What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 270 added, 304 removed, 883 unchanged (39% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the three- and six-month periods ended June 30, 2022 and 2021.

MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the three- and nine-month periods ended September 30, 2022 and 2021.

This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2021 Annual Report on Form 10-K filed with the SEC on February 24, 2022.

Our results of operations for the six months ended June 30, 2022 are not necessarily indicative of results expected for the full year.

Our results of operations for the nine months ended September 30, 2022 are not necessarily indicative of results expected for the full year.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

17 unchanged sentences

and (vi) the sociopolitical environment in the U.S.

• Business and operating results 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.

• Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards.

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

4 unchanged sentences

These developments could include:

◦ Changes resulting from the current U.S.

◦ Policies and priorities of 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.

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

◦ Changes in monetary and fiscal policies, including interest rate policies and strategies of the Federal Open Market Committee (FOMC).

◦ Changes in monetary and fiscal policies, including interest rate policies and strategies of the FOMC.

◦ Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or 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, enforcement actions 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.

11 unchanged sentences

• The possibility that the anticipated benefits of the transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where FNB and UB Bancorp do business, or as a result of other unexpected factors or events;

• Completion of the transaction is dependent on the satisfaction of customary closing conditions, including approval by UB Bancorp stockholders, which cannot be assured, and the timing and completion of the transaction is dependent on various factors that cannot be predicted with precision at this point;

• Completion of the transaction is dependent on the satisfaction of customary closing conditions which cannot be assured, and the timing and completion of the transaction is dependent on various factors that cannot be predicted with precision at this point;

• The occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement;

• Completion of the transaction is subject to bank regulatory approvals and such approvals may not be obtained in a timely manner or at all or may be subject to conditions which may cause additional significant expense or delay the consummation of the merger transaction;

• Although bank regulatory approvals and such approvals for the transaction have been obtained, completion of the transaction remains subject to bank regulatory oversight, which may cause additional significant expense or delay the consummation of the merger transaction;

• Potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the transaction;

18 unchanged sentences

USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS

To supplement our Consolidated Financial Statements presented in accordance with GAAP, we use certain non-GAAP financial measures, such as operating net income available to common stockholders, operating earnings per diluted common share, return on average tangible common equity, return on average tangible assets, tangible book value per common share, the ratio of tangible equity to tangible assets, the ratio of tangible common equity to tangible assets, provision for credit losses, excluding the initial provision for non-PCD loans associated with the Howard acquisition, average deposits, excluding Howard average deposits, loans and leases, excluding PPP loans and Howard loans as of the acquisition date, loans and leases, excluding PPP loans (average), loans and leases, excluding PPP loans, pre-provision net revenue to average tangible common equity, efficiency ratio and net interest margin (FTE) to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers.

Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities.

6 unchanged sentences

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

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

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

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

2 unchanged sentences

FINANCIAL SUMMARY

Net income available to common stockholders for the second quarter of 2022 was $107.1 million or $0.30 per diluted common share, compared to net income available to common stockholders for the second quarter of 2021 of $99.4 million or $0.31 per diluted common share.

On an operating basis, earnings per diluted common share (non-GAAP) was $0.31 for the second quarter of 2022, excluding $2.0 million (pre-tax) in merger-related significant items, while the second quarter of 2021 was $0.31, excluding $2.6 million of significant items (pre-tax).

During the second quarter, we grew revenue by 7.5% to a record of $335.8 million, primarily due to an expansion in net interest income driven by benefits from the higher interest rate environment and by overall growth in securities and loans while maintaining solid asset quality.

Excluding PPP, average loans and leases (non-GAAP) increased $1.1 billion, or 17.5% annualized, on a linked-quarter basis.

Asset quality remains a key focus with proactive risk management and a conservatively underwritten balance sheet producing our solid reserve coverage and net recoveries this quarter of 0.01%.

On June 1, 2022, the Company announced the signing of a definitive merger agreement to acquire Greenville, North Carolina-based UB Bancorp with total assets of $1.2 billion at March 31, 2022, including its wholly owned banking subsidiary, Union Bank, in an all-stock transaction valued at $19.56 per share, or a fully diluted market value of approximately $117 million, based upon the closing stock price of FNB as of Tuesday, May 31, 2022.

This merger will further strengthen FNB's North Carolina presence while enhancing its low-cost deposit base.

Income Statement Highlights (Second quarter of 2022 compared to second quarter of 2021, except as noted)

Net income available to common stockholders for the third quarter of 2022 was $135.5 million or $0.38 per diluted common share, compared to net income available to common stockholders for the third quarter of 2021 of $109.5 million or $0.34 per diluted common share.

On an operating basis, earnings per diluted common share (non-GAAP) was $0.39 for the third quarter of 2022, excluding $2.1 million (pre-tax) in merger-related significant items, while the third quarter of 2021 was $0.34, excluding $0.9 million of significant items (pre-tax).

During the third quarter, we produced strong financial results that set multiple records, including total revenue of $380 million, operating earnings per share (non-GAAP) of $0.39 and an efficiency ratio (non-GAAP) of 49% as well as a strong return on average tangible common equity (ROATCE) (non-GAAP) of 19%.

Ending loans and deposits grew an annualized 10% and 5%, respectively, compared to the prior quarter, and we maintained a strong deposit mix with 35% in non-interest-bearing deposits.

Our asset quality continues to perform favorably with a low delinquency rate and 0.04% of net charge-offs.

We continue to stay focused on changes to the economic environment and will actively monitor emerging risks to manage through potentially challenging macroeconomic conditions.

Income Statement Highlights (Third quarter of 2022 compared to third quarter of 2021, except as noted)

• Record total revenue of $379.6 million increased $58.3 million, or 18.2%.

• Net interest income increased $64.7 million, or 27.8%, to $297.1 million primarily due to the benefit of growth in earning assets, as well as the rising interest rate environment.

• On a linked-quarter basis net interest income totaled $253.7 million, an increase of $19.6 million, or 8.4%, from the prior quarter total of $234.1 million, primarily due to growth in average earning assets and benefits from the higher interest rate environment, partially offset by decreased contribution from PPP.

• The net interest margin (FTE) (non-GAAP) increased 6 basis points to 2.76%, as the yield on earning assets increased 5 basis points to 3.05%, primarily reflecting the higher yields on variable-rate loans and investment securities partially offset by significant reductions in PPP contributions as the PPP loan portfolio winds down.

• On a linked-quarter basis net interest income of $297.1 million increased $43.4 million, or 17.1%, from the prior quarter total of $253.7 million, primarily due to growth in average earning assets and benefits from the higher interest rate environment.

• On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) increased 43 basis points to 3.19% as the earning asset yield increased 62 basis points and the cost of funds increased 20 basis points.

The total impact of PPP, purchase accounting accretion and higher cash balances on net interest margin was a reduction of 12 basis points, compared to a reduction of 13 basis points in the prior quarter.

• The annualized net charge-offs/(recoveries) to total average loans ratio was (0.01)%, compared to 0.06%, with continued favorable asset quality trends across the loan portfolio.

• The provision for credit losses was $6.4 million, compared to a net benefit of $1.2 million in the prior quarter when excluding $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition (non-GAAP).

• Non-interest income was $82.2 million, an increase of $2.4 million, or 3.0%, driven by strong contributions from capital markets fee income and higher service charges reflecting increased customer activity, partially offset by reduced contributions from mortgage banking due to lower refinance volumes given significantly higher interest rates.

• The effective tax rate was 20.1%, compared to 19.7%, with the increase driven by higher pre-tax income and state income taxes.

• The efficiency ratio (non-GAAP) improved to 55.2%, compared to 56.8%.

Balance Sheet Highlights (period-end balances, June 30, 2022 compared to December 31, 2021, unless otherwise indicated)

• Period-end total loans and leases, excluding PPP loans and Howard acquired loans as of the January 22, 2022 acquisition date (non-GAAP), increased $2.6 billion, or 11.2%, as commercial loans and leases increased $1.3 billion, or 8.4%, and consumer loans increased $1.3 billion, or 16.4%, as compared to June 30, 2021.

PPP loans totaled $85.8 million at June 30, 2022, compared to $1.6 billion as of June 30, 2021.

• Excluding PPP, period-end loans and leases (non-GAAP) increased $1.3 billion, or 19.5% annualized, on a linked-quarter basis, including an increase of $795.0 million in consumer loans and $503.9 million in commercial loans and leases.

During the third quarter of 2022, the FOMC raised the target federal funds rate by a total of 150 basis points, bringing the year-to-date increases to 300 basis points.

• The annualized net charge-offs to total average loans ratio was 0.04%, compared to 0.03%, with favorable asset quality performance across the loan portfolio.

• The effective tax rate was 20.7%, compared to 19.7%, with the increase due to higher pre-tax income and state income taxes.

• The efficiency ratio (non-GAAP) was a record 49.4%, a 600 basis point improvement from September 30, 2021, reflecting record revenue and continued disciplined management of expenses.

Balance Sheet Highlights (period-end balances, September 30, 2022 compared to December 31, 2021, unless otherwise

• Period-end total loans and leases, increased $4.1 billion, or 16.4%, as compared to September 30, 2021, which includes Howard acquired loans of $1.8 billion as of the January 22, 2022 acquisition date.

Consumer loans increased $2.3 billion, or 27.5%, and commercial loans and leases increased $1.8 billion, or 10.8%, which were partially offset by the decline in PPP loans.

PPP loans totaled $43.7 million at September 30, 2022, compared to $694.3 million at September 30, 2021.

• On a linked-quarter basis, period-end loans and leases increased $735.7 million, or 10.4% annualized, including an increase of $546.8 million in consumer loans and $188.9 million in commercial loans and leases.

Average loans and leases increased $1.2 billion, or 17.3% annualized, linked-quarter with growth of $722.9 million in consumer loans and $463.1 million in commercial loans and leases.

