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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-24 · 324 added, 282 removed, 2212 unchanged (22% of the section changed)

23 unchanged sentences

We have audited the accompanying consolidated balance sheets of F.N.B.

Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

Corporation and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2023, expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses in 2020.

Basis for Opinion

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and qualitative reserves.

The qualitative captures the following factors, among others:

The qualitative reserve captures the following factors, among others:

regulatory, legal and technological environments;

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With the help of our specialists, we evaluated the conceptual soundness of the models used to develop the allowance for credit losses, including the appropriateness of the qualitative framework.

Regarding the measurement of the qualitative factors, we evaluated the relevance and reliability of the internal and external data used to inform management’s estimate and considered the existence of new or contrary information.

Regarding the measurement of the qualitative factors, we evaluated the relevance and reliability of the internal and external data used to inform management’s estimate, considered the existence of new or contrary information and evaluated the consistency of management’s application of their qualitative framework.

We evaluated the overall ACL, inclusive of the qualitative factor adjustments, and whether the amount appropriately reflects a reasonable estimate of lifetime losses by comparing the overall ACL to historical losses, peer data and other relevant information.

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Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 24, 2022 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 24, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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Loans held for sale (includes $ 91 and $ 269 measured at fair value) (1)

Loans and leases, net of unearned income of $ 36 and $ 77

Loans and leases, net of unearned income of $ 69 and $ 36 (includes $ 12 and $ 0 measured at fair value) (1)

30,255 24,968

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CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

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Securities available for sale:

Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $( 16 ), $ 15 and $ 16

Unrealized (losses) gains arising during the period, net of tax (benefit) expense of $( 79 ), $( 16 ) and $ 15

( 277 ) ( 57 ) 54

Derivative instruments:

Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $ 1 , $( 11 ) and $( 5 )

Unrealized (losses) gains arising during the period, net of tax (benefit) expense of $( 9 ), $ 1 and $( 11 )

( 30 ) 4 ( 40 )

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Other Comprehensive Income (Loss) ( 295 ) ( 23 ) 26

Comprehensive Income $ 382 $ 312 $ 428

Comprehensive Income (Loss) $ 144 $ 382 $ 312

See accompanying Notes to Consolidated Financial Statements

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Balance at January 1, 2020 $ 107 $ 3 $ 4,067 $ 798 $ ( 65 ) $ ( 27 ) $ 4,883

Comprehensive income 387 41 428

Comprehensive income (loss) 286 26 312

Dividends declared:

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Issuance of common stock — 4 ( 3 ) 1

Repurchase of common stock ( 38 ) ( 38 )

Restricted stock compensation 16 16

Adoption of new accounting standards ( 50 ) — ( 50 )

Balance at December 31, 2020

107 3 4,087 869 ( 39 ) ( 68 ) 4,959

Comprehensive income 286 26 312

Comprehensive income (loss) 405 ( 23 ) 382

Dividends declared:

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Restricted stock compensation 19 19

Adoption of new accounting standards ( 50 ) — ( 50 )

Balance at December 31, 2021

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Issuance of common stock — 1 ( 7 ) ( 6 )

Issuance of common stock – acquisitions 1 569 570

Repurchase of common stock ( 43 ) ( 43 )

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Other, net 499 226 ( 177 )

Net cash flows provided by operating activities 530 113 259

Net cash flows provided by (used in) operating activities 1,218 530 113

Investing Activities

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Purchases ( 880 ) ( 1,683 ) ( 2,360 )

Sales 459 — —

Maturities/payments 735 1,634 2,244

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Increase in premises and equipment ( 95 ) ( 58 ) ( 41 )

Net cash received in business acquisitions 188 — —

Loans sold, not originated for sale — — 537

Other, net — — ( 9 )

Net cash flows used in investing activities ( 153 ) ( 1,822 ) ( 1,131 )

Net cash flows provided by (used in) investing activities ( 3,055 ) ( 153 ) ( 1,822 )

Financing Activities

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Other, net 11 16 17

Net cash flows provided by financing activities 1,733 2,493 983

Net Increase in Cash and Cash Equivalents 2,110 784 111

Net cash flows provided by (used in) financing activities 18 1,733 2,493

Net Increase (Decrease) in Cash and Cash Equivalents ( 1,819 ) 2,110 784

Cash and cash equivalents at beginning of year 3,493 1,383 599

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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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All significant intercompany balances and transactions have been eliminated.

Certain prior period amounts have been reclassified to the current period presentation.

Such reclassifications had no impact on our net income and stockholders' equity.

Events occurring subsequent to December 31, 2022 have been evaluated for potential recognition or disclosure in the Consolidated Financial Statements through the date of the filing of the Consolidated Financial Statements with the SEC.

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Actual results could materially differ from those estimates.

Material estimates that are particularly susceptible to significant changes include the ACL, accounting for loans acquired in a business combination prior to January 1, 2020, fair value of financial instruments, goodwill and other intangible assets, income taxes and DTAs and litigation reserves.

Material estimates that are particularly susceptible to significant changes include the ACL, fair value of financial instruments, goodwill and other intangible assets, income taxes and DTAs, and litigation reserves.

Adoption of New Accounting Standards

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

The ACL balance increased by $ 105 million and included a “gross-up" to PCI (PCD under CECL) loan balances and the ACL of $ 50 million.

The ACL balance increased by $ 105 million and included a “gross-up" to purchase credit impaired (PCI) (PCD under CECL) loan balances and the ACL of $ 50 million.

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

Results for reporting periods prior to January 1, 2020 continue to be reported in accordance with previously applicable GAAP.

We used the prospective transition method for PCD financial assets that were previously classified as PCI and accounted for under ASC 310-30, including loans accounted for by analogy under ASC 310-30.

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The adoption did not have a material impact on our consolidated financial position or results of operations.

We have not yet elected certain optional expedients, exceptions and elections related to RRR, however, we plan to elect these provisions in the future.

While RRR is not expected to have a material accounting impact on our consolidated financial position or results of operations, it will ease the administrative burden in accounting for future effects of RRR.

Revenue from Contracts with Customers

We earn certain revenues from contracts with customers.

These revenues are recognized when control of the promised services is transferred to the customers in an amount that reflects the consideration we expect to be entitled to in an exchange for those services.

In determining the appropriate revenue recognition for our contracts with customers, we consider whether the contract has commercial substance and is approved by both parties with identifiable contractual rights, payment terms, and the collectability of consideration is probable.

Generally, we satisfy our performance obligations upon the completion of services at the amount to which we have the right to invoice or charge under contracts with an original expected duration of one year or less.

We apply this guidance on a portfolio basis to contracts with similar characteristics and for which we believe the results would not differ materially from applying this guidance to individual contracts.

Our services provided under contracts with customers are transferred at the point in time when the services are rendered.

Generally, we do not defer incremental direct costs to obtain contracts with customers that would be amortized in one year or less under the practical expedient.

These costs are recognized as expense, primarily salary and benefit expense, in the period incurred.

Deposit Services .

We recognize revenue on deposit services based on published fees for services provided.

Demand and savings deposit customers have the right to cancel their depository arrangements and withdraw their deposited funds at any time without prior notice.

When services involve deposited funds that can be retrieved by customers without penalties, we consider the service contract term to be day-to-day, where each day represents the renewal of the contract.

The contract does not extend beyond the services performed and revenue is recognized at the end of the contract term (daily) as the performance obligation is satisfied.

No deposit services fees exist for long-term deposit products beyond early withdrawal penalties, which are earned on these products at the time of early termination.

Revenue from deposit services fees are reduced where we have a history of waived or reduced fees by customer request or due to a customer service issue, by historical experience, or another acceptable method in the same period as the related revenues.

Revenues from deposit services are reported in the Consolidated Statements of Income as service charges and in the Community Banking segment as non-interest income.

Wealth Management Services.

Wealth advisory and trust services are provided on a month-to-month basis and invoiced as services are rendered.

Fees are based on a fixed amount or a scale based on the level of services provided or assets under management.

The customer has the right to terminate their services agreement at any time.

We determine the value of services performed based on the fee schedule in effect at the time the services are performed.

Revenues from wealth advisory and trust services are reported in the Consolidated Statements of Income as trust services and securities commissions and fees, and in the Wealth segment as non-interest income.

Insurance Services.

Insurance services include full-service insurance brokerage services offering numerous lines of commercial and personal insurance through major carriers to businesses and individuals within our geographic markets.

We recognize revenue on insurance contracts in effect based on contractually specified commission payments on premiums that are paid by the customer to the insurance carrier.

Contracts are cancellable at any time and we have no performance obligation to the customers beyond the time the insurance is placed into effect.

Revenues from insurance services are reported in the Consolidated Statements of Income as insurance commissions and fees, and in the Insurance segment in the Business Segments footnote as non-interest income.

Business Combinations

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Interest income on debt securities includes amortization of purchase premiums or accretion of discounts.

Premiums and discounts on debt securities are generally amortized on the level-yield method without anticipating prepayments,

except for mortgage-backed securities where prepayments are anticipated.

