What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 299 added, 426 removed, 975 unchanged (43% of the section changed)

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economic environment;

(iv) the impacts of tariffs or other trade policies of the U.S.

(iv) inflation concerns;

(v) the impacts of tariffs or other trade policies of the U.S.

or its global trading partners;

and the sociopolitical environment in the U.S.

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, deposits and revenues.

• Competition can have an impact on customer acquisition, growth and retention, and on credit spreads, deposit gathering and product pricing, which can affect market share, loans, deposits and revenues.

Our ability to anticipate, react quickly and continue to respond to technological changes and COVID-19 challenges can also impact our ability to respond to customer needs and meet competitive demands.

• Business and operating results can also be affected by widespread natural and other disasters, pandemics, including the ongoing COVID-19 pandemic crisis, dislocations, terrorist activities, system failures, security breaches, significant political events, cyber-attacks or international hostilities through impacts on the economy and financial markets generally, or on us or our counterparties specifically.

• Business and operating results can also be affected by widespread natural and other disasters, pandemics, including the ongoing COVID-19 pandemic crisis, dislocations, risks associated with a post-pandemic return to normalcy, including shortages of labor, supply chain disruptions and shipping delays, terrorist activities, system failures, security breaches, significant political events, cyber-attacks or international hostilities through impacts on the economy and financial markets generally, or on us or our counterparties specifically.

• Legal, regulatory and accounting developments could have an impact on our ability to operate and grow our businesses, financial condition, results of operations, competitive position, and reputation.

Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and the ability to attract and retain management.

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:

◦ Changes resulting from a new U.S.

◦ Changes resulting from the current U.S.

presidential administration, including legislative and regulatory reforms, different approaches to supervisory or enforcement priorities, changes affecting oversight of the financial services industry, regulatory obligations or restrictions, consumer protection, taxes, employee benefits, compensation practices, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.

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◦ Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries.

These matters may result in monetary judgments or settlements or other remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to FNB.

These matters may result in monetary judgments or settlements or other

remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to FNB.

◦ Results of the regulatory examination and supervision process, including our failure to satisfy requirements imposed by the federal bank regulatory agencies or other governmental agencies.

◦ The impact on our financial condition, results of operations, financial disclosures and future business strategies related to ACL changes due to changes in forecasted macroeconomic scenarios commonly referred to as the “current expected credit loss” standard, or CECL.

◦ The impact on our financial condition, results of operations, financial disclosures and future business strategies related to the impact on the ACL due to changes in forecasted macroeconomic conditions as a result of applying the “current expected credit loss” accounting standard, or CECL.

◦ A failure or disruption in or breach of our operational or security systems or infrastructure, or those of third parties, including as a result of cyber-attacks or campaigns.

• The COVID-19 pandemic and the federal, state and local regulatory and governmental actions implemented in response to COVID-19 have resulted in significant deterioration and disruption in financial markets, national and local economic conditions and record levels of unemployment and business failures, and could have a material impact on, among other things, our business, financial condition, results of operations or liquidity, or on our management, employees, customers and critical vendors and suppliers.

In view of the many unknowns associated with the COVID-19 pandemic, our forward-looking statements continue to be subject to various conditions that may be substantially different than what we are currently expecting, including, but not limited to, a weakened U.S.

economic recovery, prolonged economic recovery, deterioration of commercial and consumer customer fundamentals and sentiments, and impairment of the recovery of the U.S.

labor market.

As a result, the COVID-19 outbreaks and its consequences, including responsive measures to manage it or provide relief and the uncertainty regarding its duration, may possibly have a material adverse impact on our business, operations and financial performance.

• The COVID-19 pandemic and the federal, state, and local regulatory and governmental actions implemented in response to COVID-19 have resulted in an increased volatility of the financial markets and national and local economic conditions, increased levels of unemployment and business failures, and the potential to have a material impact on, among other things, our business, financial condition, results of operations, liquidity, or on our management, employees, customers and critical vendors and suppliers.

In view of the many unknowns associated with the COVID-19 pandemic, our forward-looking statements continue to be subject to various conditions that may be substantially different in the future than what we are currently experiencing or expecting, including, but not limited to, a prolonged recovery of the U.S.

economy and labor market and the possible change in commercial and consumer customer fundamentals, expectations and sentiments.

As a result, the COVID-19 impact, including uncertainty regarding the potential impact of continuing variant mutations of the virus, U.S.

government responsive measures to manage it or provide financial relief, the uncertainty regarding its duration and the success of vaccination efforts, it is possible the pandemic may have a material adverse impact on our business, operations and financial performance.

• Our acquisition of Howard presents us with risks and uncertainties related to the integration of the acquired business into FNB including:

◦ The business of Howard going forward may not perform as we project or in a manner consistent with historical performance.

As a result, the anticipated benefits, including estimated cost savings, of the transaction may be significantly more difficult or take longer to achieve than expected or may not be achieved in their entirety as a result of unexpected factors or events, including those that are outside of our control.

◦ The integration of Howard including its banking subsidiary, Howard Bank, with that of FNB and FNBPA may be more difficult to achieve than anticipated or have unanticipated adverse results.

◦ In addition to the Howard transaction, we grow our business in part through acquisitions and new strategic initiatives.

Risks and uncertainties include those presented by the nature of the business acquired and strategic initiative, including in some cases those associated with our entry into new businesses or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks and uncertainties related to the acquisition transactions themselves, regulatory issues, and the integration of the acquired businesses into FNB after closing.

The risks identified here are not exclusive or the types of risks we may confront and actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties described under Item 1A.

Risk Factors and Risk Management sections in this Annual Report on Form 10-K (including the MD&A section), our subsequent 2021 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other subsequent filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-relations-shareholder-services.

Risk Factors and the Risk Management sections in this Annual Report on Form 10-K (including the MD&A section), our subsequent 2022 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other subsequent filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-information/reports-and-filings.

More specifically, our forward-looking statements may be subject to the evolving risks and uncertainties related to the COVID-19 pandemic and its macro-economic impact and the resulting governmental, business and societal responses to it.

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accordingly, as this information changes, the Consolidated Financial Statements could reflect different estimates, assumptions and judgments.

Certain policies inherently are based to a greater extent on estimates, assumptions and judgments of management and, as such, have a greater possibility of producing results that could be materially different than originally reported.

Certain policies inherently are based to a greater extent on estimates, assumptions and judgments of management and, as such, have a greater possibility of producing results that could be

materially different than originally reported.

For example, on January 1, 2020, we adopted CECL.

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Our assumptions about what a market participant would use in pricing an asset or liability is developed based on the best information available in the circumstances.

These estimates are inherently subjective and can result in significant changes in the fair value estimates over the life of the asset or liability.

These estimates are inherently subjective and can result in significant changes in the

fair value estimates over the life of the asset or liability.

Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility.

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We also continue to monitor other intangibles for impairment and to evaluate carrying amounts, as necessary.

In connection with the preparation of the year-end 2020 financial statements, we completed our annual goodwill impairment test as of October 1, 2020 which included certain assumption updates to market levels.

The excess of fair values over carrying values, or cushion, of our reporting units as a percentage of their carrying value ranged from 11% in our Community Banking reporting unit to greater than 50% in our Wealth and Insurance reporting units, resulting in the conclusion that the goodwill assigned to each reporting unit, as of October 1, 2020, was not impaired.

We also performed a qualitative analysis and concluded that it was not more-likely-than-not that the fair value of one or more of our reporting units was below its respective carrying amount, and therefore no triggering event has occurred, as of December 31, 2020.

If economic conditions deteriorate, or the pandemic’s effects prolong or worsen, it may be more-likely-than-not that the fair value of one or more of our reporting units falls below its respective carrying amount, which would require us to perform a quantitative goodwill impairment test before our next annual assessment.

Any impairment charge would not affect our capital ratios, tangible common equity, tangible book value per share or liquidity position.

In connection with the preparation of the year-end 2021 financial statements, we completed our annual goodwill impairment test as of October 1, 2021.

No impairment was identified in any of our reporting units.

We also performed a qualitative analysis through year-end and concluded that it was not more-likely-than-not that the fair value of one or more of our reporting units was below its respective carrying amount, and therefore no triggering event has occurred, as of December 31, 2021.

Inputs and assumptions used in estimating fair value include projected future cash flows, discount rates reflecting the risk inherent in future cash flows, long-term growth rates, anticipated cost savings and an evaluation of market comparables and recent transactions.

We considered the sensitivity of significant assumptions in our impairment analysis including consideration of changes in estimated future cash flows and change in the discount rate for each reporting unit.

The hypothetical sensitivity of the estimated fair value of our Community Banking reporting unit to an immediate and isolated increase of 100 basis points in the discount rate assumption at October 1, 2020, without consideration of any offsetting or simultaneous effects of other key assumptions, would not result in impairment, but could reduce the excess fair value over the carrying value below 5%.

The purpose of this sensitivity is to provide an indication of the isolated impacts of hypothetical alternative assumptions on modeled fair value estimates and is not considered probable.

Goodwill assessments are highly sensitive to economic projections and the related assumptions and estimates used by management.

In the event of a prolonged economic downturn or deterioration in the economic outlook, interim quantitative assessments of our goodwill balance could be required in future periods.

Any impairment charge would not affect our capital ratios, tangible common equity, tangible book value per share or liquidity position.

See Note 1, “Summary of Significant Accounting Policies” and Note 9, “Goodwill and Other Intangible Assets” in the Notes to Consolidated Financial Statements for further discussion of accounting for goodwill and other intangible assets.

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Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, and from operating loss and tax credit carryforwards.

We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies.

We evaluate the recoverability of these future tax

deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies.

We establish a valuation allowance when it is more likely than not that we will not be able to realize a benefit from our DTAs, or when future deductibility is uncertain.

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Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included later in this report under the heading “Reconciliations of Non-GAAP Financial Measures and Key Performance Indicators to GAAP”.

Management believes charges such as merger expenses, branch consolidation costs, loss on early debt extinguishment, COVID-19 expenses and gains on sale of VISA class B shares are not organic costs to run our operations and facilities.

These charges are considered significant items impacting earnings as they are deemed to be outside of ordinary banking activities.

The merger expenses and branch consolidation charges principally represent expenses to satisfy contractual obligations of the acquired entity or closed branches without any useful ongoing benefit to us.

Management believes items such as merger expenses, branch consolidation costs, loss on early debt extinguishment, COVID-19 expenses and gains on sale of Visa class B shares are not organic to run our operations and facilities.

These items are considered significant items impacting earnings as they are deemed to be outside of ordinary banking activities.

The merger expenses and branch consolidation charges principally represent expenses to satisfy contractual obligations of the 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.

Similarly, gains derived from the sale of Visa class B stock and losses on FHLB debt extinguishment and related hedge terminations are not organic to our operations.

The COVID-19 expenses represent special Company initiatives to support our employees and the communities we serve during an unprecedented time of a pandemic.

To provide more meaningful comparisons of net interest margin and efficiency ratio, we use net interest income on a taxable- equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets (loans and investments) to make it fully equivalent to interest income earned on taxable investments (this adjustment is not permitted under GAAP).

COVID-19 expenses represent special Company initiatives to support our employees and the communities we serve during an unprecedented time of a pandemic.

To facilitate peer comparisons of net interest margin and efficiency ratio, we use net interest income on a taxable- equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets (loans and investments) to make it fully equivalent to interest income earned on taxable investments (this adjustment is not permitted under GAAP).

Taxable-equivalent amounts for the 2021, 2020 and 2019 periods were calculated using a federal statutory income tax rate of 21%.

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Cleveland, Ohio;

Washington, D.C.

and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina.

As of December 31, 2020, we had 358 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina and South Carolina.

As of December 31, 2021, we had 334 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina, Washington D.C.

and Virginia.

We provide a full range of commercial banking, consumer banking, insurance and wealth management solutions through our subsidiary network which is led by our largest affiliate, FNBPA.

Commercial banking solutions include corporate banking, small business banking, investment real estate financing, business credit, capital markets and lease financing.

Commercial banking solutions include corporate banking, small business banking, investment real estate financing, government banking, 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.

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FINANCIAL SUMMARY

For the full year of 2020, net income available to common stockholders was $278.0 million, or $0.85 per diluted common share.

For the full-year of 2021, net income available to common stockholders was $396.6 million, or $1.23 per diluted common share, the highest earnings per share since 2004.

Comparatively, full-year 2020 net income available to common stockholders totaled $278.0 million, or $0.85 per diluted common share.

On an operating basis, full-year 2020 earnings per diluted common share (non-GAAP) was $0.96, excluding $0.11 for significant items.

Operating earnings per diluted common share (non-GAAP) for the full year of 2019 was $1.18, excluding $0.02 for significant items.

The results for 2020 reflect the pre-tax impact of $45.6 million of significant items, including loss on debt extinguishment and related hedge termination of $25.6 million related to the prepayment of higher-rate FHLB borrowings given continued strong deposit growth;

branch consolidation costs of $18.7 million resulting from our branch optimization efforts and continued customer migration to digital channels;

COVID-19 related expenses of $11.3 million, including $2.5 million in contributions to our FNB Foundation to continue to support our communities as they deal with the ongoing pandemic;

and service charge refunds of $3.8 million, partially offset by a gain on the sale of all of FNBPA's holdings of Visa Class B shares of $13.8 million.

Operating results for 2020 also included the successful adoption of the CECL accounting standard and elevated reserve levels to address the impact of COVID-19 on the ACL, both of which weighed on the earnings trajectory compared to 2019.

Although 2020 earnings were impacted by COVID-19, total revenue was at a record level of $1.2 billion, a testament to executing our strategic initiatives while facing a near-zero interest rate environment.

On an operating basis, full-year 2021 earnings per diluted common share (non-GAAP) was $1.24, excluding $4.4 million of significant items.

Operating earnings per diluted common share (non-GAAP) for the full year of 2020 was $0.96, excluding $45.6 million of significant items.

Income Statement Highlights (2021 compared to 2020)

• Record total revenue was $1.2 billion.

• Net income available to common stockholders was $278.0 million, compared to $379.2 million, down 26.7%.

• Operating net income available to common stockholders (non-GAAP) was $314.0 million, compared to $386.1 million, down 18.7%.

• Earnings per diluted common share was $0.85, compared to $1.16, a decrease of 26.7%.

• Operating earnings per diluted common share (non-GAAP) was $0.96, compared to $1.18, a decrease of 18.6%.

• Net interest income was $922.1 million, compared to $917.2 million.

• Net interest margin (FTE) (non-GAAP) declined 26 basis points to 2.91% from 3.17%, primarily from the impact of lower interest rates.

• Non-interest income was $294.6 million, compared to $294.3 million.

• Record total revenue of $1.2 billion, an increase of $20.3 million, or 1.7%, combined with lower expenses and a reduction in the provision for credit losses of $0.6 million, led to record operating net income available to common stockholders (non-GAAP) of $400.0 million, an increase of $86.1 million, or 27.4%.

• Earnings per diluted common share was $1.23, compared to $0.85, an increase of 44.7%.

• Operating earnings per diluted common share (non-GAAP) was $1.24, compared to $0.96, an increase of 29.2%.

• Net interest income was $906.5 million, compared to $922.1 million, down 1.7%.

• Net interest margin (FTE) (non-GAAP) declined 23 basis points to 2.68% from 2.91%, as the total impact of PPP, purchase accounting accretion and higher cash balances reduced the margin by 2 basis points for 2021, compared to a benefit of 23 basis points in the prior year.

• Non-interest income reached a record level of $330.4 million, compared to $294.6 million, due to continued broad-based contributions from our fee businesses.

On an operating basis, non-interest income increased $20.3 million, or 6.5%, when excluding significant items impacting earnings of $15.6 million in 2020.

• Non-interest expense was $733.2 million, compared to $750.3 million.

• The termination of $715 million in higher-rate FHLB borrowings, with a rate of 2.49% resulted in a loss on early debt extinguishment and related hedge termination costs of $25.6 million.

• There was a $13.8 million gain on the sale of all of FNBPA's holdings of Visa Class B shares.

• The provision for credit losses totaled $122.8 million, compared to $44.6 million, which reflected COVID-19 related macroeconomic impacts and the life-of-loan CECL reserving requirements in 2020.

• Net charge-offs totaled $59.8 million, or 0.24% of total average loans, compared to $28.3 million, or 0.12%, in 2019, reflecting COVID-19 impacts on certain segments of the loan portfolio.

• Income tax expense decreased $26.1 million, or 31.2%, primarily due to lower pre-tax earnings and significant items .

• The effective tax rate was 16.7%, compared to 17.7%, with both years impacted by renewable energy tax credits.

Excluding significant items totaling $4.4 million in 2021 and $30.0 million in 2020, operating non-interest expense was well-controlled and increased $8.4 million, or 1.2%.

• The provision for credit losses totaled $0.6 million, compared to $122.8 million, reflecting improved credit quality trends throughout 2021 and pandemic-related impacts on macroeconomic forecasts used in the ACL model in 2020.

• Net charge-offs totaled $13.9 million, or 0.06% of total average loans, compared to $59.8 million, or 0.24%, in 2020, reflecting COVID-19 impacts on certain segments of the loan portfolio in 2020.

• Income tax expense increased $41.0 million, or 71.3%, primarily due to higher pre-tax earnings .

• The effective tax rate was 19.6%, compared to 16.7%, reflecting benefits from renewable energy tax credits recognized in 2020.

• The efficiency ratio (non-GAAP) was 57.2%, compared to 56.1%, reflecting the low interest rate environment and higher non-interest expense from operations.

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

• Total assets were $37.4 billion, compared to $34.6 billion, an increase of $2.7 billion, or 7.9%, primarily due to the origination of PPP loans during 2020, of which $2.2 billion was outstanding as of December 31, 2020.

• Growth in total average loans was $2.4 billion, or 10.7%, reflecting commercial loan growth of $2.5 billion, or 17.4%, and a $54.9 million, or 0.6%, decrease in average consumer loans reflecting the sale of $0.5 billion in indirect auto loans in 2020.

Average net PPP loans were $1.6 billion in 2020, with the majority of loans originated in the second quarter of 2020.

• Total assets were $39.5 billion, compared to $37.4 billion, an increase of $2.2 billion, or 5.8%, from higher cash and cash equivalents balances related to significant deposit growth, primarily due to the PPP and government stimulus activities.

• Total reported period-end loans and leases decreased $489.9 million, or 1.9%, due to a commercial loan decrease of $1.0 billion, or 5.8%, driven by PPP loan forgiveness.

Period-end total loans and leases, excluding PPP loans, increased $1.3 billion, or 5.7%, as commercial loans increased $817.2 million, or 5.3%, and consumer loans increased $514.7 million, or 6.4%, (inclusive of the sale of $0.5 billion in indirect auto loans in November 2020).

• Average loans totaled $25.1 billion, a decrease of $135.6 million, or 0.5%, due to PPP loan forgiveness and the sale of $0.5 billion of indirect auto installment loans in November 2020.

Growth in average commercial loans totaled $167.3 million, or 1.0%, including growth of $171.4 million, or 1.8%, in commercial real estate and a decline of $50.3 million, or 0.8%, in commercial and industrial loans from PPP loan forgiveness.

• PPP loans originations totaled $3.6 billion since program inception in the second quarter of 2020 with $3.3 billion forgiven as of December 31, 2021 resulting in $336.6 million remaining at December 31, 2021.

There were $2.2 billion of PPP loans outstanding at December 31, 2020.

• Total average deposits grew $3.3 billion, or 12.0%, including an increase in average non-interest-bearing deposits of $2.1 billion, or 26.1%, and an increase in average interest-bearing demand deposits of $1.7 billion, or 14.0%, partially offset by a managed decrease in average time deposits of $1.1 billion, or 24.7%.

Average deposit growth reflects inflows from the PPP and government stimulus activities, in addition to organic growth in new and existing customer relationships.

• We issued $300 million of 2.20% fixed rate senior notes due 2023.

Average deposit growth reflects inflows from the PPP and government stimulus activities, solid organic growth in customer relationships, as well as current customer preferences to maintain larger balances in their deposit accounts than before the pandemic.

• The ratio of loans to deposits was 78.7%, compared to 87.4%, as deposit growth outpaced loan growth.

Additionally, the funding mix continued to improve with non-interest-bearing deposits totaling 31% of total deposits, compared to 26%.

Additionally, the deposit funding mix continued to improve with non-interest-bearing deposits totaling 34% of total deposits, compared to 31%.

Cash and cash equivalents balances increased $2.1 billion to $3.5 billion due primarily to PPP loan activity and deposits from government stimulus inflows.

• The dividend payout ratio for 2021 was 39.20%, compared to 56.45%.

• The delinquency ratio was 1.02%, compared to 0.94%.

• We repurchased nearly 4.0 million shares at a weighted average share price of $9.63 for $38.4 million under the existing $150 million share repurchase program.

• We repurchased nearly 3.6 million shares at a weighted average share price of $11.86 for $43.2 million under the existing $150 million share repurchase program, with $68.4 million remaining for repurchase.

• The ratio of the allowance for loan losses to total loans and leases was 1.38%, compared to 1.43%.

Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loans and leases ratio equaled 1.56% at December 31, 2020.

Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loans and leases ratio equaled 1.40% at December 31, 2021, compared to 1.56%.

The ACL on loans and leases totaled $344 million at December 31, 2021, compared to $363 million.

• Tangible book value per share (non-GAAP) of $8.59 increased 9% from year-end 2020.

• Tangible common equity to tangible assets (non-GAAP) of 7.24%, decreased 34 basis points from year-end 2019 due primarily to the PPP loan impact and the 2020 Day 1 CECL adoption impact of 16 basis points.

• The CET1 ratio of 9.84 is the strongest in our history.

• The CET1 regulatory capital ratio increased to 9.9%, up from 9.8%.

Year-to-Date Results Summary 2021 2020

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Pre-provision net revenue (reported) (millions) 503.7 466.3

Common equity tier 1 capital ratio 9.9 % 9.8 %

Operating results (non-GAAP)

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Significant items impacting earnings (1) (millions)

Pre-tax merger-related expenses $ (1.8) $ —

After-tax impact of merger-related expenses (1.4) —

Pre-tax COVID-19 expense — (11.3)

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Industry Developments

The COVID-19 pandemic has had an immense human and economic impact on the global economy.

On March 22, 2020, the UST announced that financial institution employees are part of the critical infrastructure workforce and stated that these employees have a “special responsibility to maintain your normal work schedule.” As a result, financial institutions were confronted with the challenge of protecting the health and safety of their employees, while also ensuring that critical financial services such as providing consumer and commercial access to banking and lending services, maintaining core systems and the integrity and security of data, continuing the processing of payments and services, such as clearing and settlement services, wholesale funding, insurance services and capital markets activities, for the duration of the pandemic crisis period.

Our crisis and risk management processes were critical to our preparedness for the COVID-19 pandemic since we had the necessary plans in place and had conducted a pandemic emergency event scenario (involving key management and operations employees) in the fourth quarter of 2019 to test the efficacy of our pandemic response plans and to improve these plans.

We were well positioned to continue providing critical financial services to our customers through multiple channels such as interactive teller machines, automated teller machines, our mobile application, and our interactive website.

We adjusted our physical retail locations by focusing on “drive up” services and closed our lobbies, reverting to “by appointment only” practices, while maintaining appropriate health, sanitization, social distancing and other safety protocols consistent with the Centers for Disease Control and Prevention (CDC) and state guidelines.

Based on the available COVID-19 federal data, we began to re-open our branch lobbies to customers in July 2020 while adhering to CDC safety measures, including employee and customer safety (i.e., masks), social distancing and cleaning protocols, while continuing to regularly monitor and adjust branch hours based on local COVID-19 conditions and circumstances.

We leveraged our information technology infrastructure by making accommodations to give employees the ability to work remotely where appropriate.

Our executive and senior management worked rotating schedules or from remote offices or home in order to mitigate the risk of wide-spread occurrence of the COVID-19 contagion among this group.

With respect to our other employees, approximately half of our workforce worked remotely.

We will continue to actively monitor case levels and consider guidance from government agencies to determine when we activate further "return-to-the workplace" schedules.

Our remote and rotational working arrangements and implementation of CDC health and safety protocols have not impaired our ability to continue to operate our business.

We do rely on some third parties for certain services.

At this time, we have not experienced a disruption in those services.

To protect our customers and communities from economic disruption, we:

• developed a formal loan deferral program and other measures to support customers who may be enduring financial hardships;

• extended the residential mortgage foreclosure moratorium beyond the requirements for government-backed loans, under the CARES Act, to all residential mortgage loan customers;

• actively participated in the SBA PPP, which authorized financial institutions to make federally guaranteed loans that are eligible to be forgiven to qualifying small businesses and nonprofits on the terms set forth in the CARES Act and related regulations.

We continue to evaluate other COVID-19 related FRB and federal government relief and stimulus programs to determine their suitability for our customers and communities.

COVID-19 has had a significant impact on the provision for credit losses during 2020.