• Total average deposits grew $2.8 billion, or 9.0%, from the same prior-year period, led by increases in average non-interest-bearing deposits of $1.4 billion, or 13.9%, and average interest-bearing demand deposits of $1.0 billion, or 7.3%, partially offset by a decrease in average time deposits of $144.8 million, or 4.7%.

Average deposit growth reflected organic growth in new and existing customer relationships and inflows from the January 2022 Howard acquisition.

Excluding Howard, average deposits (non-GAAP) grew $1.6 billion, or 5.1%, from the same prior-year period.

Average deposit growth

reflected organic growth in new and existing customer relationships and includes Howard acquired deposits of $1.8 billion as of the January 22, 2022 acquisition date.

On a linked-quarter basis, period-end deposits increased $413.0 million, or 4.9%, annualized.

• The ratio of loans to deposits was 84.9%, compared to 78.7%, as loan growth outpaced deposit growth.

1 unchanged sentence

• Total assets were $42.6 billion, compared to $39.5 billion, an increase of $3.1 billion, or 7.8%, primarily due to organic growth in loans and the Howard acquisition.

• The dividend payout ratio for the second quarter of 2022 was 39.7%, compared to 39.1% for the second quarter of 2021 due to merger-related expenses in the second quarter of 2022.

• The ratio of the ACL to total loans and leases was 1.34%, compared to 1.38%, directionally consistent with improved credit metrics.

The ACL on loans and leases totaled $378 million at June 30, 2022, compared to $344 million with the increase driven by the growth in total loans outstanding, lower prepayment speed assumptions and the initial ACL related to the Howard acquisition.

• Tangible book value per share (non-GAAP) of $8.10, decreased $0.49, or 5.7%.

AOCI reduced the tangible book value per common share by $0.72 as of June 30, 2022, primarily due to the impact of higher interest rates on the fair value of AFS securities, compared to a $0.19 reduction.

• The CET1 regulatory capital ratio decreased to 9.7% from 9.9% with the decline primarily due to an increase in risk-weighted assets from the strong loan growth as cash was deployed to fund new loans.

• During the second quarter of 2022, the Company repurchased 1.1 million shares of common stock at a weighted average share price of $11.77 for a total of $13.0 million.

In April 2022, our Board of Directors approved an additional $150 million for the repurchase of our common stock to be added to our existing share repurchase program, bringing the total authorization to $300 million.

Since inception, we repurchased 11.0 million shares at a weighted average share price of $11.33 for $124.4 million under this repurchase program.

The ACL on loans and leases totaled $385 million at September 30, 2022, compared to $344 million with the increase driven by significant loan growth, CECL-related model impacts from a forecasted macroeconomic slowdown and lower prepayment speed assumptions and the initial ACL related to the Howard acquisition.

• Tangible book value per common share (non-GAAP) of $8.02, decreased $0.08, or 1.0%, compared to June 30, 2022.

AOCI reduced the tangible book value per common share by $1.08 as of September 30, 2022, primarily due to the impact of higher interest rates on the fair value of AFS securities, compared to a $0.72 reduction as of June 30, 2022, offset by higher pre-tax income.

• The CET1 regulatory capital ratio was 9.7%, consistent with 9.7% at June 30, 2022, benefitting from the strong retained earnings growth in the quarter.

Three Months Ended

September 30,

Quarterly Results Summary 2022 2021

3 unchanged sentences

Book value per common share (period-end) 15.11 15.65

Pre-provision net revenue (millions) 143.1 125.1

Common equity tier 1 capital ratio 9.7 % 9.9 %

2 unchanged sentences

Operating net income per diluted common share 0.39 0.34

Pre-provision net revenue (millions) 145.1 127.8

Average diluted common shares outstanding (thousands) 354,654 322,861

2 unchanged sentences

After-tax impact of merger-related expenses (1.7) (0.7)

Pre-tax branch consolidation costs — (2.6)

After-tax impact of branch consolidation costs — (2.1)

Total significant items pre-tax $ (2.1) $ (0.9)

3 unchanged sentences

Tangible book value per common share (period-end) $ 8.02 $ 8.42

Six Months Ended

Nine Months Ended

September 30,

Year-to-Date Results Summary 2022 2021

2 unchanged sentences

Net income per diluted common share 0.83 0.93

Pre-provision net revenue (millions) 228.0 246.0

Operating results (non-GAAP)

1 unchanged sentence

Operating net income per diluted common share 0.96 0.94

Pre-provision net revenue (millions) 262.9 248.7

Average diluted common shares outstanding (thousands) 352,786 323,636

10 unchanged sentences

Industry Developments

INFLATION REDUCTION ACT

On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law.

The IRA introduces a 15% corporate alternative minimum tax (AMT) based primarily on consolidated adjusted GAAP net income with a minimum threshold of $1 billion.

The corporate AMT provisions are effective for taxable years beginning after December 31, 2022.

The details of the computation will be subject to regulations to be issued by the Department of the Treasury.

Our current net income levels are well below the $1 billion threshold, but we will monitor regulatory developments and will continue to evaluate the impact, if any, of the corporate AMT.

The IRA imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations after December 31, 2022.

The total taxable value of shares repurchased is reduced by the fair market value of any newly issued shares during the taxable year, including stock issued to employees.

LIBOR and SOFR

2 unchanged sentences

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.

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

The FRB of New York has created a working group called the Alternative Reference Rate Committee (ARRC) to assist U.S.

1 unchanged sentence

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

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

On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act) was signed into law.

The LIBOR Act establishes a uniform national approach for replacing LIBOR in legacy contracts that do not provide for the use of a clearly defined replacement benchmark rate.

The LIBOR Act also directs the FRB to issue regulations to implement the legislation addressed by this Act.

We are currently evaluating the impact that the LIBOR Act will have on us.

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.

2 unchanged sentences

Beginning in September 2020, adjustable rate mortgage loans have been originated with SOFR as the underlying index.

Their balance as of June 30, 2022 is approximately $650 million, an increase of $210 million compared to December 31, 2021.

Their balance as of September 30, 2022 was $869.2 million, an increase of $530.7 million compared to December 31, 2021.

We started originating commercial loans utilizing SOFR and other indices in the fourth quarter of 2021.

During the first six months of 2022, we originated in excess of $1.6 billion in SOFR indexed loans, including LIBOR loans that transitioned to SOFR during the period.

The current balance of commercial loans indexed to SOFR is approximately $1.7 billion.

As of September 30, 2022, the balance of commercial loans indexed to SOFR was $3.3 billion, including certain LIBOR loans that transitioned to SOFR during this timeframe.

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 June 30, 2022, approximately $9 billion of our loan portfolio consisted of loans whose variable rate index is LIBOR, a decline of $1.4 billion from March 31, 2022.

Lastly, we have approximately $220 million of outstanding FNB issued and acquired debt that uses LIBOR as its base index.

As of September 30, 2022, $8.3 billion of our loan portfolio consisted of loans whose variable rate index is LIBOR, a decline of $2.3 billion as compared to December, 31, 2021.

In addition, $646.1 million of LIBOR-based loans will mature prior to the June 30, 2023 conversion date.

Lastly, as of September 30, 2022, we have $76.5 million in TPS and $145.0 million in fixed-to-floating rate other subordinated debt that uses LIBOR as its base index.

We are in the process of reviewing the legal contracts to address the LIBOR transition for these debt instruments by the June 30, 2023 conversion date.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

Net income available to common stockholders for the three months ended June 30, 2022 was $107.1 million or $0.30 per diluted common share, compared to net income available to common stockholders for the three months ended June 30, 2021 of $99.4 million or $0.31 per diluted common share.

The results for the second quarter of 2022 reflect revenue of $335.8 million, an increase of $28.2 million, or 9.2%.

Additionally, the provision for credit losses was $6.4 million with the increase primarily due to significant loan growth and CECL-related model impacts from lower prepayment speed assumptions in the second quarter of 2022.

This compares to a provision benefit of $1.1 million for the second quarter of 2021.

Non-interest income for the second quarter of 2022 included increases in service charges and capital markets income of $5.0 million, or 16.7% and $1.5 million, or 21.9%, respectively.

Non-interest expense for the second quarter of 2022 increased $10.3 million primarily due to salaries and employee benefits, occupancy and equipment, marketing expense and merger-related costs of $2.0 million.

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Net income available to common stockholders for the three months ended September 30, 2022 was $135.5 million or $0.38 per diluted common share, compared to $109.5 million or $0.34 per diluted common share for the three months ended September 30, 2021.

The results for the third quarter of 2022 reflect record revenue of $379.6 million, an increase of $58.3 million, or 18.2%.

Additionally, the provision for credit losses was $11.2 million compared to a provision benefit of $1.8 million primarily due to significant loan growth and CECL-related model impacts from a forecasted macroeconomic slowdown and lower prepayment speed assumptions which result in a longer expected loan life in the third quarter of 2022.

Non-interest income declined $6.4 million, or 7.2%, from record levels in the third quarter of 2021 driven by decreases in mortgage banking operations, capital markets and SBA premium income, partially offset by increases in service charges income and dividends on non-marketable equity securities.

Non-interest expense for the third quarter of 2022 increased $10.8 million primarily due to occupancy and equipment and outside services.

Financial highlights are summarized below:

Three Months Ended

September 30, $ %

(in thousands, except per share data) 2022 2021 Change Change

12 unchanged sentences

Three Months Ended

September 30,

Return on average equity 9.91 % 8.74 %

15 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

(dollars in thousands) Average

48 unchanged sentences

Net Interest Income

Net interest income on an FTE basis (non-GAAP) increased $25.7 million, or 11.2%, from $230.6 million for the second quarter of 2021 to $256.3 million for the second quarter of 2022.

Net interest income on an FTE basis (non-GAAP) increased $65.0 million, or 27.7%, to $300.0 million for the third quarter of 2022.

Average earning assets of $37.4 billion increased $3.0 billion, or 8.9%, from 2021.

In addition to the growth in average earning assets, net interest income benefited from the repricing impact of the higher interest rate environment, which was partially offset by the higher cost of interest-bearing deposit accounts.