Premiums and discounts on debt securities are generally amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated.

Premiums on callable debt securities are amortized to their earliest call date.

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For certain HTM securities we have an expectation of zero expected credit losses.

Based on a long history with no credit losses, high credit ratings, guarantees, and/or implied risk-free characteristics, we expect the nonpayment of our UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae and the SBA securities to be zero, and accordingly, have no ACL on those securities.

Based on a long history with no credit losses, high credit ratings, guarantees, and/or implied risk-free characteristics, we expect the non-payment risk associated with our UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae and SBA securities to be zero, and accordingly, have no ACL on those securities.

We believe that these qualitative factors are indicators that historical credit loss information should be nominally impacted, if at all, by current conditions and R&S forecasts.

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Foreign exchange derivatives are entered into to accommodate the needs of customers.

All derivative instruments are carried at fair value on the Consolidated Balance Sheets as either an asset or liability.

All derivative instruments are carried at fair value on the Consolidated Balance

Sheets as either an asset or liability.

Accounting for the changes in fair value of a derivative is dependent upon whether it has been designated in a formal, qualifying hedging relationship.

1 unchanged sentence

Cash flows from hedging activities are classified in the same category as the items hedged.

Beginning in the first quarter of 2019, we adopted ASU 2017-12 which provides targeted improvements to the hedge accounting model that more closely aligns the accounting and reporting for hedging relationships with risk management activities.

In addition, ASU 2017-12 provides administrative relief by easing documentation requirements, simplifying the application of hedge accounting by expanding the application of the shortcut method, eliminating the separate measurement and reporting of hedge ineffectiveness and generally requiring the entire effect of the hedging instrument and the hedged item to be presented in the same income statement line item.

We believe these changes provide users with more useful information about the effect of our risk management activities on the financial statements.

Changes in fair value of a derivative instrument that has been designated and qualifies as a cash flow hedge, including any ineffectiveness, are recorded in AOCI, net of tax.

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These arrangements meet the definition of derivatives, but are not designated as qualifying hedging relationships.

The interest rate swap agreement with the loan customer and with the counterparty are reported at fair value in other assets and other liabilities on the Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as other income.

The interest rate swap agreement with the loan customer and with the counterparty are reported at fair value in other assets and other liabilities on the Consolidated Balance Sheets with any changes in fair value recognized in current period earnings.

Loans Held for Sale and Loan Commitments

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Amortized cost primarily consists of the principal balances outstanding, deferred origination fees or costs and premiums or discounts on purchased loans.

Interest income on loans is computed over the term of the loans using the effective interest method.

Interest income on loans is computed over the term of the loans using the effective interest

Loan origination fees or costs, premiums or discounts are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

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Loans are charged-off against the ACL and recoveries of amounts previously charged-off are credited to the ACL when realized.

Prior to 2020, PCI loans were not classified as non-performing assets as the loans were considered to be performing.

Beginning in 2020, PCI loans previously accounted for in pools are grouped with other loans with similar risk characteristics for purposes of estimating expected credit losses and non-performing classification.

Troubled Debt Restructured Loans

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• Forecast uncertainty and imprecision.

Prior to 2020, the ACL was established as losses were estimated to have occurred.

Loan losses were charged-off against the ACL when management believed the uncollectability of a loan balance was confirmed.

Subsequent recoveries, if any, were credited to the ACL.

Allowances for impaired commercial loans over $ 1.0 million were generally determined based on collateral values or the present value of estimated cash flows.

All other impaired loans were evaluated in the aggregate based on loan segment LGD.

Changes in the ACL related to impaired loans were charged or credited to the provision for credit losses.

Liability for Credit Losses on Unfunded Lending-Related Commitments

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Purchased Credit Deteriorated Loans and Leases

We have purchased loans and leases, some of which have experienced more than insignificant credit deterioration since origination.

Beginning in 2020, we have established criteria to assess whether a purchased financial asset, or group of assets, should be accounted for as PCD on the acquisition date.

The selection of which criteria to apply, or the addition of new criteria, to a specific acquisition will be based on the facts and circumstances at the time of review, as well as the availability of information supplied by the acquiree.

We have purchased loans and leases, some of which have experienced more than insignificant credit deterioration since origination and have established criteria to assess whether a purchased financial asset, or group of assets, should be accounted for as PCD on the acquisition date.

by the acquiree.

Generally, more-than-insignificant deterioration in credit quality since origination would include risk ratings of special mention or below, inconsistency of loan payments, non-accrual status at the time of acquisition, or loans modified in a TDR, in bankruptcy or for regulatory purposes.

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Subsequent changes to the ACL are recorded through the provision for credit losses.

Prior to 2020, loans acquired in a business combination (impaired and non-impaired) were initially recorded at their acquisition-date fair values.

Fair values were based on a discounted cash flow methodology that involved assumptions and judgments as to credit risk, default rates, loss severity, collateral values, discount rates, payment speeds, prepayment risk, and liquidity risk.

The carryover of ACL related to loans acquired in a business combination was prohibited as any credit losses in the loans were included in the determination of the fair value of the loans at the acquisition date.

The ACL on loans acquired in a business combination reflected only those losses incurred after acquisition and represents the present value of cash flows expected at acquisition that is no longer expected to be collected.

At acquisition, we considered certain factors as indicators that an acquired loan has evidence of deterioration in credit quality and is therefore impaired.

Any loans acquired in a business combination that were not individually impaired were pooled into groups of similar loans based on various factors including borrower type, loan purpose, and collateral type.

For these pools, we used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average margin, and weighted average interest rate along with estimated prepayment rates, PD and LGD to estimate the expected cash flow for each loan pool.

We believe analogizing to impaired loans was a more appropriate option to follow in accounting for discount accretion on nonimpaired loans acquired in a business combination other than revolving loans and therefore account for such loans in accordance with the guidance for impaired loans, excluding revolving loans.

The excess of cash flows expected to be collected at acquisition over recorded fair value is referred to as the accretable yield.

The accretable yield was recognized into income over the remaining life of the loan, or pool of loans, using an effective yield method, if the timing and/or amount of cash flows expected to be collected can be reasonably estimated (the accretion model).

The difference between the loan’s total scheduled principal and interest payments over all cash flows expected at acquisition is referred to as the non-accretable difference.

The non-accretable difference represents contractually required principal and interest payments which we do not expect to collect.

Loans acquired in a business combination that met the criteria for non-accrual of interest prior to acquisition were considered performing upon acquisition, regardless of whether the customer was contractually delinquent, if we could reasonably estimate the timing and amount of expected cash flows on such loans.

Accordingly, we did not consider contractually delinquent purchased credit impaired loans to be non-accrual or non-performing and we continued to recognize interest income on these loans using the accretion model.

Premises and Equipment

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Certain of our lease agreements include variable rental payments based on a percentage of transactions and others include variable rental payments that periodically adjust to rates and charges stated in the agreements.

Variable costs, such as maintenance expenses, property taxes, property insurance, transaction-based lease payments and index-based rate increases, are expensed as incurred.

Variable costs, such as maintenance expenses,

property taxes, property insurance, transaction-based lease payments and index-based rate increases, are expensed as incurred.

Right-of-use assets are reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable.

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We do not evaluate whether sales taxes and similar taxes imposed by a governmental authority on lease transactions and collected by us are our primary obligation as owner of the underlying leased asset and exclude from lease income all taxes collected.

Revenue from Contracts with Customers

We earn certain revenues from contracts with customers.

Our services provided under contracts with customers are transferred at the point in time when the services are rendered.

Generally, we do not defer incremental direct costs to obtain contracts with customers that would be amortized in one year or less under the practical expedient.

These costs are recognized as expense, primarily salary and benefit expense, in the period incurred.

Deposit Services .

We recognize revenue on deposit services based on published fees for services provided.

Demand and savings deposit customers have the right to cancel their depository arrangements and withdraw their deposited funds at any time without prior notice.

The contract does not extend beyond the services performed and revenue is recognized at the end of the contract term (daily) as the performance obligation is satisfied.

No deposit services fees exist for long-term deposit products beyond early withdrawal penalties, which are earned on these products at the time of early termination.

Revenues from deposit services are reported in the Consolidated Statements of Income as service charges and in the Community Banking segment as non-interest income.

Wealth Management Services.

Wealth advisory and trust services are provided on a month-to-month basis and invoiced as services are rendered.

Fees are based on a fixed amount or a scale based on the level of services provided or assets under management.

The customer has the right to terminate their services agreement at any time.

We determine the value of services performed based on the fee schedule in effect at the time the services are performed.

Insurance Services.

We recognize revenue on insurance contracts in effect based on contractually specified commission payments on premiums that are paid by the customer to the insurance carrier.

Contracts are cancellable at any time and we have no performance obligation to the customers beyond the time the insurance is placed into effect.

Other Services.

Other services primarily consist of fees generated from various ancillary revenue streams including capital markets revenue and miscellaneous consumer fees.

A large portion of capital markets revenue consists of swap fee income, and this income is recognized during the period of swap execution.

