FNB CORP/PA/ - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 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)


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

One North Shore Center,

12 Federal Street,

Pittsburgh,

15212

(Address of principal executive offices)

(Zip Code)

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer	☒	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller reporting company	☐

		Emerging Growth Company	☐

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

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

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

Title of Each Class

Trading Symbol(s)

Name of Exchange on which Registered

Common Stock, par value $0.01 per share

FNB

New York Stock Exchange

Depositary Shares each representing 1/40th interest in a
share of Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series E

FNBPrE

New York Stock Exchange

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class	Outstanding at	October 31, 2023
Common Stock, $0.01 Par Value	358,828,542	Shares

F.N.B. CORPORATION

FORM 10-Q

September 30, 2023

INDEX


		PAGE
PART I – FINANCIAL INFORMATION

	Glossary of Acronyms and Terms	4

Item 1.	Financial Statements

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

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	56

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	92

Item 4.	Controls and Procedures	92

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	93

Item 1A.	Risk Factors	93

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	95

Item 3.	Defaults Upon Senior Securities	95

Item 4.	Mine Safety Disclosures	95

Item 5.	Other Information	95

Item 6.	Exhibits	96

Signatures		97

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

Howard

Howard 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

BTFP

Bank 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

CFPB

Consumer Financial Protection Bureau

OREO

Other real estate owned

DIF

Deposit Insurance Fund

PCD

Purchased credit deteriorated

DOJ

U.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

FICO

Fair Isaac Corporation

TPS

Trust preferred securities

FNB

F.N.B. Corporation

Union

UB Bancorp

FNBPA

First National Bank of Pennsylvania

U.S.

United States of America

FOMC

Federal Open Market Committee

UST

U.S. Department of the Treasury

FRB

Board of Governors of the Federal Reserve

System

VIE

Variable interest entity

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except share and per share data)


	September 30, 2023		December 31, 2022
	(Unaudited)
Assets
Cash and due from banks	$	409	$	443
Interest-bearing deposits with banks	1,228		1,231
Cash and Cash Equivalents	1,637		1,674
Debt securities available for sale (amortized cost of $3,520 and $3,622; allowance for credit losses of $0 and $0)	3,145		3,275
Debt securities held to maturity (fair value of $3,403 and $3,687; allowance for credit losses of $0 and $0)	3,922		4,087
Loans held for sale (includes $92 and $91 measured at fair value) (1)	110		124
Loans and leases, net of unearned income of $87 and $69 (includes $40 and $12 measured at fair value) (1)	32,151		30,255
Allowance for credit losses on loans and leases	(401)		(402)
Net Loans and Leases	31,750		29,853
Premises and equipment, net	460		432
Goodwill	2,477		2,477
Core deposit and other intangible assets, net	74		89
Bank owned life insurance	660		653
Other assets	1,261		1,061
Total Assets	$	45,496	$	43,725
Liabilities
Deposits:
Non-interest-bearing demand	$	10,704	$	11,916
Interest-bearing demand	14,530		15,100
Savings	3,588		4,142
Certificates and other time deposits	5,793		3,612
Total Deposits	34,615		34,770
Short-term borrowings	2,066		1,372
Long-term borrowings	1,968		1,093

Other liabilities	953		837
Total Liabilities	39,602		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 – 374,939,004 and 374,907,245 shares	4		4
Additional paid-in capital	4,689		4,696
Retained earnings	1,664		1,370
Accumulated other comprehensive loss	(382)		(357)
Treasury stock – 16,110,462 and 14,437,135 shares at cost	(188)		(167)
Total Stockholders’ Equity	5,894		5,653
Total Liabilities and Stockholders’ Equity	$	45,496	$	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)

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in millions, except per share data)

Unaudited


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Interest Income
Loans and leases, including fees	$	455	$	297	$	1,278	$	760
Securities:
Taxable	38		31		109		82
Tax-exempt	7		7		21		20

Other	13		8		33		15
Total Interest Income	513		343		1,441		877
Interest Expense
Deposits	139		31		335		54
Short-term borrowings	23		6		55		17
Long-term borrowings	25		9		59		21
Total Interest Expense	187		46		449		92
Net Interest Income	326		297		992		785
Provision for credit losses	25		12		58		36
Net Interest Income After Provision for Credit Losses	301		285		934		749
Non-Interest Income
Service charges	35		36		101		102
Trust services	11		10		32		30
Insurance commissions and fees	5		6		19		20
Securities commissions and fees	7		6		21		18
Capital markets income	7		10		20		25
Mortgage banking operations	4		5		14		18
Dividends on non-marketable equity securities	5		3		15		8
Bank owned life insurance	3		2		9		9


Other	4		5		10		13
Total Non-Interest Income	81		83		241		243
Non-Interest Expense
Salaries and employee benefits	114		107		348		323
Net occupancy	18		16		52		50
Equipment	24		20		67		56
Amortization of intangibles	5		3		15		10
Outside services	21		19		61		53
Marketing	5		3		13		11
FDIC insurance	8		5		23		15
Bank shares and franchise taxes	4		4		12		12
Merger-related	—		2		2		33

Other	19		16		57		52
Total Non-Interest Expense	218		195		650		615
Income Before Income Taxes	164		173		525		377
Income taxes	19		35		91		77
Net Income	145		138		434		300
Preferred stock dividends	2		2		6		6
Net Income Available to Common Stockholders	$	143	$	136	$	428	$	294
Earnings per Common Share
Basic	$	0.40	$	0.39	$	1.19	$	0.84
Diluted	0.40		0.38		1.18		0.83

See accompanying Notes to Consolidated Financial Statements (unaudited)

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

Unaudited


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	145	$	138	$	434	$	300
Other comprehensive income (loss):
Securities available for sale:
Unrealized losses arising during the period, net of tax benefit of $(7), $(33), $(6) and $(84)	(26)		(116)		(22)		(294)


Derivative instruments:
Unrealized losses arising during the period, net of tax benefit of $(2), $(4), $(5) and $(9)	(7)		(13)		(17)		(30)
Reclassification adjustment for gains included in net income, net of tax expense of $2, $1, $4 and $2	6		2		13		6
Pension and postretirement benefit obligations:
Unrealized gains arising during the period, net of tax expense of $0, $0, $0 and $0	—		1		1		2
Other Comprehensive Income (Loss)	(27)		(126)		(25)		(316)
Comprehensive Income (Loss)	$	118	$	12	$	409	$	(16)

See accompanying Notes to Consolidated Financial Statements (unaudited)

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in millions, except per share data)

Unaudited


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Three Months Ended September 30, 2022
Balance at beginning of period	$	107	$	4	$	4,562	$	1,182	$	(252)	$	(167)	$	5,436
Comprehensive income (loss)							138		(126)				12
Dividends declared:
Preferred stock: $18.13/share							(2)						(2)
Common stock: $0.12/share							(43)						(43)




Restricted stock compensation					3								3


Balance at end of period	$	107	$	4	$	4,565	$	1,275	$	(378)	$	(167)	$	5,406
Three Months Ended September 30, 2023
Balance at beginning of period	$	107	$	4	$	4,686	$	1,564	$	(355)	$	(188)	$	5,818
Comprehensive income (loss)							145		(27)				118
Dividends declared:
Preferred stock: $18.13/share							(2)						(2)
Common stock: $0.12/share							(43)						(43)
Issuance of common stock			—		1		—				—		1



Restricted stock compensation					2								2


Balance at end of period	$	107	$	4	$	4,689	$	1,664	$	(382)	$	(188)	$	5,894


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Nine Months Ended September 30, 2022
Balance at beginning of period	$	107	$	3	$	4,109	$	1,110	$	(62)	$	(117)	$	5,150
Comprehensive income (loss)							300		(316)				(16)
Dividends declared:
Preferred stock: $54.39/share							(6)						(6)
Common stock: $0.36/share							(129)						(129)
Issuance of common stock			—		1						(7)		(6)
Issuance of common stock - acquisitions			1		442								443
Repurchase of common stock											(43)		(43)

Restricted stock compensation					13								13


Balance at end of period	$	107	$	4	$	4,565	$	1,275	$	(378)	$	(167)	$	5,406
Nine Months Ended September 30, 2023
Balance at beginning of period	$	107	$	4	$	4,696	$	1,370	$	(357)	$	(167)	$	5,653
Comprehensive income (loss)							434		(25)				409
Dividends declared:
Preferred stock: $54.39/share							(6)						(6)
Common stock: $0.36/share							(130)						(130)
Issuance of common stock			—		(21)		(4)				16		(9)

Repurchase of common stock											(37)		(37)

Restricted stock compensation					14								14

Balance at end of period	$	107	$	4	$	4,689	$	1,664	$	(382)	$	(188)	$	5,894

See accompanying Notes to Consolidated Financial Statements (unaudited)

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

Unaudited


	Nine Months Ended September 30,
	2023		2022
Operating Activities
Net income	$	434	$	300
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation, amortization and accretion	61		54
Provision for credit losses	58		36
Deferred tax expense (benefit)	3		9


Loans originated for sale	(839)		(836)
Loans sold	821		1,011
Net (gain) loss on sale of loans	(1)		(29)
Net change in:
Interest receivable	(32)		(19)
Interest payable	29		4
Bank owned life insurance, excluding purchases	(7)		(4)
Other, net	(84)		515
Net cash flows provided by operating activities	443		1,041
Investing Activities
Net change in loans and leases, excluding sales and transfers	(1,917)		(2,012)
Debt securities available for sale:
Purchases	(262)		(919)
Sales	—		287
Maturities/payments	359		598
Debt securities held to maturity:
Purchases	(104)		(845)

Maturities/payments	271		481


Increase in premises and equipment	(71)		(78)
Net cash received in business acquisition	—		75


Net cash flows used in investing activities	(1,724)		(2,413)
Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts	(2,335)		517
Time deposits	2,178		(180)
Short-term borrowings	694		(155)
Proceeds from issuance of long-term borrowings	1,226		367
Repayment of long-term borrowings	(351)		(223)
Repurchases of common stock	(37)		(43)
Cash dividends paid:
Preferred stock	(6)		(6)
Common stock	(130)		(129)
Other, net	5		7
Net cash flows provided by financing activities	1,244		155
Net Decrease in Cash and Cash Equivalents	(37)		(1,217)
Cash and cash equivalents at beginning of period	1,674		3,493
Cash and Cash Equivalents at End of Period	$	1,637	$	2,276

See accompanying Notes to Consolidated Financial Statements (unaudited)

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 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 September 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 September 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.

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

Standard

Description

Financial 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 Method

This 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 plan to adopt this Update on January 1, 2024. The adoption of this Update is not expected to have a material impact on 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.

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 $30.6 million for the first nine 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 non-performing 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.

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 nine 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.

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)	Howard		Union
Fair value of consideration paid	$	443	$	126
Fair value of identifiable assets acquired:
Cash and cash equivalents	75		113
Securities	321		212
Loans	1,780		652
Core deposit and other intangible assets	19		41
Fixed and other assets	156		59
Total identifiable assets acquired	2,351		1,077
Fair value of liabilities assumed:
Deposits	1,831		956
Borrowings	247		30
Other liabilities	7		3
Total liabilities assumed	2,085		989
Fair value of net identifiable assets acquired	266		88
Goodwill recognized	$	177	$	38

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 September 30, 2023 and December 31, 2022. Accrued interest receivable on AFS debt securities totaled $10.4 million at September 30, 2023 and $8.9 million at 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:
September 30, 2023
U.S. Treasury	$	327	$	—	$	(21)	$	306
U.S. government agencies	85		1		—		86
U.S. government-sponsored entities	323		—		(20)		303
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,171		—		(139)		1,032
Agency collateralized mortgage obligations	986		—		(146)		840

Commercial mortgage-backed securities	565		—		(44)		521
States of the U.S. and political subdivisions (municipals)	30		—		(4)		26
Other debt securities	33		—		(2)		31
Total debt securities AFS	$	3,520	$	1	$	(376)	$	3,145


(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 agencies	107		1		—		108
U.S. government-sponsored entities	283		—		(21)		262
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,360		—		(128)		1,232
Agency collateralized mortgage obligations	1,110		—		(138)		972

Commercial mortgage-backed securities	430		—		(35)		395
States of the U.S. and political subdivisions (municipals)	33		—		(4)		29
Other debt securities	21		—		(1)		20
Total debt securities AFS	$	3,622	$	1	$	(348)	$	3,275

The amortized cost and fair value of HTM debt securities are presented in the following table. The ACL for the HTM portfolio was $0.30 million and $0.23 million at September 30, 2023 and December 31, 2022, respectively. Accrued interest receivable on HTM debt securities totaled $13.4 million and $14.0 million at September 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.

TABLE 4.2


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities HTM:
September 30, 2023

U.S. government agencies	$	1	$	—	$	—	$	1
U.S. government-sponsored entities	93		—		(1)		92
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,052		—		(144)		908
Agency collateralized mortgage obligations	852		—		(132)		720

Commercial mortgage-backed securities	891		—		(68)		823
States of the U.S. and political subdivisions (municipals)	1,017		—		(172)		845
Other debt securities	16		—		(2)		14
Total debt securities HTM	$	3,922	$	—	$	(519)	$	3,403


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt Securities HTM:
December 31, 2022

U.S. government agencies	$	1	$	—	$	—	$	1
U.S. government-sponsored entities	52		—		—		52
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,178		—		(125)		1,053
Agency collateralized mortgage obligations	953		—		(120)		833

Commercial mortgage-backed securities	866		2		(50)		818
States of the U.S. and political subdivisions (municipals)	1,025		1		(107)		919
Other debt securities	12		—		(1)		11
Total debt securities HTM	$	4,087	$	3	$	(403)	$	3,687

There were no significant gross gains or gross losses realized on securities during the nine months ended September 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 September 30, 2023.