In addition to the growth in average earning assets, net interest income benefited from the repricing impact of the higher interest rate environment on earning asset yields, which was partially offset by the higher cost of interest-bearing deposit accounts.

Additionally, PPP net interest income declined $26.3 million, equivalent to 0.23% of net interest margin, from the year-ago quarter as the PPP portfolio winds down.

Average interest-bearing liabilities of $24.1 billion increased $1.2 billion, or 5.0%, from 2021, driven by an increase of $1.3 billion in average interest-bearing deposits which included organic growth in new and existing customer relationships, and inflows from the Howard acquisition, partially offset by a decrease in average borrowings of $194.8 million.

Our net interest margin FTE (non-GAAP) increased 6 basis points to 2.76%, as the yield on earning assets increased 5 basis points even with a reduced PPP contribution.

The total cost of funds was stable at 0.30%, with a 4 basis point increase in interest-bearing deposit costs.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended June 30, 2022, compared to the three months ended June 30, 2021:

Our net interest margin FTE (non-GAAP) increased 47 basis points to 3.19%, as the yield on earning assets increased 68 basis points.

The total cost of funds increased 22 basis points to 0.50% with a 36 basis-point increase in interest-bearing deposit costs, as well as an increase of 118 basis points in long-term debt cost partially due to the August 2022 offering of $350 million aggregate principal amount of 5.150% fixed rate senior notes due in 2025.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended September 30, 2022, compared to the three months ended September 30, 2021:

(in thousands) Volume Rate Net

20 unchanged sentences

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 $283.4 million for the second quarter of 2022, increased $27.8 million, or 10.9%, from the same quarter of 2021, primarily due to the impact of higher short-term interest rates on cash balances and an increase in earning assets of $3.1 billion.

The increase in earning assets was primarily driven by a $1.8 billion, or 7.3%, increase in average loans and leases, an increase in average securities of $903.3 million, and a $301.6 million increase in average cash and cash equivalents balances.

Excluding PPP loans (non-GAAP), average total loans and leases increased $3.8 billion, or 16.5%, including growth of $2.2 billion in commercial loans and leases ($1.1 billion from Howard) and $1.7 billion in consumer loans ($0.5 billion from Howard).

The increase in average commercial loans and leases, excluding PPP (non-GAAP), included $1.4 billion, or 28.3%, in commercial and industrial loans and $723.1 million, or 7.3%, in commercial real estate balances driven by a combination of organic loan origination activity and the Howard acquisition.

Commercial loan origination activity was led by the Pittsburgh, Cleveland and North Carolina markets.

Average consumer loans increased $1.7 billion, or 21.1%, with a $981.9 million increase in residential mortgages and a $585.5 million increase in direct installment loans driven by strong organic loan origination activity and the Howard acquisition.

Additionally, the net increase in the

securities portfolio was a result of management's strategy to deploy excess liquidity into higher yielding securities, as average securities increased 14.6%.

The yield on average earning assets (non-GAAP) increased 5 basis points from 3.00% for the second quarter of 2021 to 3.05% for the second quarter of 2022, primarily reflecting the higher yields on variable-rate loans and investment securities offset by significant reductions in PPP contributions as the PPP loan portfolio winds down.

Interest expense of $27.1 million for the second quarter of 2022 increased $2.1 million, or 8.5%, from the same quarter of 2021, due to an increase in rates paid on average interest-bearing liabilities and growth in average interest-bearing deposits over the same quarter of 2021.

Interest income on an FTE basis (non-GAAP) of $345.6 million for the third quarter of 2022, increased $87.4 million, or 33.8%, from the same quarter of 2021, primarily due to the impact of the 2022 interest rate increases by the FOMC and an increase in average earning assets of $3.0 billion.

The increase in earning assets was primarily driven by a $3.7 billion, or 15.0%, increase in average loans and leases and an increase in average securities of $1.1 billion.

These increases were partially funded by excess cash which decreased $1.6 billion.

Commercial loan growth was led by the Cleveland, Pittsburgh and North Carolina markets.

Average consumer loans increased $2.1 billion, or 25.9%, with a $1.2 billion increase in residential mortgages and a $601.4 million increase in direct installment loans driven by a combination of strong organic loan origination activity and the Howard acquisition.

Average PPP loans declined $1.1 billion, or 94.3%, from the year-ago quarter as the portfolio winds down.

Additionally, the net increase in the securities portfolio was a result of management's strategy to deploy excess liquidity into higher yielding securities, as average securities increased 17.1%.

The yield on average earning assets (non-

GAAP) increased 68 basis points to 3.67% for the third quarter of 2022, primarily reflecting the higher yields on variable-rate loans and investment securities.

Interest expense of $45.6 million for the third quarter of 2022 increased $22.4 million, or 96.2%, from the same quarter of 2021, due to an increase in rates paid on average interest-bearing liabilities and growth in average interest-bearing deposits.

Average non-interest-bearing deposits increased $1.4 billion, or 13.9%, and average interest-bearing deposits increased $1.3 billion, or 6.6%.

1 unchanged sentence

Average short-term borrowings decreased $159.6 million, or 10.3%, primarily reflecting decreases of $100.0 million and $65.6 million in short-term FHLB advances and repurchase agreements, respectively.

Average long-term borrowings decreased $242.1 million, or 25.4%, primarily reflecting a decrease of $263.7 million in long-term FHLB advances, partially offset by the addition of Howard's $25.0 million of subordinated debt.

The rate paid on interest-bearing liabilities increased 2 basis points from 0.43% to 0.45% for the second quarter of 2022, primarily due to the interest rate actions made by the FOMC and partially offset by management's actions taken to reduce the cost of interest-bearing liabilities.

Average long-term borrowings decreased $35.2 million, or 4.0%, primarily reflecting a decrease of $200.0 million in long-term FHLB advances, partially offset by an increase of $140.5 million in senior debt resulting from the issuance of $350 million in 5.150% fixed rate senior notes during the third quarter of 2022 and an increase of $25.3 million in subordinated debt resulting from the Howard acquisition.

The rate paid on interest-bearing liabilities increased 35 basis points from 0.40% to 0.75% for the third quarter of 2022, primarily due to the FOMC interest rate actions and partially offset by management's actions taken to reduce the cost of interest-bearing liabilities.

Provision for Credit Losses

2 unchanged sentences

Three Months Ended

September 30, $ %

(dollars in thousands) 2022 2021 Change Change

3 unchanged sentences

Provision for credit losses $ 11,194 $ (1,821) $ 13,015 714.7 %

Net loan charge-offs (recoveries) (381) 3,822 (4,203) (110.0)

Net loan charge-offs (recoveries) (annualized) / total average loans and leases (0.01) % 0.06 %

Provision for credit losses was $6.4 million during the second quarter of 2022, an increase of $7.5 million, from the same period of 2021.

The second quarter of 2022 is comprised of a $7.0 million provision for loans and leases outstanding and a $0.6 million provision benefit for unfunded loan commitments.

The net increase reflects significant loan growth and CECL-related model impacts from lower prepayment speed assumptions in the second quarter of 2022.

The second quarter of 2022 also reflected net recoveries of $0.4 million, or 0.01% annualized of total average loans, compared to net charge-offs of $3.8 million, or 0.06% annualized, in the second quarter of 2021.

Net loan charge-offs 2,812 1,591 1,221 76.7

Net loan charge-offs (annualized) / total average loans and leases 0.04 % 0.03 %

Provision for credit losses was $11.2 million during the third quarter of 2022, an increase of $13.0 million, from the same period of 2021.

The third quarter of 2022 is comprised of a $10.1 million provision for loans and leases outstanding and a $1.1 million provision for unfunded loan commitments.

The net increase reflects significant loan growth and CECL-related model impacts from a forecasted macroeconomic slowdown and lower prepayment speed assumptions which result in a longer expected loan life in the third quarter of 2022.

The third quarter of 2022 also reflected net charge-offs of $2.8 million, or 0.04% annualized of total average loans, compared to net charge-offs of $1.6 million, or 0.03% annualized, in the third quarter of 2021.

For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses on Loans and Leases section of this Management’s Discussion and Analysis.

Non-Interest Income

The breakdown of non-interest income for the three months ended June 30, 2022 and 2021 is presented in the following table:

The breakdown of non-interest income for the three months ended September 30, 2022 and 2021 is presented in the following table:

Three Months Ended

September 30, $ %

(dollars in thousands) 2022 2021 Change Change

10 unchanged sentences

Total non-interest income $ 82,464 $ 88,854 $ (6,390) (7.2) %

Total non-interest income increased $2.4 million, or 3.0%, to $82.2 million for the second quarter of 2022, compared to $79.8 million for the second quarter of 2021.

Total non-interest income decreased $6.4 million, or 7.2%, to $82.5 million for the third quarter of 2022, compared to a record $88.9 million for the third quarter of 2021.

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

Service charges of $34.7 million for the second quarter of 2022 increased $5.0 million, or 16.7%, from the same period of 2021, driven by interchange fees, treasury management services and higher customer activity.

Capital markets increased $1.5 million, or 21.9%, with solid contributions from swap fees, international banking, and debt capital markets.

Mortgage banking operations income of $6.1 million for the second quarter of 2022 decreased $1.3 million, or 17.5%, from the same period of 2021, as secondary market revenue and mortgage held-for-sale pipelines declined from higher levels given the sharp increase in mortgage rates in 2022.

During the second quarter of 2022, we sold $328.4 million of residential mortgage loans, compared to $526.5 million for the same period of 2021, a decrease of 37.6%.

Bank owned life insurance decreased $0.7 million, or 15.2%, due to higher life insurance claims in the second quarter of 2021 as compared to the second quarter of 2022.

Other non-interest income was $3.8 million and $7.1 million for the second quarter of 2022 and 2021, respectively, with the decline primarily due to strong SBA premium income levels in 2021.

Service charges of $36.0 million for the third quarter of 2022 increased $4.2 million, or 13.4%, from the same period of 2021, driven by interchange fees, increases in treasury management services and higher customer activity.

Capital markets income of $9.6 million for the third quarter of 2022 decreased $2.9 million, or 23.4%, from the same period of 2021, as the decline in swap fees from elevated levels in the year-ago quarter was partially offset by increased contributions from international banking and syndications.

Mortgage banking operations income of $5.1 million for the third quarter of 2022 decreased $3.1 million, or 37.6%, from the same period of 2021, as secondary market revenue and mortgage held-for-sale pipelines declined from higher levels given the sharp increase in interest rates in 2022.

During the third quarter of 2022, we sold $214.2 million of residential mortgage loans, compared to $395.6 million for the same period of 2021, a decrease of 45.8%.

Dividends on non-marketable equity securities of $3.3 million for the third quarter of 2022 increased $1.4 million, or 75.4%, from the same period of 2021, reflecting an increase in the FRB dividend rate given the higher interest-rate environment.

Other non-interest income was $4.7 million and $9.4 million for the third quarters of 2022 and 2021, respectively, as SBA premium income declined $1.9 million from elevated levels and the year-ago quarter included a $2.2 million recovery on a previously written-off asset.

Non-Interest Expense

The breakdown of non-interest expense for the three months ended June 30, 2022 and 2021 is presented in the following table:

The breakdown of non-interest expense for the three months ended September 30, 2022 and 2021 is presented in the following table:

Three Months Ended

September 30, $ %

(dollars in thousands) 2022 2021 Change Change

10 unchanged sentences

Total non-interest expense $ 195,057 $ 184,226 $ 10,831 5.9 %

Total non-interest expense of $192.8 million for the second quarter of 2022 increased $10.3 million, or 5.6%, from the same period of 2021.

Non-interest expense increased $10.9 million, or 6.1%, when excluding significant items of $2.0 million of merger-related expenses in the second quarter of 2022 and $2.6 million of branch consolidation costs in the second quarter of 2021.

Total non-interest expense of $195.1 million for the third quarter of 2022 increased $10.8 million, or 5.9%, from the same period of 2021.

Non-interest expense increased $9.7 million, or 5.3%, when excluding significant items of $2.1 million and $0.9 million in merger-related expenses in the third quarters of 2022 and 2021, respectively.

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

Salaries and employee benefits of $103.9 million for the second quarter of 2022 increased $1.8 million, or 1.8%, from the same period of 2021, due primarily to annual merit increases and the acquired Howard expense base.

Net occupancy and equipment of $34.5 million for the second quarter of 2022 increased $1.0 million, or 3.0% from the same period of 2021.

On an operating basis, net occupancy and equipment increased $3.1 million, or 10.0%, primarily from technology-related investments and the acquired Howard expense base.

Amortization of intangibles of $3.5 million increased $0.5 million, or 17.4%, primarily due to the amortization of core deposit intangibles from the Howard acquisition.

Marketing expense increased $1.2 million over the same prior-year period due to increased spending on digital advertising and campaigns related to our Physician's First Program.

FDIC insurance of $5.3 million increased $1.1 million, or 25.8%, primarily due to loan growth and balance sheet mix shift.

We recorded $2.0 million in merger-related costs in the second quarter of 2022 relating to the Howard acquisition and the pending UB Bancorp merger.

Other non-interest expense was $17.8 million and $14.1 million for the second quarter of 2022 and 2021, respectively.

In the second quarter of 2021, we recorded over $0.5 million in branch consolidation costs and had an increase in business development expense and other operational costs during the current period in other non-interest expense.

The following table presents non-interest expense excluding significant items for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30, $ %

Salaries and employee benefits of $106.6 million for the third quarter of 2022 increased $1.7 million, or 1.6%, from the same period of 2021, due primarily to normal annual merit increases and the acquired Howard expense base.

Net occupancy and equipment of $34.8 million for the third quarter of 2022 increased $4.3 million, or 13.9%, from the same period of 2021, primarily from technology-related investments and the acquired Howard expense base.

Outside services of $19.0 million for the third quarter of 2022 increased $1.2 million, or 6.6%, with higher volume-related technology and third-party costs, as well as the acquired Howard expense base.

FDIC insurance of $5.2 million for the third quarter of 2022 increased $0.8 million, or 19.2%, from the same period of 2021, primarily due to loan growth and balance sheet mix shift.

We recorded $2.1 million in merger-related costs in the third quarter of 2022 relating to the the pending UB Bancorp merger and the Howard acquisition, compared to $0.9 million in the third quarter of 2021 related to the Howard acquisition.

Other non-interest expense was $16.5 million and $15.2 million for the third quarters of 2022 and 2021, respectively, as business development expense and other operational costs increased compared to the year-ago period.

The following table presents non-interest expense excluding significant items for the three months ended September 30, 2022 and 2021:

Three Months Ended September 30, $ %

(dollars in thousands) 2022 2021 Change Change

1 unchanged sentence

Significant items:

Branch consolidations — (2,644) 2,644

Merger-related (2,105) (940) (1,165)

3 unchanged sentences

Three Months Ended

September 30,

(dollars in thousands) 2022 2021

2 unchanged sentences

Statutory federal tax rate 21.0 21.0

Both periods’ tax rates are lower than the federal statutory tax rates of 21% due to tax benefits primarily resulting from tax-exempt income on investments and loans, tax credits and income from BOLI.

Income tax expense was higher in 2022 due to higher pre-tax earnings and state income taxes.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Net income available to common stockholders for the first six months of 2022 was $158.1 million or $0.45 per diluted common share, compared to net income available to common stockholders for the first six months of 2021 of $190.6 million or $0.59 per diluted common share.

The provision for credit losses for the first six months of 2022 totaled $24.4 million including $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition.

This compares to $4.8 million in the first six months of 2021.

Non-interest income totaled $160.5 million, a decrease of $2.1 million, or 1.3%, reflecting reduced contributions from mortgage banking due to the increasing interest rate environment, partially offset by strong contributions from wealth management, capital markets and insurance commissions and fees, as well as higher service charges reflecting increased customer activity.

Non-interest expense of $420.2 million, increased $52.8 million, or 14.4%, as the first six months of 2022 included merger-related costs of $30.7 million and branch consolidation costs of $4.2 million.

The first six months of 2021 included the impact of branch consolidation costs of $2.6 million.

On an operating basis, earnings per diluted common share (non-GAAP) was $0.57, compared to $0.59.

Both periods’ tax rates are lower than the federal statutory tax rate of 21% due to tax benefits primarily resulting from tax-exempt income on investments and loans, tax credits and income from BOLI.

Income tax expense and the effective tax rate increased due to higher pre-tax income and state income taxes compared to the year-ago quarter.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Net income available to common stockholders for the first nine months of 2022 was $293.6 million or $0.83 per diluted common share, compared to $300.1 million or $0.93 per diluted common share for the first nine months of 2021.

On an operating basis (non-GAAP), net income available to common stockholders for the first nine months of 2022 was $337.9 million, or $0.96, compared to $302.9 million or $0.94 per diluted common share for the first nine months of 2021.

The provision for credit losses for the first nine months of 2022 totaled $35.6 million, including $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition, compared to $3.0 million in the first nine months of 2021.

Non-interest income totaled $242.9 million, a decrease of $8.5 million, or 3.4%, reflecting reduced contributions from mortgage banking due to the sharp increase in interest rates in 2022 and lower capital markets income from record levels in 2021, partially offset by increased contributions from wealth management and dividends on non-marketable equity securities, as well as higher service charges reflecting increased customer activity.

Non-interest expense of $615.3 million, increased $63.7 million, or 11.5%, as the first nine months of 2022 included merger-related costs of $32.8 million and branch consolidation costs of $4.2 million.

The first nine months of 2021 included merger-related costs of $0.9 million and branch consolidation costs of $2.6 million.

Financial highlights are summarized below:

Six Months Ended

Nine Months Ended

September 30, $ %

(in thousands, except per share data) 2022 2021 Change Change

11 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

Return on average equity 7.33 % 8.17 %

15 unchanged sentences

Six Months Ended June 30,

Nine Months Ended September 30,

(dollars in thousands) Average

48 unchanged sentences

Net Interest Income

Net interest income on an FTE basis (non-GAAP) totaled $493.0 million, increasing $36.6 million, or 8.0%, as the higher interest rate environment impacted earning asset yields.

There was growth in earning assets of $3.2 billion or 9.5%, partially offset by a reduced net interest margin.

The net interest margin (FTE) (non-GAAP) declined 3 basis points to 2.69%, primarily reflecting lower yields on commercial loans due to significantly lower PPP accretion and investment securities, combined with the effect of higher average cash balances on the mix of earning assets.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the six months ended June 30, 2022, compared to the six months ended June 30, 2021:

Net interest income on an FTE basis (non-GAAP) totaled $793.1 million, increasing $101.6 million, or 14.7%, as the higher interest rate environment benefited earning asset yields given the asset sensitive positioning of the balance sheet.

There was growth in earning assets of $3.1 billion, or 9.3%, primarily driven by strong loan growth.

The net interest margin (FTE) (non-GAAP) increased 14 basis points to 2.86%, primarily reflecting higher yields on variable-rate loans, investment securities and excess cash balances, partially offset by a 0.13% reduction related to PPP.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021:

(in thousands) Volume Rate Net

20 unchanged sentences

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 $539.6 million for the first six months of 2022, increased $29.7 million, or 5.8%, from the same period of 2021, resulting from the impact of higher short-term interest rates on interest-bearing deposits with banks and an increase in earning assets of $3.2 billion.

The increase in earning assets was primarily driven by a $1.3 billion, or 5.2%, increase in average loans, a $921.5 million increase in average cash and cash equivalents and an increase in average securities of $907.7 million.

Excluding PPP loans, average total loans and leases increased $3.3 billion, or 14.4%, including growth of $1.9 billion in commercial loans and leases ($1.0 billion from Howard) and $1.4 billion in consumer loans ($0.5 billion from Howard).