Revenues from other services are recognized when, or as, the performance obligation is satisfied and are reported in the Consolidated Statements of Income as non-interest income.

We file a consolidated federal income tax return.

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Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, net of unvested shares of restricted stock.

Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options, warrants and restricted shares, as calculated using the treasury stock method.

Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options and restricted shares, as calculated using the treasury stock method.

Adjustments to net income available to common stockholders and the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.

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Our stock-based compensation awards require the measurement and recognition of compensation expense, based on estimated fair values, for all stock-based awards, including stock options and restricted stock units, made to employees and stock awards made to directors.

Generally, these restricted stock unit awards to employees vest over a three-year service period and the stock awards made to directors vest immediately.

Generally, these restricted stock unit awards to employees vest over a three-year service period and the stock awards made to non-employee directors vest over a one-year period.

We are required to estimate the fair value of stock-based awards on the date of grant.

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NEW ACCOUNTING STANDARDS

The following table summarizes accounting pronouncements issued by the FASB that we recently adopted.

The following table summarizes accounting pronouncements issued by the FASB that we recently adopted or will be adopting in the future.

Standard Description Financial Statements Impact

Reference Rate Reform

ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

ASU 2021-01, Reference Rate Reform (Topic 848):

These Updates provide temporary optional expedients and exceptions for applying GAAP to financial contracts, hedging relationships and other transactions affected by RRR if certain criteria are met.

The following optional expedients, exceptions and elections are permitted for certain contracts that are modified because of RRR and meet certain scope guidance:

• Contract modifications may be accounted for prospectively as a continuation of existing contracts rather than a new contract without re-measurement or reassessment of significant contract amendments

• modifications of leases to be accounted for as a continuation of the existing contracts without reassessment of lease classification and discount rate or re-measurement of lease payments

• to not reassess the original conclusion about whether a contract contains an embedded derivative that is clearly and closely related to the host contract

• changes to critical terms of hedging relationships, on a hedge-by-hedge basis, without designation of the hedging relationship and various practical expedients and elections designed to allow hedge accounting to continue uninterrupted

• modifications of certain derivatives modified to change the rate used for margining, discounting or contract price alignment.

For securities affected by RRR that were classified as HTM before January 1, 2020, the Updates also allow an entity to make a one-time election to sell and/or transfer these securities to AFS or Trading.

RRR Updates are effective for all entities from the beginning of an interim period that includes or is subsequent to March 12, 2020 and terminates on December 31, 2022 on a full retrospective or prospective basis.

Although we do not expect RRR to have a material accounting impact on our consolidated financial position or results of operations, the Updates will ease the administrative burden in accounting for the effects of RRR.

We adopted these updates on October 1, 2020 by retrospective application.

The adoption did not have a material impact on our consolidated financial position or results of operations.

We will continue to assess the impact of adoption through the termination date of these Updates on December 31, 2022.

Troubled Debt Restructuring and Charge-offs

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

Troubled Debt Restructurings and Vintage Disclosures

This Update eliminates the recognition and measurement guidance on TDRs for creditors that have adopted ASC 326 and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty.

This Update also requires public business entities to present current-period gross write-offs by year of origination in their vintage disclosures.

This Update is to be applied using a prospective method.

For the transition method related to TDRs, an entity has the option to apply a modified retrospective transition method.

Early adoption of this Update is permitted.

An entity is allowed to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.

We adopted this Update on January 1, 2023.

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

MERGERS AND ACQUISITIONS

Howard Bancorp, Inc.

On January 22, 2022, we completed our acquisition of Howard, a bank holding company headquartered in Baltimore City, Maryland.

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

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

On the acquisition date, Howard had assets with a net book value of approximately $ 2.4 billion, including $ 1.8 billion in both loans and deposits.

The acquisition was valued at approximately $ 443 million and resulted in the issuance of 34,074,495 shares of our common stock in exchange for 18,930,329 shares of Howard common stock.

We also acquired restricted stock units and the fully vested outstanding stock options of Howard.

This merger was accounted for in accordance with the acquisition method of accounting.

Fair values for all assets and liabilities are presented in Table 3.1.

Determining the fair value of assets and liabilities is a complex process involving significant judgment regarding estimates and assumptions used to calculate fair values.

We have completed the review of valuations for the acquired assets and liabilities.

Goodwill related to the Howard acquisition was recorded in the Community Banking business segment and is not deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange for tax purposes.

We incurred merger expenses relating to the Howard acquisition of $ 31.0 million and $ 1.8 million for 2022 and 2021, respectively.

Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD.

We consider various factors in connection with the identification of more-than-insignificant deterioration in credit, including but not limited to nonperforming status, delinquency, risk ratings, TDR classification, FICO scores and other qualitative factors that indicate deterioration in credit quality since origination.

For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment.

As part of the Howard acquisition, we acquired PCD loans and leases of $ 186.9 million.

We established an ACL at acquisition of $ 10.0 million with a corresponding gross-up to the amortized cost of the PCD loans and leases.

The non-credit discount on the PCD loans and leases was $ 5.4 million and the Day 1 fair value was $ 171.5 million.

The initial provision expense for non-PCD loans associated with the Howard acquisition was $ 19.1 million.

We integrated the systems and the operating activities of Howard into FNB in February 2022.

Due to that integration, it is impracticable to disclose the revenue from the Howard assets acquired and income before income taxes subsequent to the acquisition.

On December 9, 2022, we completed our acquisition of Union, a bank holding company based in Greenville, North Carolina.

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

On the acquisition date, Union had assets with a net book value of approximately $ 1.1 billion, including $ 0.7 billion in loans and $ 1.0 billion in deposits.

The acquisition was valued at approximately $ 126 million and resulted in the issuance of 9,672,691 shares of our common stock in exchange for 6,008,123 shares of Union common stock.

This merger was accounted for in accordance with the acquisition method of accounting.

Preliminary fair values for all assets and liabilities are presented in Table 3.1.

Determining the fair value of assets and liabilities is a complex process involving significant judgment regarding estimates and assumptions used to calculate fair values.

Accordingly, the initial accounting for the merger is not complete.

We continue to analyze the valuations assigned to the acquired assets and assumed liabilities.

Due to the complexity in valuing the loans and the significant amount of data inputs required, the valuation of the loans is not yet final.

In addition, we are reviewing third-party valuations on acquired premises and core deposit intangibles.

We are also assessing the valuation on loans, deferred taxes, deposits and debt.

Goodwill related to the Union acquisition was recorded in the Community Banking business segment and is not deductible for income tax purposes as the acquisition was accounted for as a tax-free exchange for tax purposes.

We incurred merger expenses relating to the Union acquisition of $ 14.3 million for 2022.

Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD.

We consider various factors in connection with the identification of more-than-insignificant deterioration in credit, including

but not limited to nonperforming status, delinquency, risk ratings, TDR classification, FICO scores and other qualitative factors that indicate deterioration in credit quality since origination.

For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment.

As part of the Union acquisition, we acquired PCD loans and leases of $ 36.9 million.

We established an ACL at acquisition of $ 1.8 million with a corresponding gross-up to the amortized cost of the PCD loans and leases.

The non-credit discount on the PCD loans and leases was $ 0.5 million and the Day 1 fair value was $ 34.7 million.

The initial provision expense for non-PCD loans associated with the Union acquisition was $ 9.4 million.

We integrated the systems and the operating activities of Union in December 2022.

Due to that integration, it is impracticable to disclose the revenue from the Union assets acquired and income before income taxes subsequent to the acquisition.

The following table summarizes the amounts recorded on the consolidated balance sheets as of the acquisition dates in conjunction with the Howard and Union acquisitions discussed above.

(in millions) Howard Union

Fair value of consideration paid $ 443 $ 126

Fair value of identifiable assets acquired:

Cash and cash equivalents 75 113

Securities 321 212

Loans 1,780 652

Core deposit and other intangible assets 19 41

Fixed and other assets 156 60

Total identifiable assets acquired 2,351 1,078

Fair value of liabilities assumed:

Deposits 1,831 956

Borrowings 247 30

Other liabilities 7 3

Total liabilities assumed 2,085 989

Fair value of net identifiable assets acquired 266 89

Goodwill recognized $ 177 $ 37

The amortized cost and fair value of AFS debt securities are presented in the table below.

There was no ACL in the AFS portfolio at December 31, 2022 and December 31, 2021.

Accrued interest receivable on AFS debt securities totaled $ 7.3 million and $ 6.2 million at December 31, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets.

Accrued interest receivable on AFS debt securities totaled $ 8.9 million and $ 7.3 million at December 31, 2022 and 2021, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets.

Accordingly, we have excluded accrued interest receivable from both the fair value and the amortized cost basis of AFS debt securities.

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The amortized cost and fair value of HTM debt securities are presented in the table below.

The ACL for the HTM municipal bond portfolio was $ 0.05 million and $ 0.04 million at December 31, 2021 and December 31, 2020, respectively.

Accrued interest receivable on HTM debt securities totaled $ 12.3 million and $ 12.5 million at December 31, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets.

