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Item 1. Business

2023-02-24 compared with 2022-02-24 · 156 added, 167 removed, 488 unchanged (40% of the section changed)

We are a Pennsylvania corporation, a bank holding company and a financial holding company.

With our subsidiaries, we have been in business since 1864.

Our principal executive office is located at 12 Federal Street, Pittsburgh, Pennsylvania 15212.

We are incorporated under the laws of the Commonwealth of Pennsylvania, and through our subsidiaries, we have been in business since 1864.

Our headquarters is located at 12 Federal Street, Pittsburgh, Pennsylvania 15212.

As a diversified financial services holding company, FNB, through our subsidiaries, provides a full range of financial services, principally to consumers, corporations, governments and small- to medium-sized businesses in our market areas through our subsidiary network, which is led by our largest subsidiary, FNBPA.

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Community Banking, Wealth Management and Insurance, with the remaining operations described in Other .

As of December 31, 2021, we have 334 Community Banking offices in Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina, Washington, D.C.

As of December 31, 2022, we have 348 Community Banking branches in Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina, Washington, D.C.

and Virginia.

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See Item 7, MD&A, and Item 8, “Financial Statements and Supplementary Data,” of this Report.

Mergers and Acquisitions

Howard Bancorp, Inc.

On January 22, 2022, we completed our acquisition of Howard Bancorp, Inc., a bank holding company headquartered in Baltimore City, Maryland, and its bank subsidiary Howard Bank.

The acquisition enhanced our presence in the Mid-Atlantic Region.

Additionally, cost savings, efficiencies and other benefits were realized from the combined operations.

On December 9, 2022, we completed our acquisition of UB Bancorp, a bank holding company based in Greenville, North Carolina, and its bank subsidiary, Union Bank.

This acquisition further increases our presence in North Carolina and adds low-cost granular deposits which continue to be valuable in the current economic environment.

For more detailed information concerning these acquisitions, see Note 3, "Mergers and Acquisitions" in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

Internet Information

Our website is at http://www.fnb-online.com and information regarding FNB and investor relations is located under the heading "About Us." We use our website to distribute company information, including as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD.

We generally post and make accessible before or promptly following the first time we use financially-related press releases, including earnings releases and supplemental financial information, various SEC filings, including annual, quarterly and current reports and proxy statements, presentation materials associated with earnings and other investor calls or events on our corporate website.

We generally post and make accessible before or promptly following the first time we use financially-related press releases, including earnings releases and

supplemental financial information, various SEC filings, including annual, quarterly and current reports and proxy statements, presentation materials associated with earnings and other investor calls or events on our corporate website.

Under some circumstances, the information may be relevant to investors but be directed to customers, in which case it may be accessed directly through our website's home page rather than “About Us-Investor Information.” Investors should monitor the Investor Relations portion of our website, in addition to following our press releases, SEC filings, public conference calls and webcasts.

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As of December 31, 2022, FNB had three business segments, with the largest being the Community Banking segment consisting of a regional community bank.

The Wealth Management segment consists of a trust company, a registered investment advisor and a subsidiary that offers broker-dealer services through a third-party networking arrangement with a non-affiliated licensed broker-dealer entity.

The Wealth Management segment consists of a federally chartered trust company, a registered investment advisor and a subsidiary that offers broker-dealer services through a third-party networking arrangement with a non-affiliated licensed broker-dealer entity.

The Insurance segment consists of an insurance agency and a reinsurer.

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Washington, D.C.;

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

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

and Charleston, South Carolina.

The goals of the Community Banking segment are to generate high-quality, profitable revenue growth through increased business with our current customers, attract new customer relationships through FNBPA’s current branches and expand into new and existing markets through de novo branch openings and the establishment of loan production offices.

We consider the Community Banking segment an important source of revenue opportunity through the cross-selling of products and services offered by our other business segments.

We consider the

Community Banking segment an important source of revenue opportunity through the cross-selling of products and services offered by our other business segments.

The lending philosophy of the Community Banking segment is to establish high-quality customer relationships, while minimizing credit losses by following strict credit approval standards (which include independent analysis of realizable collateral value), diversifying our loan portfolio by industry, geography, product and borrower, and conducting ongoing review and management of the loan portfolio.

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Washington, D.C.;

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

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

and Charleston, South Carolina.

We compete for loans, deposits and financial services business with a large number of bank and non-bank financial institutions and other lenders engaged in the business of extending credit, including financial technology companies and marketplace lenders.

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Competition for loans and deposits depends on a number of factors, including, among others, customer service, quality and range of products and services offered, price, reputation, interest rates on loans and deposits and lending limits.

Also, our ability to continue to compete effectively depends in large part on retaining and motivating our employees and our ability to attract new employees, while effectively managing compensation and other expenses, especially given recent inflationary wage pressures.

Also, our ability to continue to compete effectively depends in large part on retaining and motivating our employees and attracting new employees, while effectively managing compensation and other expenses, especially given recent inflationary wage pressures.

The ability to deploy and use technology effectively is an important competitive factor in the financial services industry.

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Human Capital

We are committed to the attraction, retention, and development of exceptional talent.

This commitment also extends to building a diverse workforce that reflects different cultures, ethnicities and backgrounds and which fosters creativity, innovation and overall success.

To support this focus on our human capital, we employ several strategies to provide our workforce with a safe environment that helps to identify, promote and grow future leaders.

Our special culture has contributed to the more than 35 workplace awards we have received.

In early 2021, we continued to add to this impressive list with our first-ever national recognition as an employer, having been named a Top Workplace U.S.A.

by Energage, an independent research firm, based on employee feedback.

As part of this award program, we were also named a national Top Workplace U.S.A.

We are committed to the attraction, retention, and development of exceptional talent, including building a diverse workforce that reflects different cultures, ethnicities and backgrounds and which fosters creativity, innovation and overall success.

We employ several strategies to provide our workforce with a safe environment that helps to identify, promote and grow future leaders, which has contributed to our recognition as a top workplace evidenced by our receipt of approximately 50 workplace awards.

For two straight years, 2021 and 2022, Energage, an independent research firm, based on employee feedback, named FNB a Top Workplace, USA, including recognition as a national Top Workplace U.S.A.

in the financial services industry.

We repeated our Top Workplace U.S.A.

recognition in 2022.

In addition, we have repeatedly been named to JUST Capital’s select annual list of companies engaged in business behavior that matters, based, in part, on an assessment of our employee practices relative to income inequality, racial equity and employee opportunity.

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We are committed to building a diverse and inclusive workforce and have found great success cultivating and fostering mutually beneficial partnerships with job and recruiting centers, colleges and universities, including historically black colleges and universities, and diversity-focused organizations that help us to identify and attract diverse candidates.

In addition to posting positions with these organizations, our leaders participate in events hosted by these partners to further our brand as an employer of choice.

In addition to posting positions with these organizations, all members of our talent acquisition team hold the designation of Certified Diversity Recruiter, and our leaders participate in events hosted by these partners to further our brand as an employer of choice.

Employee Development.

We focus resources on programs to develop leaders and promote internal advancement within the organization.

This includes a mentor program, succession planning and leadership programs, administered by our dedicated training department team to further develop the talent which our recruitment efforts have attracted.

We have an active Diversity Council which takes a proactive, leadership role in promoting diversity, equity and inclusion in our culture.

The Diversity Council is responsible for promoting an inclusive culture and workplace environment that attracts, retains and develops the best talent from a broad spectrum to create a diverse, highly productive workforce, at all levels of the organization.

The Diversity Council supports our mission to build a workforce in which employees can learn, grow and prosper, and our commitment to diversity, equity and inclusion within the workforce.

It supports both corporate and employee initiatives on diversity, equity, opportunity and inclusion.

This includes a mentor program, succession planning and leadership programs, administered by our dedicated training department team to further develop the talent that our recruitment efforts have attracted.

In addition, we offer tuition reimbursement for employees seeking post-secondary education, including college and graduate school.

We have a Manager of Diversity and Inclusion, possessing over 20 years of professional experience, and an active Diversity Council engaged in proactive-leadership and strategies and initiatives to promote diversity, equity and inclusion in our culture that supports our mission to build a workforce in which all employees can learn, grow and prosper.

Our Manager of Diversity and Inclusion and the Diversity Council work with our leadership to support both corporate and employee initiatives promoting an inclusive culture and workplace environment that attracts, retains and develops the best talent from a broad spectrum to create a diverse, highly productive workforce, throughout our organization.

The membership composition of the Diversity Council reflects the diversity within our organization.

In addition, the membership represents every region in the organization, and various lines of business and position levels.

We regularly seek feedback from our employees and in 2020 conducted our biannual engagement survey.

This engagement survey collects insights about employees’ experiences to help shape our future success.

The results are reviewed at various levels of the organization, including the Board of Directors.

Managers create action plans targeting opportunities in areas that the survey highlights.

Our scores in the overall engagement focus area, consistently place us in the outstanding category when compared across multiple industries.

We regularly seek feedback from our employees and in 2022 participated in several regional Top Workplace surveys.

Our scores in the overall engagement focus area continue to help us achieve external recognition as an employer of choice.

Compensation.

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The compensation program is a management tool that, when aligned with an effective communication plan, is designed to support, reinforce, and align our values, business strategy, operational and financial needs with our strategic goals.

We provide a minimum starting compensation of $15/hour for entry level and front-line employees.

We believe that compensation programs, through competitive base salary, short-term incentive plans, and long-term incentive plans, are essential for encouraging the behavior to set performance expectations, improving service quality and productivity, and recognizing contributions to our success, while also avoiding incentivizing undue risk to our financial condition.

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In addition, the oversight and review of our company-wide compensation philosophy and programs are conducted by the Management Compensation Committee, in consultation with our Board of Directors.

This team, chaired by FNB’s Chairman, President and Chief Executive Officer, regularly meets to promote compensation programs that are equitable, to achieve a performance-driven work culture that generates company growth and to reward employees for focusing on customer needs, while avoiding inappropriate conduct regarding our clients, and demonstrating appropriate risk management behaviors.

This team, chaired by FNB’s Chairman, President and Chief Executive Officer, regularly meets to promote compensation programs that are fair and equitable, to achieve a performance-driven work culture that generates company growth and to reward employees for focusing on customer needs, while avoiding inappropriate conduct regarding our clients, and demonstrating appropriate risk management behaviors.

Values & Training.

We strive to maintain sound financial practices and governance processes through a commitment to ethical behavior, a solid reputation and a firm record of compliance and stability that these strengths create, both within our Corporation and for our customers.

Employees complete quarterly and annual job specific training, including regulatory and compliance requirements and ethical standards, to increase knowledge of standards required of the financial services industry.

Additionally, we provide employees various avenues to report unethical behavior without repercussions to them, such as FNB’s Ethics Hotline.

Employees complete quarterly and annual job specific training, including regulatory and compliance requirements and ethical standards, to maintain and increase knowledge of standards required of the financial services industry.

Additionally, we provide employees various avenues to confidentially and anonymously report unethical behavior without repercussions to them, such as FNB’s Ethics Hotline.

We encourage employees to report any issues that could result in financial or reputational harm to us.

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Innovative employee-friendly programs and policies designed to help team members maintain a healthy, meaningful work/life balance by providing resources to support mental, physical and financial health are offered and regularly expanded.

This includes parental and caregiver leave, monetary contribution to employee Health Savings Accounts, adoption assistance and back-up child-care programs built to provide employees with the financial support and time away from work that they need to focus on their new family members.

Employee and customer safety remain paramount concerns for us, especially with respect to developing our response to the ongoing COVID-19 pandemic.

Employee safety and support were key pillars to our response to the pandemic.

This includes parental and caregiver leave, monetary contributions to employee Health Savings Accounts, adoption assistance and back-up child-care programs built to provide employees with the financial support and time away from work that they need to focus on their new family members.

Employee and customer safety remain paramount concerns for us.

Employee safety and support were key pillars to our response to the pandemic, and have continued to be a focus in how we have built organizational and regional response teams that can help address any risks that may arise on a local level or across the organization.

Government Supervision and Regulation

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The financial services industry is subject to extensive regulatory oversight and, in particular, bank holding companies, banks and their affiliates (depending upon charter and business activities) are subject to supervision, regulation and examination by the FRB, OCC, FDIC, CFPB, SEC, FINRA and various state regulatory agencies.

The statutory and regulatory framework that governs FNB and our affiliates is generally intended to protect depositors and customers, the federal DIF, the U.S.

The statutory

and regulatory framework that governs FNB and our affiliates is generally intended to protect depositors and customers, the federal DIF, the U.S.

banking and financial system, and financial markets as a whole;

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Under the BHC Act, the FRB is the “umbrella” regulator of a financial holding company.

In addition, a financial holding company’s operating entities, including its subsidiary broker-dealers, investment managers, investment advisory companies, insurance companies and banks, as applicable, are subject to the jurisdiction of various federal and state “functional” regulators and self-regulatory organizations, such as FINRA.

In addition, a financial holding company’s operating entities, including its subsidiary broker-dealers, investment managers, investment advisory companies,

insurance companies and banks, as applicable, are subject to the jurisdiction of various federal and state “functional” regulators and self-regulatory organizations, such as FINRA.

Our subsidiary bank, FNBPA, and FNBPA’s subsidiary trust company, FNTC, are organized as national banking associations, which are subject to regulation, supervision and examination by the OCC, which is a bureau of the UST.

FNBPA is also subject to certain regulatory requirements of the CFPB, the FDIC, the FRB and other federal and state regulatory agencies, including but not limited to, requirements to maintain reserves against deposits, capital requirements, limitations regarding dividends, restrictions on the types and amounts of loans that may be granted and the interest that may be charged on loans, affiliate transactions, CRA, consumer compliance and anti-discrimination laws and unfair, deceptive or abusive acts and practices prohibitions, monitoring obligations under the federal bank secrecy act and anti-money laundering requirements,

limitations on the types of investments that may be made, cybersecurity and consumer privacy requirements, activities that may be engaged in and types of services that may be offered.

In addition to supervision, regulation and enforcement of federal banking laws, and regulations by the federal bank regulatory agencies, FNB and our subsidiaries are subject to various other laws and regulations and supervision and examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of FNB and our ability to make distributions to our stockholders.

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The following discussion is general in nature and seeks to highlight some of the more significant of these regulatory requirements, but does not purport to be complete or to describe all of the laws and regulations that apply to us and our subsidiaries.

Legislative and Regulatory Responses to the COVID-19 Pandemic

The COVID-19 pandemic has continued to cause extensive disruptions to the global economy, to businesses, and to the lives of individuals throughout the world.

On March 27, 2020, the CARES Act was signed into law.

The CARES Act was a $2.2 trillion economic stimulus bill that was intended to provide relief in the wake of the COVID-19 pandemic.

There have also been a number of regulatory actions intended to help mitigate the adverse economic impact of the COVID-19 pandemic on borrowers, including several mandates from the federal bank regulatory agencies, requiring financial institutions to work constructively with borrowers affected by the COVID-19 pandemic.

The PPP, originally established under the CARES Act and extended under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, authorized financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profit organizations.

Under the PPP, these loans carry an interest rate of 1% per annum and a maturity of two years for loans originated prior to June 5, 2020 and five years for loans originated on or after June 5, 2020.

The PPP provides that such loans may be forgiven if the borrowers meet certain requirements with respect to maintaining employee headcount and payroll

and the use of the loan proceeds after the loan is originated.

Although the PPP ended in accordance with its terms on May 31, 2021, outstanding PPP loans continue to go through the process of either (1) obtaining forgiveness from the SBA, (2) amortizing any unforgiven balance over 2 or 5 years or (3) pursuing claims under the SBA guaranty.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

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The FDIC has set the target designated reserve ratio at 2% since 2010.

Assessment rates, which declined for all banks when the reserve ratio first surpassed 1.15% in the third quarter of 2016, are expected to remain unchanged.

Assessment rates are scheduled to decrease when the reserve ratio exceeds 2%.

In addition, TCJA disallows the deduction of FDIC deposit insurance premium payments for banking organizations with total consolidated assets of $50 billion or more.

Assessment rates, which declined for all banks when the reserve ratio first surpassed 1.15% in the third quarter of 2016, increased for all insurance depository institutions by 2 basis points in the first quarter of 2023.

The increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the DIF reaches the statutory minimum of 1.35 % by the statutory deadline of September 30, 2028.

Assessment rates will remain in effect unless and until the reserve ratio meets or exceeds 2%.

In addition, the TCJA disallows the deduction of FDIC deposit insurance premium payments for banking organizations with total consolidated assets of $50 billion or more.

For banks with less than $50 billion in total consolidated assets, such as FNBPA, the premium deduction is phased-out based on the proportion of the bank’s assets exceeding $10 billion.

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As mandated by the Economic Growth Act, the FDIC adopted a final rule in February 2019 to include a limited exception for reciprocal deposits for IDIs that are well-managed and well-capitalized (or adequately capitalized and have obtained a waiver from the FDIC, as mentioned above).

Under the limited exception, qualified IDIs, like FNBPA, are able to except from treatment as “brokered” deposits up to $5 billion or 20% of the institution’s total liabilities in reciprocal deposits (which is defined as deposits received by a financial institution through a deposit placement network with the same maturity (if any) in the same aggregate amount as deposits placed by the institution in other network member banks).

Under the limited exception, qualified IDIs, like FNBPA, are able to exclude from treatment as “brokered” deposits up to $5 billion or 20% of the institution’s total liabilities in reciprocal deposits (which is defined as deposits received by a financial institution through a deposit placement network with the same maturity (if any) in the same aggregate amount as deposits placed by the institution in other network member banks).

On December 15, 2020, the FDIC issued a final rule amending its brokered deposit regulations.

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(i) defining the operative prongs of the definition of a “deposit broker;” (ii) the identification of a number of business relationships in which the agent or nominee is automatically not deemed to be a "deposit broker" because their "primary purpose" is not the placement of funds with depository institutions;

(iii) the establishment of a more transparent application process for entities that seek to rely upon the "primary purpose" exception, but do not qualify for one of the identified business relationships to which the exception

is automatically applicable;

and (iv) the clarification that third parties that have an exclusive deposit-placement arrangement with one IDI are not considered a "deposit broker." The final rule took effect on April 1, 2021, and full compliance was required by January 1, 2022.

and (iv) the clarification that third parties that have an exclusive deposit-placement arrangement

with one IDI are not considered a "deposit broker." The final rule took effect on April 1, 2021, and full compliance was required by January 1, 2022.

Interest on Demand Deposits.

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Compliance with the revised Volcker Rule regulations was required on January 1, 2021.

On June 25, 2020, the Volcker Rule regulations were amended to streamline the “covered funds” portion addressing the treatment of certain foreign funds, and permitting banking entities to offer financial services and engage in other permissible activities that do not raise concerns that the Volcker Rule was intended to address.

In July 2020, the OCC amended the Volcker Rule regulations to streamline the “covered funds” portion addressing the treatment of certain foreign funds, and permitting banking entities to offer financial services and engage in other permissible activities that do not raise concerns that the Volcker Rule was intended to address.

Principally, this amendment permits banks to engage in certain low-risk fund activities that do not present the risks that the Volcker Rule was intended to address.

The Consumer Financial Protection Bureau.

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The CFPB has authority to prevent unfair, deceptive or abusive acts and practices in connection with the offering of consumer financial products and services.

In 2022, the CFPB has taken an increasingly aggressive approach and expanded its reach and has made it clear that the CFPB is interpreting its statutory authorities broadly to expand the CFPB's ability to pursue violations of the consumer financial and fair lending laws in consumer financial markets, including issuing guidance indicating certain bank overdraft and mortgage lending practices constitute violations of the Unfair, Deceptive or Abusive Acts or Practices statute.

In addition, the Dodd-Frank Act permits states to adopt consumer protection regulations that are more stringent than the regulations promulgated by the CFPB, and state attorneys general have the authority to enforce consumer protection rules that the CFPB adopts against state-chartered institutions and against, with respect to certain non-preempted laws, national banks.

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Debit Card Interchange Fees .

The FRB, pursuant to its authority under the Dodd-Frank Act, issued rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion, adopting a per-transaction interchange cap base of $0.21 plus 0.05% of the transaction total (and an additional one cent to account for fraud protection costs).

The FRB, pursuant to its authority under the Dodd-Frank Act, has implemented rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion, adopting a per-transaction interchange cap base of $0.21 plus 0.05% of the transaction total (and an additional one cent to account for fraud protection costs).

Transactions with Affiliates.

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The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” to include the borrowing or lending of securities or derivative transactions, and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.

In addition, the provisions of the Volcker Rule apply similar restrictions on transactions between a bank and any “covered fund” that the bank advises or sponsors.

In addition, the provisions

of the Volcker Rule apply similar restrictions on transactions between a bank and any “covered fund” that the bank advises or sponsors.

Transactions with Insiders.

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Basel III Capital Rules

The FRB and the OCC published Basel III in 2013, establishing a new comprehensive capital framework for U.S.

banking organizations.

The rules implement the Basel Committee’s December 2010 framework for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act.

Basel III substantially revised the risk-based capital requirements applicable to bank holding companies and IDIs, including FNB and FNBPA, compared to the then-existing U.S.

risk-based capital rules.

Basel III defines the components of capital and addresses other issues affecting the numerator in banking institutions’ regulatory capital ratios.

Basel III also addresses risk weights and other issues affecting the denominator in a banking institution’s regulatory capital ratios.

Basel III, among other things, (i) introduced the concept of CET1, (ii) specified that tier 1 capital consists of CET1 and “Additional Tier 1” capital instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most

deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations.

Basel III requires FNB and FNBPA to maintain (i) a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7% upon full implementation), (ii) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum tier 1 capital ratio of 8.5% upon full implementation), (iii) a minimum ratio of total capital (that is, tier 1 plus tier 2) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation) and (iv) a minimum leverage ratio of 4%, calculated as the ratio of tier 1 capital to average quarterly assets (as compared to a prior minimum leverage ratio of 3% for banking organizations that either have the highest supervisory rating or have implemented the appropriate federal regulatory authority’s risk-adjusted measure for market risk).

Under Basel III, the effects of certain AOCI items are not excluded;

however, banking organizations which do not use the advanced approach, such as FNB and FNBPA, may make a one-time permanent election to continue to exclude these items.

FNB and FNBPA made this election in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of FNB’s AFS securities portfolio.

Basel III also precludes certain hybrid securities, such as TPS, as tier 1 capital of bank holding companies, subject to phase-out.

TPS no longer included in FNB’s tier 1 capital may nonetheless be included as a component of tier 2 capital on a permanent basis without phase-out.

With respect to FNBPA, Basel III also revises the “prompt corrective action” regulations pursuant to Section 38 of the FDI Act, as discussed below under the caption “Prompt Corrective Action.”

Basel III prescribes a standardized approach for risk weightings that expands the risk-weighting categories from the four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S.

government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories.

In addition, Basel III provides more advantageous risk weights for derivatives and repurchase-style transactions cleared through a qualifying central counterparty and increases the scope of eligible guarantors and eligible collateral for purposes of credit risk mitigation.

The FRB, the OCC, and the FDIC have adopted risk-based capital regulations implementing certain provisions of the Dodd-Frank Act and the Basel III framework.

These regulations were initially implemented in 2013 to strengthen the components of regulatory capital, increase risk-based capital requirements, and to make selected changes to the calculation of risk-weighted assets.

In general, subject to certain exceptions as discussed further below, minimum capital standards established under the risk-based capital regulations include a CET1 capital to risk-weighted assets ratio of 4.5 percent, a Tier 1 capital to risk-weighted assets ratio of 6.0 percent, a total capital to risk-weighted assets ratio of 8.0 percent, and a Tier 1 capital to adjusted average total assets leverage ratio of 4.0 percent.

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (for example, recourse obligations, direct credit

substitutes and residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset.

Higher levels of capital are required for asset categories believed to present greater risk.

CET1 capital is generally defined as common shareholders’ equity and retained earnings.

Tier 1 capital is generally defined as CET1 and additional Tier 1 capital.

Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries.

Total capital includes Tier 1 capital (CET1 capital plus additional Tier 1 capital) and Tier 2 capital.

Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt.

Also included in Tier 2 capital is the allowance for loan losses limited to a maximum of 1.25 percent of risk-weighted assets.

Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

In assessing an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

In addition to establishing the minimum regulatory capital requirements, the capital regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a capital conservation buffer consisting of 2.5% of CET1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

Through subsequent rulemaking, the federal banking agencies provided certain forms of relief to banking organizations that are not subject to the capital rules’ advanced approaches, such as FNB.

For instance, non-advanced approaches institutions, such as FNB and FNBPA, are subject to a more simple regulatory capital treatment for MSAs, certain DTAs arising from temporary differences, investments in the capital of unconsolidated financial institutions and requirements for the amount of capital issued by a consolidated subsidiary of a banking organization and held by third parties (sometimes referred to as a minority interest) that is includable in regulatory capital.

In addition, certain general requirements of the capital rules have been eliminated in respect of non-advanced approaches institutions, including:

In addition, certain general requirements of the capital regulations have been eliminated in respect of non-advanced approaches institutions, including:

(i) the 10% CET1 capital deduction threshold that applies individually to MSAs, temporary difference DTAs, and significant investments in the capital of unconsolidated financial institutions in the form of common stock;

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Accordingly, banking organizations not subject to the advanced approaches capital rule may deduct from CET1 capital any amount of MSAs, temporary difference DTAs, and investments in the capital of unconsolidated financial institutions that individually exceeds 25% of CET1 capital.

Management believes that as of December 31, 2022, FNB and FNBPA meet all capital adequacy requirements under Basel III.

The Basel Committee on Banking Supervision published the last version of the Basel III accord in 2017, generally referred to as “Basel IV.” The Basel Committee stated that a key objective of the revisions incorporated into the framework is to reduce excessive variability of risk-weighted assets, which will be accomplished by enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk, which will facilitate the comparability of banks’ capital ratios;

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Although it is uncertain at this time, we anticipate some, if not all, of the Basel IV accord may be incorporated into the regulatory capital requirements framework applicable to FNB and FNBPA.

Management believes that as of December 31, 2021, FNB and FNBPA meet all capital adequacy requirements under Basel III.

Current Expected Credit Loss Treatment

On January 1, 2020, we adopted the FASB accounting standard update, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the prior “incurred loss” model for recognizing credit losses with an “expected loss” model, referred to as the CECL model.

Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as loans held for investment and HTM debt securities, at the net amount expected to be collected.

The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and R&S forecasts that affect the collectability of the reported amount.

On December 21, 2018, the federal banking agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a period of three years the day-one regulatory capital effects of the CECL model.

The CARES Act allows for an optional five-year phase in period for the day-one regulatory capital effects of the CECL adoption.

FNB has elected this option.

The final rule also revises the agencies’ other rules to reflect the update to the accounting standards.

In February 2021, the FDIC adopted a final rule addressing the temporary deposit insurance assessment effects resulting from certain optional regulatory capital transition provisions relating to the implementation of the CECL methodology.

The final rule, which became effective on April 1, 2021, removed the double-counting of a specified portion of the CECL transitional amount, or the modified CECL transitional amount, as applicable, in the calculation of certain financial measures that are used to determine assessment rates for large and highly complex IDIs.

The impact on FNBPA has not been material.

In August 2020, the federal banking agencies issued a final rule providing banking institutions that had adopted the CECL accounting standard in the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total).

In connection with its adoption of CECL on January 1, 2020, FNB elected to utilize the five-year CECL transition.

In addition, the federal banking agencies continue to review bank capital requirements in light of the finalization of the Basel III framework by the Basel Committee on Banking Supervision.

No proposals for any of the components of finalizing the Basel III framework has yet been published by the agencies.

On September 9, 2022, the U.S.

banking agencies issued a press release reaffirming “their commitment to implementing enhanced regulatory capital requirements that align with the final set of ‘Basel III’ standards” and stating that they “are currently developing a joint proposed rule for issuance as soon as possible.”

Stress Testing

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When determining the adequacy of an IDI’s capital, federal regulators must also take into consideration (a) concentrations of credit risk;

(b) interest rate risk (when the interest rate sensitivity of an institution’s assets does not match the sensitivity of its liabilities or its off-balance sheet position) and (c) risks from non-traditional activities, as well as an institution’s ability to

manage those risks.

This evaluation is made as part of the IDI’s regular safety and soundness examination.

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The "outstanding" CRA rating reaffirms our success in fulfilling our strategic and cultural commitment to supporting traditionally underserved communities.

The federal banking agencies have expressed interest in, and the OCC has taken certain steps toward, reform of the CRA's implementing regulations;

however, the agencies have not yet agreed upon a common framework for reform and prospects for future rulemaking remain uncertain at this time.

Fair lending laws prohibit discrimination in the provision of banking services, and the enforcement of these laws has been an increasing focus for the CFPB, HUD, and other regulators.

Fair lending laws include the Equal Credit Opportunity Act and the Fair Housing Act, which outlaw discrimination in credit and residential real estate transactions on the basis of prohibited factors including, among others, race, color, national origin, gender, and religion.

Fair lending laws include the Equal Credit Opportunity Act (ECOA)

and the Fair Housing Act, which outlaw discrimination in credit and residential real estate transactions on the basis of prohibited factors including, among others, race, color, national origin, gender, and religion.

A lender may be liable for policies that result in a disparate treatment of or have a disparate impact on a protected class of applicants or borrowers.

Moreover, in 2022, the CFPB issued an advisory opinion and amended its examination procedures to assert that the ECOA applies to all phases of the loan cycle and asserted its authority to determine that violations of the fair lending laws may also constitute a violation of the Unfair, Deceptive or Abusive Acts or Practices Acts.

If a pattern or practice of lending discrimination is alleged by a regulator, then that agency may refer the matter to the DOJ for investigation.

The DOJ and CFPB have a Memorandum of Understanding under which the agencies have agreed to share information, coordinate investigations and have generally committed to strengthen their coordination efforts.

The current Presidential Administration has indicated a focus on prioritizing enforcement of the federal anti-discrimination laws, and as a result, the CFPB may adopt more strict anti-discrimination enforcement policies in the area of fair lending, loan servicing, collections and other consumer-related areas and in October 2021, the DOJ announced an initiative to combat redlining through utilization of its fair lending authorities.

FNBPA is required to have a fair lending program that is of sufficient scope to monitor fair lending and that appropriately remediates issues which are identified.

On May 5, 2022, the federal banking agencies issued a joint notice of proposed rulemaking to revise the regulations implementing the CRA.

Under the proposed rule, the agencies would evaluate bank performance across the varied activities they conduct and the communities in which they operate, and tailor CRA evaluations and data collection based on bank size and type.

Further, the agencies would also emphasize smaller value loans and investments that may have a greater impact on and be more responsive to the needs of low- and moderate-income (LMI) persons and would update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models.

In addition, the proposed rule would establish a metrics-based approach to CRA evaluations of retail lending and community development financing activities, including through the establishment of public benchmarks, and would clarify eligible CRA activities, such as affordable housing, that are focused on LMI, underserved and rural communities.

The prospects and timing for the adoption by the agencies of a final rule are not certain at this time.

Financial Privacy

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The OCC, however, as part of its bank supervision operational plan has prioritized review of national bank’s information security, data protection and third-party risk management, including the extent to which national banks are positioned to assess the evolving cyber-threat environment and maintain resilient defenses against such threats.

In February 2018, the SEC announced interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.

The guidance provides the SEC’s views about public companies’ disclosure obligations under existing law with respect to matters involving cybersecurity risk and incidents.

It also addresses the importance of cybersecurity policies and procedures and the application of disclosure controls and procedures, insider trading prohibitions, and Regulation FD and selective disclosure prohibitions in the cybersecurity context.

FNB has reviewed and assessed the SEC guidance in connection with its business operations.

On November 23, 2021, the federal financial regulatory agencies published a final rule that will impose upon banking organizations and their non-affiliated service providers new notification requirements for significant cybersecurity incidents.

Specifically, the final rule requires banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a "computer security incident" that rises to the level of a "notification incident" within the meaning attributed to those terms by the final rule.

Banks' non-affiliated service providers are required under the final rule to notify any affected bank to or on behalf of which the service provider provides services "as soon as possible" after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.

The final rule will take effect on April 1, 2022, and banks and their non-affiliated service providers must be in compliance with the requirements of the rule by May 1, 2022.

or degrade, covered services provided to such bank for as much as four hours.

The final rule took effect on April 1, 2022, and banks and their non-affiliated service providers had to be in compliance with the requirements of the rule by May 1, 2022.

Further, in 2022, the enactment of the Strengthening American Cybersecurity Act (SACA), and the SEC proposed rules to enhance disclosures regarding cybersecurity risk management strategy, governance and incident reporting are designed to standardize cybersecurity processes and disclosure requirements.

SACA requires critical infrastructure companies, such as financial institutions, to report "significant cyber-incidents" and all ransom payments to the U.S.

Department of Homeland Security's Cybersecurity and Infrastructure Security Agency (CISA).

The definition of a "covered cyber-incident" will be determined by CISA rulemaking, but the Act provides that, at a minimum, an incident must be reported if it:

(1) causes a "substantial loss of confidentiality, integrity or availability" of information or a "serious impact on the safety and resiliency of operational systems and processes";

(2) causes a "disruption of business or industrial operations, including due to a denial of service attack, ransomware attack or exploitation of a zero day vulnerability";

or (3) involves "unauthorized access or disruption of business or industrial operations" due to a "compromise of a cloud service provider, managed service provider or other third-party data hosting provider or by a supply chain compromise".

The proposed SEC rule would, among other requirements, require periodic reporting and increased disclosure of public company's cybersecurity risk management policies, board oversight of cybersecurity risks and management qualifications and capability to assess and effectively manage cybersecurity risks.

Anti-Money Laundering Initiatives and the USA PATRIOT Act

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The failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal, including criminal law enforcement, and reputational consequences for the institution.

On January 1, 2021, Congress passed the National Defense Authorization Act, which enacted the most significant overhaul of the BSA and related anti-money laundering laws since the USA PATRIOT Act.

On January 1, 2021, Congress passed the National Defense Authorization Act (NDAA), which enacted the most significant overhaul of the BSA and related anti-money laundering laws since the USA PATRIOT Act.

Notable amendments include:

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Many of the amendments require the UST and FinCEN to promulgate rules.

On December 8, 2021, FinCEN issued proposed regulations that would implement the amendments with respect to beneficial ownership, the first of three rulemakings to create a national database of corporate ownership.

On September 29, 2022, FinCEN issued a final regulation implementing the BSA amendments included in the NDAA with respect to beneficial ownership.

On December 15, 2022, FinCEN issued a notice of proposed rulemaking that would implement provisions of the Corporate Transparency Act and govern the circumstances under which beneficial ownership information may be disclosed to federal agencies;

state, local, tribal and foreign governments;

and financial institutions, and how beneficial ownership information must be protected.

Office of Foreign Assets Control Regulation

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Consumer Protection Statutes and Regulations

In addition to the consumer regulations promulgated by the FRB, OCC and state agencies, and the regulations issued by the CFPB pursuant to its authority under the Dodd-Frank Act, FNBPA is subject to various federal consumer protection statutes including the TILA, Truth in Savings Act, Equal Credit Opportunity Act, Fair Housing Act, RESPA, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Electronic Fund Transfer Act and Home Mortgage Disclosure Act, and regulations and guidance promulgated thereunder by the CFPB and the federal banking agencies.

In addition to the consumer regulations promulgated by the FRB, OCC and state agencies, and the regulations issued by the CFPB pursuant to its authority under the Dodd-Frank Act, FNBPA is subject to various federal consumer protection statutes including the TILA, Truth in Savings Act, Equal Credit Opportunity Act (ECOA), Fair Housing Act, RESPA, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Electronic Fund Transfer Act and Home Mortgage Disclosure Act, and regulations and guidance promulgated thereunder by the CFPB and the federal banking agencies.

Among other things, these laws and regulations:

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• prohibit unfair, deceptive or abusive acts and practices in connection with consumer loans, the collection of debt, and the provision of other consumer financial products and services.

In October 2022, the CFPB issued guidance relative to certain bank overdraft practices and advised that overdraft or account fees assessed by financial institutions that a consumer could not reasonably anticipate or avoid may likely constitute a violation of the Consumer Protection Act, including fees assessed in connection with so-called authorize positive, settle negative transactions or when a depositor is assessed a non-sufficient funds fee when a check or electronic payment is not paid.

Although we regularly monitor, review and modify consumer practices for compliance with federal and state laws, regulations and standards, the CFPB's approach increases the risk that financial institutions may be subject to supervisory or enforcement actions.

The CFPB has implemented a series of final consumer protection and disclosure rules related to mortgage loan origination and mortgage loan servicing designed to address the Dodd-Frank Act mortgage lending protections.

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Department of Veteran Affairs may, for a period not to exceed seven years, meet the QM definition without being subject to the 43% DTI limits.

However, on December 10, 2020, the CFPB issued two final rules related to QM loans.

However, in December 2020, the CFPB issued two final rules related to QM loans.

The first rule replaces the 43% DTI threshold for QM loans and provides that, in addition to existing requirements, a loan received a conclusive presumption that the consumer had the ability to repay if the annual percentage rate (APR) does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set.

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The second rule creates a new category of “seasoned” QMs for loans that meet certain performance requirements.

The mandatory compliance date of the first rule was July 1, 2021, which was subsequently delayed by the CFPB until October 1, 2022.

The second rule will apply to covered transactions for which institutions receive an application after the compliance date for the first rule.

The CFPB also has implemented the TILA-RESPA Integrated Disclosure rules, which harmonize disclosure and certain regulatory compliance requirements required under those two statutes with respect to residential mortgage loans.

The CFPB has issued various forms of interpretative guidance under the rules, including in 2019 in response to a requirement set forth under the Economic Growth Act to address, among other things, whether Loan Estimates and Closing Disclosures are required for loan assumption transactions.

Additionally, CFPB regulations governing the servicing of residential mortgages have placed additional requirements on mortgage servicers that often lengthen the process for foreclosing on residential mortgages.

The CFPB also adopted integrated disclosure requirements related to mortgage originations under RESPA and TILA and each statute’s implementing regulations.

The CFPB has authority to take supervisory and enforcement action against banks and other financial services companies under the agency’s jurisdiction that fail to comply with federal consumer financial laws.

As an IDI with total assets of more than $10 billion, FNBPA is subject to the CFPB’s supervisory and enforcement authorities.

The Dodd-Frank Act also permits states to adopt more stringent consumer protection laws and state attorneys general to enforce consumer protection rules issued by the

The Dodd-Frank Act also permits states to adopt more stringent consumer protection laws and state attorneys general to enforce consumer protection rules issued by the CFPB.

We continuously evaluate the impact of the consumer rules issued by the CFPB to determine if they will have any long- term impact on our mortgage loan origination and servicing activities.

Compliance with these CFPB rules will likely increase our overall regulatory compliance costs.

The CFPB has historically been active in bringing enforcement actions against banks and other financial institutions to enforce consumer financial laws.

The CFPB has historically been active in bringing enforcement actions against banks and other financial institutions to enforce consumer financial laws and establishing new standards regarding consumer practices.

The federal financial regulatory agencies, including the OCC and state attorneys general, have also become increasingly active in this area with respect to institutions over which they have jurisdiction.

We have incurred and may in the future incur additional costs in complying with these requirements.

In 2022, the CFPB issued an advisory opinion indicating that the ECOA applies to all aspects of the loan life cycle, including actions by banks relative to existing credit relationship, however, the implications of a 2023 Federal District Court ruling question whether the CFPB has broader scope authority relative to interpreting the ECOA.

Further the CFPB examination manual asserts that redlining under the fair lending laws is also a violation of the Unfair, Deceptive or Abusive Acts or Practices statute.

We have incurred and may in the future incur additional costs in complying with the above-identified consumer requirements.

Pursuant to the Dodd-Frank Act, the FDIC has backup enforcement authority over a bank holding company, such as FNB, if the conduct or threatened conduct (including any acts or omissions) of such holding company poses a risk to the DIF, although such authority may not be used if the holding company is in generally sound condition and does not pose a foreseeable and material risk to the DIF.

The Dodd-Frank Act may have a material impact on FNB and FNBPA's operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations.

The Dodd-Frank Act may have a material impact on FNB and FNBPA's operations, particularly through increased compliance costs resulting from evolving future consumer and fair lending regulations.

Dividend Restrictions

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A financial holding company may also engage in any activity that has been determined by rule or order to be financial in nature, incidental to such financial activity, or (with prior FRB approval) complementary to a financial activity and that does not pose substantial risk to the safety and soundness of an institution or to the financial system generally.

to these activities, a financial holding company may engage in those activities permissible for a bank holding company that has not elected to be treated as a financial holding company.

In addition to these activities, a financial holding company may engage in those activities permissible for a bank holding company that has not elected to be treated as a financial holding company.

For a bank holding company to be eligible for financial holding company status, all of its subsidiary U.S.

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Pursuant to the Dodd-Frank Act, national and state-chartered banks may open an initial branch in a state other than its home state (e.g., a host state) by establishing a de novo branch at any location in such host state at which a bank chartered in such host state could establish a branch.

Applications to establish such branches must still be filed with the appropriate primary federal bank regulator.

Applications to establish such branches must still be filed with the OCC.

The Change in Bank Control Act prohibits a person, entity or group of persons or entities acting in concert, from acquiring “control” of a bank holding company or bank unless the FRB has been given prior notice and has not objected to the transaction.

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In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements.

The agencies have not yet finalized these rules;

however, on October 14, 2021, the SEC indicated a renewed interest in this rulemaking initiative by re-opening the comment period on a proposed rule originally issued in 2015 regarding "clawbacks" of incentive-based executive compensation.

Nevertheless, incentive compensation and sales practices, particularly in connection with certain products and services that are viewed as high-risk from a supervisory perspective, such as cross-selling and overdraft services, continue to be priority issues on the examination and supervision agendas of the CFPB and the federal banking agencies.

In October 2022, the SEC adopted a final regulation implementing the incentive-based recovery (or "clawback") provisions of the Dodd-Frank Act.

The final regulation directs stock exchanges to require listed companies to implement clawback policies to recover incentive-based compensation paid to current or former executive officers in the event of material non-compliance with any financial reporting requirement under the securities laws, even if there was no misconduct or failure of oversight on the part of an individual executive officer, and to disclose their clawback policies and their actions under those policies.

It is anticipated that most SEC registrants will be given until late 2023 or early 2024 to adopt and implement the policies required by the financial regulation.

Incentive compensation and sales practices, particularly in connection with certain products and services that are viewed as high-risk from a supervisory perspective, such as cross-selling and overdraft services, continue to be priority issues on the examination and supervision agendas of the CFPB and the federal banking agencies.

The scope and content of the U.S.

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Fifth Circuit Court of Appeals vacated the DOL's "fiduciary rule" and related prohibited transaction exemptions.

As a result, although FNBPA may have taken certain measures to comply with the rule on a transitional basis, FNBPA's securities brokerage and investment advisory service and activities are no longer affected by these DOL regulations.

Separately, pursuant to a study conducted by the SEC that was required by the Dodd-Frank Act, the SEC adopted Regulation Best Interest, which, among other things, established a new standard of conduct for a broker-dealer to act in the best interest of a retail consumer when making a recommendation of any securities transaction or investment strategy involving securities to such consumer.

However, on June 29, 2020, the DOL released a proposed prohibited transaction class exemption and associated guidance, intended as the “fiduciary rule[s]” replacement.

Under the proposal, investment advice fiduciaries to IRAs and ERISA plans (and similar tax-favored accounts) are permitted to receive variable compensation and other transaction-based fees in connection with providing investment advice as a fiduciary.

Also, investment advice fiduciaries are permitted under the proposal to engage in certain principal transactions, without violating the prohibited transaction rules of ERISA and the IRS Code.

Further, the proposal called for fiduciary status to be determined under the longstanding five-part test and, unlike the “fiduciary rule,” the regulatory definition of "fiduciary" is not expanded.

DOL finalized the proposed exemption in December 2020 and FNBPA and FNTC subsequently conformed their business practices to comply therewith, including applicable DOL transition guidance, to the extent applicable.

Separately, in 2019 the SEC adopted Regulation Best Interest, which, among other things, established a new standard of conduct for a broker-dealer to act in the best interest of a retail consumer when making a recommendation of any securities transaction or investment strategy involving securities to such consumer.

The new rule by the SEC requires us to review and possibly modify our compliance activities, which is causing us to incur additional costs.

In addition, state laws that impose a fiduciary duty also may require monitoring, as well as require that we undertake additional compliance measures.

Standards for Safety and Soundness

The federal banking agencies have adopted the Interagency Guidelines for Establishing Standards for Safety and Soundness (the Guidelines).

The Guidelines establish certain safety and soundness standards for all depository institutions.

The operational and managerial standards in the Guidelines relate to the following:

(1) internal controls and information systems;

(2) internal audit systems;

(3) loan documentation;

(4) credit underwriting;

(5) interest rate exposure;

(6) asset growth;

(7) compensation, fees and benefits;

(8) asset quality;

and (9) earnings.

Rather than providing specific rules, the Guidelines set forth basic compliance considerations and guidance with respect to a depository institution.

Failure to meet the standards in the Guidelines, however, could result in a request by the OCC to one of the nationally chartered banks to provide a written compliance plan to demonstrate its efforts to come into compliance with such Guidelines.

Failure to provide a plan or to implement a provided plan requires the appropriate federal banking agency to issue an order to the institution requiring compliance.

Insurance Agencies

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The rules adopted by the SEC under SOX have several requirements, including having these officers certify that:

they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting;

responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting;

they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting;

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In recent years the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system.

Accordingly, the agencies have begun to enhance their

supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to:

Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to:

ensure that management of climate-related risk exposures has been incorporated into existing governance structures;

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On December 16, 2021, the OCC issued proposed principles for climate-related financial risk management for national banks with more than $100 billion in total assets.

Further, on March 30, 2022 and December 2, 2022, respectively, the FDIC and the FRB issued their own proposed principles for climate risk management, which are applicable to larger banking organizations.

Although these risk management principles, if adopted as proposed, would not apply to FNBPA directly based upon our current size, the OCC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management.

The federal banking agencies, either independently or on an interagency basis, are expected to adopt a more formal climate risk management framework for larger banking organizations in the coming months.

The federal banking agencies, either independently or on an interagency basis, are expected to adopt a more formal climate risk management framework for larger banking organizations.

In the interim, the FRB announced on September 29, 2022 that six of the largest U.S.

banking organizations will participate in a climate scenario analysis pilot program in order to assess the resilience of such organizations under various hypothetical scenarios involving physical and transition climate related risks on specific residential and commercial real estate in their portfolios for the purpose of using scenarios on current policies and policies targeting zero emissions by 2050.

The FRB states the overriding purpose of the pilot climate risk assessment study is to deepen the understanding of climate risk management practices and advance the development of the capacity to better identify, measure, monitor and manage climate-related risks.

The SEC has issued a proposed rule that, if adopted, would require public companies to provide detailed reporting of climate-related risks (material risks and strategic implications), green-house gas emissions and net-zero transition plans (targets pertaining to planned reductions).

As climate-related supervisory guidance is formalized, and relevant risk areas and corresponding control expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance and remediation costs in order to conform to such requirements.

In addition, states are considering taking similar actions on climate-related financial risks, including certain states in which we operate.

For example, the Governor of the Commonwealth of Pennsylvania has announced the Pennsylvania Climate Action Plan of 2021, which will, in part, focus on the negative impact businesses have on greenhouse gas emissions.

Further, in October 2018, North Carolina’s Governor issued Executive Order 80, a commitment to tackle climate change and build a clean energy economy.

Additionally, in late 2019, the North Carolina Department of Environmental Quality published the Clean Energy Plan, to facilitate the use of clean energy resources throughout the state.

Once fully implemented, these measures will, in part, focus on the impact that businesses operating in the state of North Carolina have on climate change and could lead to specific requirements related to the climate risk management practices of businesses operating in the state.

For example, in January 2022, North Carolina Governor Roy Cooper issued Executive Order No.

246, which establishes science-based goals of a 50% reduction in greenhouse gas emissions by 2030 and net-zero emissions by 2050 and affirmed the state’s commitment to climate action and environmental justice.

Additionally, in June 2022, Maryland’s Climate Solutions Now Act of 2022 went into effect.

The Act requires the state to reduce statewide greenhouse gas emissions by, among other things, developing energy efficiency and emissions reduction requirements for certain buildings.

Under the Act, Maryland targets a net zero goal by 2045 for greenhouse gas emissions.

In July 2022, District of Columbia policymakers approved two bills aimed at decarbonization through reduction of greenhouse gases and setting decarbonization targets for the District’s homes and buildings.

Maryland Attorney General Brian E.

Frosh and District of Columbia Attorney General Karl A.

Racine also both joined a coalition of 19 attorneys general in supporting the SEC’s Proposed Rules for The Enhancement and Standardization of the Climate-Related Disclosure for Investors.

State and local climate-related legislative and regulatory initiatives may require us to expend capital to conform to applicable requirements.

Digital Asset Regulation

On January 3, 2023, the federal banking agencies issued additional guidance in the form of a joint statement addressing digital asset-related risks to banking organizations.

That statement noted the recent volatility and exposure of vulnerabilities in the

digital asset sector and indicated that the agencies are continuing to assess whether or how the digital asset-related activities of banking organizations can be conducted in a safe and sound manner and in compliance with all applicable laws and regulations.

The statement stressed that each agency has developed, and expects banking organizations to follow supervisory processes for evaluating proposed and existing digital asset activities.

We do not invest in digital assets or so-called cryptocurrencies.

Governmental Policies

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These policies have a significant influence on overall growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid for deposits.

In fact, in the midst of rising inflation and pressure to raise interest rates, in its FOMC policy statement issued on January 26, 2022, the FRB strongly signaled that it will soon be time to raise the target range for the Federal funds rate.

In fact, in the midst of rising inflation and pressure to raise interest rates, in its FOMC policy statement issued on January 26, 2022, the FRB strongly signaled that it would soon be time to raise the target range for the Federal funds rate, and the FOMC has since increased the target Federal funds rate several times to a range of 4.25% to 4.50% as of December 31, 2022.

The FOMC signaled that future increases may be appropriate in order to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels.

FRB monetary policies have had a significant effect on the operating results of all financial institutions in the past and may continue to do so in the future.

In addition, the new federal bank regulatory and SEC leadership appointees by the current Presidential Administration are anticipated to result in a philosophical change in the priorities and approach to supervision, compliance and enforcement and other policies which may impact our operations.

The current Presidential Administration's federal bank regulatory, SEC and consumer protection agency leadership appointees have a philosophical change relative to the prior Presidential Administration with respect to the priorities and approach to supervision, disclosures, compliance and enforcement and other policies which may impact our operations.

In view of changing conditions in the national economy and in money markets, as well as the effect of credit policies by monetary and fiscal authorities, including the FRB, it is difficult to predict the impact of possible future changes in interest rates, deposit levels and loan demand, or their effect on our business and earnings or on the financial condition of our various customers (see discussion under Risk Factors - caption “ We could be adversely affected by changes in the law, especially changes in the regulation of the banking industry ”).

Tax Cuts and Jobs Act of 2017

The TCJA includes a number of provisions that impact FNB, including the following:

The TCJA replaced the corporate tax rate of 35% applicable under prior law with a reduced 21% statutory tax rate.

Although the reduced tax rate generally should be favorable to us by resulting in increased earnings and capital, it decreased the value of our then-existing DTAs.

The effect of remeasuring DTAs due to the reduction in the tax rate was a significant item

impacting earnings but is generally not expected to have a substantial adverse impact on our core earnings or capital over the long term.

The current Presidential Administration has announced that one if its priorities is to raise the corporate tax rate.

FDIC Insurance Premiums .

As discussed above, the TCJA prohibits taxpayers with consolidated assets over $50 billion from deducting any FDIC insurance premiums and prohibits taxpayers with consolidated assets between $10 and $50 billion from deducting the portion of their FDIC premiums equal to the ratio, expressed as a percentage, that (i) the taxpayer’s total consolidated assets over $10 billion, as of the close of the taxable year, bears to (ii) $40 billion.

As a result, FNBPA’s ability to deduct its FDIC premiums is now limited.

Employee Compensation .

A “publicly held corporation” is not permitted to deduct compensation in excess of $1 million per year paid to certain employees.

The TCJA eliminated certain exceptions applicable under prior law for performance-based compensation, such as equity grants and cash bonuses that are paid only on the attainment of performance goals.

As a result, our ability to deduct certain compensation paid to our most highly compensated employees is now limited.

Business Asset Expensing .

The TCJA allows taxpayers immediately to expense the entire cost (instead of only 50%, as under prior law) of certain depreciable tangible property and real property improvements acquired and placed in service after September 27, 2017 and before January 1, 2023 (with an additional year for certain property).

This 100% “bonus” depreciation is phased down proportionately for property placed in service on or after January 1, 2023 and before January 1, 2027 (with an additional year for certain property).

Interest Expense.

The TCJA limits a taxpayer’s annual deduction of business interest expense to the sum of (i) business interest income and (ii) 30% of “adjusted taxable income,” defined as a business’s taxable income without taking into account business interest income or expense, net operating losses, and, for 2018 through 2021, depreciation, amortization and depletion.

Because we generate significant amounts of net interest income, we do not expect to be impacted by this limitation.

Available Information

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

What changed 10-K

Item 1. Business