that they will no longer require any panel bank to continue to submit LIBOR after December 31, 2021. As it pertains to U.S. dollar LIBOR, the FCA announced that certain LIBOR tenors will continue to be published through June 30, 2023. Bank regulators, in a joint statement, have urged banks to stop using LIBOR altogether on new transactions by the end of 2021 to avoid the possible creation of safety and soundness risk. The FRB of New York has created a working group called the Alternative Reference Rate Committee (ARRC) to assist U.S. institutions in transitioning away from LIBOR as a benchmark interest rate. The ARRC has recommended the use of the Secured Overnight Financing Rate (SOFR) as a replacement index for LIBOR.

Similarly, we created an internal transition team that is managing our transition away from LIBOR. This transition team is a cross-functional team composed of representatives from the commercial, retail and mortgage banking lines of business, as well as representatives of loan operations, information technology, legal, finance and other support functions. The transition team has completed an assessment of tasks needed for the transition, identified contracts that contain LIBOR language, has reviewed existing contract language for the presence of appropriate fallback rate language, developed and implemented loan fallback rate language for when LIBOR is retired and identified risks associated with the transition. The transition team is considering SOFR and credit-sensitive alternative indices, that may gain market acceptance, as a replacement to LIBOR. The selected index, or indices, will be utilized in all new floating rate agreements no later than December 31, 2021 and we will be able to accommodate multiple indices for the benefit of our customer base. Our transition team continues to work within the guidelines established by the FCA and ARRC to provide for a smooth transition away from LIBOR.

As of September 30, 2021, approximately $10.1 billion, or 41%, of our loan portfolio consisted of loans whose variable rate index is LIBOR. Previously, we finalized the transition to SOFR for all new adjustable rate mortgage originations which has a balance of approximately $240 million as of September 30, 2021. Finally, we have approximately $200 million of FNB issued debt that uses LIBOR as its base index.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Net income available to common stockholders for the three months ended September 30, 2021 was $109.5 million or $0.34 per diluted common share, compared to net income available to common stockholders for the three months ended September 30, 2020 of $80.8 million or $0.25 per diluted common share. The results for the third quarter of 2021 reflect record revenue of $321.3 million, an increase of $14.1 million, or 4.6%. Additionally, the provision for credit losses was a net benefit of $1.8 million due to continued improvement in the underlying portfolio credit trends. This compares to provision expense of $27.2 million for the third quarter of 2020, reflecting a recessionary environment under the CECL requirements. Non-interest income for the third quarter of 2021 included record capital markets income of $12.5 million, wealth management revenue of $14.9 million and increased SBA premium income. Non-interest expense for the third quarter of 2021 increased $4.0 million primarily due to higher salaries and employee benefits from higher production and performance-related commissions and incentives. The third quarter of 2021 included merger-related costs of $0.9 million due to the pending Howard acquisition.

Financial highlights are summarized below:

TABLE 2


	Three Months Ended September 30,				$		%
(in thousands, except per share data)	2021		2020		Change		Change
Net interest income	$	232,406	$	227,098	$	5,308	2.3	%
Provision for credit losses	(1,806)		27,227		(29,033)		(106.6)
Non-interest income	88,854		80,038		8,816		11.0
Non-interest expense	184,226		180,209		4,017		2.2
Income taxes	27,327		16,924		10,403		61.5
Net income	111,513		82,776		28,737		34.7
Less: Preferred stock dividends	2,010		2,010		—		—
Net income available to common stockholders	$	109,503	$	80,766	$	28,737	35.6	%
Earnings per common share – Basic	$	0.34	$	0.25	$	0.09	36.0	%
Earnings per common share – Diluted	0.34		0.25		0.09		36.0
Cash dividends per common share	0.12		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,
	2021			2020
Return on average equity	8.74		%	6.70		%
Return on average tangible common equity (2)	16.77			13.34
Return on average assets	1.14			0.88
Return on average tangible assets (2)	1.24			0.97
Book value per common share (1)	$	15.65		$	14.99
Tangible book value per common share (1) (2)	8.42			7.81
Equity to assets (1)	12.95		%	13.22		%
Average equity to average assets	13.08			13.12
Common equity to assets (1)	12.68			12.94
Tangible equity to tangible assets (1) (2)	7.53			7.49
Tangible common equity to tangible assets (1) (2)	7.24			7.19
Common equity tier 1 capital ratio (1)	9.9			9.6
Dividend payout ratio	35.43			48.65

(1) Period-end

(2) Non-GAAP

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,
	2021						2020
(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	$	3,186,841	$	1,228	0.15	%	$	543,731	$	226	0.17	%

Taxable investment securities (1)	5,109,559		20,746		1.62		4,849,384		24,710		2.04
Tax-exempt investment securities (1)(2)	1,078,906		9,230		3.42		1,142,971		10,101		3.54
Loans held for sale	257,909		2,381		3.69		282,917		3,349		4.72
Loans and leases (2)(3)	24,729,254		224,675		3.61		26,063,431		237,063		3.62
Total interest-earning assets (2)	34,362,469		258,260		2.99		32,882,434		275,449		3.34
Cash and due from banks	389,659						369,263
Allowance for credit losses	(362,592)						(371,199)
Premises and equipment	343,070						335,711
Other assets	3,985,793						4,250,497
Total assets	$	38,718,399					$	37,466,706
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	13,888,928	4,487		0.13		$	12,584,154	10,041		0.32
Savings	3,509,325		164		0.02		2,991,381		261		0.03
Certificates and other time	3,111,424		5,999		0.76		4,149,263		17,119		1.64
Total interest-bearing deposits	20,509,677		10,650		0.21		19,724,798		27,421		0.55
Short-term borrowings	1,549,353		6,539		1.67		2,217,640		8,893		1.59
Long-term borrowings	886,637		6,045		2.70		1,526,968		9,019		2.35
Total interest-bearing liabilities	22,945,667		23,234		0.40		23,469,406		45,333		0.77
Non-interest-bearing demand	10,338,713						8,671,940
Total deposits and borrowings	33,284,380				0.28		32,141,346				0.56
Other liabilities	370,587						409,427
Total liabilities	33,654,967						32,550,773
Stockholders’ equity	5,063,432						4,915,933
Total liabilities and stockholders’ equity	$	38,718,399					$	37,466,706
Net interest-earning assets	$	11,416,802					$	9,413,028
Net interest income (FTE) (2)			235,026						230,116
Tax-equivalent adjustment			(2,620)						(3,018)
Net interest income			$	232,406					$	227,098
Net interest spread					2.59	%					2.57	%
Net interest margin (2)					2.72	%					2.79	%

(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.

Net Interest Income

Net interest income on an FTE basis (non-GAAP) increased $4.9 million, or 2.1%, from $230.1 million for the third quarter of 2020 to $235.0 million for the third quarter of 2021. Average earning assets of $34.4 billion increased $1.5 billion, or 4.5%, from 2020, which included $3.6 billion of PPP loan originations since program inception in the second quarter of 2020, $2.9 billion in total PPP loan forgiveness and a $2.6 billion increase in average cash balances largely due to the continued impact from government stimulus and PPP activity. The growth in average earning assets was offset by the repricing impact on earning asset yields from lower interest rates, mitigated by the improved funding mix with reductions in higher-cost borrowings and the cost of interest-bearing deposits. Average interest-bearing liabilities of $22.9 billion decreased $0.5 billion, or 2.2%, from 2020, driven by a decrease in average borrowings of $1.3 billion partially offset by an increase of $0.8 billion in average interest-bearing deposits which included deposits for PPP funding and government stimulus activities, organic growth in new and existing customer relationships, as well as recent customer preferences to maintain larger deposit account balances than before the pandemic. Our net interest margin FTE (non-GAAP) declined 7 basis points to 2.72%, as the yield on earning assets decreased 35 basis points, primarily reflecting the impact of significant reductions in short-term benchmark interest rates on variable-rate loans, significantly lower yields on investment securities and the effect of higher average cash balances on the mix of earning assets. Partially offsetting the lower earning asset yields, the total cost of funds improved 28 basis points to 0.28%, compared to 0.56%, due to a 34 basis point reduction in interest-bearing deposit costs and an improved funding mix, as average non-interest-bearing deposits increased $1.7 billion, or 19.2%.

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, 2021, compared to the three months ended September 30, 2020:

TABLE 5


(in thousands)	Volume		Rate		Net
Interest Income (1)
Interest-bearing deposits with banks	$	1,020	$	(18)	$	1,002

Securities (2)	1,192		(6,027)		(4,835)
Loans held for sale	125		(1,093)		(968)
Loans and leases (2)	(15,895)		3,507		(12,388)
Total interest income (2)	(13,558)		(3,631)		(17,189)
Interest Expense (1)
Deposits:
Interest-bearing demand	445		(5,999)		(5,554)
Savings	23		(120)		(97)
Certificates and other time	(2,522)		(8,598)		(11,120)
Short-term borrowings	(3,042)		688		(2,354)
Long-term borrowings	(3,738)		764		(2,974)
Total interest expense	(8,834)		(13,265)		(22,099)
Net change (2)	$	(4,724)	$	9,634	$	4,910

(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 $258.3 million for the third quarter of 2021, decreased $17.2 million, or 6.2%, from the same quarter of 2020, primarily due to the repricing impact from lower interest rates, partially offset by increased earning assets of $1.5 billion. The increase in earning assets was primarily driven by a $2.6 billion increase in average cash and cash equivalents balances largely due to the continued impact from government stimulus and PPP loan activity, partially offset by a $1.3 billion, or 5.1%, decrease in average loans and leases. Average commercial loans declined $1.1 billion, or 6.2%. Excluding the PPP loans, commercial loan origination activity remained solid led by organic growth in the Pittsburgh, Mid-

Atlantic (Washington D.C., northern Virginia and Maryland markets) and Cleveland regions. Average consumer loans declined $238.8 million, or 2.8%, primarily due to the sale of $0.5 billion of indirect auto installment loans in November 2020, partially offset by a $229.3 million increase in direct installment loans. Since PPP inception we originated $3.6 billion of PPP loans and had $2.9 billion in total PPP loan forgiveness. The yield on average earning assets (non-GAAP) decreased 35 basis points from 3.34% for the third quarter of 2020 to 2.99% for the third quarter of 2021, primarily reflecting the impact of significant reductions in the short-term benchmark interest rates on variable-rate loans, significantly lower yields on investment securities and the effect of higher average cash balances on the mix of earning assets.

Interest expense of $23.2 million for the third quarter of 2021 decreased $22.1 million, or 48.7%, from the same quarter of 2020, 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 2020. Average non-interest-bearing deposits increased $1.7 billion, or 19.2%, and average interest-bearing deposits increased $0.8 billion, or 4.0%. The growth in average deposits reflected inflows from the PPP and government stimulus activities, organic growth in new and existing customer relationships, as well as recent customer preferences to maintain larger deposit account balances than before the pandemic. Average short-term borrowings decreased $668.3 million, or 30.1%, primarily reflecting decreases of $654.1 million and $36.6 million in short-term FHLB advances and federal funds purchased, respectively. Average long-term borrowings decreased $640.3 million, or 41.9%, primarily reflecting a decrease of $628.9 million in long-term FHLB advances. During 2020, we utilized excess low-yielding cash to opportunistically terminate $715 million of FHLB borrowings, and in certain instances, the related interest rate swap. The terminated FHLB borrowings had a 2.49% interest rate with a remaining term of 1.6 years. The rate paid on interest-bearing liabilities decreased 37 basis points from 0.77% to 0.40% for the third quarter of 2021, primarily due to the interest rate actions made by the FOMC and our actions taken to reduce the cost of interest-bearing liabilities.

Provision for Credit Losses

Provision for credit losses is determined based on management’s estimates of the appropriate level of ACL 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 provision for credit loss expense and net charge-offs:

TABLE 6


	Three Months Ended September 30,						$		%
(dollars in thousands)	2021			2020			Change		Change
Provision for credit losses (on loans and leases)	$	(5,668)		$	27,233		$	(32,901)	(120.8)	%
Provision for unfunded loan commitments (1)	3,847			(287)			4,134		(1,440.4)
Net loan charge-offs	1,591			19,256			(17,665)		(91.7)
Net loan charge-offs (annualized) / total average loans and leases	0.03		%	0.29		%
(1) A net benefit of $0.3 million for the 2020 provision for unfunded loan commitments is included in other non-interest expense on the Consolidated Statements of Income.

Provision for credit losses was a net benefit of $1.8 million during the third quarter of 2021, a decrease of $28.8 million, from the same period of 2020. The third quarter of 2021 net benefit is comprised of $5.7 million net benefit on provision for loans and leases outstanding and a $3.8 million provision expense for unfunded loan commitments, driven by an increase in our commercial unfunded loan commitments. The decrease reflects improved credit trends in our portfolio credit metrics, with the year-ago quarter level primarily attributable to the impacts from the pandemic. Net loan charge-offs were $1.6 million, a decrease of $17.7 million, reflecting COVID-19 impacts on certain segments of the loan portfolio in 2020. For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses on Loans and Leases section of this Management’s Discussion and Analysis.

Non-Interest Income

The breakdown of non-interest income for the three months ended September 30, 2021 and 2020 is presented in the following table:

TABLE 7


	Three Months Ended September 30,				$		%
(dollars in thousands)	2021		2020		Change		Change
Service charges	$	31,716	$	24,296	$	7,420	30.5	%
Trust services	9,471		7,733		1,738		22.5
Insurance commissions and fees	6,776		6,401		375		5.9
Securities commissions and fees	5,465		4,494		971		21.6
Capital markets income	12,541		8,202		4,339		52.9
Mortgage banking operations	8,245		18,831		(10,586)		(56.2)
Dividends on non-marketable equity securities	1,857		2,496		(639)		(25.6)
Bank owned life insurance	3,279		3,867		(588)		(15.2)
Net securities gains	65		112		(47)		(42.0)
Loss on debt extinguishment	—		(4,360)		4,360		—
Other	9,439		7,966		1,473		18.5
Total non-interest income	$	88,854	$	80,038	$	8,816	11.0	%

Total non-interest income increased $8.8 million, or 11.0%, to $88.9 million for the third quarter of 2021 compared to $80.0 million for the third quarter of 2020. Excluding significant items, non-interest income increased $5.5 million, or 6.6%. The variances in the individual non-interest income items are explained in the following paragraphs.

Service charges on loans and deposits of $31.7 million for the third quarter of 2021 increased $7.4 million, or 30.5%, from the same period of 2020, as the year-ago quarter reflected a low point of customer activity during the pandemic.

Trust services of $9.5 million for the third quarter of 2021 increased $1.7 million, or 22.5%, from the same period of 2020. We continued to generate strong organic growth in accounts and services, while the market value of assets under management also increased $1.4 billion, or 20.9%, to $7.8 billion at September 30, 2021.

Securities commissions and fees of $5.5 million for the third quarter of 2021 increased $1.0 million, or 21.6%, from the same period of 2020 due to strong activity levels across the footprint.

Capital markets increased $4.3 million, or 52.9%, which included strong swap activity with solid contributions from commercial lending activity, as well as contributions from loan syndications, debt capital markets and international banking.

Mortgage banking operations income of $8.2 million for the third quarter of 2021 decreased $10.6 million, or 56.2%, from the same period of 2020, as secondary market revenue and mortgage held-for-sale pipelines normalized from record levels. During the third quarter of 2021, we sold $400.9 million of residential mortgage loans, compared to $478.3 million for the same period of 2020, a decrease of 16.2%.

Dividends on non-marketable equity securities of $1.9 million for the third quarter of 2021 decreased $0.6 million, or 25.6%, from the same period of 2020, primarily due to a decrease in the FHLB dividend rate and lower levels of FHLB borrowings given the strong growth in deposits.

The early termination of higher-rate long-term FHLB borrowings in the third quarter of 2020 resulted in a loss on debt extinguishment of $4.4 million.

Other non-interest income was $9.4 million and $8.0 million for the third quarter of 2021 and 2020, respectively. The third quarter of 2021 included $1.8 million more in SBA premium income, $0.9 million more from improved Small Business Investment Company (SBIC) fund performance, a $2.2 million recovery on a previously written-off other asset and various

miscellaneous increases. The third quarter of 2020 included a $13.8 million gain on the sale of Visa class B stock, partially offset by $8.9 million in hedge termination costs related to the early termination of higher-rate long-term FHLB borrowings.

TABLE 8



	Three Months Ended September 30,				$		%
(dollars in thousands)	2021		2020		Change		Change
Total non-interest income, as reported	$	88,854	$	80,038	$	8,816	11.0	%
Significant items:

Gain on sale of Visa class B stock	—		(13,818)		13,818
Loss on FHLB debt extinguishment and related hedge terminations	—		13,316		(13,316)

Service charge refunds	—		3,780		(3,780)
Total non-interest income, excluding significant items(1)	$	88,854	$	83,316	$	5,538	6.6	%
(1) Non-GAAP

Non-Interest Expense

The breakdown of non-interest expense for the three months ended September 30, 2021 and 2020 is presented in the following table:

TABLE 9


	Three Months Ended September 30,				$		%
(dollars in thousands)	2021		2020		Change		Change
Salaries and employee benefits	$	104,899	$	100,265	$	4,634	4.6	%
Net occupancy	12,913		13,837		(924)		(6.7)
Equipment	17,664		17,005		659		3.9
Amortization of intangibles	3,022		3,339		(317)		(9.5)
Outside services	17,839		16,676		1,163		7.0

FDIC insurance	4,380		4,064		316		7.8
Bank shares and franchise taxes	3,584		3,778		(194)		(5.1)
Merger-related	940		—		940		—
Other	18,985		21,245		(2,260)		(10.6)
Total non-interest expense	$	184,226	$	180,209	$	4,017	2.2	%

Total non-interest expense of $184.2 million for the third quarter of 2021 increased $4.0 million, or 2.2%, from the same period of 2020. Non-interest expense increased $5.7 million, or 3.2%, when excluding significant items of $0.9 million of merger-related expenses in the third quarter of 2021 and $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 $104.9 million for the third quarter of 2021 increased $4.6 million, or 4.6%, from the same period of 2020, primarily related to normal merit increases and higher production and performance-related commissions and incentives corresponding to strong production levels from mortgage banking and our fee-based businesses.

Outside services expense of $17.8 million for the third quarter of 2021 increased $1.2 million, or 7.0%, from $16.7 million from the same period of 2020, due to volume-related technology and higher legal costs. Additionally, the third quarter of 2020 included $0.3 million of COVID-19 expenses.

We recorded $0.9 million in merger-related costs in the third quarter of 2021 related to the pending Howard acquisition.

Other non-interest expense was $19.0 million and $21.2 million for the third quarter of 2021 and 2020, respectively. During the third quarter of 2020, we recorded over $2 million of COVID-19 related expenses.

The following table presents non-interest expense excluding significant items for the three months ended September 30, 2021 and 2020:

TABLE 10


	Three Months Ended September 30,				$		%
(dollars in thousands)	2021		2020		Change		Change
Total non-interest expense, as reported	$	184,226	$	180,209	$	4,017	2.2	%
Significant items:


COVID-19 expense	—		(2,671)		2,671
Merger-related	(940)		—		(940)
Total non-interest expense, excluding significant items (1)	$	183,286	$	177,538	$	5,748	3.2	%

(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)	2021			2020
Income tax expense	$	27,327		$	16,924
Effective tax rate	19.7		%	17.0		%
Statutory federal tax rate	21.0			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. Income tax expense was lower in 2020 due to lower pre-tax income levels and the residual benefits from renewable energy investment tax credits recognized last year.

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Net income available to common stockholders for the first nine months of 2021 was $300.1 million or $0.93 per diluted common share, compared to net income available to common stockholders for the first nine months of 2020 of $207.8 million or $0.64 per diluted common share. The provision for credit losses for the first nine months of 2021 totaled $3.0 million, due to continued improvement in the underlying portfolio credit trends. This compares to $105.2 million in the first nine months of 2020, due to the COVID-19 related impacts on macroeconomic forecasts used in the ACL model. Non-interest income totaled $251.4 million, increasing $25.2 million, or 11.2%, with broad-based contributions from across our businesses. 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, with both being recorded in other non-interest income. Additionally, we recorded $3.8 million of service charge refunds in the first nine months of 2020. Non-interest expense totaled $551.6 million, increasing $0.6 million, or 0.1%, as the first nine months of 2021 included the impact of merger-related costs of $0.9 million and branch consolidations costs of $2.6 million and the first nine months of 2020 included branch consolidation costs of $8.3 million and COVID-19 expense of $6.6 million.

Financial highlights are summarized below:

TABLE 12


	Nine Months Ended September 30,				$		%
(in thousands, except per share data)	2021		2020		Change		Change
Net interest income	$	683,200	$	687,690	$	(4,490)	(0.7)	%
Provision for credit losses	2,979		105,242		(102,263)		(97.2)
Non-interest income	251,431		226,192		25,239		11.2
Non-interest expense	551,588		551,033		555		0.1
Income taxes	73,929		43,804		30,125		68.8
Net income	306,135		213,803		92,332		43.2
Less: Preferred stock dividends	6,030		6,030		—		—
Net income available to common stockholders	$	300,105	$	207,773	$	92,332	44.4	%
Earnings per common share – Basic	$	0.94	$	0.64	$	0.30	46.9	%
Earnings per common share – Diluted	0.93		0.64		0.29		45.3
Cash dividends per common share	0.36		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,
	2021			2020
Return on average equity	8.17		%	5.84		%
Return on average tangible common equity (2)	15.87			11.72
Return on average assets	1.07			0.79
Return on average tangible assets (2)	1.16			0.87
Book value per common share (1)	$	15.65		$	14.99
Tangible book value per common share (1) (2)	8.42			7.81
Equity to assets (1)	12.95		%	13.22		%
Average equity to average assets	13.07			13.46
Common equity to assets (1)	12.68			12.94
Tangible equity to tangible assets (1) (2)	7.53			7.49
Tangible common equity to tangible assets (1) (2)	7.24			7.19
Common equity tier 1 capital ratio (1)	9.9			9.6
Dividend payout ratio	38.88			56.66

(1) Period-end

(2) Non-GAAP

TABLE 14


	Nine Months Ended September 30,
	2021						2020
(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	$	2,399,683	$	2,310	0.13	%	$	336,541	$	1,606	0.64	%

Taxable investment securities (1)	5,033,410		63,958		1.69		5,075,865		83,385		2.19
Tax-exempt investment securities (1)(2)	1,100,120		28,337		3.43		1,128,327		30,179		3.57
Loans held for sale	206,589		5,739		3.70		155,713		5,389		4.62
Loans and leases (2) (3)	25,190,510		667,835		3.54		25,061,913		748,328		3.99
Total interest-earning assets (2)	33,930,312		768,179		3.02		31,758,359		868,887		3.65
Cash and due from banks	376,276						361,171
Allowance for credit losses	(366,849)						(342,081)
Premises and equipment	337,262						334,879
Other assets	4,017,431						4,205,752
Total assets	$	38,294,432					$	36,318,080
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	13,683,402	14,927		0.15		$	11,839,283	49,358		0.56
Savings	3,394,718		510		0.02		2,818,593		2,651		0.13
Certificates and other time	3,294,084		22,623		0.92		4,404,265		59,345		1.80
Total interest-bearing deposits	20,372,204		38,060		0.25		19,062,141		111,354		0.78
Short-term borrowings	1,688,999		20,255		1.60		2,716,076		30,973		1.52
Long-term borrowings	977,269		18,443		2.52		1,538,425		29,400		2.55
Total interest-bearing liabilities	23,038,472		76,758		0.45		23,316,642		171,727		0.98
Non-interest-bearing demand	9,874,148						7,707,562
Total deposits and borrowings	32,912,620				0.31		31,024,204				0.74
Other liabilities	374,898						403,762
Total liabilities	33,287,518						31,427,966
Stockholders’ equity	5,006,914						4,890,114
Total liabilities and stockholders’ equity	$	38,294,432					$	36,318,080
Net interest-earning assets	$	10,891,840					$	8,441,717
Net interest income (FTE) (2)			691,421						697,160
Tax-equivalent adjustment			(8,221)						(9,470)
Net interest income			$	683,200					$	687,690
Net interest spread					2.57	%					2.67	%
Net interest margin (2)					2.72	%					2.93	%

(1)The average balances and yields earned on securities are based on historical cost.

(3)Average balances include non-accrual loans. Loans and leases consist of average total loans less average unearned income.

Net Interest Income

Net interest income on an FTE basis (non-GAAP) totaled $691.4 million, decreasing $5.7 million, or 0.8%, as the low interest rate environment impacted earning asset yields. The decrease was partially offset by significant earning asset growth of $2.2 billion or 6.8%. The net interest margin (FTE) (non-GAAP) declined 21 basis points to 2.72% reflecting higher average cash balances that reduced the net interest margin.

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, 2021, compared to the nine months ended September 30, 2020:

TABLE 15


(in thousands)	Volume		Rate		Net
Interest Income (1)
Interest-bearing deposits with banks	$	1,982	$	(1,278)	$	704

Securities (2)	(1,551)		(19,718)		(21,269)
Loans held for sale	1,751		(1,401)		350
Loans and leases (2)	3,420		(83,913)		(80,493)
Total interest income (2)	5,602		(106,310)		(100,708)
Interest Expense (1)
Deposits:
Interest-bearing demand	2,379		(36,810)		(34,431)
Savings	76		(2,217)		(2,141)
Certificates and other time	(9,595)		(27,127)		(36,722)
Short-term borrowings	(10,729)		11		(10,718)
Long-term borrowings	(10,575)		(382)		(10,957)
Total interest expense	(28,444)		(66,525)		(94,969)
Net change (2)	$	34,046	$	(39,785)	$	(5,739)

(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.

Interest income on an FTE basis (non-GAAP) of $768.2 million for the first nine months of 2021, decreased $100.7 million, or 11.6%, from the same period of 2020, resulting from the decrease in benchmark interest rates, partially offset by an increase in earning assets of $2.2 billion. The increase in earning assets was primarily driven by a $2.1 billion increase in average cash and cash equivalents and a $128.6 million, or 0.5%, increase in average loans due to solid loan origination activity across the footprint and the net benefit from PPP loans. Growth in average commercial loans totaled $655.9 million, or 4.0%, including growth of $246.5 million, or 3.8%, in commercial and industrial loans and $363.4 million, or 3.8%, in commercial real estate. Commercial growth was led by healthy origination activity in the Pittsburgh and Harrisburg, Pennsylvania regions. Total average consumer loans decreased $527.3 million, or 6.2%, with an increase in direct installment balances of $181.8 million, or 9.5%, offset by decreases in indirect installment loans of $552.1 million, or 31.2%, due to the sale of $0.5 billion of indirect auto installment loans in November 2020, as well as decreases in consumer lines of credit of $122.8 million, or 8.8%, and residential mortgage loans of $34.2 million, or 1.0%. Excluding PPP loans, period-end total loans and leases increased $867.6 million, or 3.7%, including growth of $621.7 million in commercial loans and leases and $246.0 million in consumer 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 $70.7 million, or 1.1%, given historically low and unattractive interest rates available for reinvestment purposes. For the first nine months of 2021, the yield on average earning assets (non-GAAP) decreased 63 basis points to 3.02%, compared to the first nine months of 2020, reflecting the impact of significant reductions in the short-term benchmark interest rates on variable-rate loans, significantly lower yields on investment securities and the effect of higher average cash balances on the mix of earning assets.

Interest expense of $76.8 million for the first nine months of 2021 decreased $95.0 million, or 55.3%, from the same period of 2020, primarily due to a decrease in rates paid, partially offset by an increase in average interest-bearing deposits. Average interest-bearing deposits increased $1.3 billion, or 6.9%, which reflects the benefit of solid organic growth in customer relationships, as well as deposits from PPP funding and government stimulus activities. Average time deposits had a managed decline of $1.1 billion, or 25.2%, as customer preferences continued to shift away from higher rate certificates of deposit to lower yielding, more liquid products. Average long-term borrowings decreased $561.2 million, or 36.5%, primarily due to a decrease of $609.1 million in long-term FHLB borrowings, partially offset by an increase of $59.2 million in senior debt. During 2020, we utilized excess low-yielding cash to opportunistically terminate $715 million of FHLB borrowings, and in certain instances, the related interest rate swap. The terminated FHLB borrowings had a 2.49% interest rate with a remaining term of 1.6 years. The rate paid on interest-bearing liabilities decreased 53 basis points to 0.45% for the first nine months of 2021, compared to the first nine months of 2020, due to the interest rate actions made by the FOMC and our actions taken to reduce the cost of interest-bearing liabilities given the low interest rate environment and strong growth in non-interest-bearing deposits.

Provision for Credit Losses

The following table presents information regarding the provision for credit loss expense and net charge-offs:

TABLE 16


	Nine Months Ended September 30,						$		%
(dollars in thousands)	2021			2020			Change		Change
Provision for credit losses (on loans and leases)	$	(1,309)		$	105,238		$	(106,547)	(101.2)	%
Provision for unfunded loan commitments (1)	4,275			2,180			2,095		96.1
Net loan charge-offs	12,548			33,428			(20,880)		(62.5)
Net loan charge-offs (annualized) / total average loans and leases	0.07		%	0.18		%
(1) The $2.2 million for the 2020 provision for unfunded loan commitments is included in other non-interest expense on the Consolidated Statements of Income.

Provision for credit losses was $3.0 million for the nine months ended September 30, 2021, a decrease of $104.5 million, from the same period of 2020. This year-to-date amount for 2021 is comprised of a $1.3 million net benefit on provision for loans and leases outstanding and a $4.3 million provision for unfunded loan commitments. The decrease reflects favorable asset quality trends across all loan portfolio credit metrics in 2021 and COVID-19 impacts on certain segments of the loan portfolio in 2020. Net charge-offs were $12.5 million during the nine months ended September 30, 2021, compared to $33.4 million during the nine months ended September 30, 2020, reflecting COVID-19 impacts on certain segments of the loan portfolio in 2020.

Non-Interest Income

The breakdown of non-interest income for the nine months ended September 30, 2021 and 2020 is presented in the following table:

TABLE 17


	Nine Months Ended September 30,				$		%
(dollars in thousands)	2021		2020		Change		Change
Service charges	$	89,273	$	78,362	$	10,911	13.9	%
Trust services	27,836		23,045		4,791		20.8
Insurance commissions and fees	20,188		18,788		1,400		7.5
Securities commissions and fees	16,830		12,796		4,034		31.5
Capital markets income	27,265		31,830		(4,565)		(14.3)
Mortgage banking operations	31,400		34,348		(2,948)		(8.6)
Dividends on non-marketable equity securities	6,516		9,940		(3,424)		(34.4)
Bank owned life insurance	10,993		10,968		25		0.2
Net securities gains	193		262		(69)		(26.3)
Loss on debt extinguishment	—		(4,360)		4,360		—
Other	20,937		10,213		10,724		105.0
Total non-interest income	$	251,431	$	226,192	$	25,239	11.2	%

Total non-interest income increased $25.2 million, to $251.4 million for the first nine months of 2021, an 11.2% increase from the same period of 2020. Excluding significant items, non-interest income increased $22.0 million, or 9.6%. The variances in significant individual non-interest income items are further explained in the following paragraphs.

Service charges on loans and deposits of $89.3 million for the first nine months of 2021 increased $10.9 million, or 13.9%, as the first nine months of 2020 reflected significantly reduced customer activity due to the pandemic. Additionally, during the first nine months of 2020, we recorded $3.8 million of service charge refunds.

Trust services of $27.8 million for the first nine months of 2021 increased $4.8 million, or 20.8%, from the same period of 2020, primarily driven by organic revenue production and the market value of assets under management increasing $1.4 billion, or 20.9%, to $7.8 billion at September 30, 2021.

Insurance commissions and fees of $20.2 million for the first nine months of 2021 increased $1.4 million, or 7.5%, from the same period of 2020, primarily from organic revenue growth across our footprint.

Securities commissions and fees of $16.8 million for the first nine months of 2021 increased $4.0 million, or 31.5%, due to strong activity levels across the footprint.

Capital markets income of $27.3 million for the first nine months of 2021 decreased $4.6 million, or 14.3%, from $31.8 million for the same period of 2020, due to lower customer swap activity compared to the record levels in the beginning of 2020 given heightened volatility in interest rates last year.

Mortgage banking operations income of $31.4 million for the first nine months of 2021 decreased $2.9 million, or 8.6%, from the same period of 2020 as secondary market revenue and mortgage held-for-sale pipelines declined from significantly elevated levels in 2020. During the first nine months of 2021, we sold $1.5 billion of residential mortgage loans, a 25.1% increase compared to $1.2 billion for the same period of 2020, however margins on sold production have normalized from significantly elevated levels last year. During the first nine months of 2021, we recognized a $3.8 million favorable interest-rate related valuation adjustment on MSRs, compared to an $7.5 million unfavorable adjustment for the same period of 2020.

Dividends on non-marketable equity securities of $6.5 million for the first nine months of 2021 decreased $3.4 million, or 34.4%, from the same period of 2020, primarily due to a decrease in the FHLB dividend rate and lower levels of FHLB borrowings given the strong growth in deposits.

The early termination of higher-rate long-term FHLB borrowings in the first nine months of 2020 resulted in a loss on debt extinguishment of $4.4 million.

Other non-interest income was $20.9 million and $10.2 million for the first nine months of 2021 and 2020, respectively. The first nine months of 2021 included $4.7 million more in SBA premium income, $3.3 million more from improved SBIC fund performance, a $2.2 million recovery on a previously written-off other asset and various miscellaneous increases.

TABLE 18

The following table presents non-interest income excluding significant items for the nine months of September 30, 2021 and 2020:



	Nine Months Ended September 30,				$		%
(dollars in thousands)	2021		2020		Change		Change
Total non-interest income, as reported	$	251,431	$	226,192	$	25,239	11.2	%
Significant items:

Gain on sale of Visa class B stock	—		(13,818)		13,818
Loss on FHLB debt extinguishment and related hedge terminations	—		13,316		(13,316)

Service charge refunds	—		3,780		(3,780)

Total non-interest income, excluding significant items(1)	$	251,431	$	229,470	$	21,961	9.6	%
(1) Non-GAAP

Non-Interest Expense

The breakdown of non-interest expense for the nine months ended September 30, 2021 and 2020 is presented in the following table:

TABLE 19


	Nine Months Ended September 30,				$		%
(dollars in thousands)	2021		2020		Change		Change
Salaries and employee benefits	$	314,275	$	298,062	$	16,213	5.4	%
Net occupancy	45,372		48,879		(3,507)		(7.2)
Equipment	51,854		48,661		3,193		6.6
Amortization of intangibles	9,096		10,021		(925)		(9.2)
Outside services	53,463		50,572		2,891		5.7

FDIC insurance	13,432		14,990		(1,558)		(10.4)
Bank shares and franchise taxes	10,939		11,899		(960)		(8.1)
Merger-related	940		—		940		—
Other	52,217		67,949		(15,732)		(23.2)
Total non-interest expense	$	551,588	$	551,033	$	555	0.1	%

Total non-interest expense of $551.6 million for the first nine months of 2021 increased $0.6 million, a 0.1% increase from the same period of 2020. On an operating basis, non-interest expense increased $11.9 million, or 2.2%, when excluding significant items of $0.9 million in merger-related costs and $2.6 million in branch consolidations in the first nine months of 2021 compared to $8.3 million in branch consolidation costs and $6.6 million of expenses associated with COVID-19 in the first nine months of 2020. The variances in the individual non-interest expense items are further explained in the following paragraphs.

Salaries and employee benefits of $314.3 million for the first nine months of 2021 increased $16.2 million, or 5.4%, from the same period of 2020, primarily related to normal merit increases and higher production and performance-related commissions and incentives corresponding to strong production levels from mortgage banking and our fee-based businesses.

Net occupancy and equipment expense of $97.2 million for the first nine months of 2021 was essentially flat from the same period of 2020. On an operating basis, net occupancy and equipment expense increased $5.1 million, or 5.6%, primarily due to expansion in key regions such as the Mid-Atlantic and South Carolina and continued digital technology investment in the first nine months of 2021.

Outside services expense of $53.5 million for the first nine months of 2021 increased $2.9 million, or 5.7%, from $50.6 million from the same period of 2020, due to various minor increases related to third-party technology providers, legal costs and other consulting engagements.

FDIC insurance expense of $13.4 million for the first nine months of 2021 decreased $1.6 million, or 10.4%, from the first nine months of 2020, primarily due to increased subordinated debt at FNBPA and improved liquidity metrics.

We recorded $0.9 million in merger-related costs for the first nine months of 2021 related to the pending Howard acquisition.

Other non-interest expense was $52.2 million and $67.9 million for the first nine months of 2021 and 2020, respectively, as the year-ago period included $4.3 million of COVID-19 related expenses and an impairment charge of $4.1 million from a renewable energy investment tax credit transaction. The related renewable energy investment tax credits were recognized during the same year-ago period as a benefit to income taxes. 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. During the first nine months of 2021 and 2020, we recorded $0.5 million and $0.9 million, respectively, in branch consolidation costs in other non-interest expense.

The following table presents non-interest expense excluding significant items for the nine months ended September 30, 2021 and 2020:

TABLE 20


	Nine Months Ended September 30,				$		%
(dollars in thousands)	2021		2020		Change		Change
Total non-interest expense, as reported	$	551,588	$	551,033	$	555	0.1	%
Significant items:

Branch consolidations	(2,644)		(8,262)		5,618
COVID-19 expense	—		(6,622)		6,622
Merger-related	(940)		—		(940)
Total non-interest expense, excluding significant items (1)	$	548,004	$	536,149	$	11,855	2.2	%

(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)	2021			2020
Income tax expense	$	73,929		$	43,804
Effective tax rate	19.5		%	17.0		%
Statutory federal tax rate	21.0			21.0

FINANCIAL CONDITION

The following table presents our condensed Consolidated Balance Sheets:

TABLE 22


(dollars in millions)	September 30, 2021		December 31, 2020		$ Change		% Change
Assets
Cash and cash equivalents	$	4,110	$	1,383	$	2,727	197.2	%
Securities	6,410		6,331		79		1.2
Loans held for sale	253		154		99		64.3
Loans and leases, net	24,367		25,096		(729)		(2.9)
Goodwill and other intangibles	2,307		2,316		(9)		(0.4)
Other assets	1,914		2,074		(160)		(7.7)
Total Assets	$	39,361	$	37,354	$	2,007	5.4	%
Liabilities and Stockholders’ Equity
Deposits	$	31,444	$	29,122	$	2,322	8.0	%
Borrowings	2,449		2,899		(450)		(15.5)
Other liabilities	370		374		(4)		(1.1)
Total Liabilities	34,263		32,395		1,868		5.8
Stockholders’ Equity	5,098		4,959		139		2.8
Total Liabilities and Stockholders’ Equity	$	39,361	$	37,354	$	2,007	5.4	%

Cash and cash equivalents increased in 2021 primarily due to deposit growth of $2.3 billion from continued customer expansion in our footprint and government stimulus programs including PPP.

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. Since the inception of the PPP, we originated $3.6 billion of PPP loans, including $1.0 billion during the first nine months of 2021, of which $0.7 billion is outstanding.

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. As of September 30, 2021, we had approximately $0.7 billion of PPP loans remaining outstanding, net of unamortized net deferred fees of $20.4 million, which are included in the commercial and industrial category. During the first nine months of 2021, $2.9 billion of PPP loan balances were forgiven by the SBA.

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, which provides a reduced risk of loss to us on these loans. 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, adjusted for expected prepayments on these pools of homogenous loans. We expect most of the remaining $20.4 million of net deferred fees to be recognized by March 31, 2022 based on expected loan forgiveness activity. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act (PPP 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 PPP 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.

Following is a summary of loans and leases:

TABLE 23


	September 30, 2021		December 31, 2020		$ Change		% Change
(in millions)
Commercial real estate	$	9,871	$	9,731	$	140	1.4	%
Commercial and industrial	5,960		7,214		(1,254)		(17.4)
Commercial leases	489		485		4		0.8
Other	81		40		41		102.5
Total commercial loans and leases	16,401		17,470		(1,069)		(6.1)
Direct installment	2,250		2,020		230		11.4
Residential mortgages	3,588		3,433		155		4.5
Indirect installment	1,230		1,218		12		1.0
Consumer lines of credit	1,247		1,318		(71)		(5.4)
Total consumer loans	8,315		7,989		326		4.1
Total loans and leases	$	24,716	$	25,459	$	(743)	(2.9)	%

The commercial and industrial category includes PPP loans totaling $0.7 billion and $2.2 billion at September 30, 2021 and December 31, 2020, respectively.

Non-Performing Assets

Following is a summary of non-performing assets:

TABLE 24


(in millions)	September 30, 2021		December 31, 2020		$ Change		% Change
Commercial real estate	$	55	$	85	$	(30)	(35.3)	%
Commercial and industrial	23		44		(21)		(47.7)
Commercial leases	1		2		(1)		(50.0)
Other	1		1		—		—
Total commercial loans and leases	80		132		(52)		(39.4)
Direct installment	8		11		(3)		(27.3)
Residential mortgages	14		18		(4)		(22.2)
Indirect installment	2		2		—		—
Consumer lines of credit	6		7		(1)		(14.3)
Total consumer loans	30		38		(8)		(21.1)
Total non-performing loans and leases	110		170		(60)		(35.3)
Other real estate owned	8		10		(2)		(20.0)
Non-performing assets	$	118	$	180	$	(62)	(34.4)	%

Non-performing assets decreased $62.2 million, from $180.7 million at December 31, 2020 to $118.5 million at September 30, 2021. This reflects a decrease of $60.1 million in non-performing loans and leases and a decrease of $2.1 million in OREO. The

decrease in non-performing loans was driven by the resolution of several commercial credits, and the decrease in OREO was largely driven by the sale of residential mortgage properties.

If 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 change in status.

Troubled Debt Restructured Loans

Following is a summary of accruing and non-accrual TDRs, by class:

TABLE 25


(in millions)	Accruing		Non- Accrual		Total
September 30, 2021
Commercial real estate	$	5	$	23	$	28
Commercial and industrial	1		1		2
Total commercial loans	6		24		30
Direct installment	22		4		26
Residential mortgages	25		6		31

Consumer lines of credit	5		1		6
Total consumer loans	52		11		63
Total TDRs	$	58	$	35	$	93
December 31, 2020
Commercial real estate	$	4	$	18	$	22
Commercial and industrial	1		3		4
Total commercial loans	5		21		26
Direct installment	23		4		27
Residential mortgages	24		7		31

Consumer lines of credit	6		1		7
Total consumer loans	53		12		65
Total TDRs	$	58	$	33	$	91

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, "Summary of Significant Accounting Policies" of our 2020 Annual Report on Form 10-K. The CECL model takes into consideration the expected credit losses over the life of the loan at the time the loan is originated compared to the incurred loss model under the prior standard. 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 default mean calculated using an expanded period to include a prior recessionary period.

COVID-19 Impacts on the ACL

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 utilized a third-party pandemic recessionary scenario from the first quarter of 2020 through the third quarter of 2020 for ACL modeling purposes. At December 31, 2020 and September 30, 2021, we utilized a third-party consensus macroeconomic forecast due to the improving macroeconomic environment. Macroeconomic variables that we utilized from this scenario for our ACL calculation as of December 31, 2020 included, but were not limited to: (i) gross domestic product, which reflects growth of 4% in 2021, (ii) the Dow Jones Total Stock Market Index, which grows steadily throughout the R&S forecast period, (iii) unemployment, which steadily declines and averages 6% over the R&S forecast period and (iv) the Volatility Index, which remains stable over the R&S forecast period. For our ACL calculation at September 30, 2021, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which reflects growth of 6.1% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which reflects growth of 9.5% over our R&S forecast period, (iii) S&P Volatility, which increases 7.7% in 2022 before declining 2.7% in 2023 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historic levels. While we have not changed our ACL modeling methodology, we continually assess our key macroeconomic variables and their correlation to our historical and expected portfolio performance. During the quarter, we changed certain macroeconomic variables used for ACL modeling purposes as the new variables better correlate to our historical performance over the economic cycles.

The ACL of $349.3 million at September 30, 2021 decreased $13.9 million, or 3.8%, from December 31, 2020 due to the improving credit metrics partially offset by commercial loan growth excluding PPP. Our ending ACL coverage ratio at September 30, 2021 was 1.41%, compared to 1.43% at December 31, 2020. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loan and leases ratio equaled 1.45% at September 30, 2021 and 1.56% at December 31, 2020. Total provision for credit losses for the nine months ended September 30, 2021 was $3.0 million. Net charge-offs were $12.5 million for the nine months ended September 30, 2021, compared to $33.4 million for the nine months ended September 30, 2020, reflecting COVID-19 impacts on certain segments of the loan portfolio. The ACL as a percentage of non-performing loans for the total portfolio increased from 213% as of December 31, 2020 to 317% as of September 30, 2021 following the decrease in non-performing loans during the quarter, while the total ACL decreased $13.9 million, as noted above.

Deposits

As a bank holding company, our primary source of funds is deposits. These deposits are provided by business, consumer and municipal customers who we serve within our footprint.

Following is a summary of deposits:

TABLE 26


(in millions)	September 30, 2021		December 31, 2020		$ Change		% Change
Non-interest-bearing demand	$	10,502	$	9,042	$	1,460	16.1	%
Interest-bearing demand	14,360		13,157		1,203		9.1
Savings	3,537		3,261		276		8.5
Certificates and other time deposits	3,045		3,662		(617)		(16.8)
Total deposits	$	31,444	$	29,122	$	2,322	8.0	%

Total deposits increased $2.3 billion, or 8.0%, from December 31, 2020, primarily as a result of growth in non-interest-bearing and interest-bearing demand balances due to an expansion of customer relationships and higher customer balances, which were aided by inflows from the PPP and government stimulus activity. Customer preferences continued to shift away from higher rate certificates of deposit to lower yielding, more liquid products, and to maintain larger deposit account balances than before the pandemic. The deposit growth helped us eliminate overnight borrowings and reduce higher-cost short-term FHLB borrowings and their related swaps.

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 and sustainability, 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 used the net proceeds from the sale of the notes 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.

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. Since inception, we repurchased 7.6 million shares at a weighted average share price of $10.69 for $81.6 million under this repurchase program.

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 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 CET1 capital (as defined in the regulations) to risk-weighted assets (as defined) and a 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, 2021, 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 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 a final rule that became effective on March 31, 2020, and provides BHCs and banks with an alternative option to temporarily delay the impact of CECL, relative to the incurred loss methodology for 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 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 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 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. As of September 30, 2021, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $68.6 million, or 24 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 like 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.

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)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2021
F.N.B. Corporation
Total capital	$	3,486	12.24	%	$	2,848	10.00	%	$	2,990	10.50	%
Tier 1 capital	2,920		10.25		1,709		6.00		2,420		8.50
Common equity tier 1	2,813		9.88		n/a		n/a		1,993		7.00
Leverage	2,920		8.00		n/a		n/a		1,460		4.00
Risk-weighted assets	28,475
FNBPA
Total capital	3,636		12.80	%	2,841		10.00	%	2,983		10.50	%
Tier 1 capital	3,114		10.96		2,273		8.00		2,415		8.50
Common equity tier 1	3,034		10.68		1,847		6.50		1,989		7.00
Leverage	3,114		8.54		1,823		5.00		1,458		4.00
Risk-weighted assets	28,410
As of December 31, 2020
F.N.B. Corporation
Total capital	$	3,324	12.33	%	$	2,695	10.00	%	$	2,830	10.50	%
Tier 1 capital	2,759		10.24		1,617		6.00		2,291		8.50
Common equity tier 1	2,652		9.84		n/a		n/a		1,886		7.00
Leverage	2,759		7.83		n/a		n/a		1,410		4.00
Risk-weighted assets	26,948
FNBPA
Total capital	3,400		12.64	%	2,690		10.00	%	2,825		10.50	%
Tier 1 capital	2,882		10.71		2,152		8.00		2,287		8.50
Common equity tier 1	2,802		10.42		1,749		6.50		1,883		7.00
Leverage	2,882		8.19		1,760		5.00		1,408		4.00
Risk-weighted assets	26,902

(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 2020

Annual Report on Form 10-K as filed with the SEC on February 25, 2021. 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.

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 ALCO 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. The cash position at September 30, 2021 was $296.8 million, down $82.8 million from year-end, due primarily to $43.2 million in share repurchases. Management has utilized various strategies to ensure sufficient cash on hand is available to meet the parent's funding needs.

Two metrics that are used to gauge the adequacy of the parent company’s cash position are the Liquidity Coverage Ratio (LCR) and Months of Cash on Hand (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,
2021

December 31,
2020

Internal
Limit

Liquidity coverage ratio

2.5 times

2.7 times

> 1 time

Months of cash on hand

17.6 months

22.2 months

> 12 months

Management has concluded that our cash levels remain appropriate given the current market environment.

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 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. We have also increased customer deposit relationships due to the success of our PPP. Total deposits were $31.4 billion at September 30, 2021, an increase of $2.3 billion, or 10.7% annualized, from December 31, 2020. Total non-interest-bearing demand deposit accounts grew $1.5 billion, or 21.6% annualized, and interest-bearing demand deposits increased $1.2 billion, or 12.2% annualized. Savings account balances increased $275.5 million, or 11.3% annualized. Time deposits declined $617.2 million, or 22.5% annualized, as customer preferences continued to shift away from higher rate certificates of deposit to lower yielding, more liquid products, and to maintain larger balances in their deposit accounts than before the pandemic. As mentioned earlier, inflows from PPP and government stimulus checks were a significant factor in the deposit growth.

As a result of the strong deposit activity, our cash balances held at the FRB increased $2.7 billion from year-end to $3.5 billion at September 30, 2021.

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 and 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 level for salable unpledged government and agency securities to total assets and a minimum of 3% of total assets level for cash plus salable unpledged government and agency securities.

The following table presents certain information relating to FNBPA’s credit availability and salable unpledged securities:

TABLE 29


(dollars in millions)	September 30, 2021			December 31, 2020
Unused wholesale credit availability	$	13,896		$	16,434
Unused wholesale credit availability as a % of FNBPA assets	35.4		%	44.1		%
Salable unpledged government and agency securities	$	285		$	546
Salable unpledged government and agency securities as a % of FNBPA assets	0.7		%	1.5		%
Cash and salable unpledged government and agency securities as a % of FNBPA assets	9.8		%	3.8		%

The decrease in unused wholesale credit availability was due to the expiration of the Paycheck Protection Program Liquidity Facility (PPPLF) as the FRB ceased lending money under this program, effective July 30, 2021. We had no borrowings under this facility. Our strong cash position would also be available 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, 2021 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 12.5% as of September 30, 2021, compared to 8.2% as of December 31, 2020. 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	$	685		$	1,422		$	1,647		$	2,933		$	6,687
Investments	3,816			262			413			741			5,232
	4,501			1,684			2,060			3,674			11,919
Liabilities
Non-maturity deposits	329			659			1,178			2,221			4,387
Time deposits	218			484			687			819			2,208
Borrowings	11			221			130			61			423
	558			1,364			1,995			3,101			7,018
Period Gap (Assets - Liabilities)	$	3,943		$	320		$	65		$	573		$	4,901
Cumulative Gap	$	3,943		$	4,263		$	4,328		$	4,901
Cumulative Gap to Total Assets	10.0		%	10.8		%	11.0		%	12.5		%

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.

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 indices, 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, 2021 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	$	12,024		$	1,086		$	884		$	1,746		$	15,740
Investments	3,818			269			544			732			5,363
	15,842			1,355			1,428			2,478			21,103
Liabilities
Non-maturity deposits	9,951			—			—			—			9,951
Time deposits	346			483			685			815			2,329
Borrowings	850			607			6			13			1,476
	11,147			1,090			691			828			13,756
Off-balance sheet	450			530			(100)			—			880
Period Gap (assets – liabilities + off-balance sheet)	$	5,145		$	795		$	637		$	1,650		$	8,227
Cumulative Gap	$	5,145		$	5,940		$	6,577		$	8,227
Cumulative Gap to Assets	14.7		%	16.9		%	18.7		%	23.4		%

The twelve-month cumulative repricing gap to total assets was 23.4% and 19.6% as of September 30, 2021 and December 31, 2020, 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, 2021, compared to December 31, 2020, is primarily related to growth in deposits. As mentioned earlier, inflows from PPP and government stimulus checks were a significant factor of growth in non-interest-bearing balances. We are also using this opportunity to expand customer relationships. Customer preferences continued to shift away from higher rate certificates of deposit to lower yielding, more liquid products, and to maintain larger balances in their deposit accounts than before the pandemic. The deposit growth helped us eliminate overnight borrowings and reduce other short-term borrowings.

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, 2021. Using a static Balance Sheet structure, the measures do not reflect 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, 2021		December 31, 2020		ALCO Limits
Net interest income change (12 months):
+ 300 basis points	23.9	%	17.9	%	n/a
+ 200 basis points	15.8		12.0		(5.0)	%
+ 100 basis points	7.5		5.9		(5.0)
- 100 basis points	(2.4)		0.4		(5.0)
Economic value of equity:
+ 300 basis points	8.9		8.8		(25.0)
+ 200 basis points	7.4		7.1		(15.0)
+ 100 basis points	4.5		4.5		(10.0)
- 100 basis points	(9.1)		(9.4)		(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 3.9% at September 30, 2021 and 3.2% at December 31, 2020. The corresponding metrics for a minus 100 basis point Rate Ramp are (0.8)% and 0.4% at September 30, 2021 and December 31, 2020, respectively. Deposit rate assumptions are floored at zero in the negative scenarios.

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-nine percent of our net loans and leases are indexed to one-month LIBOR. Our increased cash position related to increased deposits has also been a significant factor in our metrics. Assuming no replacement, the estimated impact of available cash in the +200-shock scenario above accounts for 8.3% of the 15.8% total asset sensitivity. These factors were the primary drivers of the increase in asset sensitivity. In this historically low rate environment, our strategy is to remain asset sensitive to benefit from future increases in interest rates.

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 average maturity of the certificates of deposit volumes. This continues to be an intense focus of management. Further, management took advantage of the interest rate environment to reduce borrowing costs. Management has reduced the level of wholesale borrowings by approximately $500 million this year. On the lending side, we regularly sell long-term fixed-rate residential mortgages in 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 60.2% of total net loans and leases as of September 30, 2021 and 56.0% as of December 31, 2020. As of September 30, 2021, the commercial swaps totaled $5.3 billion of notional principal, with $970.6 million in original notional swap principal originated during the first nine months of 2021. This quarter, we executed $500 million 4-year receive fixed/pay floating 1-month LIBOR interest rate swaps as a hedge to additional asset sensitivity. For additional information regarding interest rate swaps, see Note 10, "Derivative Instruments and Hedging Activities" in the Notes to the Consolidated Financial Statements in this Report. The investment portfolio is also used, in part, to manage our IRR position.

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 shareholder 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 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 cybersecurity 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 cybersecurity 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 our plans for various types 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, 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.

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)	2021		2020		2021		2020
Net income available to common stockholders	$	109,503	$	80,766	$	300,105	$	207,773
Merger-related expense	940		—		940		—
Tax benefit of merger-related expense	(197)		—		(197)		—



COVID-19 expense	—		2,671		—		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 stock	—		2,902		—		2,902
Loss on FHLB debt extinguishment and related hedge terminations	—		13,316		—		13,316
Tax benefit of loss on FHLB debt extinguishment and related hedge terminations	—		(2,796)		—		(2,796)


Branch consolidation costs	—		—		2,644		8,262
Tax benefit of branch consolidation costs	—		—		(555)		(1,735)
Service charge refunds	—		3,780		—		3,780
Tax benefit of service charge refunds	—		(794)		—		(794)
Operating net income available to common stockholders (non-GAAP)	$	110,246	$	85,466	$	302,937	$	222,121

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 merger expenses, branch consolidation costs, service charge refunds and COVID-19 expenses, are not organic costs to run our operations and facilities. The merger expenses and 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.

TABLE 34

Operating earnings per diluted common share


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income per diluted common share	$	0.34	$	0.25	$	0.93	$	0.64
Merger-related expense	—		—		—		—
Tax benefit of merger-related expense	—		—		—		—



COVID-19 expense	—		0.01		—		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 stock	—		0.01		—		0.01
Loss on FHLB debt extinguishment and related hedge terminations	—		0.04		—		0.04
Tax benefit of loss on FHLB debt extinguishment and related hedge terminations	—		(0.01)		—		(0.01)


Branch consolidation costs	—		—		0.01		0.03
Tax benefit of branch consolidation costs	—		—		—		(0.01)
Service charge refunds	—		0.01		—		0.01
Tax benefit of service charge refunds	—		—		—		—
Operating earnings per diluted common share (non-GAAP)	$	0.34	$	0.26	$	0.94	$	0.68

TABLE 35

Return on average tangible common equity


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2021			2020			2021			2020
Net income available to common stockholders (annualized)	$	434,443		$	321,307		$	401,239		$	277,536
Amortization of intangibles, net of tax (annualized)	9,471			10,495			9,607			10,575
Tangible net income available to common stockholders (annualized) (non-GAAP)	$	443,914		$	331,802		$	410,846		$	288,111
Average total stockholders’ equity	$	5,063,432		$	4,915,933		$	5,006,914		$	4,890,114
Less: Average preferred stockholders' equity	(106,882)			(106,882)			(106,882)			(106,882)
Less: Average intangible assets (1)	(2,308,922)			(2,321,352)			(2,311,940)			(2,324,638)
Average tangible common equity (non-GAAP)	$	2,647,628		$	2,487,699		$	2,588,092		$	2,458,594
Return on average tangible common equity (non-GAAP)	16.77		%	13.34		%	15.87		%	11.72		%

(1) Excludes loan servicing rights.

TABLE 36

Return on average tangible assets


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2021			2020			2021			2020
Net income (annualized)	$	442,414		$	329,305		$	409,302		$	285,591
Amortization of intangibles, net of tax (annualized)	9,471			10,495			9,607			10,575
Tangible net income (annualized) (non-GAAP)	$	451,885		$	339,800		$	418,909		$	296,166
Average total assets	$	38,718,399		$	37,466,706		$	38,294,432		$	36,318,080
Less: Average intangible assets (1)	(2,308,922)			(2,321,352)			(2,311,940)			(2,324,638)
Average tangible assets (non-GAAP)	$	36,409,477		$	35,145,354		$	35,982,492		$	33,993,442
Return on average tangible assets (non-GAAP)	1.24		%	0.97		%	1.16		%	0.87		%

(1) Excludes loan servicing rights.

TABLE 37

Tangible book value per common share


	September 30, 2021		September 30, 2020
(dollars in thousands, except per share data)
Total stockholders’ equity	$	5,098,407	$	4,951,059
Less: Preferred stockholders’ equity	(106,882)		(106,882)
Less: Intangible assets (1)	(2,307,432)		(2,319,689)
Tangible common equity (non-GAAP)	$	2,684,093	$	2,524,488
Ending common shares outstanding	318,921,616		323,212,398
Tangible book value per common share (non-GAAP)	$	8.42	$	7.81

(1) Excludes loan servicing rights.

TABLE 38

Tangible equity to tangible assets (period-end)


	September 30, 2021			September 30, 2020
(dollars in thousands)
Total stockholders' equity	$	5,098,407		$	4,951,059
Less: Intangible assets (1)	(2,307,432)			(2,319,689)
Tangible equity (non-GAAP)	$	2,790,975		$	2,631,370
Total assets	$	39,361,110		$	37,440,672
Less: Intangible assets (1)	(2,307,432)			(2,319,689)
Tangible assets (non-GAAP)	$	37,053,678		$	35,120,983
Tangible equity / tangible assets (period-end) (non-GAAP)	7.53		%	7.49		%

(1) Excludes loan servicing rights.

TABLE 39

Tangible common equity / tangible assets (period-end)


	September 30, 2021			September 30, 2020
(dollars in thousands)
Total stockholders' equity	$	5,098,407		$	4,951,059
Less: Preferred stockholders' equity	(106,882)			(106,882)
Less: Intangible assets (1)	(2,307,432)			(2,319,689)
Tangible common equity (non-GAAP)	$	2,684,093		$	2,524,488
Total assets	$	39,361,110		$	37,440,672
Less: Intangible assets (1)	(2,307,432)			(2,319,689)
Tangible assets (non-GAAP)	$	37,053,678		$	35,120,983
Tangible common equity / tangible assets (period-end) (non-GAAP)	7.24		%	7.19		%

(1) Excludes loan servicing rights.

TABLE 40

Allowance for credit losses / loans and leases, excluding PPP loans (period-end)


(dollars in thousands)	September 30, 2021			December 31, 2020
ACL - loans	$	349,250		$	363,107
Loans and leases	$	24,716,335		$	25,458,645
Less: PPP loans outstanding	(694,326)			(2,158,452)
Loans and leases, excluding PPP loans outstanding (non-GAAP)	$	24,022,009		$	23,300,193
ACL loans / loans and leases, excluding PPP loans (non-GAAP)	1.45		%	1.56		%

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)	2021			2020			2021			2020
Net interest income	$	232,406		$	227,098		$	683,200		$	687,690
Non-interest income	88,854			80,038			251,431			226,192
Less: Non-interest expense	(184,226)			(180,209)			(551,588)			(551,033)
Pre-provision net revenue (as reported)	$	137,034		$	126,927		$	383,043		$	362,849
Pre-provision net revenue (as reported) (annualized)	$	543,669		$	504,948		$	512,127		$	484,681
Adjustments:

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
Less: Gain on sale of subsidiary (non-interest income)	—			—			—			—
Add: Merger-related expense (non-interest expense)	940			—			940			—
Add: COVID-19 expense (non-interest expense)	—			2,671			—			6,622

Add: Branch consolidation costs (non-interest expense)	—			—			2,644			8,262
Add: Tax credit-related impairment project (non-interest expense)	—			—			—			4,101
Pre-provision net revenue (operating) (non-GAAP)	$	137,974		$	132,876		$	386,627		$	385,112
Pre-provision net revenue (operating) (annualized) (non-GAAP)	$	547,399		$	528,614		$	516,919		$	514,419
Average total shareholders’ equity	$	5,063,432		$	4,915,933		$	5,006,914		$	4,890,114
Less: Average preferred shareholders’ equity	(106,882)			(106,882)			(106,882)			(106,882)
Less: Average intangible assets (1)	(2,308,922)			(2,321,352)			(2,311,940)			(2,324,638)
Average tangible common equity (non-GAAP)	$	2,647,628		$	2,487,699		$	2,588,092		$	2,458,594
Pre-provision net revenue (reported) / average tangible common equity (non-GAAP)	20.53		%	20.30		%	19.79		%	19.71		%
Pre-provision net revenue (operating) / average tangible common equity (non-GAAP)	20.68		%	21.25		%	19.97		%	20.92		%
(1) Excludes loan servicing rights.

TABLE 42

Efficiency ratio


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2021			2020			2021			2020
Non-interest expense	$	184,226		$	180,209		$	551,588		$	551,033
Less: Amortization of intangibles	(3,022)			(3,339)			(9,096)			(10,021)
Less: OREO expense	(781)			(1,061)			(2,066)			(3,347)
Less: Merger-related expense	(940)			—			(940)			—

Less: COVID-19 expense	—			(2,671)			—			(6,622)

Less: Branch consolidation costs	—			—			(2,644)			(8,262)
Less: Tax credit-related project impairment	—			—			—			(4,101)
Adjusted non-interest expense	$	179,483		$	173,138		$	536,842		$	518,680
Net interest income	$	232,406		$	227,098		$	683,200		$	687,690
Taxable equivalent adjustment	2,620			3,018			8,221			9,470
Non-interest income	88,854			80,038			251,431			226,192
Less: Net securities gains	(65)			(112)			(193)			(262)

Less: Gain on sale of Visa class B stock	—			(13,818)			—			(13,818)
Add: Loss on FHLB debt extinguishment and related hedge terminations	—			13,316			—			13,316


Add: Service charge refunds	—			3,780			—			3,780
Adjusted net interest income (FTE) + non-interest income	$	323,815		$	313,320		$	942,659		$	926,368
Efficiency ratio (FTE) (non-GAAP)	55.43		%	55.26		%	56.95		%	55.99		%

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, 2021, as required by paragraph (d) of Rules 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 11, "Commitments, Credit Risk and Contingencies" 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 2020 Annual Report on Form 10-K.

The risk factors below relate to the recently announced acquisition of Howard, and its wholly-owned subsidiary, Howard Bank, and are in addition to the risk factors previously disclosed in our 2020 Annual Report on Form 10-K.

Combining FNB and Howard may be more difficult, costly or time-consuming than expected, and the anticipated benefits and cost savings of the merger with Howard may not be realized.

FNB and Howard have operated and, until the completion of the merger, will continue to operate, independently from each other. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses of FNBPA and Howard Bank, along with the timely and successful core data system conversion, within our projected timeframe in a manner that permits growth opportunities, continued seamless operations and does not materially disrupt existing customer relationships or result in decreased revenues due to loss of customers.

A number of factors could affect our ability to successfully combine our business with the business of Howard. Key employees of Howard, whose services will be needed to complete the integration process, may elect to terminate their employment as a result of, or in anticipation of, the merger. The integration process itself could be disruptive to our ongoing businesses, causing loss of momentum in one or more of our businesses or inconsistencies or changes in standards, practices, business models, controls, procedures and policies that could adversely affect our ability to maintain relationships with customers and employees.

If we encounter significant difficulties in the integration process, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve the anticipated benefits of the merger in the timeframes projected by us could result in increased costs and decreased revenues. This could have a dilutive effect on the combined company’s proforma earnings per share.

Our ability to complete the merger is subject to the satisfaction (or waiver by the parties) of the closing conditions set forth in the merger agreement, some of which are outside of the parties’ control.

The merger agreement contains a number of conditions that must be fulfilled in order to complete the merger. Those conditions include: approval of adoption of the merger agreement and the merger by Howard shareholders, receipt of all required regulatory approvals, absence of any law, statute or regulation, or any order, injunction or other legal restraint or prohibition preventing the completion of the merger, effectiveness of the registration statement for the merger proxy statement/prospectus, the accuracy of the representations and warranties of both parties (subject to applicable materiality qualifiers), and the performance, in all material respects, by both parties of their respective covenants and agreements. There can be no assurance that the conditions to the completion of the merger will be fulfilled or that the merger will be completed.

The COVID-19 pandemic may delay and adversely affect the completion of the merger.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the business, financial condition, liquidity, capital and results of operations of us and Howard. If the effects of the COVID-19 pandemic cause a decline in the economic environment, and the financial results of us or Howard, or if the business operations of us or Howard are further disrupted as a result of the COVID-19 pandemic, efforts to complete the merger and integrate the businesses of us and Howard may be delayed and adversely affected.

We will be subject to business uncertainties while the merger is pending, which could result in loss of key employees or customers.

Uncertainties about the effect of the merger on employees and customers may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with us to consider changing their existing business relationships with us or cause Howard customers to seek another financial services provider. Retention of certain Howard employees may be challenging during the pendency of the merger, as certain employees may experience uncertainty about their future roles. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, our business could be negatively impacted.

If the merger is not completed, we will have incurred substantial expenses without realizing the expected benefits of the merger.

We will incur substantial expenses in connection with the proposed merger with Howard, which are charged to earnings as incurred. If the merger is not completed, these expenses will still be charged to earnings even though we would not have realized the expected benefits of the merger. There can be no assurance that the merger will be completed.

Termination of the merger agreement could have a negative impact on our prospects and stock price.

The merger agreement contains a number of provisions that could permit either or both parties to abandon the merger and terminate the merger agreement. If the merger agreement is terminated, there may be various adverse consequences to us. For example, since certain matters relating to the merger (including business integration and data system conversion planning) will require substantial commitments of time and resources by our management team, our businesses may be adversely affected by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of our common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed.

We may not be able to compete successfully in Howard’s market area or in specialty lending areas that are part of Howard’s business.

Our success in Howard’s markets will depend, in part, on our ability to successfully offer products and services to consumers, that Howard does not currently offer, such as asset-based lending, lease financing, capital markets, wealth management, insurance brokerage, securities brokerage and investment advisory, mortgage loans and private lending. This business strategy will require us to attract and retain qualified and experienced personnel to support those products and services. We could lose existing customers or fail to acquire new customers in this market.

The merger may not be accretive, and may be dilutive, to our earnings per share, which may negatively affect the market price of our common stock.

We currently expect the merger to be accretive to earnings per share in the first full calendar year after closing (excluding one-time charges). This expectation, however, is based on preliminary estimates which may materially change, including the currently expected timing of the merger. We may encounter additional transaction- and integration-related costs or other factors such as a delay in the closing of the merger, may fail to realize all of the benefits anticipated in the merger or may be subject to other factors that affect preliminary estimates or our ability to realize operational efficiencies. Any of these factors could cause a decrease in our earnings per share or decrease or delay the expected accretive effect of the merger and contribute to a decrease in the price of our common stock.

Our decisions regarding the credit risk associated with Howard Bank’s loan portfolio could be incorrect and our credit mark may be inadequate, which may adversely affect the financial condition and results of operations of the combined company after the closing of the merger.

Before signing the merger agreement, we conducted extensive due diligence on a significant portion of the Howard Bank loan portfolio. However, our review did not encompass each and every loan in the Howard Bank loan portfolio. In accordance with customary industry practices, we evaluated the Howard Bank loan portfolio based on various factors including, among other things, historical loss experience, economic risks associated with each loan category, volume and types of loans, trends in classification, volume and trends in delinquencies and non-accruals, and general economic conditions, both local and national. In this process, our management made various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness and financial condition of the borrowers, the value of the real estate, which is obtained from independent appraisers, other assets serving as collateral for the repayment of the loans, the existence of any guarantees and indemnifications and the economic environment in which the borrowers operate. In addition, the effects of probable decreases in expected principal cash flows on the Howard Bank loans were considered as part of our evaluation. If our assumptions and judgments turn out to be incorrect, including as a result of the fact that our due diligence review did not cover each individual loan, our estimated credit mark against the Howard Bank loan portfolio in total may be insufficient to cover actual loan losses after the merger is completed, and adjustments may be necessary to allow for different economic conditions or adverse developments in the Howard Bank loan portfolio. Additionally, deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside our or Howard’s control, may require an increase in the provision for credit losses. Material additions to the credit mark and/or ACL would materially decrease our net income and could result in extra regulatory scrutiny and possibly supervisory action.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding FNB's purchases of our common stock during the quarter ended September 30, 2021.



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (1)

August 1 - August 31, 2021	100,000	11.79		100,000	$	74,193,979
September 1 - September 30, 2021	500,000	11.55		500,000	68,412,029
Total	600,000	$	11.59	600,000
(1) The number shown represents, as of the end of each period, the approximate dollar value of Common Stock that may yet be purchased under publicly-announced share repurchase authorizations. The shares may be purchased, from time-to-time, depending on market conditions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

NONE

ITEM 6. EXHIBITS

Exhibit Index


Exhibit Number						Description
31.1.						Certification of Chief Executive Officer Sarbanes-Oxley Act Section 302. (filed herewith).

31.2.						Certification of Chief Financial Officer Sarbanes-Oxley Act Section 302. (filed herewith).

32.1.						Certification of Chief Executive Officer Sarbanes-Oxley Act Section 906. (furnished herewith).

32.2.						Certification of Chief Financial Officer Sarbanes-Oxley Act Section 906. (furnished herewith).

101.INS						Inline 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.SCH						Inline XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

104						Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

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 4, 2021

/s/ Vincent J. Delie, Jr.

Vincent J. Delie, Jr.

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

Dated:

November 4, 2021

/s/ Vincent J. Calabrese, Jr.

Vincent J. Calabrese, Jr.

Chief Financial Officer

(Principal Financial Officer)

Dated:

November 4, 2021

/s/ James L. Dutey

James L. Dutey

Corporate Controller

(Principal Accounting Officer)