The ACL for the HTM portfolio was $ 0.23 million and $ 0.05 million at December 31, 2022 and 2021, respectively.

Accrued interest receivable on HTM debt securities totaled $ 14.0 million and $ 12.3 million at December 31, 2022 and 2021, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets.

Accordingly, we have excluded accrued interest receivable from both the fair value and the amortized cost basis of HTM debt securities.

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December 31, 2022

Treasury $ 1 $ — $ — $ 1

government agencies $ 1 $ — $ — $ 1

government-sponsored entities 52 — — 52

Residential mortgage-backed securities:

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and political subdivisions (municipals) 1,025 1 ( 107 ) 919

Other debt securities 12 — ( 1 ) 11

Total debt securities HTM $ 4,087 $ 3 $ ( 403 ) $ 3,687

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government agencies 1 — — 1

government-sponsored entities 120 1 — 121

Residential mortgage-backed securities:

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There were no significant gross gains or gross losses realized on securities during the twelve months ended December 31, 2022, 2021 or 2020.

Unrealized losses on the AFS and HTM portfolios are due to the increase in market interest rates with 85.2 % of these securities backed or sponsored by the U.S.

government as of December 31, 2022.

As of December 31, 2022, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:

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Securities pledged as a percent of total securities 91.7 % 87.9 %

Following are summaries of the fair values of AFS debt securities in an unrealized loss position for which an ACL has not been recorded, segregated by security type and length of continuous loss position:

Following are summaries of the fair values of AFS debt securities in an unrealized loss position for which an ACL has not been recorded, segregated by security type and length of time in a continuous loss position:

Less than 12 Months 12 Months or More Total

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December 31, 2021

Treasury 3 $ 151 $ ( 1 ) — $ — $ — 3 $ 151 $ ( 1 )

government agencies 3 22 — 9 8 — 12 30 —

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Residential mortgage-backed securities:

Agency mortgage-backed securities 13 599 ( 4 ) — — — 13 599 ( 4 )

Agency collateralized mortgage obligations 23 659 ( 15 ) 3 68 ( 2 ) 26 727 ( 17 )

Commercial mortgage-backed securities 5 125 ( 2 ) — — — 5 125 ( 2 )

States of the U.S.

and political subdivisions (municipals) 10 24 — — — — 10 24 —

Other debt securities — — — 1 2 — 1 2 —

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We evaluated the AFS debt securities that were in an unrealized loss position at December 31, 2022.

Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the movement of interest rates, and does not reflect any expected credit losses.

We do not intend to sell the AFS debt securities and it is not more likely than not that we will be required to sell the securities before the recovery of their amortized cost basis.

Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the significant movement of interest rates during 2022 and does not reflect any expected credit losses.

We do not intend to sell these AFS debt securities and it is not more likely than not that we will be required to sell these securities before the recovery of their amortized cost basis.

Credit Quality Indicators

We use credit ratings and the most recent financial information to help evaluate the credit quality of our credit-related AFS and HTM securities portfolios.

Management reviews the credit profile of each issuer on a quarterly basis.

Management reviews the credit profile of each issuer on an annual basis, and more frequently as needed.

Based on the nature of the issuers and current conditions, we have determined that securities backed by the UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA have zero expected credit loss.

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Bond Defaults and Recoveries, 1970-2021 study.

By using these components, we derive the expected credit loss on the HTM general obligation bond portfolio.

By using these components, we derive the expected credit loss on the HTM general obligation municipal bond portfolio.

We further refine the expected credit loss by factoring in economic forecast data using our Commercial and Industrial Non-Manufacturing loan portfolio forecast adjustment as derived through our assessment of the loan portfolio as a proxy for our municipal bond portfolio.

For the year-to-date periods ending December 31, 2021 and 2020, we had no significant provision expense and no charge-offs or recoveries.

The ACL on the HTM portfolio was $ 0.05 million and $ 0.04 million as of December 31, 2021 and December 31, 2020, respectively.

No other securities portfolios had an ACL.

At December 31, 2021 and December 31, 2020, there were no securities that were past due or on non-accrual.

Our corporate bond portfolio, with a carrying amount of $ 31.8 million as of December 31, 2022 primarily consists of subordinated debentures of banks within our footprint.

The average holding size of the securities in the corporate bond portfolio is $ 2.3 million.

The ACL on the HTM corporate bond portfolio is calculated using:

• The bond’s credit rating, time to maturity and exposure amount;

• Moody’s Annual Default Study, 02/08/2022;

• Most recent financial statements.

By using these components, we derive the expected credit loss on the HTM corporate bond portfolio.

We further refine the expected credit loss by factoring in economic forecast data using our bank-wide loan portfolio forecast adjustment as derived through our assessment of the Bank's loan portfolio as a proxy for our corporate bond portfolio.

For the years ending December 31, 2022 and 2021, we had no significant provision expense and no charge-offs or recoveries.

The ACL on the HTM portfolio was $ 0.23 million, consisting of $ 0.07 million relating to the municipal bond portfolio and $ 0.16 million relating to other debt securities, as of December 31, 2022 and $ 0.05 million relating to the municipal bond portfolio as of December 31, 2021.

The AFS securities portfolios did no t have an ACL at December 31, 2022 or 2021.

At December 31, 2022 and 2021, there were no securities that were past due or on non-accrual.

OTHER SECURITIES

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Federal Reserve Bank stock 140 123

Other non-marketable equity securities 1 —

Total non-marketable equity securities $ 268 $ 245

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LOANS AND LEASES

Accrued interest receivable on loans and leases, which totaled $ 48.9 million at December 31, 2021 and $ 62.9 million at December 31, 2020, is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets for both periods and not included in the following tables.

Accrued interest receivable on loans and leases, which totaled $ 99.3 million at December 31, 2022 and $ 48.9 million at December 31, 2021, is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets for both periods and is not included in the following tables.

Loans and Leases by Portfolio Segment

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Total loans and leases, net of unearned income $ 30,255 $ 24,968

Upon adoption of CECL on January 1, 2020, PCD assets were adjusted to reflect the addition of a $ 50.3 million ACL and a remaining noncredit discount of $ 110.0 million included in the amortized cost.

The remaining noncredit discount was $ 30.0 million and $ 50.9 million at December 31, 2021 and December 31, 2020, respectively.

The remaining accretable discount included in the amortized cost of acquired loans was $ 58.6 million and $ 30.0 million at December 31, 2022 and 2021, respectively, which includes $ 10.0 million and $ 30.9 million established for Howard and Union, respectively, at the time of acquisition.

The loans and leases portfolio categories are comprised of the following types of loans, where in each case the LGD is dependent on the nature and value of the respective collateral:

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• Commercial and industrial includes 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, except for PPP loans that are 100 % guaranteed by the SBA, which provides a reduced risk of loss to us on these loans.

PPP loans are included in the commercial and industrial category and comprise $ 336.6 million and $ 2.2 billion of this category's outstanding balance at December 31, 2021 and December 31, 2020, respectively;

PPP loans are included in the commercial and industrial category and comprise $ 25.7 million and $ 336.6 million of this category's outstanding balance at December 31, 2022 and 2021, respectively;

• Commercial leases consist of leases for new or used equipment where the borrower's cash flow from operations is the primary default risk driver;

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Washington, D.C.;

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

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

and Charleston, South Carolina.

The following table shows occupancy information relating to commercial real estate loans:

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Pass 39 — — — — 3 52 94

Substandard — — — — — 1 — 1

Total other commercial 39 — — — — 3 52 94

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We use delinquency transition matrices within the consumer and other loan classes to establish the basis for the R&S forecast portion of the credit risk.

Each month, management analyzes payment and volume activity, Fair Isaac Corporation (FICO) scores and Debt-to-Income (DTI) scores and other external factors such as unemployment, to determine how consumer loans are performing.

Each month, management analyzes payment and volume activity, FICO scores and Debt-to-Income (DTI) scores and other external factors such as unemployment, to determine how consumer loans are performing.

Non-Performing and Past Due

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Non-accrual loans $ 113 $ 88

Total non-performing loans

Total non-performing loans and leases 113 88

Other real estate owned 6 8

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Asset quality ratios:

Non-performing loans / total loans and leases

0.35 % 0.67 %

Non-performing assets + 90 days past due + OREO / total loans and leases + OREO

Non-performing loans and leases / total loans and leases 0.37 % 0.35 %

Non-performing assets + 90 days past due / total loans and leases + OREO

The carrying value of residential-secured consumer OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $ 1.1 million at December 31, 2022 and $ 1.6 million at December 31, 2021.

The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at December 31, 2021 and December 31, 2020 totaled $ 4.3 million and $ 8.2 million, respectively.

During 2020 and 2021, we extended the residential mortgage foreclosure moratorium beyond the requirements for government-backed loans, under the CARES Act, to all residential mortgage loan customers.

The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at December 31, 2022 and 2021 totaled $ 11.8 million and $ 4.3 million, respectively.