As of September 30, 2023, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:

TABLE 4.3


	Available for Sale				Held to Maturity
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	54	$	54	$	2	$	2
Due after one year but within five years	655		612		140		136
Due after five years but within ten years	53		51		224		196
Due after ten years	36		35		761		618
	798		752		1,127		952
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,171		1,032		1,052		908
Agency collateralized mortgage obligations	986		840		852		720

Commercial mortgage-backed securities	565		521		891		823
Total debt securities	$	3,520	$	3,145	$	3,922	$	3,403

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)	September 30, 2023			December 31, 2022
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law	$	5,995		$	6,403
As collateral for short-term borrowings	281			348
Securities pledged as a percent of total securities	88.8		%	91.7		%

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 Months					12 Months or More					Total
(dollars in millions)	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Debt Securities AFS
September 30, 2023
U.S. Treasury	—	$	—	$	—	6	$	257	$	(21)	6	$	257	$	(21)
U.S. government agencies	5	24		—		8	15		—		13	39		—
U.S. government-sponsored entities	2	50		—		10	253		(20)		12	303		(20)
Residential mortgage-backed securities:
Agency mortgage-backed securities	7	2		—		114	1,029		(139)		121	1,031		(139)
Agency collateralized mortgage obligations	—	—		—		71	840		(146)		71	840		(146)

Commercial mortgage-backed securities	5	148		(3)		21	373		(41)		26	521		(44)
States of the U.S. and political subdivisions (municipals)	—	—		—		13	26		(4)		13	26		(4)
Other debt securities	2	8		(1)		7	17		(1)		9	25		(2)
Total	21	$	232	$	(4)	250	$	2,810	$	(372)	271	$	3,042	$	(376)

	Less than 12 Months					12 Months or More					Total
(dollars in millions)	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Debt Securities AFS
December 31, 2022
U.S. Treasury	3	$	120	$	(7)	3	$	137	$	(14)	6	$	257	$	(21)
U.S. government agencies	6	46		—		8	4		—		14	50		—
U.S. government-sponsored entities	9	150		(8)		4	112		(13)		13	262		(21)
Residential mortgage-backed securities:
Agency mortgage-backed securities	104	773		(58)		13	455		(70)		117	1,228		(128)
Agency collateralized mortgage obligations	49	455		(42)		23	517		(96)		72	972		(138)

Commercial mortgage-backed securities	16	302		(21)		5	94		(14)		21	396		(35)
States of the U.S. and political subdivisions (municipals)	4	7		(1)		10	22		(3)		14	29		(4)
Other debt securities	7	15		(1)		1	2		—		8	17		(1)
Total	198	$	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 September 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 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 $1.0 billion as of September 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, 1970-2022 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 $47.0 million as of September 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 $2.8 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 September 30, 2023 and 2022, we had no significant provision expense and no charge-offs or recoveries. The ACL on the HTM portfolio was $0.30 million, consisting of $0.06 million relating to the municipal bond portfolio and $0.24 million relating to other debt securities, as of September 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 September 30, 2023 or December 31, 2022 and there were no securities that were past due or on non-accrual at either date.

NOTE 5. LOANS AND LEASES

Accrued interest receivable on loans and leases, which totaled $124.0 million at September 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 is 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)	September 30, 2023		December 31, 2022
Commercial real estate	$	11,962	$	11,526
Commercial and industrial	7,462		7,131
Commercial leases	562		519
Other	160		114
Total commercial loans and leases	20,146		19,290
Direct installment	2,754		2,784
Residential mortgages	6,434		5,297
Indirect installment	1,519		1,553
Consumer lines of credit	1,298		1,331
Total consumer loans	12,005		10,965
Total loans and leases, net of unearned income	$	32,151	$	30,255

The remaining accretable discount included in the amortized cost of acquired loans was $46.7 million and $58.6 million at September 30, 2023 and December 31, 2022, respectively, which included $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, including construction 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, including construction loans, for 1-4 family properties where the primary default risk driver is the borrower's employment status and income;

•Indirect installment is comprised of loans originated by approved third parties and underwritten by us, primarily automobile loans where the primary default risk driver is the borrower's employment status and income; and

•Consumer lines of credit include home equity lines of credit and consumer lines of credit that are either unsecured or secured by collateral other than home equity where the primary default risk driver is the borrower's employment status and income.

The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market in seven states and the District of Columbia. Our primary market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; 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)	September 30, 2023		December 31, 2022
Commercial real estate:
Percent owner-occupied	29.0	%	30.2	%
Percent non-owner-occupied	71.0		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 Category			Definition
Pass			in general, the condition of the borrower and the performance of the loan is satisfactory or better

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

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

Doubtful			in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable

The use of these internally assigned credit quality categories within the commercial loan and lease portfolio permits 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.

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


September 30, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
Pass	$	964	$	2,043	$	2,356	$	1,513	$	1,153	$	2,825	$	234	$	11,088
Special Mention	1		74		37		131		99		216		7		565
Substandard	3		23		17		14		65		170		17		309

Total commercial real estate	968		2,140		2,410		1,658		1,317		3,211		258		11,962
Commercial real estate current period gross charge-offs	—		0.1		0.2		—		—		8.6		—		8.9
Commercial and Industrial:
Risk Rating:
Pass	1,240		1,464		930		667		460		584		1,650		6,995
Special Mention	12		9		69		3		18		38		33		182
Substandard	28		14		48		8		19		57		111		285

Total commercial and industrial	1,280		1,487		1,047		678		497		679		1,794		7,462
Commercial and industrial current period gross charge-offs	0.1		0.3		0.4		0.6		1.6		45.5		—		48.5
Commercial Leases:
Risk Rating:
Pass	177		142		89		54		29		45		—		536
Special Mention	—		—		—		—		1		—		—		1
Substandard	7		3		5		7		2		1		—		25

Total commercial leases	184		145		94		61		32		46		—		562
Commercial leases current period gross charge-offs	—		—		—		—		—		—		—		—
Other Commercial:
Risk Rating:
Pass	78		—		—		—		—		9		73		160



Total other commercial	78		—		—		—		—		9		73		160
Other commercial current period gross charge-offs	—		—		—		—		—		3.3		—		3.3
Total commercial loans and leases	2,510		3,772		3,551		2,397		1,846		3,945		2,125		20,146


September 30, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
CONSUMER
Direct Installment:
Current	261		735		809		408		143		386		—		2,742
Past due	—		1		1		1		—		9		—		12
Total direct installment	261		736		810		409		143		395		—		2,754
Direct installment current period gross charge-offs	—		0.1		0.1		0.1		—		0.2		—		0.5
Residential Mortgages:
Current	1,145		1,684		1,542		815		351		853		1		6,391
Past due	1		5		2		2		2		31		—		43
Total residential mortgages	1,146		1,689		1,544		817		353		884		1		6,434
Residential mortgages current period gross charge-offs	—		—		—		0.1		—		0.6		—		0.7
Indirect Installment:
Current	371		638		266		114		51		59		—		1,499
Past due	1		8		7		2		1		1		—		20
Total indirect installment	372		646		273		116		52		60		—		1,519
Indirect installment current period gross charge-offs	0.2		2.8		2.9		0.5		0.2		0.3		—		6.9
Consumer Lines of Credit:
Current	31		64		15		2		2		119		1,050		1,283
Past due	—		—		1		—		1		12		1		15
Total consumer lines of credit	31		64		16		2		3		131		1,051		1,298
Consumer lines of credit current period gross charge-offs	—		—		0.1		—		—		0.7		—		0.8
Total consumer loans	1,810		3,135		2,643		1,344		551		1,470		1,052		12,005
Total loans and leases	$	4,320	$	6,907	$	6,194	$	3,741	$	2,397	$	5,415	$	3,177	$	32,151
Total charge-offs	$	0.3	$	3.3	$	3.7	$	1.3	$	1.8	$	59.2	$	—	$	69.6

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, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
Pass	$	1,967	$	2,348	$	1,678	$	1,283	$	700	$	2,447	$	258	$	10,681
Special Mention	43		35		67		74		104		208		5		536
Substandard	3		7		20		47		45		167		20		309

Total commercial real estate	2,013		2,390		1,765		1,404		849		2,822		283		11,526

Commercial and Industrial:
Risk Rating:
Pass	1,635		1,194		760		533		289		453		1,856		6,720
Special Mention	15		43		16		27		48		48		54		251
Substandard	5		12		11		8		38		34		52		160

Total commercial and industrial	1,655		1,249		787		568		375		535		1,962		7,131

Commercial Leases:
Risk Rating:
Pass	187		121		69		59		36		27		—		499
Special Mention	—		1		—		1		—		—		—		2
Substandard	2		5		8		1		1		1		—		18

Total commercial leases	189		127		77		61		37		28		—		519

Other Commercial:
Risk Rating:
Pass	58		—		—		—		—		12		44		114



Total other commercial	58		—		—		—		—		12		44		114

Total commercial loans and leases	3,915		3,766		2,629		2,033		1,261		3,397		2,289		19,290

CONSUMER
Direct Installment:
Current	801		887		453		163		91		374		—		2,769
Past due	—		1		1		1		1		11		—		15
Total direct installment	801		888		454		164		92		385		—		2,784

Residential Mortgages:
Current	1,464		1,587		871		378		128		819		2		5,249
Past due	2		3		3		2		5		33		—		48
Total residential mortgages	1,466		1,590		874		380		133		852		2		5,297

Indirect Installment:
Current	800		357		166		88		80		40		—		1,531
Past due	5		11		3		1		1		1		—		22
Total indirect installment	805		368		169		89		81		41		—		1,553

Consumer Lines of Credit:
Current	74		17		1		3		4		126		1,086		1,311
Past due	—		1		1		—		—		15		3		20
Total consumer lines of credit	74		18		2		3		4		141		1,089		1,331

Total consumer loans	3,146		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

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		Current		Total Loans and Leases		Non-accrual with No ACL
September 30, 2023
Commercial real estate	$	15	$	—	$	44	$	59	$	11,903	$	11,962	$	20
Commercial and industrial	7		—		44		51		7,411		7,462		9
Commercial leases	—		—		1		1		561		562		—
Other	1		—		—		1		159		160		—
Total commercial loans and leases	23		—		89		112		20,034		20,146		29
Direct installment	5		1		6		12		2,742		2,754		—
Residential mortgages	29		4		10		43		6,391		6,434		—
Indirect installment	16		2		2		20		1,499		1,519		—
Consumer lines of credit	7		2		6		15		1,283		1,298		—
Total consumer loans	57		9		24		90		11,915		12,005		—
Total loans and leases	$	80	$	9	$	113	$	202	$	31,949	$	32,151	$	29


(in millions)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans and Leases		Non-accrual with No ACL
December 31, 2022
Commercial real estate	$	13	$	—	$	39	$	52	$	11,474	$	11,526	$	15
Commercial and industrial	9		1		44		54		7,077		7,131		11
Commercial leases	3		—		1		4		515		519		—
Other	1		—		—		1		113		114		—
Total commercial loans and leases	26		1		84		111		19,179		19,290		26
Direct installment	7		1		7		15		2,769		2,784		—
Residential mortgages	28		6		14		48		5,249		5,297		—
Indirect installment	20		1		1		22		1,531		1,553		—
Consumer lines of credit	10		3		7		20		1,311		1,331		—
Total consumer loans	65		11		29		105		10,860		10,965		—
Total loans and leases	$	91	$	12	$	113	$	216	$	30,039	$	30,255	$	26

Following is a summary of non-performing assets:

TABLE 5.7


(dollars in millions)	September 30, 2023			December 31, 2022
Non-accrual loans	$	113		$	113
Total non-performing loans and leases	113			113
Other real estate owned	3			6
Total non-performing assets	$	116		$	119
Asset quality ratios:
Non-performing loans and leases / total loans and leases	0.35		%	0.37		%
Non-performing assets plus 90 days or more past due / total loans and leases plus OREO	0.39			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 $1.6 million at September 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 September 30, 2023 and December 31, 2022 totaled $9.9 million and $11.8 million, respectively.

Approximately $47.3 million of commercial loans are collateral dependent at September 30, 2023. Repayment is expected to be substantially made 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 September 30, 2023, and is excluded from the amortized cost of loan modifications in the tables below.

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 Receivable		Financial Effect
Three Months Ended September 30, 2023
Term Extension
Commercial real estate	$	0.8	0.01	%	The modified loans had an average increase in term of 46 months, extending the maturity date.
Commercial and industrial	0.7		0.01		The modified loans had an average increase in term of 25 months, extending the maturity date.


Direct installment	0.4		0.01		The modified loans had an average increase in term of 74 months, extending the maturity date.
Residential mortgages	1.1		0.02		The modified loans had an average increase in term of 42 months, extending the maturity date.

Consumer lines of credit	0.2		0.02		The lines were termed to an average of 243 months.
Total	3.2




















Term Extension and Rate Reduction

Commercial and industrial	0.1		—		The term was extended and the rate was reduced, lowering the monthly payment.


Direct installment	0.1		—		The term was extended and the rate was reduced, lowering the monthly payment.
Residential mortgages	0.1		—		The term was extended and the rate was reduced, lowering the monthly payment.


Total	0.3








































Other
Commercial real estate	0.2		—		Multiple modifications were made with no material financial effect.



Direct installment	0.1		—		Multiple modifications were made with no material financial effect.


Consumer lines of credit	0.4		0.03		Multiple modifications were made with no material financial effect.
Total	0.7
Total Outstanding Modified	$	4.2


(dollars in millions)	Amortized Cost Basis		% of Total Class of Financing Receivable		Financial Effect
Nine Months Ended September 30, 2023
Term Extension
Commercial real estate	$	12.3	0.10	%	The modified loans had an average increase in term of 24 months, extending the maturity date.
Commercial and industrial	3.0		0.04		The modified loans had an average increase in term of 16 months, extending the maturity date.


Direct installment	0.8		0.03		The modified loans had an average increase in term of 99 months, extending the maturity date.
Residential mortgages	2.7		0.04		The modified loans had an average increase in term of 105 months, extending the maturity date.

Consumer lines of credit	0.4		0.03		The repayment on the loans modified was extended, lowering the monthly repayment.
Total	19.2




















Term Extension and Rate Reduction

Commercial and industrial	0.3		—		The term was extended, with a weighted average yield reduction of 462 bps.


Direct installment	0.4		0.01		The modified loans had an average increase in term of 330 months, extending the maturity date.
Residential mortgages	0.8		0.01		The term was extended, with a weighted average yield reduction of 267 bps.

Consumer lines of credit	0.6		0.05		The term was extended, with a weighted average yield reduction of 321 bps.
Total	2.1








































Other
Commercial real estate	0.5		—		Multiple modifications were made with no material financial effect.



Direct installment	0.1		—		Multiple modifications were made with no material financial effect.
Residential mortgages	0.1		—		Multiple modifications were made with no material financial effect.

Consumer lines of credit	0.6		0.05		Multiple modifications were made with no material financial effect.
Total	1.3
Total Outstanding Modified	$	22.6

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 nine 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 $1.4 million and no specific reserve for commercial loans modified at September 30, 2023 and December 31, 2022, respectively, and pooled reserves for individual loans of $1.5 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 September 30, 2023 and December 31, 2022. Upon default of an individual loan, our charge-off policy is followed for that class of loan.

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 Extension		Term Extension and Rate Reduction		Other		Total Outstanding Modified
Three Months Ended September 30, 2023
Commercial real estate	$	—	$	—	$	0.2	$	0.2
Commercial and industrial	0.5		0.1		—		0.6


Total commercial loans and leases	0.5		0.1		0.2		0.8
Direct installment	0.1		—		—		0.1
Residential mortgages	0.1		—		—		0.1


Total consumer loans	0.2		—		—		0.2
Total	$	0.7	$	0.1	$	0.2	$	1.0

Nine Months Ended September 30, 2023
Commercial real estate	$	0.4	$	—	$	0.9	$	1.3
Commercial and industrial	2.0		0.3		—		2.3


Total commercial loans and leases	2.4		0.3		0.9		3.6
Direct installment	0.1		—		—		0.1
Residential mortgages	0.1		0.3		—		0.4

Consumer lines of credit	0.1		—		—		0.1
Total consumer loans	0.3		0.3		—		0.6
Total	$	2.7	$	0.6	$	0.9	$	4.2

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)	Current		30-89 Days Past Due		90+ Days Past Due
September 30, 2023
Commercial real estate	$	12.9	$	—	$	—
Commercial and industrial	3.2		—		—


Total commercial loans and leases	16.1		—		—
Direct installment	1.2		0.2		—
Residential mortgages	2.6		0.8		0.1

Consumer lines of credit	1.6		—		—
Total consumer loans	5.4		1.0		0.1
Total	$	21.5	$	1.0	$	0.1

Prior to the adoption of ASU 2022-02, below are the tables relating to the TDR disclosures as of September 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 September 30, 2022					Nine Months Ended September 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	2	$	—	$	—	14	$	5	$	4
Commercial and industrial	3	—		—		10	1		1

Total commercial loans	5	—		—		24	6		5
Direct installment	8	1		1		33	1		1
Residential mortgages	14	2		2		34	5		5

Consumer lines of credit	6	—		—		12	1		1
Total consumer loans	28	3		3		79	7		7
Total	33	$	3	$	3	103	$	13	$	12

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 September 30, 2022			Nine Months Ended September 30, 2022
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial real estate	7	$	3	10	$	3
Commercial and industrial	1	—		1	—
Total commercial loans	8	3		11	3
Direct installment	3	—		5	—
Residential mortgages	5	1		8	1


Total consumer loans	8	1		13	1
Total	16	$	4	24	$	4

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		Recoveries		Net (Charge- Offs) Recoveries		Provision for Credit Losses		Balance at End of Period
Three Months Ended September 30, 2023
Commercial real estate	$	154.2	$	(0.6)	$	0.9	$	0.3	$	0.5	$	155.0
Commercial and industrial	114.3		(37.2)		1.4		(35.8)		17.1		95.6
Commercial leases	15.2		—		—		—		2.9		18.1
Other	3.8		(0.9)		0.2		(0.7)		1.1		4.2
Total commercial loans and leases	287.5		(38.7)		2.5		(36.2)		21.6		272.9
Direct installment	35.6		(0.1)		0.2		0.1		(1.0)		34.7
Residential mortgages	63.4		(0.1)		0.1		—		4.0		67.4
Indirect installment	16.6		(2.1)		0.5		(1.6)		1.1		16.1
Consumer lines of credit	9.6		(0.2)		0.2		—		(0.1)		9.5
Total consumer loans	125.2		(2.5)		1.0		(1.5)		4.0		127.7
Total allowance for credit losses on loans and leases	412.7		(41.2)		3.5		(37.7)		25.6		400.6
Allowance for unfunded loan commitments	21.0		—		—		—		0.3		21.3
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	433.7	$	(41.2)	$	3.5	$	(37.7)	$	25.9	$	421.9

Nine Months Ended September 30, 2023
Commercial real estate	$	162.1	$	(8.9)	$	3.2	$	(5.7)	$	(1.4)	$	155.0
Commercial and industrial	102.1		(48.5)		3.0		(45.5)		39.0		95.6
Commercial leases	13.5		—		—		—		4.6		18.1
Other	4.0		(3.3)		0.7		(2.6)		2.8		4.2
Total commercial loans and leases	281.7		(60.7)		6.9		(53.8)		45.0		272.9
Direct installment	35.9		(0.5)		0.5		—		(1.2)		34.7
Residential mortgages	55.5		(0.7)		0.3		(0.4)		12.3		67.4
Indirect installment	17.3		(6.9)		1.6		(5.3)		4.1		16.1
Consumer lines of credit	11.3		(0.8)		0.7		(0.1)		(1.7)		9.5
Total consumer loans	120.0		(8.9)		3.1		(5.8)		13.5		127.7
Total allowance for credit losses on loans and leases	401.7		(69.6)		10.0		(59.6)		58.5		400.6
Allowance for unfunded loan commitments	21.4		—		—		—		(0.1)		21.3
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	423.1	$	(69.6)	$	10.0	$	(59.6)	$	58.4	$	421.9


(in millions)	Balance at Beginning of Period		Charge- Offs		Recoveries		Net (Charge- Offs) Recoveries		Provision for Credit Losses		Balance at End of Period
Three Months Ended September 30, 2022
Commercial real estate	$	157.9	$	(1.3)	$	0.5	$	(0.8)	$	(1.8)	$	155.3
Commercial and industrial	94.3		(0.8)		0.9		0.1		1.8		96.2
Commercial leases	13.7		—		—		—		0.5		14.2
Other	4.2		(0.9)		0.3		(0.6)		0.6		4.2
Total commercial loans and leases	270.1		(3.0)		1.7		(1.3)		1.1		269.9
Direct installment	34.2		(0.2)		0.1		(0.1)		2.0		36.1
Residential mortgages	47.2		(0.3)		0.2		(0.1)		4.3		51.4
Indirect installment	16.0		(1.9)		0.6		(1.3)		2.4		17.1
Consumer lines of credit	10.5		(0.3)		0.3		—		0.3		10.8
Total consumer loans	107.9		(2.7)		1.2		(1.5)		9.0		115.4
Total allowance for credit losses on loans and leases	378.0		(5.7)		2.9		(2.8)		10.1		385.3
Allowance for unfunded loan commitments	18.2		—		—		—		1.1		19.3
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	396.2	$	(5.7)	$	2.9	$	(2.8)	$	11.2	$	404.6


(in millions)	Balance at Beginning of Period		Charge- Offs		Recoveries		Net (Charge- Offs) Recoveries		Provision for Credit Losses		Allowance for PCD Loans and Leases at Acquisition		Balance at End of Period














Nine Months Ended September 30, 2022
Commercial real estate	$	156.5	$	(2.9)	$	2.6	$	(0.3)	$	(5.3)	$	4.4	$	155.3
Commercial and industrial	87.4		(5.1)		4.9		(0.2)		5.6		3.4		96.2
Commercial leases	14.7		(0.1)		—		(0.1)		(0.4)		—		14.2
Other	2.6		(2.3)		0.8		(1.5)		3.1		—		4.2
Total commercial loans and leases	261.2		(10.4)		8.3		(2.1)		3.0		7.8		269.9
Direct installment	26.4		(0.4)		0.5		0.1		9.1		0.5		36.1
Residential mortgages	33.1		(0.6)		0.5		(0.1)		17.1		1.3		51.4
Indirect installment	13.5		(4.1)		1.7		(2.4)		6.0		—		17.1
Consumer lines of credit	10.1		(0.7)		0.9		0.2		0.1		0.4		10.8
Total consumer loans	83.1		(5.8)		3.6		(2.2)		32.3		2.2		115.4
Total allowance for credit losses on loans and leases	344.3		(16.2)		11.9		(4.3)		35.3		10.0		385.3
Allowance for unfunded loan commitments	19.1		—		—		—		0.2		—		19.3
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments	$	363.4	$	(16.2)	$	11.9	$	(4.3)	$	35.5	$	10.0	$	404.6

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

TABLE 6.2


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
(in millions)
Balance at beginning of period	$	21.0	$	18.2	$	21.4	$	19.1
Provision for unfunded loan commitments and letters of credit:
Commercial portfolio	0.3		1.1		(0.1)		0.2







Balance at end of period	$	21.3	$	19.3	$	21.3	$	19.3

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 September 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 September 30, 2023, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which increases 0.5% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 3.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 35.0% in 2023 and 14.5% 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 $400.6 million at September 30, 2023 decreased $1.1 million, or 0.3%, from December 31, 2022. Our ending ACL coverage ratio at September 30, 2023 was 1.25%, compared to 1.33% at December 31, 2022. Total provision for credit losses for the three months ended September 30, 2023 was $25.9 million compared to $11.2 million for the same period of 2022 with the increase supporting loan growth and $18.8 million for the previously disclosed $31.9 million isolated commercial loan that was downgraded to non-performing status in the second quarter of 2023 based upon initial indications of alleged fraud determined late in the second quarter. Findings uncovered during our ongoing investigation, including subsequent bankruptcy filings by our borrower and its primary supplier in the third quarter of 2023, resulted in the outstanding balance being fully charged-off. The third quarter of 2023 reflected net charge-offs of $37.7 million, or 0.47% annualized of average total loans, compared to $2.8 million, or 0.04% annualized, in the third quarter of 2022. Total provision for credit losses for the nine months ended September 30, 2023 was $58.5 million including $31.9 million in provision for the previously disclosed isolated commercial loan, compared to $35.6 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 $59.6 million, or 0.26% annualized of average total loans, during the nine months ended September 30, 2023, compared to $4.3 million, or 0.02% annualized, for the same period of 2022.

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)	September 30, 2023		December 31, 2022
Mortgage loans sold with servicing retained	$	5,638	$	5,242

The following table summarizes activity relating to mortgage loans sold with servicing retained:

TABLE 7.2


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Mortgage loans sold with servicing retained	$	322	$	204	$	781	$	870
Pre-tax net gains (losses) resulting from above loan sales (1)	1		(2)		1		(9)
Mortgage servicing fees (1)	3		3		10		9

(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 September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Balance at beginning of period	$	55.7	$	50.7	$	52.8	$	44.4

Additions	3.8		2.4		9.0		10.5
Payoffs and curtailments	(1.3)		(0.8)		(1.6)		(3.8)
Impairment (charge) / recovery	—		—		—		2.5
Amortization / other	0.2		(0.6)		(1.8)		(1.9)
Balance at end of period	$	58.4	$	51.7	$	58.4	$	51.7
Fair value, beginning of period	$	72.1	$	64.1	$	68.6	$	46.0
Fair value, end of period	75.1		69.6		75.1		69.6

We had no valuation allowance for MSRs as of September 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.

Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions:

TABLE 7.4


(dollars in millions)	September 30, 2023			December 31, 2022
Weighted average life (months)	97			96
Constant prepayment rate (annualized)	7.2		%	7.3		%
Discount rate	10.7		%	10.0		%
Effect on fair value due to change in interest rates:
+2.00%	$	3		$	9
+1.00%	2			4
+0.50%	1			2
+0.25%	1			1
-0.25%	(1)			(1)
-0.50%	(2)			(3)
-1.00%	(6)			(6)
-2.00%	(14)			(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 September 30, 2023, we had operating lease right-of-use assets and operating lease liabilities of $158.6 million and $178.9 million, respectively. We have finance lease right-of-use assets and finance lease liabilities of $31.9 million and $32.9 million, respectively.

Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of September 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 $45.4 million in right-of-use assets and $60.0 million in other liabilities. These operating leases are currently expected to commence throughout the remainder of 2023 and into 2024 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. During 2023, several floors of the FNB headquarters building have been made available to FNB for the purpose of constructing our office spaces, and we commenced the lease of those floors. 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.

The components of lease expense were as follows:

TABLE 8.1


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2023		2022		2023		2022
Operating lease cost	$	9	$	8	$	25	$	24

Variable lease cost	1		1		3		3

Finance lease cost	1		—		3		—
Total lease cost	$	11	$	9	$	31	$	27

Other information related to leases is as follows:

TABLE 8.2


	Nine Months Ended September 30,
(dollars in millions)	2023			2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	7		$	7
Operating cash flows from finance leases	$	—		$	—
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	31		$	—
Finance leases	$	—		$	—
Weighted average remaining lease term (years):
Operating leases	10.36			9.51
Finance leases	19.75			21.23
Weighted average discount rate:
Operating leases	3.2		%	2.4		%
Finance leases	3.2		%	2.6		%

Maturities of lease liabilities were as follows:

TABLE 8.3


(in millions)	Operating Leases		Finance Leases		Total Leases
September 30, 2023
2023	$	9	$	1	$	10
2024	29		2		31
2025	24		2		26
2026	21		2		23
2027	18		2		20
Later years	117		36		153
Total lease payments	218		45		263
Less: imputed interest	(39)		(12)		(51)
Present value of lease liabilities	$	179	$	33	$	212

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.

TABLE 9.1


(in millions)	Total Assets		Total Liabilities		Maximum Exposure to Loss
September 30, 2023
Trust preferred securities (1)	$	3	$	73	$	—
Affordable housing tax credit partnerships	122		40		122
Other investments	41		6		41
Total	$	166	$	119	$	163
December 31, 2022
Trust preferred securities (1)	$	1	$	72	$	—
Affordable housing tax credit partnerships	123		37		123
Other investments	33		9		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 junior subordinated debt. 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

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)	September 30, 2023		December 31, 2022
LIHTC investments included in other assets	$	82	$	86
Unfunded LIHTC commitments	40		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 September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Provision for income taxes:
Amortization of LIHTC investments under proportional method	$	4	$	4	$	12	$	11
Low-income housing tax credits	(4)		(3)		(12)		(11)
Other tax benefits related to tax credit investments	(1)		(1)		(2)		(2)
Total impact on provision for income taxes	$	(1)	$	—	$	(2)	$	(2)

Other Investments

Other investments we also consider to be unconsolidated VIEs 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)	September 30, 2023		December 31, 2022
Securities sold under repurchase agreements	$	259	$	317
Federal Home Loan Bank advances	1,665		930
Federal funds purchased	30		—
Subordinated notes	112		125
Total short-term borrowings	$	2,066	$	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

the outstanding balance. Of the total short-term FHLB advances, 15.9% had overnight maturities as of September 30, 2023. We did not have any short-term FHLB advances with overnight maturities as of December 31, 2022. At September 30, 2023, $600.0 million, or 36.0%, 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)	September 30, 2023		December 31, 2022
Federal Home Loan Bank advances	$	1,200	$	—
Senior notes	348		648
Subordinated notes	80		70
Junior subordinated debt	73		72
Other subordinated debt	267		303
Total long-term borrowings	$	1,968	$	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. Additionally, during the third quarter of 2023, $13.6 million in other subordinated debt assumed in a previous acquisition matured and we repurchased and retired $1.0 million in other subordinated debt acquired from the Howard acquisition.

Our banking affiliate has available credit with the FHLB of $10.6 billion, of which $2.9 billion was utilized and included in short-term and long-term borrowings and $700.0 million was utilized for a letter of credit for pledging of public funds as of September 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 September 30, 2023. There were no long-term FHLB borrowings during the first nine months of 2022, or as of December 31, 2022. Our banking affiliate has additional unused other wholesale credit availability of $8.6 billion as of September 30, 2023.

The following table provides information relating to our senior notes and other subordinated debt as of September 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 Value		Stated Maturity Date	Interest Rate
Senior Notes:

5.150% Senior Notes due August 25, 2025	$	350	$	347	$	348	8/25/2025	5.150	%
Total senior notes	350		347		348
Other Subordinated Debt:
4.950% Fixed-To-Floating Rate Subordinated Notes due 2029 (1)	120		118		119		2/14/2029	4.950	%
4.875% Subordinated Notes due 2025	100		98		100		10/2/2025	4.875	%
6.000% Fixed-To-Floating Rate Subordinated Notes due December 6, 2028 (2) (4)	25		26		24		12/6/2028	6.000	%
5.000% Fixed-To-Floating Rate Subordinated Note due May 29, 2030 (3) (4)	25		24		24		5/29/2030	5.000	%

Total other subordinated debt	270		266		267
Total	$	620	$	613	$	615

(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 September 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	$	1	$	22	6/15/2036	7.32	%	SOFR + 165 bps

Yadkin Valley Statutory Trust I	25		1		23		12/15/2037	6.99	%	SOFR + 132 bps
FNB Financial Services Capital Trust I	25		1		23		9/30/2035	7.12	%	SOFR + 146 bps
Patapsco Statutory Trust I	5		—		5		12/15/2035	7.15	%	SOFR + 148 bps


Total	$	77	$	3	$	73

The SOFR rate used for the rate reset factors in the above table is the Benchmark Replacement (three-month CME term SOFR plus a tenor spread adjustment of 26 basis points).

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


	September 30, 2023						December 31, 2022
	Notional		Fair Value				Notional		Fair Value
(in millions)	Amount		Asset		Liability		Amount		Asset		Liability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated	$	2,000	$	—	$	4	$	2,180	$	—	$	1
Interest rate swaps – not designated	5,577		140		2		5,333		89		6

Total subject to master netting arrangements	7,577		140		6		7,513		89		7
Not subject to master netting arrangements:
Interest rate swaps – not designated	5,577		2		460		5,333		6		390
Interest rate lock commitments – not designated	234		—		3		163		—		12
Forward delivery commitments – not designated	198		3		—		203		1		2
Credit risk contracts – not designated	649		—		—		506		—		—

Total not subject to master netting arrangements	6,658		5		463		6,205		7		404
Total	$	14,235	$	145	$	469	$	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.

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, in the form of interest rate swaps and collars, 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 Derivatives				Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income
	Nine Months Ended September 30,					Nine Months Ended September 30,
(in millions)	2023		2022			2023		2022
Derivatives in cash flow hedging relationships:
Interest rate contracts	$	(21)	$	(39)	Interest income (expense)	$	(16)	$	(8)
					Other income	—		—

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

TABLE 11.3


	Nine months ended September 30,
	2023				2022
(in millions)	Interest Income - Loans and Leases		Interest Expense - Short-Term Borrowings		Interest Income - Loans and Leases		Interest Expense - Short-Term Borrowings
Total amounts of income and expense line items presented in the Consolidated Statements of Income (the effects of cash flow hedges are included in these line items)	$	1,278	$	55	$	760	$	17
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	(33)		17		(1)		(7)

As of September 30, 2023, the maximum length of time over which forecasted interest cash flows are hedged is 2.6 years. In the twelve months that follow September 30, 2023, we expect to reclassify from the amount currently reported in AOCI net derivative losses of $36.4 million ($28.2 million net of tax), in association with interest on the hedged loans and FHLB advances. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 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 nine months ended September 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.

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 $529.6 million as of September 30, 2023 have remaining terms ranging from one day 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 September 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 September 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


		Nine Months Ended September 30,
(in millions)	Consolidated Statements of Income Location	2023		2022
Interest rate swaps	Non-interest income - other	$	(1)	$	—
Interest rate lock commitments	Mortgage banking operations	—		—
Forward delivery contracts	Mortgage banking operations	4		2
Credit risk contracts	Non-interest income - other	—		—

Counterparty Credit Risk

We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash 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 September 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.

The following table presents a reconciliation of the net amounts of derivative assets and derivative liabilities presented in the Consolidated Balance Sheets to the net amounts that would result in the event of offset:

TABLE 11.5


			Amount Not Offset in the Consolidated Balance Sheets
(in millions)	Net Amount Presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral		Net Amount
September 30, 2023
Derivative Assets
Interest rate contracts:

Not designated	$	140	$	—	$	140	$	—

Total	$	140	$	—	$	140	$	—


Derivative Liabilities
Interest rate contracts:
Designated	$	4	$	—	$	4	$	—
Not designated	2		—		2		—
Total	$	6	$	—	$	6	$	—


December 31, 2022
Derivative Assets
Interest rate contracts:

Not designated	$	89	$	—	$	88	$	1

Total	$	89	$	—	$	88	$	1


Derivative Liabilities
Interest rate contracts:
Designated	$	1	$	—	$	1	$	—
Not designated	6		—		6		—
Total	$	7	$	—	$	7	$	—

NOTE 12. COMMITMENTS, CREDIT RISK AND CONTINGENCIES

We have commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the Consolidated Balance Sheets. Our exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loans and leases to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

Following is a summary of off-balance sheet credit risk information:

TABLE 12.1


(in millions)	September 30, 2023		December 31, 2022
Commitments to extend credit	$	13,457	$	13,250
Standby letters of credit	232		207

At September 30, 2023, funding of 74.9% of the commitments to extend credit was dependent on the financial condition of the customer. We have the ability to withdraw such commitments at our discretion. Commitments generally have fixed expiration

dates or other termination clauses and may require payment of a fee. Based on management’s credit evaluation of the customer, collateral may be deemed necessary. Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by us that may require payment at a future date. The credit risk involved in issuing letters of credit is actively monitored through review of the historical performance of our portfolios.

Our AULC for commitments that are not unconditionally cancellable, which is included in other liabilities on the Consolidated Balance Sheets, was $21.3 million at September 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, financial or other commitments, 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 1,426,146 and 1,266,821 restricted stock units during the nine months ended September 30, 2023 and 2022, respectively, including 290,764 and 297,508

performance-based restricted stock units during those same periods, respectively. We have shareholder approval under the Plan to issue up to 7,397,956 shares of common stock. As of September 30, 2023, we had 5,529,405 remaining shares available for awards under the 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


	Nine Months Ended September 30,
	2023			2022
	Units	Weighted Average Grant Price per Share		Units	Weighted Average Grant Price per Share
Unvested units outstanding at beginning of period	4,821,182	$	10.30	4,680,786	$	9.71
Granted	1,426,146	12.71		1,266,821	13.07
Acquired	—	—		60,300	9.41
Net adjustment	172,874	—		244,258	9.34
Vested	(2,310,042)	7.03		(1,683,372)	10.58
Forfeited/expired/canceled	(605,383)	7.93		(219,058)	10.95
Dividend reinvestment	—	—		137,976	11.91
Unvested units outstanding at end of period	3,504,777	12.88		4,487,711	10.31

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

TABLE 13.2


(in millions)	Nine Months Ended September 30,
	2023		2022
Stock-based compensation expense	$	15	$	15
Tax benefit related to stock-based compensation expense	3		3
Fair value of units vested	18		21

As of September 30, 2023, there was $13.0 million of unrecognized compensation cost related to unvested restricted stock units.

The components of the restricted stock units as of September 30, 2023 are as follows:

TABLE 13.3


(dollars in millions)	Service- Based Units		Performance- Based Units		Total
Unvested restricted stock units	2,541,229		963,548		3,504,777
Unrecognized compensation expense	$	13	$	—	$	13
Intrinsic value	$	27	$	10	$	37
Weighted average remaining life (in years)	1.90		1.61		1.82

Stock Options

All outstanding stock options were assumed from acquisitions and are fully vested. Upon consummation of our acquisitions, all outstanding stock options issued by the acquired companies were converted into equivalent FNB stock options. We issue shares of treasury stock or authorized but unissued shares to satisfy stock options exercised.

As of September 30, 2023, we had 104,223 stock options outstanding and exercisable at a weighted average exercise price per share of $9.96, compared to 167,948 stock options outstanding and exercisable at a weighted average exercise price per share of $9.03 as of September 30, 2022.

The intrinsic value of outstanding and exercisable stock options at September 30, 2023 was $0.1 million. The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price.

NOTE 14. INCOME TAXES

Income Tax Expense

Federal and state income tax expense and the statutory tax rate and the actual effective tax rate consist of the following:

TABLE 14.1


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in millions)	2023			2022			2023			2022
Current income taxes:
Federal taxes	$	12		$	32		$	79		$	61
State taxes	3			2			8			7
Total current income taxes	15			34			87			68
Deferred income taxes:
Federal taxes	3			—			2			8
State taxes	1			1			2			1
Total deferred income taxes	4			1			4			9
Total income taxes	$	19		$	35		$	91		$	77
Statutory federal tax rate	21.0		%	21.0		%	21.0		%	21.0		%
Effective tax rate	11.5			20.7			17.4			20.5

Income tax expense was higher for the nine months ended September 30, 2023 due to higher pre-tax earnings as we had merger-related expenses from the Howard and Union acquisitions in 2022. This was partially offset by the recording of tax benefits from renewable energy investment tax credits in 2023 as part of a solar project financing transaction. The decrease in the effective tax rate for the nine months ended September 30, 2023 compared to 2022 was primarily due to tax benefits from the investment tax credits recorded in 2023.

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 $153.7 million and $147.7 million at September 30, 2023 and December 31, 2022, respectively.

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
Nine Months Ended September 30, 2023
Balance at beginning of period	$	(269)	$	(44)	$	(44)	$	(357)
Other comprehensive (loss) income before reclassifications	(22)		(17)		1		(38)
Amounts reclassified from AOCI	—		13		—		13
Net current period other comprehensive (loss) income	(22)		(4)		1		(25)
Balance at end of period	$	(291)	$	(48)	$	(43)	$	(382)

The amounts reclassified from AOCI related to debt securities AFS are included in net securities gains (losses) 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 September 30,				Nine Months Ended September 30,
(dollars in millions, except per share data)	2023		2022		2023		2022
Net income	$	145	$	138	$	434	$	300
Less: Preferred stock dividends	2		2		6		6
Net income available to common stockholders	$	143	$	136	$	428	$	294
Basic weighted average common shares outstanding	360,847,457		350,910,562		360,603,432		348,868,423
Net effect of dilutive stock options and restricted stock	930,968		3,743,917		2,501,504		3,917,702
Diluted weighted average common shares outstanding	361,778,425		354,654,479		363,104,936		352,786,125
Earnings per common share:
Basic	$	0.40	$	0.39	$	1.19	$	0.84
Diluted	$	0.40	$	0.38	$	1.18	$	0.83

There were no anti-dilutive shares for either the three months or nine months ended September 30, 2023 and 2022.

NOTE 17. CASH FLOW INFORMATION

Following is a summary of supplemental cash flow information:

TABLE 17.1


	Nine Months Ended September 30,
(in millions)	2023		2022
Interest paid on deposits and other borrowings	$	420	$	88
Income taxes paid	94		56
Transfers of loans to other real estate owned	2		1


Loans transferred to portfolio from held for sale	33		—

We did not have any restricted cash as of September 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.

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		Insurance		Parent and Other		Consolidated
At or for the Three Months Ended September 30, 2023
Interest income	$	512	$	—	$	—	$	1	$	513
Interest expense	180		—		—		7		187
Net interest income	332		—		—		(6)		326
Provision for credit losses	25		—		—		—		25
Non-interest income	60		18		4		(1)		81
Non-interest expense (1)	194		12		5		2		213
Amortization of intangibles	5		—		—		—		5
Income tax expense (benefit)	19		2		—		(2)		19
Net income (loss)	149		4		(1)		(7)		145
Total assets	45,305		40		30		121		45,496
Total intangibles	2,516		9		26		—		2,551
At or for the Three Months Ended September 30, 2022
Interest income	$	342	$	—	$	—	$	1	$	343
Interest expense	41		—		—		5		46
Net interest income	301		—		—		(4)		297
Provision for credit losses	12		—		—		—		12
Non-interest income	62		16		7		(2)		83
Non-interest expense (1)	174		11		5		2		192
Amortization of intangibles	3		—		—		—		3
Income tax expense (benefit)	36		1		—		(2)		35
Net income (loss)	138		4		2		(6)		138
Total assets	42,458		37		33		62		42,590
Total intangibles	2,451		9		27		—		2,487
(1) Excludes amortization of intangibles, which is presented separately.


(in millions)	Community Banking		Wealth Management		Insurance		Parent and Other		Consolidated
At or for the Nine Months Ended September 30, 2023
Interest income	$	1,437	$	—	$	—	$	4	$	1,441
Interest expense	425		—		—		24		449
Net interest income	1,012		—		—		(20)		992
Provision for credit losses	58		—		—		—		58
Non-interest income	172		54		18		(3)		241
Non-interest expense (1)	576		38		14		7		635
Amortization of intangibles	15		—		—		—		15
Income tax expense (benefit)	96		4		1		(10)		91
Net income (loss)	439		12		3		(20)		434
Total assets	45,305		40		30		121		45,496
Total intangibles	2,516		9		26		—		2,551
At or for the Nine Months Ended September 30, 2022
Interest income	$	874	$	—	$	—	$	3	$	877
Interest expense	82		—		—		10		92
Net interest income	792		—		—		(7)		785
Provision for credit losses	35		—		—		1		36
Non-interest income	179		48		20		(4)		243
Non-interest expense (1)	554		32		14		5		605
Amortization of intangibles	9		—		1		—		10
Income tax expense (benefit)	78		3		1		(5)		77
Net income (loss)	295		13		4		(12)		300
Total assets	42,458		37		33		62		42,590
Total intangibles	2,451		9		27		—		2,487

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

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 1		Level 2		Level 3		Total
September 30, 2023
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury	$	306	$	—	$	—	$	306
U.S. government agencies	—		86		—		86
U.S. government-sponsored entities	—		303		—		303
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,032		—		1,032
Agency collateralized mortgage obligations	—		840		—		840

Commercial mortgage-backed securities	—		521		—		521
States of the U.S. and political subdivisions (municipals)	—		26		—		26
Other debt securities	—		31		—		31
Total debt securities available for sale	306		2,839		—		3,145
Loans held for sale	—		92		—		92





Derivative financial instruments
Trading	—		142		—		142
Not for trading	—		3		—		3
Total derivative financial instruments	—		145		—		145
Total assets measured at fair value on a recurring basis	$	306	$	3,076	$	—	$	3,382
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	462	$	—	$	462
Not for trading	—		4		3		7
Total derivative financial instruments	—		466		3		469
Total liabilities measured at fair value on a recurring basis	$	—	$	466	$	3	$	469


(in millions)	Level 1		Level 2		Level 3		Total
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 sale	257		3,018		—		3,275
Loans held for sale	—		91		—		91





Derivative financial instruments
Trading	—		95		—		95
Not for trading	—		1		—		1
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	—		3		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
Nine Months Ended September 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	$	—	$	9	$	9




Purchases, issuances, sales and settlements:
Purchases	2		—		2


Settlements	(1)		(9)		(10)
Transfers from Level 3	(1)		—		(1)

Balance at end of period	$	—	$	—	$	—

We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. There were no transfers of assets or liabilities between the hierarchy levels during the first nine months of 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 1		Level 2		Level 3		Total
September 30, 2023
Collateral dependent loans	$	—	$	—	$	31	$	31

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	—		—		2		2
Other real estate owned	—		—		3		3

The fair value amounts for collateral dependent loans and OREO in the table above were estimated at a date during the nine months or twelve months ended September 30, 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 nine months ended September 30, 2023 had a carrying amount of $31.4 million, which includes an allocated ACL of $6.2 million. The ACL includes a credit to the provision applicable to the current period fair value measurements of $46.1 million, which was included in provision for credit losses for the nine months ended September 30, 2023.

SBA servicing assets measured at fair value on a non-recurring basis had a carrying value of $1.5 million. During 2023, the valuation allowance decreased $0.2 million to $1.4 million as of September 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 $2.0 million, which included a valuation allowance of $0.3 million, as of September 30, 2023. The valuation allowance includes a loss of $0.7 million, which was included in earnings for the nine months ended September 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.

The fair values of our financial instruments are as follows:

TABLE 19.4


					Fair Value Measurements
(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2023
Financial Assets
Cash and cash equivalents	$	1,637	$	1,637	$	1,637	$	—	$	—
Debt securities available for sale	3,145		3,145		306		2,839		—
Debt securities held to maturity	3,922		3,403		—		3,403		—
Net loans and leases, including loans held for sale	31,860		29,733		—		92		29,641
Loan servicing rights	60		77		—		—		77

Derivative assets	145		145		—		145		—
Accrued interest receivable	158		158		158		—		—
Financial Liabilities
Deposits	34,615		34,534		28,822		5,712		—
Short-term borrowings	2,066		2,064		2,064		—		—
Long-term borrowings	1,968		1,923		—		1,187		736
Derivative liabilities	469		469		—		466		3
Accrued interest payable	60		60		60		—		—
December 31, 2022
Financial Assets
Cash and cash equivalents	$	1,674	$	1,674	$	1,674	$	—	$	—
Debt securities available for sale	3,275		3,275		257		3,018		—
Debt securities held to maturity	4,087		3,687		—		3,687		—
Net loans and leases, including loans held for sale	29,977		29,008		—		91		28,917
Loan servicing rights	55		71		—		—		71

Derivative assets	96		96		—		96		—
Accrued interest receivable	126		126		126		—		—
Financial Liabilities
Deposits	34,770		34,673		31,158		3,515		—
Short-term borrowings	1,372		1,369		1,369		—		—
Long-term borrowings	1,093		1,061		—		—		1,061
Derivative liabilities	411		411		—		399		12
Accrued interest payable	31		31		31		—		—

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the three- and nine-month periods ended September 30, 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 nine months ended September 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, wars, pandemics, including post-pandemic return to normalcy, global events and geopolitical instability, including the Ukraine-Russia conflict and the emerging military conflict in Israel and Gaza, 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,

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 types 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, net loan charge-offs, excluding an isolated commercial loan charge-off due to alleged fraud (annualized) to total average loans and leases, efficiency ratio and net interest margin (FTE) to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers. Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities. The non-GAAP financial measures and key performance indicators we use may differ from the non-GAAP financial measures and key performance indicators other financial institutions use to assess their performance and trends.

These non-GAAP financial measures should be viewed as supplemental in nature, and not as a substitute for, or superior to, our reported results prepared in accordance with GAAP. When non-GAAP financial measures are disclosed, the SEC's Regulation

G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included later in this report under the heading “Reconciliations of Non-GAAP Financial Measures and Key Performance Indicators to GAAP”.

Management believes items such as merger expenses, 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 third quarter of 2023 was $143.3 million or $0.40 per diluted common share, compared to net income available to common stockholders for the third quarter of 2022 of $135.5 million or $0.38 per diluted common share. On an operating basis, earnings per diluted common share (non-GAAP) was $0.40 for the third quarter of 2023, while the third quarter of 2022 was $0.39, excluding $2.1 million (pre-tax) in merger-related significant items.

Given the current macroeconomic backdrop, we reported strong growth with our linked-quarter loan and deposit increases of 2.5% and 2.3%, respectively, while adhering to our conservative risk management standards. Total revenue of $408.1 million represented a 7.5% increase from the year-ago quarter, while the efficiency ratio (non-GAAP) remained at a good level of 51.7%. Our capital ratios remained solid as tangible common equity to tangible assets (non-GAAP) finished the quarter at 7.54%, CET1 equaled 10.2%, and tangible book value per common share (non-GAAP) was $9.02 at September 30th, an increase of $1.00, or 12.5%, year over year.

Income Statement Highlights (Third quarter of 2023 compared to third quarter of 2022, except as noted)

•Net interest income increased $29.5 million, or 9.9%, to $326.6 million primarily due to the benefit of growth in earning assets, the impact from the higher interest rate environment, and deposit growth accompanied by prudent management of deposit betas.

•Net interest margin (FTE) (non-GAAP) increased 7 basis points to 3.26% 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 11 basis points to 3.26% moderating from the 19 basis points decline reported last quarter. This quarter's change is 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 $25.9 million supported loan growth and included $18.8 million in additional provision for the previously disclosed $31.9 million isolated commercial loan that was downgraded to non-performing status late in the second quarter of 2023 based upon initial indications of alleged fraud. Upon later findings uncovered during our ongoing investigation, including subsequent bankruptcy filings by our borrower and its primary supplier in the third quarter of 2023, the outstanding balance was fully charged-off.

•On a linked-quarter basis, non-interest income totaled $81.6 million, a $1.2 million, or 1.5% increase.

•Non-interest expense totaled $218.0 million, an increase of $6.0 million, or 2.9%, on a linked-quarter basis.

•The effective tax rate was 11.5%, compared to 20.7%, primarily due to renewable energy investment tax credits recognized in the third quarter of 2023 as part of a solar project financing transaction originated by our commercial leasing business.

Balance Sheet Highlights (period-end balances, September 30, 2023 compared to December 31, 2022, unless otherwise indicated)

•Period-end total loans and leases, increased $3.4 billion, or 11.7%, as compared to September 30, 2022, reflecting solid organic growth across our footprint led by the Pittsburgh, Cleveland and North Carolina markets and includes the Union acquisition that closed in the fourth quarter of 2022. Commercial loans and leases increased $2.0 billion, or 10.8%, and consumer loans increased $1.4 billion, or 13.3%. Our organic loan growth was driven by the continued success of our strategy to grow high-quality loans and deepen customer relationships across our diverse geographic footprint.

•On a linked-quarter basis, period-end total loans and leases increased $796.4 million, or 2.5%, as commercial loans and leases increased $470.0 million and consumer loans increased $326.4 million with strong seasonal contributions from the Physicians First mortgage program. Average loans and leases increased $691.2 million, or 2.2%, linked quarter, with growth of $449.4 million in average consumer loans and $241.8 million in average commercial loans and leases.

•On a linked-quarter basis, period-end deposits increased $790.6 million, or 2.3%, primarily due to seasonal commercial deposit inflows and organic deposit growth. The mix of non-interest-bearing deposits to total deposits was relatively stable and equaled 31% at September 30, 2023, compared to 32% at June 30, 2023. We ended September 30, 2023 with approximately 78% of deposits insured by the FDIC or collateralized.

•Total average deposits grew $507.3 million, or 1.5%, from the year-ago quarter, led by increases in average time deposits of $2.7 billion, that offset the decline in other deposit categories as customers continue to migrate deposits into higher-yielding deposit products.

•The ratio of loans to deposits was 92.9% and stable with the prior quarter.

•The ratio of non-performing loans and OREO to total loans and OREO increased 4 basis points to 0.36%. Total delinquency increased 4 basis points to 0.63%, compared to 0.59% at September 30, 2022. Both measures continue to remain at historically low levels.

•The third quarter of 2023 reflected net charge-offs of $37.7 million, or 0.47% annualized of total average loans. Excluding the previously mentioned $31.9 million charge-off, net charge-offs would have been $5.8 million, or 0.07% annualized of total average loans (non-GAAP).

•The ACL was $400.6 million, an increase of $15.3 million compared to September 30, 2022, with the ratio of the ACL to total loans and leases decreasing 9 basis points to 1.25% due to charge-off activity and strong loan growth in the third quarter of 2023.

•Tangible book value per common share (non-GAAP) of $9.02, increased $1.00, or 12.5%, compared to September 30, 2022. AOCI reduced the tangible book value per common share (non-GAAP) by $1.06 as of September 30, 2023, primarily due to the impact of higher interest rates on the fair value of AFS securities, compared to a $0.99 reduction as of June 30, 2023, and December 31, 2022, and a $1.08 reduction as of September 30, 2022.

•The CET1 regulatory capital ratio was 10.17% benefiting from retained earnings growth in the quarter, compared to 9.72% at September 30, 2022.

TABLE 1


	Three Months Ended September 30,
Quarterly Results Summary	2023			2022
Reported results
Net income available to common stockholders (millions)	$	143.3		$	135.5
Net income per diluted common share	0.40			0.38
Book value per common share (period-end)	16.13			15.11
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)	143.3			137.2
Operating net income per diluted common share	0.40			0.39
Average diluted common shares outstanding (thousands)	361,778			354,654
Significant items impacting earnings(1) (millions)
Pre-tax merger-related expenses	$	—		$	(2.1)
After-tax impact of merger-related expenses	—			(1.7)















Total significant items pre-tax	$	—		$	(2.1)
Total significant items after-tax	$	—		$	(1.7)
Capital measures
Common equity tier 1	10.17		%	9.72		%
Tangible common equity to tangible assets (period-end) (non-GAAP)	7.54			7.02
Tangible book value per common share (period-end) (non-GAAP)	$	9.02		$	8.02

	Nine Months Ended September 30,
Year-to-Date Results Summary	2023			2022
Reported results
Net income available to common stockholders (millions)	$	428.1		$	293.6
Net income per diluted common share	1.18			0.83
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)	429.9			337.9
Operating net income per diluted common share	1.18			0.96
Average diluted common shares outstanding (thousands)	363,105			352,786
Significant items impacting earnings(1) (millions)
Pre-tax merger-related expenses	$	(2.2)		$	(32.8)
After-tax impact of merger-related expenses	(1.8)			(25.9)











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)		$	(56.1)
Total significant items after-tax	$	(1.8)		$	(44.3)
(1) Favorable (unfavorable) impact on earnings

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 September 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 $30,000 (below the peer median) and our median consumer deposit account balance at approximately $5,400 as of September 30, 2023. FDIC-insured or collateralized deposits represented approximately 78% of our total deposits at September 30, 2023, which was higher than our peer median (based on peer data as of June 30, 2023) and we had ample liquidity to fund up to an estimated 139.5% 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.

We had LIBOR exposure in various agreements, including variable rate loans, derivatives and debt we issued and acquired. We determined that the primary index to be utilized for loans is 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. Remediation for the remaining LIBOR-based loans was completed by June 30, 2023.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Net income available to common stockholders for the three months ended September 30, 2023 was $143.3 million or $0.40 per diluted common share, compared to $135.5 million or $0.38 per diluted common share for the three months ended September 30, 2022. On an operating basis, third quarter of 2023 earnings per diluted common share (non-GAAP) was $0.40. By comparison, third quarter of 2022 earnings per diluted common share (non-GAAP) was $0.39 on an operating basis, excluding $2.1 million (pre-tax) in merger-related significant items. The second quarter of 2023 earnings per diluted common share (non-GAAP) was $0.39 on an operating basis, excluding $0.2 million (pre-tax) of merger-related significant items.

The results for the third quarter of 2023 reflect total revenue of $408.1 million, an increase of $28.5 million, or 7.5%, driven by an increase in net interest income of $29.5 million, or 9.9%, to $326.6 million primarily due to the benefit of growth in earning assets, the impact from the higher interest rate environment, and deposit growth accompanied by prudent management of

deposit betas. The provision for credit losses was $25.9 million, compared to $11.2 million with the current quarter's level reflecting loan growth and $18.8 million for the previously disclosed $31.9 million commercial loan that was downgraded to non-performing status in the second quarter of 2023 and fully charged-off during the third quarter of 2023 due to alleged fraud. Our non-performing loan coverage position remains strong at 354%. Non-interest income declined slightly by $0.9 million, or 1.1%, reflecting increased wealth management revenues and bank-owned life insurance, offset by reduced capital markets income, mortgage banking operations income, insurance commissions and fees and service charges income. Non-interest expense for the third quarter of 2023 increased $22.9 million, or 11.8%. The biggest drivers of the non-interest expense increase were salaries and benefits with an increase of $6.7 million, or 6.3%, primarily from production-related commissions, normal annual merit increases and the addition of the acquired Union expense base, and net occupancy and equipment with an increase of $6.7 million, or 19.3%, largely from the acquired Union expense base, as well as continued technology-related investments. Income taxes of $18.9 million declined $16.9 million, or 47.2%, due to renewable energy investment tax credits recognized in the third quarter of 2023 as part of a solar project financing transaction originated by our commercial leasing business.

Financial highlights are summarized below:

TABLE 2


	Three Months Ended September 30,				$		%
(in thousands, except per share data)	2023		2022		Change		Change
Net interest income	$	326,581	$	297,125	$	29,456	9.9	%
Provision for credit losses	25,934		11,188		14,746		131.8
Non-interest income	81,551		82,464		(913)		(1.1)
Non-interest expense	217,998		195,057		22,941		11.8
Income taxes	18,919		35,846		(16,927)		(47.2)
Net income	145,281		137,498		7,783		5.7
Less: Preferred stock dividends	2,010		2,010		—		—
Net income available to common stockholders	$	143,271	$	135,488	$	7,783	5.7	%
Earnings per common share – Basic	$	0.40	$	0.39	$	0.01	2.6	%
Earnings per common share – Diluted	0.40		0.38		0.02		5.3
Cash dividends per common share	0.12		0.12		—		—

The following table presents selected financial ratios and other relevant data used to analyze our performance:

TABLE 3


	Three Months Ended September 30,
	2023			2022
Return on average equity	9.80		%	9.91		%
Return on average tangible common equity (1)	18.15			18.84
Return on average assets	1.28			1.30
Return on average tangible assets (1)	1.39			1.41
Book value per common share	$	16.13		$	15.11
Tangible book value per common share (1)	9.02			8.02
Equity to assets	12.96		%	12.69		%
Average equity to average assets	13.04			13.10
Common equity to assets	12.72			12.44
Tangible equity to tangible assets (1)	7.78			7.28
Tangible common equity to tangible assets (1)	7.54			7.02
Common equity tier 1 capital ratio	10.17			9.72
Dividend payout ratio	30.34			31.43

(1) Non-GAAP

The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities:

TABLE 4


	Three Months Ended September 30,
	2023						2022
(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	$	1,223,226	$	12,835	4.16	%	$	1,570,094	$	8,197	2.07	%

Taxable investment securities (1)	6,046,294		37,140		2.46		6,245,951		30,662		1.96
Tax-exempt investment securities (1)(2)	1,051,475		9,107		3.46		999,718		8,523		3.41
Loans held for sale	109,568		2,416		8.80		158,356		1,778		4.48
Loans and leases (2)(3)	31,739,561		454,780		5.69		28,431,137		296,470		4.14
Total interest-earning assets (2)	40,170,124		516,278		5.11		37,405,256		345,630		3.67
Cash and due from banks	445,341						435,258
Allowance for credit losses	(415,722)						(381,120)
Premises and equipment	461,598						411,306
Other assets	4,432,826						4,169,232
Total assets	$	45,094,167					$	42,039,932
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	13,997,552	75,840		2.15		$	14,905,755	24,044		0.64
Savings	3,676,239		9,875		1.07		3,986,090		2,366		0.24
Certificates and other time	5,698,129		53,293		3.71		2,966,630		4,725		0.63
Total interest-bearing deposits	23,371,920		139,008		2.36		21,858,475		31,135		0.57
Short-term borrowings	2,245,089		23,207		4.09		1,389,747		6,135		1.75
Long-term borrowings	1,974,017		24,565		4.94		851,432		8,319		3.88
Total interest-bearing liabilities	27,591,026		186,780		2.69		24,099,654		45,589		0.75
Non-interest-bearing demand	10,772,923						11,779,069
Total deposits and borrowings	38,363,949				1.93		35,878,723				0.50
Other liabilities	850,382						654,260
Total liabilities	39,214,331						36,532,983
Stockholders’ equity	5,879,836						5,506,949
Total liabilities and stockholders’ equity	$	45,094,167					$	42,039,932
Net interest-earning assets	$	12,579,098					$	13,305,602
Net interest income (FTE) (2)			329,498						300,041
Tax-equivalent adjustment			(2,917)						(2,916)
Net interest income			$	326,581					$	297,125
Net interest spread					2.42	%					2.92	%
Net interest margin (2)					3.26	%					3.19	%

(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 (non-GAAP). 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.

Net Interest Income

Net interest income on an FTE basis (non-GAAP) increased $29.5 million, or 9.8%, to $329.5 million for the third quarter of 2023. Average earning assets of $40.2 billion increased $2.8 billion, or 7.4%, 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 that customer preferences migrated toward time deposits. Average interest-bearing liabilities of $27.6 billion increased $3.5 billion, or 14.5%, from 2022, driven by an increase of $1.5 billion in average interest-bearing deposits, which included organic growth in new and existing customer relationships, and an increase in average borrowings of $2.0 billion due to maintaining additional liquidity on the balance sheet following the banking industry disruption. Our net interest margin FTE (non-GAAP) increased 7 basis points to 3.26%, as the yield on earning assets (non-GAAP) increased 144 basis points. The total cost of funds increased 143 basis points to 1.93% with a 179 basis-point increase in interest-bearing deposit costs, as well as an increase of 106 basis points in long-term debt cost. Between September 30, 2022 and September 30, 2023, the FOMC raised the target Federal Funds rate by 225 basis points.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended September 30, 2023, compared to the three months ended September 30, 2022:

TABLE 5


(in thousands)	Volume		Rate		Net
Interest Income (1)
Interest-bearing deposits with banks	$	(1,812)	$	6,450	$	4,638

Securities (2)	(242)		7,304		7,062
Loans held for sale	(557)		1,195		638
Loans and leases (2)	36,424		121,886		158,310
Total interest income (2)	33,813		136,835		170,648
Interest Expense (1)
Deposits:
Interest-bearing demand	(26)		51,822		51,796
Savings	1,355		6,154		7,509
Certificates and other time	7,874		40,694		48,568
Short-term borrowings	6,770		10,302		17,072
Long-term borrowings	13,188		3,058		16,246
Total interest expense	29,161		112,030		141,191
Net change (2)	$	4,652	$	24,805	$	29,457

(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 $516.3 million for the third quarter of 2023, increased $170.6 million, or 49.4%, 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 $2.8 billion. The increase in earning assets was primarily driven by a $3.3 billion, or 11.6%, increase in average loans and leases, partially offset by a decrease of $346.9 million in average cash balances and a decrease in average securities. Average commercial loan growth of $1.8 billion, or 10.1%, was led by increases of $955.7 million in commercial real estate and $718.6 million in commercial and industrial loans, primarily by organic growth in the Pittsburgh, Cleveland and North Carolina markets. Average consumer loans increased $1.5 billion, or 14.4%, with a $1.5 billion increase in residential mortgages largely 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 $64.1 million increase in indirect auto loans. The yield on average earning assets (non-GAAP) increased 144 basis points to 5.11% for the third 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 $186.8 million for the third quarter of 2023 increased $141.2 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 $1.5 billion, or 6.9%, while average non-interest-bearing deposits decreased $1.0 billion, or 8.5%. The growth in average total deposits reflected organic growth in new and existing customer relationships and inflows from the Union acquisition. Average short-term borrowings increased $855.3 million, or 61.5%, primarily reflecting increases of $773.6 million and $160.5 million in short-term FHLB advances and Federal Funds purchased, respectively, partially offset by a decrease of $57.5 million in repurchase agreements. Average long-term borrowings increased $1.1 billion, or 131.8%, primarily reflecting an increase of $1.2 billion in long-term FHLB advances as we have maintained additional liquidity following the banking industry disruption, partially offset by a decrease of $91.2 million in senior notes during the third quarter of 2023. The rate paid on interest-bearing liabilities increased 194 basis points from 0.75% to 2.69% for the third quarter of 2023, primarily due to market trends resulting from 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 September 30,						$		%
(dollars in thousands)	2023			2022			Change		Change
Provision for credit losses on loans and leases	$	25,597		$	10,069		$	15,528	154.2	%
Provision for unfunded loan commitments	364			1,125			(761)		(67.6)
Total provision for credit losses on loans and leases	25,961			11,194			14,767		131.9
Provision for securities	(27)			(6)			(21)		350.0
Total provision for credit losses	$	25,934		$	11,188		$	14,746	131.8	%
Net loan charge-offs	$	37,699		$	2,812		$	34,887	1,240.6	%
Net loan charge-offs (annualized) / total average loans and leases	0.47		%	0.04		%

Provision for credit losses was $25.9 million during the third quarter of 2023, an increase of $14.7 million, from the same period of 2022. The third quarter of 2023 is comprised of a $25.6 million provision for loans and leases outstanding and a $0.4 million provision for unfunded loan commitments. The net increase reflects loan growth and included $18.8 million in additional provision for the previously disclosed $31.9 million commercial loan that was downgraded to non-performing status in the second quarter of 2023 and was fully charged-off during the third quarter of 2023 due to alleged fraud. The third quarter of 2023 reflected net charge-offs of $37.7 million, or 0.47% annualized of total average loans, compared to $2.8 million, or 0.04% annualized, in the third quarter of 2022. Excluding the impact of the previously mentioned charge-off, the third quarter of 2023 net charge-offs would have been $5.8 million, or 0.07% annualized of total average loans (non-GAAP). For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses on Loans and Leases section of this Management’s Discussion and Analysis.

Non-Interest Income

The breakdown of non-interest income for the three months ended September 30, 2023 and 2022 is presented in the following table:

TABLE 7


	Three Months Ended September 30,				$		%
(dollars in thousands)	2023		2022		Change		Change
Service charges	$	34,766	$	35,954	$	(1,188)	(3.3)	%
Trust services	10,526		9,600		926		9.6
Insurance commissions and fees	5,047		5,790		(743)		(12.8)
Securities commissions and fees	6,577		5,747		830		14.4
Capital markets income	7,077		9,605		(2,528)		(26.3)
Mortgage banking operations	3,914		5,148		(1,234)		(24.0)
Dividends on non-marketable equity securities	5,779		3,258		2,521		77.4
Bank owned life insurance	3,196		2,645		551		20.8
Net securities gains (losses)	(55)		—		(55)		—

Other	4,724		4,717		7		0.1
Total non-interest income	$	81,551	$	82,464	$	(913)	(1.1)	%

Total non-interest income decreased slightly by $0.9 million, or 1.1%, to $81.6 million for the third quarter of 2023, compared to $82.5 million for the third quarter of 2022. The variances in the individual non-interest income items are explained in the following paragraphs.

Service charges of $34.8 million decreased $1.2 million, or 3.3%, 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 $1.8 million, or 11.4%, as securities commissions and fees and trust income increased 14.4% and 9.6%, respectively, through contributions across the geographic footprint and an increase in assets under management.

Capital markets income decreased $2.5 million, or 26.3%, reflecting increased contributions from international banking offset by decreases in swap fees, syndications and debt capital markets income as commercial customer transactions have slowed in this macroeconomic environment.

Mortgage banking operations income decreased $1.2 million, or 24.0%, driven primarily by negative fair value marks given the sharp increase in mortgage rates during the current quarter which were partially offset by the loan sold volume increase of 56% compared to the year-ago quarter. During the third quarter of 2023, we sold $334.4 million of residential mortgage loans, compared to $214.2 million for the same period of 2022.

Dividends on non-marketable equity securities increased $2.5 million, or 77.4%, reflecting higher FHLB dividends due to additional borrowings.

Non-Interest Expense

The breakdown of non-interest expense for the three months ended September 30, 2023 and 2022 is presented in the following table:

TABLE 8


	Three Months Ended September 30,				$		%
(dollars in thousands)	2023		2022		Change		Change
Salaries and employee benefits	$	113,351	$	106,620	$	6,731	6.3	%
Net occupancy	18,241		15,597		2,644		17.0
Equipment	23,332		19,242		4,090		21.3
Amortization of intangibles	5,040		3,547		1,493		42.1
Outside services	20,796		19,008		1,788		9.4
Marketing	5,419		3,196		2,223		69.6
FDIC insurance	8,266		5,221		3,045		58.3
Bank shares and franchise taxes	3,927		3,991		(64)		(1.6)
Merger-related	—		2,105		(2,105)		(100.0)
Other	19,626		16,530		3,096		18.7
Total non-interest expense	$	217,998	$	195,057	$	22,941	11.8	%

Total non-interest expense of $218.0 million for the third quarter of 2023 increased $22.9 million, or 11.8%, from the same period of 2022. Non-interest expense increased $25.0 million, or 13.0%, when excluding merger-related significant items of $2.1 million in the third quarter 2022. The variances in the individual non-interest expense items are explained in the following paragraphs.

Salaries and employee benefits of $113.4 million increased $6.7 million, or 6.3%, primarily from production-related commissions, normal annual merit increases and the addition of the acquired Union expense base.

Net occupancy and equipment of $41.6 million increased $6.7 million, or 19.3%, 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 resulting from the Union acquisition.

Outside services of $20.8 million increased $1.8 million, or 9.4%, with higher volume-related technology and third-party costs, and the impact of the inflationary macroeconomic environment.

Marketing expense of $5.4 million increased $2.2 million, or 69.6%, due to the timing of digital marketing campaigns which helped drive deposit growth and acquire additional households.

FDIC insurance of $8.3 million increased $3.0 million, or 58.3%, 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.

Other non-interest expense of $19.6 million increased $3.1 million, or 18.7%, primarily due to increases in litigation and other operational costs.

The following table presents non-interest expense excluding significant items for the three months ended September 30, 2023 and 2022:

TABLE 9


	Three Months Ended September 30,				$		%
(dollars in thousands)	2023		2022		Change		Change
Total non-interest expense, as reported	$	217,998	$	195,057	$	22,941	11.8	%
Significant items:



Merger-related	—		(2,105)		2,105
Total non-interest expense, excluding significant items (1)	$	217,998	$	192,952	$	25,046	13.0	%

(1) Non-GAAP

Income Taxes

The following table presents information regarding income tax expense and certain tax rates:

TABLE 10


	Three Months Ended September 30,
(dollars in thousands)	2023			2022
Income tax expense	$	18,919		$	35,846
Effective tax rate	11.5		%	20.7		%
Statutory federal tax rate	21.0			21.0

Income tax expense and the effective tax rate decreased primarily due to renewable energy investment tax credits recognized in the third quarter of 2023 as part of a solar project financing transaction.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Net income available to common stockholders for the first nine months of 2023 was $428.1 million or $1.18 per diluted common share, compared to $293.6 million or $0.83 per diluted common share for the first nine months of 2022. On an operating basis (non-GAAP), net income available to common stockholders for the first nine months of 2023 was $429.9 million, or $1.18 per diluted common share, compared to $337.9 million or $0.96 per diluted common share for the first nine months of 2022. Net interest income totaled $992.5 million, an increase of $207.6 million, or 26.4%, compared to $784.9 million, as total average earning assets increased $2.4 billion, or 6.4%, including a $3.8 billion increase in average loans and leases from organic origination activity and acquired Union loans, as well as a $78.4 million increase in average investment securities. The net interest margin (FTE) (non-GAAP) increased 53 basis points to 3.39%, as the yield on earning assets (non-GAAP) increased 172 basis points to 4.91%, primarily due to higher yields on variable-rate loans, new originations of fixed-rate loans, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment. The total cost of funds increased 124 basis points to 1.59% with a 162-basis point increase in interest-bearing deposit costs to 1.95%. Between September 30, 2022 and September 30, 2023, the FOMC raised the target Federal Funds interest rate by 225 basis points. The provision for credit losses for the first nine months of 2023 totaled $58.5 million, compared to $35.6 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 $31.9 million in provision for the previously disclosed commercial loan downgraded to non-performing status during the second quarter of 2023 and fully charged-off during the third quarter of 2023 due to alleged fraud. Non-interest income totaled $241.2 million, essentially flat with the year-ago period reflecting increased contributions from wealth management and dividends on non-marketable equity securities, partially offset by lower capital markets income, reduced contributions from mortgage banking due to the sharp increase in interest rates, service charges and other non-interest income. Non-interest expense totaled $649.9 million, increasing $34.6 million, or 5.6%. On an operating basis (non-GAAP), non-interest expense totaled $647.7 million, an increase of $69.3 million, or 12.0%, compared to the first nine months of 2022. Salaries and benefits increased $24.9 million, or 7.7%, due to annual merit increases, reduced salary deferrals given lower loan origination volumes and the addition of the acquired Union expense base. Additionally, net occupancy and equipment expense increased $13.6 million, or 12.9%, primarily from continued technology-related investments and the acquired Union expense base.

Financial highlights are summarized below:

TABLE 11


	Nine Months Ended September 30,				$		%
(in thousands, except per share data)	2023		2022		Change		Change
Net interest income	$	992,479	$	784,891	$	207,588	26.4	%
Provision for credit losses	58,511		35,569		22,942		64.5
Non-interest income	241,249		242,940		(1,691)		(0.7)
Non-interest expense	649,870		615,257		34,613		5.6
Income taxes	91,169		77,367		13,802		17.8
Net income	434,178		299,638		134,540		44.9
Less: Preferred stock dividends	6,030		6,030		—		—
Net income available to common stockholders	$	428,148	$	293,608	$	134,540	45.8	%
Earnings per common share – Basic	$	1.19	$	0.84	$	0.35	41.7	%
Earnings per common share – Diluted	1.18		0.83		0.35		42.2
Cash dividends per common share	0.36		0.36		—		—

The following table presents selected financial ratios and other relevant data used to analyze our performance:

TABLE 12


	Nine Months Ended September 30,
	2023			2022
Return on average equity	9.98		%	7.33		%
Return on average tangible common equity (1)	18.68			13.99
Return on average assets	1.31			0.96
Return on average tangible assets (1)	1.43			1.05
Book value per common share	$	16.13		$	15.11
Tangible book value per common share (1)	9.02			8.02
Equity to assets	12.96		%	12.69		%
Average equity to average assets	13.12			13.11
Common equity to assets	12.72			12.44
Tangible equity to tangible assets (1)	7.78			7.28
Tangible common equity to tangible assets (1)	7.54			7.02
Common equity tier 1 capital ratio	10.17			9.72
Dividend payout ratio	30.50			43.55

(1) Non-GAAP

TABLE 13


	Nine Months Ended September 30,
	2023						2022
(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	$	1,093,206	$	32,619	3.99	%	$	2,465,800	$	14,737	0.80	%

Taxable investment securities (1)	6,114,577		107,860		2.35		6,083,200		81,359		1.78
Tax-exempt investment securities (1)(2)	1,055,505		27,473		3.47		1,008,438		25,779		3.41
Loans held for sale	109,282		5,854		7.15		208,718		6,234		3.99
Loans and leases (2) (3)	31,070,965		1,276,718		5.49		27,313,051		757,133		3.70
Total interest-earning assets (2)	39,443,535		1,450,524		4.91		37,079,207		885,242		3.19
Cash and due from banks	438,456						427,118
Allowance for credit losses	(410,701)						(372,163)
Premises and equipment	454,738						396,804
Other assets	4,388,894						4,155,280
Total assets	$	44,314,922					$	41,686,246
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	14,170,285	191,992		1.81		$	14,946,096	37,915		0.34
Savings	3,846,225		26,832		0.93		3,940,100		3,106		0.11
Certificates and other time	4,966,835		116,074		3.12		2,961,870		12,889		0.58
Total interest-bearing deposits	22,983,345		334,898		1.95		21,848,066		53,910		0.33
Short-term borrowings	2,051,516		54,992		3.58		1,440,034		17,697		1.64
Long-term borrowings	1,589,842		58,695		4.94		758,373		20,574		3.63
Total interest-bearing liabilities	26,624,703		448,585		2.25		24,046,473		92,181		0.51
Non-interest-bearing demand	11,061,043						11,600,639
Total deposits and borrowings	37,685,746				1.59		35,647,112				0.35
Other liabilities	813,745						574,336
Total liabilities	38,499,491						36,221,448
Stockholders’ equity	5,815,431						5,464,798
Total liabilities and stockholders’ equity	$	44,314,922					$	41,686,246
Net interest-earning assets	$	12,818,832					$	13,032,734
Net interest income (FTE) (2)			1,001,939						793,061
Tax-equivalent adjustment			(9,460)						(8,170)
Net interest income			$	992,479					$	784,891
Net interest spread					2.66	%					2.68	%
Net interest margin (2)					3.39	%					2.86	%

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

(3)Average loans and leases consist of average total loans, including non-accrual loans, less average unearned income.

Net Interest Income

Net interest income on an FTE basis (non-GAAP) totaled $1.0 billion, increasing $208.9 million, or 26.3%, 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 that customer preferences are migrating toward time deposits and the current competitive interest rate environment. Average earning assets grew $2.4 billion, or 6.4%, 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 53 basis points to 3.39%, 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 nine months ended September 30, 2023, compared to the nine months ended September 30, 2022:

TABLE 14


(in thousands)	Volume		Rate		Net
Interest Income (1)
Interest-bearing deposits with banks	$	(8,182)	$	26,064	$	17,882

Securities (2)	2,444		25,751		28,195
Loans held for sale	(2,902)		2,522		(380)
Loans and leases (2)	111,140		408,445		519,585
Total interest income (2)	102,500		462,782		565,282
Interest Expense (1)
Deposits:
Interest-bearing demand	(632)		154,709		154,077
Savings	1,633		22,093		23,726
Certificates and other time	14,224		88,961		103,185
Short-term borrowings	14,663		22,632		37,295
Long-term borrowings	28,356		9,765		38,121
Total interest expense	58,244		298,160		356,404
Net change (2)	$	44,256	$	164,622	$	208,878

(1)The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the net size of the rate and volume changes.

Interest income on an FTE basis (non-GAAP) of $1.5 billion for the first nine months of 2023, increased $565.3 million, or 63.9%, from the same period of 2022, resulting from the interest rate increases by the FOMC and a $2.4 billion increase in earning assets. The increase in earning assets was primarily driven by a $3.8 billion, or 13.8%, increase in average loans and an increase in average investment securities of $78.4 million, partially offset by a decrease of $1.4 billion, or 55.7%, in average interest-bearing deposits with banks. Growth in total average commercial loans included $978.3 million, or 9.2%, in commercial real estate loans and $904.5 million, or 14.2%, in commercial and industrial loans 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 $1.8 billion, or 18.3%, with an increase in residential mortgage loans of $1.4 billion, or 32.9%, 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 $206.3 million, or 15.5%, and direct home equity installment loans increased $106.2 million, or 4.0%, driven by strong organic loan origination activity throughout 2023. Additionally, the net increase in securities interest income was a result of replacing maturing securities with higher yielding securities, as the average total securities portfolio yield increased 50 basis points. For the first nine months of 2023, the yield on average earning assets (non-GAAP) increased

172 basis points to 4.91%, compared to the first nine months of 2022, primarily due to higher yields on variable-rate loans, new origination fixed-rate loan originations, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment.

Interest expense of $448.6 million for the first nine months of 2023 increased $356.4 million, or 386.6%, 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 $1.1 billion, or 5.2%, which reflects the benefit of solid organic growth in customer relationships and the addition of the Union acquisition. Average time deposits increased $2.0 billion, or 67.7%, as customer preferences shifted given interest rate increases. Average short-term borrowings increased $611.5 million, or 42.5%, primarily due to an increase in short-term FHLB borrowings of $636.6 million. Average long-term borrowings increased $831.5 million, or 109.6%, primarily due to an increase of $741.4 million in long-term FHLB borrowings, as we have maintained additional liquidity following the banking industry disruption in early 2023. Additionally, senior debt increased $60.8 million 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. The rate paid on interest-bearing liabilities increased 174 basis points to 2.25% for the first nine months of 2023, compared to the first nine months of 2022, as the cost of interest-bearing deposits increased 162 basis points from 0.33% to 1.95%. These increases were primarily due to increased deposit competition and market trends resulting from 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


	Nine Months Ended September 30,						$		%
(dollars in thousands)	2023			2022			Change		Change
Provision for credit losses on loans and leases	$	58,514		$	35,294		$	23,220	65.8	%
Provision for unfunded loan commitments	(71)			206			(277)		(134.5)
Total provision for credit losses on loans and leases	58,443			35,500			22,943		64.6
Provision for securities	68			69			(1)		(1.4)
Total provision for credit losses	$	58,511		$	35,569		$	22,942	64.5	%
Net loan charge-offs	$	59,596		$	4,319		$	55,277	1,279.9	%
Net loan charge-offs (annualized) / total average loans and leases	0.26		%	0.02		%

The provision for credit losses was $58.5 million, compared to $35.6 million in the first nine months of 2022. The provision for credit losses in the first nine 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 nine months of 2023 was primarily due to loan growth, charge-off activity and $31.9 million in provision for the previously disclosed commercial loan that was downgraded to non-performing status in the second quarter of 2023 and was fully charged-off during the third quarter of 2023 due to alleged fraud. Our non-performing loan coverage position remains strong at 354%. The nine months of 2023 reflected net charge-offs of $59.6 million, or 0.26% annualized of total average loans, compared to $4.3 million, or 0.02% annualized, in the first nine months of 2022. Excluding the previously mentioned charge-off, net charge-offs would have been $27.7 million, or 0.12% annualized of total average loans (non-GAAP), remaining at historically low levels. The ACL was $400.6 million, an increase of $15.3 million, with the ratio of the ACL to total loans and leases decreasing 9 basis points to 1.25%, reflecting strong loan growth and the previously mentioned charge-off activity.

Non-Interest Income

The breakdown of non-interest income for the nine months ended September 30, 2023 and 2022 is presented in the following table:

TABLE 16


	Nine Months Ended September 30,				$		%
(dollars in thousands)	2023		2022		Change		Change
Service charges	$	101,462	$	102,162	$	(700)	(0.7)	%
Trust services	31,767		29,662		2,105		7.1
Insurance commissions and fees	18,830		19,747		(917)		(4.6)
Securities commissions and fees	20,980		17,490		3,490		20.0
Capital markets income	19,754		25,279		(5,525)		(21.9)
Mortgage banking operations	13,676		17,935		(4,259)		(23.7)
Dividends on non-marketable equity securities	15,354		8,178		7,176		87.7
Bank owned life insurance	9,016		9,330		(314)		(3.4)
Net securities gains (losses)	(78)		48		(126)		(262.5)

Other	10,488		13,109		(2,621)		(20.0)
Total non-interest income	$	241,249	$	242,940	$	(1,691)	(0.7)	%

Total non-interest income decreased slightly by $1.7 million, or 0.7%. The variances in significant individual non-interest income items are explained in the following paragraphs.

Service charges decreased $0.7 million, or 0.7%, with strong treasury management services, interchange fees and higher customer activity largely offsetting the impact of overdraft practice changes that FNB implemented in the first quarter of 2023.

Wealth management revenues increased $5.6 million, or 11.9%, as securities commissions and fees and trust income increased 20.0% and 7.1%, respectively, through contributions across the geographic footprint, strong annuity sales and an increase in assets under management.

Capital markets income decreased $5.5 million, or 21.9%, as swap activity declined consistent with lower commercial loan production in the current macroeconomic environment, partially offset by an increase in debt capital markets and international banking income.

Mortgage banking operations income of $13.7 million decreased $4.3 million, or 23.7%, as secondary market revenue declined from 2022 due to the sharp increase in interest rates and the gain on sale margins moderating to historical levels. During the first nine months of 2023, we sold $772.7 million of residential mortgage loans, a 15.1% decrease compared to $909.6 million for the same period of 2022.

Dividends on non-marketable equity securities of $15.4 million increased $7.2 million, or 87.7%, reflecting higher FHLB dividends due to additional borrowings.

Other non-interest income was $10.5 million and $13.1 million for the first nine months of 2023 and 2022, respectively, as SBA premium income declined from elevated levels reflecting the higher interest rate environment, reduced market premiums and correspondingly lower sold loan volumes. Additionally, Small Business Investment Company (SBIC) funds income decreased, reflecting normal fluctuations based on the performance of the underlying portfolio companies.

Non-Interest Expense

The breakdown of non-interest expense for the nine months ended September 30, 2023 and 2022 is presented in the following table:

TABLE 17


	Nine Months Ended September 30,				$		%
(dollars in thousands)	2023		2022		Change		Change
Salaries and employee benefits	$	347,544	$	322,679	$	24,865	7.7	%
Net occupancy	52,300		49,554		2,746		5.5
Equipment	66,749		55,934		10,815		19.3
Amortization of intangibles	15,203		10,323		4,880		47.3
Outside services	60,733		53,306		7,427		13.9
Marketing	13,063		11,080		1,983		17.9
FDIC insurance	23,102		15,090		8,012		53.1
Bank shares and franchise taxes	12,025		11,923		102		0.9
Merger-related	2,215		32,761		(30,546)		(93.2)
Other	56,936		52,607		4,329		8.2
Total non-interest expense	$	649,870	$	615,257	$	34,613	5.6	%

Total non-interest expense of $649.9 million for the first nine months of 2023 increased $34.6 million, a 5.6% increase from the same period of 2022. On an operating basis, non-interest expense (non-GAAP) increased $69.3 million, or 12.0%, when excluding significant items of $2.2 million in merger-related costs in the first nine months of 2023 and $32.8 million in merger-related costs and $4.2 million in branch consolidation costs in the first nine months of 2022. The variances in the individual non-interest expense items are further explained in the following paragraphs.

Salaries and employee benefits increased $24.9 million, or 7.7%, 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 $119.0 million increased $13.6 million, or 12.9%, primarily from continued technology-related investments, the acquired Union expense base and the impact of the inflationary macroeconomic environment.

Amortization of intangibles increased $4.9 million, or 47.3%, primarily related to the Union core deposit intangible.

Outside services increased $7.4 million, or 13.9%, with higher volume-related technology and third-party costs, including the impact of the inflationary macroeconomic environment.

Marketing expense of $13.1 million increased $2.0 million, or 17.9%, primarily due to the timing of digital marketing campaigns which helped drive deposit growth and acquire additional households.

FDIC insurance increased $8.0 million, or 53.1%, 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 nine months of 2023 related to the Union acquisition completed in December 2022, compared to $32.8 million in the first nine months of 2022 related to the Howard acquisition completed in January 2022 and the Union acquisition completed in December 2022.

The following table presents non-interest expense excluding significant items impacting earnings:

TABLE 18


	Nine Months Ended September 30,				$		%
(dollars in thousands)	2023		2022		Change		Change
Total non-interest expense, as reported	$	649,870	$	615,257	$	34,613	5.6	%
Significant items:

Branch consolidations	—		(4,178)		4,178

Merger-related	(2,215)		(32,761)		30,546
Total non-interest expense, excluding significant items (1)	$	647,655	$	578,318	$	69,337	12.0	%

(1) Non-GAAP

Income Taxes

The following table presents information regarding income tax expense and certain tax rates:

TABLE 19


	Nine Months Ended September 30,
(dollars in thousands)	2023			2022
Income tax expense	$	91,169		$	77,367
Effective tax rate	17.4		%	20.5		%
Statutory federal tax rate	21.0			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 lower in 2023 primarily due to renewable energy investment tax credits recognized in the third quarter of 2023 as part of a solar project financing transaction.

FINANCIAL CONDITION

The following table presents our condensed Consolidated Balance Sheets:

TABLE 20


(dollars in millions)	September 30, 2023		December 31, 2022		$ Change		% Change
Assets
Cash and cash equivalents	$	1,637	$	1,674	$	(37)	(2.2)	%
Securities	7,067		7,362		(295)		(4.0)
Loans held for sale	110		124		(14)		(11.3)
Loans and leases, net	31,750		29,853		1,897		6.4
Goodwill and other intangibles	2,551		2,566		(15)		(0.6)
Other assets	2,381		2,146		235		11.0
Total Assets	$	45,496	$	43,725	$	1,771	4.1	%
Liabilities and Stockholders’ Equity
Deposits	$	34,615	$	34,770	$	(155)	(0.4)	%
Borrowings	4,034		2,465		1,569		63.7
Other liabilities	953		837		116		13.9
Total Liabilities	39,602		38,072		1,530		4.0
Stockholders’ Equity	5,894		5,653		241		4.3
Total Liabilities and Stockholders’ Equity	$	45,496	$	43,725	$	1,771	4.1	%

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


	September 30, 2023		December 31, 2022		$ Change		% Change
(in millions)
Commercial real estate	$	11,962	$	11,526	$	436	3.8	%
Commercial and industrial	7,462		7,131		331		4.6
Commercial leases	562		519		43		8.3
Other	160		114		46		40.4
Total commercial loans and leases	20,146		19,290		856		4.4
Direct installment	2,754		2,784		(30)		(1.1)
Residential mortgages	6,434		5,297		1,137		21.5
Indirect installment	1,519		1,553		(34)		(2.2)
Consumer lines of credit	1,298		1,331		(33)		(2.5)
Total consumer loans	12,005		10,965		1,040		9.5
Total loans and leases	$	32,151	$	30,255	$	1,896	6.3	%

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 $8.5 billion of non-owner occupied loans of which 21.9% 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 40% 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)	September 30, 2023		December 31, 2022		$ Change		% Change
Commercial real estate	$	44	$	39	$	5	12.8	%
Commercial and industrial	44		44		—		—
Commercial leases	1		1		—		—

Total commercial loans and leases	89		84		5		6.0
Direct installment	6		7		(1)		(14.3)
Residential mortgages	10		14		(4)		(28.6)
Indirect installment	2		1		1		100.0
Consumer lines of credit	6		7		(1)		(14.3)
Total consumer loans	24		29		(5)		(17.2)
Total non-performing loans and leases	113		113		—		—
Other real estate owned	3		6		(3)		(50.0)
Non-performing assets	$	116	$	119	$	(3)	(2.5)	%

Non-performing assets decreased $3.0 million, from $119.5 million at December 31, 2022 to $116.5 million at September 30, 2023.

Allowance for Credit Losses on Loans and Leases

•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 September 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 September 30, 2023, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which increases 0.5% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 3.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 35.0% in 2023 and 14.5% 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.

Following is a summary of certain data related to the ACL and loans and leases:

TABLE 23


	Net Loan Charge-Offs				Net Loan Charge-Offs to Average Loans				ACL at
	Nine Months Ended September 30,				Nine Months Ended September 30,				September 30,
	2023		2022		2023		2022		2023
(dollars in millions)
Commercial real estate	$	5.7	$	0.3	0.03	%	—	%	$	155.0
Commercial and industrial	45.5		0.2		0.20		—		95.6
Commercial leases	—		0.1		—		—		18.1
Other commercial	2.6		1.5		0.01		0.01		4.2
Direct installment	—		(0.1)		—		—		34.7
Residential mortgages	0.4		0.1		—		—		67.4
Indirect installment	5.3		2.4		0.02		0.01		16.1
Consumer lines of credit	0.1		(0.2)		—		—		9.5
Total net loan charge-offs on loans and leases, net loan charge-offs (annualized)/average loans	$	59.6	$	4.3	0.26	%	0.02	%	$	400.6
Allowance for credit losses/total loans and leases					1.25	%	1.34	%
Allowance for credit losses/non-performing loans					353.73	%	439.94	%

The ACL on loans and leases of $400.6 million at September 30, 2023 decreased $1.1 million, or 0.3%, from December 31, 2022. Our ending ACL coverage ratio at September 30, 2023 was 1.25%, compared to 1.33% at December 31, 2022. Total provision for credit losses for the nine months ended September 30, 2023 was $58.5 million, compared to $35.6 million for the same period in 2022 with the year-ago period 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 and provision plus $31.9 million for the previously disclosed commercial loan downgraded to non-performing status in the second quarter of 2023 and fully charged-off during the third quarter of 2023 due to alleged fraud. Net charge-offs were $59.6 million for the nine months ended September 30, 2023, compared to $4.3 million for the first nine months of 2022. Excluding the previously mentioned commercial charge-off, net charge-offs would have been $27.7 million, or 0.12% annualized of total average loans (non-GAAP), remaining at historically low levels. The ACL as a percentage of non-performing loans for the total portfolio was stable at 354% as of September 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)	September 30, 2023		December 31, 2022		$ Change		% Change
Non-interest-bearing demand	$	10,704	$	11,916	$	(1,212)	(10.2)	%
Interest-bearing demand	14,530		15,100		(570)		(3.8)
Savings	3,588		4,142		(554)		(13.4)
Certificates and other time deposits	5,793		3,612		2,181		60.4
Total deposits	$	34,615	$	34,770	$	(155)	(0.4)	%

Total deposits decreased $154.4 million, or 0.4%, from December 31, 2022, primarily due to the banking industry disruption in March 2023 and inflationary pressures on customers. Compared to June 30, 2023, period-end total deposits increased $790.6

million, or 2.3%. We ended the quarter with approximately 78% of all deposits insured by the FDIC or collateralized. Additionally, customer preferences have continued to shift to higher-yielding deposit products as interest rates increased.

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 September 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 September 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)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2023
F.N.B. Corporation
Total capital	$	4,461	12.38	%	$	3,605	10.00	%	$	3,785	10.50	%
Tier 1 capital	3,773		10.47		2,163		6.00		3,064		8.50
Common equity tier 1	3,667		10.17		n/a		n/a		2,523		7.00
Leverage	3,773		8.77		n/a		n/a		1,720		4.00
Risk-weighted assets	36,050
FNBPA
Total capital	$	4,563	12.70	%	$	3,592	10.00	%	$	3,772	10.50	%
Tier 1 capital	3,857		10.74		2,874		8.00		3,053		8.50
Common equity tier 1	3,777		10.52		2,335		6.50		2,514		7.00
Leverage	3,857		8.99		2,146		5.00		1,717		4.00
Risk-weighted assets	35,919
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 capital	3,511		10.13		2,080		6.00		2,947		8.50
Common equity tier 1	3,405		9.82		n/a		n/a		2,427		7.00
Leverage	3,511		8.64		n/a		n/a		1,626		4.00
Risk-weighted assets	34,671
FNBPA
Total capital	$	4,327	12.51	%	$	3,459	10.00	%	$	3,632	10.50	%
Tier 1 capital	3,640		10.52		2,767		8.00		2,940		8.50
Common equity tier 1	3,560		10.29		2,248		6.50		2,421		7.00
Leverage	3,640		8.97		2,029		5.00		1,623		4.00
Risk-weighted assets	34,589

(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.

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.

Management has utilized various strategies to ensure sufficient cash on hand is available to meet the parent's funding needs. 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. 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 2023 (for additional information, see Note 10, "Borrowings" in the Notes to the Consolidated Financial Statements in this Report). The parent company's cash position at September 30, 2023 was $349.0 million, down $305.3 million from year-end, primarily due to the repayment of $300 million in Senior Notes maturing in February 2023. Additionally, 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 and Parent company cash on hand are presented in the following table:

TABLE 26

September 30,
2023

December 31,
2022

Internal
Limit

Liquidity coverage ratio

2.8 times

1.7 times

> 1 time

Months of cash on hand

17.2 months

13.6 months

> 12 months

Parent company cash on hand (millions)

349.0

654.3

n/a

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

shift in deposits from non-interest-bearing deposits, and checking into certificates of deposits (CDs). The March 2023 banking disruption caused an acceleration of this shift. We ended the quarter with approximately 78% of deposits insured by the FDIC or collateralized, an improvement from approximately 74% at December 31, 2022. Non-interest-bearing demand deposit accounts decreased $1.2 billion, compared to December 31, 2022. Interest-bearing demand deposits decreased $568.8 million and savings account balances decreased $554.2 million, while time deposits increased $2.2 billion, compared to December 31, 2022, as customers' preferences have shifted to CDs as interest rates have increased substantially. Our cash balances held at the FRB increased $93.4 million from December 31, 2022 to $1.2 billion at September 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 September 30, 2023. A portion of this capacity includes the FRB's Discount Window and their 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 September 30, 2023, we have $1.9 billion of cash and salable unpledged government and agency securities representing 4.2% 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)	September 30, 2023			December 31, 2022
Unused wholesale credit availability	$	15,615		$	15,669
Unused wholesale credit availability as a % of FNBPA assets	34.4		%	35.9		%
Salable unpledged government and agency securities	$	701		$	592
Salable unpledged government and agency securities as a % of FNBPA assets	1.5		%	1.4		%
Cash and salable unpledged government and agency securities as a % of FNBPA assets	4.2		%	3.9		%

Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis as of September 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 (1.7)% as of September 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.

TABLE 28


(dollars in millions)	Within 1 Month			2-3 Months			4-6 Months			7-12 Months			Total 1 Year
Assets
Loans	$	774		$	1,553		$	1,976		$	3,228		$	7,531
Investments	1,318			229			269			513			2,329
	2,092			1,782			2,245			3,741			9,860
Liabilities
Non-maturity deposits	296			592			888			1,776			3,552
Time deposits	524			965			1,796			1,838			5,123
Borrowings	1,100			312			117			441			1,970
	1,920			1,869			2,801			4,055			10,645
Period Gap (Assets - Liabilities)	$	172		$	(87)		$	(556)		$	(314)		$	(785)
Cumulative Gap	$	172		$	85		$	(471)		$	(785)
Cumulative Gap to Total Assets	0.4		%	0.2		%	(1.0)		%	(1.7)		%

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 activities 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.

The following repricing gap analysis as of September 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	$	14,601		$	1,108		$	896		$	1,507		$	18,112
Investments	1,327			236			341			503			2,407
	15,928			1,344			1,237			2,010			20,519
Liabilities
Non-maturity deposits	7,315			—			—			—			7,315
Time deposits	632			964			1,792			1,832			5,220
Borrowings	1,081			479			6			317			1,883
	9,028			1,443			1,798			2,149			14,418
Off-balance sheet	(1,000)			200			(100)			(200)			(1,100)
Period Gap (Assets – Liabilities + Off-balance sheet)	$	5,900		$	101		$	(661)		$	(339)		$	5,001
Cumulative Gap	$	5,900		$	6,001		$	5,340		$	5,001
Cumulative Gap to Earning Assets	14.5		%	14.8		%	13.2		%	12.3		%

The twelve-month cumulative repricing gap to total assets was 12.3% and 8.4% as of September 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 September 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 September 30, 2023. The measures do not reflect management's potential actions.

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


	September 30, 2023		December 31, 2022		ALCO Limits
Net interest income change (12 months):
+ 300 basis points	12.5	%	5.5	%	n/a
+ 200 basis points	8.3		3.3		(5.0)	%
+ 100 basis points	4.1		1.1		(5.0)
- 100 basis points	2.3		1.2		(5.0)
- 200 basis points	4.4		0.9		(5.0)
Economic value of equity:
+ 300 basis points	3.1		(6.8)		(25.0)
+ 200 basis points	2.1		(4.0)		(15.0)
+ 100 basis points	1.0		(1.4)		(10.0)
- 100 basis points	0.6		(2.0)		(10.0)
- 200 basis points	(0.7)		(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 2.0% at September 30, 2023 and 0.5% at December 31, 2022. For a +200 basis point Rate Ramp, net interest income (12 months) increases by 4.2% at September 30, 2023 and 2.0% at December 31, 2022. The corresponding metrics for a minus 100 basis point Rate Ramp are 1.2% and 0.6% at September 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 September 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 100 basis points in the first nine months of 2023. Forty-seven percent of our net loans and leases reprice within the next three months and are indexed to short-term SOFR, Prime and other indices which benefit from higher rates. 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 customers' 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 61.0% of total net loans and leases as of September 30, 2023 and 60.2% as of December 31, 2022. As of September 30, 2023, the commercial swaps totaled $5.6 billion of notional principal, with $725 million in original notional swap principal originated during the first nine 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.

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. New business initiatives are reviewed prior to implementation to ensure they are within our stated risk appetite. 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

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.

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 September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Net income available to common stockholders	$	143,271	$	135,488	$	428,148	$	293,608
Merger-related expense	—		2,105		2,215		32,761
Tax benefit of merger-related expense	—		(442)		(465)		(6,880)











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)	$	143,271	$	137,151	$	429,898	$	337,900

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income per diluted common share	$	0.40	$	0.38	$	1.18	$	0.83
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)	$	0.40	$	0.39	$	1.18	$	0.96

TABLE 33

Return on average tangible common equity


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2023			2022			2023			2022
Net income available to common stockholders (annualized)	$	568,414		$	537,532		$	572,432		$	392,552
Amortization of intangibles, net of tax (annualized)	15,798			11,119			16,058			10,903
Tangible net income available to common stockholders (annualized) (non-GAAP)	$	584,212		$	548,651		$	588,490		$	403,455
Average total stockholders’ equity	$	5,879,836		$	5,506,949		$	5,815,431		$	5,464,798
Less: Average preferred stockholders' equity	(106,882)			(106,882)			(106,882)			(106,882)
Less: Average intangible assets (1)	(2,553,738)			(2,487,434)			(2,558,610)			(2,474,401)
Average tangible common equity (non-GAAP)	$	3,219,216		$	2,912,633		$	3,149,939		$	2,883,515
Return on average tangible common equity (non-GAAP)	18.15		%	18.84		%	18.68		%	13.99		%