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FNB CORP/PA/ - Quarter Report: 2023 June (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 June 30, 2023
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 001-31940  
 
F.N.B. CORPORATION
(Exact name of registrant as specified in its charter) 
 
Pennsylvania25-1255406
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One North Shore Center, 12 Federal Street, Pittsburgh, PA15212
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 800-555-5455

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


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on which Registered
Common Stock, par value $0.01 per shareFNBNew York Stock Exchange
Depositary Shares each representing 1/40th interest in a
share of Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series E
FNBPrENew York Stock Exchange
  
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding atJuly 31, 2023
Common Stock, $0.01 Par Value358,820,568 Shares
2


F.N.B. CORPORATION
FORM 10-Q
June 30, 2023
INDEX
 
 PAGE
PART I – FINANCIAL INFORMATION 
Item 1.Financial Statements
Item 2.
Item 3.
Item 4.
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
3


Glossary of Acronyms and Terms
Acronym
Description
Acronym
Description
ACL
Allowance for credit losses
FTE
Fully taxable equivalent
AFS
Available for sale
GAAP
U.S. generally accepted accounting principles
ALCO
Asset/Liability Committee
HowardHoward Bancorp, Inc.
AOCI
Accumulated other comprehensive income
HTM
Held to maturity
ASC
Accounting Standards Codification
LGD
Loss given default
ASU
Accounting Standards Update
LIBOR
London Inter-bank Offered Rate
AULC
Allowance for unfunded loan commitments
LIHTC
Low-income housing tax credit
BTFPBank Term Funding Program
MD&A
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CECL
Current expected credit losses
MSRs
Mortgage servicing rights
CET1
Common equity tier 1
OCC
Office of the Comptroller of the Currency
CFPBConsumer Financial Protection Bureau
OREO
Other real estate owned
DIFDeposit Insurance Fund
PCD
Purchased credit deteriorated
DOJU.S. Department of Justice
R&S
Reasonable and Supportable
EVE
Economic value of equity
SBA
Small Business Administration
FASB
Financial Accounting Standards Board
SEC
Securities and Exchange Commission
FDIC
Federal Deposit Insurance Corporation
SOFR
Secured Overnight Financing Rate
FHLB
Federal Home Loan Bank
TDR
Troubled debt restructuring
FICOFair Isaac Corporation
TPS
Trust preferred securities
FNB
F.N.B. Corporation
UnionUB Bancorp
FNBPA
First National Bank of Pennsylvania
U.S.
United States of America
FOMCFederal Open Market Committee
UST
U.S. Department of the Treasury
FRB
Board of Governors of the Federal Reserve
System
VIE
Variable interest entity
4


PART I – FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share and per share data)
June 30,
2023
December 31,
2022
 (Unaudited) 
Assets
Cash and due from banks$449 $443 
Interest-bearing deposits with banks1,255 1,231 
Cash and Cash Equivalents1,704 1,674 
Debt securities available for sale (amortized cost of $3,519 and $3,622; allowance for credit losses of $0 and $0)
3,177 3,275 
Debt securities held to maturity (fair value of $3,587 and $3,687; allowance for credit losses of $0 and $0)
3,988 4,087 
Loans held for sale (includes $82 and $91 measured at fair value) (1)
94 124 
Loans and leases, net of unearned income of $86 and $69 (includes $34 and $12 measured at fair value) (1)
31,354 30,255 
Allowance for credit losses on loans and leases(413)(402)
Net Loans and Leases30,941 29,853 
Premises and equipment, net465 432 
Goodwill2,477 2,477 
Core deposit and other intangible assets, net79 89 
Bank owned life insurance657 653 
Other assets1,196 1,061 
Total Assets$44,778 $43,725 
Liabilities
Deposits:
Non-interest-bearing demand$10,914 $11,916 
Interest-bearing demand13,818 15,100 
Savings3,758 4,142 
Certificates and other time deposits5,335 3,612 
Total Deposits33,825 34,770 
Short-term borrowings2,391 1,372 
Long-term borrowings1,981 1,093 
Other liabilities763 837 
Total Liabilities38,960 38,072 
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 – 374,935,404 and 374,907,245 shares
4 
Additional paid-in capital4,686 4,696 
Retained earnings1,564 1,370 
Accumulated other comprehensive loss(355)(357)
Treasury stock – 16,114,836 and 14,437,135 shares at cost
(188)(167)
Total Stockholders’ Equity5,818 5,653 
Total Liabilities and Stockholders’ Equity$44,778 $43,725 
(1)Amount represents loans for which we have elected the fair value option. See Note 19.
See accompanying Notes to Consolidated Financial Statements (unaudited)
5


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
Unaudited
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Interest Income
Loans and leases, including fees$429 $242 $823 $463 
Securities:
Taxable35 27 71 51 
Tax-exempt7 14 13 
Other13 20 
Total Interest Income484 280 928 534 
Interest Expense
Deposits112 15 196 23 
Short-term borrowings22 32 11 
Long-term borrowings21 34 12 
Total Interest Expense155 26 262 46 
Net Interest Income329 254 666 488 
Provision for credit losses19 33 24 
Net Interest Income After Provision for Credit Losses310 248 633 464 
Non-Interest Income
Service charges34 35 66 66 
Trust services10 10 21 20 
Insurance commissions and fees6 14 14 
Securities commissions and fees7 14 12 
Capital markets income6 13 15 
Mortgage banking operations5 10 13 
Dividends on non-marketable equity securities6 10 
Bank owned life insurance3 6 
Other4 6 
Total Non-Interest Income
81 82 160 160 
Non-Interest Expense
Salaries and employee benefits114 104 234 216 
Net occupancy17 16 34 34 
Equipment21 18 43 36 
Amortization of intangibles5 10 
Outside services20 17 40 34 
Marketing4 8 
FDIC insurance8 15 10 
Bank shares and franchise taxes4 8 
Merger-related 2 31 
Other19 18 38 36 
Total Non-Interest Expense
212 193 432 420 
Income Before Income Taxes179 137 361 204 
Income taxes37 28 72 42 
Net Income142 109 289 162 
Preferred stock dividends2 4 
Net Income Available to Common Stockholders$140 $107 $285 $158 
Earnings per Common Share
Basic$0.39 $0.30 $0.79 $0.45 
Diluted0.39 0.30 0.78 0.45 
See accompanying Notes to Consolidated Financial Statements (unaudited)
6


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Unaudited

 Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Net income$142 $109 $289 $162 
Other comprehensive income (loss):
Securities available for sale:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $(9), $(15), $1 and $(51)
(31)(50)4 (178)
Derivative instruments:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $(4), $(1), $(3) and $(5)
(14)(2)(10)(17)
Reclassification adjustment for gains included in net income, net of tax expense of $1, $1, $2 and $1
4 7 
Pension and postretirement benefit obligations:
Unrealized gains arising during the period, net of tax expense of $—, $—, $— and $—
1 — 1 
Other Comprehensive Income (Loss)(40)(50)2 (190)
Comprehensive Income (Loss)$102 $59 $291 $(28)
See accompanying Notes to Consolidated Financial Statements (unaudited)
7


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions, except per share data)
Unaudited
 
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Three Months Ended June 30, 2022
Balance at beginning of period$107 $$4,560 $1,118 $(202)$(148)$5,439 
Comprehensive income (loss)109 (50)59 
Dividends declared:
Preferred stock: $18.13/share
(2)(2)
Common stock: $0.12/share
(43)(43)
Issuance of common stock— — — (6)(6)
Repurchase of common stock(13)(13)
Restricted stock compensation
Balance at end of period$107 $$4,562 $1,182 $(252)$(167)$5,436 
Three Months Ended June 30, 2023
Balance at beginning of period$107 $4 $4,693 $1,471 $(315)$(172)$5,788 
Comprehensive income (loss)142 (40)102 
Dividends declared:
Preferred stock: $18.13/share
(2)(2)
Common stock: $0.12/share
(43)(43)
Issuance of common stock (9)(4)9 (4)
Repurchase of common stock(25)(25)
Restricted stock compensation2 2 
Balance at end of period$107 $4 $4,686 $1,564 $(355)$(188)$5,818 
8


Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Six Months Ended June 30, 2022
Balance at beginning of period$107 $$4,109 $1,110 $(62)$(117)$5,150 
Comprehensive income (loss)162 (190)(28)
Dividends declared:
Preferred stock: $36.26/share
(4)(4)
Common stock: $0.24/share
(86)(86)
Issuance of common stock— (7)(6)
Issuance of common stock - acquisitions442 443 
Repurchase of common stock(43)(43)
Restricted stock compensation10 10 
Balance at end of period$107 $$4,562 $1,182 $(252)$(167)$5,436 
Six Months Ended June 30, 2023
Balance at beginning of period$107 $4 $4,696 $1,370 $(357)$(167)$5,653 
Comprehensive income 289 2 291 
Dividends declared:
Preferred stock: $36.26/share
(4)(4)
Common stock: $0.24/share
(87)(87)
Issuance of common stock (22)(4)16 (10)
Repurchase of common stock(37)(37)
Restricted stock compensation12 12 
Balance at end of period$107 $4 $4,686 $1,564 $(355)$(188)$5,818 
See accompanying Notes to Consolidated Financial Statements (unaudited)
9


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Unaudited
 
 Six Months Ended
June 30,
 20232022
Operating Activities
Net income$289 $162 
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation, amortization and accretion42 35 
Provision for credit losses33 24 
Deferred tax expense (benefit)(3)
Loans originated for sale(458)(613)
Loans sold459 774 
Net (gain) loss on sale of loans3 (30)
Net change in:
   Interest receivable(11)(4)
   Interest payable24 
   Bank owned life insurance, excluding purchases(5)(1)
Other, net(224)336 
Net cash flows (used in) provided by operating activities149 692 
Investing Activities
Net change in loans and leases, excluding sales and transfers(1,092)(1,275)
Debt securities available for sale:
Purchases(135)(773)
Sales 287 
Maturities/payments234 430 
Debt securities held to maturity:
Purchases(75)(636)
Maturities/payments175 354 
Increase in premises and equipment(60)(50)
Net cash received in business acquisition 75 
Net cash flows (used in) provided by investing activities(953)(1,588)
Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts(2,668)(40)
Time deposits1,721 (36)
Short-term borrowings1,019 (160)
Proceeds from issuance of long-term borrowings1,220 11 
Repayment of long-term borrowings(332)(214)
Repurchases of common stock(37)(43)
Cash dividends paid:
Preferred stock(4)(4)
Common stock(87)(86)
Other, net2 
Net cash flows provided by (used in) financing activities834 (568)
Net Increase (Decrease) in Cash and Cash Equivalents30 (1,464)
Cash and cash equivalents at beginning of period1,674 3,493 
Cash and Cash Equivalents at End of Period$1,704 $2,029 
See accompanying Notes to Consolidated Financial Statements (unaudited)
10


F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2023
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.; Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina; and Charleston, South Carolina. As of June 30, 2023, we had 346 branches 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 June 30, 2023 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 we expect 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 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023.
11


Use of Estimates
Our accounting and reporting policies conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements (unaudited). Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the ACL, 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 2022 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 or will be adopting in the future.
TABLE 2.1
StandardDescriptionFinancial Statements Impact
Tax Equity Investments
ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization MethodThis Update expands the use of the proportional amortization method of accounting, previously only allowable for LIHTC investments, to equity investments in other tax credit structures that meet certain criteria.

The Update also removed the specialized guidance for LIHTC investments that are not accounted for using the proportional amortization method or equity method and require that those investments are accounted for using Topic 321 regarding equity investments.
This Update is to be applied using either a modified retrospective or a retrospective method and will be effective as of January 1, 2024. Early adoption of this Update is permitted.

We are in the process of reviewing our existing tax equity investment portfolios and assessing the potential impact to our consolidated financial statements.
Troubled Debt Restructuring and Charge-offs
ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
This Update eliminates the recognition and measurement guidance on TDRs for creditors that have adopted ASC 326 and requires entities to apply loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. The Update requires enhanced disclosures for certain loan modifications by creditors when a borrower is experiencing financial difficulty if the modification includes principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination of those modification types.

This Update also requires public business entities to present current-period gross write-offs by year of origination in their vintage disclosures.
This Update is to be applied using a prospective method. For the transition method related to TDRs, an entity has the option to apply a modified retrospective transition method.

We adopted this Update on January 1, 2023, on a prospective basis for all amendments. Adoption of this Update did not have a material impact on our consolidated financial statements.


12


NOTE 3.    MERGERS AND ACQUISITIONS
Howard Bancorp, Inc.
On January 22, 2022, we completed our acquisition of Howard, a bank holding company headquartered in Baltimore City, Maryland. The acquisition enhanced our presence in the Mid-Atlantic Region. Additionally, cost savings, efficiencies and other benefits were realized from the combined operations. On the acquisition date, Howard had assets with a net book value of approximately $2.4 billion, including $1.8 billion in both loans and deposits. The acquisition was valued at approximately $443 million and resulted in the issuance of 34,074,495 shares of our common stock in exchange for 18,930,329 shares of Howard common stock. We also acquired restricted stock units and the fully vested outstanding stock options of Howard.
This merger was accounted for in accordance with the acquisition method of accounting. Fair values for all assets and liabilities are presented in Table 3.1. Determining the fair value of assets and liabilities is a complex process involving significant judgment regarding estimates and assumptions used to calculate fair values. We have completed the review of valuations for the acquired assets and liabilities.
Goodwill related to the Howard acquisition was recorded in the Community Banking business segment and is not deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange for tax purposes. We incurred merger expenses relating to the Howard acquisition of $30.2 million for the first six months of 2022. We did not record any merger expenses relating to the Howard acquisition in 2023.
Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. We consider various factors in connection with the identification of more-than-insignificant deterioration in credit, including but not limited to nonperforming status, delinquency, risk ratings, TDR classification, FICO scores and other qualitative factors that indicate deterioration in credit quality since origination. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment. As part of the Howard acquisition, we acquired PCD loans and leases of $186.9 million. We established an ACL at acquisition of $10.0 million with a corresponding gross-up to the amortized cost of the PCD loans and leases. The non-credit discount on the PCD loans and leases was $5.4 million and the Day 1 fair value was $171.5 million. The initial provision expense for non-PCD loans associated with the Howard acquisition was $19.1 million.
We integrated the systems and the operating activities of Howard into FNB in February 2022. Due to that integration, it is impracticable to disclose the revenue from the Howard assets acquired and income before income taxes subsequent to the acquisition.
UB Bancorp
On December 9, 2022, we completed our acquisition of Union, a bank holding company based in Greenville, North Carolina. This acquisition further increases our presence in North Carolina and adds low-cost granular deposits which continue to be value accretive in the current economic environment. On the acquisition date, Union had assets with a net book value of approximately $1.1 billion, including $0.7 billion in loans and $1.0 billion in deposits. The acquisition was valued at approximately $126 million and resulted in the issuance of 9,672,691 shares of our common stock in exchange for 6,008,123 shares of Union common stock.
This merger was accounted for in accordance with the acquisition method of accounting. Preliminary fair values for all assets and liabilities are presented in Table 3.1. Determining the fair value of assets and liabilities is a complex process involving significant judgment regarding estimates and assumptions used to calculate fair values. Accordingly, the initial accounting for the merger is not complete.
We continue to analyze the valuations assigned to the acquired assets and assumed liabilities. Due to the complexity in valuing the loans and the significant amount of data inputs required, the valuation of the loans is not yet final. We are also assessing the valuation on deferred taxes. The valuation on acquired securities, premises, core deposit intangibles and debt have been completed.
Goodwill related to the Union acquisition was recorded in the Community Banking business segment and is not deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange for tax purposes. We incurred merger expenses relating to the Union acquisition of $2.2 million for the first six months of 2023. We recorded core deposit intangibles of $41 million which reflect the much higher cost of alternative funding given the higher interest rate environment at the time of acquisition.
13


Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. We consider various factors in connection with the identification of more-than-insignificant deterioration in credit, including but not limited to nonperforming status, delinquency, risk ratings, FICO scores and other qualitative factors that indicate deterioration in credit quality since origination. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment. As part of the Union acquisition, we acquired PCD loans and leases of $36.9 million. We established an ACL at acquisition of $1.8 million with a corresponding gross-up to the amortized cost of the PCD loans and leases. The non-credit discount on the PCD loans and leases was $0.5 million and the Day 1 fair value was $34.7 million. The initial provision expense for non-PCD loans associated with the Union acquisition was $9.4 million.
We integrated the systems and the operating activities of Union in December 2022. Due to that integration, it is impracticable to disclose the revenue from the Union assets acquired and income before income taxes subsequent to the acquisition.
The following table summarizes the amounts recorded on the consolidated balance sheets as of the acquisition dates in conjunction with the Howard and Union acquisitions discussed above.
TABLE 3.1
(in millions)HowardUnion
Fair value of consideration paid$443 $126 
Fair value of identifiable assets acquired:
Cash and cash equivalents75 113 
Securities321 212 
Loans1,780 652 
Core deposit and other intangible assets19 41 
Fixed and other assets156 59 
Total identifiable assets acquired2,351 1,077 
Fair value of liabilities assumed:
Deposits1,831 956 
Borrowings247 30 
Other liabilities
Total liabilities assumed2,085 989 
Fair value of net identifiable assets acquired266 88 
Goodwill recognized $177 $38 
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NOTE 4.    SECURITIES
The amortized cost and fair value of AFS debt securities are presented in the table below. There was no ACL associated with the AFS portfolio at June 30, 2023 and December 31, 2022. Accrued interest receivable on AFS debt securities totaled $8.9 million at both June 30, 2023 and December 31, 2022, 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 4.1
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities AFS:
June 30, 2023
U.S. Treasury$327 $ $(21)$306 
U.S. government agencies92 1  93 
U.S. government-sponsored entities275  (21)254 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,235  (123)1,112 
Agency collateralized mortgage obligations1,028  (136)892 
Commercial mortgage-backed securities497  (37)460 
States of the U.S. and political subdivisions (municipals)32  (3)29 
Other debt securities33  (2)31 
Total debt securities AFS$3,519 $1 $(343)$3,177 
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities AFS:
December 31, 2022
U.S. Treasury$278 $— $(21)$257 
U.S. government agencies107 — 108 
U.S. government-sponsored entities283 — (21)262 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,360 — (128)1,232 
Agency collateralized mortgage obligations1,110 — (138)972 
Commercial mortgage-backed securities430 — (35)395 
States of the U.S. and political subdivisions (municipals)33 — (4)29 
Other debt securities21 — (1)20 
Total debt securities AFS$3,622 $$(348)$3,275 
The amortized cost and fair value of HTM debt securities are presented in the table below. The ACL for the HTM portfolio was $0.32 million and $0.23 million at June 30, 2023 and December 31, 2022, respectively. Accrued interest receivable on HTM debt securities totaled $14.8 million and $14.0 million at June 30, 2023 and December 31, 2022, 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.
15


TABLE 4.2
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities HTM:
June 30, 2023
U.S. government agencies$1 $ $ $1 
U.S. government-sponsored entities92   92 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,096  (121)975 
Agency collateralized mortgage obligations885  (121)764 
Commercial mortgage-backed securities868  (56)812 
States of the U.S. and political subdivisions (municipals)1,030 1 (102)929 
Other debt securities16  (2)14 
Total debt securities HTM$3,988 $1 $(402)$3,587 
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities HTM:
December 31, 2022
U.S. government agencies$$— $— $
U.S. government-sponsored entities52 — — 52 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,178 — (125)1,053 
Agency collateralized mortgage obligations953 — (120)833 
Commercial mortgage-backed securities866 (50)818 
States of the U.S. and political subdivisions (municipals)1,025 (107)919 
Other debt securities12 — (1)11 
Total debt securities HTM$4,087 $$(403)$3,687 
There were no significant gross gains or gross losses realized on securities during the six months ended June 30, 2023 or 2022. Unrealized losses on the AFS and HTM portfolios are due to the increase in market interest rates with 84.6% of these securities backed or sponsored by the U.S. government as of June 30, 2023.
16


As of June 30, 2023, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:
TABLE 4.3
Available for SaleHeld to Maturity
(in millions)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due in one year or less$54 $54 $$
Due after one year but within five years602 559 130 128 
Due after five years but within ten years66 63 234 218 
Due after ten years37 37 772 687 
759 713 1,139 1,036 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,235 1,112 1,096 975 
Agency collateralized mortgage obligations1,028 892 885 764 
Commercial mortgage-backed securities497 460 868 812 
Total debt securities$3,519 $3,177 $3,988 $3,587 
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 4.4
(dollars in millions)June 30,
2023
December 31,
2022
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law$5,831 $6,403 
As collateral for short-term borrowings281 348 
Securities pledged as a percent of total securities85.3 %91.7 %
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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 time in a continuous loss position:
TABLE 4.5
Less than 12 Months12 Months or MoreTotal
(dollars in millions)#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
Debt Securities AFS
June 30, 2023
U.S. Treasury1 $24 $(1)5 $233 $(20)6 $257 $(21)
U.S. government agencies6 34  8 9  14 43  
U.S. government-sponsored entities1 22 (1)10 232 (20)11 254 (21)
Residential mortgage-backed securities:
Agency mortgage-backed securities14 108 (5)109 1,004 (118)123 1,112 (123)
Agency collateralized mortgage obligations1 20 (1)70 872 (135)71 892 (136)
Commercial mortgage-backed securities6 197 (5)17 263 (32)23 460 (37)
States of the U.S. and political subdivisions (municipals)1 1  13 28 (3)14 29 (3)
Other debt securities3 12 (1)6 12 (1)9 24 (2)
Total 33 $418 $(14)238 $2,653 $(329)271 $3,071 $(343)
Less than 12 Months12 Months or MoreTotal
(dollars in millions)#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
Debt Securities AFS
December 31, 2022
U.S. Treasury$120 $(7)$137 $(14)$257 $(21)
U.S. government agencies46 — — 14 50 — 
U.S. government-sponsored entities150 (8)112 (13)13 262 (21)
Residential mortgage-backed securities:
Agency mortgage-backed securities104 773 (58)13 455 (70)117 1,228 (128)
Agency collateralized mortgage obligations49 455 (42)23 517 (96)72 972 (138)
Commercial mortgage-backed securities16 302 (21)94 (14)21 396 (35)
States of the U.S. and political subdivisions (municipals)(1)10 22 (3)14 29 (4)
Other debt securities15 (1)— 17 (1)
Total198 $1,868 $(138)67 $1,343 $(210)265 $3,211 $(348)
We evaluated the AFS debt securities that were in an unrealized loss position at June 30, 2023. Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the significant movement of interest rates since 2022 and does not reflect any expected credit losses. We do not intend to sell these AFS debt
18


securities and it is not more likely than not that we will be required to sell these 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 an annual basis, and more frequently as needed. 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 June 30, 2023 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 60% 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 $2.5 million. In addition to the strong stand-alone ratings, 61% 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, 1970-2021 study.
By using these components, we derive the expected credit loss on the HTM general obligation municipal 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.
Our corporate bond portfolio, with a carrying amount of $46.7 million as of June 30, 2023 primarily consists of subordinated debentures of banks within our footprint. The average holding size of the securities in the corporate bond portfolio is $2.7 million.
The ACL on the HTM corporate bond portfolio is calculated using:
The bond’s credit rating, time to maturity and exposure amount;
Moody’s Annual Default Study, 03/13/2023; and
Most recent financial statements.
By using these components, we derive the expected credit loss on the HTM corporate bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our bank-wide loan portfolio forecast adjustment as derived through our assessment of the Bank's loan portfolio as a proxy for our corporate bond portfolio.
For the year-to-date periods ending June 30, 2023 and 2022, we had no significant provision expense and no charge-offs or recoveries. The ACL on the HTM portfolio was $0.32 million, consisting of $0.06 million relating to the municipal bond portfolio and $0.26 million relating to other debt securities, as of June 30, 2023, and $0.07 million relating to the municipal bond portfolio and $0.16 million relating to other debt securities as of December 31, 2022. The AFS securities portfolios did not have an ACL at June 30, 2023 or December 31, 2022 and there were no securities that were past due or on non-accrual at either date.
19


NOTE 5.    LOANS AND LEASES
Accrued interest receivable on loans and leases, which totaled $106.9 million at June 30, 2023 and $99.3 million at December 31, 2022, 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 following tables.
Loans and Leases by Portfolio Segment
Following is a summary of total loans and leases, net of unearned income:
TABLE 5.1
(in millions)June 30, 2023December 31, 2022
Commercial real estate$11,689 $11,526 
Commercial and industrial7,248 7,131 
Commercial leases618 519 
Other121 114 
Total commercial loans and leases19,676 19,290 
Direct installment2,747 2,784 
Residential mortgages6,089 5,297 
Indirect installment1,539 1,553 
Consumer lines of credit1,303 1,331 
Total consumer loans11,678 10,965 
Total loans and leases, net of unearned income$31,354 $30,255 
The remaining accretable discount included in the amortized cost of acquired loans was $50.7 million and $58.6 million at June 30, 2023 and December 31, 2022, respectively, which includes $10.1 million and $30.9 million established for Howard and Union, respectively, at the time of acquisition.
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;
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
20


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.; Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina; and Charleston, South Carolina.
The following table shows occupancy information relating to commercial real estate loans:
TABLE 5.2
(dollars in millions)June 30,
2023
December 31,
2022
Commercial real estate:
Percent owner-occupied29.8 %30.2 %
Percent non-owner-occupied70.2 69.8 
Credit Quality
We monitor 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 5.3
Rating CategoryDefinition
Passin general, the condition of the borrower and the performance of the loan is satisfactory or better
Special Mentionin general, the condition of the borrower has deteriorated, requiring an increased level of monitoring
Substandardin general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected
Doubtfulin general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable
The use of these internally assigned credit quality categories within the commercial loan and lease portfolio permits our 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, we analyze 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, we apply higher risk factors to Substandard and Doubtful credit categories.
21


The following table summarizes the designated loan rating category by loan class including term loans on an amortized cost basis by origination year and year-to-date gross charge-offs by originating year:
TABLE 5.4
June 30, 202320232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
   Pass$610 $1,985 $2,362 $1,567 $1,222 $2,892 $239 $10,877 
   Special Mention3 44 22 96 65 255 16 501 
   Substandard 13 14 20 60 187 17 311 
Total commercial real estate613 2,042 2,398 1,683 1,347 3,334 272 11,689 
Commercial real estate current period gross charge-offs  0.1 0.1   8.1  8.3 
Commercial and Industrial:
Risk Rating:
   Pass679 1,511 1,057 716 454 632 1,646 6,695 
   Special Mention16 16 55 8 24 106 74 299 
   Substandard4 11 39 8 15 50 127 254 
Total commercial and industrial699 1,538 1,151 732 493 788 1,847 7,248 
Commercial and industrial current period gross charge-offs0.1 0.2 0.1 0.5 1.3 9.1  11.3 
Commercial Leases:
Risk Rating:
   Pass192 139 107 60 44 50  592 
   Special Mention6 2 1  1   10 
   Substandard1 1 4 7 2 1  16 
Total commercial leases199 142 112 67 47 51  618 
Commercial leases current period gross charge-offs        
Other Commercial:
Risk Rating:
   Pass60     9 52 121 
Total other commercial60     9 52 121 
Other commercial current period gross charge-offs     2.4  2.4 
Total commercial loans and leases1,571 3,722 3,661 2,482 1,887 4,182 2,171 19,676 
22


June 30, 202320232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
(in millions)
CONSUMER
Direct Installment:
   Current159 756 836 422 150 411  2,734 
   Past due 1 1 1 1 9  13 
Total direct installment159 757 837 423 151 420  2,747 
Direct installment current period gross charge-offs 0.1 0.1   0.2  0.4 
Residential Mortgages:
   Current770 1,641 1,565 831 361 878  6,046 
   Past due 2 3 2  36  43 
Total residential mortgages770 1,643 1,568 833 361 914  6,089 
Residential mortgages current period gross charge-offs     0.6  0.6 
Indirect Installment:
   Current268 690 296 131 62 75  1,522 
   Past due 6 7 2 1 1  17 
Total indirect installment268 696 303 133 63 76  1,539 
Indirect installment current period gross charge-offs0.1 1.9 2.1 0.3 0.2 0.2  4.8 
Consumer Lines of Credit:
   Current23 68 17 2 3 124 1,050 1,287 
   Past due     14 2 16 
Total consumer lines of credit23 68 17 2 3 138 1,052 1,303 
Consumer lines of credit current period gross charge-offs  0.1   0.5  0.6 
Total consumer loans1,220 3,164 2,725 1,391 578 1,548 1,052 11,678 
Total loans and leases$2,791 $6,886 $6,386 $3,873 $2,465 $5,730 $3,223 $31,354 
Total charge-offs$0.2 $2.3 $2.5 $0.8 $1.5 $21.1 $ $28.4 

23


The following table summarizes the designated loan rating category by loan class including term loans on an amortized cost basis by origination year:
TABLE 5.5
December 31, 202220222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
   Pass$1,967 $2,348 $1,678 $1,283 $700 $2,447 $258 $10,681 
   Special Mention43 35 67 74 104 208 536 
   Substandard20 47 45 167 20 309 
Total commercial real estate2,013 2,390 1,765 1,404 849 2,822 283 11,526 
Commercial and Industrial:
Risk Rating:
   Pass1,635 1,194 760 533 289 453 1,856 6,720 
   Special Mention15 43 16 27 48 48 54 251 
   Substandard12 11 38 34 52 160 
Total commercial and industrial1,655 1,249 787 568 375 535 1,962 7,131 
Commercial Leases:
Risk Rating:
   Pass187 121 69 59 36 27 — 499 
   Special Mention— — — — — 
   Substandard— 18 
Total commercial leases189 127 77 61 37 28 — 519 
Other Commercial:
Risk Rating:
   Pass58 — — — — 12 44 114 
Total other commercial58 — — — — 12 44 114 
Total commercial loans and leases3,915 3,766 2,629 2,033 1,261 3,397 2,289 19,290 
CONSUMER
Direct Installment:
   Current801 887 453 163 91 374 — 2,769 
   Past due— 11 — 15 
Total direct installment801 888 454 164 92 385 — 2,784 
Residential Mortgages:
   Current1,464 1,587 871 378 128 819 5,249 
   Past due33 — 48 
Total residential mortgages1,466 1,590 874 380 133 852 5,297 
Indirect Installment:
   Current800 357 166 88 80 40 — 1,531 
   Past due11 — 22 
Total indirect installment805 368 169 89 81 41 — 1,553 
Consumer Lines of Credit:
   Current74 17 126 1,086 1,311 
   Past due— — — 15 20 
Total consumer lines of credit74 18 141 1,089 1,331 
Total consumer loans3,146 2,864 1,499 636 310 1,419 1,091 10,965 
Total loans and leases$7,061 $6,630 $4,128 $2,669 $1,571 $4,816 $3,380 $30,255 
24


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, 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 5.6
(in millions)30-89 Days
Past Due
> 90 Days
Past Due
and Still
Accruing
Non-
Accrual
Total
Past Due
CurrentTotal
Loans and
Leases
Non-accrual with No ACL
June 30, 2023
Commercial real estate$10 $ $42 $52 $11,637 $11,689 $19 
Commercial and industrial16  74 90 7,158 7,248 11 
Commercial leases1  1 2 616 618  
Other1   1 120 121  
Total commercial loans and leases28  117 145 19,531 19,676 30 
Direct installment6 1 6 13 2,734 2,747  
Residential mortgages27 4 12 43 6,046 6,089  
Indirect installment14 1 2 17 1,522 1,539  
Consumer lines of credit8 2 6 16 1,287 1,303  
Total consumer loans55 8 26 89 11,589 11,678  
Total loans and leases$83 $8 $143 $234 $31,120 $31,354 $30 

(in millions)30-89 Days
Past Due
> 90 Days
Past Due
and Still
Accruing
Non-
Accrual
Total
Past Due
CurrentTotal
Loans and
Leases
Non-accrual with No ACL
December 31, 2022
Commercial real estate$13 $— $39 $52 $11,474 $11,526 $15 
Commercial and industrial44 54 7,077 7,131 11 
Commercial leases— 515 519 — 
Other— — 113 114 — 
Total commercial loans and leases26 84 111 19,179 19,290 26 
Direct installment15 2,769 2,784 — 
Residential mortgages28 14 48 5,249 5,297 — 
Indirect installment20 22 1,531 1,553 — 
Consumer lines of credit10 20 1,311 1,331 — 
Total consumer loans65 11 29 105 10,860 10,965 — 
Total loans and leases$91 $12 $113 $216 $30,039 $30,255 $26 
25


Following is a summary of non-performing assets:
TABLE 5.7
(dollars in millions)June 30,
2023
December 31,
2022
Non-accrual loans$143 $113 
Total non-performing loans and leases143 113 
Other real estate owned 5 
Total non-performing assets
$148 $119 
Asset quality ratios:
Non-performing loans and leases / total loans and leases0.45 %0.37 %
Non-performing assets plus 90 days or more past due / total loans and leases plus OREO
0.50 0.44 
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 $1.2 million at June 30, 2023 and $1.1 million at December 31, 2022. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at June 30, 2023 and December 31, 2022 totaled $12.8 million and $11.8 million, respectively.
Approximately $82.0 million of commercial loans are collateral dependent at June 30, 2023. 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.
Loan Modifications
During the period, there are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. These modifications typically result from loss mitigation activities and could include a term extension, interest rate reduction, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Accrued interest receivable on loan modifications totaled $0.08 million at June 30, 2023, and is excluded from the amortized cost of loan modifications in the tables below.

26


The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable, type of concession granted and the financial effect of the modifications made to borrowers experiencing financial difficulty:
TABLE 5.8
(dollars in millions)Amortized Cost Basis% of Total Class of Financing ReceivableFinancial Effect
Three Months Ended June 30, 2023
Term Extension
Commercial real estate$11.2 0.10 %
The modified loans had an average increase in term of 22 months, extending the maturity date.
Direct installment0.3 0.01 The repayment on the loans modified were extended, lowering the monthly repayment.
Residential mortgages1.5 0.02 
The modified loans had an average increase in term of 138 months, extending the maturity date.
Total13.0 
Term Extension and Rate Reduction
Commercial and industrial0.1 — 
The term was extended, with a weighted average yield reduction of 487 bps.
Direct installment0.2 0.01 
The modified loans had an average increase in term of 445 months, extending the maturity date.
Residential mortgages0.4 0.01 
The modified loans had an average increase in term of 151 months, extending the maturity date.
Consumer lines of credit0.6 0.05 
The term was extended, with a weighted average yield reduction of 326 bps.
Total1.3 
Other
Consumer lines of credit0.2 0.02 Multiple modifications were made with no material financial effect.
Total0.2 
Total Outstanding Modified$14.5 
27


(dollars in millions)Amortized Cost Basis% of Total Class of Financing ReceivableFinancial Effect
Six Months Ended June 30, 2023
Term Extension
Commercial real estate$11.5 0.10 %
The modified loans had an average increase in term of 22 months, extending the maturity date.
Commercial and industrial2.3 0.03 
The modified loans had an average increase in term of 12 months, extending the maturity date.
Direct installment0.4 0.01 The repayment on the loans modified were extended, lowering the monthly repayment.
Residential mortgages1.6 0.03 
The modified loans had an average increase in term of 141 months, extending the maturity date.
Consumer lines of credit0.2 0.02 The repayment on the loans modified was extended, lowering the monthly repayment.
Total16.0 
Term Extension and Rate Reduction
Commercial and industrial0.2 — 
The term was extended, with a weighted average yield reduction of 487 bps.
Direct installment0.3 0.01 
The modified loans had an average increase in term of 363 months, extending the maturity date.
Residential mortgages0.7 0.01 
The term was extended, with a weighted average yield reduction of 278 bps.
Consumer lines of credit0.6 0.05 
The term was extended, with a weighted average yield reduction of 326 bps.
Total1.8 
Other
Commercial real estate0.3 — Multiple modifications were made with no material financial effect.
Residential mortgages0.1 — Multiple modifications were made with no material financial effect.
Consumer lines of credit0.2 0.02 Multiple modifications were made with no material financial effect.
Total0.6 
Total Outstanding Modified$18.4 
Some loan modifications 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. There were no additional funds committed to borrowers whose loans were modified during the first six months of 2023.
Commercial loans over $1.0 million whose terms have been modified may be placed on non-accrual, individually analyzed and measured based on the fair value of the underlying collateral. Our ACL includes specific reserves for commercial loans modified. There was $1.5 million and no specific reserve for commercial loans modified at June 30, 2023 and December 31, 2022, respectively, and pooled reserves for individual loans of $1.3 million and $1.1 million for those same periods, respectively, based on loan segment LGD. Upon default, the amount of the recorded investment of the modified loan balance 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 are pooled and measured based on the loan segment LGD. Our ACL included pooled reserves for these classes of loans of $3.8 million at both June 30, 2023 and December 31, 2022. Upon default of an individual loan, our charge-off policy is followed for that class of loan.
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Following is a summary of loans modified in a manner that grants a concession to a borrower experiencing financial difficulties, 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 or in non-accrual and is within 12 months of restructuring.
TABLE 5.9
Amortized cost basis of modified financing receivables that subsequently defaulted:
(in millions)Term ExtensionTerm Extension and Rate ReductionOtherTotal Outstanding Modified
Three Months Ended June 30, 2023
Commercial real estate$0.4 $— $0.1 $0.5 
Commercial and industrial— 0.1 — 0.1 
Total commercial loans and leases0.4 0.1 0.1 0.6 
Total $0.4 $0.1 $0.1 $0.6 
Six Months Ended June 30, 2023
Commercial real estate$0.4 $— $0.7 $1.1 
Commercial and industrial1.5 0.2 — 1.7 
Total commercial loans and leases1.9 0.2 0.7 2.8 
Residential mortgages— 0.3 — 0.3 
Consumer lines of credit0.1 — — 0.1 
Total consumer loans0.1 0.3 — 0.4 
Total$2.0 $0.5 $0.7 $3.2 
We closely monitor the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months:
TABLE 5.10
Payment status - amortization cost basis:
(in millions)Current30-89 Days Past Due90+ Days Past Due
June 30, 2023
Commercial real estate$11.9 $— $— 
Commercial and industrial1.7 0.8 — 
Total commercial loans and leases13.6 0.8 — 
Direct installment0.6 0.1 — 
Residential mortgages1.8 0.5 — 
Consumer lines of credit1.0 — — 
Total consumer loans3.4 0.6 — 
Total$17.0 $1.4 $— 
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Prior to the adoption of ASU 2022-02, below are the tables relating to the TDR disclosures as of June 30, 2022.
Following is a summary of TDR loans, by class, for loans that were modified during the periods indicated.
TABLE 5.11
Three Months Ended June 30, 2022Six Months Ended June 30, 2022
(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$$$$
Commercial and industrial— 
Total commercial loans13 15 
Direct installment13 26 
Residential mortgages15 20 
Consumer lines of credit— 
Total consumer loans33 54 
Total46 $$69 $$10 
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 5.12
Three Months Ended June 30, 2022Six Months Ended June 30, 2022
(dollars in millions)Number
of
Contracts
Recorded
Investment
Number
of
Contracts
Recorded
Investment
Commercial real estate— $— $— 
Total commercial loans— — — 
Direct installment— — 
Residential mortgages— — 
Total consumer loans— — 
Total$— $— 

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NOTE 6.    ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
The ACL is maintained for 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.
Following is a summary of changes in the ACL, by loan and lease class:
TABLE 6.1
(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
(Charge-
Offs) Recoveries
Provision for Credit LossesBalance at
End of
Period
Three Months Ended June 30, 2023
Commercial real estate$159.2 $(1.8)$1.3 $(0.5)$(4.5)$154.2 
Commercial and industrial101.7 (5.5)0.7 (4.8)17.4 114.3 
Commercial leases14.8    0.4 15.2 
Other4.0 (1.6)0.2 (1.4)1.2 3.8 
Total commercial loans and leases279.7 (8.9)2.2 (6.7)14.5 287.5 
Direct installment36.2 (0.1)0.1  (0.6)35.6 
Residential mortgages60.4 (0.2) (0.2)3.2 63.4 
Indirect installment16.6 (2.2)0.5 (1.7)1.7 16.6 
Consumer lines of credit10.5 (0.3)0.2 (0.1)(0.8)9.6 
Total consumer loans123.7 (2.8)0.8 (2.0)3.5 125.2 
Total allowance for credit losses on loans and leases403.4 (11.7)3.0 (8.7)18.0 412.7 
Allowance for unfunded loan commitments20.5    0.5 21.0 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$423.9 $(11.7)$3.0 $(8.7)$18.5 $433.7 
Six Months Ended June 30, 2023
Commercial real estate$162.1 $(8.3)$2.3 $(6.0)$(1.9)$154.2 
Commercial and industrial102.1 (11.3)1.6 (9.7)21.9 114.3 
Commercial leases13.5    1.7 15.2 
Other4.0 (2.4)0.5 (1.9)1.7 3.8 
Total commercial loans and leases281.7 (22.0)4.4 (17.6)23.4 287.5 
Direct installment35.9 (0.4)0.3 (0.1)(0.2)35.6 
Residential mortgages55.5 (0.6)0.2 (0.4)8.3 63.4 
Indirect installment17.3 (4.8)1.1 (3.7)3.0 16.6 
Consumer lines of credit11.3 (0.6)0.5 (0.1)(1.6)9.6 
Total consumer loans120.0 (6.4)2.1 (4.3)9.5 125.2 
Total allowance for credit losses on loans and leases401.7 (28.4)6.5 (21.9)32.9 412.7 
Allowance for unfunded loan commitments21.4    (0.4)21.0 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$423.1 $(28.4)$6.5 $(21.9)$32.5 $433.7 

31


(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
(Charge-
Offs) Recoveries
Provision
for Credit
Losses
Balance at
End of
Period
Three Months Ended June 30, 2022
Commercial real estate$165.7 $(0.6)$0.7 $0.1 $(7.9)$157.9 
Commercial and industrial91.7 (1.1)2.7 1.6 1.0 94.3 
Commercial leases13.8 — — — (0.1)13.7 
Other3.8 (0.7)0.3 (0.4)0.8 4.2 
Total commercial loans and leases275.0 (2.4)3.7 1.3 (6.2)270.1 
Direct installment31.2 (0.2)0.2 — 3.0 34.2 
Residential mortgages39.7 (0.2)0.1 (0.1)7.6 47.2 
Indirect installment14.2 (1.2)0.4 (0.8)2.6 16.0 
Consumer lines of credit10.5 (0.2)0.2 — — 10.5 
Total consumer loans95.6 (1.8)0.9 (0.9)13.2 107.9 
Total allowance for credit losses on loans and leases370.6 (4.2)4.6 0.4 7.0 378.0 
Allowance for unfunded loan commitments 18.8 — — — (0.6)18.2 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$389.4 $(4.2)$4.6 $0.4 $6.4 $396.2 
(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
(Charge-
Offs) Recoveries
Provision
for Credit
Losses
Allowance for PCD Loans and Leases at AcquisitionBalance at
End of
Period
Six Months Ended June 30, 2022
Commercial real estate$156.5 $(1.6)$2.1 $0.5 $(3.5)$4.4 $157.9 
Commercial and industrial87.4 (4.3)4.0 (0.3)3.8 3.4 94.3 
Commercial leases14.7 (0.1)— (0.1)(0.9)— 13.7 
Other2.6 (1.4)0.5 (0.9)2.5 — 4.2 
Total commercial loans and leases261.2 (7.4)6.6 (0.8)1.9 7.8 270.1 
Direct installment26.4 (0.2)0.4 0.2 7.1 0.5 34.2 
Residential mortgages33.1 (0.3)0.3 — 12.8 1.3 47.2 
Indirect installment13.5 (2.2)1.1 (1.1)3.6 — 16.0 
Consumer lines of credit10.1 (0.4)0.6 0.2 (0.2)0.4 10.5 
Total consumer loans83.1 (3.1)2.4 (0.7)23.3 2.2 107.9 
Total allowance for credit losses on loans and leases344.3 (10.5)9.0 (1.5)25.2 10.0 378.0 
Allowance for unfunded loan commitments19.1 — — — (0.9)— 18.2 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$363.4 $(10.5)$9.0 $(1.5)$24.3 $10.0 $396.2 

32


Following is a summary of changes in the AULC by portfolio segment:
TABLE 6.2
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
(in millions)
Balance at beginning of period$20.5 $18.8 $21.4 $19.1 
Provision for unfunded loan commitments and letters of credit:
Commercial portfolio0.5 (0.6)(0.4)(0.9)
Balance at end of period$21.0 $18.2 $21.0 $18.2 
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.
At June 30, 2023 and December 31, 2022, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment. For our ACL calculation at June 30, 2023, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which declines 5.4% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 8.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 33.2% in 2023 and 21.0% in 2024 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical through the cycle period. Macroeconomic variables that we utilized for our ACL calculation as of December 31, 2022 included, but were not limited to: (i) the purchase only Housing Price Index, which declines 3.7% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 0.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 41.0% in 2023 and 8.1% in 2024 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical levels.
The ACL on loans and leases of $412.7 million at June 30, 2023 increased $11.0 million, or 2.7%, from December 31, 2022. Our ending ACL coverage ratio at June 30, 2023 was 1.32%, compared to 1.33% at December 31, 2022. Total provision for credit losses for the three months ended June 30, 2023 was $18.5 million compared to $6.4 million for the same period of 2022. Provision expense was primarily due to loan growth and a $13 million specific reserve established for a single $32 million commercial and industrial loan downgraded to non-performing status during the quarter. The second quarter of 2023 reflected net charge-offs of $8.7 million, or 0.11% annualized of average total loans, compared to net recoveries of $0.4 million, or 0.01% annualized, in the second quarter of 2022. Total provision for credit losses for the six months ended June 30, 2023 was $32.6 million compared to $24.4 million that included $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition for the same period of 2022. Net charge-offs were $21.9 million, or 0.14% annualized of average total loans, during the six months ended June 30, 2023, compared to $1.5 million, or 0.01% annualized, for the same period of 2022.

33


NOTE 7.    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 7.1
(in millions)June 30,
2023
December 31,
2022
Mortgage loans sold with servicing retained$5,435 $5,242 


The following table summarizes activity relating to mortgage loans sold with servicing retained:
TABLE 7.2
Three Months Ended
June 30,
Six Months Ended
June 30,
(in millions)2023202220232022
Mortgage loans sold with servicing retained$261 $315 $459 $666 
Pre-tax net gains (losses) resulting from above loan sales (1)
1 (7)1 (7)
Mortgage servicing fees (1)
4 7 
(1) Recorded in mortgage banking operations on the Consolidated Statements of Income.
Following is a summary of activity relating to MSRs:
TABLE 7.3
Three Months Ended
June 30,
Six Months Ended
June 30,
(in millions)2023202220232022
Balance at beginning of period$54.3 $48.5 $52.8 $44.4 
Additions2.7 4.0 5.2 8.1 
Payoffs and curtailments (1.4)(0.3)(3.0)
Impairment (charge) / recovery 0.2  2.5 
Amortization(1.3)(0.6)(2.0)(1.3)
Balance at end of period$55.7 $50.7 $55.7 $50.7 
Fair value, beginning of period$67.8 $58.2 $68.6 $46.0 
Fair value, end of period72.1 64.1 72.1 64.1 
We had no valuation allowance for MSRs as of June 30, 2023 or December 31, 2022.
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 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 point in time.
34


Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions:
TABLE 7.4
(dollars in millions)June 30,
2023
December 31,
2022
Weighted average life (months)9596
Constant prepayment rate (annualized)7.4 %7.3 %
Discount rate10.0 %10.0 %
Effect on fair value due to change in interest rates:
+2.00%$10 $
+1.00%5 
+0.50%3 
+0.25%1 
-0.25%(2)(1)
-0.50%(3)(3)
-1.00%(7)(6)
-2.00%(19)(15)
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 8.    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 June 30, 2023, we had operating lease right-of-use assets and operating lease liabilities of $134.7 million and $144.7 million, respectively. We have finance lease right-of-use assets and finance lease liabilities of $28.7 million and $29.5 million, respectively.
Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of June 30, 2023, 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 $76.4 million in right-of-use assets and $97.8 million in other liabilities. These operating leases are currently expected to commence throughout the remainder of 2023 with lease terms of up to 21 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 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 the related party represents a VIE for which we are not the primary beneficiary.

35


The components of lease expense were as follows:
TABLE 8.1
Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in millions)2023202220232022
Operating lease cost$8 $$16 $16 
Variable lease cost1 2 
Finance lease cost1 — 2 — 
Total lease cost$10 $$20 $18 
Other information related to leases is as follows:
TABLE 8.2
Six Months Ended
June 30,
(dollars in millions)20232022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$7 $
Operating cash flows from finance leases$ $— 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$ $
Finance leases$ $
Weighted average remaining lease term (years):
Operating leases9.119.60
Finance leases19.9722.06
Weighted average discount rate:
Operating leases2.7 %2.4 %
Finance leases3.1 %2.5 %
Maturities of lease liabilities were as follows:
TABLE 8.3
(in millions)Operating LeasesFinance LeasesTotal Leases
June 30, 2023
2023$14 $$15 
202426 27 
202520 22 
202617 19 
202714 16 
Later years74 32 106 
Total lease payments165 40 205 
Less: imputed interest(20)(10)(30)
Present value of lease liabilities$145 $30 $175 
36


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 5, “Loans and Leases” in the Notes to Consolidated Financial Statements.
NOTE 9.     VARIABLE INTEREST ENTITIES
We evaluate our interest in certain entities to determine if these entities meet the definition of a VIE and whether we are the primary beneficiary and required to consolidate the entity based on the variable interest we 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 June 30, 2023 and December 31, 2022.
TABLE 9.1
(in millions)Total AssetsTotal LiabilitiesMaximum Exposure to Loss
June 30, 2023
Trust preferred securities (1)
$1 $72 $ 
Affordable housing tax credit partnerships117 34 117 
Other investments36 4 36 
Total $154 $110 $153 
December 31, 2022
Trust preferred securities (1)
$$72 $— 
Affordable housing tax credit partnerships123 37 123 
Other investments33 33 
Total $157 $118 $156 
(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 10, “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
37


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 and use the proportional amortization method to account for our investments in LIHTC partnerships. Amortization related to our LIHTC investments is recorded on a net basis as a component of the provision for income taxes on the Consolidated Statements of Income.
The following table presents the balances of our affordable housing tax credit investments and related unfunded commitments:
TABLE 9.2
(in millions)June 30,
2023
December 31,
2022
LIHTC investments included in other assets$83 $86 
Unfunded LIHTC commitments34 37 
The following table summarizes the impact of these LIHTC investments on the provision for income taxes in our Consolidated Statements of Income:
TABLE 9.3
Three Months Ended
June 30,
Six Months Ended
June 30,
(in millions)2023202220232022
Provision for income taxes:
Amortization of LIHTC investments under proportional method$4 $$8 $
Low-income housing tax credits(4)(4)(8)(8)
Other tax benefits related to tax credit investments — (1)(1)
Total impact on provision for income taxes$ $(1)$(1)$(2)
Other Investments
Other investments we also consider to be unconsolidated VIE’s include investments in Small Business Investment Companies, Historic Tax Credit investments, New Market Tax Credit investments and other equity method investments.
NOTE 10.    BORROWINGS
Following is a summary of short-term borrowings:
TABLE 10.1
(in millions)June 30,
2023
December 31,
2022
Securities sold under repurchase agreements$252 $317 
Federal Home Loan Bank advances2,000 930 
Federal funds purchased25 — 
Subordinated notes114 125 
Total short-term borrowings$2,391 $1,372 
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
38


the outstanding balance. Of the total short-term FHLB advances, 37.5% had overnight maturities as of June 30, 2023. We did not have any short-term FHLB advances with overnight maturities as of December 31, 2022. At June 30, 2023, $700.0 million, or 35.0%, of the short-term FHLB advances were swapped to fixed rates with various maturities through 2024. This compares to $930.0 million, or 100.0%, as of December 31, 2022.
Following is a summary of long-term borrowings:
TABLE 10.2
(in millions)June 30,
2023
December 31,
2022
Federal Home Loan Bank advances$1,200 $— 
Senior notes348 648 
Subordinated notes79 70 
Junior subordinated debt72 72 
Other subordinated debt282 303 
Total long-term borrowings$1,981 $1,093 
During the third quarter of 2022, we completed a debt offering in which we issued $350 million aggregate principal amount of 5.150% fixed-rate senior notes due in 2025. The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering costs were $347.4 million. These proceeds were used for general corporate purposes, which included the repayment of $300 million in 2.200% Senior Notes that matured in February 2023, and may also include investments at the holding company level, capital to support the growth of FNBPA and refinancing of outstanding indebtedness.
During 2022, we assumed $25 million of other subordinated debt and $5 million of junior subordinated debt from the Howard acquisition and $31 million of other subordinated debt from the Union acquisition. During the second quarter of 2023, we called $6 million in other subordinated debt acquired from the Union acquisition and we repurchased and retired $15.0 million in other subordinated debt assumed in a previous acquisition.
Our banking affiliate has available credit with the FHLB of $10.5 billion, of which $3.2 billion was utilized and included in short-term and long-term borrowings and $585.0 million was utilized for a letter of credit for pledging of public funds as of June 30, 2023. These advances are secured by loans collateralized by residential mortgages, home equity lines of credit, commercial real estate and FHLB stock. The short-term borrowings are scheduled to mature in various amounts periodically during 2023 while the long-term borrowings are scheduled to mature periodically through 2027. Effective interest rates paid on the long-term FHLB advances held during 2023 ranged from 4.23% to 4.88% for the three months ended June 30, 2023. There were no long-term FHLB borrowings during the first six months of 2022, or as of December 31, 2022.
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The following table provides information relating to our senior notes and other subordinated debt as of June 30, 2023. The subordinated notes are eligible for treatment as tier 2 capital for regulatory capital purposes.
TABLE 10.3
(dollars in millions)Aggregate Principal Amount Issued
Net Proceeds (5)
Carrying ValueStated Maturity DateInterest
Rate
Senior Notes:
5.150% Senior Notes due August 25, 2025
$350 $347 $348 8/25/20255.150 %
Total senior notes350 347 348 
Other Subordinated Debt:
4.950% Fixed-To-Floating Rate Subordinated Notes due 2029 (1)
120 118 119 2/14/20294.950 %
4.875% Subordinated Notes due 2025
100 98 100 10/2/20254.875 %
7.625% Subordinated Notes due August 12, 2023 (4)
38 46 14 8/12/20237.625 %
6.000% Fixed-To-Floating Rate Subordinated Notes due December 6, 2028 (2) (4)
25 26 25 12/6/20286.000 %
5.000% Fixed-To-Floating Rate Subordinated Note due May 29, 2030 (3) (4)
25 24 24 5/29/20305.000 %
Total other subordinated debt308 312 282 
Total$658 $659 $630 
(1) Fixed-to-floating rate until February 14, 2024, at which time the floating rate will be the Benchmark Replacement (three-month CME term SOFR plus a tenor spread adjustment of 26 basis points) plus 240 basis points.
(2) Fixed-to-floating rate until December 6, 2023, at which time the floating rate will be the Benchmark Replacement (three-month CME term SOFR plus a tenor spread adjustment of 26 basis points) plus 302 basis points.
(3) Fixed-to-floating rate until May 29, 2025, at which time the floating rate will be three-month SOFR plus 464 basis points.
(4) Assumed from an acquisition and adjusted to fair value at the time of acquisition.
(5) After deducting underwriting discounts and commissions and offering costs. For the debt assumed from acquisitions, 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, or companies we acquired, in relation to our four 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 June 30, 2023:
TABLE 10.4
(dollars in millions)Trust
Preferred
Securities
Common
Securities
Junior
Subordinated
Debt
Stated
Maturity
Date
Interest Rate
Rate Reset Factor
F.N.B. Statutory Trust II$22 $$22 6/15/20367.20 %
LIBOR + 165 bps
Yadkin Valley Statutory Trust I25 22 12/15/20376.87 %
LIBOR + 132 bps
FNB Financial Services Capital Trust I25 23 9/30/20357.00 %
LIBOR + 146 bps
Patapsco Statutory Trust I— 12/15/20357.03 %
LIBOR + 148 bps
Total$77 $$72 
For the TPS shown in the table above, beginning in the third quarter of 2023, LIBOR will be replaced by the three-month CME term SOFR plus a tenor spread adjustment of 26 basis points.

40


NOTE 11.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate risk, primarily by managing the amount, source, and duration of our assets and liabilities, and through the use of derivative instruments. Derivative instruments are used to reduce the effects that changes in interest rates may have on net income and cash flows. We also use derivative instruments to facilitate transactions on behalf of our customers.
All derivatives are carried on the Consolidated Balance Sheets at fair value and do not take into account the effects of master netting arrangements we have with other financial institutions. Credit risk is included in the determination of the estimated fair value of derivatives. Derivative assets are reported in the Consolidated Balance Sheets in other assets and derivative liabilities are reported in 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, which are recognized in other comprehensive income.
The following table presents notional amounts and gross fair values of our derivative assets and derivative liabilities which are not offset in the Consolidated Balance Sheets:
TABLE 11.1
June 30, 2023December 31, 2022
NotionalFair ValueNotionalFair Value
(in millions)AmountAssetLiabilityAmountAssetLiability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated$1,950 $ $3 $2,180 $— $
Interest rate swaps – not designated5,425 96 5 5,333 89 
Total subject to master netting arrangements7,375 96 8 7,513 89 
Not subject to master netting arrangements:
Interest rate swaps – not designated5,425 5 378 5,333 390 
Interest rate lock commitments – not designated193  2 163 — 12 
Forward delivery commitments – not designated220 2  203 
Credit risk contracts – not designated631   506 — — 
Total not subject to master netting arrangements6,469 7 380 6,205 404 
Total$13,844 $103 $388 $13,718 $96 $411 
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 Reference Rate Reform (RRR) on October 1, 2020, and the guidance will be followed until the Update terminates on December 31, 2024. 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.
41


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 11.2
Amount of Gain (Loss) Recognized in OCI on DerivativesLocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
Six Months Ended
June 30,
Six Months Ended
June 30,
(in millions)2023202220232022
Derivatives in cash flow hedging relationships:
   Interest rate contracts $(13)$(22)Interest income (expense)$(9)$(4)
Other income — 
The following table represents gains (losses) recognized in the Consolidated Statements of Income on cash flow hedging relationships:
TABLE 11.3
Six months ended June 30,
20232022
(in millions)Interest Income - Loans and LeasesInterest Expense - Short-Term BorrowingsInterest Income - Loans and LeasesInterest Expense - Short-Term Borrowings
Total amounts of income and expense line items presented in the Consolidated Statements of Income (the effects of cash flow hedges are included in these line items)$823 $32 $463 $11 
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(21)12 (7)
As of June 30, 2023, the maximum length of time over which forecasted interest cash flows are hedged is 2.8 years. In the twelve months that follow June 30, 2023, we expect to reclassify from the amount currently reported in AOCI net derivative losses of $31.7 million ($24.6 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 June 30, 2023.
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 six months ended June 30, 2023 and 2022, 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.
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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 16, "Derivative Instruments and Hedging Activities" in the Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023.
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 $512.6 million as of June 30, 2023 have remaining terms ranging from three months to eighteen 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 $0.1 million at June 30, 2023 and $0.1 million at December 31, 2022. The fair values of risk participation agreements purchased and sold were $0.1 million and $0.1 million, respectively, at June 30, 2023 and $0.1 million and $0.1 million, respectively at December 31, 2022.
The following table presents the effect of certain derivative financial instruments on the Consolidated Statements of Income:
TABLE 11.4
Six Months Ended
June 30,
(in millions)Consolidated Statements of Income Location20232022
Interest rate swapsNon-interest income - other$ $— 
Interest rate lock commitmentsMortgage banking operations — 
Forward delivery contractsMortgage banking operations3 
Credit risk contractsNon-interest income - other — 
Counterparty Credit Risk
We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash and securities 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 nothing as of June 30, 2023 and an additional $0.1 million as of December 31, 2022, in excess of amounts previously posted as collateral with the respective counterparty.
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The following table presents a reconciliation of the net amounts of derivative assets and derivative liabilities presented in the Consolidated Balance Sheets to the net amounts that would result in the event of offset:
TABLE 11.5
  Amount Not Offset in the
Consolidated Balance Sheets
 
(in millions)Net Amount
Presented in
the Consolidated Balance
Sheets
Financial
Instruments
Cash
Collateral
Net
Amount
June 30, 2023
Derivative Assets
Interest rate contracts:
Not designated$96 $ $95 $1 
Total$96 $ $95 $1 
Derivative Liabilities
Interest rate contracts:
Designated$3 $ $3 $ 
Not designated5  5  
Total$8 $ $8 $ 
December 31, 2022
Derivative Assets
Interest rate contracts:
Not designated$89 $— $88 $
Total$89 $— $88 $
Derivative Liabilities
Interest rate contracts:
Designated$$— $$— 
Not designated— — 
Total$$— $$— 

NOTE 12.    COMMITMENTS, CREDIT RISK AND CONTINGENCIES
We have commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the Consolidated Balance Sheets. Our exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loans and leases to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
Following is a summary of off-balance sheet credit risk information:
TABLE 12.1
(in millions)June 30,
2023
December 31,
2022
Commitments to extend credit$13,416 $13,250 
Standby letters of credit230 207 
At June 30, 2023, funding of 74.5% of the commitments to extend credit was dependent on the financial condition of the customer. We have the ability to withdraw such commitments at our discretion. Commitments generally have fixed expiration
44


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 $21.0 million at June 30, 2023 and $21.4 million at December 31, 2022. Additional information relating to the AULC is provided in Note 6, "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 10, “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 arisen 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, including ongoing reviews, examinations, and investigations by banking regulatory agencies and other government authorities, for developments that could affect the amount of the accrual, and will adjust the accrual amount as appropriate. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. We believe that our accruals for legal proceedings are appropriate and, in the aggregate, are not material to our consolidated financial position, although future accruals could have a material effect on net income in a given period.
NOTE 13.    STOCK INCENTIVE PLANS
Restricted Stock
We issue restricted stock awards to key employees under our Incentive Compensation Plan (Plan). We issue time-based awards and performance-based awards under this Plan, both of which are based on a three-year vesting period. The grant date fair value of the time-based awards is equal to the price of our common stock on the grant date. The fair value of the performance-based awards is based on a Monte-Carlo simulation valuation of our common stock as of the grant date. The assumptions used for this valuation include stock price volatility, risk-free interest rate and dividend yield. We granted 1,354,017 and 1,219,416 restricted stock units during the six months ended June 30, 2023 and 2022, respectively, including 282,106 and 297,508
45


performance-based restricted stock units during those same periods, respectively. As of June 30, 2023, we had available up to 7,579,406 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 13.1
Six Months Ended June 30,
20232022
UnitsWeighted
Average
Grant
Price per
Share
UnitsWeighted
Average
Grant
Price per
Share
Unvested units outstanding at beginning of period4,821,182 $10.30 4,680,786 $9.71 
Granted1,354,017 12.74 1,219,416 13.11 
Acquired  60,300 9.41 
Net adjustment due to performance306,917 8.43 105,026 9.89 
Vested(2,303,266)7.99 (1,648,252)10.60 
Forfeited/expired/canceled(578,493)8.13 (211,295)10.90 
Dividend reinvestment74,505 12.16 93,375 11.90 
Unvested units outstanding at end of period3,674,862 12.87 4,299,356 10.32 
The following table provides certain information related to restricted stock units:
TABLE 13.2
(in millions)Six Months Ended
June 30,
 20232022
Stock-based compensation expense$13 $12 
Tax benefit related to stock-based compensation expense3 
Fair value of units vested30 21 
As of June 30, 2023, there was $15.3 million of unrecognized compensation cost related to unvested restricted stock units, including $1.3 million that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement.
The components of the restricted stock units as of June 30, 2023 are as follows:
TABLE 13.3
(dollars in millions)Service-
Based
Units
Performance-
Based
Units
Total
Unvested restricted stock units2,511,429 1,163,433 3,674,862 
Unrecognized compensation expense$15 $$16 
Intrinsic value$29 $13 $42 
Weighted average remaining life (in years)2.021.751.93
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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 June 30, 2023, we had 107,823 stock options outstanding and exercisable at a weighted average exercise price per share of $9.90, compared to 176,366 stock options outstanding and exercisable at a weighted average exercise price per share of $8.96 as of June 30, 2022.
The intrinsic value of outstanding and exercisable stock options at June 30, 2023 was $0.2 million. The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price.

NOTE 14.      INCOME TAXES
Income Tax Expense
Federal and state income tax expense and the statutory tax rate and the actual effective tax rate consist of the following:
TABLE 14.1
Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in millions)2023202220232022
Current income taxes:
Federal taxes$36 $22 $67 $29 
State taxes3 5 
Total current income taxes39 25 72 34 
Deferred income taxes:
Federal taxes(3)(1)
State taxes1 — 1 — 
Total deferred income taxes(2) 
Total income taxes$37 $28 $72 $42 
Statutory federal tax rate21.0 %21.0 %21.0 %21.0 %
Effective tax rate20.5 20.1 20.0 20.4 
Income tax expense was higher for the six months ended June 30, 2023 due to higher pre-tax earnings as we had merger-related expenses from the Howard and Union acquisitions in 2022. The decrease in the effective tax rate for the six months ended June 30, 2023 compared to 2022 was primarily driven by higher deduction levels from employee stock compensation vesting.
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 $149.5 million and $147.7 million at June 30, 2023 and December 31, 2022, respectively.
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NOTE 15.    OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents changes in AOCI, net of tax, by component:
TABLE 15.1
(in millions)Unrealized
Net Gains (Losses) on
Debt Securities
Available
for Sale
Unrealized
Net Gains
(Losses) on
Derivative
Instruments
Unrecognized
Pension and
Postretirement
Obligations
Total
Six Months Ended June 30, 2023
Balance at beginning of period$(269)$(44)$(44)$(357)
Other comprehensive (loss) income before reclassifications(10)(5)
Amounts reclassified from AOCI— — 
Net current period other comprehensive (loss) income(3)
Balance at end of period$(265)$(47)$(43)$(355)
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 16.    EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding net of unvested shares of restricted stock.
Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options and restricted shares, as calculated using the treasury stock method. Adjustments to the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.
The following table sets forth the computation of basic and diluted earnings per common share:
TABLE 16.1
Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in millions, except per share data)
2023202220232022
Net income$142 $109 $289 $162 
Less: Preferred stock dividends2 4 
Net income available to common stockholders$140 $107 $285 $158 
Basic weighted average common shares outstanding360,124,415 351,269,791 360,489,630 347,830,430 
Net effect of dilutive stock options and restricted stock2,501,767 3,417,278 3,286,929 4,004,504 
Diluted weighted average common shares outstanding362,626,182 354,687,069 363,776,559 351,834,934 
Earnings per common share:
Basic$0.39 $0.30 $0.79 $0.45 
Diluted$0.39 $0.30 $0.78 $0.45 
There were no anti-dilutive shares for either the three months ended or six months ended June 30, 2023 and 2022.
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NOTE 17.    CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information:
TABLE 17.1
Six Months Ended
June 30,
(in millions)20232022
Interest paid on deposits and other borrowings$238 $45 
Income taxes paid67 35 
Transfers of loans to other real estate owned1 
Loans transferred to portfolio from held for sale26— 
We did not have any restricted cash as of June 30, 2023 and 2022.
Supplemental non-cash information relating to the Howard and Union acquisitions is included in Note 3, Mergers and Acquisitions.
NOTE 18.    BUSINESS SEGMENTS
We operate in three reportable segments: Community Banking, Wealth Management and Insurance.

The Community Banking segment provides commercial and consumer banking services. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, business credit, capital markets and lease financing. Consumer banking products and services include deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services.
The Wealth Management segment provides a broad range of personal and corporate fiduciary services including the administration of decedent and trust estates. In addition, it offers various alternative products, including securities brokerage (under a third-party arrangement) 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.
49


The following tables provide financial information for these segments of FNB. The information provided under the caption “Parent and Other” represents operations not considered to be reportable segments and/or general operating expenses of FNB, and includes the parent company, other non-bank subsidiaries and eliminations and adjustments to reconcile to the Consolidated Financial Statements.
TABLE 18.1
(in millions)Community
Banking
Wealth
Management
InsuranceParent and
Other
Consolidated
At or for the Three Months Ended June 30, 2023
Interest income$483 $ $ $1 $484 
Interest expense147   8 155 
Net interest income336   (7)329 
Provision for credit losses19    19 
Non-interest income57 18 7 (1)81 
Non-interest expense (1)
187 13 5 2 207 
Amortization of intangibles5    5 
Income tax expense (benefit)39 1 1 (4)37 
Net income (loss)143 4 1 (6)142 
Total assets44,629 39 32 78 44,778 
Total intangibles2,521 9 26  2,556 
At or for the Three Months Ended June 30, 2022
Interest income$279 $— $— $$280 
Interest expense24 — — 26 
Net interest income255 — — (1)254 
Provision for credit losses— — — 
Non-interest income61 16 (1)82 
Non-interest expense (1)
173 10 189 
Amortization of intangibles— — 
Income tax expense (benefit)28 (2)28 
Net income (loss)106 — (2)109 
Total assets41,545 37 35 64 41,681 
Total intangibles2,453 27 — 2,489 
(1) Excludes amortization of intangibles, which is presented separately.
50


(in millions)Community
Banking
Wealth
Management
InsuranceParent and
Other
Consolidated
At or for the Six Months Ended June 30, 2023
Interest income$925 $ $ $3 $928 
Interest expense245   17 262 
Net interest income680   (14)666 
Provision for credit losses33    33 
Non-interest income112 36 14 (2)160 
Non-interest expense (1)
382 26 9 5 422 
Amortization of intangibles10    10 
Income tax expense (benefit)77 2 1 (8)72 
Net income (loss)290 8 4 (13)289 
Total assets44,629 39 32 78 44,778 
Total intangibles2,521 9 26  2,556 
At or for the Six Months Ended June 30, 2022
Interest income$532 $— $— $$534 
Interest expense41 — — 46 
Net interest income491 — — (3)488 
Provision for credit losses23 — — 24 
Non-interest income117 32 13 (2)160 
Non-interest expense (1)
380 21 413 
Amortization of intangibles— — 
Income tax expense (benefit)42 (3)42 
Net income (loss)157 (6)162 
Total assets41,545 37 35 64 41,681 
Total intangibles2,453 27 — 2,489 
(1) Excludes amortization of intangibles, which is presented separately.
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NOTE 19.    FAIR VALUE MEASUREMENTS
Refer to Note 26 "Fair Value Measurements" to the Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023 for a description of additional valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:
TABLE 19.1
(in millions)Level 1Level 2Level 3Total
June 30, 2023
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury$306 $ $ $306 
U.S. government agencies 93  93 
U.S. government-sponsored entities 254  254 
Residential mortgage-backed securities:
Agency mortgage-backed securities 1,112  1,112 
Agency collateralized mortgage obligations 892  892 
Commercial mortgage-backed securities 460  460 
States of the U.S. and political subdivisions (municipals) 29  29 
Other debt securities 31  31 
Total debt securities available for sale306 2,871  3,177 
Loans held for sale 82  82 
Derivative financial instruments
Trading 101  101 
Not for trading 2  2 
Total derivative financial instruments 103  103 
Total assets measured at fair value on a recurring basis$306 $3,056 $ $3,362 
Liabilities Measured at Fair Value
Derivative financial instruments
Trading$ $383 $ $383 
Not for trading 3 2 5 
Total derivative financial instruments 386 2 388 
Total liabilities measured at fair value on a recurring basis$ $386 $2 $388 
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(in millions)Level 1Level 2Level 3Total
December 31, 2022
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury$257 $— $— $257 
U.S. government agencies— 108 — 108 
U.S. government-sponsored entities— 262 — 262 
Residential mortgage-backed securities:
Agency mortgage-backed securities— 1,232 — 1,232 
Agency collateralized mortgage obligations— 972 — 972 
Commercial mortgage-backed securities— 395 — 395 
States of the U.S. and political subdivisions (municipals)— 29 — 29 
Other debt securities— 20 — 20 
Total debt securities available for sale257 3,018 — 3,275 
Loans held for sale— 91 — 91 
Derivative financial instruments
Trading— 95 — 95 
Not for trading— — 
Total derivative financial instruments— 96 — 96 
Total assets measured at fair value on a recurring basis$257 $3,205 $— $3,462 
Liabilities Measured at Fair Value
Derivative financial instruments
Trading$— $396 $— $396 
Not for trading— 12 15 
Total derivative financial instruments— 399 12 411 
Total liabilities measured at fair value on a recurring basis$— $399 $12 $411 

The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:
TABLE 19.2
(in millions)Other
Debt
Securities
Interest
Rate Lock
Commitments
Total
Six Months Ended June 30, 2023
Balance at beginning of period$ $ $ 
Purchases, issuances, sales and settlements:
Issuances 1 1 
Settlements (1)(1)
Balance at end of period$ $ $ 
Year Ended December 31, 2022
Balance at beginning of period$— $$
Purchases, issuances, sales and settlements:
Purchases— 
Settlements(1)(9)(10)
Transfers from Level 3(1)— (1)
Balance at end of period$— $— $— 
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We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. There were no transfers of assets or liabilities between the hierarchy levels during the first six months of 2023 or 2022.
From time to time, we measure certain assets at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of the lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were described in Note 26, "Fair Value Measurements" to the Consolidated Financial Statements included in 2022 Annual Report on Form 10-K. For assets measured at fair value on a non-recurring basis still held at the Balance Sheet date, the following table provides the hierarchy level and the fair value of the related assets or portfolios:
TABLE 19.3
(in millions)Level 1Level 2Level 3Total
June 30, 2023
Collateral dependent loans$ $ $47 $47 
Other assets - SBA servicing asset  2 2 
Other real estate owned  2 2 
December 31, 2022
Collateral dependent loans$— $— $34 $34 
Other assets - SBA servicing asset— — 
Other real estate owned— — 
The fair value amounts for collateral dependent loans and OREO in the table above were estimated at a date during the six months or twelve months ended June 30, 2023 and December 31, 2022, 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 six months ended June 30, 2023 had a carrying amount of $46.7 million, which includes an allocated ACL of $23.4 million. The ACL includes a credit to the provision applicable to the current period fair value measurements of $27.6 million, which was included in provision for credit losses for the six months ended June 30, 2023.
SBA servicing assets measured at fair value on a non-recurring basis had a carrying value of $1.7 million. During 2023, the valuation allowance decreased $0.3 million to $1.3 million as of June 30, 2023, down from $1.6 million at December 31, 2022, which is reflected in the year-to-date provision expense.
OREO measured at fair value on a non-recurring basis during 2023 had a carrying amount of $2.4 million, which included a valuation allowance of $0.6 million, as of June 30, 2023. The valuation allowance includes a loss of $0.6 million, which was included in earnings for the six months ended June 30, 2023.
Fair Value of Financial Instruments
Refer to Note 26, "Fair Value Measurements" to the Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023 for a description of methods and assumptions that were used to estimate the fair value of each financial instrument.
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The fair values of our financial instruments are as follows:
TABLE 19.4
  Fair Value Measurements
(in millions)Carrying
Amount
Fair
 Value
Level 1Level 2Level 3
June 30, 2023
Financial Assets
Cash and cash equivalents$1,704 $1,704 $1,704 $ $ 
Debt securities available for sale3,177 3,177 306 2,871  
Debt securities held to maturity3,988 3,587  3,587  
Net loans and leases, including loans held for sale31,035 30,246  82 30,164 
Loan servicing rights58 74   74 
Derivative assets103 103  103  
Accrued interest receivable137 137 137   
Financial Liabilities
Deposits33,825 33,737 28,490 5,247  
Short-term borrowings2,391 2,390 2,390   
Long-term borrowings1,981 1,926  1,190 736 
Derivative liabilities388 388  386 2 
Accrued interest payable55 55 55   
December 31, 2022
Financial Assets
Cash and cash equivalents$1,674 $1,674 $1,674 $— $— 
Debt securities available for sale3,275 3,275 257 3,018 — 
Debt securities held to maturity4,087 3,687 — 3,687 — 
Net loans and leases, including loans held for sale29,977 29,008 — 91 28,917 
Loan servicing rights55 71 — — 71 
Derivative assets96 96 — 96 — 
Accrued interest receivable126 126 126 — — 
Financial Liabilities
Deposits34,770 34,673 31,158 3,515 — 
Short-term borrowings1,372 1,369 1,369 — — 
Long-term borrowings1,093 1,061 — — 1,061 
Derivative liabilities411 411 — 399 12 
Accrued interest payable31 31 31 — — 

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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 six-month periods ended June 30, 2023 and 2022. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023. Our results of operations for the six months ended June 30, 2023 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) supervision, regulation, enforcement and other actions by several governmental agencies, including the FRB, FDIC, Financial Stability Oversight Council (FSOC), DOJ, CFPB, UST, OCC and Department of Housing and Urban Development (HUD), state attorney generals and other governmental agencies whose actions may affect, among other things, our consumer and mortgage lending and deposit practices, capital structure, investment practices, dividend policy, annual FDIC insurance premium assessment and growth, money supply, market interest rates or otherwise affect business activities of the financial services industry; (iii) a slowing of the U.S. economy in general and regional and local economies within our market area; (iv) inflation concerns; (v) the impacts of tariffs or other trade policies of the U.S. or its global trading partners; and (vi) 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 significant adverse industry and economic events can also impact our ability to respond to customer needs and meet competitive demands.
Business and operating results can also be affected by difficult to predict uncertainties, such as widespread natural and other disasters, pandemics, including post-pandemic return to normalcy, global events and geopolitical instability, including the Ukraine-Russia conflict, shortages of labor, supply chain disruptions and shipping delays, terrorist activities, system failures, security breaches, significant political events, cyber-attacks, international hostilities or other extraordinary events which are beyond our control and may significantly impact the U.S. or global economy and financial markets generally, or us or our counterparties, customers or third-party vendors 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 talent. These developments could include:
Policies and priorities of the current U.S. presidential administration, including legislative and regulatory reforms, more aggressive approaches to supervisory or enforcement priorities with consumer and anti-discrimination lending laws by the federal banking regulatory agencies and the DOJ, changes affecting oversight of the financial services industry, regulatory obligations or restrictions, consumer protection, taxes,
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employee benefits, compensation practices, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.
Ability to continue to attract, develop and retain key talent.
Changes to regulations or accounting standards governing bank capital requirements, loan loss reserves and liquidity standards.
Changes in monetary and fiscal policies, including interest rate policies and strategies of the FOMC.
Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or inquiries. These matters may result in monetary judgments or settlements, enforcement actions or other remedies, including fines, penalties, restitution or alterations in our business practices, including financial and other type of commitments, 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.
Business and operating results are affected by our ability to effectively identify and manage risks inherent in our businesses, including, where appropriate, through effective use of policies, processes, systems and controls, third-party insurance, derivatives, and capital and liquidity management techniques.
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.
Increased funding costs and market volatility due to market illiquidity and competition for funding.
We caution that the risks identified here are not exhaustive of the types of risks that may adversely impact us 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 2022 Annual Report on Form 10-K, our subsequent 2023 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other 2023 filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-information/reports-and-filings or the SEC's website at www.sec.gov. 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 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023 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, 2022.
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, operating 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, 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
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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, initial provision for non-PCD loans acquired and branch consolidation costs 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 costs principally represent expenses to satisfy contractual obligations of the acquired entity or closed branch 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.
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 2023 and 2022 periods were calculated using a federal statutory income tax rate of 21%.
FINANCIAL SUMMARY
Net income available to common stockholders for the second quarter of 2023 was $140.4 million or $0.39 per diluted common share, compared to net income available to common stockholders for the second quarter of 2022 of $107.1 million or $0.30 per diluted common share. On an operating basis, earnings per diluted common share (non-GAAP) was $0.39 for the second quarter of 2023, excluding $0.2 million (pre-tax) in merger-related significant items, while the second quarter of 2022 was $0.31, excluding $2.0 million (pre-tax) in merger-related significant items.
The second quarter’s earnings per diluted common share grew 30% compared to the prior year, and our liquidity metrics continue to be favorable. Our capital position remains strong with CET1 at 10%, while supporting loan growth and share repurchase activity in the quarter. Book value per share was $15.92, as compared to $15.19 at June 30, 2022. Tangible book value per share (non-GAAP) continues to grow, totaling $8.79, up 8.6% year-over-year. Operating return on average tangible common equity (non-GAAP) for the first six months of 2023 totaled 19.1%, and the efficiency ratio (non-GAAP) equaled 50%.
Income Statement Highlights (Second quarter of 2023 compared to second quarter of 2022, except as noted)
Net interest income increased $75.6 million, or 29.8%, to $329.2 million primarily due to the benefit of growth in earning assets, the impact from the higher interest rate environment, deposit growth and prudent management of deposit betas.
On a linked-quarter basis net interest income of $329.2 million decreased $7.4 million, or 2.2%, from the prior quarter total of $336.7 million, primarily due to accelerating deposit costs and migration to time deposits, as well as higher total borrowings.
Net interest margin (FTE) (non-GAAP) increased 61 basis points as a result of higher yields on loans, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment, partially offset by increased cost of funds.
On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) decreased 19 basis points to 3.37% largely due to increases in the rates paid on interest-bearing deposits and total borrowings more than offsetting the increases in yields on earning assets.
The provision for credit losses of $18.5 million supported loan growth and a specific reserve for a single commercial and industrial loan downgraded to nonperforming status during the quarter. Excluding this one credit, non-performing assets would have decreased 2 basis points.
On a linked-quarter basis, non-interest income totaled $80.3 million, a $0.9 million, or 1.2% increase.
The efficiency ratio (non-GAAP) was 50.0%, fueled by higher revenue, compared to 55.2%.
The effective tax rate was 20.5%, compared to 20.1%, driven by higher pre-tax income levels.

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Balance Sheet Highlights (period-end balances, June 30, 2023 compared to December 31, 2022, unless otherwise indicated)
Period-end total loans and leases, increased $3.3 billion, or 11.8%, as compared to June 30, 2022, which includes the Union acquisition that closed in the fourth quarter of 2022. Commercial loans and leases increased $1.7 billion, or 9.4%, and consumer loans increased $1.6 billion, or 16.2%. Our organic loan growth was driven by the continued success of our strategy to grow high-quality loans across our diverse geographic footprint.
On a linked-quarter basis, period-end total loans and leases increased $680.6 million, or 2.2%, as consumer loans increased $517.0 million with strong seasonal contributions from the Physicians First mortgage program and commercial loans and leases increased $163.5 million. Average loans and leases increased $638.0 million, or 2.1%, linked-quarter, with growth of $338.5 million in average consumer loans and $299.5 million in average commercial loans and leases.
On a linked-quarter basis, period-end deposits decreased $365.4 million, or 1.1%, primarily due to outflows from seasonal income tax payments and inflationary pressures on customers. We ended June 30, 2023 with approximately 77% of deposits insured by the FDIC or collateralized. We continue to offer reciprocal deposit products to our customers with less than $260 million in outstanding reciprocal deposit balances at quarter-end.
Total average deposits grew $69.6 million, or 0.2%, from the same prior-year period, led by increases in average time deposits of $2.0 billion, or 68.2%, offsetting the decline in average interest-bearing demand deposits of $1.1 billion, or 7.3%, average non-interest-bearing deposits of $754.5 million, or 6.4%, and average savings deposits of $114.2 million, or 2.9%, as customers continue to migrate deposits into higher-yielding products.
The ratio of loans to deposits was 92.7%, compared to 87.0%, as loan growth outpaced deposits. Additionally, the funding mix shifted modestly with non-interest-bearing deposits comprising 32% of total deposits at June 30, 2023, compared to 34%.
The ratio of the ACL to total loans and leases was stable at 1.32%, compared to 1.33%. The ACL on loans and leases totaled $413 million, compared to $402 million.
The annualized net charge-offs (recoveries) to total average loans ratio was 0.11%, compared to (0.01)% in the second quarter of 2022. While higher than the year-ago quarter, net charge-offs remain at historically low levels.
The ratio of non-performing loans and OREO to total loans and OREO increased 8 basis points to 0.47%. Total delinquency increased 4 basis points to 0.75%, compared to 0.71%. Both measures continue to remain at historically low levels.
Tangible book value per common share (non-GAAP) of $8.79, increased $0.52, or 3.2%, and $0.13 compared to June 30, 2022. AOCI reduced the tangible book value per common share (non-GAAP) by $0.99 as of June 30, 2023, primarily due to the impact of higher interest rates on the fair value of AFS securities, compared to a $0.87 reduction as of March 31, 2023, a $0.99 reduction as of December 31, 2022 and a $0.72 reduction as of June 30, 2022.
The CET1 regulatory capital ratio was 10.1% benefiting from retained earnings growth in the quarter, partially offset by share repurchase activity.
During the second quarter of 2023, we repurchased 2,288,558 shares of common stock at a weighted average share price of $10.80 while maintaining capital at targeted operating levels and supporting loan growth in the quarter.

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TABLE 1
Three Months Ended
June 30,
Quarterly Results Summary20232022
Reported results
Net income available to common stockholders (millions)$140.4 $107.1 
Net income per diluted common share0.39 0.30 
Book value per common share (period-end)15.92 15.19 
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)140.5 108.7 
Operating net income per diluted common share0.39 0.31 
Average diluted common shares outstanding (thousands)362,626 354,687 
Significant items impacting earnings(1) (millions)
Pre-tax merger-related expenses$(0.2)$(2.0)
After-tax impact of merger-related expenses(0.1)(1.6)
Total significant items pre-tax$(0.2)$(2.0)
Total significant items after-tax$(0.1)$(1.6)
Capital measures
Common equity tier 110.1 %9.7 %
Tangible common equity to tangible assets (period-end) (non-GAAP)7.47 7.25 
Tangible book value per common share (period-end) (non-GAAP)$8.79 $8.10 
Six Months Ended
June 30,
Year-to-Date Results Summary20232022
Reported results
Net income available to common stockholders (millions)$284.9 $158.1 
Net income per diluted common share0.78 0.45 
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)286.6 200.7 
Operating net income per diluted common share0.79 0.57 
Average diluted common shares outstanding (thousands)363,777 351,835 
Significant items impacting earnings(1) (millions)
Pre-tax merger-related expenses$(2.2)$(30.7)
After-tax impact of merger-related expenses(1.8)(24.2)
Pre-tax provision expense related to acquisition (19.1)
After-tax impact of provision expense related to acquisition (15.1)
Pre-tax branch consolidation costs (4.2)
After-tax impact of branch consolidation costs (3.3)
Total significant items pre-tax$(2.2)$(54.0)
Total significant items after-tax$(1.8)$(42.6)
(1) Favorable (unfavorable) impact on earnings
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Industry Developments
BANKING INDUSTRY DISRUPTION
During the second week of March 2023, Silicon Valley Bank failed and was taken over by federal regulators. The size of the bank, being over $200 billion in assets, made it the second largest U.S. bank to fail. Subsequently, that week, Signature Bank with assets over $100 billion, was also closed by federal regulators. On May 1, 2023, it was announced that First Republic Bank was another bank closed by federal regulators. While these failures were idiosyncratic in nature, these events called into question the stability of the entire banking sector and sparked customer fears of potential loss of deposit balances exceeding the FDIC's $250,000 insurance limit.
While the high-profile bank failures had a diminishing effect on public confidence of the banking system, the federal government took mitigating action. To strengthen public confidence, the federal government announced that that all depositors of Silicon Valley Bank and Signature Bank would be protected with any losses to the DIF recovered by a special assessment on banks. In addition to those actions, the FRB made available additional funding to eligible depository institutions to help assure banks the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.
The additional funding was made available through the creation of a new BTFP, offering loans of up to one year in length to banks, savings associations, credit unions and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress. As of June 30, 2023, we have not participated in this program. Additionally, our total deposit balances have remained stable as a result of our granular deposit base with our average customer deposit account balance at approximately $29,000 (below the peer median) and our median consumer deposit account balance at approximately $5,000 as of June 30, 2023. FDIC-insured or collateralized deposits represented approximately 77% of our total deposits at June 30, 2023, which was higher than our peer median (based on peer data as of March 31, 2023) and we had ample liquidity to fund up to an estimated 140% of our uninsured and non-collateralized deposits.
LIBOR and SOFR
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 would continue to be published through June 30, 2023. Bank regulators, in a joint statement 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 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 recommended the use of SOFR as a replacement index for LIBOR.
On March 15, 2022, the Adjustable Interest Rate Act (the LIBOR Act) was signed into law. As required by the LIBOR Act, the FRB's final rule, effective February 27, 2023, identifies FRB-based benchmark replacements for LIBOR contracts that will not mature prior to the LIBOR replacement date and do not contain clear and practical benchmark replacements. The final rule identifies different SOFR-based FRB-selected benchmark replacements for different categories of LIBOR contracts. In addition, the final rule identifies certain benchmark replacement conforming changes related to the implementation, administration and calculation of the FRB-selected benchmark replacement. The final rule expressly indicates that a determining person may select the FRB-selected benchmark which will become the benchmark replacement. Finally, the FRB's final rule preempts any state or local law or standard relating to the selection or use of a benchmark replacement or conforming changes.
We have LIBOR exposure in various agreements, including variable rate loans, derivatives and debt we issued and acquired. We created an internal transition team that managed our transition away from LIBOR. This transition team consisted of a cross-functional team composed of representatives from the commercial, retail and mortgage banking lines of business, as well as representatives from loan operations, information technology, legal, finance and other support functions. The transition team determined that the primary index to be utilized for loans will be SOFR-based.
Beginning in September 2020, adjustable rate mortgage loans have been originated with SOFR as the underlying index. We started originating commercial loans utilizing SOFR and other indices in the fourth quarter of 2021 and, effective January 1, 2022, ceased origination of LIBOR-based loans. For existing LIBOR-based loans, remediation efforts were completed by June 30, 2023.
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RESULTS OF OPERATIONS

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022
Net income available to common stockholders for the three months ended June 30, 2023 was $140.4 million or $0.39 per diluted common share, compared to $107.1 million or $0.30 per diluted common share for the three months ended June 30, 2022. On an operating basis, second quarter of 2023 earnings per diluted common share (non-GAAP) was $0.39, excluding $0.2 million (pre-tax) of merger-related significant items. By comparison, the second quarter of 2022 was earnings of $0.31 per diluted common share (non-GAAP) on an operating basis, excluding $2.0 million (pre-tax) in merger-related significant items. The first quarter of 2023 was earnings of $0.40 per diluted common share (non-GAAP) on an operating basis, excluding $2.1 million (pre-tax) of merger-related significant items. The results for the second quarter of 2023 reflect revenue of $409.6 million, an increase of $73.7 million, or 21.9%. Additionally, the provision for credit losses was $18.5 million compared to $6.4 million primarily to support loan growth and a specific reserve for a single commercial and industrial loan that was downgraded to nonperforming status in the second quarter of 2023. Our non-performing loan coverage position remains strong at 289%. Non-interest income declined $1.8 million, or 2.2%, reflecting increased wealth management revenues, offset by reduced capital markets income, mortgage banking operations income, bank-owned life insurance and service charges income. Non-interest expense for the second quarter of 2023 increased $19.2 million primarily due to increases in salaries and employee benefits, occupancy and equipment expense, outside services expense and FDIC insurance expense. The biggest driver of the non-interest expense increase was salaries and benefits with an increase of $10.1 million, or 9.7%, primarily from production-related commissions, the addition of the acquired Union expense base and normal annual merit increases.
Financial highlights are summarized below:
TABLE 2
Three Months Ended
June 30,
$%
(in thousands, except per share data)20232022ChangeChange
Net interest income$329,244 $253,690 $75,554 29.8 %
Provision for credit losses 18,516 6,422 12,094 188.3 
Non-interest income80,309 82,154 (1,845)(2.2)
Non-interest expense211,955 192,774 19,181 9.9 
Income taxes36,690 27,506 9,184 33.4 
Net income142,392 109,142 33,250 30.5 
Less: Preferred stock dividends2,010 2,010 — — 
Net income available to common stockholders$140,382 $107,132 $33,250 31.0 %
Earnings per common share – Basic$0.39 $0.30 $0.09 30.0 %
Earnings per common share – Diluted0.39 0.30 0.09 30.0 
Cash dividends per common share0.12 0.12 — — 

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The following table presents selected financial ratios and other relevant data used to analyze our performance:
TABLE 3
 Three Months Ended
June 30,
 20232022
Return on average equity9.79 %8.05 %
Return on average tangible common equity (1)
18.28 15.53 
Return on average assets1.29 1.05 
Return on average tangible assets (1)
1.40 1.14 
Book value per common share$15.92 $15.19 
Tangible book value per common share (1)
8.79 8.10 
Equity to assets12.99 %13.04 %
Average equity to average assets13.13 12.98 
Common equity to assets 12.75 12.79 
Tangible equity to tangible assets (1)
7.72 7.52 
Tangible common equity to tangible assets (1)
7.47 7.25 
Common equity tier 1 capital ratio10.1 9.7 
Dividend payout ratio30.88 39.74 
(1) Non-GAAP

63


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 June 30,
 20232022
(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$1,234,026 $13,131 4.27 %$2,738,581 $5,033 0.74 %
Taxable investment securities (1)
6,084,971 35,244 2.32 6,069,239 26,912 1.77 
Tax-exempt investment securities (1)(2)
1,059,893 9,207 3.47 1,000,593 8,524 3.41 
Loans held for sale102,187 1,844 7.23 209,544 2,065 3.94 
Loans and leases (2)(3)
31,048,352 428,043 5.53 27,245,122 240,900 3.54 
Total interest-earning assets (2)
39,529,429 487,469 4.94 37,263,079 283,434 3.05 
Cash and due from banks427,287 435,111 
Allowance for credit losses(410,566)(374,750)
Premises and equipment459,966 400,652 
Other assets4,404,196 4,163,546 
Total assets$44,410,312 $41,887,638 
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand$13,922,773 63,861 1.84 $15,013,195 10,455 0.28 
Savings3,843,785 9,117 0.95 3,957,969 597 0.06 
Certificates and other time5,003,024 38,820 3.11 2,974,360 4,038 0.55 
            Total interest-bearing deposits22,769,582 111,798 1.97 21,945,524 15,090 0.28 
Short-term borrowings2,340,603 22,041 3.77 1,421,706 5,760 1.62 
Long-term borrowings1,703,667 21,117 4.97 712,313 6,238 3.51 
Total interest-bearing liabilities26,813,852 154,956 2.32 24,079,543 27,088 0.45 
Non-interest-bearing demand11,006,705 11,761,183 
Total deposits and borrowings37,820,557 1.64 35,840,726 0.30 
Other liabilities756,569 608,999 
Total liabilities38,577,126 36,449,725 
Stockholders’ equity5,833,186 5,437,913 
Total liabilities and stockholders’ equity$44,410,312 $41,887,638 
Net interest-earning assets$12,715,577 $13,183,536 
Net interest income (FTE) (2)
332,513 256,346 
Tax-equivalent adjustment(3,269)(2,656)
Net interest income$329,244 $253,690 
Net interest spread2.62 %2.60 %
Net interest margin (2)
3.37 %2.76 %
(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 loans and leases consist of average total loans, including non-accrual loans, less average unearned income.

64


Net Interest Income
Net interest income on an FTE basis (non-GAAP) increased $76.2 million, or 29.7%, to $332.5 million for the second quarter of 2023. Average earning assets of $39.5 billion increased $2.3 billion, or 6.1%, from 2022. In addition to the growth in average earning assets, net interest income benefited from the repricing impact of the higher interest rate environment on earning asset yields, which was partially offset by the higher cost of interest-bearing deposit accounts given customers' preferences migrating toward time deposits. Average interest-bearing liabilities of $26.8 billion increased $2.7 billion, or 11.4%, from 2022, driven by an increase of $824.1 million in average interest-bearing deposits which included organic growth in new and existing customer relationships and an increase in average borrowings of $1.9 billion due to maintaining additional liquidity on the balance sheet following the banking industry disruption. Our net interest margin FTE (non-GAAP) increased 61 basis points to 3.37%, as the yield on earning assets (non-GAAP) increased 189 basis points. The total cost of funds increased 134 basis points to 1.64% with a 169 basis-point increase in interest-bearing deposit costs, as well as an increase of 146 basis points in long-term debt cost partially due to the August 2022 issuance of $350 million of 5.150% fixed rate senior notes due in 2025.
The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended June 30, 2023, compared to the three months ended June 30, 2022:
TABLE 5
(in thousands)VolumeRateNet
Interest Income (1)
Interest-bearing deposits with banks$(2,758)$10,856 $8,098 
Securities (2)
833 8,182 9,015 
Loans held for sale(1,041)820 (221)
Loans and leases (2)
36,669 150,474 187,143 
Total interest income (2)
33,703 170,332 204,035 
Interest Expense (1)
Deposits:
Interest-bearing demand(356)53,762 53,406 
Savings323 8,197 8,520 
Certificates and other time4,419 30,363 34,782 
Short-term borrowings7,477 8,804 16,281 
Long-term borrowings11,360 3,519 14,879 
Total interest expense23,223 104,645 127,868 
Net change (2)
$10,480 $65,687 $76,167 
(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 $487.5 million for the second quarter of 2023, increased $204.0 million, or 72.0%, from the same quarter of 2022, primarily due to the impact of the 2022 and 2023 interest rate increases by the FOMC and an increase in average earning assets of $2.3 billion. The increase in earning assets was primarily driven by a $3.8 billion, or 14.0%, increase in average loans and leases and an increase in average securities, partially offset by a decrease of $1.5 billion in average cash balances. Commercial loan growth of $2.0 billion, or 11.6%, was led by increases of $1.1 billion in commercial real estate and $854.9 million in commercial and industrial loans, primarily in the Pittsburgh, Cleveland and Charlotte markets. Average consumer loans increased $1.8 billion, or 18.3%, with a $1.4 billion increase in residential mortgages reflecting adjustable-rate mortgages which we retained on the balance sheet and the continued success of the Physicians First mortgage program, as well as a $231.9 million increase in indirect auto loans and a $88.7 million increase in direct installment loans driven by organic loan origination activity. The yield on average earning assets (non-GAAP) increased 189 basis points to
65


4.94% for the second quarter of 2023, primarily due to higher yields on loans, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment.
Interest expense of $155.0 million for the second quarter of 2023 increased $127.9 million, from the same quarter of 2022, due to an increase in rates paid on average interest-bearing liabilities and growth in average interest-bearing deposits. Average interest-bearing deposits increased $824.1 million, or 3.8% and average non-interest-bearing deposits decreased $754.5 million, or 6.4%. The growth in average deposits reflected organic growth in new and existing customer relationships and inflows from the Union acquisition. Average short-term borrowings increased $918.9 million, or 64.6%, primarily reflecting increases of $954.5 million and $69.2 million in short-term FHLB advances and Federal Funds purchases, respectively, partially offset by a decrease of $88.7 in repurchase agreements. Average long-term borrowings increased $991.4 million, or 139.2%, primarily reflecting increases of $911.0 million in long-term FHLB advances and $48.7 million in senior notes during the second quarter of 2023 as we have maintained additional liquidity following the banking industry disruption. The rate paid on interest-bearing liabilities increased 187 basis points from 0.45% to 2.32% for the second quarter of 2023, primarily due to the market trends as a result of the interest rate actions taken by the FOMC, combined with the issuance of senior debt in August 2022.

Provision for Credit Losses
Provision for credit losses is determined based on management’s estimates of the appropriate level of ACL needed to absorb expected 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
June 30,
$%
(dollars in thousands)20232022ChangeChange
Provision for credit losses on loans and leases$18,026 $6,989 $11,037 157.9 %
Provision for unfunded loan commitments
490 (579)1,069 184.6 
Total provision for credit losses on loans and leases18,516 6,410 12,106 188.9 
Provision for securities 12 (12)(100.0)
Total provision for credit losses$18,516 $6,422 $12,094 188.3 %
Net loan charge-offs$8,700 $(381)$9,081 2,383.5 %
Net loan charge-offs (annualized) / total average loans and leases0.11 %(0.01)%

Provision for credit losses was $18.5 million during the second quarter of 2023, an increase of $12.1 million, from the same period of 2022. The second quarter of 2023 is comprised of an $18.0 million provision for loans and leases outstanding and a $0.5 million provision for unfunded loan commitments. The net increase reflects loan growth and a specific reserve for a single commercial and industrial loan downgraded to nonperforming status in the second quarter of 2023. At quarter end, we reserved for approximately 40% of our exposure on the aforementioned loan. The second quarter of 2023 reflected net charge-offs of $8.7 million, or 0.11% annualized of total average loans, compared to net recoveries of $0.4 million, or 0.01% annualized, in the second quarter of 2022. While higher than the year-ago quarter, net charge-offs remain at historically low levels. 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.

66


Non-Interest Income
The breakdown of non-interest income for the three months ended June 30, 2023 and 2022 is presented in the following table:
TABLE 7
Three Months Ended
June 30,
$%
(dollars in thousands)20232022ChangeChange
Service charges$34,056 $34,693 $(637)(1.8)%
Trust services10,630 9,713 917 9.4 
Insurance commissions and fees5,996 6,352 (356)(5.6)
Securities commissions and fees7,021 6,052 969 16.0 
Capital markets income5,884 8,547 (2,663)(31.2)
Mortgage banking operations4,907 6,120 (1,213)(19.8)
Dividends on non-marketable equity securities5,467 2,770 2,697 97.4 
Bank owned life insurance2,995 4,043 (1,048)(25.9)
Net securities gains (losses)(6)48 (54)(112.5)
Other3,359 3,816 (457)(12.0)
Total non-interest income$80,309 $82,154 $(1,845)(2.2)%
Total non-interest income decreased $1.8 million, or 2.2%, to $80.3 million for the second quarter of 2023, compared to $82.2 million for the second quarter of 2022. The variances in the individual non-interest income items are explained in the following paragraphs.
Service charges of $34.1 million decreased $0.6 million, or 1.8%, with strong treasury management services and interchange fees, partially offsetting the impact of overdraft practice changes that we implemented in the first quarter of 2023.
Wealth management revenues increased $1.9 million, or 12.0%, as securities commissions and fees and trust income increased 16.0% and 9.4%, respectively, through contributions across the geographic footprint and an increase in assets under management.
Capital markets income decreased $2.7 million, or 31.2%, due to a decrease in swap fees consistent with lower commercial loan production in the current macroeconomic environment and international banking that was partially offset by solid contributions from syndications and debt capital markets income.
Mortgage banking operations income decreased $1.2 million, or 19.8%, as secondary market revenue and mortgage held-for-sale pipelines declined from 2022 levels given the sharp increase in mortgage rates and the retention of adjustable-rate mortgage originations on the balance sheet. During the second quarter of 2023, we sold $228.7 million of residential mortgage loans, compared to $328.4 million for the same period of 2022, a decrease of 30.4%.
Dividends on non-marketable equity securities increased $2.7 million, or 97.4%, reflecting higher FHLB dividends due to additional borrowings.
Income from BOLI decreased $1.0 million, or 25.9%, primarily due to life insurance claims in the year-ago quarter.

67


Non-Interest Expense
The breakdown of non-interest expense for the three months ended June 30, 2023 and 2022 is presented in the following table:
TABLE 8
Three Months Ended
June 30,
$%
(dollars in thousands)20232022ChangeChange
Salaries and employee benefits$113,946 $103,870 $10,076 9.7 %
Net occupancy16,689 15,768 921 5.8 
Equipment21,345 18,687 2,658 14.2 
Amortization of intangibles5,044 3,549 1,495 42.1 
Outside services20,539 17,265 3,274 19.0 
Marketing3,943 4,628 (685)(14.8)
FDIC insurance7,717 5,295 2,422 45.7 
Bank shares and franchise taxes3,926 3,905 21 0.5 
Merger-related163 2,027 (1,864)(92.0)
Other18,643 17,780 863 4.9 
Total non-interest expense$211,955 $192,774 $19,181 9.9 %
Total non-interest expense of $212.0 million for the second quarter of 2023 increased $19.2 million, or 9.9%, from the same period of 2022. Non-interest expense increased $21.0 million, or 11.0%, when excluding merger-related significant items of $0.2 million and $2.0 million in the second quarters of 2023 and 2022, respectively. The variances in the individual non-interest expense items are further explained in the following paragraphs.
Salaries and employee benefits of $113.9 million increased $10.1 million, or 9.7%, primarily from production-related commissions, the addition of the acquired Union expense base, and normal annual merit increases.
Net occupancy and equipment of $38.0 million increased $3.6 million, or 10.4%, largely from the acquired Union expense base, as well as continued technology-related investments.
Amortization of intangibles of $5.0 million increased $1.5 million, or 42.1%, primarily due to core deposit intangibles added as a result of the Union acquisition.
Outside services of $20.5 million increased $3.3 million, or 19.0%, with higher volume-related technology and third-party costs, as well as the Union expense base.
FDIC insurance of $7.7 million increased $2.4 million, or 45.7%, reflecting the previously announced FDIC assessment rate increase which was effective in the first quarter of 2023 as well as loan growth and balance sheet mix changes.
The following table presents non-interest expense excluding significant items for the three months ended June 30, 2023 and 2022:
TABLE 9
Three Months Ended June 30,$%
(dollars in thousands)20232022ChangeChange
Total non-interest expense, as reported $211,955 $192,774 $19,181 9.9 %
Significant items:
   Merger-related(163)(2,027)1,864 
Total non-interest expense, excluding significant items (1)
$211,792 $190,747 $21,045 11.0 %
(1) Non-GAAP

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Income Taxes
The following table presents information regarding income tax expense and certain tax rates:
TABLE 10
 Three Months Ended
June 30,
(dollars in thousands)20232022
Income tax expense$36,690 $27,506 
Effective tax rate20.5 %20.1 %
Statutory federal tax rate21.0 21.0 
Both periods’ tax rates are lower than the statutory tax rate due to tax benefits primarily resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. Income tax expense and the effective tax rate increased due to higher pre-tax income compared to the year-ago quarter.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
Net income available to common stockholders for the first six months of 2023 was $284.9 million or $0.78 per diluted common share, compared to $158.1 million or $0.45 per diluted common share for the first six months of 2022. On an operating basis (non-GAAP), net income available to common stockholders for the first six months of 2023 was $286.6 million, or $0.79 per diluted common share, compared to $200.7 million or $0.57 per diluted common share for the first six months of 2022. Net interest income totaled $665.9 million, an increase of $178.1 million, or 36.5%, compared to $487.8 million, as total average earning assets increased $2.2 billion, or 5.9%, including a $4.0 billion increase in average loans and leases from organic origination activity and acquired Union loans, as well as a $193.5 million increase in average investment securities. The net interest margin (FTE) (non-GAAP) increased 77 basis points to 3.46%, as the yield on earning assets (non-GAAP) increased 187 basis points to 4.81%, primarily due to higher yields on variable-rate loans, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment. The total cost of funds increased 115 basis points to 1.41% with a 152 basis point increase in interest-bearing deposit costs to 1.73%. Between June 30, 2022 and June 30, 2023, the FOMC raised the target Federal Funds interest rate by 350 basis points. The provision for credit losses for the first six months of 2023 totaled $32.6 million, compared to $24.4 million including $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition in the year-ago period. The increase in provision for credit losses was driven primarily by loan growth, charge-off activity, and a specific reserve for a single commercial and industrial loan downgraded to non-performing status during the second quarter of 2023. Excluding this one credit, non-performing assets would have decreased 2 basis points. Non-interest income totaled $159.7 million, essentially flat with the year-ago period reflecting increased contributions from wealth management, dividends on non-marketable equity securities and service charges, partially offset by reduced contributions from mortgage banking due to the sharp increase in interest rates in 2022, capital markets income and other non-interest income. Non-interest expense totaled $431.9 million, increasing $11.7 million, or 2.8%. On an operating basis (non-GAAP), non-interest expense totaled $429.7 million, an increase of $44.3 million, or 11.5%, compared to the first six months of 2022. Salaries and benefits increased $18.1 million, or 8.4%, due to annual merit increases, reduced salary deferrals given lower loan origination volumes and the addition of the acquired Union expense base.
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Financial highlights are summarized below:
TABLE 11
Six Months Ended
June 30,
$%
(in thousands, except per share data)20232022ChangeChange
Net interest income$665,898 $487,766 $178,132 36.5 %
Provision for credit losses 32,577 24,381 8,196 33.6 
Non-interest income159,698 160,476 (778)(0.5)
Non-interest expense431,872 420,200 11,672 2.8 
Income taxes72,250 41,521 30,729 74.0 
Net income288,897 162,140 126,757 78.2 
Less: Preferred stock dividends4,020 4,020 — — 
Net income available to common stockholders$284,877 $158,120 $126,757 80.2 %
Earnings per common share – Basic$0.79 $0.45 $0.34 75.6 %
Earnings per common share – Diluted0.78 0.45 0.33 73.3 
Cash dividends per common share0.24 0.24 — — 
The following table presents selected financial ratios and other relevant data used to analyze our performance:
TABLE 12
 Six Months Ended
June 30,
20232022
Return on average equity10.07 %6.01 %
Return on average tangible common equity (1)
18.96 11.49 
Return on average assets1.33 0.79 
Return on average tangible assets (1)
1.45 0.87 
Book value per common share $15.92 $15.19 
Tangible book value per common share (1)
8.79 8.10 
Equity to assets12.99 %13.04 %
Average equity to average assets13.17 13.11 
Common equity to assets 12.75 12.79 
Tangible equity to tangible assets (1)
7.72 7.52 
Tangible common equity to tangible assets (1)
7.47 7.25 
Common equity tier 1 capital ratio10.1 9.7 
Dividend payout ratio30.59 53.93 
(1) Non-GAAP
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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 13          
 Six Months Ended June 30,
 20232022
(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$1,027,117 $19,784 3.88 %$2,921,076 $6,540 0.45 %
Taxable investment securities (1)
6,149,284 70,719 2.30 6,000,476 50,697 1.69 
Tax-exempt investment securities (1)(2)
1,057,554 18,366 3.47 1,012,870 17,256 3.41 
Loans held for sale109,137 3,438 6.32 234,316 4,457 3.81 
Loans and leases (2) (3)
30,731,126 821,939 5.39 26,744,743 460,662 3.47 
Total interest-earning assets (2)
39,074,218 934,246 4.81 36,913,481 539,612 2.94 
Cash and due from banks434,956 422,981 
Allowance for credit losses(408,149)(367,611)
Premises and equipment451,252 389,433 
Other assets4,366,564 4,148,188 
Total assets$43,918,841 $41,506,472 
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand$14,258,082 116,151 1.64 $14,966,600 13,871 0.19 
Savings3,932,627 16,958 0.87 3,916,724 740 0.04 
Certificates and other time4,595,128 62,781 2.76 2,959,451 8,164 0.56 
            Total interest-bearing deposits22,785,837 195,890 1.73 21,842,775 22,775 0.21 
Short-term borrowings1,953,125 31,785 3.28 1,465,595 11,562 1.59 
Long-term borrowings1,394,571 34,130 4.94 711,072 12,255 3.48 
Total interest-bearing liabilities26,133,533 261,805 2.02 24,019,442 46,592 0.39 
Non-interest-bearing demand11,207,490 11,509,946 
Total deposits and borrowings37,341,023 1.41 35,529,388 0.26 
Other liabilities795,124 533,711 
Total liabilities38,136,147 36,063,099 
Stockholders’ equity5,782,694 5,443,373 
Total liabilities and stockholders’ equity$43,918,841 $41,506,472 
Net interest-earning assets$12,940,685 $12,894,039 
Net interest income (FTE) (2)
672,441 493,020 
Tax-equivalent adjustment(6,543)(5,254)
Net interest income$665,898 $487,766 
Net interest spread2.79 %2.55 %
Net interest margin (2)
3.46 %2.69 %
(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 loans and leases consist of average total loans, including non-accrual loans, less average unearned income.

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Net Interest Income
Net interest income on an FTE basis (non-GAAP) totaled $672.4 million, increasing $179.4 million, or 36.4%, as the higher interest rate environment benefited earning asset yields given the asset sensitive positioning of the balance sheet and the higher yields on new loan originations, which was partially offset by the higher cost of interest-bearing deposits given customers' preferences migrating toward time deposits and the current competitive interest rate environment. Average earning assets grew $2.2 billion, or 5.9%, primarily driven by organic loan origination activity and acquired Union loans and an increase in average investment securities offset by a decline in interest-bearing deposits with banks. The net interest margin (FTE) (non-GAAP) increased 77 basis points to 3.46%, primarily reflecting higher yields on loans, investment securities and interest-bearing deposits with banks due to the impact of the higher interest rate environment.
The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the six months ended June 30, 2023, compared to the six months ended June 30, 2022:
TABLE 14
(in thousands)VolumeRateNet
Interest Income (1)
Interest-bearing deposits with banks$(4,221)$17,465 $13,244 
Securities (2)
2,530 18,602 21,132 
Loans held for sale(2,305)1,286 (1,019)
Loans and leases (2)
73,660 287,617 361,277 
Total interest income (2)
69,664 324,970 394,634 
Interest Expense (1)
Deposits:
Interest-bearing demand(293)102,573 102,280 
Savings295 15,923 16,218 
Certificates and other time6,835 47,782 54,617 
Short-term borrowings7,991 12,232 20,223 
Long-term borrowings15,172 6,703 21,875 
Total interest expense30,000 185,213 215,213 
Net change (2)
$39,664 $139,757 $179,421 
(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 $934.2 million for the first six months of 2023, increased $394.6 million, or 73.1%, from the same period of 2022, resulting from the interest rate increases by the FOMC and a $2.2 billion increase in earning assets. The increase in earning assets was primarily driven by a $4.0 billion, or 14.9%, increase in average loans and an increase in average investment securities of $193.5 million, partially offset by a decrease of $1.9 billion, or 64.8%, in average interest-bearing deposits with banks. Growth in total average commercial loans included $1.0 billion, or 15.3%, in commercial and industrial loans and $1.0 billion, or 9.8%, in commercial real estate driven by a combination of organic loan origination activity led by the Cleveland, Pittsburgh and Charlotte markets, as well as adding the Union loans to portfolio balances. Average consumer loans increased $1.9 billion, or 20.5%, with an increase in residential mortgage loans of $1.4 billion, or 33.9%, reflecting adjustable-rate mortgages held in portfolio on the balance sheet and the continued success of the Physicians First mortgage program, which is a program that provides a bundled suite of specialized products to meet the personal and professional needs of physicians, dentists, veterinarians and other healthcare professionals. Additionally, indirect installment loans increased $278.5 million, or 22.2%, and direct home equity installment loans increased $185.5 million, or 7.2%, driven by strong organic loan origination activity throughout 2022. Additionally, the net increase in securities interest income was a result of replacing maturing securities with higher yielding securities, as the average securities yield increased 54 basis points. For the first six months of 2023, the yield on average earning assets (non-GAAP) increased 187 basis points to 4.81%, compared to the
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first six months of 2022, primarily due to higher yields on variable-rate loans, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment.
Interest expense of $261.8 million for the first six months of 2023 increased $215.2 million, or 461.9%, from the same period of 2022, primarily due to the higher interest rate environment and an increase in average interest-bearing deposits. Average interest-bearing deposits increased $943.1 million, or 4.3%, which reflects the benefit of solid organic growth in customer relationships and the addition of the Union acquisition. Average time deposits increased $1.6 billion, or 55.3%, as customer preferences shifted given interest rate increases. Average long-term borrowings increased $683.5 million, or 96.1%, primarily due to an increase of $138.1 million in senior debt resulting from the issuance of $350 million in 5.150% fixed-rate senior notes during August 2022, partially offset by the maturity of $300 million in 2.20% fixed-rate senior notes in February 2023. Additionally, long-term FHLB borrowings increased $508.3 million as we have maintained additional liquidity following the banking industry disruption. The rate paid on interest-bearing liabilities increased 163 basis points to 2.02% for the first six months of 2023, compared to the first six months of 2022, as the cost of interest-bearing deposits increased 152 basis points from 0.21% to 1.73%. These increases were primarily due to the market trends as a result of the interest rate actions taken by the FOMC, combined with the issuance of senior debt in August 2022.
Provision for Credit Losses
The following table presents information regarding the provision for credit loss expense and net charge-offs:
TABLE 15
Six Months Ended
June 30,
$%
(dollars in thousands)20232022ChangeChange
Provision for credit losses on loans and leases$32,917 $25,225 $7,692 30.5 %
Provision for unfunded loan commitments(434)(919)485 52.8 
Total provision for credit losses on loans and leases32,483 24,306 8,177 33.6 
Provision for securities95 75 20 26.7 
Total provision for credit losses$32,578 $24,381 $8,197 33.6 %
Net loan charge-offs$21,897 $1,507 $20,390 1,353.0 %
Net loan charge-offs (annualized) / total average loans and leases0.14 %0.01 %
The provision for credit losses was $32.6 million, compared to $24.4 million in the first six months of 2022. The provision for credit losses in the first six months of 2022 included $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition. The provision for credit losses for the first six months of 2023 was primarily due to loan growth, charge-off activity and a $13 million specific reserve established for a single $32 million commercial and industrial loan downgraded to non-performing status during the second quarter of 2023. Our non-performing loan coverage position remains strong at 289%. Excluding this one credit, non-performing assets would have decreased 2 basis points. The six months of 2023 reflected net charge-offs of $21.9 million, or 0.14% annualized of total average loans, compared to $1.5 million, or 0.01% annualized, in the first six months of 2022. While elevated from the year-ago quarter, net charge-offs remain at historically low levels. The ACL was $412.7 million, an increase of $34.7 million, with the ratio of the ACL to total loans and leases decreasing 3 basis points to 1.32%, reflecting the strong loan growth and the $11.2 million acquisition-related ACL increase from the December 2022 Union acquisition.

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Non-Interest Income
The breakdown of non-interest income for the six months ended June 30, 2023 and 2022 is presented in the following table:
TABLE 16
Six Months Ended
June 30,
$%
(dollars in thousands)20232022ChangeChange
Service charges$66,696 $66,208 $488 0.7 %
Trust services21,241 20,062 1,179 5.9 
Insurance commissions and fees13,783 13,957 (174)(1.2)
Securities commissions and fees14,403 11,743 2,660 22.7 
Capital markets income12,677 15,674 (2,997)(19.1)
Mortgage banking operations9,762 12,787 (3,025)(23.7)
Dividends on non-marketable equity securities9,575 4,920 4,655 94.6 
Bank owned life insurance5,820 6,685 (865)(12.9)
Net securities gains (losses)(23)48 (71)(147.9)
Other5,764 8,392 (2,628)(31.3)
Total non-interest income$159,698 $160,476 $(778)(0.5)%
Total non-interest income decreased $0.8 million, or 0.5%. The variances in significant individual non-interest income items are explained in the following paragraphs.
Service charges increased $0.5 million, or 0.7%, with strong treasury management services, interchange fees and higher customer activity offsetting the impact of overdraft practice changes that FNB implemented in the first quarter of 2023.
Wealth management revenues increased $3.8 million, or 12.1%, as securities commissions and fees and trust income increased 22.7% and 5.9%, respectively, through contributions across the geographic footprint and an increase in assets under management.
Capital markets income decreased $3.0 million, or 19.1%, as swap activity declined consistent with lower commercial loan production in the current macroeconomic environment, and was partially offset by an increase in syndications revenue, debt capital markets and international banking.
Mortgage banking operations income of $9.8 million decreased $3.0 million, or 23.7%, as secondary market revenue and mortgage held-for-sale pipelines declined from 2022 due to the sharp increase in interest rates throughout 2022 and the gain on sale margins moderating to historical levels. During the first six months of 2023, we sold $438.3 million of residential mortgage loans, a 37.0% decrease compared to $695.4 million for the same period of 2022.
Dividends on non-marketable equity securities of $9.6 million increased $4.7 million, or 94.6%, reflecting higher FHLB dividends due to additional borrowings.
Other non-interest income was $5.8 million and $8.4 million for the first six months of 2023 and 2022, respectively, as SBA premium income declined from elevated levels due to the higher interest rate environment, reduced market premiums and correspondingly lower sold loan volumes. Additionally, Small Business Investment Company (SBIC) funds income decreased, which fluctuates based on the performance of the underlying portfolio companies.

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Non-Interest Expense
The breakdown of non-interest expense for the six months ended June 30, 2023 and 2022 is presented in the following table:
TABLE 17
Six Months Ended
June 30,
$%
(dollars in thousands)20232022ChangeChange
Salaries and employee benefits$234,193 $216,059 $18,134 8.4 %
Net occupancy34,059 33,957 102 0.3 
Equipment43,417 36,692 6,725 18.3 
Amortization of intangibles10,163 6,776 3,387 50.0 
Outside services39,937 34,298 5,639 16.4 
Marketing7,644 7,884 (240)(3.0)
FDIC insurance14,836 9,869 4,967 50.3 
Bank shares and franchise taxes8,098 7,932 166 2.1 
Merger-related2,215 30,656 (28,441)(92.8)
Other37,310 36,077 1,233 3.4 
Total non-interest expense$431,872 $420,200 $11,672 2.8 %
Total non-interest expense of $431.9 million for the first six months of 2023 increased $11.7 million, a 2.8% increase from the same period of 2022. On an operating basis, non-interest expense (non-GAAP) increased $44.3 million, or 11.5%, when excluding significant items of $2.2 million in merger-related costs in the first six months of 2023 and $30.7 million in merger-related costs and $4.2 million in branch consolidation costs in the first six months of 2022. The variances in the individual non-interest expense items are further explained in the following paragraphs.
Salaries and employee benefits increased $18.1 million, or 8.4%, related to annual merit increases, reduced salary deferrals given lower loan origination volumes and the addition of the acquired Union expense base.
Net occupancy and equipment expense of $77.5 million increased $6.8 million, or 9.7%, primarily from continued technology-related investments and the acquired Union expense base.
Amortization of intangibles increased $3.4 million, or 50.0%, primarily related to the Union core deposit intangible.
Outside services increased $5.6 million, or 16.4%, with higher volume-related technology and third-party costs, as well as the addition of the Union expense base.
FDIC insurance increased $5.0 million, or 50.3%, primarily due to the previously announced FDIC assessment rate increase which was effective in the first quarter of 2023 as well as loan growth and balance sheet mix changes.
We recorded $2.2 million in merger-related costs in the first six months of 2023 related to the Union acquisition completed in December 2022, compared to $30.7 million in the first six months of 2022 related to the Union acquisition and Howard acquisition completed in January 2022.

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The following table presents non-interest expense excluding significant items impacting earnings:
TABLE 18
Six Months Ended
June 30,
$%
(dollars in thousands)20232022ChangeChange
Total non-interest expense, as reported $431,872 $420,200 $11,672 2.8 %
Significant items:
   Branch consolidations — (4,178)4,178 
   Merger-related(2,215)(30,656)28,441 
Total non-interest expense, excluding significant items (1)
$429,657 $385,366 $44,291 11.5 %
(1) Non-GAAP
Income Taxes
The following table presents information regarding income tax expense and certain tax rates:
TABLE 19
 Six Months Ended
June 30,
(dollars in thousands)20232022
Income tax expense$72,250 $41,521 
Effective tax rate20.0 %20.4 %
Statutory federal tax rate21.0 21.0 
Income tax expense was higher in 2023 due to higher pre-tax earnings, as we had merger-related expense from the Union and Howard acquisitions in 2022. However, the effective tax rate was slightly lower in 2023 primarily as a result of higher deduction levels from employee stock compensation vesting.

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FINANCIAL CONDITION
The following table presents our condensed Consolidated Balance Sheets:
TABLE 20
(dollars in millions)June 30,
2023
December 31,
2022
$
Change
%
Change
Assets
Cash and cash equivalents$1,704 $1,674 $30 1.8 %
Securities7,165 7,362 (197)(2.7)
Loans held for sale94 124 (30)(24.2)
Loans and leases, net30,941 29,853 1,088 3.6 
Goodwill and other intangibles2,556 2,566 (10)(0.4)
Other assets2,318 2,146 172 8.0 
Total Assets$44,778 $43,725 $1,053 2.4 %
Liabilities and Stockholders’ Equity
Deposits$33,825 $34,770 $(945)(2.7)%
Borrowings4,372 2,465 1,907 77.4 
Other liabilities763 837 (74)(8.8)
Total Liabilities38,960 38,072 888 2.3 
Stockholders’ Equity5,818 5,653 165 2.9 
Total Liabilities and Stockholders’ Equity$44,778 $43,725 $1,053 2.4 %
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; Washington, D.C.; Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina; and Charleston, South Carolina.
Following is a summary of loans and leases:

TABLE 21
June 30,
2023
December 31,
2022
$
Change
%
Change
(in millions)
Commercial real estate$11,689 $11,526 $163 1.4 %
Commercial and industrial7,248 7,131 117 1.6 
Commercial leases618 519 99 19.1 
Other121 114 6.1 
Total commercial loans and leases19,676 19,290 386 2.0 
Direct installment2,747 2,784 (37)(1.3)
Residential mortgages6,089 5,297 792 15.0 
Indirect installment1,539 1,553 (14)(0.9)
Consumer lines of credit1,303 1,331 (28)(2.1)
Total consumer loans11,678 10,965 713 6.5 
Total loans and leases$31,354 $30,255 $1,099 3.6 %
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The commercial and industrial growth was led by activity in the Pittsburgh, Cleveland and North Carolina markets while the growth in residential mortgages reflected growth in adjustable-rate mortgages retained on the balance sheet and the continued success of our Physicians First mortgage program. Our commercial real estate portfolio included $8.2 billion of non-owner occupied loans of which 22% represented office space. Our top 25 non-owner occupied commercial real estate loans averaged approximately $30 million per exposure although the office space was primarily made up of mid-sized offices located outside of metropolitan business districts with 41% of the office portfolio averaging less than $5 million per exposure.
Non-Performing Assets
Following is a summary of non-performing assets:
TABLE 22
(in millions)June 30,
2023
December 31,
2022
$
Change
%
Change
Commercial real estate$42 $39 $7.7 %
Commercial and industrial74 44 30 68.2 
Commercial leases1 — — 
Total commercial loans and leases117 84 33 39.3 
Direct installment6 (1)(14.3)
Residential mortgages12 14 (2)(14.3)
Indirect installment2 100.0 
Consumer lines of credit6 (1)(14.3)
Total consumer loans26 29 (3)(10.3)
Total non-performing loans and leases143 113 30 26.5 
Other real estate owned5 (1)(16.7)
Non-performing assets$148 $119 $29 24.4 %
Non-performing assets increased $28.3 million, from $119.5 million at December 31, 2022 to $147.8 million at June 30, 2023. The increase was primarily due to a single commercial and industrial loan downgraded to non-performing status during the quarter. This reflects an increase of $29.2 million in non-performing loans and leases and a decrease of $0.9 million in OREO.
Allowance for Credit Losses on Loans and Leases
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.
At June 30, 2023 and December 31, 2022, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment. For our ACL calculation at June 30, 2023, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which declines 5.4% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 8.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 33.2% in 2023 and 21.0% in 2024 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical through the cycle period. Macroeconomic variables that we utilized for our ACL calculation as of December 31, 2022 included, but were not limited to: (i) the purchase only Housing Price Index, which declines 3.7% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 0.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 41.0% in 2023 and 8.1% in 2024 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical levels.
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Following is a summary of certain data related to the ACL and loans and leases:
TABLE 23
Net Loan Charge-OffsNet Loan Charge-Offs to Average LoansACL at
Six Months Ended
June 30,
Six Months Ended
June 30,
June 30,
20232022202320222023
(dollars in millions)
Commercial real estate$6.0 $(0.5)0.04 %— %$154.2 
Commercial and industrial9.7 0.3 0.07 — 114.3 
Commercial leases 0.1  — 15.2 
Other commercial1.9 0.9 0.01 — 3.8 
Direct installment0.1 (0.2) — 35.6 
Residential mortgages0.4 —  — 63.4 
Indirect installment3.7 1.1 0.02 0.01 16.6 
Consumer lines of credit0.1 (0.2) — 9.6 
Total net loan charge-offs on loans and leases, net loan charge-offs (annualized)/average loans$21.9 $1.5 0.14 %0.01 %$412.7 
Allowance for credit losses/total loans and leases1.32 %1.35 %
Allowance for credit losses/non-performing loans289.45 %408.92 %
The ACL on loans and leases of $412.7 million at June 30, 2023 increased $11.0 million, or 2.7%, from December 31, 2022. Our ending ACL coverage ratio at June 30, 2023 was stable at 1.32%, compared to 1.33% at December 31, 2022. Total provision for credit losses for the six months ended June 30, 2023 was $32.6 million, compared to $24.4 million for the same period in 2022 with the year-ago quarter reflecting $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition. The year-over-year increase was driven primarily by loan growth, charge-off activity and a specific reserve for a single commercial and industrial loan downgraded to non-performing status during the second quarter of 2023. Net charge-offs were $21.9 million for the six months ended June 30, 2023, compared to $1.5 million for the first six months of 2022. While elevated from the year-ago quarter, net charge-offs remain at historically low levels. The ACL as a percentage of non-performing loans for the total portfolio was 289% as of June 30, 2023 compared to 354% as of December 31, 2022.
Deposits
Our primary source of funds is deposits. Our diversified and granular deposit base are provided by business, consumer and municipal customers who we serve within our footprint.
Following is a summary of deposits:
TABLE 24
(in millions)June 30,
2023
December 31,
2022
$
Change
%
Change
Non-interest-bearing demand$10,914 $11,916 $(1,002)(8.4)%
Interest-bearing demand13,818 15,100 (1,282)(8.5)
Savings3,758 4,142 (384)(9.3)
Certificates and other time deposits5,335 3,612 1,723 47.7 
Total deposits$33,825 $34,770 $(945)(2.7)%
Total deposits decreased $945.1 million, or 2.7%, from December 31, 2022, primarily due to normal seasonal declines in public funds deposit balances, outflows from seasonal income tax payments and inflationary pressures on customers. We ended the quarter with approximately 77% of all deposits insured by the FDIC or collateralized. We continue to offer reciprocal deposit products to our customers but had less than $260 million in outstanding reciprocal deposit balances at June 30, 2023. Additionally, customer preferences have shifted to certificates of deposits as interest rates increased.
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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 August 25, 2022, we completed an offering of $350 million of 5.150% fixed-rate senior notes due in 2025 under this registration statement. The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering expenses were $347.4 million. We used the net proceeds from the sale of the notes for general corporate purposes, including repayment of the $300 million in 2.200% senior notes that matured in February 2023, investments at the holding company level, capital to support the growth of FNBPA and refinancing of outstanding indebtedness.
On April 18, 2022, we announced that our Board of Directors approved an additional $150 million for the repurchase of our common stock through our existing share repurchase program bringing the total authorization to $300 million. Since inception, we repurchased 14.1 million shares at a weighted average share price of $11.39 for $160.9 million under this repurchase program, with $139.1 million remaining for repurchase. 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. The Inflation Reduction Act of 2022 includes a 1% excise tax on stock repurchases beginning January 1, 2023.
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 of 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 June 30, 2023, 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 bank holding companies (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 delayed recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extended through December 31, 2021. Beginning on January 1, 2022, we were 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
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June 30, 2023, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $34.4 million, or 10 basis points, which will continue to be reduced by approximately $17.2 million annually.
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 25
 Actual
Well-Capitalized
Requirements (1)
Minimum Capital
Requirements plus Capital Conservation Buffer
(dollars in millions)AmountRatioAmountRatioAmountRatio
As of June 30, 2023
F.N.B. Corporation
Total capital$4,366 12.33 %$3,541 10.00 %$3,718 10.50 %
Tier 1 capital3,666 10.35 2,124 6.00 3,010 8.50 
Common equity tier 13,559 10.05 n/an/a2,479 7.00 
Leverage3,666 8.68 n/an/a1,689 4.00 
Risk-weighted assets35,408 
FNBPA
Total capital$4,492 12.72 %$3,532 10.00 %$3,708 10.50 %
Tier 1 capital3,776 10.69 2,826 8.00 3,002 8.50 
Common equity tier 13,696 10.46 2,296 6.50 2,472 7.00 
Leverage3,776 8.96 1,207 5.00 1,686 4.00 
Risk-weighted assets35,319 
As of December 31, 2022
F.N.B. Corporation
Total capital$4,183 12.06 %$3,467 10.00 %$3,640 10.50 %
Tier 1 capital3,511 10.13 2,080 6.00 2,947 8.50 
Common equity tier 13,405 9.82 n/an/a2,427 7.00 
Leverage3,511 8.64 n/an/a1,626 4.00 
Risk-weighted assets34,671 
FNBPA
Total capital$4,327 12.51 %$3,459 10.00 %$3,632 10.50 %
Tier 1 capital3,640 10.52 2,767 8.00 2,940 8.50 
Common equity tier 13,560 10.29 2,248 6.50 2,421 7.00 
Leverage3,640 8.97 2,029 5.00 1,623 4.00 
Risk-weighted assets34,589 
(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.

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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 2022 Annual Report on Form 10-K as filed with the SEC on February 24, 2023.
LIQUIDITY
Our primary liquidity management goal 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 appropriate 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. 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 available for use to help fund normal business operations, and unused credit availability can be utilized to serve as contingency funding if faced with a liquidity crisis.
The principal sources of the parent company’s liquidity are its strong existing cash resources plus dividends and interest 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 parent company's cash position at June 30, 2023 was $355.2 million, down $299.1 million from year-end, primarily due to the scheduled repayment of $300 million in Senior Notes due in February 2023. During the third quarter of 2022, we completed a Senior Debt offering for $347.7 million in net proceeds. A portion of these proceeds were used to retire debt maturing in February of 2023 (for additional information, see Note 10, "Borrowings" in the Notes to the Consolidated Financial Statements in this Report). Management has utilized various strategies to ensure sufficient cash on hand is available to meet the parent's funding needs. In May, we purchased and retired $15 million par value of the 7.625% Subordinated Notes due August 12, 2023.
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 existing cash on hand.
The LCR and MCH ratios are presented in the following table:
TABLE 26
June 30,
2023
December 31,
2022
Internal
Limit
Liquidity coverage ratio 2.7 times1.7 times> 1 time
Months of cash on hand 16.7 months13.6 months> 12 months
Management has concluded that our cash levels remain appropriate given the current market environment.
Over time, 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 continued 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. Consistent with industry trends, we have experienced a noticeable shift in deposits from non-interest bearing deposits, checking and money markets into certificates of deposits (CDs). The March 2023 banking disruption caused an acceleration of this shift. Total deposits decreased $945.1 million, or 2.7%, from
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December 31, 2022, primarily due to normal seasonal declines in public funds and other corporate deposit balances as well as outflows from seasonal income tax payments and inflationary pressures on customers. From March 8, 2023 to June 30, 2023, total deposit balances decreased by $592 million, or 1.7%, largely due to normal wholesale and retail customer activity. We ended the quarter with approximately 76% of deposits insured by the FDIC or collateralized, an improvement from approximately 74% at December 31, 2022. Non-interest-bearing demand deposit accounts decreased $1.0 billion, or 8.4%. Interest-bearing demand deposits decreased $1.3 billion, or 8.5% and savings account balances decreased $384.1 million, or 9.3%, while time deposits increased $1.7 billion, or 47.7%, as customers' preferences have shifted back to CDs as interest rates have increased substantially. In an abundance of caution related to the banking industry disruption, we added cash on the balance sheet by utilizing wholesale borrowings including advances from the FHLB and overnight borrowings in the Fed Funds market, which also, in part, supported loan growth and covered the deposit decline. Our cash balances held at the FRB increased $105.8 million from December 31, 2022 to $1.2 billion at June 30, 2023. Management will continue to evaluate appropriate levels of liquidity based on expected loan and deposit growth and other balance sheet activity.
We continue to have ample unused borrowing capacity that could cover 1.9 times of the uninsured deposit and non-collateralized deposit balances as of June 30, 2023. A portion of this capacity includes the FRB's Discount Window and their newly created BTFP. We have no borrowings under either facility. Additional sources of unused wholesale credit availability for FNBPA include the ability to borrow from the FHLB, correspondent bank lines, and access to 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 have excess cash to meet our pledging requirements. At June 30, 2023, we have $2.2 billion of cash and salable unpledged government and agency securities representing 4.9% of total assets. This compares to a policy minimum of 3.0%.
The following table presents certain information relating to FNBPA’s credit availability and salable unpledged securities:
TABLE 27
(dollars in millions)June 30,
2023
December 31,
2022
Unused wholesale credit availability$15,279 $15,669 
Unused wholesale credit availability as a % of FNBPA assets34.4 %35.9 %
Salable unpledged government and agency securities$957 $592 
Salable unpledged government and agency securities as a % of FNBPA assets2.2 %1.4 %
Cash and salable unpledged government and agency securities as a % of FNBPA assets4.9 %3.9 %
Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis as of June 30, 2023 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals. Management monitors the size of the liquidity gaps so that sources and uses of funds are reasonably matched in the normal course of business and in relation to implied forward rate expectations. A reasonably matched position lays a better foundation for dealing with additional funding needs during a potential liquidity crisis. A positive gap position means that more assets are expected to mature over the next 12 months than liabilities. The twelve-month cumulative gap to total assets ratio was (0.5)% as of June 30, 2023, compared to 3.8% as of December 31, 2022. The change in the twelve-month cumulative gap to total assets was primarily related to the active management of deposit pricing across the deposit product maturity tenors which reduced our asset sensitivity. Management calculates this ratio at least quarterly and it is reviewed regularly by ALCO.
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TABLE 28
(dollars in millions)Within
1 Month
2-3
Months
4-6
Months
7-12
Months
Total
1 Year
Assets
Loans$767 $1,442 $1,934 $3,429 $7,572 
Investments1,341 172 287 474 2,274 
2,108 1,614 2,221 3,903 9,846 
Liabilities
Non-maturity deposits289 577 866 1,732 3,464 
Time deposits654 659 1,056 2,115 4,484 
Borrowings1,332 126 118 546 2,122 
2,275 1,362 2,040 4,393 10,070 
Period Gap (Assets - Liabilities)$(167)$252 $181 $(490)$(224)
Cumulative Gap$(167)$85 $266 $(224)
Cumulative Gap to Total Assets(0.4)%0.2 %0.6 %(0.5)%
In addition, the ALCO regularly monitors various liquidity ratios, stress scenarios of our liquidity position and assumptions considering market disruptions, lending demand, deposit behavior, and funding availability. 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 change, while certain depositors can redeem their certificates of deposit early, which may be with or without penalty, when rates change.
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 regularly reviews earnings simulations over multiple years under various interest rate scenarios. 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.
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The following repricing gap analysis as of June 30, 2023 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 29
(dollars in millions)Within
1 Month
2-3
Months
4-6
Months
7-12
Months
Total
1 Year
Assets
Loans$14,269 $1,123 $1,007 $1,655 $18,054 
Investments1,351 179 365 463 2,358 
15,620 1,302 1,372 2,118 20,412 
Liabilities
Non-maturity deposits6,003 — — — 6,003 
Time deposits771 658 1,053 2,111 4,593 
Borrowings1,660 393 215 2,271 
8,434 1,051 1,056 2,326 12,867 
Off-balance sheet(1,000)400 (200)(200)(1,000)
Period Gap (assets – liabilities + off-balance sheet)$6,186 $651 $116 $(408)$6,545 
Cumulative Gap$6,186 $6,837 $6,953 $6,545 
Cumulative Gap to Assets15.5 %17.1 %17.4 %16.4 %
The twelve-month cumulative repricing gap to total assets was 16.4% and 8.4% as of June 30, 2023 and December 31, 2022, 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. The change in the cumulative repricing gap at June 30, 2023, compared to December 31, 2022, is primarily related to customers moving into higher yielding deposit products and shorter-term time deposits.
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.
Using a static Balance Sheet structure and 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 June 30, 2023. The measures do not reflect management's potential actions.
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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 30
June 30,
2023
December 31,
2022
ALCO
Limits
Net interest income change (12 months):
+ 300 basis points14.2 %5.5 %n/a
+ 200 basis points9.4 3.3 (5.0)%
+ 100 basis points4.7 1.1 (5.0)
- 100 basis points1.3 1.2 (5.0)
- 200 basis points2.0 0.9 (5.0)
Economic value of equity:
+ 300 basis points1.8 (6.8)(25.0)
+ 200 basis points1.6 (4.0)(15.0)
+ 100 basis points1.9 (1.4)(10.0)
- 100 basis points(2.4)(2.0)(10.0)
- 200 basis points(2.2)(5.8)(15.0)
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. The comparative percentages are based on the projected base net interest income at the respective measurement dates. Assuming a static Balance Sheet, a +100 basis point Rate Ramp increases net interest income (12 months) by 2.4% at June 30, 2023 and 0.5% at December 31, 2022. For a +200 basis point Rate Ramp, net interest income (12 months) increases by 4.8% at June 30, 2023 and 2.0% at December 31, 2022. The corresponding metrics for a minus 100 basis point Rate Ramp are 0.7% and 0.6% at June 30, 2023 and December 31, 2022, respectively. These results use historical long-term deposit rate beta assumptions that are regularly analyzed and adjusted as necessary for both rising and falling rate scenarios. The drivers of the positive change in net interest income in the down rate scenarios include a June 30, 2023 starting point for deposit rates that is higher than comparable historical periods, the recent mix shift into higher beta deposit products and the increased level of shorter-term borrowings. Management's intention is to manage to a more neutral position given the current market expectations for future rates.

The FOMC increased the Federal Funds rate 425 basis points in 2022 and 75 basis points in the first six months of 2023. Forty-seven percent of our net loans and leases are indexed to short-term LIBOR, SOFR, Prime and other indices that will benefit from higher rates as they reprice within the next three months. Our cash position has also been a significant factor in our asset sensitivity metrics. Projected base net interest income has decreased from year-end as deposit rates have increased faster than asset repricing indices.
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, the competitive landscape and expectations regarding future interest rates, as well as internal factors regarding product offerings, product mix and pricing of loans and deposits.
Management continues to be proactive in managing our interest rate risk (IRR) position with the intention to manage to a more neutral position given the current market expectations for future rates. During 2023, management has adjusted the IRR position by managing cash balances, originating higher yielding loans, strategically meeting our customer preferences for higher yielding deposit products, in particular, shorter term time deposits, and utilizing borrowings of varying maturities. We also utilize derivatives to manage the IRR position. We continue to make use of interest rate swaps to commercial borrowers (commercial swaps) to manage our IRR position as the commercial swaps effectively increase our level of adjustable-rate loans. Total variable and adjustable-rate loans were 60.6% of total net loans and leases as of June 30, 2023 and 60.2% as of December 31, 2022. As of June 30, 2023, the commercial swaps totaled $5.4 billion of notional principal, with $467 million in original notional swap principal originated during the first six months of 2023, up from $5.3 billion at December 31, 2022. Furthermore, 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. For additional information regarding interest rate swaps, see Note 11, "Derivative Instruments and Hedging Activities" in the Notes to the Consolidated Financial Statements in this Report.
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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 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. Modifications to the risk appetite statement are also reviewed periodically by the Board of Directors and senior management to ensure adherence to our overall business strategy and stated risk tolerances.
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
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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, which all 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:
Enterprise-Wide Risk Management Department - conducts risk and control assessments across all our business and operational areas to ensure the appropriate risk identification, risk management and reporting of risks enterprise wide.
Fraud Risk Department - monitors for internal and external fraud risk across all our business and operational units.
Loan Review Department - conducts independent testing of our loan risk ratings to ensure their accuracy, which is instrumental to calculating our ACL.
Model Risk Management Department - oversees validation and testing of all models used in managing risk across our company.
Third-Party Risk Management Department - ensures effective risk management and oversight of third-party relationships throughout the vendor life cycle.
Anti-Money Laundering and Bank Secrecy Act Department - monitors for compliance with money laundering risk and associated regulatory compliance requirements.
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.
Compliance Department - develops policies and procedures and monitors compliance with applicable laws and regulations which govern our business operations.
Information and Cyber Security Department - maintains a risk assessment of our information and cybersecurity risks and ensures appropriate controls are in place to manage and control such risks, using the National Institute of Standards and Technology framework for improving critical infrastructure by measuring and evaluating the effectiveness of information and cybersecurity controls. This department also oversees our disaster recovery planning and testing efforts to allow us to be capable and ready for business resumption in the event of a disaster.
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 circumstances. 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 processes.

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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 31
Operating net income available to common stockholders
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2023202220232022
Net income available to common stockholders$140,382 $107,132 $284,877 $158,120 
Merger-related expense163 2,027 2,215 30,656 
Tax benefit of merger-related expense(34)(426)(465)(6,438)
Provision expense related to acquisition— — — 19,127 
Tax benefit of provision expense related to acquisition— — — (4,017)
Branch consolidation costs— — — 4,178 
Tax benefit of branch consolidation costs— — — (877)
Operating net income available to common stockholders (non-GAAP)$140,511 $108,733 $286,627 $200,749 
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, initial provision for non-PCD loans acquired and branch consolidation costs are not organic costs to run our operations and facilities. The merger expenses and branch consolidation costs principally represent expenses to satisfy contractual obligations of the acquired entity or 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.
TABLE 32
Operating earnings per diluted common share
Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Net income per diluted common share$0.39 $0.30 $0.78 $0.45 
Merger-related expense— 0.01 0.01 0.09 
Tax benefit of merger-related expense— — — (0.02)
Provision expense related to acquisition— — — 0.05 
Tax benefit of provision expense related to acquisition— — — (0.01)
Branch consolidation costs— — — 0.01 
Tax benefit of branch consolidation costs— — — — 
Operating earnings per diluted common share (non-GAAP)$0.39 $0.31 $0.79 $0.57 
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TABLE 33
Return on average tangible common equity
 Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands)2023202220232022
Net income available to common stockholders (annualized)$563,073 $429,704 $574,476 $318,861 
Amortization of intangibles, net of tax (annualized)15,984 11,247 16,190 10,795 
Tangible net income available to common stockholders (annualized) (non-GAAP)$579,057 $440,951 $590,666 $329,656 
Average total stockholders’ equity$5,833,186 $5,437,913 $5,782,694 $5,443,373 
Less: Average preferred stockholders' equity(106,882)(106,882)(106,882)(106,882)
Less: Average intangible assets (1)
(2,558,631)(2,490,899)(2,561,087)(2,467,776)
Average tangible common equity (non-GAAP)$3,167,673 $2,840,132 $3,114,725 $2,868,715 
Return on average tangible common equity (non-GAAP)18.28 %15.53 %18.96 %11.49 %
(1) Excludes loan servicing rights.
TABLE 34
Operating return on average tangible common equity
Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands)2023202220232022
Operating net income available to common stockholders (annualized)$563,588 $436,127 $578,005 $404,825 
Amortization of intangibles, net of tax (annualized)15,984 11,247 16,190 10,795 
Tangible operating net income available to common stockholders (annualized) (non-GAAP)$579,572 $447,374 $594,195 $415,620 
Average total stockholders' equity$5,833,186 $5,437,913 $5,782,694 $5,443,373 
Less:  Average preferred stockholders' equity(106,882)(106,882)(106,882)(106,882)
Less:  Average intangible assets (1)
(2,558,631)(2,490,899)(2,561,087)(2,467,776)
Average tangible common equity (non-GAAP)$3,167,673 $2,840,132 $3,114,725 $2,868,715 
Operating return on average tangible common equity (non-GAAP)18.30 %15.75 %19.08 %14.49 %
(1) Excludes loan servicing rights.
TABLE 35
Return on average tangible assets
 Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands)2023202220232022
Net income (annualized)$571,131 $437,767 $582,582 $326,967 
Amortization of intangibles, net of tax (annualized)15,984 11,247 16,190 10,795 
Tangible net income (annualized) (non-GAAP)$587,115 $449,014 $598,772 $337,762 
Average total assets$44,410,312 $41,887,638 $43,918,841 $41,506,472 
Less: Average intangible assets (1)
(2,558,631)(2,490,899)(2,561,087)(2,467,776)
Average tangible assets (non-GAAP)$41,851,681 $39,396,739 $41,357,754 $39,038,696 
Return on average tangible assets (non-GAAP)1.40 %1.14 %1.45 %0.87 %
(1) Excludes loan servicing rights.
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TABLE 36
Tangible book value per common share
June 30, 2023June 30, 2022
(dollars in thousands, except per share data)
Total stockholders’ equity$5,817,749 $5,436,067 
Less: Preferred stockholders’ equity(106,882)(106,882)
Less: Intangible assets (1)
(2,556,307)(2,489,244)
Tangible common equity (non-GAAP)$3,154,560 $2,839,941 
Ending common shares outstanding358,820,568 350,725,378 
Tangible book value per common share (non-GAAP)$8.79 $8.10 
(1) Excludes loan servicing rights.

TABLE 37
Tangible equity to tangible assets
June 30, 2023June 30, 2022
(dollars in thousands)
Total stockholders' equity$5,817,749 $5,436,067 
Less:  Intangible assets (1)
(2,556,307)(2,489,244)
Tangible equity (non-GAAP)$3,261,442 $2,946,823 
Total assets$44,777,964 $41,680,903 
Less:  Intangible assets (1)
(2,556,307)(2,489,244)
Tangible assets (non-GAAP)$42,221,657 $39,191,659 
Tangible equity / tangible assets (non-GAAP)7.72 %7.52 %
(1) Excludes loan servicing rights.
TABLE 38
Tangible common equity / tangible assets
June 30, 2023June 30, 2022
(dollars in thousands)
Total stockholders' equity$5,817,749 $5,436,067 
Less:  Preferred stockholders' equity(106,882)(106,882)
Less:  Intangible assets (1)
(2,556,307)(2,489,244)
Tangible common equity (non-GAAP)$3,154,560 $2,839,941 
Total assets$44,777,964 $41,680,903 
Less:  Intangible assets (1)
(2,556,307)(2,489,244)
Tangible assets (non-GAAP)$42,221,657 $39,191,659 
Tangible common equity / tangible assets (non-GAAP)7.47 %7.25 %
(1) Excludes loan servicing rights.
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Key Performance Indicators
TABLE 39
Efficiency ratio
 Three Months Ended
June 30,
Six Months Ended
June 30,
(dollars in thousands)2023202220232022
Non-interest expense$211,955 $192,774 $431,872 $420,200 
Less: Amortization of intangibles(5,044)(3,549)(10,163)(6,776)
Less: OREO expense(492)(433)(1,049)(748)
Less: Merger-related expense(163)(2,027)(2,215)(30,656)
Less: Branch consolidation costs— — — (4,178)
Adjusted non-interest expense$206,256 $186,765 $418,445 $377,842 
Net interest income$329,244 $253,690 $665,898 $487,766 
Taxable equivalent adjustment3,269 2,656 6,543 5,254 
Non-interest income80,309 82,154 159,698 160,476 
Less: Net securities (gains) losses(48)23 (48)
Adjusted net interest income (FTE) + non-interest income$412,828 $338,452 $832,162 $653,448 
Efficiency ratio (FTE) (non-GAAP)49.96 %55.18 %50.28 %57.82 %
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 June 30, 2023, 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.

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PART II - OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
The information required by this Item is set forth in the “Other Legal Proceedings” discussion in Note 12, "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 2022 Annual Report on Form 10-K.
The risk factors below relate to the recent banking industry disruption, and are in addition to the risk factors previously disclosed in our 2022 Annual Report on Form 10-K.
Recent volatility in the banking sector, triggered by the failures of Silicon Valley Bank and Signature Bank, may result in legislative initiatives, agency rulemaking activities, or changes in agency policies and priorities that could subject FNB and FNBPA to enhanced government regulation and supervision.
On March 10, 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation. Two days later, on March 12, 2023, Signature Bank (SBNY) also failed. In each case, the FDIC was appointed as receiver. The FDIC, together with the FRB and the UST, then took action under applicable emergency systemic risk authority to fully protect the depositors of each bank as the institutions were wound down. SVB and SBNY each had substantial business relationships with, and exposure to, entities within the innovation sector, including financial technology and digital asset companies, and had received an influx of deposits over the course of several years which coincided with the rapid growth of that sector. In recent periods, however, SVB and SBNY each began to experience significant deposit withdrawals. These withdrawals increased rapidly in early March, ultimately causing each institution to fail as it became apparent that available sources of liquidity would be inadequate to cover the withdrawals. Subsequently on May 1, 2023 First Republic Bank (FRC) became another large bank to fail.
The SVB and SBNY bank failures and subsequent industry volatility may lead to governmental initiatives intended to prevent future bank failures and stem significant deposit outflows from the banking sector, including (i) legislation aimed at preventing similar future bank runs and failures and stabilizing confidence in the banking sector over the long term, (ii) agency rulemaking to modify and enhance relevant regulatory requirements - specifically with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices, and (iii) enhancement of the agencies’ supervision and examination policies and priorities. More specifically, for instance, the federal banking agencies may modify the risk-based capital regulations to eliminate the ability of certain banks to offset portions of their AOCI when calculating regulatory capital requirements. Alternatively, the treatment of AOCI under GAAP also could be modified, the effect of which may carry through to banks’ capital management and regulatory compliance practices. The federal banking agencies may also re-evaluate applicable liquidity risk management standards, such as by reconsidering the mix of assets that are deemed to be “high-quality liquid assets” (HQLA) and/or how HQLA holdings and cash inflows and outflows are tabulated and weighted for liquidity management purposes.
Although we cannot predict which initiatives may be pursued by lawmakers and agency leadership, nor can we predict the terms and scope of any such initiatives, any of the potential changes referenced above could, among other things, subject us to additional material costs, limit the types of financial services and products we may offer, and limit our future growth, any of which could materially and adversely affect our business, results of operations or financial condition.
We may experience increases in FDIC insurance assessments.
The losses incurred by the DIF in connection with the resolution of SVB and SBNY, which are estimated to amount to approximately $22.5 billion in the aggregate, are required by law to be recovered through one or more special assessments on depository institutions and, potentially, their holding companies if the FDIC determines such action to be appropriate and the Secretary of the UST concurs with the FDIC’s determination. On May 22, 2023, the FDIC issued its proposed rule that would impose such special assessments. The FDIC must consider a variety of factors in determining the terms and applicability of any such special assessment, including, among others, the types of entities that benefit from the action taken by the agencies, economic conditions, and anticipated industry impacts. It is also possible that our regular deposit insurance assessment rates will increase should the FDIC adopt a final rule that alters the assessment rate schedule or calculation methodology for all
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larger financial institutions (including FNBPA) as a result of the recent bank failures. Although we cannot predict the specific timing and terms of any final rule imposing special assessments relating to the resolution of SVB and SBNY, or any other increase in our deposit insurance assessment rates, any increase in our assessment fees could have a materially adverse effect on our results of operations and financial condition.
Liquidity risk could impair our ability to fund operations and meet our obligations as they become due.
Our ability to implement our business strategy will depend on our liquidity and ability to obtain funding for loan originations, working capital and other general purposes. Liquidity is needed to fund various obligations, including credit commitments to borrowers, mortgage and other loan originations, withdrawals by depositors, repayment of borrowings, dividends to shareholders, operating expenses and capital expenditures. Liquidity risk is the potential that we will be unable to meet our obligations as they come due, capitalize on growth opportunities as they arise, or pay regular dividends on our common stock because of an inability to liquidate assets or obtain adequate funding on a timely basis, at a reasonable cost and within acceptable risk tolerances. Our preferred sources for funding are deposits and customer repurchase agreements, which are low cost and stable sources of funding for us. We compete with commercial banks, savings banks and credit unions, as well as nondepository competitors such as mutual funds, fintechs, securities and brokerage firms and insurance companies, for deposits and customer repurchase agreements. If a significant portion of our deposits were to be withdrawn within a short period of time or if we are unable to attract and maintain sufficient levels of deposits and customer repurchase agreements to fund our loan growth and liquidity objectives, we may be subject to paying higher funding costs by raising interest rates that are paid on deposits and customer repurchase agreements or cause us to source funds from third-party providers which may be higher cost funding, impacting our net interest margin. Additionally, our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Because our available-for-sale investment securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may be diminished during periods when interest rates are elevated. However, should we sell all or a material portion of our securities portfolio to increase liquidity in the face of depositor withdrawals in the current interest rate environment, we would be required to realize significant losses that would, in turn, reduce our regulatory capital position.
We are subject to supervision and examination by U.S. government authorities which could result in investigations, enforcement actions, fines, and other adverse effects.
The federal banking agencies, including the OCC, the CFPB, as well as the DOJ, have in recent years adopted a more aggressive enforcement posture in line with general enforcement priorities - specifically with respect to consumer protection issues and anti-discrimination lending laws. These government agencies have expressed a heightened interest in fair lending and loan servicing, mortgage loan origination and mortgage loan servicing, bank and financial institution sales practices, management of consumer accounts and the charging of overdraft and various other fees, fair credit reporting, predatory lending, debt collection, and meaningful disclosure of credit and savings terms, among others, and perform periodic reviews, examinations, and investigations in these areas. An adverse finding or outcome of any such review, examination, or investigation that involves an assertion of regulatory noncompliance or a violation of law could result in possible fines, penalties, restitution, or other forms of remediation that could have a material adverse effect on our business, financial condition, results of operations, or reputation.
In addition, the recent failures of SVB, SBNY, and FRC have further increased the regulatory focus and scrutiny of financial institutions. Congress and the federal banking agencies have begun to evaluate the events leading to the failures of SVB, SBNY and FRC to ascertain possible explanations for these developments. Preliminarily, legislators and the leadership of the federal banking agencies have posited varying theories, including, for example, inadequate prudential regulation of regional banking organizations (generally, institutions with less than $250 billion in total assets), insufficient supervision of such organizations, and a failure by the institutions themselves to properly manage risks—specifically including interest rate and liquidity risks in consideration of each institution’s business model, exposure to the innovation sector, and substantial uninsured deposit liabilities.
Further evaluation of recent developments may lead to legislative and regulatory initiatives intended to prevent future bank failures, raise capital requirements and stem significant deposit outflows from the banking sector. Although we cannot predict with certainty which initiatives may be pursued by lawmakers and agency leadership, nor can we predict the terms and scope of any such initiatives, any potential changes could, among other things, subject us to additional costs and capital requirements, limit the types of financial services and products we may offer, and limit our future growth, any of which could materially and adversely affect our business, results of operations or financial condition.
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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 June 30, 2023.
PeriodTotal number of shares purchased Average price paid per shareTotal 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)
April 1 - April 30, 2023— $— — $163,890,363 
May 1 - May 31, 20232,288,558 10.80 2,288,558 139,135,297 
June 1 - June 30, 2023— — — 139,135,297 
Total2,288,558 $10.80 2,288,558 
(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
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ITEM 6.    EXHIBITS
Exhibit Index
Exhibit NumberDescription
31.1.
31.2.
32.1.
32.2.
101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document (filed herewith).
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LABInline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
104Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).
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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: August 4, 2023 /s/ Vincent J. Delie, Jr.
  Vincent J. Delie, Jr.
  Chairman, President and Chief Executive Officer
  (Principal Executive Officer)
Dated: August 4, 2023 /s/ Vincent J. Calabrese, Jr.
  Vincent J. Calabrese, Jr.
  Chief Financial Officer
  (Principal Financial Officer)
Dated: August 4, 2023 /s/ James L. Dutey
  James L. Dutey
  Corporate Controller
  (Principal Accounting Officer)
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