During 2021, we extended the residential mortgage foreclosure moratorium beyond the requirements for government-backed loans, under the CARES Act, to all residential mortgage loan customers.

Approximately $ 60.8 million of commercial loans are collateral dependent at December 31, 2022.

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TDRs typically result from loss mitigation activities and could include the extension of a maturity date, interest rate reduction, principal forgiveness, deferral or decrease in payments for a period of time and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral.

Consistent with the CARES Act and interagency bank regulatory guidance which allows temporary relief for current borrowers affected by COVID-19, we are working with borrowers and granting certain modifications through programs related to COVID-19 relief.

As of December 31, 2021, we had $ 21 million in loans that have been granted short-term modifications as a result of financial disruptions associated with the COVID-19 pandemic, compared to $ 397 million as of December 31, 2020 and $ 2.4 billion as of June 30, 2020, the highest point during the pandemic.

Also, consistent with the CARES Act and the interagency bank regulatory guidelines, such modifications are not included in our TDR totals.

Following is a summary of the composition of total TDRs:

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Commercial loans over $ 1.0 million whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured based on the fair value of the underlying collateral.

Our ACL includes specific reserves for commercial TDRs of $ 1.5 million at December 31, 2021, compared to $ 2.8 million at December 31, 2020, and pooled reserves for individual loans of $ 1.5 million and $ 2.5 million for those same periods, respectively, based on loan segment LGD.

Our ACL includes specific reserves for commercial TDRs of $ 0 at December 31, 2022, compared to $ 1.5 million at December 31, 2021, and pooled reserves for individual loans of $ 1.1 million and $ 1.5 million for those same periods, respectively, based on loan segment LGD.

Upon default, the amount of the recorded investment in the TDR in excess of the fair value of the collateral, less estimated selling costs, is generally considered a confirmed loss and is charged-off against the ACL.

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Following is a summary of TDR loans, by class, for loans that were modified during the periods indicated.

The items in the following table have been adjusted for loans that have been paid off and/or sold.

Year Ended December 31 2022 2021

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Total 121 $ 13 $ 12 139 $ 30 $ 28

The items in the above tables have been adjusted for loans that have been paid off and/or sold.

Following is a summary of TDRs, by class, for which there was a payment default, excluding loans that have been paid off and/or sold.

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Total 20 $ 2 3 $ —

Loans Acquired in a Business Combination

Prior to January 1, 2020, all loans acquired in a business combination were initially recorded at fair value at the acquisition date with no associated ACL.

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES

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Included in Table 7.1 is the impact to the ACL from our CECL (ASC 326) adoption on January 1, 2020.

Beginning January 1, 2020, the former incurred loss method was replaced with the CECL method to calculate estimated loan losses.

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

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

The ACL balance increased by $ 105 million and included a “gross-up" to PCI (PCD under CECL) loan balances and the ACL of $ 50 million.

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

Following is a summary of changes in the ACL, by loan and lease class:

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Offs Provision

Losses Balance at

Losses Allowance for PCD Loans and Leases at Acquisition Balance at

Year Ended December 31, 2022

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Offs Provision

Losses ASC 326 Adoption Impact Initial ACL on PCD Loans Balance at

Losses Balance at

Year Ended December 31, 2021

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Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments $ 376.7 $ ( 34.2 ) $ 20.3 $ ( 13.9 ) $ 0.6 $ 363.4

(in millions) Balance at

Period Charge-

Offs Recoveries Net

Offs Provision

Losses ASC 326 Adoption Impact Initial Allowance on PCD Loans Balance at

Year Ended December 31, 2020

Commercial real estate $ 60 $ ( 31 ) $ 7 $ ( 24 ) $ 67 $ 38 $ 40 $ 181

Commercial and industrial 53 ( 32 ) 7 ( 25 ) 41 8 4 81

Commercial leases 11 ( 1 ) — ( 1 ) 7 — — 17

Other 9 ( 4 ) 1 ( 3 ) 4 ( 9 ) — 1

Total commercial loans and leases 133 ( 68 ) 15 ( 53 ) 119 37 44 280

Direct installment 13 ( 1 ) 1 — 2 10 1 26

Residential mortgages 22 ( 2 ) 1 ( 1 ) 3 6 4 34

Indirect installment 19 ( 8 ) 4 ( 4 ) ( 6 ) 2 — 11

Consumer lines of credit 9 ( 2 ) — ( 2 ) 4 — 1 12

Total consumer loans 63 ( 13 ) 6 ( 7 ) 3 18 6 83

Total allowance for credit losses on loans and leases 196 ( 81 ) 21 ( 60 ) 122 55 50 363

Allowance for unfunded loan commitments 3 — — — 1 10 — 14

Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments $ 199 $ ( 81 ) $ 21 $ ( 60 ) $ 123 $ 65 $ 50 $ 377

Following is a summary of changes in the AULC by portfolio segment:

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• the historical through-the-cycle mean was 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, 2021 and December 31, 2020, 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 historical 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 historical 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.

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.

(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.

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, primarily due to the Howard and Union acquisitions and the associated ACL attributable to the acquired loans and leases, significant loan growth and CECL-related model impacts from a forecasted macroeconomic slowdown and lower prepayment speed assumptions, partially offset by continued solid credit quality performance.

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

Total provision for credit losses on loans and leases for the year ended December 31, 2021 was a net benefit of $ 4.9 million, compared to expense of $ 121.8 million for the year ended December 31, 2020.

Net charge-offs on loans and leases were $ 13.9 million during 2021, compared to $ 59.8 million during 2020, when the commercial charge-offs were elevated in those portfolios and industries most impacted by COVID-19, such as retail and hospitality-related commercial real estate.

Total provision for credit losses for the year ended December 31, 2022 was $ 64.2 million and included $ 19.1 million and $ 9.4 million of initial provision for non-PCD loans associated with the Howard and Union acquisitions, respectively, compared to $ 0.6 million total provision for the year ended December 31, 2021.

Net charge-offs were $ 16.2 million during 2022, compared to $ 13.9 million during 2021.

The AULC was $ 21.4 million at December 31, 2022 and included provision expense for unfunded loan commitments and letters of credit of $ 2.3 million for the year ended December 31, 2022.

Following is a summary of changes in the ACL, by loan and lease class for 2019.

We adopted CECL on January 1, 2020.

(in millions) Balance at

Period Charge-

Offs Recoveries Net

Offs Provision

Losses Balance at

Year Ended December 31, 2019

Commercial real estate $ 55 $ ( 4 ) $ 4 $ — $ 5 $ 60

Commercial and industrial 49 ( 10 ) 4 ( 6 ) 10 53

Commercial leases 8 — — — 3 11

Other 2 ( 3 ) — ( 3 ) 3 2

Total commercial loans and leases 114 ( 17 ) 8 ( 9 ) 21 126

Direct installment 14 ( 1 ) — ( 1 ) — 13

Residential mortgages 20 ( 2 ) — ( 2 ) 4 22

Indirect installment 15 ( 11 ) 4 ( 7 ) 11 19

Consumer lines of credit 10 ( 2 ) — ( 2 ) 1 9

Total consumer loans 59 ( 16 ) 4 ( 12 ) 16 63

Total allowance on originated loans and leases 173 ( 33 ) 12 ( 21 ) 37 189

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

Total allowance for credit losses on loans and leases $ 180 $ ( 42 ) $ 14 $ ( 28 ) $ 44 $ 196

Comparatively, the AULC was $ 19.1 million at December 31, 2021 and included provision expense for unfunded loan commitments and letters of credit of $ 5.5 million for the year ended December 31, 2021.

LOAN SERVICING

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Mortgage loans sold with servicing retained $ 1,056 $ 1,762 $ 1,636

Pretax net gains resulting from above loan sales (1)

Pre-tax net gains (losses) resulting from above loan sales (1)

Mortgage servicing fees (1)

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Fair value, end of period 68.6 46.0 35.6

We had a $ 2.5 million valuation allowance for MSRs as of December 31, 2021, compared to $ 7.3 million at December 31, 2020.

The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third-party valuations.

We had no valuation allowance for MSRs as of December 31, 2022, compared to $ 2.5 million at December 31, 2021.

Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs.

Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSRs and as interest rates increase, mortgage loan prepayments decline, which results in an increase in the fair value of MSRs.

Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.

Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions:

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-0.50% ( 3 ) ( 7 )

-1.00% ( 6 ) ( 13 )

-2.00% ( 15 ) ( 28 )

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance.

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Fair value, end of period 2 3 3

We had a valuation allowance for SBA servicing rights of $ 1.1 million as of December 31, 2021 and December 31, 2020.

We had a valuation allowance for SBA servicing rights of $ 1.6 million as of December 31, 2022, compared to $ 1.1 million at December 31, 2021.

Following is a summary of key assumptions and the sensitivity of the SBA servicing rights to changes in these assumptions.

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20% adverse change ( 0.1 ) ( 0.2 )

Other Loan Servicing

The servicing asset for $ 0.5 billion in indirect auto loans sold in 2020 with servicing retained totaled $ 0.3 million at December 31, 2021, compared to $ 0.7 million at December 31, 2020.

PREMISES AND EQUIPMENT

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Balance at January 1, 2021 $ 2,231 $ 8 $ 23 $ 2,262

Goodwill (deductions) additions — — — —

Goodwill additions — — — —

Balance at December 31, 2021 2,231 8 23 2,262

Goodwill (deductions) additions — — — —

Goodwill additions 215 — — 215

Balance at December 31, 2022 $ 2,446 $ 8 $ 23 $ 2,477

There were no changes to goodwill during 2021 and 2020.

We recorded goodwill during 2022 as a result of the purchase accounting adjustments relating to the Howard and Union acquisitions described in Note 3, "Mergers and Acquisitions." There were no changes to goodwill during 2021.

The following table shows a summary of core deposit intangibles and customer renewal lists:

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Net carrying amount $ 37 $ 5 $ 42

Core deposit intangibles are being amortized primarily over 10 years using accelerated methods.

We recorded core deposit intangibles during 2022 relating to the Howard and Union acquisitions described in Note 3, "Mergers and Acquisitions." Core deposit intangibles are being amortized primarily over 10 years using accelerated methods.

Customer renewal lists are being amortized over their estimated useful lives, which range from eight to thirteen years .

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Goodwill and other intangible assets are tested annually for impairment, and more frequently if events or changes in circumstances indicate the carrying value may not be recoverable.

We completed this test in 2021 and 2020 and determined that our intangible assets are not impaired.

We completed this test in 2022 and 2021 and determined that our goodwill and other intangible assets are not impaired.

We have operating leases primarily for certain branches, office space, land, and office equipment.

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At commencement, it is expected that these leases will add approximately $ 69.2 million in right-of-use assets and $ 90.6 million in other liabilities.

These operating leases are currently expected to commence in 2023 with lease terms of up to 16 years.

These operating leases are currently expected to commence in 2023 or 2024 with lease terms of up to 16 years.

These operating leases include the lease, with a related party, of the future new FNB headquarters building in Pittsburgh, Pennsylvania.

The related party operating the lease is accounted for in a manner consistent with all other leases on the basis of the legally enforceable terms and conditions of the lease and represents a VIE for which we are not the primary beneficiary.

The related party operating lease is accounted for in a manner consistent with all other leases on the basis of the legally enforceable terms and conditions of the lease and the related party represents a VIE for which we are not the primary beneficiary.

The components of lease expense were as follows:

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Variable lease cost 4 3 3

Finance lease cost 1 — —

Total lease cost $ 36 $ 33 $ 31

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Unconsolidated VIEs

The following table provides a summary of the assets and liabilities included in our Consolidated Financial Statements, as well as the maximum exposure to losses, associated with our interests related to VIEs for which we hold an interest, but are not the primary beneficiary, at December 31, 2021 and December 31, 2020.

(in millions) Total Assets Total Liabilities Maximum Exposure to Loss

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however, we are not the primary beneficiary of the entities, as the general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses beyond our own equity investment.

We record our investment in LIHTC partnerships as a component of other assets.

We use the proportional amortization method to account for a majority of our investments in LIHTC partnerships.

Investments that do not meet the requirements of the proportional amortization method are recognized using the equity method.

Amortization related to investments under the proportional amortization method is recorded on a net basis as a component of the provision for income taxes on the Consolidated Statements of Income, while write-downs and losses related to investments under the equity method are included in non-interest expense.

We record our investment in LIHTC partnerships as a component of other assets and use the proportional amortization method to account for our investments in LIHTC partnerships.

Amortization related to our LIHTC investments is recorded on a net basis as a component of the provision for income taxes on the Consolidated Statements of Income.

The following table presents the balances of our affordable housing tax credit investments and related unfunded commitments:

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(in millions)

Proportional amortization method investments included in other assets $ 86 $ 71

Equity method investments included in other assets 1 3

Total LIHTC investments included in other assets $ 87 $ 74

LIHTC investments included in other assets $ 86 $ 87

Unfunded LIHTC commitments 37 34

The following table summarizes the impact of these LIHTC investments on specific line items of our Consolidated Statements of Income:

The following table summarizes the impact of these LIHTC investments on the provision for income taxes in our Consolidated Statements of Income:

Year Ended December 31

(in millions) 2022 2021 2020

Non-interest income:

Amortization of tax credit investments under equity method, net of tax benefit $ 1 $ 1 $ 1

Provision for income taxes:

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Other Investments

Other investments we also consider to be unconsolidated VIE’s include investments in SBIC's, Historic Tax Credit investments, and other equity method investments.

Other investments we also consider to be unconsolidated VIE’s include investments in SBIC's, Historic Tax Credit investments, New Market Tax Credit investments and other equity method investments.

Following is a summary of deposits:

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Securities are pledged to these customers in an amount at least equal to the outstanding balance.

We did no t have any short-term FHLB advances with overnight maturities as of December 31, 2021 or December 31, 2020.

At December 31, 2021, $ 1.0 billion, or 100.0 %, of the short-term FHLB advances were swapped to fixed rates with maturities through 2024.

We did no t have any short-term FHLB advances with overnight maturities as of December 31, 2022 or 2021.

At December 31, 2022, $ 0.9 billion, or 100.0 %, of the short-term FHLB advances were swapped to fixed rates with various maturities through 2024.

This compares to $ 1.0 billion, or 100.0 %, as of December 31, 2021.

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(in millions)

Federal Home Loan Bank advances $ — $ 400

Senior notes $ 648 $ 299

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Total long-term borrowings $ 1,093 $ 682

During the third quarter of 2022, we completed a debt offering in which we issued $ 350 million aggregate principal amount of 5.150 % fixed-rate senior notes due in 2025.

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

These proceeds were used 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.

During 2022, we assumed $ 25 million of other subordinated debt and $ 5 million of junior subordinated debt from the Howard acquisition and $ 31 million of other subordinated debt from the Union acquisition.

Those additions are reflected in the balances above and in the tables below.

Scheduled annual maturities for the long-term borrowings for the years following December 31, 2022 are as follows:

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Later years 274

Total $ 1,093

Federal Home Loan Bank advances

Our banking affiliate has available credit with the FHLB of $ 8.6 billion, of which $ 1.0 billion was utilized and included in short-term borrowings as of December 31, 2021.

These advances are secured by loans collateralized by residential mortgages, home equity lines of credit, commercial real estate and FHLB stock and are scheduled to mature in various amounts periodically through the year 2022.

Effective interest rates paid on the long-term advances held during the year ranged from 0.26 % to 0.29 % for the year ended December 31, 2021 and 0.30 % to 0.34 % for the year ended December 31, 2020.

Our banking affiliate has available credit with the FHLB of $ 9.8 billion, of which $ 930.0 million was utilized and included in short-term borrowings and $ 340.0 million was utilized for a letter of credit for pledging of public funds as of December 31, 2022.

There were no long-term FHLB borrowings during 2022, or as of December 31, 2022 or 2021.

Effective interest rates paid on the long-term advances held during the year ranged from 0.26 % to 0.29 % for the year ended December 31, 2021.

During 2020, we reduced higher-rate outstanding long-term FHLB borrowings by $ 490.0 million, which resulted in a loss on early debt extinguishment of $ 16.7 million reported in non-interest income on the Consolidated Statements of Income.

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No sinking fund is required and none has been established to retire the notes.

The weighted average interest rate on the subordinated notes are presented in the following table:

The weighted average interest rates on the subordinated notes are presented in the following table:

December 31 2022 2021 2020

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Junior subordinated debt

The junior subordinated debt is comprised of the debt securities issued by FNB in relation to our three unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated VIEs and are included on the Consolidated Balance Sheets in long-term borrowings.

The junior subordinated debt is comprised of the debt securities issued by FNB, or companies we acquired, in relation to our four unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated VIEs and are included on the Consolidated Balance Sheets in long-term borrowings.

One hundred percent of the common equity of each Trust is owned by FNB.

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The Trusts pay dividends on the TPS at the same rate as the distributions paid by us on the junior subordinated debt held by the Trusts.

Statutory Trust II was formed by us, and the other two statutory trusts were assumed through acquisitions.

Statutory Trust II was formed by us, and the other three statutory trusts were assumed through acquisitions.

The acquired statutory trusts were adjusted to fair value in conjunction with the various acquisitions.

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Rate Rate Reset Factor

Statutory Trust II $ 22 $ 1 $ 22 6/15/2036 1.85 % LIBOR + 165 basis points (bps)

Statutory Trust II $ 22 $ 1 $ 22 6/15/2036 6.42 % LIBOR + 165 bps

Yadkin Valley Statutory Trust I 25 1 22 12/15/2037 6.09 % LIBOR + 132 bps

FNB Financial Services Capital Trust I 25 1 23 9/30/2035 6.19 % LIBOR + 146 bps

Patapsco Statutory Trust I 5 — 5 12/15/2035 6.25 % LIBOR + 148 bps

Total $ 77 $ 3 $ 72

Other senior and subordinated debt

During 2020, we completed a debt offering in which we issued $ 300 million aggregate principal amount of senior notes due in 2023.

The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering costs were $ 297.9 million.

These proceeds were used 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.

The following table provides information relating to our senior debt and other subordinated debt as of December 31, 2021.

These debt issuances are fixed-rate, with the exception of the debt offering in 2019, which is fixed-to-floating rate after February 14, 2024, at which time the floating rate will be LIBOR plus 240 basis points, or an alternative rate that may replace LIBOR, as specified in the prospectus for this offering.

Senior and other subordinated debt

The following table provides information relating to our senior notes and other subordinated debt as of December 31, 2022.

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

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Carrying Value Stated Maturity Date Interest

Senior Notes:

2.200 % Senior Notes due February 24, 2023

$ 300 $ 298 $ 300 2/24/2023 2.200 %

5.150 % Senior Notes due August 25, 2025

350 347 348 8/25/2025 5.150 %

Total senior notes 650 645 648

Other Subordinated Debt:

4.950 % Fixed-To-Floating Rate Subordinated Notes due 2029 (1)

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38 46 29 8/12/2023 7.625 %

6.000 % Fixed-To-Floating Rate Subordinated Notes due December 6, 2028 (2) (5)

25 26 25 12/6/2028 6.000 %

5.000 % Fixed-To-Floating Rate Subordinated Note due May 29, 2030 (3) (5)

25 24 24 5/29/2030 5.000 %

6.000 % Fixed-To-Floating Rate Subordinated Note due May 15, 2028 (4) (5)

6 6 6 5/15/2028 6.000 %

Total other subordinated debt 314 318 303

Total $ 964 $ 963 $ 951

(1) Assumed from a prior acquisition and adjusted to fair value at the time of acquisition.

(1) Fixed-to-floating rate until February 14, 2024, at which time the floating rate will be three-month LIBOR plus 240 basis points, or an alternative rate that may replace LIBOR, as specified in the prospectus for this offering.

(2) Fixed-to-floating rate until December 6, 2023, at which time the floating rate will be three-month LIBOR plus 302 basis points, or an alternative rate that may replace LIBOR, as specified in the prospectus for this offering.

(3) Fixed-to-floating rate until May 29, 2025, at which time the floating rate will be three-month SOFR plus 464 basis points.

(4) Fixed-to-floating rate until May 15, 2023, at which time the floating rate will be three-month LIBOR plus 350 basis points, or an alternative rate that may replace LIBOR, as specified in the prospectus for this offering.

(5) Assumed from an acquisition and adjusted to fair value at the time of acquisition.

(6) After deducting underwriting discounts and commissions and offering costs.

For the debt assumed from a prior acquisition, this is the fair value of the debt at the time of the acquisition.

For the debt assumed from acquisitions, this is the fair value of the debt at the time of the acquisition.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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Total $ 13,718 $ 96 $ 411 $ 14,526 $ 185 $ 45

The change in the fair value of liabilities from December 31, 2021 is due to a significant increase in interest rates during 2022.

Certain derivative exchanges have enacted a rule change which in effect results in the legal characterization of variation margin payments for certain derivative contracts as settlement of the derivatives mark-to-market exposure and not collateral.

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Interest Rate Lock Commitments .

IRLCs an agreement to extend credit to a mortgage loan borrower, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to funding.

IRLCs are an agreement to extend credit to a mortgage loan borrower, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to funding.

We are bound to fund the loan at a specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date, subject to the loan approval process.

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We will make/receive payments under these agreements if a customer defaults on their obligation to perform under certain derivative swap contracts.

Risk participation agreements sold with notional amounts totaling $ 247.8 million as of December 31, 2021 have remaining terms ranging from seven months to nineteen years .

Risk participation agreements sold with notional amounts totaling $ 388.6 million as of December 31, 2022 have remaining terms ranging from two months to nineteen years .

Under these agreements, our maximum exposure assuming a customer defaults on their obligation to perform under certain derivative swap contracts with third parties would be $ 0.1 million and $ 0.2 million at December 31, 2022 and 2021, respectively.

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Interest rate contracts:

Designated $ 1 $ — $ 1 $ —

Not designated $ 89 $ — $ 88 $ 1

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Interest rate contracts:

Designated $ 1 $ — $ 1 $ —

Not designated 6 — 6 —

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Designated $ 1 $ — $ 1 $ —

Not designated 2 — 2 —

Total $ 3 $ — $ 3 $ —

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It is inherently difficult to predict the eventual outcomes of such matters given their complexity and the particular facts and circumstances at issue in each of these matters.

However, on the basis of current knowledge and understanding, and advice of counsel, we do not believe that judgments, sanctions, settlement resolutions, regulatory actions, investigations, settlements or orders, if any, that have or may arise from these matters (either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage) will have a material adverse effect on our financial position or liquidity, although they could potentially have a material effect on net income in a given period.

However, on the basis of current knowledge and understanding, and advice of counsel, we do not believe that judgments, sanctions, settlement resolutions, regulatory actions, investigations, settlements or orders, if any, that have arisen or may arise from these matters (either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage) will have a material adverse effect on our financial position or liquidity, although they could potentially have a material effect on net income in a given period.

In view of the inherent unpredictability of outcomes in litigation and governmental and regulatory matters, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel legal theories or a large number of parties, as a matter of course, there is considerable uncertainty surrounding the timing or ultimate resolution of litigation and governmental and regulatory matters, including a possible eventual loss, fine, restitution, penalty,

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The assumptions used for this valuation include stock price volatility, risk-free interest rate and dividend yield.

We issued 1,113,314 and 2,004,895 restricted stock units during 2021 and 2020, respectively, including 325,284 and 571,932 performance-based restricted stock units during those same periods, respectively.

As of December 31, 2021, we had available up to 4,125,588 shares of common stock to issue under this Plan.

We granted 1,266,821 and 1,113,314 restricted stock units during 2022 and 2021, respectively, including 297,508 and 325,284 performance-based restricted stock units during those same periods, respectively.

As of December 31, 2022, we had available up to 9,877,023 shares of common stock to issue under this Plan, including 7,397,956 shares registered during the second quarter of 2022.

The unvested restricted stock unit awards are eligible to receive cash dividends or dividend equivalents which are ultimately used to purchase additional shares of stock and are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met.

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Granted 1,266,821 13.07 1,113,314 12.65 2,004,895 6.95

Acquired 60,300 9.41 — — — —

Net adjustment due to performance 575,264 9.58 527,975 10.79 47,290 13.00

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Options outstanding at beginning of year 167,327 $ 8.83 196,086 $ 8.61 246,084 $ 8.14

Assumed from acquisitions 29,396 8.08 — — — —

Exercised ( 55,713 ) 7.23 ( 28,168 ) 7.38 ( 33,945 ) 5.74

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73,080 2.14 10.72

$ 8.06 - $ 11.37

118,339 2.76 9.78

The intrinsic value of outstanding and exercisable stock options at December 31, 2022 was $ 0.5 million .

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Projected benefit obligation at beginning of year $ 154 $ 18 $ 172 $ 167 $ 20 $ 187

Acquisition — 2 2 — — —

Interest cost 4 1 5 4 — 4

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The expected long-term rate of return on plan assets was reduced to 6.75 % effective January 1, 2021.

The change in plan assets reflects benefits paid from the qualified pension plans of $ 9.9 million and $ 10.0 million for 2021 and 2020, respectively.

We made contributions to the RIP of $ 5.0 million during both 2020 and 2019.

We did no t make a contribution to the RIP in 2021.

The change in plan assets reflects benefits paid from the qualified pension plans of $ 9.9 million for both 2022 and 2021.

We made contributions to the RIP of $ 5.0 million during 2020.

We did no t make a contribution to the RIP in 2022 and 2021.

For the non-qualified pension plans, the change in plan assets reflects benefits paid from and contributions made to the plans in the same amount.

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Pension Plan Investment Policy and Strategy

Our investment strategy for the RIP is to diversify plan assets between a wide mix of securities within the equity and debt markets to allow the account the opportunity to meet the expected long-term rate of return requirements while minimizing short-term volatility.

In this regard, the plan has targeted allocations within the equity securities category for domestic large cap, domestic mid cap, domestic small cap, real estate investment trusts, emerging market and international securities.

Our investment strategy for the RIP is to diversify plan assets between a wide mix of securities within the equity and debt markets to allow the plan assets the opportunity to meet the expected long-term rate of return requirements, while minimizing short-term volatility.

In this regard, the plan has targeted allocations within the equity securities category for domestic large cap, domestic mid cap, domestic small cap, emerging market and international securities.

Within the debt securities category, the plan has targeted allocation levels for U.S.

Treasury, U.S.

agency, domestic investment-grade bonds, high-yield bonds, inflation-protected securities and international bonds.

agency and domestic investment-grade bonds.

The following table presents asset allocations for our pension plans as of December 31, 2022 and 2021, and the target allocation for 2023, by asset category:

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The effective tax rates in 2022, 2021 and 2020, respectively, were lower than the 21 % statutory federal tax rate primarily 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.

For the years ended December 31, 2021, 2020 and 2019, we recognized net investment tax credits, under IRC section 48, of $ 0.0 million , $ 8.3 million and $ 7.9 million, respectively, using the flow-through method of accounting for income tax credits.

For the years ended December 31, 2022, 2021 and 2020, we recognized net investment tax credits, under IRC section 48, of $ 0 , $ 0 and $ 8.3 million, respectively, using the flow-through method of accounting for income tax credits.

Deferred Income Taxes

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Securities impairments 2 1

Pension and other defined benefit plans — 2

Lease liability 39 36

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Lease ROU asset ( 35 ) ( 34 )

Net unrealized securities gains — ( 7 )

Other ( 4 ) ( 2 )

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We anticipate that neither the state net operating loss and state tax credit carryforwards nor the other net DTAs at certain of our subsidiaries will be utilized and, as such, have recorded a valuation allowance against the DTAs related to these items.

As of December 31, 2021, we had approximately $ 17.2 million of federal net operating loss and built-in loss carryforwards and $ 2.4 million of state tax credit carryforwards, net of valuation allowances.

As of December 31, 2022, we had approximately $ 75.5 million of federal net operating loss and built-in loss carryforwards from acquired companies and $ 1.6 million of state tax credit carryforwards, net of valuation allowances.

The utilization of these tax attributes is subject to annual limitations under Section 382 of the Internal Revenue Code, or a similar state-level statute, which will cause the utilization of these attributes to be deferred over a number of years, not to exceed beyond 2038.

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As of December 31, 2022, $ 3.2 million of these tax benefits would affect the effective tax rate if recognized.

We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

To the extent interest is not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

A tabular reconciliation of the unrecognized tax benefits is not presented as the impact of changes to uncertain tax positions on our income tax expense was immaterial.

We file numerous income tax returns in the U.S.

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We are no longer subject to U.S.

federal income tax examinations for years prior to 2018, with the exception of an outstanding refund request on an amended 2017 federal tax return filing.

We are no longer subject to state income tax examinations for years prior to 2018, with the exception of an outstanding refund request on an amended 2017 state tax return filing.

federal income tax examinations for years prior to 2019.

With limited exception, we are no longer subject to state income tax examinations for years prior to 2019.

We currently have one open state examination for the tax years 2017 to 2019 and do not expect any material adjustments.

We also have outstanding refund requests on amended tax returns from an acquisition.

We anticipate that a reduction in the unrecognized tax benefit of up to $ 0.03 million may occur in the next twelve months from the expiration of statutes of limitations which would result in a reduction in income taxes.

OTHER COMPREHENSIVE INCOME

OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents changes in AOCI, net of tax, by component:

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Basic weighted average common shares outstanding 349,976,557 319,791,100 323,368,639

Net effect of dilutive stock options, warrants and restricted stock 3,690,388 2,119,325 1,122,418

Net effect of dilutive stock options and restricted stock 4,075,640 3,690,388 2,119,325

Diluted weighted average common shares outstanding 354,052,197 323,481,488 325,487,964

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We did no t have any restricted cash as of December 31, 2022, 2021 or 2020.

Supplemental non-cash information relating to the Howard and Union acquisitions is included in Note 3, Mergers and Acquisitions.

BUSINESS SEGMENTS

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Loans Held For Sale

Residential mortgage loans held for sale are carried at fair value under the FVO.

Residential mortgage loans held for sale are carried at fair value under the FVO, an irrevocable election at time of origination.

Fair value for residential mortgage loans held for sale, when recorded, is based on independent quoted market prices and is classified as Level 2.

Residential mortgage loans held for sale that subsequently are not sold on the secondary market, are carried at fair value under the FVO and classified as Level 3.

SBA loans held for sale are carried under lower of cost or fair value, for which, periodically, it may be necessary to record non-recurring fair value adjustments.

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OREO acquired in settlement of indebtedness is recorded at fair value less costs to sell.

Subsequently, these assets are carried at the lower of

carrying value or fair value less costs to sell.

Subsequently, these assets are carried at the lower of carrying value or fair value less costs to sell.

Accordingly, it may be necessary to record non-recurring fair value adjustments.

Fair value is generally based upon appraisals by licensed or certified appraisers and other market information and is classified as Level 3.

Other Assets - MSRs and SBA Servicing Assets

Other Assets - Mortgage Servicing Rights and Small Business Administration Servicing Assets

We carry MSRs at the lower of cost or fair value, and therefore, they are subject to fair value measurements on a non-recurring basis.

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The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:

(in millions) Interest

(in millions) Other

Securities Interest

Commitments Total

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Purchases, issuances, sales and settlements:

Issuances 9 9

Purchases 2 — 2

Settlements ( 1 ) ( 9 ) ( 10 )

Transfers from Level 3 ( 1 ) — ( 1 )

Balance at end of period $ — $ — $ —

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See the “Securities Available for Sale” discussion within this footnote for information relating to determining Level 3 fair values.

There were no transfers of assets or liabilities between the hierarchy levels during 2021 or 2020.

During 2022, we transferred $ 1.0 million in other debt securities out of the Level 3 hierarchy level into the Level 2 hierarchy level.

There were no transfers of assets or liabilities between the hierarchy levels during 2021.

From time to time, we measure certain assets at fair value on a non-recurring basis.

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Consequently, the fair value information presented is not necessarily as of the period’s end.

Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during 2021 had a carrying amount of $ 19.6 million which includes an allocated ACL of $ 10.0 million.

The ACL includes a provision

applicable to the current period fair value measurements of $ 0.5 million, which was included in provision for credit losses for 2021.

MSRs measured at fair value on a non-recurring basis had a carrying value of $ 10.3 million, which included a valuation allowance of $ 2.5 million, as of December 31, 2021.

The valuation allowance includes a recovery of $ 4.8 million included in earnings for 2021.

SBA servicing assets measured at fair value on a non-recurring basis had a carrying value of $ 3.2 million, which included a valuation allowance of $ 1.1 million as of December 31, 2021.

Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during 2022

had a carrying amount of $ 33.9 million which includes an allocated ACL of $ 11.6 million.

The ACL includes a provision applicable to the current period fair value measurements of $ 6.2 million, which was included in provision for credit losses for 2022.

MSRs measured at fair value on a non-recurring basis had a carrying value of $ 0 , which included a valuation allowance of $ 0 , as of December 31, 2022.

The valuation allowance includes a recovery of $ 2.5 million included in earnings for 2022.

SBA servicing assets measured at fair value on a non-recurring basis had a carrying value of $ 1.8 million.

During 2022, the valuation allowance increased $ 0.4 million to $ 1.6 million as of December 31, 2022, up from $ 1.2 million at December 31, 2021, which is reflected in the year-to-date provision expense.

OREO measured at fair value on a non-recurring basis during 2022 had a carrying amount of $ 2.9 million which included a valuation allowance of $ 0.6 million, as of December 31, 2022.

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Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise.

Management believes that fair value estimates may not be comparable to other financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made.

Further, because the disclosed fair value amounts were estimated as of the Balance Sheet date, the

amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.

Management believes that fair value estimates may not be comparable to other financial institutions due to the wide range of permitted valuation techniques and numerous estimates

which must be made.

Further, because the disclosed fair value amounts were estimated as of the Balance Sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.

The fair values of our financial instruments are as follows:

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Payment for further investment in subsidiaries 3 ( 12 ) ( 270 )

Net cash received in business combinations 9 — —

Net cash flows used in investing activities ( 6 ) ( 90 ) ( 270 )

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Interest $ 34 $ 25 $ 26

MERGERS AND ACQUISITIONS

Howard Bancorp, Inc.

On January 22, 2022, we completed our acquisition of Howard, a bank holding company headquartered in Baltimore City, Maryland.

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

Additionally, cost savings, efficiencies and other benefits are expected from the combined operations.

On the acquisition date, Howard had assets with a net book value of approximately $ 2.4 billion, including $ 1.8 billion in loans, and deposits with a net book value of approximately $ 1.8 billion.

The acquisition was valued at approximately $ 443 million and resulted in the issuance of 34,074,495 shares of our common stock in exchange for 18,930,329 shares of Howard common stock.

We also acquired restricted stock units and the fully vested

outstanding stock options of Howard.

The merger will be accounted for in accordance with the acquisition method of accounting.

Preliminary fair values for all assets and liabilities are not reported herein as we are undertaking a comprehensive review and determination of the fair values of the assets and liabilities of Howard to ensure that they conform to the measurement and reporting guidance set forth for the accounting for business combinations.

Determining the fair value of assets and liabilities, especially in the loan portfolio, is a complex process involving significant judgment regarding estimates and assumptions used to calculate fair values.

Accordingly, the initial accounting for the merger is not complete.

Goodwill related to the transaction is expected to be recorded in the Community Banking business segment and will not be deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes.

We incurred merger expenses of $ 1.8 million related to the Howard acquisition for the year ended December 31, 2021.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data