The uncertainty in the market, a significant increase in unemployment, and adverse economic forecasts all point to the volatility of the expected additional losses in the loan portfolio.

We would expect inherent volatility in the COVID-19 impact on our provision for credit losses for the duration of the current COVID-19 pandemic environment and immediate periods following the mitigation of the pandemic crisis.

The federal banking regulators have in place certain measures to assist financial institutions in meeting the needs of our customers during this time.

Some of these that impact us are as follows:

• As part of Section 4013 of the CARES Act and in accordance with federal interagency bank regulatory guidance, financial institutions have been granted temporary relief from reporting TDRs caused by COVID-19.

To be eligible for TDR relief, a loan modification must be due to impacts from COVID-19, not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020 and the earlier of January 1, 2022 or 60 days after the end of the national emergency.

Interagency bank regulatory guidance encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and will not criticize financial institutions for working with borrowers in a safe and sound manner.

Loan modification programs are considered positive actions that can mitigate adverse effects on borrowers due to COVID-19.

Institutions generally do not need to categorize COVID-19-related loan modifications as TDRs if the loan modifications are short-term in nature and are made on a good-faith basis in response to COVID-19 to borrowers who were current at the time the modification program was implemented.

For borrowers who were current prior to COVID-19 that have requested and been granted a concession while experiencing a hardship during the pandemic, we will not be including those modifications as past due or a TDR at the time of the concession.

As of June 30, 2020, approximately $2.4 billion, or 10%, of our loan portfolio was approved during the initial deferment request window.

Over 98% of the $2.4 billion of loans in deferment were current and in good standing at December 31, 2019.

As of December 31, 2020, total deferrals decreased to $397 million or 1.7% of total loans and leases (excluding PPP loans).

• The regulatory agencies have agreed to allow an option to delay the effects of CECL on regulatory capital by two years for those financial institutions that adopt in 2020.

This delay will be followed by a three-year transition period of 75%, 50%, and 25% respectively.

We adopted CECL in January 2020 and have elected this option.

• The FRB initiated a facility to provide liquidity to financial institutions participating and funding loans for the PPP.

The non-recourse loans are available to institutions eligible to make PPP loans, with the SBA-guaranteed loans pledged as collateral to the FRB.

Financial institutions can also pledge PPP loans to the discount window.

Each liquidity option is set at different rates and terms.

PPP loans pledged to the PPPLF may be excluded from leverage ratio calculations.

We have not utilized this facility, as we have ample liquidity.

As we continue to manage through the COVID-19 challenges and meet the needs of our various constituents, our focus continues to be on our four key pillars.

The pillars are:

employee protection and assistance;

operational response and preparedness;

customer and community support;

and risk management and actions taken to preserve shareholder value given the extreme challenges presented.

The United Kingdom’s Financial Conduct Authority (FCA), who is the regulator of LIBOR, anticipates LIBOR to retire on December 31, 2021, for one-week and two-month LIBOR rates, and June 30, 2023 for all other LIBOR rates.

The United Kingdom’s Financial Conduct Authority (FCA), who is the regulator of LIBOR, announced on March 5, 2021 that they will no longer require any panel bank to continue to submit LIBOR after December 31, 2021.

As it pertains to U.S.

dollar LIBOR, the FCA announced that certain LIBOR tenors will continue to be published through June 30, 2023.

Bank regulators, in a joint statement have urged banks to stop using LIBOR altogether on new transactions by the end of 2021 to avoid the possible creation of safety and soundness risk.

The FRB of New York has created a working group called the ARRC to assist U.S.

institutions with a successful transition away from using LIBOR as a benchmark interest rate.

Similarly, we created an internal working group that is managing our transition away from LIBOR.

This working group is a cross-functional team composed of representatives from the commercial, retail and mortgage banking lines of business, as well as loan operations, information technology, legal, finance and other support functions.

The committee has completed an assessment of tasks needed for the transition, identified contracts that contain LIBOR language, is in process of reviewing existing contract language for the presence of robust fallback language, developed loan fallback language for when LIBOR is retired and identified risks associated with the transition.

The financial impact regarding pricing, valuation and operations of the transition is not yet known.

Our transition team will work within the guidelines established by the FCA and ARRC to provide for a smooth transition away from LIBOR.

During the third quarter of 2020, we finalized the transition of new adjustable rate mortgages away from the LIBOR index to SOFR, which is the alternative rate recommended by ARRC.

The effective date for this change was October 1, 2020.

We also changed our valuation methodology to reflect changes made by central clearinghouses to their discounting methodology and interest calculation of cash margin to SOFR for U.S.

dollar cleared interest rate swaps.

The effective date for this change was October 16, 2020.

institutions in transitioning away from LIBOR as a benchmark interest rate.

The ARRC has recommended the use of the SOFR as a replacement index for LIBOR.

Similarly, we created an internal transition team that is managing our transition away from LIBOR.

This transition team is a cross-functional team composed of representatives from the commercial, retail and mortgage banking lines of business, as well as representatives of loan operations, information technology, legal, finance and other support functions.

The transition team has completed an assessment of tasks needed for the transition, identified contracts that contain LIBOR language, has reviewed existing contract language for the presence of appropriate fallback rate language, developed and implemented loan fallback rate language for when LIBOR is retired and identified risks associated with the transition.

The transition team has chosen SOFR and other credit-sensitive indices as a replacement to LIBOR.

These selected indices are available for the benefit of our customers and are utilized in all new floating rate agreements.

We started originating commercial loans in the fourth quarter of

2021 utilizing SOFR and other indices.

Residential mortgage loans indexed to SOFR have been originated since October of 2020.

Our transition team continues to work within the guidelines established by the FCA and ARRC to provide for a smooth transition away from LIBOR.

As of December 31, 2021, approximately $10.5 billion of our loan portfolio consisted of loans whose variable rate index is LIBOR, of which $1.3 billion will mature prior to June 30, 2023, and there were $373 million of SOFR-based loans, inclusive of mortgage originations, on the balance sheet.

It's estimated that an additional $1.5 billion in LIBOR-based loans will amortize over the next 18 months.

Finally, we have approximately $190 million of outstanding FNB issued debt that uses LIBOR as its base index.

RESULTS OF OPERATIONS

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Operating earnings per diluted common share (non-GAAP) was $1.24 for 2021 compared to $0.96 for 2020.

The results for 2020 included the impact of $45.6 million of significant items, including loss on debt extinguishment and related hedge termination of $25.6 million related to the prepayment of higher-rate FHLB borrowings given continued strong deposit growth;

The results for 2021 included the impact of $2.6 million of branch consolidation expenses and $1.8 million of merger-related expenses.

In comparison, the results for 2020 included the impact of $45.6 million of significant items, including loss on debt extinguishment and related hedge termination of $25.6 million related to the prepayment of higher-rate FHLB borrowings given continued strong deposit growth;

branch consolidation costs of $18.7 million resulting from our branch optimization efforts and continued customer migration to digital channels;

COVID-19 related expenses of $11.3 million, including $2.5 million in contributions to our FNB Foundation to continue to support our communities as they deal with the ongoing pandemic;

COVID-19 related expenses of $11.3 million, including $2.5 million in contributions to our FNB Foundation to continue to support our communities as they dealt with the ongoing pandemic;

and service charge refunds of $3.8 million, partially offset by a $13.8 million gain on the sale of all of the FNBPA's holdings of Visa Class B shares.

In comparison, the results for 2019 included $4.5 million of branch consolidation costs and $4.3 million of service charge refunds.

Average diluted common shares outstanding decreased 2.0 million shares, or 0.6%, to 323.5 million shares for 2021.

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Tangible common equity to tangible assets (1) (2)

Common equity tier 1 capital ratio 9.9 9.8

Dividend payout ratio 39.20 56.45

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Net Interest Income

Net interest income on an FTE basis (non-GAAP) of $934.6 million for 2020 decreased $3.2 million, or 0.3%, from $931.4 million for 2019.

Average interest-earning assets increased $2.7 billion, or 9.2%, and average interest-bearing liabilities increased $0.7 billion, or 3.2%, from 2019, due to organic growth in loans and deposits and benefits from our expanded banking footprint in our southeastern markets.

Our net interest margin FTE (non-GAAP) was 2.91% for 2020, compared to 3.17% for 2019, reflecting the impact of lower interest rates as average 1-month LIBOR for the full year of 2020 declined to 0.52% from 2.22% for the full year of 2019 .

The FOMC lowered the target Federal Funds rate by 150 basis points in 2020.

Net interest income on an FTE basis (non-GAAP) of $917.4 million for 2021 decreased $17.1 million, or 1.8%, from $934.6 million for 2020 as the low interest rate environment impacted earning asset yields.

Average interest-earning assets of $34.2 billion increased $2.2 billion, or 6.8% from 2020, which included $3.6 billion of PPP loan originations since program inception in the second quarter of 2020, $3.3 billion in total PPP loan forgiveness and a $2.3 billion increase in average cash balances largely due to the continued impact from government stimulus and PPP activity.

The growth in average earning assets was offset by the repricing impact on earning asset yields from lower interest rates, mitigated by the improved funding mix with reductions in higher-cost borrowings and the cost of interest-bearing deposits.

Average interest-bearing liabilities of $23.1 billion decreased $200.8 million, or 0.9%, from 2020, driven by a decrease in average borrowings of $1.4 billion, partially offset by an increase of $1.2 billion in average interest-bearing deposits which included deposits for PPP funding and government stimulus activities, organic growth in new and existing customer relationships, as well as recent customer preferences to maintain larger deposit account balances than before the pandemic.

Our net interest margin FTE (non-GAAP) was 2.68% for 2021, compared to 2.91% for 2020, as the yield on earning assets decreased 59 basis points to 2.97%, primarily reflecting the impact of reductions in short-term benchmark interest rates on variable-rate loans, significantly lower yields on investment securities and the effect of higher average cash balances on the mix of earning assets.

Partially offsetting the lower earning asset yields, the total cost of funds improved 36 basis points to 0.30%, due to a 46 basis point reduction in interest-bearing deposit costs and an improved funding mix, as average non-interest-bearing deposits increased $2.1 billion, or 26.1%.

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 periods indicated:

2020 vs 2019 2019 vs 2018

(in thousands) Volume Rate Net Volume Rate Net

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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 $1.1 billion for 2020, decreased $118.4 million or 9.4% from 2019, resulting from the decrease in benchmark interest rates, partially offset by an increase in interest-earning assets of $2.7 billion.

The increase in interest-earning assets was primarily driven by a $2.4 billion, or 10.7%, increase in average total loans due to PPP activity and solid origination activity across the footprint.

Average commercial loan growth totaled $2.5 billion, or 17.4%, including growth of $1.7 billion, or 33.8%, in commercial and industrial loans.

Commercial loan growth was led by strong commercial activity in the Pittsburgh, Cleveland, South Carolina, and Mid-Atlantic regions.

Average consumer loans declined by $54.9 million, or 0.6%, reflecting a decline of $133.4 million, or 8.8%, in consumer credit lines and $317.6 million, or 16.3%, in indirect auto installment loans due to the sale of $0.5 billion of indirect auto loans in November 2020 partially offset by increases in residential mortgage loans of $226.7 million, or 7.0%, and direct installment balances of $169.4 million, or 9.6%.

Additionally, the net reduction in the securities portfolio was a result of management's strategy to deploy excess liquidity into higher yielding loans, as average securities decreased $247.0 million, or 3.8%, given historically low and unattractive interest rates available for reinvestment purposes.

The yield on average interest-earning assets (non-GAAP) decreased 73 basis points to 3.56% for 2020 compared to 4.29% for 2019, primarily due to the lower interest rate environment.

Interest expense of $208.2 million for 2020 decreased $121.6 million, or 36.9%, from 2019 primarily due to a decrease in rates paid, partially offset by an increase in average interest-bearing deposits and borrowings.

Average interest-bearing deposits increased $1.4 billion, or 7.8%, which reflects the benefit of organic growth, as well as deposits for PPP funding and

government stimulus activities.

Average long-term borrowings increased $365.6 million, or 33.0%, primarily due to increases of $254.3 million in senior debt and $117.1 million in long-term FHLB borrowings.

The funding of both fixed and adjustable longer-term borrowings was opportunistically transacted to take advantage of the lower interest rate environment and add liquidity to support loan growth.

These actions included the first quarter of 2020 issuance of $300 million of 2.20% fixed rate senior notes due in 2023 and the termination of $715 million of higher-rate FHLB borrowings during 2020.

During the first quarter of 2019, we issued $120.0 million of 4.950% fixed-to-floating rate subordinated notes due in 2029.

