FNB CORP/PA/ 10-Q

ITEM 1A. RISK FACTORS For information regarding risk factors that could affect our results of operations, financial condition and liquidity, see the risk factors disclosed in the “Risk Factors” section of our 2021 Annual Report on Form 10-K . The risk factors below relate to the recently announced acquisition of UB Bancorp, and its wholly-owned subsidiary, Union Bank, and are in addition to the risk factors previously disclosed in our 2021 Annual Report on Form 10-K. Combining FNB and UB Bancorp may be more difficult, costly or time-consuming than expected, and the anticipated benefits and cost savings of the merger with UB Bancorp may not be realized. FNB and UB Bancorp have operated and, until the completion of the merger, will continue to operate, independently from each other. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses of FNBPA and UB Bancorp, along with the timely and successful core data system conversion, within our projected timeframe in a manner that permits growth opportunities, continued seamless operations and does not materially disrupt existing customer relationships or result in decreased revenues due to loss of customers. A number of factors could affect our ability to successfully combine our business with the business of UB Bancorp. Key employees of UB Bancorp, whose services will be needed to complete the integration process, may elect to terminate their employment as a result of, or in anticipation of, the merger. The integration process itself could be disruptive to our ongoing businesses, causing loss of momentum in one or more of our businesses or inconsistencies or changes in standards, practices, business models, controls, procedures and policies that could adversely affect our ability to maintain relationships with customers and employees. If we encounter significant difficulties in the integration process, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve the anticipated benefits of the merger in the timeframes projected by us could result in increased costs and decreased revenues. This could have a dilutive effect on the combined company’s proforma earnings per share. Our ability to complete the merger is subject to the satisfaction (or waiver by the parties) of the closing conditions set forth in the merger agreement, some of which are outside of the parties’ control. The merger agreement contains a number of conditions that must be fulfilled in order to complete the merger. Those conditions include: absence of any law, statute or regulation, or any order, injunction or other legal restraint or prohibition preventing the completion of the merger, the accuracy of the representations and warranties of both parties (subject to applicable materiality qualifiers), and the performance, in all material respects, by both parties of their respective covenants and agreements. There can be no assurance that the conditions to the completion of the merger will be fulfilled or that the merger will be completed. Regulatory oversight may impose conditions that are not presently anticipated or cannot be met. Before the merger between FNB and UB Bancorp and the merger between their bank subsidiaries may be completed, various approvals must be obtained from bank regulatory agencies and other governmental authorities. Although these bank regulatory approvals for the transaction have been obtained, completion of the transaction remains subject to bank regulatory oversight, which could have the effect of delaying completion of the merger or of imposing additional costs or limitations on us following the merger. We may elect not to consummate the merger if any governmental or regulatory entity imposes a restriction, requirement or condition on us that, individually or in the aggregate, would be reasonably likely to have a material and adverse effect on us and our subsidiaries, taken as a whole, after giving effect to the merger. 89 We will be subject to business uncertainties while the merger is pending, which could result in loss of key employees or customers. Uncertainties about the effect of the merger on employees and customers may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with us to consider changing their existing business relationships with us or cause UB Bancorp customers to seek another financial services provider. Retention of certain UB Bancorp employees may be challenging during the pendency of the merger, as certain employees may experience uncertainty about their future roles. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, our business could be negatively impacted. If the merger is not completed, we will have incurred substantial expenses without realizing the expected benefits of the merger. We will incur substantial expenses in connection with the proposed merger with UB Bancorp, which are charged to earnings as incurred. If the merger is not completed, these expenses will still be charged to earnings even though we would not have realized the expected benefits of the merger. There can be no assurance that the merger will be completed. Termination of the merger agreement could have a negative impact on our prospects and stock price. The merger agreement contains a number of provisions that could permit either or both parties to abandon the merger and terminate the merger agreement. If the merger agreement is terminated, there may be various adverse consequences to us. For example, since certain matters relating to the merger (including business integration and data system conversion planning) will require substantial commitments of time and resources by our management team, our businesses may be adversely affected by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of our common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. We may not be able to compete successfully in UB Bancorp’s market area. Our success in UB Bancorp’s markets will depend, in part, on our ability to successfully offer products and services to customers, that UB Bancorp does not currently offer, such as larger and more complex commercial loan financing transactions and syndications, trust services, SBA loans, investment advisory, foreign exchange services, derivatives, asset-based lending, lease financing, debt and equity capital markets, wealth management, insurance brokerage, securities brokerage and investment advisory and private lending. This business strategy will require us to attract and retain qualified and experienced personnel to support those products and services. We could lose existing customers or fail to acquire new customers in this market. The merger may not be accretive, and may be dilutive, to our earnings per share, which may negatively affect the market price of our common stock. We currently expect the merger to be accretive to earnings per share in the first full calendar year after closing (excluding one-time charges). This expectation, however, is based on preliminary estimates which may materially change, including the currently expected timing of the merger. We may encounter additional transaction- and integration-related costs or other factors such as a delay in the closing of the merger, may fail to realize all of the benefits anticipated in the merger or may be subject to other factors that affect preliminary estimates or our ability to realize operational efficiencies. Any of these factors could cause a decrease in our earnings per share or decrease or delay the expected accretive effect of the merger and contribute to a decrease in the price of our common stock. Our decisions regarding the credit risk associated with Union Bank’s loan portfolio could be incorrect and our credit mark may be inadequate, which may adversely affect the financial condition and results of operations of the combined company after the closing of the merger. Before signing the merger agreement, we conducted extensive due diligence on a significant portion of the Union Bank loan portfolio. However, our review did not encompass every loan in the Union Bank loan portfolio. In accordance with customary industry practices, we evaluated the Union Bank loan portfolio based on various factors including, among other things, historical loss experience, economic risks associated with each loan category, volume and types of loans, trends in classification, volume and trends in delinquencies and non-accruals, and general economic conditions, both local and national. In this process, our management made various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness and financial condition of the borrowers, the value of the real estate, which is obtained from 90 independent appraisers, other assets serving as collateral for the repayment of the loans, the existence of any guarantees and indemnifications and the economic environment in which the borrowers operate. In addition, the effects of probable decreases in expected principal cash flows on the Union Bank loans were considered as part of our evaluation. If our assumptions and judgments turn out to be incorrect, including as a result of the fact that our due diligence review did not cover each individual loan, our estimated credit mark against the Union Bank loan portfolio in total may be insufficient to cover actual loan losses after the merger is completed, and adjustments may be necessary to allow for different economic conditions or adverse developments in the Union Bank loan portfolio. Additionally, deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside our or UB Bancorp’s control, may require an increase in the provision for credit losses. Material additions to the credit mark and/or ACL would materially decrease our net income and could result in extra regulatory scrutiny and possibly supervisory action. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE ITEM 4. MINE SAFETY DISCLOSURES Not Applicable.