The increase in average commercial loans and leases, excluding PPP, included $1.2 billion, or 24.5%, in commercial and industrial loans and $686.4 million, or 6.9%, in commercial real estate balances, driven by a combination of the Howard acquisition and organic loan origination activity.

Commercial origination activity was led by the Pittsburgh, Cleveland and North and South Carolina markets.

Interest income on an FTE basis (non-GAAP) of $885.2 million for the first nine months of 2022, increased $117.1 million, or 15.2%, from the same period of 2021, resulting from the 2022 interest rate increases by the FOMC and an increase in earning assets of $3.1 billion.

The increase in earning assets was primarily driven by a $2.1 billion, or 8.4%, increase in average loans and an increase in average securities of $958.1 million.

Growth in total average commercial loans included $842.4 million, or 8.6%, in commercial real estate, partially offset by a decline of $431.0 million, or 6.3%, in commercial and industrial loans, due to average PPP loans declining $1.7 billion as the portfolio winds down.

Commercial origination activity was led by the Cleveland, Pittsburgh and North Carolina markets, as well as acquired Howard loans.

Average consumer loans increased $1.6 billion, or 20.5%, with an increase in residential mortgage loans of $958.4 million, or 27.9%, direct home equity installment loans of $552.2 million, or 26.4%, and indirect installment loans of $110.4 million, or 9.1%, driven by a combination of the Howard acquisition and organic loan origination activity.

Additionally, the net increase in the securities portfolio was a result of management's strategy to deploy excess liquidity into higher yielding securities, as average securities increased 15.6%.

For the first six months of 2022, the yield on average earning assets (non-GAAP) decreased 10 basis points to 2.94%, compared to the first six months of 2021, primarily from reduced PPP contribution.

Interest expense of $46.6 million for the first six months of 2022 decreased $6.9 million, or 13.0%, from the same period of 2021, primarily due to a decrease in rates paid, partially offset by an increase in average interest-bearing deposits.

in average deposits reflected inflows from the Howard acquisition and organic growth in new and existing customer relationships, as well as customer preferences to maintain larger balances in their deposit accounts and shift balances into more liquid accounts.

Average interest-bearing deposits increased $1.5 billion, or 7.6%, which reflects the benefit of solid organic growth in customer relationships, the addition of Howard, as well as deposits from PPP funding and government stimulus activities.

Average time deposits declined $427.5 million, or 12.6%, as customer preferences had shifted away from higher rate certificates of deposit to lower yielding, more liquid products, however, customers' preferences are beginning to shift back to certificates of deposits as interest rates increase.

Average long-term borrowings decreased $312.3 million, or 30.5%, primarily due to a decrease of $329.3 million in long-term FHLB borrowings, partially offset by the addition of Howard's $25.0 million of subordinated debt.

The rate paid on interest-bearing liabilities decreased 8 basis points to 0.39% for the first six months of 2022, compared to the first six months of 2021.

Similarly, the cost of interest-bearing deposits declined 6 basis points from 0.27% to 0.21%.

These declines were a result of management actions taken to reduce the cost of interest-bearing liabilities given the low interest rate environment in 2021 and strong growth in non-interest-bearing deposits.

For the first nine months of 2022, the yield on average earning assets (non-GAAP) increased 17 basis points to 3.19%, compared to the first nine months of 2021, reflecting the higher yields on variable-rate loans, investment securities and excess cash balances, partially offset by significant reductions in PPP contributions.

Interest expense of $92.2 million for the first nine months of 2022 increased $15.4 million, or 20.1%, from the same period of 2021, primarily due to the higher interest rate environment and an increase in average interest-bearing deposits.

The growth in average deposits reflected inflows from the Howard acquisition and solid organic growth in new and existing customer

relationships.

Average interest-bearing deposits increased $1.5 billion, or 7.2%, which reflects the benefit of solid organic growth in customer relationships and the addition of Howard.

Average time deposits declined $332.2 million, or 10.1%, as customer preferences shifted away from higher rate certificates of deposit to lower yielding, more liquid products, however, customers' preferences are beginning to shift back to certificates of deposits as interest rates increase.

Average long-term borrowings decreased $218.9 million, or 22.4%, primarily due to a decrease of $285.7 million in long-term FHLB borrowings, partially offset by increases of $47.8 million in senior debt resulting from the issuance of $350 million in 5.150% fixed rate senior notes during August 2022 and $23.4 million in subordinated debt resulting from $25.0 million acquired in the Howard acquisition.

The rate paid on interest-bearing liabilities increased 6 basis points to 0.51% for the first nine months of 2022, compared to the first nine months of 2021.

Similarly, the cost of interest-bearing deposits increased 8 basis points from 0.25% to 0.33%.

These increases were primarily a result of the interest rate actions taken by the FOMC, combined with the issuance of senior debt in August 2022.

Provision for Credit Losses

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

Six Months Ended

Nine Months Ended

September 30, $ %

(dollars in thousands) 2022 2021 Change Change

4 unchanged sentences

Net loan charge-offs (annualized) / total average loans and leases 0.02 % 0.07 %

Provision for credit losses was $24.3 million for the six months ended June 30, 2022, an increase of $19.5 million, from the same period of 2021.

The year-to-date amount for 2022 is comprised of a $25.2 million provision for loans and leases outstanding and a $0.9 million benefit for unfunded loan commitments.

The increase reflects $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition and growth in loans outstanding, partially offset by favorable asset quality trends across all loan portfolio credit metrics in 2022.

Net loan charge-offs were $1.5 million during the six months ended June 30, 2022, compared to $11.0 million during the six months ended June 30, 2021.

Provision for credit losses was $35.5 million for the nine months ended September 30, 2022, an increase of $32.5 million, from the same period of 2021.

The year-to-date amount for 2022 is comprised of a $35.3 million provision for loans and leases outstanding and a $0.2 million provision for unfunded loan commitments.

The increase reflects $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition and significant growth in loans outstanding, partially offset by favorable asset quality performance across all loan portfolio credit metrics in 2022.

Net loan charge-offs were $4.3 million during the nine months ended September 30, 2022, compared to $12.5 million during the nine months ended September 30, 2021, with both periods well below historical levels.

Non-Interest Income

The breakdown of non-interest income for the six months ended June 30, 2022 and 2021 is presented in the following table:

Six Months Ended

The breakdown of non-interest income for the nine months ended September 30, 2022 and 2021 is presented in the following table:

Nine Months Ended

September 30, $ %

(dollars in thousands) 2022 2021 Change Change

10 unchanged sentences

Total non-interest income $ 242,940 $ 251,431 $ (8,491) (3.4) %

Total non-interest income decreased $2.1 million, to $160.5 million for the first six months of 2022, a 1.3% decrease from the same period of 2021.

Total non-interest income decreased $8.5 million, or 3.4%.

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

Service charges of $66.2 million for the first six months of 2022 increased $8.7 million, or 15.0%, driven by interchange fees, treasury management services and higher customer activity.

Trust services of $20.1 million for the first six months of 2022 increased $1.7 million, or 9.2%, from the same period of 2021, primarily driven by contributions across the geographic footprint, partially offset by the market value of assets under management decreasing $191.1 million, or 2.5%, to $7.4 billion at June 30, 2022.

Capital markets income of $15.7 million for the first six months of 2022 increased $1.0 million, or 6.5%, from the same period of 2021, with contributions from swap fees, international banking and debt capital markets.

Mortgage banking operations income of $12.8 million for the first six months of 2022 decreased $10.4 million, or 44.8%, from the same period of, 2021 as secondary market revenue and mortgage held-for-sale pipelines declined from elevated levels in 2021 due to the significant increase in interest rates.

During the first six months of 2022, we sold $695.4 million of residential mortgage loans, a 33.3% decrease compared to $1.0 billion for the same period of 2021.

Bank owned life insurance of $6.7 million for the first six months of 2022 decreased $1.0 million, or 13.3%, from the same period of 2021, due to higher life insurance claims in the 2021 period.

Other non-interest income was $8.4 million and $11.5 million for the first six months of 2022 and 2021, respectively, with the decline primarily due to strong SBA premium income levels in 2021.

Service charges of $102.2 million for the first nine months of 2022 increased $12.9 million, or 14.4%, from the same period of 2021, driven by interchange fees, increases in treasury management services and higher customer activity.

Trust services of $29.7 million for the first nine months of 2022 increased $1.8 million, or 6.6%, from the same period of 2021, primarily driven by contributions across the geographic footprint, partially offset by the market value of assets under management decreasing $604.4 million, or 7.7%, to $7.2 billion at September 30, 2022.

Capital markets income of $25.3 million for the first nine months of 2022 decreased $2.0 million, or 7.3%, from the same period of 2021, as swap activity decreased from elevated levels and was partially offset by increases in international banking, syndications and debt capital markets.

Mortgage banking operations income of $17.9 million for the first nine months of 2022 decreased $13.5 million, or 42.9%, from the same period of 2021 as secondary market revenue and mortgage held-for-sale pipelines declined from elevated levels in 2021 due to the sharp increase in interest rates.

During the first nine months of 2022, we sold $909.6 million of residential mortgage loans, a 36.7% decrease compared to $1.4 billion for the same period of 2021.

Dividends on non-marketable equity securities of $8.2 million for the first nine months of 2022 increased $1.7 million, or 25.5%, from the same period of 2021, reflecting an increase in FRB dividends given the higher interest-rate environment, partially offset by a decrease in FHLB dividends.

Bank owned life insurance of $9.3 million for the first nine months of 2022 decreased $1.7 million, or 15.1%, from the same period of 2021, due to higher life insurance claims in the 2021 period.

Other non-interest income was $13.1 million and $20.9 million for the first nine months of 2022 and 2021, respectively, as SBA premium income declined $4.1 million from elevated 2021 levels due to the higher interest rate environment and the prior year also included a $2.2 million recovery on a previously written-off other asset.

Non-Interest Expense

The breakdown of non-interest expense for the six months ended June 30, 2022 and 2021 is presented in the following table:

Six Months Ended

The breakdown of non-interest expense for the nine months ended September 30, 2022 and 2021 is presented in the following table:

Nine Months Ended

September 30, $ %

(dollars in thousands) 2022 2021 Change Change

10 unchanged sentences

Total non-interest expense $ 615,257 $ 551,588 $ 63,669 11.5 %

Total non-interest expense of $420.2 million for the first six months of 2022 increased $52.8 million, a 14.4% increase from the same period of 2021.

On an operating basis, non-interest expense (non-GAAP) increased $20.6 million, or 5.7%, when excluding significant items of $30.7 million in merger-related costs and $4.2 million in branch consolidation costs in the first six months of 2022, compared to $2.6 million in branch consolidation costs in the first six months of 2021.

Total non-interest expense of $615.3 million for the first nine months of 2022 increased $63.7 million, an 11.5% increase from the same period of 2021.

On an operating basis, non-interest expense (non-GAAP) increased $30.3 million, or 5.5%, when excluding significant items of $32.8 million in merger-related costs and $4.2 million in branch consolidation costs in the first nine months of 2022, compared to $0.9 million and $2.6 million, respectively, in the first nine months of 2021.

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

Salaries and employee benefits of $216.1 million for the first six months of 2022 increased $6.7 million, or 3.2%, from the same period of 2021, due to normal merit increases, higher production-related commissions and incentives and the acquired Howard expense base.

Net occupancy and equipment expense of $70.6 million for the first six months of 2022 increased $4.0 million, or 6.0%, from the same period of 2021, primarily from technology-related investments and the acquired Howard expense base.

Additionally, there were branch consolidation costs of $1.9 million in the first six months of 2022, compared to $2.1 million in the first six months of 2021.

Amortization of intangibles of $6.8 million for the first six months of 2022 increased $0.7 million, or 11.6%, from the same period of 2021, primarily due to additional core deposit intangibles added as a result of the Howard acquisition.

Marketing expense of $7.9 million for the first six months of 2022 increased $1.1 million, or 15.4%, from the same period of 2021, primarily due to increased digital advertising spending and campaigns related to our Physician's First Program.

FDIC insurance of $9.9 million for the first six months of 2022 increased $0.8 million, or 9.0%, from the same period of 2021, as a result of loan growth and a shift in the balance sheet mix.

Bank shares and franchise taxes of $7.9 million for the first six months of 2022 increased $0.6 million, or 7.8%, from the same period of 2021, primarily due to an increase in the bank's capital tax base.

We recorded $30.7 million in merger-related costs for the first six months of 2022 related to the Howard acquisition which closed on January 22, 2022 and the pending UB Bancorp acquisition.

Other non-interest expense was $36.1 million and $26.4 million for the first six months of 2022 and 2021, respectively.

There was $2.2 million in branch consolidation costs and an increase in business development expense and other operational costs in the first six months of 2022.

Comparatively, we had $0.5 million in branch consolidation costs and a $2.2 million mortgage recourse reserve release in the first six months of 2021.

The following table presents non-interest expense excluding significant items for the six months ended June 30, 2022 and 2021:

Six Months Ended

Salaries and employee benefits of $322.7 million for the first nine months of 2022 increased $8.4 million, or 2.7%, from the same period of 2021, due to normal merit increases, higher production-related commissions and incentives and the acquired Howard expense base.

Net occupancy and equipment expense of $105.5 million for the first nine months of 2022 increased $8.3 million, or 8.5%, from the same period of 2021, primarily from technology-related investments and the acquired Howard expense base.

Amortization of intangibles of $10.3 million for the first nine months of 2022 increased $1.2 million, or 13.5%, from the same period of 2021, primarily due to additional core deposit intangibles added as a result of the Howard acquisition.

FDIC insurance of $15.1 million for the first nine months of 2022 increased $1.7 million, or 12.3%, from the same period of 2021, primarily due to loan growth and balance sheet mix shift.

Bank shares and franchise taxes of $11.9 million for the first nine months of 2022 increased $1.0 million, or 9.0%, from the same period of 2021, primarily due to an increase in the bank's capital tax base.

We recorded $32.8 million in merger-related costs for the first nine months of 2022 related to the Howard acquisition which closed on January 22, 2022 and the pending UB Bancorp acquisition, compared to $0.9 million related to the Howard acquisition in the first nine months of 2021.

Other non-interest expense was $52.6 million and $41.6 million for the first nine months of 2022 and 2021, respectively.

There was $2.2 million in branch consolidation costs and an increase in business development expense and other operational costs in the first nine months of 2022.

Comparatively, we had $0.5 million in branch consolidation costs and a $2.2 million mortgage recourse reserve release in the first nine months of 2021.

The following table presents non-interest expense excluding significant items for the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30, $ %

(dollars in thousands) 2022 2021 Change Change

6 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

(dollars in thousands) 2022 2021

3 unchanged sentences

Income tax expense was lower in 2022 due to lower pretax earnings resulting from merger-related expenses from the Howard acquisition.

The effective tax rate is higher in 2022 primarily driven by higher state income taxes and nondeductible merger-related expenses resulting from the Howard acquisition.

Income tax expense was higher in 2022 due to increased state income taxes as a result of the Howard acquisition as well as increased FDIC insurance deduction disallowance.

The effective tax rate is higher in 2022 for the same reasons.

FINANCIAL CONDITION

The following table presents our condensed Consolidated Balance Sheets:

(dollars in millions) June 30,

(dollars in millions) September 30,

2022 December 31,

13 unchanged sentences

Total Liabilities and Stockholders’ Equity $ 42,590 $ 39,513 $ 3,077 7.8 %

The increase in assets, liabilities and stockholders' equity is primarily due to the Howard acquisition.

The increase in assets and liabilities is primarily due to strong loan and deposit growth as well as the Howard acquisition.

Lending Activity

4 unchanged sentences

Cleveland, Ohio;

Washington, D.C.;

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

1 unchanged sentence

Following is a summary of loans and leases:

September 30,

2022 December 31,

11 unchanged sentences

Total loans and leases $ 28,780 $ 24,968 $ 3,812 15.3 %

The commercial and industrial category includes PPP loans totaling $85.8 million, net of unamortized net deferred fees of $2.2 million at June 30, 2022, compared to $336.6 million at December 31, 2021.

The commercial and industrial growth was led by activity in the Cleveland, Pittsburgh and North Carolina markets while the growth in residential mortgages reflected customer preferences for adjustable-rate mortgages and the continued success of our Physician's First mortgage program, which is a fully digital program that provides a bundled suite of specialized products to meet the personal and professional needs of physicians, dentists, veterinarians and other healthcare professionals.

Non-Performing Assets

Following is a summary of non-performing assets:

(in millions) June 30,

(in millions) September 30,

2022 December 31,

12 unchanged sentences

Non-performing assets $ 94 $ 96 $ (2) (2.1) %

Non-performing assets increased $5.8 million, from $96.2 million at December 31, 2021 to $101.9 million at June 30, 2022.

This reflects an increase of $4.6 million in non-performing loans and leases and an increase of $1.2 million in OREO.

The increase in non-performing loans was driven by the acquisition of the Howard Bank portfolio.

Non-performing assets decreased $1.9 million, from $96.2 million at December 31, 2021 to $94.3 million at September 30, 2022.

This reflects a decrease of $0.3 million in non-performing loans and leases and a decrease of $1.6 million in OREO.

Troubled Debt Restructured Loans

2 unchanged sentences

Accrual Total

June 30, 2022

September 30, 2022

Commercial real estate $ 5 $ 21 $ 26

21 unchanged sentences

• the historical through-the-cycle default mean calculated using an expanded period to include a prior recessionary period.

At June 30, 2022 and December 31, 2021, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment.

For our ACL calculation at June 30, 2022, the macroeconomic variables that we utilized included, but were not limited to:

(i) the purchase only Housing Price Index, which reflects growth of 6.0% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which reflects growth of 11.4% over our R&S forecast period, (iii) S&P Volatility, which increases 2.3% in 2022 and decreases 8.6% in 2023 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historic levels.

At September 30, 2022 and December 31, 2021, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment.

For our ACL calculation at September 30, 2022, the macroeconomic variables that we utilized included, but were not limited to:

(i) the purchase only Housing Price Index, which reflects growth of 2.3% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which reflects growth of 4.1% over our R&S forecast period, (iii) S&P Volatility, which decreases 5.5% in 2022 and 2.4% 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, 2021 included, but were not limited to:

1 unchanged sentence

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

Six Months Ended

Nine Months Ended

September 30,

Net loan charge-offs (annualized) by category to average loans:

2 unchanged sentences

Other commercial 0.01 —

Direct installment — 0.01

Indirect installment 0.01 —

2 unchanged sentences

Allowance for credit losses/non-performing loans 439.94 % 317.04 %

The ACL on loans and leases of $378.0 million at June 30, 2022 increased $33.7 million, or 9.8%, from December 31, 2021 with the increase primarily driven by the initial ACL related to the Howard acquisition.

Our ending ACL coverage ratio at June 30, 2022 was 1.35%, compared to 1.38% at December 31, 2021.

Total provision for credit losses for the six months ended June 30, 2022 was $24.4 million, compared to $4.8 million for the first six months ended June 30, 2021 reflecting $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition in the first quarter of 2022.

Net charge-offs were $1.5 million for the six months ended June 30, 2022, compared to $11.0 million for the six months ended June 30, 2021, with both periods well below historical levels.

The ACL as a percentage of non-performing loans for the total portfolio increased from 392% as of December 31, 2021 to 409% as of June 30, 2022.

The ACL on loans and leases of $385.3 million at September 30, 2022 increased $41.1 million, or 11.9%, from December 31, 2021, with the increase primarily driven by significant loan growth, a forecasted macroeconomic slowdown and lower prepayment speed assumptions and the initial ACL related to the Howard acquisition.

Our ending ACL coverage ratio at September 30, 2022 was 1.34%, compared to 1.38% at December 31, 2021.

Total provision for credit losses for the nine months ended September 30, 2022 was $35.6 million, compared to $3.0 million for the same period in 2021 reflecting $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition in the first quarter of 2022.

Net charge-offs were $4.3 million for the nine months ended September 30, 2022, compared to $12.5 million for the first nine months of 2021, with both periods well below historical levels.

The ACL as a percentage of non-performing loans for the total portfolio increased from 392% as of December 31, 2021 to 440% as of September 30, 2022.

Our primary source of funds is deposits.

1 unchanged sentence

Following is a summary of deposits:

(in millions) June 30,

(in millions) September 30,

2022 December 31,

5 unchanged sentences

Total deposits increased $2.2 billion, or 6.8%, from December 31, 2021, primarily as a result of growth in non-interest-bearing and interest-bearing demand balances due to the Howard acquisition as well as an expansion of customer relationships and higher customer balances.

Customer preferences had shifted to more liquid accounts, however, customers' preferences are beginning to shift back to certificates of deposits as interest rates increase.

The deposit growth helped us eliminate overnight borrowings and reduce higher-cost short-term FHLB borrowings and their related swaps and provide cash to be used for funding loan growth.

Customer preferences had shifted to more liquid accounts during the low-rate pandemic era, however, customers' preferences are beginning to shift back to certificates of deposits as interest rates increase.

The deposit growth helped us eliminate overnight borrowings, reduce higher-cost short-term FHLB borrowings and provide cash to be used for funding loan growth.

Capital Resources and Regulatory Matters

The access to, and cost of, funding for new business initiatives, the ability to engage in expanded business activities, the ability to pay dividends and the level and nature of regulatory oversight depend, in part, on our capital position.

The assessment of capital adequacy depends on a number of factors such as expected organic growth in the Consolidated Balance Sheet, asset quality, liquidity, earnings performance and sustainability, changing competitive conditions, regulatory

changes or actions, and economic forces.

We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to current operations and to promote public confidence.

6 unchanged sentences

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

The Inflation Reduction Act of 2022 includes a 1% excise tax on stock repurchases beginning January 1, 2023.

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

7 unchanged sentences

FNB’s and FNBPA’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

At June 30, 2022, the capital levels of both FNB and FNBPA exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered “well-capitalized” for regulatory purposes.

At September 30, 2022, the capital levels of both FNB and FNBPA exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered “well-capitalized” for regulatory purposes.

In December 2018, the FRB and other U.S.

4 unchanged sentences

As a result, under the final rule, we delayed recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extended through December 31, 2021.

Beginning on January 1, 2022, we will be required to phase in 25% of the previously deferred capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025.

Beginning on January 1, 2022, we were required to phase in 25% of the previously deferred capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025.

Under the final rule, the estimated impact of CECL on regulatory capital that we will defer and later phase in is calculated as the entire day-one impact at adoption plus 25% of the subsequent change in the ACL during the two-year deferral period.

As of June 30, 2022, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $51.6 million, or 16 basis points, which will continue to be reduced by approximately $17.2 million annually.

As of September 30, 2022, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $51.6 million, or 15 basis points, which will continue to be reduced by approximately $17.2 million annually.

In this unprecedented economic and uncertain environment, we frequently run stress tests for a variety of economic situations, including severely adverse scenarios that have economic conditions like the current conditions.

6 unchanged sentences

(dollars in millions) Amount Ratio Amount Ratio Amount Ratio

As of June 30, 2022

As of September 30, 2022

Total capital $ 3,998 11.96 % $ 3,342 10.00 % $ 3,510 10.50 %

30 unchanged sentences

Liquidity is centrally managed daily by our Treasury Department.

FNBPA generates liquidity from its normal business operations.

Liquidity sources from assets include payments from loans and investments, as well as the ability to securitize, pledge or sell loans, investment securities and other assets.

5 unchanged sentences

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

The cash position at June 30, 2022 was $257.7 million, down $37.7 million from year-end, due primarily to $42.8 million in share repurchases.

The cash position at September 30, 2022 was $633.9 million, up $338.5 million from year-end, primarily due to the $347.7 million net proceeds from a Senior Debt offering in August, part of which will be used to retire debt in February of 2023 (for additional information, see Note 10, "Borrowings" in the Notes to the Consolidated Financial Statements in this Report).

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

3 unchanged sentences

The LCR and MCH ratios are presented in the following table:

September 30,

2022 December 31,

5 unchanged sentences

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.

This past quarter we also commenced the roll-out of the new digital eStore kiosks in all FNB branches.

Total deposits increased $1.8 billion, or 5.5%, from December 31, 2021, primarily as a result of growth in non-interest-bearing and interest-bearing demand balances due to the Howard acquisition, as well as an expansion of customer relationships.

Customer preferences continued to shift away from higher rate certificates of deposit to lower yielding, more liquid products, however, customers' preferences are beginning to shift back to time deposits as interest rates increase.

Our liquidity position enabled us to eliminate Howard's overnight borrowings and retire $200 million of higher-cost FHLB borrowings.

We continue to have success growing total non-interest-bearing demand deposit accounts as they rose $926.5 million, or 8.6%, and now represent 35.0% of total deposits, up from 34.0% as December 31, 2021.

This year we also commenced the roll-out of the new digital eStore kiosks in all FNB branches.

Total deposits increased $2.2 billion, or 6.8%, from December 31, 2021, primarily as a result of growth in non-interest-bearing demand balances, expansion of customer relationships as well as interest-bearing demand balances due to the Howard acquisition.

We continue to have success growing total non-interest-bearing demand deposit accounts as they rose $1.0 billion, or 8.9%, and now represent 34.7% of total deposits, up from 34.0% as of December 31, 2021.

Further, interest-bearing demand deposits increased $842.5 million, or 5.8% and savings account balances increased $322.2 million, or 8.8%.

Time deposits increased $184.2 million, or 6.4% as a result of the Howard acquisition and customers' preferences beginning to shift back to time deposits as interest rates increase.

Our cash balances held at the FRB decreased $1.5 billion from December 31, 2021 to $1.5 billion at June 30, 2022 as cash was deployed primarily to fund loans and investments.

Time deposits increased $40.0 million, or 1.4%.

Due to the FOMC increasing interest rates, customer time deposit balances grew in the third quarter, the first quarter of growth in 2022.

Our strong liquidity position provided us the flexibility to reduce our FHLB borrowings by $100 million and eliminate Howard's overnight borrowings and retire $200 million of Howard's higher-cost FHLB borrowings.

Our cash balances held at the FRB decreased $1.3 billion from December 31, 2021 to $1.7 billion at September 30, 2022 as cash was deployed primarily to fund loans and investments.

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

1 unchanged sentence

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

At June 30, 2022, we have $2.5 billion of cash and salable unpledged government and agency securities to total assets, or 6.1%.

At September 30, 2022, we have $2.0 billion of cash and salable unpledged government and agency securities to total assets, or 4.8%.

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:

(dollars in millions) June 30,

(dollars in millions) September 30,

2022 December 31,

6 unchanged sentences

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

The following liquidity gap analysis as of June 30, 2022 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals.

The following liquidity gap analysis as of September 30, 2022 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals.

Management monitors the size of the liquidity gaps so that sources and uses of funds are reasonably matched in the normal course of business and in relation to implied forward rate expectations.

1 unchanged sentence

A positive gap position means that more assets are repricing over the next 12 months than liabilities, and net interest income would benefit if interest rates were to rise.

The twelve-month cumulative gap to total assets ratio was 7.1% as of June 30, 2022, compared to 11.3% as of December 31, 2021.

Management calculates this ratio at least quarterly and it is reviewed monthly by ALCO.

The change in the twelve-month cumulative gap to total assets is primarily related to the deployment of cash into loans and securities.

The twelve-month cumulative gap to total assets ratio was 6.1% as of September 30, 2022, compared to 11.3% as of December 31, 2021.

Management calculates this ratio at least quarterly and it is reviewed regularly by ALCO.

The change in the twelve-month cumulative gap to total assets is primarily related to the active deployment of cash into loans and securities.

(dollars in millions) Within

25 unchanged sentences

when the yield curve changes shape, the risk position is altered.

Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their loans, which may be with or without penalty, when rates fall, while certain depositors can redeem their certificates of deposit early, which may be with or without penalty, when rates rise.

Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their loans, which may be with or without penalty, when rates change, while certain depositors can redeem their certificates of deposit early, which may be with or without penalty, when rates change.

We use an asset/liability model to measure our interest rate risk.

8 unchanged sentences

Reviewing these various measures provides us with a comprehensive view of our interest rate risk profile, which provides the basis for balance sheet management strategies.

The following repricing gap analysis as of June 30, 2022 compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time.

The following repricing gap analysis as of September 30, 2022 compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time.

Management utilizes the repricing gap analysis as a diagnostic tool in managing net interest income and EVE risk measures.

11 unchanged sentences

Cumulative Gap to Assets 6.3 % 8.6 % 9.2 % 12.1 %

The twelve-month cumulative repricing gap to total assets was 13.6% and 21.6% as of June 30, 2022 and December 31, 2021, respectively.

The twelve-month cumulative repricing gap to total assets was 12.1% and 21.6% as of September 30, 2022 and December 31, 2021, respectively.

The positive cumulative gap positions indicate that we have a greater amount of repricing earning assets than repricing interest-bearing liabilities over the subsequent twelve months.

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

The change in the cumulative repricing gap at June 30, 2022, compared to December 31, 2021, is primarily related to the deployment of cash into loans and investment securities.

The change in the cumulative repricing gap at September 30, 2022, compared to December 31, 2021, is primarily related to the active deployment of cash into longer duration loans and investment securities as well as lower projected prepayment rates on the loan and security portfolios.

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.

1 unchanged sentence

Utilizing net interest income simulations, the following net interest income metrics were calculated using rate shocks which move market rates in an immediate and parallel fashion.

The variance percentages represent the change between the net interest income and EVE calculated under the particular rate scenario compared to the net interest income and EVE that was calculated assuming market rates as of June 30, 2022.

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:

September 30,

2022 December 31,

10 unchanged sentences

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

Assuming a static Balance Sheet, a +100 basis point Rate Ramp increases net interest income (12 months) by 2.7% at June 30, 2022 and 3.6% at December 31, 2021.

For a +200 basis point Rate Ramp, net interest income (12 months) increases by 5.3% at June 30, 2022 and 7.6% at December 31, 2021.

The corresponding metrics for a minus 100 basis point Rate Ramp are (0.3)% and (0.5)% at June 30, 2022 and December 31, 2021, respectively.

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

Forty-eight percent of our net loans and leases are indexed to short-term LIBOR, SOFR and Prime that reprice within the next three months.

The comparative percentages are based on the projected base net interest income at the respective measurement dates.

Assuming a static Balance Sheet, a +100 basis point Rate Ramp increases net interest income (12 months) by 1.8% at September 30, 2022 and 3.6% at December 31, 2021.

For a +200 basis point Rate Ramp, net interest income (12 months) increases by 3.7% at September 30, 2022 and 7.6% at December 31, 2021.

The corresponding metrics for a minus 100 basis point Rate Ramp are 0.02% and (0.5)% at September 30, 2022 and December 31, 2021, respectively.

These changes are a direct result of our managing our interest rate exposure to benefit from higher rates and our asset sensitivity.

Forty-nine percent of our net loans and leases are indexed to short-term LIBOR, SOFR and Prime that reprice within the next three months.

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

The deployment of cash into loans and investments, as well as a higher base net income due to the increase in the loan indices, are the primary factors of the change in the percentage sensitivity since December.

Our balance sheet is positioned to benefit from the FOMC increases of the Federal Funds rate on June 16, 2022 and July 27, 2022 and the future increases currently priced into the market.

The deployment of cash into loans and investments, as well as a higher base net interest income due to the increase in the loan indices, are the primary factors of the change in the percentage sensitivity since December.

The FOMC has increased the Federal Funds rate by 300 basis points thus far in 2022 and our balance sheet is positioned to benefit from further FOMC increases of the Federal Funds rate.

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

These include external factors such as the shape of the yield curve and expectations regarding future interest rates, as well as internal factors regarding product offerings, product mix and pricing of loans and deposits.

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

In response to the change in interest rates, management was proactive in 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 borrowings.

Also, we were able to control rates on deposit products focusing on operational accounts and to opportunistically

deploy cash into higher yielding customer loans.

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

Our current interest rate risk (IRR) position is intended to benefit from higher interest rates.

Management continues to be proactive in managing the IRR position with the near term objective of having loan and investment cash flows reprice at a faster pace than deposit and borrowing costs during the current higher interest rate environment.

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 59.2% of total net loans and leases as of June 30, 2022 and 61.3% as of December 31, 2021.

Total variable and adjustable-rate loans were 59.9% of total net loans and leases as of September 30, 2022 and 61.3% as of December 31, 2021.

The acquisition of Howard was the primary driver of the decline of this metric.

As of June 30, 2022, the commercial swaps totaled $5.3 billion of notional principal, with $613.0 million in original notional swap principal originated during the first six months of 2022.

In 2021, we executed $1.0 billion in receive fixed/pay floating 1-month LIBOR interest rate swaps with a remaining average life of 2.8 years as a hedge to additional asset sensitivity.

As of September 30, 2022, the commercial swaps totaled $5.3 billion of notional principal, with $868.7 million in original notional swap principal originated during the first nine months of 2022.

As mentioned earlier, we were successful in growing our transaction deposits which provides funding that is less interest rate-sensitive, as evidenced by a lower deposit re-pricing beta, than short-term time deposits and wholesale borrowings.

Further, during 2022, management has adjusted our IRR position by opportunistically deploying excess cash balances into higher yielding loans and securities.

We have also made use of derivatives to manage the IRR position, with the most recent transactions being the execution of received fixed / pay floating 1-month LIBOR interest rate swaps that have a remaining life of 2.8 years.

For additional information regarding interest rate swaps, see Note 11, "Derivative Instruments and Hedging Activities" in the Notes to the Consolidated Financial Statements in this Report.

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

We recognize that all asset/liability models have some inherent shortcomings.

20 unchanged sentences

Risk appetite is an integral element of our business and capital planning processes through our Board Risk Committee and Risk Management Council.

We use our risk appetite processes to promote appropriate alignment of risk, capital and performance tactics, while also considering risk capacity and appetite constraints from both financial and non-financial risks.

We use our risk appetite processes to promote appropriate alignment of risk, capital and performance tactics, while also considering risk

capacity and appetite constraints from both financial and non-financial risks.

Our top-down risk appetite process serves as a limit for undue risk-taking for bottom-up planning from our various business functions.

Our Board Risk Committee, in collaboration with our Risk Management Council, approves our risk appetite on an annual basis, or more frequently, as needed to reflect changes in the risk, regulatory, economic and strategic plan environments, with the goal of ensuring that our risk appetite remains consistent with our strategic plans and business operations, regulatory environment and our shareholders'

expectations.

Reports relating to our risk appetite and strategic plans, and our ongoing monitoring thereof, are regularly presented to our various management level risk oversight and planning committees and periodically reported up through our Board Risk Committee.

5 unchanged sentences

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

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

• 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.

6 unchanged sentences

This department also oversees our disaster recovery planning and testing efforts to allow us to be capable and ready for business resumption in the event of a disaster.

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

Further, our audit function performs an independent assessment of our internal controls environment and plays an integral role in testing the operation of the internal controls systems and reporting findings to management and our Audit Committee.

10 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2022 2021 2022 2021

13 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(dollars in thousands) 2022 2021 2022 2021

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(dollars in thousands) 2022 2021 2022 2021

9 unchanged sentences

Tangible book value per common share

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

(dollars in thousands, except per share data)

8 unchanged sentences

Tangible equity to tangible assets (period-end)

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

(dollars in thousands)

10 unchanged sentences

Tangible common equity / tangible assets (period-end)

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

(dollars in thousands)

10 unchanged sentences

(1) Excludes loan servicing rights.

Loans and leases, excluding PPP loans (period-end)

(dollars in thousands) June 30, 2022 March 31, 2022 June 30, 2021

Loans and leases $ 28,044,139 $ 26,839,069 $ 25,110,528

PPP loans outstanding (85,837) (179,644) (1,551,284)

Loans and leases, excluding PPP loans outstanding (non-GAAP) $ 27,958,302 $ 26,659,425 $ 23,559,244

Provision for credit losses, excluding the initial provision for non-PCD loans associated with the Howard acquisition

Three Months Ended March 31,

(dollars in thousands)

Provision for credit losses $ 17,959

Initial provision for non-PCD loans associated with the Howard acquisition (19,127)

Provision for credit losses, excluding the initial provision for non-PCD loans associated with the Howard acquisition (non-GAAP) $ (1,168)

Deposits, excluding Howard deposits (average)

Three Months Ended

(Dollars in thousands) 2022 2021

Deposits $ 33,706,707 $ 30,507,241

Howard deposits (1,630,100) —

Deposits, excluding Howard deposits (non-GAAP) $ 32,076,607 $ 30,507,241

Loans and leases, excluding PPP loans and Howard loans as of the acquisition date (period-end)

(Dollars in thousands) June 30, 2022 June 30, 2021

Loans and leases $ 28,044,139 $ 25,110,528

PPP loans outstanding (85,837) (1,551,284)

Howard loans as of the acquisition date, excluding PPP loans outstanding (1,767,564) —

Loans and leases, excluding PPP loans and Howard loans as of the acquisition date (non-GAAP) $ 26,190,738 $ 23,559,244

Loans and leases, excluding PPP loans (average)

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(Dollars in thousands)

Loans and leases $ 27,245,122 $ 25,397,396 $ 26,744,743 $25,424,960

PPP loans outstanding (126,391) (2,125,609) (189,017) (2,205,629)

Loans and leases, excluding PPP loans (non-GAAP) $ 27,118,731 $ 23,271,787 $ 26,555,726 $23,219,331

Key Performance Indicator s

Pre-provision net revenue to average tangible common equity

Three Months Ended

June 30, Six Months Ended

(dollars in thousands) 2022 2021 2022 2021

Net interest income $ 253,690 $ 227,871 $ 487,766 $ 450,794

Non-interest income 82,154 79,772 160,476 162,577

Non-interest expense (192,774) (182,500) (420,200) (367,362)

Pre-provision net revenue (as reported) $ 143,070 $ 125,143 $ 228,042 $ 246,009

Pre-provision net revenue (as reported) (annualized) $ 573,852 $ 501,947 $ 459,863 $ 496,095

Merger-related expense (non-interest expense) 2,027 — 30,656 —

Branch consolidation costs (non-interest expense) — 2,644 4,178 2,644

Pre-provision net revenue (operating) (non-GAAP) $ 145,097 $ 127,787 $ 262,876 $ 248,653

Pre-provision net revenue (operating) (annualized)

(non-GAAP) $ 581,982 $ 512,552 $ 530,108 $ 501,427

Average total shareholders’ equity $ 5,437,913 $ 4,994,499 $ 5,443,373 $ 4,978,186

Average preferred shareholders’ equity (106,882) (106,882) (106,882) (106,882)

Average intangible assets (1)

(2,490,899) (2,311,953) (2,467,776) (2,313,474)

Average tangible common equity (non-GAAP) $ 2,840,132 $ 2,575,664 $ 2,868,715 $ 2,557,830

Pre-provision net revenue (reported) / average tangible common equity (non-GAAP) 20.21 % 19.49 % 16.03 % 19.40 %

Pre-provision net revenue (operating) / average tangible common equity (non-GAAP) 20.49 % 19.90 % 18.48 % 19.60 %

(1) Excludes loan servicing rights.

Efficiency ratio

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(dollars in thousands) 2022 2021 2022 2021

14 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis