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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-08 · 437 added, 180 removed, 710 unchanged (46% of the section changed)

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

MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the three-month periods ended March 31, 2024 and 2023.

MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the six-month periods ended June 30, 2024 and 2023.

This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024.

Our results of operations for the three months ended March 31, 2024 are not necessarily indicative of results expected for the full year.

Our results of operations for the six months ended June 30, 2024 are not necessarily indicative of results expected for the full year.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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or global economy and financial markets generally, or us or our counterparties, customers or third-party vendors specifically.

• Our ability to take certain capital actions, including returning capital to shareholders, is subject to us meeting or exceeding minimum capital levels.

Our regulatory capital ratios in the future will depend on, among other things, our financial performance, the scope and terms of final capital regulations then in effect and management actions affecting the composition of our balance sheet.

• Historically we have grown our business in part through acquisitions, new strategic and business initiatives and new products.

Potential risks and uncertainties include those presented by the nature of the business acquired, the strategic or business initiative or the new product, including in some cases those associated with our entry into new business lines or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks

and uncertainties related to the acquisition transactions themselves, increased scrutiny associated with the regulatory approval process, other regulatory issues stemming from such acquisitions or new initiatives or product lines, the integration of the acquired businesses into us after closing or any failure to execute strategic or operational plans.

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

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◦ Policies and priorities of the current U.S.

presidential administration, including legislative and regulatory reforms, more aggressive approaches to supervisory or enforcement priorities with consumer and anti-discrimination lending laws by the federal banking regulatory agencies and the DOJ, changes affecting oversight of the financial services industry, regulatory obligations or restrictions, consumer protection, taxes,

employee benefits, compensation practices, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.

◦ Ability to continue to attract, develop and retain key talent.

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

◦ Changes to laws and regulations, including changes affecting the oversight of the financial services industry along with changes in enforcement and interpretation of such laws and regulations, and changes to accounting standards governing bank capital requirements, loan loss reserves and liquidity standards.

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

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USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS

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

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

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

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When non-GAAP financial measures are disclosed, the SEC's Regulation G requires:

(i) the presentation of the most directly comparable financial measure calculated and presented in accordance with

GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP.

(i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP.

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

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FINANCIAL SUMMARY

Net income available to common stockholders for the first quarter of 2024 was $116.3 million or $0.32 per diluted common share, compared to net income available to common stockholders for the first quarter of 2023 of $144.5 million or $0.40 per diluted common share.

On an operating basis, earnings per diluted common share (non-GAAP) was $0.34 for the first quarter of 2024, excluding $0.02 of significant items impacting earnings per diluted common share, while the first quarter of 2023 was $0.40, excluding less than $0.01 of significant items impacting earnings per diluted common share.

A key contributor to our earnings this quarter was a near-record level of non-interest income totaling $87.9 million as capital markets, wealth management, treasury management and mortgage banking produced strong results.

Our continued profitability grew our capital base and led to a record tangible common equity ratio (non-GAAP) of 7.99%.

Tangible book value (non-GAAP) grew 11%, year-over-year, reaching an all-time high of $9.64 per share.

We experienced strong credit results in this environment which is a testament to our risk management culture with net charge-offs of $12.8 million, or 0.16%, and delinquencies and non-performing assets remaining at or near historically low levels.

We experienced growth in the number of customers and prospects opening multiple accounts since introducing the Common Application to our eStore® platform, contributing to year-over-year growth of 6% and 2% for loans and deposits, respectively.

Income Statement Highlights (First quarter of 2024 compared to first quarter of 2023, except as noted)

• Net interest income decreased $17.6 million, or 5.2%, to $319.0 million primarily due to higher deposit costs, including migration to higher yielding deposit products, as well as higher total average borrowings, partially offset by growth in earning assets and higher earning asset yields.

Net income available to common stockholders for the second quarter of 2024 was $123.0 million or $0.34 per diluted common share, compared to net income available to common stockholders for the second quarter of 2023 of $140.4 million or $0.39 per diluted common share.

On an operating basis, earnings per diluted common share (non-GAAP) was $0.34 for the second quarter of 2024, excluding less than $0.01 of significant items impacting earnings per diluted common share, while the second quarter of 2023 was $0.39, excluding less than $0.01 of significant items impacting earnings per diluted common share.

Pre-provision net revenue (non-GAAP) increased over 4%, on a linked-quarter basis, supported by our well-managed expenses and strong non-interest income levels.

Tangible book value per share grew 12% year-over-year to reach a record high at $9.88.

We continue to execute on our strategy to steadily increase market share by leveraging our investments in eStore® and our experienced banking teams, shown by our linked-quarter loan and deposit growth of 3.6% and 0.7%, respectively, including non-interest-bearing deposit growth of 0.8%.

Our capital position remained strong as we were able to support robust loan growth and maintain the tangible common equity ratio (non-GAAP) near 8% and the CET1 regulatory capital ratio at 10.2%.

Our comprehensive approach to credit risk management has led to strong and stable asset quality results with non-performing loans and OREO to total loans and leases plus OREO ending at 0.33%, a multi-year low, and net charge-offs to total average loans and leases at 0.09%.

Income Statement Highlights (second quarter of 2024 compared to second quarter of 2023, except as noted)

• Net interest income decreased $13.4 million, or 4.1%, to $315.9 million primarily due to higher deposit costs, including balance migration to higher yielding deposit products, as well as higher total average borrowings, partially offset by growth in earning assets and higher earning asset yields.

• Net interest margin (FTE) (non-GAAP) decreased 28 basis points to 3.09% as a 49 basis point increase in the total yield on earnings assets (non-GAAP) was more than offset by total cost of funds increasing 82 basis points.

• On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) decreased only 3 basis points to 3.18% as a 15 basis point increase in the total yield on earning assets (non-GAAP) to 5.40% was more than offset by a 19 basis point increase in total cost of funds to 2.33%.

• The provision for credit losses of $13.9 million supported loan growth and net charge-off activity.

• Non-interest income totaled $87.9 million, benefiting from our diversified business model with strong contributions from mortgage banking, capital markets and record wealth management revenues.

• On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) decreased 9 basis points to 3.09% largely due to increased short-term borrowings to fund the strong loan growth in the quarter as a 3 basis point increase in the total yield on earning assets (non-GAAP) to 5.43% was more than offset by a 13 basis point increase in the total cost of funds to 2.46%.

• The provision for credit losses of $20.2 million supported the strong loan growth as well as net charge-off activity.

• Non-interest income totaled $87.9 million, benefiting from our diversified business model.

• Pre-provision net revenue (non-GAAP) totaled $177.2 million, a 4.4% increase from the prior quarter.

On an operating basis, pre-provision net revenue (non-GAAP) totaled $178.0 million, a 3.0% increase from the prior quarter, driven by a decrease in non-interest expense and continued strong non-interest income generation, more than offsetting the decrease in net interest income.

Reported non-interest expense included an additional FDIC insurance special assessment expense (pre-tax) of $0.8 million due to last year's bank failures, bringing the year-to-date FDIC special assessment expense to $5.2 million.

• Non-interest expense totaled $226.6 million, a decrease of $10.5 million, or 4.4%, on a linked-quarter basis.

The first three months of 2024 included significant items of $1.2 million (pre-tax) of branch consolidation costs and $4.4 million (pre-tax) of FDIC special assessment, partially offset by a $2.6 million (pre-tax) reduction to the previously estimated loss on the indirect auto loan sale.

The first three months of 2023 included a significant item of $2.1 million (pre-tax) of merger expenses.

On an operating basis, non-interest expense (non-GAAP) totaled $234.1 million and increased $16.2 million, or 7.5%, when adjusting for significant items of $3.0 million in the first three months of 2024 compared to $2.1 million.

• The effective tax rate was 21.5%, compared to 19.5%, due to lower stock compensation vesting deductions and higher levels of proportional amortization on certain tax credit investments.

Balance Sheet Highlights (period-end balances, March 31, 2024 compared to December 31, 2023, unless otherwise indicated)

• On a linked-quarter basis, period-end total loans and leases increased $261.4 million, or 3.3% annualized, as consumer loans increased $208.7 million and commercial loans and leases increased $52.6 million.

Average loans and leases increased $113.4 million, or 1.4% annualized, linked quarter, with growth of $253.8 million in average commercial loans and leases offsetting the decrease in average consumer loans of $140.4 million with the consumer loan decline due to the sale of $332 million of indirect auto loans which closed in the first quarter of 2024.

• Period-end total loans and leases increased $1.9 billion, or 6.2%, as compared to March 31, 2023, reflecting organic growth across our diverse geographic footprint.

The second quarter of 2024 included significant items of $0.8 million (pre-tax) of FDIC special assessment.

The second quarter of 2023 included a significant item of $0.2 million (pre-tax) of merger expenses.

On an operating basis, non-interest expense (non-GAAP) totaled $225.8 million and increased $14.0 million, or 6.6%, when adjusting for significant items.

• The efficiency ratio (non-GAAP) remained at a solid level of 54.4%, compared to 50.0% at June 30, 2023, and 56.0% at March 31, 2024.

Balance Sheet Highlights

• Period-end total loans and leases increased $2.4 billion, or 7.7%, compared to June 30, 2023.

Commercial loans and leases increased $1.4 billion, or 7.2%, and consumer loans increased $989.5 million, or 8.5%.

Our organic loan growth was driven by the continued success of our strategy to grow high-quality loans and deepen customer relationships across our diverse geographic footprint.

• On a linked-quarter basis, period-end deposits slightly increased $24.5 million, or 0.3% annualized, even with the seasonal outflows during the current quarter.

The mix of non-interest-bearing deposits to total deposits was stable and equaled 29% at both March 31, 2024 and December 31, 2023.

• Total average deposits totaled $34.2 billion consistent with the prior year quarter, led by increases in average time deposits of $2.1 billion that offset the decline in other deposit categories as customers continue to migrate deposits into higher-yielding deposit products.

• The ratio of loans to deposits was 93.8% and relatively stable with the prior quarter.

Our loan growth was driven by the continued success of our strategy to grow high-quality loans and deepen customer relationships across our diverse geographic footprint.

• On a linked-quarter basis, period-end total loans and leases increased $1.2 billion, or 3.6%, as consumer loans increased $632.7 million and commercial loans and leases increased $540.1 million, including healthy growth in commercial and industrial loans and equipment finance, as well as the seasonal peak for residential mortgage originations.

• Period-end total deposits increased $1.2 billion, or 3.5%, compared to June 30, 2023, driven by an increase of $1.6 billion in time deposits and $879.2 million in interest-bearing demand deposits which more than offset the decline in non-interest-bearing demand deposits of $851.5 million and savings deposits of $410.6 million as customers continued to opt for higher-yielding deposit products given the interest rate environment.

• On a linked-quarter basis, period-end total deposits increased $258.6 million, or 0.7%, with an increase in non-interest-bearing deposits of 0.8%.

The mix of non-interest-bearing deposits to total deposits equaled 29% at June 30, 2024, consistent with the prior two quarter-ends.

• The loan-to-deposit ratio was 96% at June 30, 2024, compared to the prior quarter at 94%, driven by the strong seasonal loan growth.

• The ratio of non-performing loans plus OREO to total loans and leases plus OREO decreased 14 basis points to 0.33%.

Total delinquency increased 4 basis points to 0.64%, compared to 0.60% at March 31, 2023.

Total delinquency decreased 12 basis points to 0.63%, compared to 0.75% at June 30, 2023.

Both measures continue to remain at or near historically low levels.

• The first quarter of 2024 reflected net charge-offs of $12.8 million, or 0.16% annualized of total average loans.

• The ACL was $406.3 million, an increase of $2.9 million compared to March 31, 2023, with the ratio of the ACL to total loans and leases decreasing 7 basis points to 1.25% reflecting net loan growth and charge-off activity.

• Tangible book value per common share (non-GAAP) of $9.64, increased $0.98, or 11.3%, compared to March 31, 2023.

AOCI reduced the tangible book value per common share (non-GAAP) by $0.70 as of March 31, 2024, primarily due to the impact of higher interest rates on the fair value of AFS securities, compared to a $0.65 reduction as of December 31, 2023, and a $0.87 reduction as of March 31, 2023.

• The CET1 regulatory capital ratio was 10.21% benefiting from retained earnings growth and the aforementioned indirect auto loan sale in the quarter, compared to 10.04% at March 31, 2023.

• On February 15, 2024, we redeemed all our outstanding Series E Perpetual Preferred Stock and the final preferred dividend of $2.0 million was paid on the redemption date.

The excess of the redemption value over the carrying value on the Series E Perpetual Preferred Stock of $4.0 million was considered a significant item impacting earnings.

• The second quarter of 2024 reflected net charge-offs of $7.8 million, or 0.09% annualized of total average loans.

• The ACL was $418.8 million, an increase of $6.0 million compared to June 30, 2023, with the ratio of the ACL to total loans and leases decreasing 8 basis points to 1.24% reflecting net loan growth and charge-off activity.

• Tangible book value per common share (non-GAAP) of $9.88, increased $1.09, or 12.4%, compared to June 30, 2023.

AOCI reduced the tangible book value per common share (non-GAAP) by $0.67 as of June 30, 2024, primarily due to

the impact of higher interest rates on the fair value of AFS securities, compared to a $0.70 reduction as of March 31, 2024, and a $0.99 reduction as of June 30, 2023.

• Our capital position remained strong as we were able to support robust loan growth and maintain the tangible common equity ratio near 8% and the CET1 regulatory capital ratio at 10.2%.

• During the second quarter of 2024, we repurchased 250,000 shares of our common stock at a weighted average share price of $13.56 while maintaining capital at or above stated operating levels and supporting loan growth in the quarter.

Three Months Ended

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Net income per diluted common share 0.34 0.39

Book value per common share (period-end) 16.71 15.76

Book value per common share 16.94 15.92

Operating results (non-GAAP)

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Significant items impacting earnings (1) (millions)

Pre-tax merger-related expenses $ — $ (0.2)

After-tax impact of merger-related expenses — (0.1)

Pre-tax FDIC assessment (0.8) —

After-tax impact of FDIC assessment (0.6) —

Total significant items after-tax $ (0.6) $ (0.1)

Capital measures

Common equity tier 1 10.19 % 10.05 %

Tangible common equity to tangible assets (non-GAAP) 7.86 7.47

Tangible book value per common share (non-GAAP) $ 9.88 $ 8.79

Six Months Ended

Year-to-Date Results Summary 2024 2023

Reported results

Net income available to common stockholders (millions) $ 239.4 $ 284.9

Net income per diluted common share 0.66 0.78

Operating results (non-GAAP)

Operating net income available to common stockholders (millions) 246.4 286.6

Operating net income per diluted common share 0.68 0.79

Average diluted common shares outstanding (thousands) 362,660 363,777

Significant items impacting earnings (1) (millions)

Preferred dividend equivalent at redemption $ (4.0) $ —

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After-tax impact of FDIC assessment (4.1) —

Pre-tax loss on indirect auto loan sale 2.6 —

After-tax impact of loss on indirect auto loan sale 2.1 —

Pre-tax reduction of previous estimated loss on indirect auto loan sale 2.6 —

After-tax impact of previous estimated loss on indirect auto loan sale 2.1 —

Total significant items after-tax $ (6.9) $ (1.8)

Capital measures

Common equity tier 1 10.21 % 10.04 %

Tangible common equity to tangible assets (period-end) (non-GAAP) 7.99 7.50

Tangible book value per common share (period-end) (non-GAAP) $ 9.64 $ 8.66

(1) Favorable (unfavorable) impact on earnings

RESULTS OF OPERATIONS

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Net income available to common stockholders for the first three months of 2024 was $116.3 million or $0.32 per diluted common share, compared to $144.5 million or $0.40 per diluted common share for the first three months of 2023.

On an operating basis (non-GAAP), net income available to common stockholders for the first three months of 2024 was $122.7 million, or $0.34 per diluted common share, compared to $146.1 million or $0.40 per diluted common share for the first three months of 2023.

Net interest income totaled $319.0 million, a decrease of $17.6 million, or 5.2%, compared to $336.7 million, as total average earning assets increased $2.0 billion, or 5.3%, including a $2.0 billion increase in average loans and leases from organic origination activity, partially offset by a $106.7 million decrease in average investment securities.

The net interest margin (FTE) (non-GAAP) decreased 38 basis points to 3.18%, as the total cost of funds increased 115 basis points to 2.33% with a 132-basis point increase in interest-bearing deposit costs to 2.82%, as well as an increase of 28 basis points in long-term debt costs which includes the impact of additional liquidity following the banking industry disruption in 2023.

These funding cost increases were partially offset by an increase in the yield on earning assets (non-GAAP) of 72 basis points to 5.40%, primarily due to higher yields on loans, investment securities and interest-bearing deposits with banks.

Between March 31, 2023 and March 31, 2024, the FOMC raised the target Federal Funds interest rate by 50 basis points (with the last increase in July 2023).

The provision for credit losses for the first three months of 2024 totaled $13.9 million, compared to $14.1 million.

Non-interest income totaled $87.9 million, a 10.7% increase compared to $79.4 million, reflecting increased mortgage banking operations income, record wealth management revenues and higher levels of dividends on non-marketable equity securities, partially offset by lower insurance commissions and fees.

Non-interest expense totaled $237.1 million, increasing $17.2 million, or 7.8%.

On an operating basis (non-GAAP), non-interest expense totaled $234.1 million, an increase of $16.2 million, or 7.5%, compared to the first three months of 2023.

Salaries and benefits increased $8.9 million, or 7.4%, due largely to normal annual

merit increases and higher production-related commissions from strong non-interest income activity.

Additionally, net occupancy and equipment expense increased $3.9 million, or 10.0%, largely from technology-related investments.

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

Net income available to common stockholders for the three months ended June 30, 2024 was $123.0 million or $0.34 per diluted common share, compared to $140.4 million or $0.39 per diluted common share for the three months ended June 30, 2023.

On an operating basis, second quarter of 2024 earnings per diluted common share (non-GAAP) was $0.34, excluding $0.8 million (pre-tax) of FDIC insurance special assessment expense.

By comparison, second quarter of 2023 earnings per diluted common share (non-GAAP) was $0.39 on an operating basis, excluding $2.1 million (pre-tax) in merger-related significant items.

Net interest income totaled $315.9 million a decrease of $13.4 million, or 4.1%, primarily due to higher deposit costs resulting from balance migration to higher yielding deposit products, as well as increased total average borrowings, partially offset by growth in earning assets and higher earning asset yields.

The net interest margin (FTE) (non-GAAP) decreased 28 basis points to 3.09%.

The yield on earning assets (non-GAAP) increased 49 basis points to 5.43%, reflecting the higher interest rate environment as the FOMC raised the target federal funds rate by 25 basis points on July 27, 2023.

The earning assets yield increase was driven by a 65 basis point increase on investment securities to 3.14% which benefited from the balance sheet restructuring in late 2023 and a 43 basis point increase on loans to 5.96%.

Total cost of funds increased 82 basis points to 2.46% with a 96 basis point increase in interest-bearing deposit costs to 2.93%, and an increase of 122 basis points in short-term borrowing costs.

The provision for credit losses was $20.2 million, compared to $18.5 million with the current quarter's level supporting strong loan growth.

Non-interest income increased by $7.6 million, or 9.5%, reflecting increased service charges income, mortgage banking operations income, wealth management revenues and dividends on non-marketable equity securities, offset by reduced capital markets income and interchange and card transaction fees.

Non-interest expense for the second quarter of 2024 increased $14.7 million, or 6.9%.

The biggest drivers of the non-interest expense increase were salaries and benefits expense with an increase of $7.0 million, or 6.1%, primarily from production-related commissions and normal annual merit increases, and net occupancy and equipment expense with an increase of $4.9 million, or 13.0%, largely from technology-related investments.

Income taxes of $34.0 million declined $2.7 million, or 7.4% from lower pre-tax income levels.

Financial highlights are summarized below:

Three Months Ended

March 31, $ %

(in thousands, except per share data) 2024 2023 Change Change

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

Three Months Ended March 31,

Three Months Ended June 30,

(dollars in thousands) Average

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Net Interest Income

Net interest income on an FTE basis (non-GAAP) totaled $321.9 million, decreasing $18.0 million, or 5.3%, primarily due to higher interest-bearing deposit costs including continued migration to higher yielding deposit products in the current interest rate environment and higher total average borrowings, partially offset by growth in earning assets and higher earning asset yields.

Average earning assets grew $2.0 billion, or 5.3%, primarily driven by organic loan origination activity.

Net interest income on an FTE basis (non-GAAP) decreased $13.7 million, or 4.1%, to $318.8 million for the second quarter of 2024 primarily due to higher deposit costs resulting from the continued deposit balance migration to higher yielding products as well as increased total average borrowings, partially offset by growth in earning assets and higher earning asset yields.

Average earning assets of $41.4 billion increased $1.9 billion, or 4.8%, driven by an increase in average loans and leases from solid origination activity.

Average interest-bearing liabilities of $29.5 billion increased $2.7 billion, or 9.9%, driven by an increase of $1.9 billion in average interest-bearing deposits and an increase in average borrowings of $761.7 million to support strong loan growth.

Our net interest margin FTE (non-GAAP) decreased 28 basis points to 3.09%, as the total cost of funds increased 82 basis points to 2.46% which more than offset the increase in the yield on earning assets (non-GAAP) of 49 basis points to 5.43%.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended June 30, 2024, compared to the three months ended June 30, 2023:

(in thousands) Volume Rate Net

Interest Income (1)

Interest-bearing deposits with banks $ (3,814) $ (1,110) $ (4,924)

Securities (2)

370 11,654 12,024

Loans held for sale 158 517 675

Loans and leases (2)

30,962 33,897 64,859

Total interest income (2)

27,676 44,958 72,634

Interest Expense (1)

Interest-bearing demand 7,815 26,535 34,350

Savings 228 791 1,019

Certificates and other time 14,322 18,471 32,793

Short-term borrowings 4,048 6,748 10,796

Long-term borrowings 5,838 1,546 7,384

Total interest expense 32,251 54,091 86,342

Net change (2)

$ (4,575) $ (9,133) $ (13,708)

(1) The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the net size of the rate and volume changes.

(2) Interest income amounts are reflected on an FTE basis (non-GAAP) which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%.

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

Interest income on an FTE basis (non-GAAP) of $560.1 million for the second quarter of 2024, increased $72.6 million, or 14.9%, from the same quarter of 2023, resulting from the interest rate increases by the FOMC and an increase in average earning assets of $1.9 billion.

The increase in earning assets was primarily driven by a $2.2 billion, or 7.1%, increase in average loans and leases, partially offset by a decrease of $365.6 million in average cash balances.

Average commercial loan growth of $1.3 billion, or 6.4%, was led by increases of $970.6 million in commercial real estate, $224.7 million in commercial and industrial loans and $68.3 million in commercial leases.

The increase in average commercial loans and leases was driven by activity across the footprint, with double-digit year-over-year growth across the Carolinas.

The Pittsburgh and Cleveland regions and commercial equipment finance also posted strong contributions.

The increase in commercial real estate included fundings on previously originated projects.

Average consumer loans increased $943.7 million, or 8.3%, with a $1.3 billion increase in residential mortgages largely due to the continued successful execution in key markets by our expanded mortgage banker team and long-standing strategy of serving the purchase market.

This growth was partially offset by a decrease in indirect auto loans of $363.0 million reflecting the sale of $332 million that closed in the first quarter of 2024.

The yield on average earning assets (non-GAAP) increased 49 basis points to 5.43% for the second quarter of 2024, primarily due to higher yields on loans and investment securities reflecting the higher interest rate environment.

The increase was driven by a 65 basis

point increase on investment securities to 3.14%, which benefited from the balance sheet restructuring in late 2023 and a 43 basis point increase on loans to 5.96%.

Interest expense of $241.3 million for the second quarter of 2024 increased $86.3 million from the same quarter of 2023, primarily due to the higher interest rate environment and an increase in average interest-bearing deposits and borrowings.

Average interest-bearing deposits increased $1.9 billion, or 8.3%, while average non-interest-bearing deposits decreased $1.1 billion, or 9.9%, as customers continued to migrate balances into higher-yielding products.

The growth in average total deposits reflected organic growth in new and existing customer relationships.

Average short-term borrowings increased $300.4 million, or 12.8%, primarily reflecting increases of $251.9 million and $99.1 million in short-term FHLB advances and Federal Funds purchased, respectively, partially offset by a decrease of $56.5 million in repurchase agreements.

Average long-term borrowings increased $461.3 million, or 27.1%, primarily reflecting an increase in long-term FHLB advances as we have maintained additional liquidity following the banking industry disruption and in a continued effort to support strong loan growth.

The rate paid on interest-bearing liabilities increased 97 basis points from 2.32% to 3.29%.

The total cost of funds increased 82 basis points to 2.46% with a 96 basis point increase in interest-bearing deposit costs to 2.93%, and an increase of 122 basis points in short-term borrowing costs to fund the strong loan growth.

Since the current interest rate increases began in March 2022, our total cumulative spot deposit beta equaled 38% at June 30,2024, consistent with our expectations.

Provision for Credit Losses

Provision for credit losses is determined based on management’s estimates of the appropriate level of ACL needed to absorb expected life-of-loan losses in the loan and lease portfolio, after giving consideration to charge-offs and recoveries for the period.

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

Three Months Ended

(dollars in thousands) 2024 2023 Change Change

Provision for credit losses on loans and leases $ 20,312 $ 18,026 $ 2,286 12.7 %

Provision for unfunded loan commitments

(119) 490 (609) (124.3)

Total provision for credit losses on loans and leases 20,193 18,516 1,677 9.1

Provision for securities (4) — (4) n/m

Total provision for credit losses $ 20,189 $ 18,516 $ 1,673 9.0 %

Net loan charge-offs $ 7,849 $ 8,700 $ (851) (9.8) %

Net loan charge-offs (annualized) / total average loans and leases 0.09 % 0.11 %

n/m - not meaningful

Provision for credit losses was $20.2 million during the second quarter of 2024, an increase of $1.7 million from the same period of 2023.

The second quarter of 2024 is comprised of a $20.3 million provision for loans and leases outstanding and a $0.1 million net benefit on provision for unfunded loan commitments.

The net increase supported the strong loan growth.

The second quarter of 2024 reflected net charge-offs of $7.8 million, or 0.09% annualized of total average loans, compared to $8.7 million, or 0.11% annualized, in the second quarter of 2023.

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

Non-Interest Income

The breakdown of non-interest income for the three months ended June 30, 2024 and 2023 is presented in the following table:

Three Months Ended

(dollars in thousands) 2024 2023 Change Change

Service charges $ 23,332 $ 20,534 $ 2,798 13.6 %

Interchange and card transaction fees 13,005 13,522 (517) (3.8)

Trust services 11,475 10,630 845 7.9

Insurance commissions and fees 5,973 5,996 (23) (0.4)

Securities commissions and fees 7,980 7,021 959 13.7

Capital markets income 5,143 5,884 (741) (12.6)

Mortgage banking operations 6,956 4,907 2,049 41.8

Dividends on non-marketable equity securities 6,895 5,467 1,428 26.1

Bank owned life insurance 3,419 2,995 424 14.2

Net securities gains (losses) (3) (6) 3 —

Other 3,747 3,359 388 11.6

Total non-interest income $ 87,922 $ 80,309 $ 7,613 9.5 %

Total non-interest income increased by $7.6 million, or 9.5%, to $87.9 million for the second quarter of 2024, compared to $80.3 million for the second quarter of 2023.

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

Service charges of $23.3 million increased $2.8 million, or 13.6%, with strong treasury management activity and higher consumer transaction activity.

Wealth management revenues increased $1.8 million, or 10.2%, as securities commissions and fees and trust income increased 13.7% and 7.9%, respectively, through contributions across the geographic footprint and the $506.8 million, or 5.9%, increase in the market value of assets under management.

Capital markets income decreased $0.7 million, or 12.6%, reflecting lower commercial customer transaction activity.

Mortgage banking operations income increased $2.0 million, or 41.8%, driven by improved gain on sale from strong production volumes.

During the second quarter of 2024, we sold $324.9 million of residential mortgage loans, compared to $228.7 million for the same period of 2023.

Dividends on non-marketable equity securities increased $1.4 million, or 26.1%, reflecting higher FHLB dividends due to additional borrowings.

Non-Interest Expense

The breakdown of non-interest expense for the three months ended June 30, 2024 and 2023 is presented in the following table:

Three Months Ended

(dollars in thousands) 2024 2023 Change Change

Salaries and employee benefits $ 120,917 $ 113,946 $ 6,971 6.1 %

Net occupancy 18,632 16,689 1,943 11.6

Equipment 24,335 21,345 2,990 14.0

Amortization of intangibles 4,379 5,044 (665) (13.2)

Outside services 23,250 20,539 2,711 13.2

Marketing 4,006 3,943 63 1.6

FDIC insurance 9,954 7,717 2,237 29.0

Bank shares and franchise taxes 3,930 3,926 4 0.1

Merger-related — 163 (163) (100.0)

Other 17,209 18,643 (1,434) (7.7)

Total non-interest expense $ 226,612 $ 211,955 $ 14,657 6.9 %

Total non-interest expense of $226.6 million for the second quarter of 2024 increased $14.7 million, or 6.9%, from the same period of 2023.

Non-interest expense increased $14.0 million, or 6.6%, when excluding significant items of $0.8 million of FDIC special assessment expense in the second quarter of 2024 related to last year's bank failures and merger-related costs of $0.2 million in the second quarter 2023.

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

Salaries and employee benefits of $120.9 million increased $7.0 million, or 6.1%, primarily from normal annual merit increases and higher production-related commissions from strong non-interest income activity.

Net occupancy and equipment of $43.0 million increased $4.9 million, or 13.0%, largely from continued technology-related investments.

Outside services of $23.3 million increased $2.7 million, or 13.2%, with higher third-party and volume-related technology costs.

FDIC insurance of $10.0 million increased $2.2 million, or 29.0%, reflecting a $0.8 million estimated special assessment to further replenish the FDIC's Deposit Insurance Fund associated with protecting uninsured depositors following the failed banks in early 2023 based on updated loss information provided by the FDIC, as well as loan growth and balance sheet mix changes.

The following table presents non-interest expense excluding significant items for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30, $ %

(dollars in thousands) 2024 2023 Change Change

Total non-interest expense, as reported $ 226,612 $ 211,955 $ 14,657 6.9 %

Significant items:

Merger-related — (163) 163

FDIC special assessment (804) — (804)

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

$ 225,808 $ 211,792 $ 14,016 6.6 %

Current period significant items relate to a continuation of prior period significant items.

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

Three Months Ended

(dollars in thousands) 2024 2023

Income tax expense $ 33,974 $ 36,690

Effective tax rate 21.6 % 20.5 %

Statutory federal tax rate 21.0 21.0

Income tax expense was lower due to lower pre-tax earnings, partially offset by lower stock compensation vesting deductions, higher disallowance of FDIC premium deductions, and higher levels of proportional amortization for certain tax credit investments resulting from the adoption of FASB ASU 2023-02 on January 1, 2024.

The effective tax rate increased for the three months ended June 30, 2024 as a result of these offsetting items.

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Net income available to common stockholders for the first six months of 2024 was $239.4 million or $0.66 per diluted common share, compared to $284.9 million or $0.78 per diluted common share for the first six months of 2023.

On an operating basis (non-GAAP), net income available to common stockholders for the first six months of 2024 was $246.4 million, or $0.68 per diluted common share, compared to $286.6 million or $0.79 per diluted common share for the first six months of 2023.

Net interest income totaled $634.9 million, a decrease of $31.0 million, or 4.7%, compared to $665.9 million.

The net interest margin (FTE) (non-GAAP) decreased 33 basis points to 3.13%, as the total cost of funds increased 99 basis points to 2.40% with a 115-basis point increase in interest-bearing deposit costs to 2.88%, as well as an increase of 32 basis points in long-term debt costs.

These funding cost increases were partially offset by an increase in the yield on earning assets (non-GAAP) of 60 basis points to 5.41%, primarily due to higher yields on loans and investment securities.

Between June 30, 2023 and June 30, 2024, the FOMC raised the target Federal Funds interest rate by 25 basis points in July of 2023.

The provision for credit losses for the first six months of 2024 totaled $34.1 million, compared to $32.6 million.

Non-interest income totaled $175.8 million, a 10.1% increase compared to $159.7 million, reflecting increased mortgage banking operations income, continued strong wealth management revenues, and higher levels of service charges and dividends on non-marketable equity securities, partially offset by lower insurance commissions and fees.

Non-interest expense totaled $463.7 million, increasing $31.8 million, or 7.4%.

On an operating basis (non-GAAP), non-interest expense totaled $459.9 million, an increase of $30.2 million, or 7.0%, compared to the first six months of 2023.

Salaries and benefits increased $15.9 million, or 6.8%, due largely to normal annual merit increases and higher production-related commissions from strong non-interest income activity.

Additionally, net occupancy and equipment expense increased $8.9 million, or 11.4%, largely from technology-related investments.

FDIC insurance increased $7.8 million, or 52.4%, primarily due to incremental FDIC special assessment expense of $5.2 million to further replenish the FDIC's Deposit Insurance Fund after the 2023 bank failures.

Financial highlights are summarized below:

Six Months Ended

(in thousands, except per share data) 2024 2023 Change Change

Net interest income $ 634,898 $ 665,898 $ (31,000) (4.7) %

Provision for credit losses 34,079 32,577 1,502 4.6

Non-interest income 175,784 159,698 16,086 10.1

Non-interest expense 463,708 431,872 31,836 7.4

Income taxes 67,527 72,250 (4,723) (6.5)

Net income 245,368 288,897 (43,529) (15.1)

Preferred stock dividends 6,005 4,020 1,985 49.4

Net income available to common stockholders $ 239,363 $ 284,877 $ (45,514) (16.0) %

Earnings per common share – Basic $ 0.66 $ 0.79 $ (0.13) (16.5) %

Earnings per common share – Diluted 0.66 0.78 (0.12) (15.4)

Cash dividends per common share 0.24 0.24 — —

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

Six Months Ended

Return on average equity 8.17 % 10.07 %

Return on average tangible common equity (1)

Return on average assets 1.07 1.33

Return on average tangible assets (1)

Book value per common share $ 16.94 $ 15.92

Tangible book value per common share (1)

Equity to assets 12.76 % 12.99 %

Average equity to average assets 13.11 13.17

Common equity to assets 12.76 12.75

Tangible common equity to tangible assets (1)

Common equity tier 1 capital ratio 10.19 10.05

Dividend payout ratio 36.56 30.59

Six Months Ended June 30,

(dollars in thousands) Average

Balance Interest

Expense Yield/

Balance Interest

Expense Yield/

Interest-earning assets:

Interest-bearing deposits with banks $ 870,372 $ 17,385 4.02 % $ 1,027,117 $ 19,784 3.88 %

Taxable investment securities (1)

6,138,237 93,388 3.04 6,149,284 70,719 2.30

Tax-exempt investment securities (1)(2)

1,037,388 17,883 3.45 1,057,554 18,366 3.47

Loans held for sale 173,981 6,805 7.84 109,137 3,438 6.32

Loans and leases (2) (3)

32,818,345 971,049 5.94 30,731,126 821,939 5.39

Total interest-earning assets (2)

41,038,323 1,106,510 5.41 39,074,218 934,246 4.81

Cash and due from banks 399,027 434,956

Allowance for credit losses (412,119) (408,149)

Premises and equipment 477,183 451,252

Other assets 4,572,271 4,366,564

Total assets $ 46,074,685 $ 43,918,841

Interest-bearing liabilities:

Interest-bearing demand $ 14,608,616 192,953 2.66 $ 14,258,082 116,151 1.64

Savings 3,386,231 20,135 1.20 3,932,627 16,958 0.87

Certificates and other time 6,472,481 137,270 4.26 4,595,128 62,781 2.76

Total interest-bearing deposits 24,467,328 350,358 2.88 22,785,837 195,890 1.73

Short-term borrowings 2,520,544 60,538 4.82 1,953,125 31,785 3.28

Long-term borrowings 2,111,400 54,891 5.23 1,394,571 34,130 4.94

Total interest-bearing liabilities 29,099,272 465,787 3.22 26,133,533 261,805 2.02

Non-interest-bearing demand 9,930,212 11,207,490

Total deposits and borrowings 39,029,484 2.40 37,341,023 1.41

Other liabilities 1,006,295 795,124

Total liabilities 40,035,779 38,136,147

Stockholders’ equity 6,038,906 5,782,694

Total liabilities and stockholders’ equity $ 46,074,685 $ 43,918,841

Net interest-earning assets $ 11,939,051 $ 12,940,685

Net interest income (FTE) (2)

640,723 672,441

Tax-equivalent adjustment (5,825) (6,543)

Net interest income $ 634,898 $ 665,898

Net interest spread 2.19 % 2.79 %

Net interest margin (2)

3.13 % 3.46 %

(1) The average balances and yields earned on securities are based on historical cost.

(2) The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%.

The yield on earning assets and the net interest margin are presented on an FTE basis (non-GAAP).

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

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

Net Interest Income

Net interest income on an FTE basis (non-GAAP) totaled $640.7 million, decreasing $31.7 million, or 4.7%, primarily due to higher interest-bearing deposit costs from continued balance migration to higher yielding deposit products in the current interest rate environment and higher total average borrowings, partially offset by growth in earning assets and higher earning asset yields.

Average earning assets grew $2.0 billion, or 5.0%, primarily driven by loan growth.

Total average commercial loans increased $1.2 billion, or 6.1%.

Average consumer loans increased $901.8 million, or 8.0%, with an increase in residential mortgage loans of $1.3 billion, or 23.6%, largely due to the continued successful execution in key markets by our expanded mortgage banker team and long-standing strategy of serving the purchase market.

Partially offsetting the growth in residential mortgage loans, indirect installment loans decreased $382.4 million, or 24.9%, reflecting the $332 million sale that closed in the first quarter of 2024.

Additionally, we reinvested the proceeds of the AFS securities sold in December 2023 as part of our balance sheet repositioning with an average yield of 1.08% into securities with yields approximately 350 basis points higher and a similar duration and convexity profile.

For interest-bearing liabilities, average time deposits increased $1.9 billion, or 40.9%, given the continued migration into higher-yielding deposit products.

Total average borrowings increased $1.3 billion due to maintaining additional liquidity on the balance sheet following the banking industry disruption in 2023 and to support strong loan growth.

The net interest margin (FTE) (non-GAAP) decreased 33 basis points to 3.13%.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended March 31, 2024, compared to the three months ended March 31, 2023:

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023:

(in thousands) Volume Rate Net

20 unchanged sentences

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

Interest income on an FTE basis (non-GAAP) of $546.4 million for the first three months of 2024, increased $99.6 million, or 22.3%, from the same period of 2023, resulting from the interest rate increases by the FOMC and a $2.0 billion increase in average earning assets.

The increase in earning assets was primarily driven by a $2.0 billion, or 6.5%, increase in average loans.

Growth in total average commercial loans included $755.1 million, or 6.6%, in commercial real estate loans and $225.3 million, or 3.1%, in commercial and industrial loans, driven by a combination of organic loan origination activity led by the Pittsburgh, Charlotte, Cleveland and Raleigh markets.

Average consumer loans increased $861.8 million, or 7.8%, with an increase in residential mortgage loans of $1.3 billion, or 24.4%, reflecting adjustable-rate mortgages held in portfolio on the balance sheet and the continued success of the Physicians First mortgage program, which is a program that provides a bundled suite of specialized products to meet the personal and professional needs of physicians, dentists, veterinarians and other healthcare professionals.

Indirect installment loans decreased $401.8 million, or 26.1%, reflecting the $332 million indirect auto loan sale that closed in the first quarter of 2024.

Additionally, the net increase in securities interest income was a result of replacing maturing securities with higher yielding securities, as the average total securities portfolio yield increased 60 basis points.

For the first three months of 2024, the yield on average earning assets (non-GAAP) increased 72 basis points to 5.40%, compared to the first three months of 2023.

Interest expense of $224.5 million for the first three months of 2024 increased $117.6 million, or 110.1%, from the same period of 2023, primarily due to the higher interest rate environment and an increase in average interest-bearing deposits and borrowings.

Average time deposits increased $2.1 billion, or 50.6%, given the continued migration into higher-yielding deposit products.

Average short-term borrowings increased $838.8 million, or 53.7%, primarily due to an increase in short-term FHLB borrowings of $682.6 million and average long-term borrowings increased $975.8 million, or 90.2%, primarily due to an increase of $1.2 billion in long-term FHLB borrowings, as we have maintained additional liquidity following the banking industry disruption in early 2023 and in a continued effort to support strong loan growth.

The rate paid on interest-bearing liabilities increased 144 basis points to 3.14% for the first three months of 2024, compared to the first three months of 2023, as the cost of interest-bearing deposits increased 132 basis points from 1.50% to 2.82%.

These increases were primarily due to increased deposit competition and market trends resulting from the interest rate actions taken by the FOMC and the banking industry market disruptions that occurred in early 2023.

Provision for Credit Losses

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

Three Months Ended

March 31, $ %

Six Months Ended

(dollars in thousands) 2024 2023 Change Change

6 unchanged sentences

Net loan charge-offs (annualized) / total average loans and leases 0.13 % 0.14 %

The provision for credit losses was $13.9 million, compared to $14.1 million in the first three months of 2023.

The provision for credit losses for the first three months of 2024 was primarily due to loan growth and charge-off activity.

The provision for credit losses in the first three months of 2023 was primarily due to loan growth, CECL-related model impacts from forecasted macroeconomic conditions and charge-off activity.

The provision for credit losses was $34.1 million, compared to $32.6 million in the first six months of 2023.

The provision for credit losses for the first six months of 2024 was primarily due to loan growth and charge-off activity.

The provision for credit losses in the first six months of 2023 was primarily due to loan growth, CECL-related model impacts from forecasted macroeconomic conditions and charge-off activity.

Our non-performing loan coverage position remains strong at 388%.

The first three months of 2024 reflected net charge-offs of $12.8 million, or 0.16% annualized of total average loans, compared to $13.2 million, or 0.18% annualized, in the first three months of 2023.

The first six months of 2024 reflected net charge-offs of $20.6 million, or 0.13% annualized of total average loans, compared to $21.9 million, or 0.14% annualized, in the first six months of 2023.

The ACL was $418.8 million, an increase of $6.0 million, with the ratio of the ACL to total loans and leases decreasing 8 basis points to 1.24%, reflecting net loan growth and charge-off activity.

Non-Interest Income

The breakdown of non-interest income for the three months ended March 31, 2024 and 2023 is presented in the following table:

Three Months Ended

March 31, $ %

The breakdown of non-interest income for the six months ended June 30, 2024 and 2023 is presented in the following table:

Six Months Ended

(dollars in thousands) 2024 2023 Change Change

13 unchanged sentences

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

Wealth management revenues were at record levels and increased $1.6 million, or 8.8%, as securities commissions and fees and trust income increased 10.5% and 7.7%, respectively, through continued strong contributions across the geographic footprint.

Insurance commissions and fees decreased $1.0 million, or 13.3%, with lower contingent revenues compared to the year-ago quarter, combined with a book of business decline.

Mortgage banking operations income of $7.9 million increased $3.1 million, or 63.0%, driven by improved gain on sale from strong production volumes.

During the first three months of 2024, we sold $329.2 million of residential mortgage loans, a 57.1% increase compared to $209.6 million for the same period of 2023.

Dividends on non-marketable equity securities of $6.2 million increased $2.1 million, or 50.8%, reflecting higher FHLB dividends due to additional borrowings.

Service charges increased $3.1 million, or 7.6%, primarily due to strong treasury management activity and higher consumer transaction activity.

Wealth management revenues increased $3.4 million, or 9.5%, as securities commissions and fees and trust income increased 12.0% and 7.8%, respectively, through continued strong contributions across the geographic footprint.

Mortgage banking operations income increased $5.1 million, or 52.3%, driven by improved gain on sale from strong production volumes.

During the first six months of 2024, we sold $654.1 million of residential mortgage loans, a 49.2% increase compared to $438.3 million for the same period of 2023.

Dividends on non-marketable equity securities increased $3.5 million, or 36.7%, reflecting higher FHLB dividends due to additional borrowings.

Non-Interest Expense

The breakdown of non-interest expense for the three months ended March 31, 2024 and 2023 is presented in the following table:

Three Months Ended

March 31, $ %

The breakdown of non-interest expense for the six months ended June 30, 2024 and 2023 is presented in the following table:

Six Months Ended

(dollars in thousands) 2024 2023 Change Change

10 unchanged sentences

Total non-interest expense $ 463,708 $ 431,872 $ 31,836 7.4 %

Total non-interest expense of $237.1 million for the first three months of 2024 increased $17.2 million, a 7.8% increase from the same period of 2023.

Total non-interest expense of $463.7 million for the first six months of 2024 increased $31.8 million, a 7.4% increase from the same period of 2023.

On an operating basis, non-interest expense (non-GAAP) totaled $459.9 million and increased $30.2 million, or 7.0%, when adjusting for significant items of $3.8 million and $2.2 million in the first six months of 2024 and 2023, respectively.

See Table 18 in this section for a list of significant items.

5 unchanged sentences

Marketing expense of $9.4 million increased $1.8 million, or 23.5%, primarily due to the timing of marketing campaigns.

FDIC insurance increased $5.5 million, or 77.9%, primarily due to a $4.4 million estimated special assessment to further replenish the FDIC's Deposit Insurance Fund associated with protecting uninsured depositors following the failed banks in early 2023 based on updated loss information provided by the FDIC, as well as loan growth and balance sheet mix changes.

Other non-interest expense was $15.1 million and $18.7 million for the first three months of 2024 and 2023, respectively.

The first three months of 2024 included a $2.6 million reduction to the previously estimated loss on the indirect auto loan sale.

FDIC insurance increased $7.8 million, or 52.4%, primarily due to special assessment expense of $5.2 million in 2024 to further replenish the FDIC's Deposit Insurance Fund associated with protecting uninsured depositors following the failed banks in early 2023 based on updated loss information provided by the FDIC, as well as loan growth and balance sheet mix changes.

We recorded $2.2 million in merger-related costs for the first six months of 2023 related to the UB Bancorp acquisition completed in December 2022.

Other non-interest expense was $32.3 million and $37.3 million for the first six months of 2024 and 2023, respectively.

The first six months of 2024 included a $2.6 million reduction to the previously estimated loss on the indirect auto loan sale.

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

Three Months Ended

March 31, $ %

Six Months Ended

(dollars in thousands) 2024 2023 Change Change

8 unchanged sentences

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

Three Months Ended

Six Months Ended

(dollars in thousands) 2024 2023

2 unchanged sentences

Statutory federal tax rate 21.0 21.0

Income tax expense was lower in the first quarter of 2024 due to lower pre-tax earnings.

The higher effective tax rate compared to the first quarter of 2023 was driven by lower stock compensation vesting deductions and higher levels of proportional amortization for certain tax credit investments resulting from the adoption of FASB ASU 2023-02.

Income tax expense was lower in the first six months of 2024 due to lower pre-tax earnings, partially offset by lower stock compensation vesting deductions, higher disallowance of FDIC premium deductions, and higher levels of proportional amortization for certain tax credit investments resulting from the adoption of FASB ASU 2023-02 on January 1, 2024.

The effective tax rate increased for the six months ended June 30, 2024 as a result of these offsetting items.

FINANCIAL CONDITION

The following table presents our condensed Consolidated Balance Sheets:

(dollars in millions) March 31,

(dollars in millions) June 30,

2024 December 31,

37 unchanged sentences

Total loans and leases $ 33,757 $ 32,323 $ 1,434 4.4 %

The organic quarterly growth in commercial loans and leases was led by the Raleigh, South Carolina and Cleveland markets.

For consumer lending, average residential mortgages increased $216.2 million, driven by growth in adjustable-rate mortgages.

The growth in commercial loans and leases was across our footprint.

For consumer lending, average residential mortgages increased $1.3 billion, primarily driven by seasonal growth in mortgage originations in the second quarter of 2024.

Our commercial real estate portfolio included $8.9 billion of non-owner-occupied loans of which 19.6% represented office space.

2 unchanged sentences

Following is a summary of non-performing assets:

(in millions) March 31,

(in millions) June 30,

2024 December 31,

12 unchanged sentences

Total non-performing assets $ 111 $ 110 $ 1 0.9 %

Non-performing assets decreased $2.5 million, from $110.0 million at December 31, 2023 to $107.5 million at March 31, 2024 and remain at or near historically low levels.

Non-performing assets increased slightly by $0.6 million, from $110.0 million at December 31, 2023 to $110.5 million at June 30, 2024, and remain at or near historically low levels.

Allowance for Credit Losses on Loans and Leases

5 unchanged sentences

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

At March 31, 2024 and December 31, 2023, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment.

For our ACL calculation at March 31, 2024, the macroeconomic variables that we utilized included, but were not limited to:

(i) the purchase only Housing Price Index, which increases 7.4% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which increases 3.6% over our R&S forecast period, (iii) S&P Volatility, which increases 19.6% in 2024 and decreases 3.5% in 2025 and (iv) personal and business bankruptcies, which increase steadily over the R&S forecast period but average below historical through-the-cycle period.

At June 30, 2024 and December 31, 2023, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment.

For our ACL calculation at June 30, 2024, the macroeconomic variables that we utilized included, but were not limited to:

(i) the purchase only Housing Price Index, which increases 7.2% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which increases 5.9% over our R&S forecast period, (iii) S&P Volatility, which increases 12.3% in 2024 and decreases 0.8% in 2025 and (iv) personal and business bankruptcies, which increase steadily over the R&S forecast period but average below the historical through-the-cycle period.

Macroeconomic variables that we utilized for our ACL calculation as of December 31, 2023 included, but were not limited to:

(i) the purchase only Housing Price Index, which increases 5.3% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which increases 0.1% over our R&S forecast period, (iii) S&P Volatility, which decreases 4.0% in 2024 and 2.9% in 2025 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical through the cycle period.

(iv) bankruptcies, which increase steadily over the R&S forecast period but average below the historical through the cycle period.

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

Net Loan Charge-Offs Net Loan Charge-Offs to Average Loans ACL at

Three Months Ended

March 31, Three Months Ended

March 31, March 31,

Six Months Ended

June 30, Six Months Ended

June 30, June 30,

2024 2023 2024 2023 2024

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Allowance for credit losses/non-performing loans 388.11 % 289.45 %

The ACL on loans and leases of $406.3 million at March 31, 2024 increased $0.7 million, or 0.2%, from December 31, 2023.

Our ending ACL coverage ratio at both March 31, 2024 and December 31, 2023 was 1.25%.

Total provision for credit losses for the three months ended March 31, 2024 was $13.9 million, compared to $14.1 million for the same period in 2023.

Net charge-offs were $12.8 million for the three months ended March 31, 2024, compared to $13.2 million for the first three months of 2023.

The ACL as a percentage of non-performing loans for the total portfolio was stable at 389% as of March 31, 2024, compared to 378% as of December 31, 2023.

The ACL on loans and leases of $418.8 million at June 30, 2024 increased $13.2 million, or 3.3%, from December 31, 2023.

Our ending ACL coverage ratio was stable at 1.24% at June 30, 2024 compared to 1.25% at December 31, 2023.

Total provision for credit losses for the six months ended June 30, 2024 was $34.1 million, compared to $32.6 million for the same period in 2023.

Net charge-offs were $20.6 million for the six months ended June 30, 2024, compared to $21.9 million for the first six months of 2023.

The ACL as a percentage of non-performing loans for the total portfolio increased slightly to 388% as of June 30, 2024, compared to 378% as of December 31, 2023.

Our primary source of funds is deposits.

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Following is a summary of deposits:

(in millions) March 31,

(in millions) June 30,

2024 December 31,

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Total deposits $ 34,994 $ 34,711 $ 283 0.8 %

Total deposits increased $24.5 million, or 0.1%, from December 31, 2023, even with the seasonal outflows during the current quarter, however we continued to experience balance migration into higher-yielding deposit products.

Total deposits increased $283.1 million, or 0.8%, from December 31, 2023, however we continued to experience balance migration into higher-yielding deposit products.

We ended the quarter with approximately 78% of all deposits insured by the FDIC or collateralized.

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

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

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

Pursuant to and in compliance with applicable SEC laws, rules and regulations, we may, from time to time, issue and sell in one or more offerings any combination of common stock, preferred stock, debt securities, depositary shares, warrants, stock purchase contracts or units.

Since inception of our $300 million stock purchase program, we repurchased 14.1 million shares at a weighted average share price of $11.39 for $164.3 million, with $135.7 million remaining for repurchase.

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

At March 31, 2024, the capital levels of both FNB and FNBPA exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered “well-capitalized” for regulatory purposes.

At June 30, 2024, the capital levels of both FNB and FNBPA exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered “well-capitalized” for regulatory purposes.

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

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

As of March 31, 2024, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $17.2 million, or 5 basis points, which will be eliminated in 2025.

As of June 30, 2024, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $17.2 million, or 5 basis points, which will be eliminated in 2025.

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

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(dollars in millions) Amount Ratio Amount Ratio Amount Ratio

As of March 31, 2024

As of June 30, 2024

Total capital $ 4,508 12.01 % $ 3,754 10.00 % $ 3,941 10.50 %

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A portion of these proceeds was used to retire debt that matured in February 2023 (for additional information, see Note 9, "Borrowings" in the Notes to the Consolidated Financial Statements in this Report).

The parent company's cash position at March 31, 2024 was $268.3 million, down $107.1 million from year-end, primarily due to the redemption of all $111 million of our Series E, 7.25% Fixed Rate / Floating Rate Non-Cumulative Perpetual Preferred Stock.

The Board of Directors declared the redemption of the preferred stock given its higher relative cost of capital and our strong capital position with the regulatory CET1 ratio and Total Capital ratios at 10.2% and 12.0%, respectively, at March 31, 2024 with the Total Capital ratio reflecting the preferred stock redemption.

We have historically been opportunistic when accessing the capital markets, and we will continue with that strategy.

The parent company's cash position at June 30, 2024 was $282.9 million, down $92.5 million from year-end, primarily due to the redemption of all $111 million of our Series E, 7.25% Fixed Rate / Floating Rate Non-Cumulative Perpetual Preferred Stock in February 2024.

The Board of Directors declared the redemption of the preferred stock given its higher relative cost of capital and our strong capital position with the regulatory CET1 ratio and Total Capital ratios at 10.2% and 12.0%, respectively, at June 30, 2024 with the Total Capital ratio reflecting the preferred stock redemption.

Two metrics that are used to gauge the adequacy of the parent company’s cash position are the Liquidity Coverage Ratio (LCR) and Months of Cash on Hand (MCH).

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Parent company cash on hand (millions) $ 282.9 $ 375.4 n/a

As previously mentioned, our parent company cash on hand declined from December 31, 2023 due to the preferred stock redemption, however our liquidity coverage ratio and months of cash on hand metrics improved primarily due to the lower

projected 12-month net cash outflow related to the preferred stock redemption.

Management has concluded that our cash levels remain appropriate given the current market environment.

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Over time, our liquidity position has been positively impacted by FNBPA's ability to generate growth in relationship-based accounts.

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

Consistent with industry trends, we have experienced a shift in deposits from non-interest-bearing deposits into certificates of deposit (CDs).

The March 2023 banking disruption caused an acceleration of this shift.

At March 31, 2024 approximately 78% of our deposits were insured by the FDIC or collateralized, stable with December 31, 2023.

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

At June 30, 2024, approximately 78% of our deposits were insured by the FDIC or collateralized, stable with December 31, 2023.

Non-interest-bearing demand deposits decreased $160.4 million, compared to December 31, 2023.

Interest-bearing demand deposits decreased $111.6 million and savings account balances decreased $117.0 million, while time deposits increased $672.0 million, compared to December 31, 2023, as customers continue to migrate deposits into higher-yielding deposit products.

The mix of non-interest-bearing deposits to total deposits remained stable with the prior quarter at 29%.

Our cash balances held at the FRB were $1.1 billion at both March 31, 2024 and December 31, 2023.

The mix of non-interest-bearing deposits to total deposits remained consistent with the prior quarter at 29%.

Our cash balances held at the FRB were $1.4 billion at June 30, 2024 and $1.1 billion at December 31, 2023.

Management will continue to evaluate appropriate levels of liquidity based on expected loan and deposit growth and other balance sheet activity.

The following table presents certain information relating to FNBPA’s credit availability and salable unpledged securities:

(dollars in millions) March 31,

(dollars in millions) June 30,

2024 December 31,

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Cash and salable unpledged government and agency securities as a % of FNBPA assets 5.4 % 3.8 %

Our bank-level liquidity position was strong throughout the first quarter of 2024.

Our bank-level liquidity position was strong throughout the first half of 2024.

Our contingency funding policy and periodic liquidity stress testing of multiple stress scenarios is particularly valuable as we successfully manage our liquidity.

We continue to have ample unused borrowing capacity that could cover 2.0 times the uninsured deposit and non-collateralized deposit balances as of March 31, 2024.

We continue to have ample unused borrowing capacity that could cover 1.9 times the uninsured deposit and non-collateralized deposit balances as of June 30, 2024.

A portion of this capacity includes the FRB's Discount Window.

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In addition to credit availability, FNBPA also possesses salable unpledged government and agency securities that could be utilized to meet funding needs and has excess cash to meet its pledging requirements.

At March 31, 2024, FNBPA has $2.0 billion of cash and salable unpledged government and agency securities representing 4.4% of total assets.

At June 30, 2024, FNBPA has $2.5 billion of cash and salable unpledged government and agency securities representing 5.4% of total assets.

This compares to a policy minimum of 3.0%.

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

The following liquidity gap analysis as of March 31, 2024 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals.

The following liquidity gap analysis as of June 30, 2024 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals.

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

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Cumulative Gap to Total Assets (3.7) % (4.1) % (5.4) % (5.9) %

The twelve-month cumulative gap to total assets ratio was (5.1)% as of March 31, 2024, compared to (2.6)% as of December 31, 2023.

The twelve-month cumulative gap to total assets ratio was (5.9)% as of June 30, 2024, compared to (2.6)% as of December 31, 2023.

The change in the twelve-month cumulative gap to total assets was primarily related to the active management of deposit pricing across the deposit product maturity tenors which reduced our asset sensitivity.

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

The following repricing gap analysis as of March 31, 2024 compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time.

The following repricing gap analysis as of June 30, 2024 compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time.

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

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Cumulative Gap to Earning Assets 8.6 % 7.6 % 5.7 % 5.6 %

The twelve-month cumulative repricing gap to total assets was 6.7% and 10.3% as of March 31, 2024 and December 31, 2023, respectively.

The twelve-month cumulative repricing gap to total assets was 5.6% and 10.3% as of June 30, 2024 and December 31, 2023, respectively.

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

The change in the cumulative repricing gap at March 31, 2024, compared to December 31, 2023, is primarily related to customers moving into shorter-term time deposits.

The change in the cumulative repricing gap at June 30, 2024, compared to December 31, 2023, is primarily related to customers moving into shorter-term time deposits and the increase in short-term and variable-rate borrowings.

In addition to the repricing gap analysis above, we model rate scenarios which move all rates gradually over twelve months (Rate Ramps).

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Using a static Balance Sheet structure and utilizing net interest income simulations, the following table presents an analysis of the potential sensitivity of our net interest income to changes in interest rates using Rate Ramps and the sensitivity of EVE using Rate Shocks.

The variance percentages represent the change between the net interest income and EVE calculated under the particular rate scenario compared to the net interest income and EVE that was calculated assuming market rates as of March 31, 2024.

The calculated results do not reflect management's potential actions.

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Net interest income change over 12 months (Rate Ramps):

+ 300 basis points 5.0 % 5.8 % n/a

+ 200 basis points 2.9 % 3.9 % (10.0) %

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- 200 basis points (8.2) (8.0) (15.0)

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

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

Our current interest rate risk position is primarily driven by our loan portfolio.

Total variable and adjustable-rate loans were 62.8% and 62.2% of total net loans and leases at June 30, 2024 and December 31, 2023, respectively.

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

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

Management continues to be proactive in managing our interest rate risk (IRR) position with the intention to manage to a more neutral position given the current market expectations for future interest rates.

During the first quarter of 2024, management adjusted the IRR position by managing cash balances, slightly extending the duration of the investment securities portfolio, originating adjustable rate mortgage loans with longer-duration fixed periods, strategically meeting our customers' preferences for higher yielding deposit products, in particular, with shorter-term time deposits, and utilizing borrowings of variable rates and varying maturities.

During the first half of 2024, management adjusted the IRR position by slightly extending the duration of the investment securities portfolio, originating adjustable rate mortgage loans with longer-duration fixed periods, strategically meeting our customers' preferences for higher yielding deposit products, in particular, with shorter-term time deposits, and utilizing borrowings of variable rates and varying maturities.

As a result, the net interest income change over 12 months shown above in both the up and down rate ramp scenarios is closer to neutral compared to December 31, 2023.

We also utilize derivatives to manage the IRR position and we continue to make use of interest rate swaps to commercial borrowers (commercial swaps) to manage our IRR position as the commercial swaps effectively increase our level of adjustable-rate loans.

Total variable and adjustable-rate loans were 62.7% of total net loans and leases as of March 31, 2024 and 62.2% as of December 31, 2023.

As of March 31, 2024, the commercial swaps totaled $5.6 billion of notional principal, down from $5.7 billion at December 31, 2023.

For additional information regarding interest rate swaps, see Note 10, "Derivative Instruments and Hedging Activities" in the Notes to the Consolidated Financial Statements in this Report.

We also utilize derivatives to manage the IRR position.

These positions are used to protect the fair value of assets and liabilities by converting the contractual interest rate on a specified amount (i.e., notional amounts) to another interest rate index or to hedge the variability in cash flows attributable to the contractually specified interest rate by converting the variable rate index into a fixed rate.

The volume, maturity and mix of derivative positions change periodically as we adjust our broader interest rate risk management objectives, and the balance sheet positions to be hedged.

We currently have $1.2 billion (notional) of receive-fixed interest rate swaps designated as cash flow hedges for variable rate commercial loans with $1.0 billion (notional) of these swaps maturing at various dates throughout 2025 and $0.2 billion (notional) maturing in May 2026.

Additionally, we have a $0.2 million (notional) interest rate collar on variable rate commercial loans with strike rates between 2.8525% and 5.50% that matures in April 2026.

We also designated $0.2 billion (notional) of interest rate swaps as hedges of variable rate short-term debt with $0.1 billion and $0.1 billion maturing in July and November 2024, respectively.

Derivative financial instruments are also offered to enable commercial customers to meet their financing and investing objectives and for their risk management purposes.

We typically enter into offsetting third-party contracts with reputable counterparties with substantially matching terms to economically hedge the exposure related to these derivatives.

At June 30, 2024, the commercial customer-related interest rate swaps totaled $5.8 billion (notional), up from $5.7 billion (notional) at December 31, 2023.

For additional information regarding interest rate swaps, see Note 10, "Derivative Instruments and Hedging Activities" in the Notes to Consolidated Financial Statements in this Report.

In addition to the rate ramp scenarios for net interest income changes shown above, we also model immediate interest rate shock scenarios.

These results use historical long-term deposit rate beta assumptions that are regularly analyzed and adjusted as necessary for both rising and falling rate scenarios.

Assuming a static Balance Sheet, a +100 basis point Rate Shock increases net interest income (12 months) by 3.0% at March 31, 2024 and 3.4% at December 31, 2023.

For a +200 basis point Rate Shock, net interest income (12 months) increases by 5.8% at March 31, 2024 and 6.7% at December 31, 2023.

The corresponding metrics for a minus 100 basis point Rate Shock are (3.1)% and (3.6)% at March 31, 2024 and December 31, 2023, respectively.

Assuming a static Balance Sheet, a +100 basis point Rate Shock increases net interest income (12 months) by 2.5% at June 30, 2024 and 3.4% at December 31, 2023.

For a +200 basis point Rate Shock, net interest income (12 months) increases by 4.9% at June 30, 2024 and 6.7% at December 31, 2023.

The corresponding

metrics for a minus 100 basis point Rate Shock are (2.7)% and (3.6)% at June 30, 2024 and December 31, 2023, respectively.

The drivers of the change in net interest income in the rate shock scenarios include the mix shift of deposit products into shorter-term time deposits, the pace of deposit repricing and assumed betas and loan prepayments.

These results reflect a more neutral net interest income change over 12 months in both the up and down rate shock scenarios compared to December 31, 2023, consistent with the rate ramp results.

The FOMC increased the Federal Funds rate 100 basis points in the first seven months of 2023.

Forty-eight percent of our net loans and leases reprice within the next three months and are indexed to short-term SOFR, Prime and other indices which benefit from higher rates.

Our cash position has also been a significant factor in our asset sensitivity metrics.

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

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

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

These business assumptions are based upon our experience, business plans, economic

and market trends and available industry data.

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

While management believes that its methodology for developing such assumptions is reasonable, there can be no assurance that modeled results will be achieved.

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In particular, holders of deposits which exceed FDIC insurance limits may perceive such a downgrade or warning negatively and withdraw all or a portion of such deposits.

The following table presents the credit ratings for FNB and FNBPA as of March 31, 2024:

The following table presents the credit ratings for FNB and FNBPA as of June 30, 2024:

Moody's Standard & Poor's Kroll

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

In its oversight role of our risk management function, the Board of Directors focuses on the strategies, analyses and conclusions of management relating to identifying,

understanding and managing risks to optimize total shareholder value, while balancing prudent business and safety and soundness considerations.

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

We support our risk management processes and business oversight through the three lines of defense and a governance structure at the Board of Directors and management levels.

The lines of defense model consists of:

• First Line of Defense - consists of our businesses and enterprise support areas that generate risk and are principally responsible for owning and managing the day-to-day risk-taking activities in accordance with the risk frameworks.

• First Line of Defense - consists of our businesses and enterprise support areas that engage in risk-taking activities and are principally responsible for owning and managing the day-to-day risk-taking activities in accordance with the risk frameworks.

• Second Line of Defense - consists of Risk Management and Compliance Departments responsible for developing risk frameworks, overseeing risk-taking activities and identifying, assessing, monitoring and reporting on enterprise aggregate risks.

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As such, we monitor a series of Key Risk Indicators for various business lines and operation units to measure performance alignment with our stated risk appetite.

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

Our top-down risk

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

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

Our Enterprise Risk Management Framework provides the practices to identify, assess, control and monitor and report on risk across the organization.

Reports relating to our risk appetite and strategic plans, and our ongoing monitoring thereof, and our

aggregate risk profile, are regularly presented to our various management level risk oversight and planning committees and periodically reported up through our Board Risk Committee.

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

The Board of Directors believes that our enterprise-wide risk management process is effective and enables the Board of Directors to:

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Three Months Ended

June 30, Six Months Ended

(in thousands) 2024 2023 2024 2023

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Tax benefit of FDIC special assessment (169) — (1,095) —

Loss on indirect auto loan sale (2,603) —

Tax expense of loss on indirect auto loan sale 547 —

Reduction of previous estimated loss on indirect auto loan sale — — (2,603) —

Tax expense of reduction of previous estimated loss on indirect auto loan sale — — 547 —

Operating net income available to common stockholders (non-GAAP) $ 123,672 $ 140,511 $ 246,362 $ 286,627

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Net income per diluted common share $ 0.34 $ 0.39 $ 0.66 $ 0.78

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Tax benefit of FDIC special assessment — — — —

Loss on indirect auto loan sale (0.01) —

Tax expense of loss on indirect auto loan sale — —

Reduction of previous estimated loss on indirect auto loan sale — — (0.01) —

Tax expense of reduction of previous estimated loss on indirect auto loan sale — — — —

Operating earnings per diluted common share (non-GAAP) $ 0.34 $ 0.39 $ 0.68 $ 0.79

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Three Months Ended

June 30, Six Months Ended

(dollars in thousands) 2024 2023 2024 2023

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Three Months Ended

June 30, Six Months Ended

(dollars in thousands) 2024 2023 2024 2023

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(dollars in thousands) 2024 2023 2024 2023

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Tangible book value per common share

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

(dollars in thousands, except per share data)

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Tangible common equity to tangible assets

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

(dollars in thousands)

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Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

(dollars in thousands)

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FDIC special assessment (804) — (5,212) —

Loss on indirect auto loan sale 2,603 —

Reduction of previous estimated loss on indirect auto loan sale — — 2,603 —

Operating non-interest expense (non-GAAP) $ 225,808 $ 211,792 $ 459,905 $ 429,657

Key Performance Indicator s

Pre-provision net revenue:

Three Months Ended

(Dollars in thousands) June 30, 2024 March 31, 2024

Net interest income $ 315,890 $ 319,008

Non-interest income 87,922 87,862

Non-interest expense (226,612) (237,096)

Pre-provision net revenue (reported) (non-GAAP) $ 177,200 $ 169,774

Pre-provision net revenue (reported) (annualized) (non-GAAP) $ 712,695 $ 682,825

Branch consolidation costs (non-interest expense) — 1,194

FDIC special assessment (non-interest expense) 804 4,408

Reduction of previous estimated loss on indirect auto loan sale (non-interest expense) — (2,603)

Operating pre-provision net revenue (non-GAAP) $ 178,004 $ 172,773

Operating pre-provision net revenue (annualized) (non-GAAP) $ 715,928 $ 694,887

Efficiency ratio

Three Months Ended

June 30, Six Months Ended

(dollars in thousands) 2024 2023 2024 2023

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FDIC special assessment (804) — (5,212) —

Loss on indirect auto loan sale 2,603 —

Reduction of previous estimated loss on indirect auto loan sale — — 2,603 —

Adjusted non-interest expense $ 221,229 $ 206,256 $ 450,694 $ 418,445

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis