What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-24 · 287 added, 357 removed, 917 unchanged (41% of the section changed)

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

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

MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations.

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and global financial markets;

(ii) actions by the FRB, FDIC, UST, OCC and other governmental agencies, especially those that impact money supply, market interest rates or otherwise affect business activities of the financial services industry;

(ii) actions by the FRB, FDIC, CFPB, UST, OCC and other governmental agencies, especially those that impact money supply, market interest rates or otherwise affect business activities of the financial services industry;

(iii) a slowing of the U.S.

economic environment;

economy in general and regional and local economies within our market area;

(iv) inflation concerns;

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

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

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

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

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

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

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These developments could include:

◦ Changes resulting from the current U.S.

◦ Policies and priorities of the current U.S.

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

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

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

These matters may result in monetary judgments or settlements or other

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risk Factors and the Risk Management sections in this Annual Report on Form 10-K (including the MD&A section), our subsequent 2023 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other subsequent filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-information/reports-and-filings or the SEC's website at www.sec.gov.

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

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

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

materially different than originally reported.

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

Under the CECL methodology, the ACL represents the expected lifetime credit losses on loans and leases that we do not expect to collect.

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

The most significant accounting policies followed by FNB are presented in Note 1, “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

These policies, along with the disclosures presented in the Notes to Consolidated Financial Statements, provide information on how we value significant assets and liabilities in the Consolidated Financial Statements, how we determine those values and how we record transactions in the Consolidated Financial Statements.

Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the Consolidated Financial Statements.

Consolidated Financial Statements.

Management currently views the determination of the ACL, fair value of financial instruments, goodwill and other intangible assets, income taxes and DTAs and litigation reserves to be critical accounting policies.

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Fair value represents the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date.

We use significant and complex estimates, assumptions and judgments when assets and liabilities are required to be recorded at, or adjusted to reflect, fair value.

We use significant and complex estimates, assumptions and judgments when assets and liabilities are required to be recorded at or adjusted to fair value.

Where available, fair value and information used to record valuation adjustments for certain assets or liabilities is based on either quoted market prices or are provided by independent third-party sources, including appraisers and valuation specialists.

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

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

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

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

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

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

We evaluate the recoverability of these future tax

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

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

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

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USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS

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

To supplement our Consolidated Financial Statements presented in accordance with GAAP, we use certain non-GAAP financial measures, such as operating net income available to common stockholders, operating earnings per diluted common share, return on average tangible common equity, return on average tangible assets, tangible book value per common share, the ratio of tangible equity to tangible assets, the ratio of tangible common equity to tangible assets, efficiency ratio and net interest margin (FTE) to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers.

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

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

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

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

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

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

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

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

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

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

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

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

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Washington, D.C.;

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

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

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

and Charleston, South Carolina.

As of December 31, 2022, we had 348 branches throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina, Washington D.C.

and Virginia.

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FINANCIAL SUMMARY

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

For the full-year of 2022, net income available to common stockholders was $431.1 million, or $1.22 per diluted common share.

Comparatively, full-year 2021 net income available to common stockholders totaled $396.6 million, or $1.23 per diluted common share.

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Operating earnings per diluted common share (non-GAAP) for the full year of 2021 was $1.24, excluding $4.4 million of significant items.

During 2022, we grew loans by $5.3 billion bringing total assets to nearly $44 billion through a strategic combination of footprint-wide organic growth and two value-adding acquisitions.

Our full-year operating earnings per diluted common share (non-GAAP) of $1.40 was the highest level in recent company history, led by record revenue of $1.4 billion.

As a result of our strong profitability and focus on shareholder value creation, we returned over $220 million to shareholders through common dividends and our active share repurchase program.

The steadfast focus on our disciplined credit culture was evidenced by total delinquencies ending the year at 71 basis points, net charge-offs of 6 basis points for the full year, and a reserve coverage ratio of 1.33% at year end.

The strength of our balance sheet coupled with the momentum produced by our consistent performance puts us in an advantageous position as we continue to navigate changing economic conditions.

In January 2022, we acquired Howard, located in Baltimore City, Maryland, including its wholly-owned bank subsidiary, Howard Bank, adding loans and deposits of $1.8 billion for both measures to the balance sheet.

In December 2022, we acquired Union, located in Greenville, North Carolina, including its wholly-owned bank subsidiary, Union Bank, adding loans and deposits with estimated fair values of $651 million and $956 million, respectively.

Income Statement Highlights (2022 compared to 2021)

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

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

• Record total revenue of $1.4 billion, an increase of $206.4 million, or 16.7%, led to net income available to common stockholders of $431.1 million, an increase of $34.5 million, or 8.7%, and operating net income available to common stockholders (non-GAAP) of $494.9 million, an increase of $94.8 million, or 23.7%.

• Earnings per diluted common share was $1.22, compared to $1.23, a decrease of 0.8%, as average diluted common shares outstanding increased 30.6 million shares, primarily due to the Howard and Union acquisitions.

• Operating earnings per diluted common share (non-GAAP) was $1.40, compared to $1.24, an increase of 12.9%.

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

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

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

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

• Net interest income was $1.1 billion, compared to $906.5 million, up 23.5%, as the higher interest rate environment benefited earning asset yields given the asset sensitive positioning of the balance sheet and higher yields on new loan originations and investment securities purchases.

• Net interest margin (FTE) (non-GAAP) increased 35 basis points to 3.03% from 2.68%.

The FOMC raised the target federal funds rate by a total of 425 basis points in 2022.

The yield on earning assets (non-GAAP) increased 50 basis points to 3.47%, reflecting variable-rate loans that repriced upwards in 2022, as well as higher yields on new loan originations, investment securities and excess cash balances, partially offset by significant reductions in PPP contributions.

The cost of funds increased 16 basis points to 0.46% due to the cost of interest-bearing deposits increasing 26 basis points to 0.49%, and long-term debt increasing 121 basis points primarily from the August 2022 offering of $350 million in senior notes.

These increases in the cost of interest-bearing deposits and borrowings were partially offset by strong growth in non-interest-bearing deposits.

• Non-interest income was $323.6 million, decreasing $6.9 million, or 2.1%, compared to a record level of $330.4 million in the prior year, primarily due to decreases in mortgage banking operations income and SBA premium income, with both being impacted by the higher interest rate environment, partially offset by an increase in service charges and wealth management revenues.

• Non-interest expense was $826.4 million, compared to $733.2 million.

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

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

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

Excluding significant items totaling $52.3 million in 2022 and $4.4 million in 2021, operating non-interest expense (non-GAAP) increased $45.4 million, or 6.2%.

Occupancy and equipment increased $16.1 million, or 12.6%, primarily from technology-related investments and the acquired Howard and Union expense bases.

• The provision for credit losses totaled $64.2 million, compared to $0.6 million, including $28.5 million of initial provision for non-PCD loans associated with the Howard and Union acquisitions in 2022.

The increase was also due to coverage for significant loan growth, as well as CECL-related model impacts from forecasted macroeconomic slowdown and lower prepayment speed assumptions.

• Net charge-offs totaled $16.2 million, or 0.06% of total average loans, compared to $13.9 million, or 0.06%, in 2021.

• Income tax expense increased $15.1 million, or 15.4%, primarily due to higher pre-tax earnings.

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

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

• Return on average tangible common equity ratio (non-GAAP) of 15.53%, compared to 11.66%.

The effective tax rate was 20.6%, compared to 19.6% in 2021.

The increase was driven by higher pre-tax earnings, higher state income taxes and increased FDIC insurance deduction disallowance.

• The efficiency ratio (non-GAAP) was 52.1%, compared to 57.2%.

• Return on average tangible common equity ratio (non-GAAP) was 15.3%, compared to 15.5%.

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

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

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

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

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

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

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

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

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

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

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

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

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

• Total assets were $43.7 billion, compared to $39.5 billion, an increase of $4.2 billion, or 10.7%, primarily from organic growth in loans and the Howard and Union acquisitions.

• Period-end total loans and leases, increased $5.3 billion, or 21.2%, which includes Howard acquired loans ($1.8 billion as of the January 22, 2022 acquisition date) and the Union acquired loans ($651 million as of the December 9, 2022 acquisition date).

Commercial loans and leases increased $2.8 billion, or 17.2%, even with the decline in PPP loans, and consumer loans increased $2.5 billion, or 29.0%.

PPP loans totaled $25.7 million at December 31, 2022, compared to $336.6 million at December 31, 2021.

FNB’s strong organic loan growth in 2022 was driven by our strategy to grow high-quality loans across our diverse geographic footprint.

• Average loans totaled $27.8 billion, an increase of $2.8 billion, or 11.0%, due to healthy organic growth across our footprint.

Growth in average commercial loans totaled $927.0 million, or 5.5%, including growth of $964.9 million, or 9.9%, in commercial real estate partially offset by a decline of $113.9 million, or 1.7%, in commercial and industrial loans, reflecting average PPP loans declining $1.4 billion.

Growth in total average consumer loans totaled $1.8 billion, or 22.5%, and was due to an increase in residential mortgage loans of $1.1 billion, or 31.5%, direct home equity installment loans of $533.8 million, or 24.9%, and indirect installment loans of $162.1 million, or 13.3%.

• Total average securities were $7.1 billion, compared to $6.2 billion, an increase of $914.8 million, or 14.7%.

• Total average deposits grew $3.0 billion, or 9.7%, led by growth of $1.5 billion, or 15.4%, in non-interest-bearing deposits, $1.1 billion, or 7.8%, in interest-bearing demand deposits and $533.5 million, or 15.5%, in savings deposits, driven by solid organic growth in customer relationships, as well as the Howard and Union acquisitions.

Average time deposits declined $204.1 million, or 6.4%, as customer preferences had shifted to more liquid accounts, however, customers' preferences are beginning to shift back to time deposits as interest rates increase.

• The ratio of loans to deposits was 87.0%, compared to 78.7%, as loan growth outpaced deposit growth.

Additionally, the deposit funding mix remained stable with non-interest-bearing deposits totaling 34% of total deposits.

Cash and cash equivalents balances decreased $1.8 billion to $1.7 billion due primarily to funding the organic growth of loans and leases as well as the growth in investment securities.

• The dividend payout ratio for 2022 was 39.54%, compared to 39.20%.

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

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

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

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

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

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

• We repurchased nearly 3.3 million shares of our common stock at a weighted average share price of $12.77 for $42.8 million.

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

There currently is $175.6 million of the authorized amount remaining for future repurchase activity.

• The ratio of the ACL to total loans and leases was 1.33%, compared to 1.38%, a reflection of the strong loan growth.

The ACL on loans and leases totaled $402 million at December 31, 2022, compared to $344 million with the increase driven by significant loan growth, CECL-related model impacts from forecasted macroeconomic slowdown and lower prepayment speed assumptions, as well as the initial ACL related to the Howard and Union acquisitions.

• Tangible book value per share (non-GAAP) of $8.27 decreased 3.7% from year-end 2021.

AOCI reduced the tangible book value per common share by $0.99 as of December 31, 2022, compared to $0.19 at the end of 2021, primarily due to the increase in unrealized losses on AFS securities resulting from the higher interest rate environment.

• The CET1 regulatory capital ratio was 9.82%, down from 9.92%, primarily due to the significant loan growth in 2022.

Year-to-Date Results Summary 2022 2021

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Book value per common share (period-end) 15.39 15.81

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

Common equity tier 1 capital ratio 9.8 % 9.9 %

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Operating net income per diluted common share 1.40 1.24

Tangible common equity to tangible assets (period-end) 7.36 % 7.24 %

Tangible book value per common share (period-end) $ 8.59 $ 7.88

Pre-provision net revenue (operating) (millions) 508.1 516.0

Average diluted common shares outstanding (thousands) 354,052 323,481

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After-tax impact of merger-related expenses (35.8) (1.4)

Pre-tax COVID-19 expense — (11.3)

After-tax impact of COVID-19 expense — (8.9)

Pre-tax gain on sale of Visa class B stock — 13.8

After-tax impact of gain on sale of Visa class B stock — 10.9

Pre-tax loss on FHLB debt extinguishment and related hedge terminations — (25.6)

After-tax impact of loss on FHLB debt extinguishment and related hedge terminations — (20.2)

Pre-tax provision expense related to acquisitions (28.5) —

After-tax impact of provision expense related to acquisitions (22.5) —

Pre-tax branch consolidation costs (7.0) (2.6)

After-tax impact of branch consolidation costs (5.5) (2.1)

Pre-tax service charge refunds — (3.8)

After-tax impact of service charge refunds — (3.0)

Total significant items pre-tax $ (80.8) $ (4.4)

Total significant items after-tax $ (63.8) $ (3.5)

Capital measures

Common equity tier 1 9.82 % 9.92 %

Tangible common equity to tangible assets (period-end) (non-GAAP) 7.24 7.36

Tangible book value per common share (period-end) (non-GAAP) $ 8.27 $ 8.59

(1) Favorable (unfavorable) impact on earnings

Industry Developments

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

INFLATION REDUCTION ACT

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

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

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

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

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

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

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

LIBOR and SOFR

The FCA, who is the regulator of LIBOR, announced on March 5, 2021 that they will no longer require any panel bank to continue to submit LIBOR after December 31, 2021.

As it pertains to U.S.

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

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

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

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

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

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

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

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

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

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

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

We started originating commercial loans in the fourth quarter of

2021 utilizing SOFR and other indices.

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

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

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

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

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

We have LIBOR exposure in various agreements, including variable rate loans, derivatives and debt we issued and acquired.

We created an internal transition team that is managing our transition away from LIBOR.

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

The transition team determined that the primary index to be utilized for loans will be SOFR-based.

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

We started originating commercial loans utilizing SOFR and other indices in the fourth quarter of 2021 and, effective January 1, 2022, ceased origination of LIBOR-based loans.

For all existing LIBOR-based loans, remediation efforts are scheduled to be completed by June 30, 2023.

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

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

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

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

RESULTS OF OPERATIONS

2 unchanged sentences

Operating earnings per diluted common share (non-GAAP) was $1.40 for 2022 compared to $1.24 for 2021.

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

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

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

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

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

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

The results for 2022 included net interest income of $1.1 billion, a 23.5% increase from 2021, driven by strong earning asset growth and a significantly higher interest rate environment, provision for credit losses of $64.2 million including $28.5 million of initial provision for non-PCD loans associated with the Howard and Union acquisitions, $7.0 million of branch consolidation expenses and $45.3 million of merger-related expenses.

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

Average diluted common shares outstanding increased 30.6 million shares, or 9.5%, to 354.1 million shares for 2022 primarily from our acquisitions of Howard and Union.

The major categories of the Consolidated Statements of Income and their respective impact to the increase (decrease) in net income are presented in the following table:

42 unchanged sentences

Interest-bearing deposits with banks $ 2,174,415 $ 24,005 1.10 % $ 2,723,493 $ 3,732 0.14 % $ 470,466 $ 1,910 0.41 %

Federal funds sold 500 29 5.81 — — — — — —

Taxable investment securities (1)

38 unchanged sentences

We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

(3) Average balances include non-accrual loans.

Loans and leases consist of average total loans less average unearned income.

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

Net Interest Income

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

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

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

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

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

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

Net interest income on an FTE basis (non-GAAP) of $1.1 billion for 2022 increased $213.6 million, or 23.3%, from $917.4 million for 2021 as the higher interest rate environment benefited earning asset yields given the asset sensitive positioning of the balance sheet and higher yields on new loan originations and investment securities purchases.

Average interest-earning assets of $37.3 billion increased $3.1 billion, or 9.0%, from 2021, primarily driven by an increase of $2.8 billion in average loans and leases which included organic growth combined with loans added from the Howard and Union acquisitions.

Average interest-bearing liabilities of $24.2 billion increased $1.1 billion, or 4.7%, from 2021, driven by an increase of $1.4 billion in average interest-bearing deposits which included organic growth in new and existing customer relationships, and inflows from the Howard and Union acquisitions, partially offset by a decrease in average borrowings of $320.6 million.

Our net interest margin FTE (non-GAAP) was 3.03% for 2022, compared to 2.68% for 2021, as the yield on earning assets increased 50 basis points to 3.47%, reflecting variable-rate loans that repriced upwards in 2022, as well as higher yields on new loan originations, investment securities and excess cash balances, partially offset by significant reductions in PPP contributions.

The total cost of funds increased 16 basis points to 0.46%, due to a 26 basis point increase in interest-bearing deposit costs and long-term debt increasing 121 basis points primarily from the August 2022 offering of $350 million aggregate principal amount of 5.150% fixed-rate senior notes due in 2025, partially offset by strong growth in average non-interest-bearing deposits which increased $1.5 billion, or 15.4%.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the periods indicated:

2 unchanged sentences

Interest-bearing deposits with banks $ (752) $ 21,025 $ 20,273 $ 3,087 $ (1,265) $ 1,822

Federal funds sold 15 14 29 — — —

Securities (2)

17 unchanged sentences

We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

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

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

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

Commercial loan growth was

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

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

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

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

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

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

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

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

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

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

Interest income on an FTE basis (non-GAAP) of $1.3 billion for 2022, increased $280.6 million or 27.6% from 2021, resulting from the 2022 interest rate increases by the FOMC and an increase in interest-earning assets of $3.1 billion.

The increase in earning assets was primarily driven by a $2.8 billion, or 11.0%, increase in average loans and an increase in average securities of $914.8 million.

Growth in total average commercial loans included $964.9 million, or 9.9%, in commercial real estate, partially offset by a decline of $113.9 million, or 1.7%, in commercial and industrial loans, reflecting average PPP loans declining $1.4 billion.

Commercial loan origination activity was led by the Cleveland, Pittsburgh and South Carolina markets, with the acquired Howard and Union loans also adding to portfolio balances.

Average consumer loans increased $1.8 billion, or

22.5%, with an increase in residential mortgage loans of $1.1 billion, or 31.5%, direct home equity installment loans of $533.8 million, or 24.9%, and indirect installment loans of $162.1 million, or 13.3%, driven by a combination of the Howard and Union acquisitions and organic loan origination activity.

Additionally, the net increase in the securities portfolio was a result of management's strategy to deploy excess liquidity into higher yielding securities, as average securities increased $914.8 million, or 14.7%.

For 2022, the yield on average earning assets (non-GAAP) increased 50 basis points to 3.47%, compared to 2021, reflecting variable-rate loans that repriced upwards in 2022, as well as higher yields on new loan originations, investment securities and excess cash balances, partially offset by significant reductions in PPP contributions.

Interest expense of $165.2 million for 2022 increased $66.9 million, or 68.1%, from 2021 primarily due to an increase in rates paid and an increase in average interest-bearing deposits.

The growth in average deposits reflected inflows from the Howard and Union acquisitions and solid organic growth in new and existing customer relationships.

Average interest-bearing deposits increased $1.4 billion, or 6.9%, which reflects the benefit of solid organic growth in customer relationships and the addition of Howard and Union.

Average time deposits declined $204.1 million, or 6.4%, as customer preferences had shifted away from higher rate certificates of deposit to lower yielding, more liquid products, however, customers' preferences are beginning to shift back to certificates of deposits as interest rates increase.

Average long-term borrowings decreased $87.9 million, or 9.5%, primarily due to a decrease of $234.5 million in long-term FHLB borrowings, partially offset by increases of $123.5 million in senior debt resulting from the issuance of $350 million in 5.150% fixed rate senior notes during August 2022 and $25.8 million in subordinated debt resulting from $25.0 million acquired in the Howard acquisition and $31.0 million acquired in the Union acquisition.

The rate paid on interest-bearing liabilities increased 25 basis points to 0.68% for 2022, compared to 0.43% for 2021.

Similarly, the cost of interest-bearing deposits increased 26 basis points from 0.23% to 0.49%.

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

Provision for Credit Losses

4 unchanged sentences

Provision for credit losses (on loans and leases) $ 61,800 $ (4,853) $ 66,653 1,373 % $ 121,756 $ (126,609) (104) %

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

Provision for unfunded loan commitments 2,230 5,472 (3,242) (59) 1,046 4,426 423

Provision for credit losses $ 64,030 $ 619 $ 63,411 10,244 % $ 122,802 $ (122,183) (99) %

1 unchanged sentence

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

n/m - not meaningful

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

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

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

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

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

Provision for credit losses of $64.0 million during 2022 increased $63.6 million from 2021.

The 2022 provision for credit losses is comprised of a $61.8 million provision for loans and leases outstanding and a $2.2 million provision for unfunded loan commitments.

The increase reflects $28.5 million of initial provision for non-PCD loans associated with the Howard and Union acquisitions, significant loan growth, as well as CECL-related model impacts from forecasted macroeconomic slowdown and lower prepayment speed assumptions.

The provision for unfunded loan commitments was down from a slight year-over-year decline in expected loss in certain segments that also experienced higher utilization.

Net charge-offs of $16.2 million for 2022 increased $2.2 million from 2021, with both years at historically low levels of 0.06% of total average loans and leases.

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

12 unchanged sentences

Net securities gains 48 193 (145) (75.1) 282 (89) (31.6)

Loss on debt extinguishment — (16,655) 16,655 — — (16,655) —

Loss on debt extinguishment — — — — (16,655) 16,655 n/m

Other 18,970 25,771 (6,801) (26.4) 13,308 12,463 93.7

Total non-interest income $ 323,553 $ 330,419 $ (6,866) (2.1) % $ 294,556 $ 35,863 12.2 %

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

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

n/m - not meaningful

Total non-interest income of $323.6 million for 2022 decreased $6.9 million, or 2.1%, from $330.4 million in 2021.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(dollars in thousands) 2021 2020 Change Change

Total non-interest income, as reported $ 330,419 $ 294,556 $ 35,863 12.2 %

Significant items:

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

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

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

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

$ 330,419 $ 310,129 $ 20,290 6.5 %

Service charges of $137.7 million for 2022 increased $16.0 million, or 13.1%, from $121.7 million in 2021, driven by interchange fees, increases in treasury management services and higher customer activity.

Trust services of $39.0 million for 2022 increased $1.7 million, or 4.5%, from the same period of 2021, primarily driven by strong organic revenue production, partially offset by the market value of assets under management decreasing $346.8 million, or 4.2%, to $7.8 billion at December 31, 2022 given overall market conditions.

Insurance commissions and fees of $24.3 million for 2022 decreased $1.3 million, or 5.0%, from $25.5 million in 2021, with the reduction primarily driven by lower title insurance fees resulting from slowing mortgage demand in the current interest rate environment.

Securities commissions and fees of $23.7 million for 2022 increased $1.5 million, or 6.8% from $22.2 million in 2021, due to increased annuity sales activity, as the increasing interest rate environment provided attractive annuity rates, with revenue contributions across the geographic footprint, most notably in the Carolina and Cleveland regions.

Capital markets income of $35.3 million for 2022 decreased $1.5 million, or 4.1%, from $36.8 million for 2021, as swap activity decreased from elevated levels which was partially offset by an increase in syndications revenue.

Mortgage banking operations income of $20.6 million for 2022 decreased $16.7 million, or 44.7%, from $37.4 million for 2021, as secondary market revenue and mortgage held-for-sale pipelines declined from elevated levels in 2021 due to the sharp increase in interest rates and declining gain on sale margins.

Additionally, we are currently holding adjustable-rate mortgage originations in our portfolio.

During 2022, we sold $1.1 billion of originated residential mortgage loans, a decrease of 38.8% compared to $1.8 billion for 2021.

During 2022, we also recognized a $2.5 million favorable interest-rate related valuation adjustment on MSRs, compared to a $4.8 million favorable adjustment in 2021.

Dividends on non-marketable equity securities of $12.0 million for 2022 increased $3.4 million, or 39.2%, from $8.6 million for 2021, reflecting an increase to the FHLB dividend rate.

Income from BOLI of $11.9 million for 2022 decreased $2.9 million, or 19.7%, from $14.9 million in 2021, primarily due to higher life insurance claims in the prior year.

Other non-interest income was $19.0 million and $25.8 million for 2022 and 2021, respectively, as SBA premium income declined $6.2 million from elevated levels due to the higher interest rate environment leading to lower market premiums and correspondingly lower sold loan volumes.

Non-Interest Expense

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Total non-interest expense $ 826,392 $ 733,168 $ 93,224 12.7 % $ 750,349 $ (17,181) (2.3) %

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

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

Total non-interest expense of $826.4 million for 2022 increased $93.2 million, or 12.7%, from $733.2 million in 2021.

Excluding significant items totaling $52.3 million in 2022 and $4.4 million in 2021, operating non-interest expense (non-GAAP) increased $45.4 million, or 6.2%.

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

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

We also recorded branch

consolidation costs of $1.4 million in 2020.

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

Salaries and employee benefits of $426.2 million for 2022 increased $7.9 million, or 1.9%, from $418.3 million in 2021, related to normal merit increases and the acquired Howard and Union expense bases.

Our total full-time equivalent employees were 4,018 and 3,884 at December 31, 2022 and 2021, respectively.

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

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

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

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

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

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

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

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

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

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

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

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

Net occupancy and equipment expense of $144.5 million for 2022 increased $16.1 million, or 12.6%, from $128.3 million in 2021, primarily from technology-related investments and the acquired Howard and Union expense bases, as well as non-operating expenses (non-GAAP) related to branch consolidation costs of $4.1 million for 2022 and $2.1 million in 2021.

Amortization of intangibles of $13.9 million for 2022 increased $1.8 million, or 14.5%, from the same period of 2021, primarily due to additional core deposit intangibles added as a result of our acquisitions in 2022.

FDIC insurance expense of $20.4 million for 2022 increased $2.5 million, or 14.2%, from 2021, primarily due to loan growth and a shift in the balance sheet mix.

We recorded $45.3 million in merger-related costs in 2022 related to the Howard and Union acquisitions compared to $1.8 million related to the Howard acquisition in 2021.

Other non-interest expense was $73.6 million and $57.2 million for 2022 and 2021, respectively, driven by $2.8 million in branch consolidation costs and an increase in business development expense and other operational costs in 2022.

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

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

(dollars in thousands) 2021 (2)

2020 Change Change

(dollars in thousands) 2022 2021 Change Change

Total non-interest expense, as reported $ 826,392 $ 733,168 $ 93,224 12.7 %

1 unchanged sentence

Branch consolidations (7,016) (2,644) (4,372)

COVID-19 expense

— (11,276) 11,276

Merger-related (45,259) (1,764) (43,495)

1 unchanged sentence

$ 774,117 $ 728,760 $ 45,357 6.2 %

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

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

5 unchanged sentences

Our income tax expense for 2022 increased $15.1 million, or 15.4% from 2021.

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

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

The effective tax rate was 20.6% for 2022, compared to 19.6% for 2021, primarily resulting from higher pre-tax earnings, higher state income taxes from acquisitions and increased FDIC insurance deduction disallowance.

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

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Refer to the MD&A in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 for a comparison of the years ended 2020 versus 2019.

Refer to the MD&A in our 2021 Annual Report on Form 10-K filed with the SEC on February 24, 2022 for a comparison of 2021 to 2020.

FINANCIAL CONDITION

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Total Liabilities and Stockholders’ Equity $ 43,725 $ 39,513 $ 4,212 10.7 %

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

The significant increase in both assets and liabilities is primarily due to strong organic loan and deposit growth as well as the Howard and Union acquisitions.

Lending Activity

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Cleveland, Ohio;

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

Paycheck Protection Program

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

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

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

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

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

PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP.

Loans closed prior to June 5, 2020, carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part.

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

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

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

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

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

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

The PPP Flexibility Act also gives the borrower the option of 24 weeks to distribute the funds, and a borrower can remain eligible for loan forgiveness by using at least 60% of the funds for payroll costs.

The SBA announced that lenders will have 60 days to review PPP loan forgiveness applications and that the SBA will remit the forgiveness payments within 90 days of receipt of approved forgiveness applications.

Washington, D.C.;

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

and Charleston, South Carolina.

Following is a summary of loans and leases:

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Total loans and leases $ 30,255 $ 24,968 $ 5,287 21.2 %

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

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

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

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

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

Total loans and leases increased $5.3 billion, or 21.2%, to $30.3 billion at December 31, 2022, compared to $25.0 billion at December 31, 2021, reflecting a commercial loans and leases increase of $2.8 billion or 17.2%, and an increase in consumer loans of $2.5 billion or 29.0%.

The increase included Howard acquired loans ($1.8 billion as of the January 22, 2022, acquisition date) and Union acquired loans ($651 million as of the December 9, 2022 acquisition date).

Our strong organic loan growth in 2022 was primarily attributable to growth across our diverse footprint, with the largest increases noted in the Cleveland, Pittsburgh and South Carolina markets.

As of December 31, 2022, 30.2% of the commercial real estate loans were owner-occupied, while the remaining 69.8% were non-owner-occupied, compared to 28.8% and 71.2%, respectively, as of December 31, 2021.

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

Commercial and industrial loans are loans to businesses that are not secured by real estate where the borrower's leverage and cash flows from operations are the primary default risk drivers.

PPP loans, included in the commercial and industrial loans category, have declined significantly and totaled $25.7 million and $336.6 million at December 31, 2022 and 2021, respectively.

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

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

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As of December 31, 2022 and 2021, there were no concentrations of loans relating to any industry in excess of 10% of total loans.

Following is a summary of the maturity distribution of certain loan categories with fixed and floating interest rates as of December 31, 2021:

Additional information relating to originated loans and loans acquired in business combinations is provided in Note 3, “Mergers and Acquisitions” and Note 6, “Loans and Leases” in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

Following is a summary of the maturity distribution of loan categories with fixed and floating interest rates as of December 31, 2022:

(in millions) Within

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15 Years Total

Commercial loans and leases $ 2,674 $ 7,816 $ 5,227 $ 748 $ 16,465

Commercial real estate $ 1,424 $ 4,657 $ 4,845 $ 600 $ 11,526

Commercial and industrial 1,541 4,581 864 145 7,131

Commercial leases 78 283 154 4 519

Other 8 96 9 1 114

Total commercial loans and leases 3,051 9,617 5,872 750 19,290

Direct installment 16 173 1,622 973 2,784

Residential mortgages 9 59 414 4,815 5,297

Indirect installment 22 675 856 — 1,553

Consumer lines of credit 146 35 262 888 1,331

Total consumer loans 193 942 3,154 6,676 10,965

Total $ 3,244 $ 10,559 $ 9,026 $ 7,426 $ 30,255

Interest rates for loans with maturities over one year:

Loans with maturities over one year:

Fixed $ 3,424 $ 4,453 $ 4,081 $ 11,958

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

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

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

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

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

This reflects an increase of $88.9 million in non-accrual loans and a decrease of $15.2 million in OREO.

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

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

During the first half of 2020, we saw significant macroeconomic changes due to the COVID-19 pandemic.

Stay-at-home orders and non-essential business closures in many of our markets temporarily suspended the income generation of some of our borrowers.

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

We continued to offer these programs during the pandemic.

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

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

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

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

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

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

Non-accrual loans of $113.4 million at December 31, 2022 increased 29.1% compared to December 31, 2021, representing a $25.5 million increase, however they were still at relatively low levels.

This increase is primarily attributed to the migration of a commercial and industrial credit during the fourth quarter of 2022.

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

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Commercial leases 1 1 — —

Other — 1 (1) (100.0) %

Total commercial loans and leases 84 64 20 31.3

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Non-accrual loans $ 113 $ 88

Troubled debt restructurings — —

Total non-performing loans and leases 113 88

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Non-performing assets / total assets 0.27 0.24

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

Troubled Debt Restructured Loans

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Additional information related to our TDRs is included in Note 6, “Loans and Leases” in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosure .

We will adopt the ASU on its effective date, January 1, 2023.

The ASU eliminates TDR accounting for entities that have adopted Update 2016-13, while enhancing disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty.

Adoption of this Update is not expected to have a material impact on our consolidated financial statements.

Following is a summary of accruing and non-accrual TDRs, by class:

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As a percentage of total loans and leases 0.04 % 0.02 %

Prior to the adoption of CECL on January 1, 2020, loans acquired in a business combination that were 90 days or more past due were considered to be accruing since we could reasonably estimate future cash flows and we expected to fully collect the carrying value of these loans.

Following is a table showing the amounts of contractual interest income and actual interest income related to non-performing loans:

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Allowance for Credit Losses on Loans and Leases

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

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

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

conditions and forecasts of economic conditions and interest rates.

The CECL model takes into consideration the expected credit losses over the life of the loan at the time the loan is originated.

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

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

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

COVID-19 Impacts on the ACL

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

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

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

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

For our ACL calculation at December 31, 2022, the macroeconomic variables that we utilized included, but were not limited to:

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

(i) the purchase only Housing Price Index, which declines 3.7% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 0.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 41.0% in 2023 and 8.1% in 2024 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historic levels.

Macroeconomic variables that we utilized for our ACL calculation as of December 31, 2021 included, but were not limited to:

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

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

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

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

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

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

Net Loan Charge-Offs (Recoveries) Net Loan Charge-Offs to Average Loans

Year Ended December 31 2022 2021 2022 2021

(dollars in millions)

Net loan charge-offs by category to average loans:

Commercial real estate $ 8.4 $ 2.5 0.03 % 0.01 %

Commercial and industrial 1.5 9.1 0.01 0.04

Commercial leases 0.1 (0.7) — —

Other commercial 2.4 1.0 0.01 —

Direct installment (0.1) 0.4 — —

Residential mortgages 0.1 0.4 — —

Indirect installment 3.9 0.9 0.01 0.01

Consumer lines of credit (0.1) 0.3 — —

Total net loan charge-offs on loans and leases;

net loan charge-offs/average loans $ 16.2 $ 13.9 0.06 % 0.06 %

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Balance at end of period $ 21 $ 19 $ 14

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

The ACL on loans and leases of $401.7 million at December 31, 2022 increased $57.4 million, or 16.7%, from December 31, 2021 with the increase primarily driven by significant loan growth, a forecasted macroeconomic slowdown and lower prepayment speed assumptions, as well as the initial ACL related to the Howard and Union acquisitions.

Our ending ACL coverage ratio at December 31, 2022 was 1.33%, compared to 1.38% at December 31, 2021.

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

Total provision for credit losses during 2022 was $64.2 million, compared to $0.6 million for the same period in 2021, reflecting $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition in the first quarter of 2022 and $9.4 million related to the Union acquisition in the fourth quarter of 2022, and coverage for significant loan growth, as well as CECL-related model impacts from forecasted macroeconomic slowdown and lower prepayment speed assumptions.

Net charge-offs were $16.2 million, or 0.06%, of total average loans, compared to $13.9 million, or 0.06%, in 2021, with both periods below historical levels.

The ACL as a percentage of non-performing loans for the total portfolio decreased from 392% as of December 31, 2021 to 354% as of December 31, 2022.

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

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

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

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

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

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

The provision for credit losses during 2020 was $122.8 million, which reflected COVID-19 related macroeconomic impacts and life-of-loan CECL reserving requirements in 2020.

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

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

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

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Total $ 402 100 % $ 344 100 %

With the adoption of CECL on January 1, 2020, we no longer separately reflect an ACL on loans acquired in a business combination.

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

During 2022, the ACL allocated to commercial and industrial loans increased primarily due to loan growth, macroeconomic forecast model adjustments and the Howard and Union acquisitions;

the ACL allocated to direct installment loans increased primarily due to macroeconomic forecast model and prepay speed adjustments;

and the ACL allocated to residential mortgage loans increased due to new loan volume, as well as macroeconomic forecast model and prepay speed adjustments.

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

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

Investment Activity

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A CECL methodology is applied to securities HTM.

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

As of December 31, 2022, securities HTM had a CECL ACL of $0.23 million.

As of December 31, 2022, debt securities classified as AFS and HTM totaled $3.3 billion and $4.1 billion, respectively.

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Maturing after ten years 1 5.25

Obligations of U.S.

government-sponsored entities:

Maturing after one year but within five years 52 5.03

States of the U.S.

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Maturing after ten years 818 3.73

Other debt securities:

Maturing after five years but within ten years 12 4.23

Residential mortgage-backed securities:

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Debt Securities Held to Maturity:

Treasury $ 1 $ 1 $ — — %

Treasury $ — $ 1 $ (1) n/m

government agencies 1 1 — —

government-sponsored entities — 120 (120) (100.0)

government-sponsored entities 52 — 52 n/m

Residential mortgage-backed securities:

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and political subdivisions 1,025 1,017 8 0.8

Other debt securities 12 — 12 n/m

Total debt securities held to maturity $ 4,087 $ 3,463 $ 624 18.0 %

The increase in U.S.

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

n/m - not meaningful

The growth in the HTM commercial mortgage-backed securities sector during the period was driven by our focus on longer duration and stable cash flows for new securities purchases.

For additional information relating to investment activity, see Note 4, “Securities” in the Notes to Consolidated Financial Statements, which is included in Item 8 of this Report.

As a bank holding company, our primary source of funds is deposits.

Our primary source of funds is deposits.

These deposits are provided by business, consumer and municipal customers who we serve within our footprint.

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Total deposits $ 34,770 $ 31,726 $ 3,044 9.6 %

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

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

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

Total deposits increased $3.0 billion, or 9.6%, from December 31, 2021, primarily as a result of growth in non-interest-bearing and interest-bearing demand balances from organic growth in new and existing customer relationships and inflows from the Howard and Union acquisitions.

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

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

Following is a summary of estimated insured and uninsured time deposits in excess of the FDIC insurance limit by remaining maturity at December 31, 2022:

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We have an effective shelf registration statement filed with the SEC.

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

shares, warrants, stock purchase contracts or units.

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

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

On August 25, 2022, we completed an offering of $350 million of 5.150% fixed-rate senior notes due in 2025 under this registration statement.

The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering expenses were $347.4 million.

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

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

We used the net proceeds from the sale of the notes for general corporate purposes, which may include repayment of the $300 million in 2.200% senior notes due February 2023, investments at the holding company level, capital to support the growth of FNBPA and refinancing of outstanding indebtedness.

On April 18, 2022, we announced that our Board of Directors approved an additional $150 million for the repurchase of our common stock through our existing share repurchase program bringing the total authorization to $300 million.

Since inception, we repurchased 11.0 million shares at a weighted average share price of $11.33 for $124.4 million under this repurchase program, with $175.6 million remaining for repurchase.

The repurchases will be made from time to time on the open market at prevailing market prices or in privately negotiated transactions.

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

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

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

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

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Liquidity is centrally managed daily by our Treasury Department.

FNBPA generates liquidity from its normal business operations.

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

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FNB also has access to reliable and cost-effective wholesale sources of liquidity.

Short- and long-term funds are used to help fund normal business operations, and unused credit availability can be utilized to serve as contingency funding if we would be faced with a liquidity crisis.

The principal sources of the parent company’s liquidity are its strong existing cash resources plus dividends it receives from its subsidiaries.

Short- and long-term funds are available for use to help fund normal business operations, and unused credit availability can be utilized to serve as contingency funding if we would be faced with a liquidity crisis.

The principal sources of the parent company’s liquidity are its strong existing cash resources plus dividends and interest it receives from its subsidiaries.

These dividends may be impacted by the parent’s or its subsidiaries’ capital needs, statutory laws and regulations, corporate policies, contractual restrictions, profitability and other factors.

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

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

The cash position at December 31, 2022 was $654.3 million, up $358.9 million from year-end 2021, primarily due to the $347.7 million net proceeds from a Senior Debt offering in August, part of which will be used to retire debt in February of 2023 (for additional information, see Note 10, "Borrowings" in the Notes to the Consolidated Financial Statements in this Report).

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

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

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

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

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

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

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

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

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

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

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

Total deposits increased $3.0 billion, or 9.6%, from December 31, 2021, primarily as a result of growth in non-interest-bearing demand balances, expansion of customer relationships as well as interest-bearing demand balances due to the Howard and Union acquisitions.

We continue to have success growing total non-interest-bearing demand deposit accounts as they rose $1.1 billion, or 10.4%, and now represent 34.3% of total deposits, up from 34.0% as of December 31, 2021.

Further, interest-bearing demand deposits increased $691.0 million, or 4.8% and savings account balances increased $473.5 million, or 12.9%, while time deposits increased $752.7 million, or 26.3%, of which $386.4 million is attributable to the Howard and Union acquisitions as of the closing date of the respective acquisitions.

Customer preferences had shifted to more liquid accounts during the low-rate pandemic eras, however, customers' preferences have begun to shift back to certificates of deposits as interest rates have increased.

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

Our cash balances held at the FRB decreased $1.9 billion from year-end 2021 to $1.1 billion at December 31, 2022 as cash was deployed primarily to fund loans and investments.

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

In addition to credit availability, FNBPA also

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

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

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

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Cash and salable unpledged government and agency securities as a % of FNBPA assets 3.9 % 9.8 %

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

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

We never borrowed under this facility.

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

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

The increase in unused wholesale credit availability was due to increased borrowing capacity with the FHLB.

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

The following liquidity gap analysis as of December 31, 2021 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals.

Management seeks to limit the size of the liquidity gaps so that sources and uses of funds are reasonably matched in the normal course of business.

The following liquidity gap analysis as of December 31, 2022 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities

over future time intervals.

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

A reasonably matched position lays a better foundation for dealing with additional funding needs during a potential liquidity crisis.

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

The twelve-month cumulative gap to total assets ratio was 3.8% as of December 31, 2022, compared to 11.3% as of December 31, 2021.

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

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

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

(dollars in millions) Within

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

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

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

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

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

Interest rate risk measures we utilize include earnings simulation, EVE and gap analysis.

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

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EVE’s long-term horizon helps identify changes in optionality and longer-term positions.

However, EVE’s liquidation perspective does not translate into the earnings-based measures that are the focus of managing and valuing a going concern.

However, EVE’s liquidation perspective

does not translate into the earnings-based measures that are the focus of managing and valuing a going concern.

Net interest income simulations explicitly measure the exposure to earnings from changes in market rates of interest.

In these simulations, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios.

The ALCO reviews earnings simulations over multiple years under various interest rate scenarios on a periodic basis.

The ALCO regularly reviews earnings simulations over multiple years under various interest rate scenarios.

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

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

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

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

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

The allocation of non-maturity deposits and customer repurchase agreements to the one-month maturity category above is based on the estimated sensitivity of each product to changes in market rates.

For example, if a product’s rate is estimated to increase by 50% as much as the market rates, then 50% of the account balance was placed in this category.

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

Using a static Balance Sheet structure, and utilizing net interest income simulations, the following net interest income metrics were calculated using rate shocks which move market rates in an immediate and parallel fashion.

The variance percentages represent the change between the net interest income and EVE calculated under the particular rate scenario compared to the net interest income and EVE that was calculated assuming market rates as of December 31, 2022.

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

The measures do not reflect management's potential actions.

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

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

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

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

Assuming a static Balance Sheet, a +100 basis point Rate Ramp increases net interest income (12 months) by 0.5% at December 31, 2022 and 3.6% at December 31, 2021.

For a +200 basis point Rate Ramp, net interest income (12 months) increases by 2.0% at December 31, 2022 and 7.6% at December 31, 2021.

The corresponding metrics for a minus 100 basis point Rate Ramp are 0.6% and (0.5)% at December 31, 2022 and 2021, respectively.

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

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

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

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

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

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

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

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

Management has reduced our exposure to higher interest rates over the course of 2022 as prospects for additional FRB interest rate increases has moderated.

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

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

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

The FOMC increased the Federal Funds rate by 425 basis points in 2022 and our balance sheet is positioned to benefit, in the near term, from further FOMC increases of the Federal Funds rate.

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

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

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

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

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

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

This continues to be a focus of management.

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

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

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

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

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

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As of December 31, 2022, the commercial swaps totaled $5.3 billion of notional principal, with $1.2 billion in original notional swap principal originated during 2022.

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

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

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

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

We have also made use of derivatives to manage the IRR position, with the most recent transactions being the execution of received fixed / pay floating 1-month LIBOR and SOFR interest rate swaps that have a remaining life of 2.5 years.

For additional information regarding interest rate swaps, see Note 16, “Derivative Instruments and Hedging Activities” in the Notes to the Consolidated Financial Statements in this Report.

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

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

Asset/liability models require certain assumptions to be made, such as prepayment rates on interest-earning assets and repricing impact on non-maturity deposits, which may differ from actual experience.

Asset/liability models require certain assumptions to be made, such as prepayment rates on interest-earning assets and repricing impact on non-maturity deposits,

which may differ from actual experience.

These business assumptions are based upon our experience, business plans, economic and market trends and available industry data.

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credit risk, market risk, liquidity risk, reputational risk, operational risk, legal and compliance risk and strategic risk.

In its oversight role of our risk management function, the Board of Directors focuses on the strategies, analyses and conclusions of management relating to identifying, understanding and managing risks so as to optimize total shareholder value, while balancing prudent business and safety and soundness considerations.

In its oversight role of our risk management function, the Board of Directors focuses on the strategies, analyses and conclusions of management relating to identifying, understanding and managing risks to optimize total shareholder value, while balancing prudent business and safety and soundness considerations.

The Board of Directors adopted a risk appetite statement that defines acceptable risk levels and limits under which we seek to operate in order to optimize returns.

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

Our Board Risk Committee, in collaboration with our Risk Management Council, approves our risk appetite on an annual basis, or more frequently, as needed

to reflect changes in the risk, regulatory, economic and strategic plan environments, with the goal of ensuring that our risk appetite remains consistent with our strategic plans and business operations, regulatory environment and our shareholders' expectations.

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

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

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Our Chief Risk Officer is responsible for the design and implementation of our enterprise-wide risk management strategy and framework through the multiple second line of defense areas, including the following departments, which all report to the Chief Risk Officer, to ensure the coordinated and consistent implementation of risk management initiatives and strategies on a day-to-day basis:

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

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

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

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

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

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

• Compliance Department - develops policies and procedures and monitors compliance with applicable laws and regulations which govern our business operations.

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

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

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

• Information and Cyber Security Department - maintains a risk assessment of our information and cybersecurity risks and ensures appropriate controls are in place to manage and control such risks, using the National Institute of Standards and Technology framework for improving critical infrastructure by measuring and evaluating the effectiveness of information and cybersecurity controls.

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

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

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

Provision expense related to acquisitions 28,515 — —

Tax benefit of provision expense related to acquisitions (5,988) — —

Branch consolidation costs 7,016 2,644 18,745

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

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

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

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

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

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

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

Provision expense related to acquisitions 0.08 — —

Tax benefit of provision expense related to acquisitions (0.02) — —

Branch consolidation costs 0.02 0.01 0.06

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(1) Excludes loan servicing rights.

Allowance for credit losses / loans and leases, excluding PPP (period-end)

December 31 2021 2020

(dollars in thousands)

ACL - loans $ 344,284 $ 363,107

Loans and leases $ 24,968,702 $ 25,458,645

PPP loans outstanding (336,578) (2,158,452)

Loans and leases, excluding PPP loans outstanding (non-GAAP) $ 24,632,124 $ 23,300,193

ACL loans / loans and leases, excluding PPP (non-GAAP) 1.40 % 1.56 %

Key Performance Indicator s

Pre-provision net revenue to average tangible common equity

Year Ended December 31 2021 2020 2019

(dollars in thousands)

Net interest income $ 906,476 $ 922,082 $ 917,239

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

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

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

Branch consolidation costs (non-interest income) $ — $ — $ 1,722

Service charge refunds (non-interest income) — 3,780 4,279

Gain on sale of Visa class B stock (non-interest income) — (13,818) —

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

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

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

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

Tax credit-related impairment project (non-interest expense) — 4,101 3,213

Pre-provision net revenue (operating) (non-GAAP) $ 508,135 $ 515,984 $ 527,374

Average total shareholders’ equity $ 5,033,188 $ 4,904,300 $ 4,757,465

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

Average intangible assets (1)

(2,310,419) (2,322,981) (2,331,630)

Average tangible common equity (non-GAAP) $ 2,615,887 $ 2,474,437 $ 2,318,953

Pre-provision net revenue (reported) / average tangible common equity (non-GAAP) 19.26 % 18.84 % 22.22 %

Pre-provision net revenue (operating) / average tangible common equity (non-GAAP) 19.42 % 20.85 % 22.74 %

(1) Excludes loan servicing rights

Efficiency ratio

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

Branch consolidation costs — — 1,722

Service charge refunds — — 3,780

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

What changed 10-K

Item 7. Management’s Discussion and Analysis