The rate paid on interest-bearing liabilities decreased 57 basis points to 0.89% for 2020, compared to 1.46% for 2019, due to reduced costs on interest-bearing deposits and lower borrowing costs.

Interest income on an FTE basis (non-GAAP) of $1.0 billion for 2021, decreased $127.1 million or 11.1% from 2020, resulting in part, from the 42 basis point decline in average 1-month LIBOR in 2021 compared to 2020, partially offset by an increase in interest-earning assets of $2.2 billion.

The increase in interest-earning assets was primarily driven by an increase in average cash balances of $2.3 billion, partially offset by a $135.6 million, or 0.5%, decrease in average total loans due to PPP loan forgiveness and the sale of $0.5 billion of indirect auto installment loans in November 2020.

Average commercial loan growth totaled $167.3 million, or 1.0%, including growth of $171.4 million, or 1.8%, in commercial real estate and a decline of $50.3 million, or 0.8%, in commercial and industrial loans entirely from PPP loan forgiveness.

Commercial loan growth was

led by healthy origination activity in the Pittsburgh, Harrisburg and Carolina markets.

Average consumer loans declined by $302.9 million, or 3.6%, with an increase direct installment balances of $215.3 million, or 11.2%, and residential mortgage loans of $8.2 million, or 0.2%, offset by decreases in indirect auto installment loans of $412.8 million, or 25.3%, due to the sale of $0.5 billion of indirect auto loans in November 2020, as well as a decrease in consumer lines of credit of $113.6 million, or 8.2%.

Excluding PPP loans, period-end total loans and leases increased $1.3 billion, or 5.7%, including growth of $817.2 million, or 5.3%, in commercial loans and leases and $514.7 million, or 6.4%, in consumer loans.

Additionally, average securities increased $51.7 million, or 0.8%, as a result of management's strategy to deploy excess liquidity into higher yielding investments.

The yield on average interest-earning assets (non-GAAP) decreased 59 basis points to 2.97% for 2021, compared to 3.56% for 2020, reflecting the impact of significant reductions in the short-term benchmark interest rates on variable-rate loans, significantly lower yields on investment securities and the effect of higher average cash balances on the mix of earning assets.

Interest expense of $98.2 million for 2021 decreased $110.0 million, or 52.8%, from 2020 primarily due to a decrease in rates paid, partially offset by an increase in average interest-bearing deposits.

Average interest-bearing deposits increased $1.2 billion, or 6.2%, which reflects the benefit of solid organic growth in customer relationships, as well as deposits for PPP funding and government stimulus activities.

Average time deposits had a managed decline of $1.1 billion, or 24.7%, as customer preferences shifted to more liquid accounts.

Average long-term borrowings decreased $549.6 million, or 37.3%, primarily due to a decrease of $582.5 million in long-term FHLB borrowings, partially offset by an increase of $44.5 million in senior debt.

The rate paid on interest-bearing liabilities decreased 46 basis points to 0.43% for 2021, compared to 0.89% for 2020, due to the interest rate actions taken by the FOMC and our actions taken to reduce the cost of interest-bearing liabilities given the low interest rate environment and strong growth in non-interest-bearing deposits.

Provision for Credit Losses

The provision for credit losses is determined based on management’s estimates of the appropriate level of ACL needed to absorb probable life-of-loan losses inherent in the loan and lease portfolio, after giving consideration to charge-offs and recoveries for the period.

The following table presents information regarding the credit loss expense and net charge-offs for the years 2018 through 2020:

2020 vs 2019 2019 vs 2018

The following table presents information regarding the provision for credit loss expense and net charge-offs for the years 2019 through 2021:

(dollars in thousands) 2021 2020 $

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Provision for credit losses (on loans and leases) $ (4,853) $ 121,756 $ (126,609) (104.0) % $ 44,561 $ 77,195 173.2 %

Provision for unfunded loan commitments 5,472 1,046 4,426 423.1 — 1,046 n/m

Provision for credit losses $ 619 $ 122,802 $ (122,183) (99.5) % $ 44,561 $ 78,241 175.6 %

Net loan charge-offs $ 13,949 $ 59,808 $ (45,859) (76.7) % $ 28,334 $ 31,474 111.1 %

Net loan charge-offs / total average loans and leases 0.06 % 0.24 % 0.12 %

Provision for credit losses on loans and leases of $121.8 million during 2020 increased $77.2 million from 2019, which reflected CECL adoption worsening economic conditions associated with COVID-19 that required additional provision in 2020.

Net charge-offs of $59.8 million for 2020 increased $31.5 million from 2019, primarily due to COVID-19 impacts on certain segments of the loan portfolio in 2020.

n/m - not meaningful

Provision for credit losses of $0.6 million during 2021 decreased $122.2 million from 2020.

The 2021 provision for credit losses is comprised of a $4.9 million net benefit on provision for loans and leases outstanding and a $5.5 million provision for unfunded loan commitments.

The decrease reflects favorable asset quality trends across all loan portfolio credit metrics in 2021 and COVID-19 impacts on certain segments of the loan portfolio in 2020, as well as the improving macroeconomic forecasts in 2021.

The increase for the provision for unfunded loan commitments was partially driven by new commercial and industrial revolving loan commitments with only a moderate increase in utilization levels compared to 2020, in addition to new commercial real estate construction projects that have yet to draw or were minimally drawn on at December 31, 2021.

Net charge-offs of $13.9 million for 2021 decreased $45.9 million from 2020, reflecting COVID-19 impacts on certain segments of the loan portfolio in 2020.

For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses section of this MD&A.

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The breakdown of non-interest income for the years 2019 through 2021 is presented in the following table:

2020 vs 2019 2019 vs 2018

(dollars in thousands) 2021 2020 $

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Total non-interest income of $330.4 million for 2021 increased $35.9 million, or 12.2%, from $294.6 million in 2020.

On an operating basis, non-interest income increased $9.9 million, or 3.3%, when excluding significant items impacting earnings of $15.6 million and $6.0 million in 2020 and 2019, respectively.

On an operating basis, non-interest income increased $20.3 million, or 6.5%, when excluding significant items impacting earnings of $15.6 million in 2020.

The variances in significant individual non-interest income items are further explained in the following paragraphs.

Service charges on loans and deposits of $108.1 million for 2020 decreased $16.1 million, or 13.0%, from $124.3 million in 2019, as there were noticeably lower customer transaction volumes in the COVID-19 environment, although volumes have steadily increased in the second half of 2020.

Additionally, we recorded service charge refunds of $3.8 million and $4.3 million in 2020 and 2019, respectively.

Service charges on loans and deposits of $121.7 million for 2021 increased $13.6 million, or 12.6%, from $108.1 million in 2020, primarily reflecting reduced customer activity in 2020 due to the pandemic.

Additionally, we recorded service charge refunds of $3.8 million in 2020.

Trust services of $37.4 million for 2021 increased $6.1 million, or 19.6%, from the same period of 2020, primarily driven by strong organic revenue production and the market value of assets under management increasing $1.1 billion, or 15.2%, to $8.2 billion at December 31, 2021.

Insurance commissions and fees of $24.2 million for 2020 increased $3.7 million, or 18.3%, from $20.5 million in 2019, primarily due to new business in the Carolina regions of our footprint, as well as organic growth in commercial lines.

Capital markets income of $39.3 million for 2020 increased $6.1 million, or 18.4%, from $33.2 million for 2019, reflecting our strong relationships with new and existing commercial customers and a volatile interest rate environment.

Mortgage banking operations income of $49.7 million for 2020 increased $18.0 million, or 56.7%, from $31.7 million for 2019, due to increased saleable volume and meaningfully expanding margins.

During 2020, we sold $1.7 billion of residential mortgage loans, an increase of 19.5% compared to $1.4 billion for 2019, excluding portfolio bulk sales of $110.1 million and $151.8 million during 2019.

The higher origination and secondary market revenues were partially offset by $4.7 million higher MSR impairment related to unfavorable interest-rate valuation adjustments and $9.8 million of higher MSR amortization due to higher prepayment speeds.

Dividends on non-marketable equity securities of $13.7 million for 2020 decreased $4.9 million, or 26.3%, from $18.6 million for 2019, primarily due to a decrease in the FHLB dividend rate and the impact of lower levels of FHLB borrowings given the strong growth in deposits.

Insurance commissions and fees of $25.5 million for 2021 increased $1.3 million, or 5.4%, from $24.2 million in 2020, primarily from organic revenue growth across our footprint.

Securities commissions and fees of $22.2 million for 2021 increased $4.8 million, or 27.3% from $17.4 million in 2020, due to strong activity levels across the footprint, largely impacted by reduced COVID-19 restrictions.

Capital markets income of $36.8 million for 2021 decreased $2.5 million, or 6.4%, from $39.3 million for 2020, due to lower customer swap activity compared to the record levels in the beginning of 2020 given heightened volatility in interest rates last year.

Mortgage banking operations income of $37.4 million for 2021 decreased $12.3 million, or 24.8%, from $49.7 million for 2020, as secondary market revenue and mortgage held-for-sale pipelines declined from significantly elevated levels in 2020.

During 2021, we sold $1.8 billion of residential mortgage loans, an increase of 5.3% compared to $1.7 billion for 2020, however margins on sold production have normalized from the significantly elevated levels in 2020.

During 2021, we also recognized a $4.8 million favorable interest-rate related valuation adjustment on MSRs, compared to a $5.8 million unfavorable adjustment in 2020.

Dividends on non-marketable equity securities of $8.6 million for 2021 decreased $5.1 million, or 37.5%, from $13.7 million for 2020, primarily due to a decrease in the FHLB dividend rate and lower levels of FHLB borrowings given the strong growth in deposits.

Income from BOLI of $14.9 million for 2021 increased $1.0 million, or 7.5%, from $13.8 million in 2020, primarily due to life insurance claims.

The early termination of $490.0 million in higher-rate long-term FHLB borrowings resulted in a loss on debt extinguishment of $16.7 million in 2020.

Other non-interest income was $13.3 million and $9.1 million for 2020 and 2019, respectively.

Other non-interest income was $25.8 million and $13.3 million for 2021 and 2020, respectively, reflecting higher contributions from SBA premium income and improved SBIC fund performance, as well as a $2.2 million recovery on a previously written-off asset in 2021.

In 2020, we recorded a $13.8 million gain on the sale of all of FNBPA's Visa Class B shares, partially offset by $9.0 million in hedge termination costs associated with the early termination of certain higher-rate FHLB borrowings.

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Loss on FHLB debt extinguishment and related hedge terminations — 25,611 (25,611)

Loss on fixed assets related to branch consolidations — 1,722 (1,722)

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

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The breakdown of non-interest expense for the years 2019 through 2021 is presented in the following table:

2020 vs 2019 2019 vs 2018

(dollars in thousands) 2021 2020 $

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Outside services 70,553 69,258 1,295 1.9 64,006 5,252 8.2

Marketing 14,320 12,559 1,761 14.0 13,066 (507) (3.9)

FDIC insurance 17,881 20,073 (2,192) (10.9) 23,294 (3,221) (13.8)

Bank shares and franchise taxes 12,629 14,376 (1,747) (12.2) 12,493 1,883 15.1

Merger-related 1,764 — 1,764 — — — —

Other 57,235 78,714 (21,479) (27.3) 73,699 5,015 6.8

Total non-interest expense $ 733,168 $ 750,349 $ (17,181) (2.3) % $ 696,128 $ 54,221 7.8 %

Total non-interest expense of $750.3 million for 2020 increased $54.2 million, or 7.8%, from $696.1 million in 2019.

On an operating basis, non-interest expense increased $27.0 million, or 3.9%.

Total non-interest expense of $733.2 million for 2021 decreased $17.2 million, or 2.3%, from $750.3 million in 2020.

Excluding significant items totaling $4.4 million in 2021 and $30.0 million in 2020, operating non-interest expense was well-controlled and increased $8.4 million, or 1.2%.

The variances in significant individual non-interest expense items are further explained in the following paragraphs.

Salaries and employee benefits of $405.5 million for 2020 increased $30.4 million, or 8.1%, from $375.1 million in 2019, primarily related to production-related commissions, normal merit increases and stock-based compensation.

During 2020, we made a change to long-term stock-based compensation retirement vesting to become more aligned with current practices at other banks resulting in accelerated grant date expense recognition for certain 2020 awards, with full expense recognition on the grant date instead of recognizing the same expense amount over a 36-month vesting period.

These awards are not released until the three-year service period is complete or the specified performance criteria is met over the three-year period.

We recorded branch consolidation costs of $1.4 million and $0.5 million in 2020 and 2019, respectively.

Additionally, we recorded $3.1

million relating to COVID-19 expenses in 2020.

Salaries and employee benefits of $418.3 million for 2021 increased $12.8 million, or 3.2%, from $405.5 million in 2020, primarily related to normal merit increases and higher production and performance-related commissions and incentives corresponding to strong production levels from mortgage banking and our fee-based businesses.

We also recorded branch

consolidation costs of $1.4 million in 2020.

Additionally, we recorded $3.1 million relating to COVID-19 expenses in 2020.

Our total full-time equivalent employees were 3,884 and 4,077 at December 31, 2021 and 2020, respectively.

Net occupancy and equipment expense of $136.5 million for 2020 increased $16.2 million, or 13.4%, from $120.3 million in 2019, primarily due to branch consolidation costs of $15.7 million for 2020 and $2.2 million in 2019.

On an operating basis, net occupancy and equipment expense was $120.8 million for 2020 and $118.1 million for 2019, an increase of $2.6 million, or 2.2%.

Outside services expense of $69.3 million for 2020 increased $5.3 million, or 8.2%, from $64.0 million in 2019, primarily due to increases in data processing costs and the investments in our digital platform.

Net occupancy and equipment expense of $128.3 million for 2021 decreased $8.1 million, or 6.0%, from $136.5 million in 2020, primarily due to branch consolidation costs of $2.1 million for 2021 and $15.7 million in 2020.

On an operating basis, net occupancy and equipment expense was $126.2 million for 2021 and $120.8 million for 2020, an increase of $5.5 million, or 4.5%, primarily due to expansion in key regions such as the Mid-Atlantic and South Carolina, and continued investment in digital technology during 2021.

Outside services expense of $70.6 million for 2021 increased $1.3 million, or 1.9%, from $69.3 million in 2020, due to various minor increases related to third-party technology providers and other consulting engagements.

Marketing expense of $14.3 million for 2021 increased $1.8 million, or 14.0%, from $12.6 million in 2020, as a result of fewer marketing campaigns in 2020 due to the pandemic.

FDIC insurance expense of $17.9 million for 2021 decreased $2.2 million, or 10.9%, from 2020, primarily from a lower FDIC assessment rate due to increased subordinated debt at FNBPA and improved liquidity metrics.

Bank shares and franchise taxes expense of $14.4 million for 2020 increased $1.9 million, or 15.1%, from $12.5 million in 2019, primarily due to the 2020 capital base increase and higher tax credits in 2019.

Bank shares and franchise taxes expense of $12.6 million for 2021 decreased $1.7 million, or 12.2%, from $14.4 million in 2020, due to the recognition of state tax credits in 2021.

We recorded $1.8 million in merger-related costs in 2021 related to the Howard acquisition.

Other non-interest expense was $57.2 million and $78.7 million for 2021 and 2020, respectively.

During 2020, we recorded $6.8 million in COVID-19 related expenses.

The COVID-19 related expenses included a $2.5 million contribution to our foundation for relief assistance to our communities, benefiting food banks and providing funding for essential medical supplies.

These items were partially offset by decreases in several other items in other non-interest expense, including marketing and business development expenses, which were somewhat impacted by the COVID-19 operating environment.

Additionally, in 2020 and 2019, we recorded an impairment charge of $4.1 million and $3.2 million, respectively, from renewable energy investment tax credit transactions.

The related renewable energy investment tax credits were recognized as a benefit to income taxes.

During 2021 and 2020, we recorded approximately $0.5 million and $2.1 million, respectively, in branch consolidation costs in other non-interest expense.

In 2021, we recorded $2.2 million related to a mortgage recourse reserve release and in 2020, we recorded an impairment charge of $4.1 million from renewable energy investment tax credit transactions.

The related renewable energy investment tax credits were recognized as a benefit to income taxes in 2020.

Also during 2020, we recorded $6.8 million in COVID-19 related expenses.

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

(dollars in thousands) 2020 2019 Change Change

(dollars in thousands) 2021 (2)

2020 Change Change

Total non-interest expense, as reported $ 733,168 $ 750,349 $ (17,181) (2.3) %

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COVID-19 expense

— (11,276) 11,276

Merger-related (1,764) — (1,764)

Total non-interest expense, excluding significant items (1)

$ 728,760 $ 720,328 $ 8,432 1.2 %

(2) COVID-19 expenses not deemed to be a significant item impacting earnings in 2021.

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

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Statutory federal tax rate 21.0 % 21.0 % 21.0 %

Our income tax expense for 2020 decreased $26.1 million or 31.2% from 2019.

The effective tax rate was 16.7% for 2020, compared to 17.7% and 17.6% for 2019 and 2018, respectively, primarily resulting from lower pre-tax earnings and significant items in 2020.

Our income tax expense for 2021 increased $41.0 million, or 71.3% from 2020.

The effective tax rate was 19.6% for 2021, compared to 16.7% for 2020, primarily resulting from higher pre-tax earnings in 2021 and the recording of renewable energy investment tax credits in 2020.

Effective tax rates are lower than the 21% federal statutory rate due to the tax benefits resulting from renewable energy investment and historic tax credits, tax-exempt income on investments and loans and income from BOLI.

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Total Liabilities and Stockholders’ Equity $ 39,513 $ 37,354 $ 2,159 5.8 %

Our cash position increased in 2020 due to continued customer expansion in our footprint, government stimulus programs and the strategic reduction in our investment portfolio, as reinvestment opportunities were less attractive in the low interest rate environment.

The investment portfolio allocation shifted as exposure to prepayment sensitive securities was reduced.

Cash and cash equivalents increased in 2021 primarily due to deposit growth of $2.6 billion from continued customer expansion in our footprint and government stimulus programs including PPP.

Lending Activity

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and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina.

During 2020, we originated $2.6 billion of PPP loans and during November 2020, we sold $0.5 billion of indirect installment loans.

Paycheck Protection Program

The CARES Act included an allocation of $349 billion for loans to be issued by financial institutions through the SBA, utilizing the PPP.

The Paycheck Protection Program and Health Care Enhancement Act (PPP/HCE Act) was passed by Congress on April 23, 2020 and signed into law on April 24, 2020.

The Paycheck Protection Program and Health Care Enhancement Act (PPP/HCE Act) was signed into law on April 24, 2020.

The PPP/HCE Act authorized an additional $320 billion of funding for PPP loans.

As of December 31, 2020, we had approximately $2.2 billion of PPP loans outstanding, net of unamortized net deferred fees of $32.1 million, which are included in the commercial and industrial category.

Since the inception of the PPP, we originated $3.6 billion of PPP loans, including $1.0 billion during 2021, of which $336.6 million is outstanding as of December 31, 2021, net of unamortized net deferred fees of $10.1 million, which are included in the commercial and industrial category.

During 2021, $3.3 billion of PPP loan balances were forgiven by the SBA.

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Payments are deferred until after a forgiveness determination is made, if submitted within ten months of the end of the loan forgiveness covered period.

The loans are 100% guaranteed by the SBA, which provides a

reduced risk of loss to us on these loans.

The loans are 100% guaranteed by the SBA, which provides a reduced risk of loss to us on these loans.

The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan.

This fee is recognized in interest income over the contractual life of the loan under the effective yield method, adjusted for expected prepayments on these pools of homogenous loans.

We expect most of the remaining $32.1 million of net deferred fees to be recognized by September 30, 2021 based on expected loan forgiveness activity.

We expect most of the remaining net deferred fees to be recognized by June 30, 2022 based on expected loan forgiveness activity.

On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act (PPP Flexibility Act) which extended the term for new PPP loans to 5 years and permitted a lender to extend a 2-year PPP loan up to a 5-year term by mutual agreement of the lender and borrower.

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Total loans and leases $ 24,968 $ 25,459 $ (491) (1.9) %

The loans and leases portfolio categories are comprised of the following:

• Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties.

• Commercial and industrial includes loans to businesses that are not secured by real estate.

• Commercial leases consist of leases for new or used equipment.

• Other is comprised primarily of credit cards and mezzanine loans.

• 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.

• Residential mortgages consist of conventional and jumbo mortgage loans for 1-4 family properties.

• Indirect installment is comprised of loans originated by approved third parties and underwritten by us, primarily automobile loans.

• 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.

The commercial and industrial category includes PPP loans totaling $336.6 million and $2.2 billion at December 31, 2021 and December 31, 2020, respectively.

Additional information relating to originated loans and loans acquired in a business combination is provided in Note 5, “Loans and Leases” in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

Total loans and leases increased $2.2 billion, or 9.3%, to $25.5 billion at December 31, 2020, compared to $23.3 billion at December 31, 2019, reflecting commercial loan growth of $2.7 billion or 18.7%, and a decrease in consumer loans of $0.6 billion or 6.8%.

The commercial loan growth was primarily attributed to $2.6 billion of PPP loans originated, while the decline in consumer loans was primarily due to the sale of $0.5 billion in indirect auto loans.

Total loans and leases increased $1.1 billion, or 5.1%, to $23.3 billion at December 31, 2019, compared to $22.2 billion at December 31, 2018, led by strong commercial loan activity, combined with increases in the residential mortgage and indirect installment portfolios.

Total loans and leases decreased $489.9 million, or 1.9%, to $25.0 billion at December 31, 2021, compared to $25.5 billion at December 31, 2020, reflecting a commercial loan decline of $1.0 billion or 5.8%, and an increase in consumer loans of $514.7 million or 6.4%.

Excluding PPP, total loans and leases increased $1.3 billion, or 5.7%, as commercial loans increased $817.2 million, or 5.3%, and consumer loans increased $514.7 million, or 6.4%.

Since the inception of the PPP, we originated $3.6 billion of PPP loans, including $1.0 billion during 2021, with $336.6 million outstanding as of December 31, 2021.

As of December 31, 2021, 28.8% of the commercial real estate loans were owner-occupied, while the remaining 71.2% were non-owner-occupied, compared to 28.1% and 71.9%, respectively, as of December 31, 2020.

As of December 31, 2020 and 2019, we had commercial construction loans of $1.7 billion and $1.3 billion, respectively, representing 6.8% and 5.5% of total loans and leases, respectively.

As of December 31, 2021 and 2020, we had commercial construction loans of $1.7 billion at each respective date representing 6.9% and 6.8% of total loans and leases, respectively.

Additionally, as of December 31, 2021 and 2020, we had residential construction loans of $300.6 million and $191.5 million, respectively, representing 1.2% and 0.8% of total loans and leases, respectively.

The increase in construction loans reflects the continued shortage of existing homes available for sale relative to strong homebuying demand.

Within our primary lending footprint, certain industries are more predominant given the geographic location of these lending markets.

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(in millions) Within

5 Years Through 15 years After

15 Years Total

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For additional information relating to lending activity, see Note 5, “Loans and Leases” in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

For additional information on repricing of floating interest rates, see the Market Risk section of MD&A, which is included in Item 7 of this Report.

Non-Performing Assets

Non-performing loans include non-accrual loans and non-performing TDRs.

Past due loans are reviewed on a monthly basis to identify loans for non-accrual status.

Past due loans are reviewed monthly to identify loans for non-accrual status.

We place a loan on non-accrual status and discontinue interest accruals on originated loans generally when principal or interest is due and has remained unpaid for a certain number of days, unless the loan is both well secured and in the process of collection.

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TDRs are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress.

During 2021, non-accrual loans decreased nearly 50% compared to December 31, 2020, representing an $82.4 million reduction.

This largely reflects the actions we took in late 2020 to better position our loan portfolio, at which time we proactively took risk off the table during a challenging macroeconomic environment.

Examples of actions we took included an indirect auto loan sale of $0.5 billion and exiting of commercial loans in COVID-19 sensitive industries, primarily within the hotel and lodging sector.

During 2020, non-performing assets increased $52.1 million.

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Loans in COVID-19 sensitive industries, primarily within the hotel and lodging sector, contributed to the increase in non-accrual loans at the end of 2020.

Prior to the adoption of CECL, acquired PCD loans were excluded from our non-performing disclosures.

PCD loans that meet the definition of non-accrual are now included in the disclosures and resulted in a $54 million CECL adoption Day 1 increase in non-accrual loans compared to December 31, 2019.

The decrease in OREO was largely driven by the sale of multiple pieces of real estate.

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Government stimulus and support programs generated through the CARES Act, such as the PPP, began to assist our borrowers through the difficult financial disruptions.

We continued to offer these programs during the second half of 2020.

offered short-term modifications to our customers to assist them through this period.

The programs our customers have taken advantage of are:

• Existing customers who were current prior to the start of the pandemic, can elect to defer loan principal and interest payments or interest payments for up to 90 days without late fees but will continue to accrue interest.

During 2020, approximately 6,100 commercial customers have elected this option.

• Mortgage and consumer loan customers have up to a 90-day payment deferral option, depending on their loan type.

During 2020, approximately 9,500 of these customers have elected this option.

• SBA disaster relief assistance, including the PPP.

We continued to offer these programs during the pandemic.

We offered short-term modifications to our customers to assist them through this period.

We had over 15,000 customers take advantage of our deferral programs.

The loan deferral programs can be extended on an individual basis.

Total deferrals at December 31, 2020 were approximately $397 million, or 1.7%, of total loans and leases (excluding PPP loans) on deferral as of December 31, 2020, down from $2.4 billion, or 10.2% as of June 30, 2020.

As long as the borrower was not experiencing financial difficulties immediately prior to COVID-19, short-term modifications, such as principal and interest deferments, are not being included in TDRs.

These modifications will be closely monitored for any future deterioration and included in the tables as the probability of collection deteriorates.

During 2019, non-performing assets decreased $6.9 million.

This reflects an increase of $2.2 million in non-accrual loans and decreases of $0.3 million in TDRs and $9.4 million in OREO.

The increase in non-accrual loans is attributable to the migration of three commercial credit relationships to non-accrual during 2019.

The decrease in OREO reflects sales activity of the remaining Florida land projects totaling $13.2 million.

Total deferrals at December 31, 2021 were approximately $21 million, or less than one percent, of total loans and leases (excluding PPP loans) as of December 31, 2021, down from approximately $397 million, or 1.7%, of total loans and leases (excluding PPP loans) on deferral as of December 31, 2020 and $2.4 billion as of June 30, 2020, the highest point during the pandemic.

As long as the borrower was not experiencing financial difficulties immediately prior to COVID-19, short-term modifications, such as principal and interest deferments, are not required to be included in TDRs.

These modifications will be closely monitored for any future deterioration and included in the non-performing tables as the probability of collection deteriorates.

Following is a summary of non-performing loans and leases, by class:

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Total non-performing loans and leases $ 88 $ 170 $ (82) (48.2) %

$ 170 $ 103 $ 100 $ 98 $ 86

(1) Prior to 2020, does not include loans acquired in a business combination at fair value.

Following is a summary of non-performing assets:

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Non-performing assets / total assets 0.24 % 0.48 %

After the adoption of CECL, all non-accrual loans and TDRs are included in the non-accrual loans line in the above table.

After the adoption of CECL on January 1, 2020, all non-accrual loans and TDRs are included in non-accrual loans in the above table.

Troubled Debt Restructured Loans

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Total consumer loans 54 10 64

Total $ 58 $ 33 $ 91

December 31, 2019

Commercial real estate $ 3 $ 5 $ 8

Commercial and industrial 1 3 4

Total commercial loans 4 8 12

Direct installment 18 3 21

Residential mortgages 14 3 17

Consumer lines of credit 5 1 6

Total consumer loans 37 7 44

Total $ 41 $ 15 $ 56

December 31, 2018

Commercial real estate $ 3 $ 2 $ 5

Commercial and industrial 1 — 1

Total commercial loans 4 2 6

Direct installment 17 4 21

Residential mortgages 13 3 16

Consumer lines of credit 5 — 5

Total consumer loans 35 7 42

Total $ 39 $ 9 $ 48

December 31, 2017

Commercial real estate $ 3 $ 4 $ 7

Commercial and industrial 3 — 3

Total commercial loans 6 4 10

Direct installment 19 3 22

Residential mortgages 15 2 17

Consumer lines of credit 4 1 5

Total consumer loans 38 6 44

Total $ 44 $ 10 $ 54

Total TDRs $ 60 $ 32 $ 92

December 31, 2020

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Total consumer loans 53 12 65

Total $ 38 $ 9 $ 47

Total TDRs $ 58 $ 33 $ 91

Following is a summary of loans and leases 90 days or more past due on which interest accruals continue:

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On January 1, 2020, we adopted CECL which changed how we calculate the ACL as more fully described in Note 1 to the Notes to Consolidated Financial Statements.

This expected credit loss model takes into consideration the expected credit losses over the life of the loan at the time the loan is originated compared to the incurred loss model under the prior standard.

At the time of the adoption, we recorded a one-time cumulative-effect adjustment of $50.6 million as a reduction to Retained Earnings.

The ACL balance increased by $105 million and included a “gross-up" of PCD loan balances and the ACL of $50 million.

Included in the CECL adoption impact was a Day 1 increase of $10 million to our AULC.

The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates.

The CECL model takes into consideration the expected credit losses over the life of the loan at the time the loan is originated, compared to the incurred loss model under the prior standard.

The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current

conditions and forecasts of economic conditions and interest rates.

Specifically, the following considerations are incorporated into the ACL calculation:

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COVID-19 Impacts on the ACL

Starting in March 2020, the broader economy experienced a significant deterioration in the macroeconomic environment driven by the COVID-19 pandemic resulting in notable adverse changes to forecasted economic variables utilized in our ACL modeling process.

Based on these changes, we utilized a third-party pandemic recessionary scenario through September 30, 2020 for ACL modeling purposes.

For December 31, 2020, we utilized a third-party consensus macroeconomic forecast due to the improving macroeconomic environment.

This scenario captures forecasted macroeconomic variables as of mid-December to ensure our ACL calculation considers the most recently available macroeconomic data in a quickly evolving environment at quarter-end.

Macroeconomic variables that we utilized from this scenario for our ACL calculation as of December 31, 2020 included but were not limited to:

(i) gross domestic product, which reflects growth of up to 4% in 2021, (ii) the Dow Jones Total Stock Market Index, which grows steadily throughout the R&S period, (iii) unemployment, which steadily declines and averages 6% over the R&S period and (iv) the Volatility Index, which remains stable over the R&S period.

Following is a summary of changes in the ACL related to loans and leases:

Beginning in March 2020, the broader economy experienced a significant deterioration in the macroeconomic environment driven by the COVID-19 pandemic resulting in notable adverse changes to forecasted economic variables utilized in our ACL modeling process.

Based on these changes, we utilized a third-party pandemic recessionary scenario from the first quarter of 2020 through the third quarter of 2020 for ACL modeling purposes.

At December 31, 2020 and December 31, 2021, we utilized a third-party consensus macroeconomic forecast due to the improving macroeconomic environment.

For our ACL calculation at December 31, 2021, the macroeconomic variables that we utilized included, but were not limited to:

(i) the purchase only Housing Price Index, which reflects growth of 6.3% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which reflects growth of 13.0% over our R&S forecast period, (iii) S&P Volatility, which increases 15.2% in 2022 and 1.9% in 2023 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historic levels.

Macroeconomic variables that we utilized for our ACL calculation as of December 31, 2020 included, but were not limited to:

(i) gross domestic product, which reflects growth of 4% in 2021, (ii) the Dow Jones Total Stock Market Index, which grows steadily throughout the R&S forecast period, (iii) unemployment, which steadily declines and averages 6% over the R&S forecast period and (iv) the Volatility Index, which remains stable over the R&S forecast period.

While we have not changed our ACL modeling methodology, we continually assess our key macroeconomic variables and their correlation to our historical and expected portfolio performance.

Beginning with the third quarter of 2021, we changed certain macroeconomic variables used for ACL modeling purposes as the new variables better correlate to our historical performance over the economic cycles.

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

Year Ended December 31 2021 2020

(dollars in millions)

Balance at beginning of period $ 196 $ 180 $ 175 $ 158 $ 142

Net loan charge-offs by category to average loans:

Commercial real estate 0.01 % 0.10 %

Commercial and industrial 0.04 0.10

Commercial leases (1) — (3) (1) (1)

Other (4) (3) (4) (4) (3)

Commercial loans and leases (68) (17) (34) (34) (30)

Direct installment (1) (1) (17) (12) (10)

Residential mortgages (2) (2) — — —

Other commercial — 0.01

Indirect installment 0.01 0.02

Consumer lines of credit — 0.01

Consumer loans (13) (16) (29) (24) (20)

Loans acquired in a business combination — (9) (7) (2) (1)

Total charge-offs (81) (42) (70) (60) (51)

Commercial real estate 7 4 3 2 4

Commercial and industrial 7 4 2 2 2

Other 1 — — 1 —

Commercial loans and leases 15 8 5 5 6

Direct installment 1 — 2 2 2

Residential mortgages 1 — — — —

Indirect installment 4 4 4 4 2

Consumer loans 6 4 6 6 4

Loans acquired in a business combination — 2 3 5 1

Total recoveries 21 14 14 16 11

Net charge-offs (60) (28) (56) (44) (40)

Provision for credit losses 122 44 61 61 56

ASC 326 adoption impact 55 — — — —

Initial ACL on PCD loans 50 — — — —

Balance at end of period $ 363 $ 196 $ 180 $ 175 $ 158

Net loan charge-offs/average loans 0.06 % 0.24 %

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Balance at end of period $ 19 $ 14

The ACL at December 31, 2020 increased $167.2 million or 85.4% from December 31, 2019, primarily due to the adoption of CECL, as discussed above.

The ACL on loans and leases of $344.3 million at December 31, 2021 decreased $18.8 million, or 5.2%, from December 31, 2020 due to the improving macroeconomic environment and positive credit quality trends.

Our ending ACL coverage ratio at December 31, 2021 was 1.38%, compared to 1.43% at December 31, 2020.

Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loan and leases ratio equaled 1.40% at December 31, 2021 and 1.56% at December 31, 2020, directionally consistent with improved credit metrics.

Total provision for credit losses during 2021 was $0.6 million.

Net charge-offs were $13.9 million, or 0.06%, of total average loans, compared to $59.8 million, or 0.24%, in 2020, reflecting COVID-19 impacts on certain segments of the loan portfolio in 2020.

The ACL as a percentage of non-performing loans for the total portfolio increased from 213% as of December 31, 2020 to 392% as of December 31, 2021 following the decrease in non-performing loans during the quarter, while the total ACL decreased $18.8 million, as noted above.

The ACL on loans and leases of $363.1 million at December 31, 2020 increased $167.2 million or 85.4% from December 31, 2019, primarily due to the adoption of CECL, as discussed above, combined with qualitative adjustments, such as economic modeling uncertainty given the COVID-19 related environment and loan deferral activity as prescribed in the CARES Act and by the banking regulators.

The ratio of the ACL to total loans and leases was 1.43% and 0.84% at December 31, 2020 and 2019, respectively, with the 2020 figure reflecting the adoption of CECL and COVID-19 impacts.

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Net charge-offs totaled $59.8 million or 0.24% of total average loans, compared to $28.3 million or 0.12% in 2019, reflecting COVID-19 impacts on certain segments of the loan portfolio.

The ACL at December 31, 2019 increased $16.2 million or 9.0% from December 31, 2018, in response to growth in originated loans and some migration in the commercial and indirect portfolios.

The provision for credit losses during 2019 was $44.6 million, which covered net charge-offs and supported organic loan growth.

The ACL at December 31, 2018 increased $4.3 million or 2.4% from December 31, 2017, in response to growth in originated loans and leases and a small increase in originated criticized commercial loans.

The provision for credit losses during 2018 was $61.2 million, which covered net charge-offs and supported organic loan growth.

The amount of provision expense that resulted from the small increase in originated criticized commercial loans was offset by a provision benefit received through a decline in the overall delinquency and non-performing loan level in 2018.

Net charge-offs were $56.0 million, or 0.26% of average loans, compared to $43.8 million, or 0.22% of average loans, in 2017, with the increase primarily due to $13.4 million, or 6 basis points, relating to the sale of a small portfolio of non-performing loans in the second quarter of 2018 and the sale of Regency in the third quarter of 2018.

Following is a summary of the allocation of the ACL and the percentage of loans in each category to total loans:

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Loans Allowance % of

Commercial real estate $ 157 40 % $ 181 38 %

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Consumer loans 83 34 83 31

Total originated loans 363 100 189 88 173 82 168 73 151 84

Loans acquired in a business combination — — 7 12 7 18 7 27 7 16

Total $ 344 100 % $ 363 100 %

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The ACL on those loans are reflected in their respective loan categories.

During 2020, the ACL allocated to commercial real estate and commercial and industrial loans increased primarily due to the adoption of CECL, as previously discussed, and also to support loan growth.

During 2019, the ACL allocated to commercial real estate and commercial and industrial loans increased to support organic loan growth and $2.6 million of additional specific reserves, and indirect installment increased due to an increase in early stage delinquency.

Additionally, the increases in residential mortgages and commercial leases support organic loan growth.

During 2018, the ACL allocated to commercial real estate, commercial and industrial, commercial leases, residential mortgages and indirect installment loans all increased to support organic loan growth.

The ACL allocated to direct installment loans decreased as a result of the sale of Regency.

The ACL allocated to other loans acquired in a business combination decreased due to improved credit quality.

During 2021, the ACL allocated to commercial real estate decreased primarily due to the improving macroeconomic environment and positive credit quality trends for this portfolio.

During 2020, the ACL allocated to commercial real estate and commercial and industrial loans increased primarily due to the impacts of CECL and adverse macroeconomic conditions, as previously discussed, and also to support loan growth.

Investment Activity

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All other securities are categorized as securities AFS and are recorded at fair value.

AFS debt securities in unrealized loss positions are evaluated for impairment related to credit loss at least quarterly.

Management has determined that no credit loss exists on securities AFS.

Securities, like loans, are subject to similar interest rate and credit risk.

In addition, by their nature, securities classified as AFS are also subject to fair value risks that could negatively affect the level of liquidity available to us, as well as stockholders’ equity.

A change in the value of securities HTM could also negatively affect the level of stockholders’ equity if there was a decline in the underlying creditworthiness of the issuers and an OTTI is deemed to have occurred or if there was a change in our intent and ability to hold the securities to maturity.

A change in the value of securities HTM could also negatively affect the level of stockholders’ equity if there was a decline in the underlying creditworthiness of the issuers.

A CECL methodology is applied to securities HTM.

As of December 31, 2021, a CECL reserve of $0.05 million was recorded.

As of December 31, 2021, debt securities classified as AFS and HTM totaled $3.4 billion and $3.5 billion, respectively.

During 2020, debt securities AFS increased by $174.1 million and debt securities HTM decreased by $407.8 million from December 31, 2019.

During 2021, debt securities AFS decreased by $37.5 million and debt securities HTM increased by $595.8 million from December 31, 2020.

As of December 31, 2021 and 2020, we did not hold any trading securities.

The following table indicates the respective maturities and weighted-average yields of debt securities as of December 31, 2020:

The following table indicates the respective contractual maturities and weighted-average yields of debt securities HTM, shown at amortized cost, as of December 31, 2021:

(dollars in millions) Amount Weighted

Obligations of U.S.

Maturing within one year $ 600 0.08 %

Maturing after five years but within ten years $ 1 5.25 %

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government agencies:

Maturing after one year but within five years 6 1.79

Maturing after five years but within ten years 83 1.10

Maturing after ten years 1 2.35

Obligations of U.S.

government-sponsored entities:

Maturing within one year 160 1.43

Maturing after one year but within five years 96 1.31

Maturing after five years but within ten years 25 0.58

States of the U.S.

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Maturing after ten years 854 3.64

Other debt securities:

Maturing after five years but within ten years 2 1.03

Residential mortgage-backed securities:

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The weighted average yields for tax-exempt debt securities are computed on an FTE basis using the federal statutory tax rate of 21.0%.

The weighted average yields for debt securities AFS are based on amortized cost.

The amortized cost of AFS and HTM securities are summarized in the following table:

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The increase in U.S.

Treasury securities is a result of our strategic reduction in other investment categories, as reinvestment opportunities were less attractive in the low interest rate environment.

Treasury securities in 2020 is a result of our strategic reduction in other investment categories, as reinvestment opportunities were less attractive in the low interest rate environment.

For additional information relating to investment activity, see Note 3, “Securities” in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

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Total deposits $ 31,726 $ 29,122 $ 2,604 8.9 %

Total deposits increased during 2020, as a result of growth in non-interest-bearing and interest-bearing balances due to an expansion of customer relationships and higher customer balances, which were aided by inflows from the PPP and government stimulus activity.

During the year, customer preferences shifted away from higher rate certificates of deposit to lower yielding, more liquid products.

The deposit growth helped us eliminate overnight borrowings and substantially reduce other short-term borrowings.

Following is a summary of time deposits of $100,000 or more by remaining maturity at December 31, 2020:

(in millions) Certificates

of Deposit Other

Deposits Total

Total deposits increased $2.6 billion, or 8.9%, from December 31, 2020, primarily as a result of growth in non-interest-bearing and interest-bearing demand balances due to an expansion of customer relationships and higher customer balances, which were aided by inflows from the PPP and government stimulus activity.

Customer preferences continued to shift away from higher rate certificates of deposit to lower yielding, more liquid products, and maintained larger deposit account balances than before the pandemic.

The deposit growth helped us eliminate overnight borrowings and reduce higher-cost short-term FHLB borrowings and their related swaps.

Following is a summary of estimated insured and uninsured time deposits in excess of the FDIC insurance limit by remaining maturity at December 31, 2021:

(in millions) Insured Uninsured Total

Three months or less $ 631 $ 76 $ 707

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Borrowings with original maturities of one year or less are classified as short-term.

Short-term borrowings, made up of customer repurchase agreements (also referred to as securities sold under repurchase agreements), FHLB advances, federal funds purchased and subordinated notes, decreased to $1.8 billion at December 31, 2020 from $3.2 billion at December 31, 2019, due to a $1.0 billion decline in short-term FHLB borrowings and the elimination of the $0.6 billion in federal funds purchased position.

Following is a summary of selected information relating to certain components of short-term borrowings:

Short-term borrowings, made up of customer repurchase agreements (also referred to as securities sold under repurchase agreements), FHLB advances and subordinated notes, decreased to $1.5 billion at December 31, 2021 from $1.8 billion at December 31, 2020, primarily due to a $250.0 million decline in short-term FHLB borrowings.

Following is a summary of selected information relating to short-term FHLB borrowings:

At or for the Year Ended December 31 2021 2020 2019

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2.13 1.83 2.35

Federal Funds Purchased

Balance at year-end $ — $ 575 $ 1,535

Maximum month-end balance 1,420 1,957 1,830

Average balance during year 348 1,383 1,585

Weighted average interest rates:

— % 1.57 % 2.51 %

During the year

1.08 2.35 1.93

For additional information relating to deposits and short-term borrowings, see Note 12, “Deposits” and Note 13, “Short-Term Borrowings” in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

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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.

Pursuant to this registration statement, we may, from time to time, issue and sell in one or more offerings any combination of common stock, preferred stock, debt securities, depositary

shares, warrants, stock purchase contracts or units.

On February 24, 2020, we completed an offering of $300.0 million of 2.20% fixed rate senior notes due in 2023 under this registration statement.

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We used the net proceeds from the sale of the notes for general corporate purposes, which included investments at the holding company level, capital to support the growth of FNBPA, repurchase of our common shares and refinancing of outstanding indebtedness.

On February 14, 2019, we completed an offering of $120.0 million of 4.950% fixed-to-floating rate subordinated notes due in 2029 under this registration statement.

The subordinated notes are treated as tier 2 capital for regulatory capital purposes.

The net proceeds of this debt offering after deducting underwriting discounts and commissions and offering expenses were $118.2 million.

We used the net proceeds from the sale of the subordinated notes to redeem higher-rate long-term borrowings and for general corporate purposes.

On September 23, 2019 we announced that our Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $150 million of our common stock.

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There is no guarantee as to the exact number of shares that will be repurchased and we may discontinue purchases at any time.

During 2020, we repurchased 4.0 million shares at a weighted average share price of $9.63 for $38.4 million under this repurchase program.

As of December 31, 2021, we repurchased 7.6 million shares at a weighted average share price of $10.69 for $81.6 million under this repurchase program, with $68.4 million remaining for repurchase.

Capital management is a continuous process with capital plans and stress testing for FNB and FNBPA updated at least annually.

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From time to time, we issue shares initially acquired by us as treasury stock under our various benefit plans.

We may issue additional preferred or common stock in order to maintain our well-capitalized status.

We may issue additional preferred or common stock to maintain our well-capitalized status.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

The following table sets forth contractual obligations of principal that represent required and potential cash outflows as of December 31, 2021:

(in millions) Within

5 Years Total

(in millions) Total

Deposits without a stated maturity $ 28,867

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Operating leases 170

Long-term debt 427 350 105 213 1,095

Long-term borrowings 682

Total $ 32,578

The following table sets forth the amounts and expected maturities of commitments to extend credit and standby letters of credit as of December 31, 2020:

(in millions) Within

5 Years Total

The following table sets forth the amount of commitments to extend credit and standby letters of credit as of December 31, 2021:

(in millions) Total

Commitments to extend credit $ 11,228

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Commitments to extend credit and standby letters of credit do not necessarily represent future cash requirements because while the borrower has the ability to draw upon these commitments at any time, these commitments often expire without being drawn upon.

Additionally, a significant portion of these commitments can be terminated by FNB.

Additionally, we can terminate a significant portion of these commitments at our discretion.

For additional information relating to commitments to extend credit and standby letters of credit, see Note 16, “Commitments, Credit Risk and Contingencies” in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

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In addition, through one of our subsidiaries, we regularly issue subordinated notes, which are guaranteed by FNB.

The cash position at December 31, 2021 was $295.4 million, down $84.2 million from December 31, 2020, due primarily to $43.2 million in share repurchases.

Management has utilized various strategies to ensure sufficient cash on hand is available to meet the parent's funding needs.

On February 24, 2020, we completed a senior debt offering whereby we issued $300.0 million aggregate principal amount of 2.20% senior notes due in 2023.

The proceeds from this transaction were used for general corporate purposes and were the primary factor resulting in an increase in our MCH liquidity metric as shown below.

Starting in March 2020, management incorporated potential liquidity impacts related to COVID-19 into our daily analysis.

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

Two metrics that are used to gauge the adequacy of the parent company’s cash position are the LCR and MCH.

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Months of cash on hand 16.9 months 22.2 months > 12 months

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

Our liquidity position has been positively impacted by our ability to generate growth in relationship-based accounts.

Organic growth in low-cost transaction deposits was complemented by management’s strategy of deposit gathering efforts focused on attracting new customer relationships and deepening relationships with existing customers, in part through internal lead generation efforts leveraging data analytics capabilities.

We have also increased customer deposit relationships due to the success of the PPP.

Total deposits were $31.7 billion at December 31, 2021, an increase of $2.6 billion, or 8.9%, from December 31, 2020.

Total non-interest-bearing demand deposit accounts grew $2.7 billion , or 41.6%, total interest-bearing demand deposit accounts grew $2.1 billion, or 19.1% , savings accounts grew $0.6 billion, or 24.2%, and time deposits decreased $1.1 billion, or 22.5%.

Total non-interest-bearing demand deposit accounts grew $1.7 billion , or 19.3%, and interest-bearing demand deposits increased $1.3 billion, or 9.5%.

Savings account balances increased $407.6 million, or 12.5%.

Time deposits declined $802.9 million, or 21.9%, as customer preferences continued to shift away from longer term certificates of deposit to lower yielding, more liquid products.

In addition, customers maintained larger balances in their deposit accounts than before the pandemic.

As mentioned earlier, inflows from PPP and government stimulus checks were a significant factor in the deposit growth.

The significant increase in customer deposits, along with the proceeds from the sale of $0.5 billion in indirect auto loans, resulted in a $1.7 billion reduction in borrowings.

The reduction in borrowings included the termination of $715 million in FHLB advances that had a rate of 2.49%.

Finally, our cash held at the FRB was $0.8 billion at December 31, 2020, an increase of $0.7 billion as we shifted from a Federal Funds Purchased position of $0.6 billion at December 31, 2019 to an excess cash position held at the FRB at December 31, 2020.

FNBPA has significant unused wholesale credit availability sources that include the availability to borrow from the FHLB, the FRB, correspondent bank lines, access to brokered deposits, the PPPLF and other channels.

In addition to credit availability, FNBPA also possesses salable unpledged government and agency securities that could be utilized to meet funding needs.

As a result of the strong deposit activity, total borrowings were reduced by $681.0 million and our cash balances held at the FRB increased $2.1 billion from year-end 2020 to $3.0 billion at December 31, 2021.

In addition to credit availability, FNBPA also

possesses salable unpledged government and agency securities that could be utilized to meet funding needs.

We currently also have excess cash to meet our pledging requirements.

The ALCO is currently targeting a 1% guideline level for salable unpledged government and agency securities due to an elevated influx of related deposits, in part related to the PPP, combined with a strategic decline of $234 million of investment securities, which represents 0.6% of total assets.

At December 31, 2021, we have $3.8 billion of cash and salable unpledged government and agency securities to total assets, or 9.8%.

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:

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Salable unpledged government and agency securities as a % of FNBPA assets 2.1 % 1.5 %

The PPPLF accounted for 42% of the $5.2 billion increase in availability since December 31, 2019.

This funding source has been extended to March 31, 2021.

We also had $828.3 million, or 2.4% of total assets, in excess cash available to meet our pledging requirements.

Cash and salable unpledged government and agency securities as a % of FNBPA assets 9.8 % 3.8 %

The decrease in unused wholesale credit availability of $1.8 billion was due to the expiration of the Paycheck Protection Program Liquidity Facility (PPPLF) as the FRB ceased lending money under this program, effective July 30, 2021.

We had availability of $2.2 billion at December 31, 2020 and $0 at December 31, 2021.

We never borrowed under this facility.

Unused funding availability, absent the decline in PPPLF, grew by $405 million.

Our strong cash position would also be available to meet our pledging requirements.

Another metric for measuring liquidity risk is the liquidity gap analysis.

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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.

Interest rate risk measures we utilize include earnings simulation, economic value of equity (EVE) and gap analysis.

Gap analysis and EVE are static measures that do not incorporate assumptions regarding future business.

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If interest rates increase as modeled, net interest income will increase and, conversely, if interest rates decrease as modeled, net interest income will decrease.

The change in the cumulative repricing gap at December 31, 2020, compared to December 31, 2019, is primarily related to growth and changes in the mix of loans, deposits and borrowings.

Strong commercial loan growth, a large portion of which was swapped to adjustable rates, and the increased cash flow from the loan and investment portfolios, were partially offset by growth in and repricing of certain interest-bearing non-maturity deposit balances and the repayment of FHLB advances.

The funding and redemption of both fixed and adjustable borrowings that were swapped to a fixed rate was opportunistically transacted to take advantage of the lower interest rate environment and add liquidity to support loan growth.

The change in the cumulative repricing gap at December 31, 2021, compared to December 31, 2020, is primarily related to growth in deposits.

As mentioned earlier, inflows from PPP and government stimulus checks were a significant factor of growth in non-interest-bearing balances.

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.

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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 December 31, 2021.

Using a static Balance Sheet structure, the measures do not reflect all of management's potential counteractions.

Using a static Balance Sheet structure, the measures do not reflect management's potential counteractions.

The following table presents an analysis of the potential sensitivity of our net interest income and EVE to changes in interest rates using rate shocks:

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We also model rate scenarios which move all rates gradually over twelve months (Rate Ramps) and model scenarios that gradually change the shape of the yield curve.

Assuming a static Balance Sheet, a +100 basis point Rate Ramp increases net interest income (12 months) by 3.2% and 1.5% at December 31, 2020 and 2019, respectively.

Assuming a static Balance Sheet, a +100 basis point Rate Ramp increases net interest income (12 months) by 3.6%, or $30.6 million, at December 31, 2021 and 3.2% at December 31, 2020.

The corresponding metrics for a minus 100 basis point Rate Ramp are (0.5)% and 0.4% at December 31, 2021 and 2020, respectively.

The FRB's rapid and large downward interest rate moves in March 2020 as a response to the COVID-19 pandemic lowered all market interest rates, specifically 1-month LIBOR.

Thirty-five percent of our loans are indexed to one-month LIBOR.

Further, the yield curve flattened.

These factors were the primary drivers of the increase in asset sensitivity off of a lower base net interest income.

In this historically low rate environment, our strategy is to remain asset sensitive.

Deposit rate assumptions are floored at zero in the negative scenarios.

The FRB's rapid and large downward interest rate moves in March 2020 as a response to the COVID-19 pandemic lowered all market interest rates, specifically Prime Rate and 1-month LIBOR.

Fifty percent of our net loans and leases are indexed to Prime, one-month LIBOR and one-month term SOFR.

Our increased cash position related to increased deposits has also been a significant factor in our metrics.

Assuming no replacement, the estimated impact of available cash in the +200-shock scenario above accounts for 5.0% of the 14.4% total asset sensitivity.

These factors were the primary drivers of the increase in asset sensitivity.

In this historically low-rate environment, our strategy is to remain asset sensitive to benefit from future increases in interest rates.

There are multiple factors that influence our interest rate risk position and impact net interest income.

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Management utilizes various tactics to achieve our desired interest rate risk (IRR) position.

In response to the change in interest rates, management was proactive in addressing our IRR position.

As mentioned earlier, we were successful in growing our transaction deposits which provides funding that is less interest rate-sensitive than short-term time deposits and wholesale borrowings.

Also, we were able to lower rates on deposit products and shorten the term of the certificates of deposit volumes.

This continues to be an intense focus of management.

Further, during the second half of the year, management took advantage of the interest rate environment to reduce borrowing costs.

On the lending side, we regularly sell long-term fixed-rate residential mortgages to the secondary market and have been successful in the origination of consumer and commercial loans with short-term repricing characteristics.

In response to the change in interest rates, management was proactive in managing our IRR position.

As mentioned earlier, we were successful in growing our transaction deposits which provides funding that is less interest rate-sensitive than short-term time deposits and wholesale

Also, we were able to lower rates on deposit products and shorten the average maturity of the certificates of deposit volumes.

This continues to be a focus of management.

Furthermore, management took advantage of the interest rate environment to reduce borrowing costs.

Management has reduced the level of borrowings by $678 million this year.

On the lending side, we regularly sell long-term fixed-rate residential mortgages in the secondary market and have been successful in the origination of consumer and commercial loans with short-term repricing characteristics.

In particular, we have made use of interest rate swaps to commercial borrowers (commercial swaps) to manage our IRR position as the commercial swaps effectively increase adjustable-rate loans.

Total variable and adjustable-rate loans were 56.0% and 59.1% of total loans as of December 31, 2020 and 2019, respectively.

As of December 31, 2020, 80.2% of these loans, or 44.9% of total loans, are tied to the Prime or one-month LIBOR rates.

Total variable and adjustable-rate loans were 61.3% of total net loans and leases as of December 31, 2021 and 56.0% as of December 31, 2020.

As of December 31, 2021, the commercial swaps totaled $5.5 billion of notional principal, with $1.5 billion in original notional swap principal originated during 2021.

For additional information regarding interest rate swaps, see Note 15, “Derivative and Hedging Activities” to the financial statements in this Report.

This year, we also executed $1.0 billion in receive fixed/pay floating 1-month LIBOR interest rate swaps with an average life of 3.6-years as a hedge to additional asset sensitivity.

For additional information regarding interest rate swaps, see Note 15, “Derivative Instruments and Hedging Activities” in the Notes to the Consolidated Financial Statements in this Report.

The investment portfolio is also used, in part, to manage our IRR position.

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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.

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.

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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.

Enterprise-Wide Risk Management, Fraud Risk, Loan Review, Model Risk Management, Third-Party Risk Management, Anti-Money Laundering and Bank Secrecy Act, CRA, Appraisal Review, Compliance, and Information and Cyber Security.

All second line of defense departments report to the Chief Risk Officer to ensure the coordinated and consistent implementation of risk management initiatives and strategies on a day-to-day basis.

Our Enterprise-Wide Risk Management Department conducts risk and control assessments across all of our business and operational areas to ensure the appropriate risk identification, risk management and reporting of risks enterprise-wide.

The Fraud Risk Department monitors for internal and external fraud risk across all of our business and operational units.

The Loan Review Department conducts independent testing of our loan risk ratings to ensure their accuracy, which is instrumental to calculating our ACL.

Our Model Risk Management Department

oversees validation and testing of all models used in managing risk across our company.

Our Third-Party Risk Management Department ensures effective risk management and oversight of third-party relationships throughout the vendor life cycle.

The Anti-Money Laundering and Bank Secrecy Act Department monitors for compliance with money laundering risk and associated regulatory compliance requirements.

Our Community Reinvestment Department monitors for compliance with the requirements of the CRA.

The Appraisal Review Department facilitates independent ordering and review of real estate appraisals obtained for determining the value of real estate pledged as collateral for loans to customers.

Our Compliance Department is responsible for developing policies and procedures and monitoring compliance with applicable laws and regulations which govern our business operations.

Our Information and Cyber Security Department is responsible for maintaining a risk assessment of our information and cybersecurity risks and ensuring appropriate controls are in place to manage and control such risks, through the use of the National Institute of Standards and Technology framework for improving critical infrastructure by measuring and evaluating the effectiveness of information and cybersecurity controls.

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 of 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 of 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.

• Community Reinvestment Department - monitors for compliance with the requirements of the CRA.

• 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, through the use of the National Institute of Standards and Technology framework for improving critical infrastructure by measuring and evaluating the effectiveness of information and cybersecurity controls.

This department also oversees our disaster recovery planning and testing efforts to ensure we are capable and ready for business resumption in the event of a disaster.

As discussed in more detail under the COVID-19 section of this Report, we have in place various business and emergency continuity plans to respond to different crises and circumstances which include rapid deployment of our Crisis Management Team, Incident Management Team and Business Continuity Coordinators to activate our plans for various types of emergency circumstance.

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Tax benefit of merger-related expense (370) — —

Merger-related net securities gains — — — (2,609) —

Tax expense of merger-related net securities gains — — — 913 —

Reduction in valuation of deferred tax assets — — — 54,042 —

COVID-19 expense — 11,276 —

Tax benefit of COVID-19 expense — (2,368) —

Discretionary 401(k) contribution — — 874 — —

Tax benefit of discretionary 401(k) contribution — — (184) — —

Gain on sale of Visa class B stock — (13,818) —

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Tax benefit of loss on FHLB debt extinguishment and related hedge terminations — (5,378) —

Gain on sale of subsidiary — — (5,135) — —

Tax expense of gain on sale of subsidiary — — 1,078 — —

Branch consolidation costs 2,644 18,745 4,505

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The table above shows how operating net income available to common stockholders (non-GAAP) is derived from amounts reported in our financial statements.

We believe certain charges such as merger expenses, branch consolidation costs, service charge refunds, COVID-19 expenses and special one-time employee 401(k) contributions related to tax reform are not organic costs to run our operations and facilities.

We believe certain charges such as merger expenses, branch consolidation costs, service charge refunds, COVID-19 expenses are not organic costs to run our operations and facilities.

These costs are specific to each individual transaction and may vary significantly based on the size and complexity of the transaction.

Similarly, gains derived from the sale of a business and gains on sale of Visa class B stock and losses on FHLB debt extinguishment and related hedge terminations are not organic to our operations.

Similarly, gains on sale of Visa class B stock and losses on FHLB debt extinguishment and related hedge terminations are not organic to our operations.

The COVID-19 expenses represent special company initiatives to support our front-line employees and the communities we serve during an unprecedented time of a pandemic.

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Tax benefit of merger-related expense — — —

Merger-related net securities gains — — — (0.01) —

Tax expense of merger-related net securities gains — — — — —

Reduction in valuation of deferred tax assets — — — 0.18 —

COVID-19 expense — 0.03 —

Tax benefit of COVID-19 expense — (0.01) —

Discretionary 401(k) contribution — — — — —

Tax benefit of discretionary 401(k) contribution — — — — —

Gain on sale of Visa class B stock — (0.04) —

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Tax benefit of loss on FHLB debt extinguishment and related hedge terminations — (0.02) —

Gain on sale of subsidiary — — (0.01) — —

Tax expense of gain on sale of subsidiary — — 0.01 — —

Branch consolidation costs 0.01 0.06 0.01

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Intangible assets (1)

(2,304,410) (2,316,527)

Tangible common equity (non-GAAP) $ 2,738,572 $ 2,535,494

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Tangible common equity / tangible assets (period-end)

2020 2019 2018

December 31 2021 2020

(dollars in thousands)

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Pre-provision net revenue to average tangible common equity

Year Ended December 31 2021 2020 2019

(dollars in thousands)

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Non-interest income 330,419 294,556 294,266

Less non-interest expense (750,349) (696,128) (694,532)

Non-interest expense (733,168) (750,349) (696,128)

Pre-provision net revenue (as reported) $ 503,727 $ 466,289 $ 515,377

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Loss on FHLB debt extinguishment and related hedge terminations (non-interest income) — 25,611 —

Gain on sale of subsidiary (non-interest income) — — (5,135)

Merger-related expense (non-interest expense) 1,764 — —

COVID-19 expense (non-interest expense) — 11,276 —

Discretionary 401(k) contribution (non-interest expense) — — 874

Branch consolidation costs (non-interest expense) 2,644 18,745 2,783

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OREO expense (2,598) (4,434) (4,652)

Merger-related expense (1,764) — —

COVID-19 expense — (11,276) —

Discretionary 401(k) contribution — — (874)

Branch consolidation costs (2,644) (18,745) (2,783)

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Loss on FHLB debt extinguishment and related hedge terminations — 25,611 —

Gain on sale of subsidiary — — (5,135)

Branch consolidation costs — — 1,722

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis