FNB CORP/PA/ 10-Q

ITEM 1. FINANCIAL STATEMENTS F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in millions, except share and per share data) June 30, 2024 December 31, 2023 (Unaudited) Assets Cash and due from banks $ 448 $ 447 Interest-bearing deposits with banks 1,432 1,129 Cash and Cash Equivalents 1,880 1,576 Debt securities available for sale (amortized cost of $ 3,585 and $ 3,460 ; allowance for credit losses of $ 0 and $ 0 ) 3,364 3,254 Debt securities held to maturity (fair value of $ 3,532 and $ 3,593 ; allowance for credit losses of $ 0 and $ 0 ) 3,893 3,911 Loans held for sale (includes $ 128 and $ 150 measured at fair value) (1) 132 488 Loans and leases, net of unearned income of $ 100 and $ 91 (includes $ 47 and $ 45 measured at fair value) (1) 33,757 32,323 Allowance for credit losses on loans and leases ( 419 ) ( 406 ) Net Loans and Leases 33,338 31,917 Premises and equipment, net 489 461 Goodwill 2,477 2,477 Core deposit and other intangible assets, net 60 69 Bank owned life insurance 667 660 Other assets 1,415 1,345 Total Assets $ 47,715 $ 46,158 Liabilities Deposits: Non-interest-bearing demand $ 10,062 $ 10,222 Interest-bearing demand 14,697 14,809 Savings 3,348 3,465 Certificates and other time deposits 6,887 6,215 Total Deposits 34,994 34,711 Short-term borrowings 3,616 2,506 Long-term borrowings 2,016 1,971 Other liabilities 999 920 Total Liabilities 41,625 40,108 Stockholders’ Equity Preferred stock Issued – 0 and 110,877 shares - $ 0.01 par value — 107 Common stock - $ 0.01 par value Authorized – 500,000,000 shares Issued – 374,982,366 and 374,939,537 shares 4 4 Additional paid-in capital 4,690 4,692 Retained earnings 1,820 1,669 Accumulated other comprehensive loss ( 243 ) ( 235 ) Treasury stock – 15,424,340 and 16,110,120 shares at cost ( 181 ) ( 187 ) Total Stockholders’ Equity 6,090 6,050 Total Liabilities and Stockholders’ Equity $ 47,715 $ 46,158 (1) Amount represents loans for which we have elected the fair value option. See Note 18. See accompanying Notes to Consolidated Financial Statements (unaudited) 5 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in millions, except per share data) Unaudited Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Interest Income Loans and leases, including fees $ 494 $ 429 $ 975 $ 823 Securities: Taxable 48 35 94 71 Tax-exempt 7 7 14 14 Other 8 13 17 20 Total Interest Income 557 484 1,100 928 Interest Expense Deposits 180 112 350 196 Short-term borrowings 32 22 60 32 Long-term borrowings 29 21 55 34 Total Interest Expense 241 155 465 262 Net Interest Income 316 329 635 666 Provision for credit losses 20 19 34 33 Net Interest Income After Provision for Credit Losses 296 310 601 633 Non-Interest Income Service charges 23 20 44 40 Interchange and card transaction fees 13 14 26 26 Trust services 12 10 23 21 Insurance commissions and fees 6 6 13 14 Securities commissions and fees 8 7 16 14 Capital markets income 5 6 11 13 Mortgage banking operations 7 5 15 10 Dividends on non-marketable equity securities 7 6 13 10 Bank owned life insurance 4 3 7 6 Other 3 4 8 6 Total Non-Interest Income 88 81 176 160 Non-Interest Expense Salaries and employee benefits 121 114 250 234 Net occupancy 19 17 39 34 Equipment 24 21 48 43 Amortization of intangibles 5 5 9 10 Outside services 23 20 46 40 Marketing 4 4 9 8 FDIC insurance 10 8 23 15 Bank shares and franchise taxes 4 4 8 8 Merger-related — — — 2 Other 17 19 32 38 Total Non-Interest Expense 227 212 464 432 Income Before Income Taxes 157 179 313 361 Income taxes 34 37 68 72 Net Income 123 142 245 289 Preferred stock dividends — 2 6 4 Net Income Available to Common Stockholders $ 123 $ 140 $ 239 $ 285 Earnings per Common Share Basic $ 0.34 $ 0.39 $ 0.66 $ 0.79 Diluted 0.34 0.39 0.66 0.78 See accompanying Notes to Consolidated Financial Statements (unaudited) 6 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Dollars in millions) Unaudited Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income $ 123 $ 142 $ 245 $ 289 Other comprehensive income (loss): Securities available for sale: Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $ 1 , $( 9 ), $( 3 ) and $ 1 2 ( 31 ) ( 11 ) 4 Derivative instruments: Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $ 0 , $( 4 ), $( 3 ) and $( 3 ) ( 3 ) ( 14 ) ( 12 ) ( 10 ) Reclassification adjustment for gains included in net income, net of tax expense of $ 2 , $ 1 , $ 4 and $ 2 8 4 15 7 Pension and postretirement benefit obligations: Unrealized gains arising during the period, net of tax expense of $ 0 , $ 0 , $ 0 and $ 0 — 1 — 1 Other Comprehensive Income (Loss) 7 ( 40 ) ( 8 ) 2 Comprehensive Income $ 130 $ 102 $ 237 $ 291 See accompanying Notes to Consolidated Financial Statements (unaudited) 7 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Dollars in millions, except per share data) Unaudited Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Three Months Ended June 30, 2023 Balance at beginning of period $ 107 $ 4 $ 4,693 $ 1,471 $ ( 315 ) $ ( 172 ) $ 5,788 Comprehensive income (loss) 142 ( 40 ) 102 Dividends declared: Preferred stock: $ 18.13 /share ( 2 ) ( 2 ) Common stock: $ 0.12 /share ( 43 ) ( 43 ) Issuance of common stock — ( 9 ) ( 4 ) 9 ( 4 ) Repurchase of common stock ( 25 ) ( 25 ) Restricted stock compensation 2 2 Balance at end of period $ 107 $ 4 $ 4,686 $ 1,564 $ ( 355 ) $ ( 188 ) $ 5,818 Three Months Ended June 30, 2024 Balance at beginning of period $ — $ 4 $ 4,694 $ 1,740 $ ( 250 ) $ ( 182 ) $ 6,006 Comprehensive income (loss) 123 7 130 Dividends declared: Common stock: $ 0.12 /share ( 43 ) ( 43 ) Issuance of common stock — ( 6 ) — 4 ( 2 ) Repurchase of common stock ( 3 ) ( 3 ) Restricted stock compensation 2 2 Balance at end of period $ — $ 4 $ 4,690 $ 1,820 $ ( 243 ) $ ( 181 ) $ 6,090 8 Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Six Months Ended June 30, 2023 Balance at beginning of period $ 107 $ 4 $ 4,696 $ 1,370 $ ( 357 ) $ ( 167 ) $ 5,653 Comprehensive income (loss) 289 2 291 Dividends declared: Preferred stock: $ 36.26 /share ( 4 ) ( 4 ) Common stock: $ 0.24 /share ( 87 ) ( 87 ) Issuance of common stock — ( 22 ) ( 4 ) 16 ( 10 ) Repurchase of common stock ( 37 ) ( 37 ) Restricted stock compensation 12 12 Balance at end of period $ 107 $ 4 $ 4,686 $ 1,564 $ ( 355 ) $ ( 188 ) $ 5,818 Six Months Ended June 30, 2024 Balance at beginning of period $ 107 $ 4 $ 4,692 $ 1,669 $ ( 235 ) $ ( 187 ) $ 6,050 Comprehensive income (loss) 245 ( 8 ) 237 Dividends declared: Preferred stock: $ 18.13 /share ( 2 ) ( 2 ) Common stock: $ 0.24 /share ( 87 ) ( 87 ) Redemption of preferred stock ( 107 ) ( 4 ) ( 111 ) Issuance of common stock — ( 14 ) — 9 ( 5 ) Repurchase of common stock ( 3 ) ( 3 ) Restricted stock compensation 12 12 Adoption of new accounting standard ( 1 ) ( 1 ) Balance at end of period $ — $ 4 $ 4,690 $ 1,820 $ ( 243 ) $ ( 181 ) $ 6,090 See accompanying Notes to Consolidated Financial Statements (unaudited) 9 F.N.B. CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions) Unaudited Six Months Ended June 30, 2024 2023 Operating Activities Net income $ 245 $ 289 Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation, amortization and accretion 32 42 Provision for credit losses 34 33 Deferred tax expense (benefit) 16 ( 3 ) Loans originated for sale ( 681 ) ( 458 ) Loans sold 702 459 Net (gain) loss on sale of loans ( 9 ) 3 Net change in: Interest receivable ( 17 ) ( 11 ) Interest payable 4 24 Bank owned life insurance, excluding purchases ( 6 ) ( 5 ) Other, net 10 ( 224 ) Net cash flows provided by operating activities 330 149 Investing Activities Net change in loans and leases, excluding sales and transfers ( 1,449 ) ( 1,092 ) Debt securities available for sale: Purchases ( 725 ) ( 135 ) Maturities/payments 603 234 Debt securities held to maturity: Purchases ( 173 ) ( 75 ) Maturities/payments 194 175 Increase in premises and equipment ( 59 ) ( 60 ) Net proceeds from sales of portfolio loans 345 — Net cash flows provided by (used in) investing activities ( 1,264 ) ( 953 ) Financing Activities Net change in: Demand (non-interest-bearing and interest-bearing) and savings accounts ( 389 ) ( 2,668 ) Time deposits 670 1,721 Short-term borrowings 1,110 1,019 Proceeds from issuance of long-term borrowings 271 1,220 Repayment of long-term borrowings ( 227 ) ( 332 ) Redemption of preferred stock ( 111 ) — Repurchases of common stock ( 3 ) ( 37 ) Cash dividends paid: Preferred stock ( 2 ) ( 4 ) Common stock ( 87 ) ( 87 ) Other, net 6 2 Net cash flows provided by (used in) financing activities 1,238 834 Net Increase (Decrease) in Cash and Cash Equivalents 304 30 Cash and cash equivalents at beginning of period 1,576 1,674 Cash and Cash Equivalents at End of Period $ 1,880 $ 1,704 See accompanying Notes to Consolidated Financial Statements (unaudited) 10 F.N.B. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 2024 The terms “FNB,” “the Corporation,” “we,” “us” and “our” throughout this Report mean F.N.B. Corporation and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, F.N.B. Corporation. When we refer to "FNBPA" in this Report, we mean our bank subsidiary, First National Bank of Pennsylvania, and its subsidiaries. NATURE OF OPERATIONS F.N.B. Corporation, headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in seven states and the District of Columbia. Our market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina; and Charleston, South Carolina. As of June 30, 2024, we had 345 branches throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina, Washington D.C. and Virginia. We provide a full range of commercial banking, consumer banking and wealth management solutions through our subsidiary network which is led by our largest affiliate, FNBPA, founded in 1864. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, government banking, business credit, capital markets and lease financing. Consumer banking provides a full line of consumer banking products and services, including deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. Wealth management services include asset management, private banking and insurance. NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements (unaudited) include subsidiaries in which we have a controlling financial interest. We own and operate FNBPA, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, Bank Capital Services, LLC, F.N.B. Capital Corporation, LLC and Waubank Securities, LLC, and include results for each of these entities in the accompanying Consolidated Financial Statements. Companies in which we hold a controlling financial interest, or are a VIE in which we have the power to direct the activities of an entity that most significantly impact the entity’s economic performance and have an obligation to absorb losses or the right to receive benefits which could potentially be significant to the VIE, are consolidated. For a voting interest entity, a controlling financial interest is generally where we hold more than 50% of the outstanding voting shares. VIEs in which we do not hold the power to direct the activities of the entity that most significantly impact the entity’s economic performance or an obligation to absorb losses or the right to receive benefits which could potentially be significant to the VIE are not consolidated. Investments in companies that are not consolidated are accounted for using the equity method when we have the ability to exert significant influence or the cost method when we do not have the ability to exert significant influence. Investments in private investment partnerships that are accounted for under the equity method or the cost method are included in other assets and our proportional interest in the equity investments’ earnings are included in other non-interest income. Investment interests accounted for under the cost and equity methods are periodically evaluated for impairment. The accompanying interim unaudited Consolidated Financial Statements include all adjustments that are necessary, in the opinion of management, to fairly reflect our financial position and results of operations in accordance with GAAP. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to the current period presentation. Such reclassifications had no impact on our net income and stockholders' equity. Events occurring subsequent to June 30, 2024 have been evaluated for potential recognition or disclosure in the Consolidated Financial Statements through the date of the filing of the Consolidated Financial Statements with the SEC. Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results we expect for the full year. These interim unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024. 11 Use of Estimates Our accounting and reporting policies conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements (unaudited). Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the ACL, fair value of financial instruments, goodwill and other intangible assets and income taxes and deferred tax assets, which are listed in the critical accounting estimates. For a detailed description of our significant accounting policies and critical accounting estimates, see Note 1, "Summary of Significant Accounting Policies" and the "Application of Critical Accounting Policies" section in the MD&A, both in our 2023 Annual Report on Form 10-K . Adoption of New Accounting Standards Effective January 1, 2024, we adopted the provision of ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method , which permits reporting entities to make an accounting policy election to account for tax equity investments using the proportional amortization method if certain conditions are met. The election is to be made on a tax-credit-program-by-tax-credit-program basis and should be applied consistently to all investments within an elected tax credit program. Upon the adoption of ASU 2023-02, we elected to apply the proportional amortization method of accounting to our qualifying historic and new market tax credit investments. The proportional amortization method recognizes the amortized cost of the investment as a component of income tax expense on the consolidated statements of income and as a component of operating activities within other assets and other liabilities on the consolidated statements of cash flows. We historically applied proportional amortization to the majority of our LIHTC investments. LIHTCs that do not meet the requirements of the proportional amortization method are recognized using the equity method. See Note 8, "Variable Interest Entities" for additional information. NOTE 2. NEW ACCOUNTING STANDARDS The following table summarizes accounting pronouncements issued by the FASB that we recently adopted or will be adopting in the future. TABLE 2.1 Standard Description Financial Statements Impact Income Taxes ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures This Update requires public business entities to disclose additional categories of information about federal, state, and foreign income taxes in the tabular rate reconciliation table. Additionally, entities must provide more details regarding reconciling items in some categories if the items are equal to or greater than a specified quantitative threshold. This Update also requires all entities to annually disclose income taxes paid, net of refunds received, disaggregated by federal, state, and foreign taxes and further disaggregated by jurisdiction based on a specified quantitative threshold. This Update is to be applied using a prospective method with an option to apply it retrospectively for each period presented and will be effective as of January 1, 2025. Early adoption is permitted. We are currently evaluating the effect this Update will have on our consolidated financial statements, the related disclosures and our processes, systems, and controls related to disclosures. 12 Standard Description Financial Statements Impact Segment Reporting ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure This Update requires all public entities to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required in annual disclosures. This Update is to be applied using a retrospective method to all prior periods presented and is effective for annual periods beginning on January 1, 2024, and will be effective for interim periods beginning on January 1, 2025. Early adoption is permitted. We do not expect the adoption of this Update to materially impact our consolidated financial statements and we are currently evaluating the effect this Update will have on the related disclosures. Tax Equity Investments ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method This Update expands the use of the proportional amortization method of accounting, previously only allowable for LIHTC investments, to equity investments in other tax credit structures that meet certain criteria. The Update also removed the specialized guidance for LIHTC investments that are not accounted for using the proportional amortization method or equity method and require that those investments are accounted for using Topic 321 regarding equity investments. This Update is to be applied using either a modified retrospective or a retrospective method and is effective as of January 1, 2024. Early adoption of this Update is permitted. We adopted this Update on January 1, 2024 on a modified retrospective basis for tax credit programs that are eligible to apply proportional amortization. As a result, we recorded a reduction of $ 0.5 million in retained earnings for the cumulative effect of the adoption. NOTE 3. SECURITIES The amortized cost and fair value of AFS debt securities are presented in the table below. There was no ACL associated with the AFS portfolio at June 30, 2024 and December 31, 2023. Accrued interest receivable on AFS debt securities totaled $ 13.3 million at June 30, 2024 and $ 9.6 million at December 31, 2023, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and amortized cost basis of AFS debt securities. 13 TABLE 3.1 (in millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Debt Securities AFS: June 30, 2024 U.S. Treasury $ 199 $ — $ ( 2 ) $ 197 U.S. government agencies 67 — — 67 U.S. government-sponsored entities 301 1 ( 4 ) 298 Residential MBS: Agency MBS 951 — ( 65 ) 886 Agency collateralized mortgage obligations 871 — ( 113 ) 758 Agency commercial MBS 1,127 3 ( 38 ) 1,092 States of the U.S. and political subdivisions (municipals) 28 — ( 2 ) 26 Other debt securities 41 — ( 1 ) 40 Total debt securities AFS $ 3,585 $ 4 $ ( 225 ) $ 3,364 (in millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Debt Securities AFS: December 31, 2023 U.S. Treasury $ 422 $ — $ ( 2 ) $ 420 U.S. government agencies 78 1 — 79 U.S. government-sponsored entities 227 — ( 4 ) 223 Residential MBS: Agency MBS 814 — ( 62 ) 752 Agency collateralized mortgage obligations 946 — ( 114 ) 832 Agency commercial MBS 905 9 ( 30 ) 884 States of the U.S. and political subdivisions (municipals) 30 — ( 3 ) 27 Other debt securities 38 — ( 1 ) 37 Total debt securities AFS $ 3,460 $ 10 $ ( 216 ) $ 3,254 14 The amortized cost and fair value of HTM debt securities are presented in the following table. The ACL for the HTM portfolio was $ 0.27 million and $ 0.28 million at June 30, 2024 and December 31, 2023, respectively. Accrued interest receivable on HTM debt securities totaled $ 14.1 million and $ 14.7 million at June 30, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and amortized cost basis of HTM debt securities. TABLE 3.2 (in millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Debt Securities HTM: June 30, 2024 U.S. Treasury $ 1 $ — $ — $ 1 U.S. government agencies 1 — — 1 U.S. government-sponsored entities 28 — — 28 Residential MBS: Agency MBS 977 1 ( 106 ) 872 Agency collateralized mortgage obligations 769 — ( 108 ) 661 Agency commercial MBS 1,094 2 ( 50 ) 1,046 States of the U.S. and political subdivisions (municipals) 1,007 — ( 98 ) 909 Other debt securities 16 — ( 2 ) 14 Total debt securities HTM $ 3,893 $ 3 $ ( 364 ) $ 3,532 (in millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Debt Securities HTM: December 31, 2023 U.S. government agencies $ 1 $ — $ — $ 1 U.S. government-sponsored entities 68 — — 68 Residential MBS: Agency MBS 1,057 2 ( 101 ) 958 Agency collateralized mortgage obligations 824 — ( 104 ) 720 Agency commercial MBS 929 4 ( 43 ) 890 States of the U.S. and political subdivisions (municipals) 1,017 2 ( 77 ) 942 Other debt securities 15 — ( 1 ) 14 Total debt securities HTM $ 3,911 $ 8 $ ( 326 ) $ 3,593 There were no significant gross gains or gross losses realized on securities during the six months ended June 30, 2024 or 2023. In the fourth quarter of 2023, we sold $ 648.7 million of AFS securities resulting in a realized loss of $ 67.4 million as part of a proactive balance sheet management strategy. Unrealized losses on the AFS and HTM portfolios are due to the increase in market interest rates with 85.0 % of these securities backed or sponsored by the U.S. government as of June 30, 2024. 15 As of June 30, 2024, the amortized cost and fair value of debt securities, by contractual maturities, were as follows: TABLE 3.3 Available for Sale Held to Maturity (in millions) Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 112 $ 110 $ 3 $ 3 Due after one year but within five years 461 456 86 82 Due after five years but within ten years 33 32 224 207 Due after ten years 30 30 740 661 636 628 1,053 953 Residential MBS: Agency MBS 951 886 977 872 Agency collateralized mortgage obligations 871 758 769 661 Agency commercial MBS 1,127 1,092 1,094 1,046 Total debt securities $ 3,585 $ 3,364 $ 3,893 $ 3,532 Actual maturities may differ from contractual terms because security issuers may have the right to call or prepay obligations with or without penalties. Periodic principal payments are received on residential MBS based on the payment patterns of the underlying collateral. Following is information relating to securities pledged: TABLE 3.4 (dollars in millions) June 30, 2024 December 31, 2023 Securities pledged (carrying value): To secure public deposits, trust deposits and for other purposes as required by law $ 5,805 $ 6,190 As collateral for short-term borrowings 225 250 Securities pledged as a percent of total securities 83.1 % 89.9 % 16 Following are summaries of the fair values of AFS debt securities in an unrealized loss position for which an ACL has not been recorded, segregated by security type and length of time in a continuous loss position: TABLE 3.5 Less than 12 Months 12 Months or More Total (dollars in millions) # Fair Value Unrealized Losses # Fair Value Unrealized Losses # Fair Value Unrealized Losses Debt Securities AFS June 30, 2024 U.S. Treasury 1 $ 49 $ — 2 $ 74 $ ( 2 ) 3 $ 123 $ ( 2 ) U.S. government agencies — — — 13 31 — 13 31 — U.S. government-sponsored entities 3 74 — 7 123 ( 4 ) 10 197 ( 4 ) Residential MBS: Agency MBS 6 179 ( 1 ) 104 659 ( 64 ) 110 838 ( 65 ) Agency collateralized mortgage obligations — — — 69 758 ( 113 ) 69 758 ( 113 ) Agency commercial MBS 16 494 ( 5 ) 20 361 ( 33 ) 36 855 ( 38 ) States of the U.S. and political subdivisions (municipals) — — — 12 26 ( 2 ) 12 26 ( 2 ) Other debt securities 1 5 — 7 18 ( 1 ) 8 23 ( 1 ) Total 27 $ 801 $ ( 6 ) 234 $ 2,050 $ ( 219 ) 261 $ 2,851 $ ( 225 ) Less than 12 Months 12 Months or More Total (dollars in millions) # Fair Value Unrealized Losses # Fair Value Unrealized Losses # Fair Value Unrealized Losses Debt Securities AFS December 31, 2023 U.S. Treasury — $ — $ — 2 $ 73 $ ( 2 ) 2 $ 73 $ ( 2 ) U.S. government agencies 2 4 — 12 36 — 14 40 — U.S. government-sponsored entities 1 25 — 7 123 ( 4 ) 8 148 ( 4 ) Residential MBS: Agency MBS — — — 104 750 ( 62 ) 104 750 ( 62 ) Agency collateralized mortgage obligations — — — 71 832 ( 114 ) 71 832 ( 114 ) Agency commercial MBS 1 32 — 20 377 ( 30 ) 21 409 ( 30 ) States of the U.S. and political subdivisions (municipals) — — — 13 27 ( 3 ) 13 27 ( 3 ) Other debt securities 2 9 — 7 17 ( 1 ) 9 26 ( 1 ) Total 6 $ 70 $ — 236 $ 2,235 $ ( 216 ) 242 $ 2,305 $ ( 216 ) We evaluated the AFS debt securities that were in an unrealized loss position at June 30, 2024. Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the significant movement of interest rates since 2022 and does not reflect any expected credit losses. We do not intend to sell these AFS debt securities and it is not more likely than not that we will be required to sell these securities before the recovery of their amortized cost basis. 17 Credit Quality Indicators We use credit ratings and the most recent financial information to help evaluate the credit quality of our credit-related AFS and HTM securities portfolios. Management reviews the credit profile of each issuer on an annual basis, and more frequently as needed. Based on the nature of the issuers and current conditions, we have determined that securities backed by the UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA have zero expected credit loss. Our municipal bond portfolio, with a carrying amount of $ 1.0 billion as of June 30, 2024 is highly rated with an average rating of AA and over 99 % of the portfolio rated A or better. All of the securities in the municipal portfolio are general obligation bonds. Geographically, municipal bonds support our primary footprint as 60 % of the securities are from municipalities located in the primary states within which we conduct business. The average holding size of the securities in the municipal bond portfolio is $ 2.5 million. In addition to the strong stand-alone ratings, 61 % of the municipal bonds have some formal credit enhancement (e.g., insurance) that strengthens the creditworthiness of the bond. The ACL on the HTM municipal bond portfolio is calculated on each bond using: • The bond’s underlying credit rating, time to maturity and exposure amount; • Credit enhancements that improve the bond’s credit rating (e.g., insurance); and • Moody’s U.S. Bond Defaults and Recoveries, 1970-2022 study. By using these components, we derive the expected credit loss on the HTM general obligation municipal bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our Commercial and Industrial Non-Manufacturing loan portfolio forecast adjustment as derived through our assessment of the loan portfolio as a proxy for our municipal bond portfolio. Our corporate bond portfolio, with a carrying amount of $ 56.1 million as of June 30, 2024 primarily consists of subordinated debentures of banks within our footprint. The average holding size of the securities in the corporate bond portfolio is $ 3.1 million. The ACL on the HTM corporate bond portfolio is calculated using: • The bond’s credit rating, time to maturity and exposure amount; • Moody’s Annual Default Study, 02/26/2024; and • The most recent financial statements. By using these components, we derive the expected credit loss on the HTM corporate bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our bank-wide loan portfolio forecast adjustment as derived through our assessment of FNBPA's loan portfolio as a proxy for our corporate bond portfolio. For the year-to-date periods ending June 30, 2024 and 2023, we had no significant provision expense and no charge-offs or recoveries for the securities portfolio. The ACL on the HTM portfolio was $ 0.27 million, consisting of $ 0.06 million relating to the municipal bond portfolio and $ 0.21 million relating to other debt securities, as of June 30, 2024, and $ 0.06 million relating to the municipal bond portfolio and $ 0.22 million relating to other debt securities as of December 31, 2023. The AFS securities portfolios did no t have an ACL at June 30, 2024 or December 31, 2023 and there were no securities that were past due or on non-accrual at either date. 18 NOTE 4. LOANS AND LEASES Accrued interest receivable on loans and leases, which totaled $ 141.6 million at June 30, 2024 and $ 128.6 million at December 31, 2023, is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets for both periods and is not included in the following tables. Loans and Leases by Portfolio Segment Following is a summary of total loans and leases, net of unearned income: TABLE 4.1 (in millions) June 30, 2024 December 31, 2023 Commercial real estate $ 12,664 $ 12,305 Commercial and industrial 7,597 7,482 Commercial leases 683 599 Other 145 110 Total commercial loans and leases 21,089 20,496 Direct installment 2,700 2,741 Residential mortgages 7,459 6,640 Indirect installment 1,188 1,149 Consumer lines of credit 1,321 1,297 Total consumer loans 12,668 11,827 Total loans and leases, net of unearned income $ 33,757 $ 32,323 The remaining accretable discount included in the amortized cost of acquired loans was $ 35.8 million and $ 42.6 million at June 30, 2024 and December 31, 2023, respectively. The loans and leases portfolio categories are comprised of the following types of loans, where in each case the LGD is dependent on the nature and value of the respective collateral: • Commercial real estate includes both owner-occupied and non-owner-occupied loans, including construction loans, secured by commercial properties where operational cash flows on owner-occupied properties, including rents paid by stand-alone business customers, or rents received by our borrowers from their tenant(s) on both a property and global basis are the primary default risk drivers; • Commercial and industrial includes loans to businesses that are not secured by real estate where the borrower's leverage and cash flows from operations are the primary default risk drivers; • Commercial leases consist of leases for new or used equipment where the borrower's cash flow from operations is the primary default risk driver; • Other is comprised primarily of credit cards and mezzanine loans where the borrower's cash flow from operations is the primary default risk driver; • Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans where the primary default risk driver is the borrower's employment status and income; • Residential mortgages consist of conventional and jumbo mortgage loans, including construction loans, for 1-4 family properties where the primary default risk driver is the borrower's employment status and income; • Indirect installment is comprised of loans originated by approved third parties and underwritten by us, primarily automobile loans where the primary default risk driver is the borrower's employment status and income; and 19 • Consumer lines of credit include home equity lines of credit and consumer lines of credit that are either unsecured or secured by collateral other than home equity where the primary default risk driver is the borrower's employment status and income. The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market in seven states and the District of Columbia. Our primary market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina; and Charleston, South Carolina. The following table shows occupancy information relating to commercial real estate loans: TABLE 4.2 (dollars in millions) June 30, 2024 December 31, 2023 Commercial real estate: Percent owner-occupied 29.5 % 29.0 % Percent non-owner-occupied 70.5 71.0 Credit Quality We monitor the credit quality of our loan portfolio using several performance measures based on payment activity and borrower performance. We use an internal risk rating assigned to a commercial loan or lease at origination, summarized below. TABLE 4.3 Rating Category Definition Pass in general, the condition of the borrower and the performance of the loan is satisfactory or better Special Mention in general, the condition of the borrower has deteriorated, requiring an increased level of monitoring Substandard in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected Doubtful in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable The use of these internally assigned credit quality categories within the commercial loan and lease portfolio permits our use of transition matrices to establish a basis which is then impacted by quantitative inputs from our econometric model forecasts over the R&S period. Our internal credit risk grading system is based on past experiences with similarly graded loans and leases and conforms to regulatory categories. In general, loan and lease risk ratings within each category are reviewed on an ongoing basis according to our policy for each class of loans and leases. Each quarter, we analyze the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the commercial loan and lease portfolio. Loans and leases within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans and leases that migrate toward the Substandard or Doubtful credit categories. Accordingly, we apply higher risk factors to Substandard and Doubtful credit categories. 20 The following table summarizes the designated loan rating category by loan class including term loans on an amortized cost basis by origination year and year-to-date gross charge-offs by originating year: TABLE 4.4 June 30, 2024 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total (in millions) COMMERCIAL Commercial Real Estate: Risk Rating: Pass $ 708 $ 1,570 $ 2,133 $ 2,187 $ 1,338 $ 3,515 $ 176 $ 11,627 Special Mention 1 14 155 81 140 241 35 667 Substandard 6 16 56 73 20 196 3 370 Total commercial real estate 715 1,600 2,344 2,341 1,498 3,952 214 12,664 Commercial real estate current period gross charge-offs — 0.3 0.6 0.3 0.1 9.0 — 10.3 Commercial and Industrial: Risk Rating: Pass 490 1,360 1,169 671 466 753 2,061 6,970 Special Mention 1 31 37 119 14 70 36 308 Substandard 1 43 20 50 6 81 118 319 Total commercial and industrial 492 1,434 1,226 840 486 904 2,215 7,597 Commercial and industrial current period gross charge-offs — 0.5 1.0 1.0 0.9 5.2 — 8.6 Commercial Leases: Risk Rating: Pass 179 207 121 69 36 48 — 660 Special Mention — 1 — — — 1 — 2 Substandard — 7 2 5 6 1 — 21 Total commercial leases 179 215 123 74 42 50 — 683 Commercial leases current period gross charge-offs — — — — — 0.2 — 0.2 Other Commercial: Risk Rating: Pass 8 54 — — — 6 77 145 Total other commercial 8 54 — — — 6 77 145 Other commercial current period gross charge-offs — — — — — 1.9 — 1.9 Total commercial loans and leases 1,394 3,303 3,693 3,255 2,026 4,912 2,506 21,089 21 June 30, 2024 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total (in millions) CONSUMER Direct Installment: Current 165 310 667 732 366 447 — 2,687 Past due — 1 1 1 1 9 — 13 Total direct installment 165 311 668 733 367 456 — 2,700 Direct installment current period gross charge-offs — 0.1 0.1 0.1 — 0.3 — 0.6 Residential Mortgages: Current 918 1,499 1,642 1,469 763 1,109 1 7,401 Past due 1 8 6 6 3 34 — 58 Total residential mortgages 919 1,507 1,648 1,475 766 1,143 1 7,459 Residential mortgages current period gross charge-offs — 0.1 — — — 0.1 — 0.2 Indirect Installment: Current 256 269 323 188 72 60 — 1,168 Past due — 3 7 7 2 1 — 20 Total indirect installment 256 272 330 195 74 61 — 1,188 Indirect installment current period gross charge-offs — 0.8 2.5 1.6 0.3 0.2 — 5.4 Consumer Lines of Credit: Current 5 34 56 13 3 117 1,078 1,306 Past due — — 1 1 — 11 2 15 Total consumer lines of credit 5 34 57 14 3 128 1,080 1,321 Consumer lines of credit current period gross charge-offs — — 0.1 — — 0.5 — 0.6 Total consumer loans 1,345 2,124 2,703 2,417 1,210 1,788 1,081 12,668 Total loans and leases $ 2,739 $ 5,427 $ 6,396 $ 5,672 $ 3,236 $ 6,700 $ 3,587 $ 33,757 Total charge-offs $ — $ 1.8 $ 4.3 $ 3.0 $ 1.3 $ 17.4 $ — $ 27.8 22 December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total (in millions) COMMERCIAL Commercial Real Estate: Risk Rating: Pass $ 1,508 $ 2,133 $ 2,298 $ 1,449 $ 1,131 $ 2,711 $ 230 $ 11,460 Special Mention 10 66 76 136 105 197 5 595 Substandard 5 27 27 13 59 104 15 250 Total commercial real estate 1,523 2,226 2,401 1,598 1,295 3,012 250 12,305 Commercial real estate current period gross charge-offs 0.2 0.4 0.4 0.7 0.2 10.5 — 12.4 Commercial and Industrial: Risk Rating: Pass 1,509 1,369 844 575 370 585 1,773 7,025 Special Mention 12 3 56 2 12 35 35 155 Substandard 34 26 62 9 24 58 89 302 Total commercial and industrial 1,555 1,398 962 586 406 678 1,897 7,482 Commercial and industrial current period gross charge-offs 0.1 0.3 1.0 1.0 2.2 46.6 — 51.2 Commercial Leases: Risk Rating: Pass 247 134 82 47 24 41 — 575 Special Mention — 1 — — — 1 — 2 Substandard 7 3 4 7 1 — — 22 Total commercial leases 254 138 86 54 25 42 — 599 Commercial leases current period gross charge-offs — — — — — — — — Other Commercial: Risk Rating: Pass 39 — — — — 8 63 110 Total other commercial 39 — — — — 8 63 110 Other commercial current period gross charge-offs — — — — — 4.5 — 4.5 Total commercial loans and leases 3,371 3,762 3,449 2,238 1,726 3,740 2,210 20,496 23 December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total (in millions) CONSUMER Direct Installment: Current 340 712 784 392 136 364 — 2,728 Past due — 1 — 1 1 10 — 13 Total direct installment 340 713 784 393 137 374 — 2,741 Direct installment current period gross charge-offs — 0.2 0.1 0.1 — 0.2 — 0.6 Residential Mortgages: Current 1,421 1,686 1,516 799 343 819 1 6,585 Past due 3 6 5 3 3 35 — 55 Total residential mortgages 1,424 1,692 1,521 802 346 854 1 6,640 Residential mortgages current period gross charge-offs — — — — — 0.7 — 0.7 Indirect Installment: Current 311 387 238 100 42 49 — 1,127 Past due 2 8 8 2 1 1 — 22 Total indirect installment 313 395 246 102 43 50 — 1,149 Indirect installment current period gross charge-offs 0.4 4.3 3.7 0.6 0.3 1.4 — 10.7 Consumer Lines of Credit: Current 38 61 14 2 3 117 1,044 1,279 Past due — 1 1 — — 13 3 18 Total consumer lines of credit 38 62 15 2 3 130 1,047 1,297 Consumer lines of credit current period gross charge-offs 0.1 — — — — 0.9 — 1.0 Total consumer loans 2,115 2,862 2,566 1,299 529 1,408 1,048 11,827 Total loans and leases $ 5,486 $ 6,624 $ 6,015 $ 3,537 $ 2,255 $ 5,148 $ 3,258 $ 32,323 Total charge-offs $ 0.8 $ 5.2 $ 5.2 $ 2.4 $ 2.7 $ 64.8 $ — $ 81.1 We use delinquency transition matrices within the consumer and other loan classes to establish the basis for the R&S forecast portion of the credit risk. Each month, management analyzes payment and volume activity, FICO scores and Debt-to-Income (DTI) scores and other external factors such as unemployment, to determine how consumer loans are performing. 24 Non-Performing and Past Due The following table provides an analysis of the aging of loans by class. TABLE 4.5 (in millions) 30-89 Days Past Due > 90 Days Past Due and Still Accruing Non- Accrual Total Past Due Current Total Loans and Leases Non-accrual with No ACL June 30, 2024 Commercial real estate $ 10 $ — $ 33 $ 43 $ 12,621 $ 12,664 $ 19 Commercial and industrial 9 — 45 54 7,543 7,597 19 Commercial leases 2 — 3 5 678 683 — Other 3 1 2 6 139 145 — Total commercial loans and leases 24 1 83 108 20,981 21,089 38 Direct installment 7 1 5 13 2,687 2,700 — Residential mortgages 39 7 12 58 7,401 7,459 — Indirect installment 18 — 2 20 1,168 1,188 — Consumer lines of credit 7 2 6 15 1,306 1,321 — Total consumer loans 71 10 25 106 12,562 12,668 — Total loans and leases $ 95 $ 11 $ 108 $ 214 $ 33,543 $ 33,757 $ 38 (in millions) 30-89 Days Past Due > 90 Days Past Due and Still Accruing Non- Accrual Total Past Due Current Total Loans and Leases Non-accrual with No ACL December 31, 2023 Commercial real estate $ 21 $ — $ 42 $ 63 $ 12,242 $ 12,305 $ 18 Commercial and industrial 9 — 39 48 7,434 7,482 7 Commercial leases 2 — 3 5 594 599 — Other 1 1 — 2 108 110 — Total commercial loans and leases 33 1 84 118 20,378 20,496 25 Direct installment 7 1 5 13 2,728 2,741 — Residential mortgages 38 7 10 55 6,585 6,640 — Indirect installment 19 1 2 22 1,127 1,149 — Consumer lines of credit 10 2 6 18 1,279 1,297 — Total consumer loans 74 11 23 108 11,719 11,827 — Total loans and leases $ 107 $ 12 $ 107 $ 226 $ 32,097 $ 32,323 $ 25 25 Following is a summary of non-performing assets: TABLE 4.6 (dollars in millions) June 30, 2024 December 31, 2023 Non-accrual loans $ 108 $ 107 Total non-performing loans and leases 108 107 Other real estate owned 3 3 Total non-performing assets $ 111 $ 110 Asset quality ratios: Non-performing loans and leases / total loans and leases 0.32 % 0.33 % Non-performing assets plus 90 days or more past due / total loans and leases plus OREO 0.36 0.38 The carrying value of residential-secured consumer OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $ 1.2 million at both June 30, 2024 and December 31, 2023. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at June 30, 2024 and December 31, 2023 totaled $ 12.9 million and $ 9.4 million, respectively. Approximately $ 65.6 million of commercial loans are collateral dependent at June 30, 2024. Repayment is expected to be substantially made through the operation or sale of the collateral on the loan. These loans are primarily secured by business assets or commercial real estate. Loan Modifications During the period, there are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. These modifications typically result from loss mitigation activities and could include a term extension, interest rate reduction, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Accrued interest receivable on loan modifications totaled $ 0.05 million and $ 0.08 million at June 30, 2024 and June 30, 2023, respectively, and is excluded from the amortized cost of loan modifications in the tables that follow. 26 The following table shows the amortized cost basis at the end of the reporting period of the loans modified during the period to borrowers experiencing financial difficulty, disaggregated by class of financing receivable, type of concession granted and the financial effect of the modifications made to borrowers experiencing financial difficulty: TABLE 4.7 (dollars in millions) Amortized Cost Basis % of Total Class of Financing Receivable Financial Effect Three Months Ended June 30, 2024 Term Extension Direct installment $ 0.7 0.03 % The modified loans had an average increase in term of 41 months extending the maturity date. Residential mortgages 3.4 0.05 The modified loans had an average increase in term of 24 months extending the maturity date. Consumer lines of credit 0.5 0.04 The modified loans had an average increase in term of 162 months extending the maturity date. Total 4.6 Term Extension and Rate Reduction Residential mortgages 0.2 — Multiple modifications were made with no material financial effect. Consumer lines of credit 0.2 0.02 Multiple modifications were made with no material financial effect. Total 0.4 Other Commercial real estate 0.1 — 3 to 9 month payment deferrals with no income being earned on these loans. Total 0.1 Total Outstanding Modified $ 5.1 27 (dollars in millions) Amortized Cost Basis % of Total Class of Financing Receivable Financial Effect Six Months Ended June 30, 2024 Term Extension Direct installment $ 0.8 0.03 % The modified loans had an average increase in term of 61 months, extending the maturity date. Residential mortgages 4.1 0.05 The modified loans had an average increase in term of 28 months, extending the maturity date. Consumer lines of credit 1.0 0.08 The modified loans had an average increase in term of 208 months, extending the maturity date. Total 5.9 Rate Reduction Residential mortgages 0.1 — The term was extended, with a weighted average yield reduction of 100 basis points. Total 0.1 Term Extension and Rate Reduction Commercial real estate 0.9 0.01 Multiple modifications were made with no material financial effect. Residential mortgages 0.8 0.01 Multiple modifications were made with no material financial effect. Consumer lines of credit 0.2 0.02 Multiple modifications were made with no material financial effect. Total 1.9 Balloon Payment Commercial real estate 0.6 — Multiple modifications were made with no material financial effect. Total 0.6 Other Commercial real estate 4.2 0.03 3 to 12 month payment deferrals with no income being earned on these loans. Commercial and industrial 0.6 0.01 Multiple modifications were made with no material financial effect. Total 4.8 Total Outstanding Modified $ 13.3 28 (dollars in millions) Amortized Cost Basis % of Total Class of Financing Receivable Financial Effect Three Months Ended June 30, 2023 Term Extension Commercial real estate $ 11.2 0.10 % The modified loans had an average increase in term of 22 months, extending the maturity date. Direct installment 0.3 0.01 The repayment on the loans modified were extended, lowering the monthly repayment. Residential mortgages 1.5 0.02 The modified loans had an average increase in term of 138 months, extending the maturity date. Total 13.0 Term Extension and Rate Reduction Commercial and industrial 0.1 — The term was extended, with a weighted average yield reduction of 487 basis points. Direct installment 0.2 0.01 The modified loans had an average increase in term of 445 months, extending the maturity date. Residential mortgages 0.4 0.01 The modified loans had an average increase in term of 151 months, extending the maturity date. Consumer lines of credit 0.6 0.05 The term was extended, with a weighted average yield reduction of 326 basis points. Total 1.3 Other Consumer lines of credit 0.2 0.02 Multiple modifications were made with no material financial effect. Total 0.2 Total Outstanding Modified $ 14.5 29 (dollars in millions) Amortized Cost Basis % of Total Class of Financing Receivable Financial Effect Six Months Ended June 30, 2023 Term Extension Commercial real estate $ 11.5 0.10 % The modified loans had an average increase in term of 22 months, extending the maturity date. Commercial and industrial 2.3 0.03 The modified loans had an average increase in term of 12 months, extending the maturity date. Direct installment 0.4 0.01 The repayment on the loans modified were extended, lowering the monthly repayment. Residential mortgages 1.6 0.03 The modified loans had an average increase in term of 141 months, extending the maturity date. Consumer lines of credit 0.2 0.02 The repayment on the loans modified was extended, lowering the monthly repayment. Total 16.0 Term Extension and Rate Reduction Commercial and industrial 0.2 — The term was extended, with a weighted average yield reduction of 487 basis points. Direct installment 0.3 0.01 The modified loans had an average increase in term of 363 months, extending the maturity date. Residential mortgages 0.7 0.01 The term was extended, with a weighted average yield reduction of 278 basis points. Consumer lines of credit 0.6 0.05 The term was extended, with a weighted average yield reduction of 326 basis points. Total 1.8 Other Commercial real estate 0.3 — Multiple modifications were made with no material financial effect. Residential mortgages 0.1 — Multiple modifications were made with no material financial effect. Consumer lines of credit 0.2 0.02 Multiple modifications were made with no material financial effect. Total 0.6 Total Outstanding Modified $ 18.4 Some loan modifications may not ultimately result in the full collection of principal and interest, as modified, and may result in potential incremental losses which are factored into the ACL. There were no additional funds committed to borrowers whose loans were modified during the first six months of 2024. Commercial loans over $ 1.0 million whose terms have been modified may be placed on non-accrual, individually analyzed and measured based on the fair value of the underlying collateral. Our ACL includes specific reserves for commercial loans modified. There were $ 0.5 million and $ 5.3 million in specific reserves for commercial loans modified at June 30, 2024 and December 31, 2023, respectively, and pooled reserves for individual loans of $ 1.9 million and $ 2.0 million for those same periods, respectively, based on loan segment LGD. Upon default, the amount of the recorded investment of the modified loan balance in excess of the fair value of the collateral, less estimated selling costs, is generally considered a confirmed loss and is charged-off against the ACL. All other classes of loans whose terms have been modified are pooled and measured based on the loan segment LGD. Our ACL included pooled reserves for these classes of loans of $ 4.1 million and $ 3.8 million as of June 30, 2024 and December 31, 2023, respectively. Upon default of an individual loan, our charge-off policy is followed for that class of loan. 30 Following is a summary of loans modified in a manner that grants a concession to a borrower experiencing financial difficulties, by class, for which there was a payment default, excluding loans that have been paid off and/or sold. Default occurs when a loan is 90 days or more past due or in non-accrual and is within 12 months of restructuring. TABLE 4.8 Amortized cost basis of modified financing receivables that subsequently defaulted: (in millions) Term Extension Term Extension and Rate Reduction Balloon Payment Other Total Outstanding Modified Three Months Ended June 30, 2024 Commercial real estate $ 0.4 $ — $ — $ 0.2 $ 0.6 Commercial and industrial — — — 0.9 0.9 Total commercial loans and leases 0.4 — — 1.1 1.5 Residential mortgages 1.5 — — — 1.5 Total consumer loans 1.5 — — — 1.5 Total $ 1.9 $ — $ — $ 1.1 $ 3.0 Six Months Ended June 30, 2024 Commercial real estate $ 0.7 $ 0.9 $ 0.6 $ 8.8 $ 11.0 Commercial and industrial 20.3 0.2 — 1.6 22.1 Total commercial loans and leases 21.0 1.1 0.6 10.4 33.1 Residential mortgages 1.7 — — — 1.7 Total consumer loans 1.7 — — — 1.7 Total $ 22.7 $ 1.1 $ 0.6 $ 10.4 $ 34.8 (in millions) Term Extension Term Extension and Rate Reduction Other Total Outstanding Modified Three Months Ended June 30, 2023 Commercial real estate $ 0.4 $ — $ 0.1 $ 0.5 Commercial and industrial — 0.1 — 0.1 Total commercial loans and leases 0.4 0.1 0.1 0.6 Total $ 0.4 $ 0.1 $ 0.1 $ 0.6 Six Months Ended June 30, 2023 Commercial real estate $ 0.4 $ — $ 0.7 $ 1.1 Commercial and industrial 1.5 0.2 — 1.7 Total commercial loans and leases 1.9 0.2 0.7 2.8 Residential mortgages — 0.3 — 0.3 Consumer lines of credit 0.1 — — 0.1 Total consumer loans 0.1 0.3 — 0.4 Total $ 2.0 $ 0.5 $ 0.7 $ 3.2 31 We closely monitor the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months: TABLE 4.9 Payment status - amortization cost basis: (in millions) Current 30-89 Days Past Due 90+ Days Past Due June 30, 2024 Commercial real estate $ 14.8 $ — $ — Commercial and industrial 18.5 — — Total commercial loans and leases 33.3 — — Direct installment 1.3 0.8 — Residential mortgages 3.3 2.9 1.2 Consumer lines of credit 1.6 0.4 — Total consumer loans 6.2 4.1 1.2 Total $ 39.5 $ 4.1 $ 1.2 (in millions) Current 30-89 Days Past Due 90+ Days Past Due June 30, 2023 Commercial real estate $ 11.9 $ — $ — Commercial and industrial 1.7 0.8 — Total commercial loans and leases 13.6 0.8 — Direct installment 0.6 0.1 — Residential mortgages 1.8 0.5 — Consumer lines of credit 1.0 — — Total consumer loans 3.4 0.6 — Total $ 17.0 $ 1.4 $ — NOTE 5. ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES The ACL is maintained for credit losses expected in the existing loan and lease portfolio and is presented as a reserve against loans and leases on the Consolidated Balance Sheets. Loan and lease losses are charged off against the ACL, with recoveries of amounts previously charged off credited to the ACL. Provisions for credit losses are charged to operations based on management’s periodic evaluation of the appropriate level of the ACL. 32 Following is a summary of changes in the ACL, by loan and lease class: TABLE 5.1 (in millions) Balance at Beginning of Period Charge- Offs Recoveries Net (Charge- Offs) Recoveries Provision for Credit Losses Balance at End of Period Three Months Ended June 30, 2024 Commercial real estate $ 161.9 $ ( 3.2 ) $ 0.8 $ ( 2.4 ) $ ( 1.8 ) $ 157.7 Commercial and industrial 86.9 ( 4.7 ) 1.7 ( 3.0 ) 9.6 93.5 Commercial leases 22.4 — 0.1 0.1 0.4 22.9 Other 4.1 ( 1.0 ) 0.6 ( 0.4 ) 0.3 4.0 Total commercial loans and leases 275.3 ( 8.9 ) 3.2 ( 5.7 ) 8.5 278.1 Direct installment 30.6 ( 0.4 ) 0.2 ( 0.2 ) 0.5 30.9 Residential mortgages 79.3 ( 0.2 ) 0.1 ( 0.1 ) 9.0 88.2 Indirect installment 12.5 ( 2.5 ) 0.9 ( 1.6 ) 2.2 13.1 Consumer lines of credit 8.6 ( 0.3 ) 0.1 ( 0.2 ) 0.1 8.5 Total consumer loans 131.0 ( 3.4 ) 1.3 ( 2.1 ) 11.8 140.7 Total allowance for credit losses on loans and leases 406.3 ( 12.3 ) 4.5 ( 7.8 ) 20.3 418.8 Allowance for unfunded loan commitments 21.9 — — — ( 0.1 ) 21.8 Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments $ 428.2 $ ( 12.3 ) $ 4.5 $ ( 7.8 ) $ 20.2 $ 440.6 Six Months Ended June 30, 2024 Commercial real estate $ 166.6 $ ( 10.3 ) $ 1.2 $ ( 9.1 ) $ 0.2 $ 157.7 Commercial and industrial 87.8 ( 8.6 ) 2.5 ( 6.1 ) 11.8 93.5 Commercial leases 21.2 ( 0.2 ) 0.1 ( 0.1 ) 1.8 22.9 Other 3.7 ( 1.9 ) 0.9 ( 1.0 ) 1.3 4.0 Total commercial loans and leases 279.3 ( 21.0 ) 4.7 ( 16.3 ) 15.1 278.1 Direct installment 33.8 ( 0.6 ) 0.4 ( 0.2 ) ( 2.7 ) 30.9 Residential mortgages 70.5 ( 0.2 ) 0.1 ( 0.1 ) 17.8 88.2 Indirect installment 12.8 ( 5.4 ) 1.5 ( 3.9 ) 4.2 13.1 Consumer lines of credit 9.2 ( 0.6 ) 0.5 ( 0.1 ) ( 0.6 ) 8.5 Total consumer loans 126.3 ( 6.8 ) 2.5 ( 4.3 ) 18.7 140.7 Total allowance for credit losses on loans and leases 405.6 ( 27.8 ) 7.2 ( 20.6 ) 33.8 418.8 Allowance for unfunded loan commitments 21.5 — — — 0.3 21.8 Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments $ 427.1 $ ( 27.8 ) $ 7.2 $ ( 20.6 ) $ 34.1 $ 440.6 33 (in millions) Balance at Beginning of Period Charge- Offs Recoveries Net (Charge- Offs) Recoveries Provision for Credit Losses Balance at End of Period Three Months Ended June 30, 2023 Commercial real estate $ 159.2 $ ( 1.8 ) $ 1.3 $ ( 0.5 ) $ ( 4.5 ) $ 154.2 Commercial and industrial 101.7 ( 5.5 ) 0.7 ( 4.8 ) 17.4 114.3 Commercial leases 14.8 — — — 0.4 15.2 Other 4.0 ( 1.6 ) 0.2 ( 1.4 ) 1.2 3.8 Total commercial loans and leases 279.7 ( 8.9 ) 2.2 ( 6.7 ) 14.5 287.5 Direct installment 36.2 ( 0.1 ) 0.1 — ( 0.6 ) 35.6 Residential mortgages 60.4 ( 0.2 ) — ( 0.2 ) 3.2 63.4 Indirect installment 16.6 ( 2.2 ) 0.5 ( 1.7 ) 1.7 16.6 Consumer lines of credit 10.5 ( 0.3 ) 0.2 ( 0.1 ) ( 0.8 ) 9.6 Total consumer loans 123.7 ( 2.8 ) 0.8 ( 2.0 ) 3.5 125.2 Total allowance for credit losses on loans and leases 403.4 ( 11.7 ) 3.0 ( 8.7 ) 18.0 412.7 Allowance for unfunded loan commitments 20.5 — — — 0.5 21.0 Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments $ 423.9 $ ( 11.7 ) $ 3.0 $ ( 8.7 ) $ 18.5 $ 433.7 Six Months Ended June 30, 2023 Commercial real estate $ 162.1 $ ( 8.3 ) $ 2.3 $ ( 6.0 ) $ ( 1.9 ) $ 154.2 Commercial and industrial 102.1 ( 11.3 ) 1.6 ( 9.7 ) 21.9 114.3 Commercial leases 13.5 — — — 1.7 15.2 Other 4.0 ( 2.4 ) 0.5 ( 1.9 ) 1.7 3.8 Total commercial loans and leases 281.7 ( 22.0 ) 4.4 ( 17.6 ) 23.4 287.5 Direct installment 35.9 ( 0.4 ) 0.3 ( 0.1 ) ( 0.2 ) 35.6 Residential mortgages 55.5 ( 0.6 ) 0.2 ( 0.4 ) 8.3 63.4 Indirect installment 17.3 ( 4.8 ) 1.1 ( 3.7 ) 3.0 16.6 Consumer lines of credit 11.3 ( 0.6 ) 0.5 ( 0.1 ) ( 1.6 ) 9.6 Total consumer loans 120.0 ( 6.4 ) 2.1 ( 4.3 ) 9.5 125.2 Total allowance for credit losses on loans and leases 401.7 ( 28.4 ) 6.5 ( 21.9 ) 32.9 412.7 Allowance for unfunded loan commitments 21.4 — — — ( 0.4 ) 21.0 Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments $ 423.1 $ ( 28.4 ) $ 6.5 $ ( 21.9 ) $ 32.5 $ 433.7 Following is a summary of changes in the AULC by portfolio segment: TABLE 5.2 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in millions) Balance at beginning of period $ 21.9 $ 20.5 $ 21.5 $ 21.4 Provision for unfunded loan commitments and letters of credit: Commercial portfolio ( 0.1 ) 0.5 0.4 ( 0.4 ) Consumer portfolio — — ( 0.1 ) — Balance at end of period $ 21.8 $ 21.0 $ 21.8 $ 21.0 34 The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation: • a third-party macroeconomic forecast scenario; • a 24-month R&S forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 12-month period; and • the historical through-the-cycle mean was calculated using an expanded period to include a prior recessionary 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 the historical through the cycle period. 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 at June 30, 2024 was 1.24 %, compared to 1.25 % at December 31, 2023. Total provision for credit losses for the three months ended June 30, 2024 was $ 20.2 million compared to $ 18.5 million for the same period of 2023 which included a $ 13 million specific reserve established for a single $ 32 million commercial and industrial loan downgraded to non-performing status during the second quarter of 2023. The second quarter of 2024 reflected net charge-offs of $ 7.8 million, or 0.09 % annualized of average total loans, compared to $ 8.7 million, or 0.11 % annualized, in the second quarter of 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 of 2023. Net charge-offs were $ 20.6 million, or 0.13 % annualized of average total loans, during the six months ended June 30, 2024, compared to $ 21.9 million, or 0.14 % annualized, for the same period of 2023. NOTE 6. LOAN SERVICING Mortgage Loan Servicing We retain the servicing rights on certain mortgage loans sold. The unpaid principal balance of mortgage loans serviced for others is listed below: TABLE 6.1 (in millions) June 30, 2024 December 31, 2023 Mortgage loans sold with servicing retained $ 6,095 $ 5,729 The following table summarizes activity relating to mortgage loans sold with servicing retained: TABLE 6.2 Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Mortgage loans sold with servicing retained $ 306 $ 261 $ 622 $ 459 Pre-tax net gains (losses) resulting from above loan sales (1) 5 1 11 1 Mortgage servicing fees (1) 3 4 7 7 (1) Recorded in mortgage banking operations on the Consolidated Statements of Income. 35 Following is a summary of activity relating to MSRs: TABLE 6.3 Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Balance at beginning of period $ 62.5 $ 54.3 $ 59.5 $ 52.8 Additions 3.9 2.7 7.8 5.2 Payoffs and curtailments ( 0.8 ) — ( 1.3 ) ( 0.3 ) Impairment (charge) / recovery — — 0.2 — Amortization / other ( 0.5 ) ( 1.3 ) ( 1.1 ) ( 2.0 ) Balance at end of period $ 65.1 $ 55.7 $ 65.1 $ 55.7 Fair value, beginning of period $ 75.2 $ 67.8 $ 71.8 $ 68.6 Fair value, end of period 78.0 72.1 78.0 72.1 There was no valuation allowance for MSRs at June 30, 2024 and the valuation allowance for MSRs as of December 31, 2023 was $ 0.2 million. The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and the use of independent third-party valuations. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSRs and as interest rates increase, mortgage loan prepayments decline, which results in an increase in the fair value of MSRs. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time. Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions: TABLE 6.4 (dollars in millions) June 30, 2024 December 31, 2023 Weighted average life (months) 92 92 Constant prepayment rate (annualized) 8.1 % 7.9 % Discount rate 10.2 % 10.2 % Effect on fair value due to change in interest rates: +2.00% $ 8 $ 7 +1.00% 6 5 +0.50% 4 3 +0.25% 2 2 -0.25% ( 2 ) ( 2 ) -0.50% ( 5 ) ( 4 ) -1.00% ( 10 ) ( 8 ) -2.00% ( 19 ) ( 21 ) -3.00% ( 36 ) ( 42 ) The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. Also, in this table, the effects of an adverse variation in a particular assumption on the fair value of MSRs is calculated without changing any other assumptions, while, in reality, changes in one factor may result in changing another, which may magnify or contract the effect of the change. 36 NOTE 7. LEASES We have operating leases primarily for certain branches, office space, land and office equipment. We have finance leases for certain branches. Our operating leases expire at various dates through the year 2046 and generally include one or more options to renew. Our finance leases expire at various dates through the year 2051 and generally include one or more options to renew. The exercise of lease renewal options is at our sole discretion. As of June 30, 2024, we had operating lease right-of-use assets and operating lease liabilities of $ 199.3 million and $ 240.4 million, respectively. We have finance lease right-of-use assets and finance lease liabilities of $ 34.6 million and $ 36.2 million, respectively. Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of June 30, 2024, we have certain operating lease agreements, primarily for administrative office space, that have not yet commenced. At commencement, it is expected that these leases will add approximately $ 8.0 million in right-of-use assets and $ 8.3 million in other liabilities. These operating leases are currently expected to commence in 2024 and 2025 with lease terms of up to 20 years. These operating leases include the lease, with a related party, of the future new FNB headquarters building in Pittsburgh, Pennsylvania. Beginning in 2023, several floors of the FNB headquarters building have been made available to FNB for the purpose of constructing our office spaces, and we commenced the lease of those floors. The related party operating lease is accounted for in a manner consistent with all other leases on the basis of the legally enforceable terms and conditions of the lease and the related party represents a VIE for which we are not the primary beneficiary. The components of lease expense were as follows: TABLE 7.1 Three Months Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Operating lease cost $ 9 $ 8 $ 19 $ 16 Variable lease cost 2 1 3 2 Finance lease cost 1 1 2 2 Total lease cost $ 12 $ 10 $ 24 $ 20 Other information related to leases is as follows: TABLE 7.2 Six Months Ended June 30, (dollars in millions) 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 15 $ 7 Operating cash flows from finance leases $ 1 $ — Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 25 $ — Finance leases $ 4 $ — Weighted average remaining lease term (years): Operating leases 11.00 9.11 Finance leases 19.00 19.97 Weighted average discount rate: Operating leases 3.8 % 2.7 % Finance leases 3.4 % 3.1 % 37 Future cash flows of lease liabilities are as follows: TABLE 7.3 (in millions) Operating Leases Finance Leases Total Leases June 30, 2024 0 - 12 months $ 35 $ 2 $ 37 13 - 24 months 30 2 32 25 - 36 months 27 2 29 37 - 48 months 25 3 28 49 - 60 months 23 3 26 Later years 164 37 201 Total lease payments 304 49 353 Less: imputed interest ( 64 ) ( 13 ) ( 77 ) Present value of lease liabilities $ 240 $ 36 $ 276 As a lessor we offer commercial leasing services to customers in need of new or used equipment primarily within our market areas of Pennsylvania, Ohio, Maryland, North Carolina, South Carolina and West Virginia. Additional information relating to commercial leasing is provided in Note 4, “Loans and Leases” in the Notes to Consolidated Financial Statements. NOTE 8. VARIABLE INTEREST ENTITIES We evaluate our interest in certain entities to determine if these entities meet the definition of a VIE and whether we are the primary beneficiary and required to consolidate the entity based on the variable interest we held both at inception and when there is a change in circumstances that requires a reconsideration. Unconsolidated VIEs The following table provides a summary of the assets and liabilities included in our Consolidated Financial Statements, as well as the maximum exposure to losses, associated with our interests related to VIEs for which we hold an interest, but are not the primary beneficiary. TABLE 8.1 (in millions) Total Assets Total Liabilities Maximum Exposure to Loss June 30, 2024 Trust preferred securities (1) $ 3 $ 73 $ — Tax credit partnerships 174 81 174 Other investments 28 — 28 Total $ 205 $ 154 $ 202 December 31, 2023 Trust preferred securities (1) $ 3 $ 73 $ — Tax credit partnerships 143 62 143 Other investments 40 6 40 Total $ 186 $ 141 $ 183 (1) Represents our investment in unconsolidated subsidiaries. 38 Trust-Preferred Securities We have certain wholly-owned trusts whose assets, liabilities, equity, income and expenses are not included within our Consolidated Financial Statements. These trusts have been formed for the sole purpose of issuing TPS, from which the proceeds are then invested in our junior subordinated debentures, which are reflected in our Consolidated Balance Sheets as junior subordinated debt. The TPS are the obligations of the trusts, and as such, are not consolidated within our Consolidated Financial Statements. For additional information relating to our TPS, see Note 9, “Borrowings” in the Notes to Consolidated Financial Statements. Each issue of the junior subordinated debentures has an interest rate equal to the corresponding TPS distribution rate. We have the right to defer payment of interest on the debentures at any time, or from time-to-time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the related debentures. During any such extension period, distributions to the TPS will also be deferred and our ability to pay dividends on our common stock will be restricted. Periodic cash payments and payments upon liquidation or redemption with respect to TPS are guaranteed by us to the extent of funds held by the trusts. The guarantee ranks subordinate and junior in right of payment to all our indebtedness to the same extent as the junior subordinated debt. The guarantee does not place a limitation on the amount of additional indebtedness that may be incurred by us. Affordable Housing, Historic and New Market Tax Credit Partnerships We make equity investments as a limited partner in various partnerships of affordable housing (LIHTC), historic tax credit (HTC) and new market tax credit (NMTC) programs pursuant to Sections 42, 47 and 45d of the Internal Revenue Code, respectively. The purpose of many of these investments is to support initiatives associated with the Community Reinvestment Act while earning a satisfactory return. The activities of the LIHTC partnerships include the development and operation of multi-family housing that is leased to qualifying residential tenants. HTC partnerships allow us to make investments in projects that involve the rehabilitation of historic structures, often combining our investments with bank financing. NMTC partnerships are designed to channel investments into distressed communities, fostering community development and stimulating economic growth. These tax credit partnerships are generally located in communities where we have a banking presence and meet the definition of a VIE; however, we are not the primary beneficiary of the entities, as the general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses beyond our own equity investment. We apply the proportional amortization method of accounting for our investments in LIHTC partnerships. Effective January 1, 2024, upon the adoption of ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method , we also began applying the proportional amortization method of accounting to our investments in HTC and NMTC partnerships. The proportional amortization method recognizes the amortized cost of the investments in these tax credit partnerships as a component of income tax expense on the Consolidated Statements of Income. Prior to the adoption of ASU 2023-02, we applied the equity method of accounting to the investments in HTC and NMTC partnerships. The adoption of ASU 2023-02 did not have a material impact on our consolidated financial statements. We record our investment in tax credit partnerships as a component of other assets. The following table presents the balances of our LIHTC, HTC and NMTC investments and related unfunded commitments: TABLE 8.2 (in millions) June 30, 2024 December 31, 2023 Tax credit investments included in other assets $ 93 $ 81 Unfunded tax credit investments 81 62 In the first quarter of 2024, we adopted ASU 2023-02, resulting in the amortization of HTC and NMTC investments being recognized in the provision for income taxes as of the adoption of this standard. These activities were previously recognized in non-interest expense. 39 The following table summarizes the impact of these tax credit investments on the provision for income taxes in our Consolidated Statements of Income: TABLE 8.3 Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Provision for income taxes: Amortization of tax credit investments under proportional method $ 6 $ 4 $ 11 $ 8 Tax credits from tax credit investments ( 6 ) ( 4 ) ( 11 ) ( 8 ) Other tax benefits related to tax credit investments ( 1 ) — ( 2 ) ( 1 ) Total impact on provision for income taxes $ ( 1 ) $ — $ ( 2 ) $ ( 1 ) Other Investments Other investments we also consider to be unconsolidated VIEs include investments in Small Business Investment Companies and other equity method investments. NOTE 9. BORROWINGS Following is a summary of short-term borrowings: TABLE 9.1 (in millions) June 30, 2024 December 31, 2023 Securities sold under repurchase agreements $ 201 $ 233 Federal Home Loan Bank advances 2,990 1,900 Federal funds purchased 298 260 Subordinated notes 127 113 Total short-term borrowings $ 3,616 $ 2,506 Borrowings with original maturities of one year or less are classified as short-term. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are sweep accounts with next-day maturities utilized by larger commercial customers to earn interest on their funds. Securities are pledged to these customers in an amount at least equal to the outstanding balance. Of the total short-term FHLB advances, $ 840.0 million, or 28.1 %, had overnight maturities as of June 30, 2024. We had $ 450.0 million, or 23.7 %, of short-term FHLB advances with overnight maturities as of December 31, 2023. At June 30, 2024, $ 200.0 million, or 6.7 %, of the short-term FHLB advances were swapped to fixed rates with various maturities through 2024. This compares to $ 400.0 million, or 21.1 %, as of December 31, 2023. Federal funds purchased are overnight funds borrowed from other financial institutions. Subordinated notes are unsecured and subordinated to our other indebtedness. The short-term subordinated notes mature within one year . 40 Following is a summary of long-term borrowings: TABLE 9.2 (in millions) June 30, 2024 December 31, 2023 Federal Home Loan Bank advances $ 1,250 $ 1,200 Senior notes 349 349 Subordinated notes 77 82 Junior subordinated debt 73 73 Other subordinated debt 267 267 Total long-term borrowings $ 2,016 $ 1,971 Our banking affiliate has available credit with the FHLB of $ 11.6 billion, of which $ 4.2 billion was utilized and included in short-term and long-term borrowings and $ 450.0 million was utilized for a letter of credit for pledging of public funds as of June 30, 2024. These advances are secured by loans collateralized by residential mortgages, home equity lines of credit, commercial real estate and FHLB stock. The short-term borrowings are scheduled to mature in various amounts periodically during 2024 while the long-term borrowings are scheduled to mature periodically through 2027. Effective interest rates paid on fixed rate long-term FHLB advances ranged from 4.23 % to 4.88 % for both the three months ended June 30, 2024 and for the year ended December 31, 2023. The effective interest rate paid on variable rate long-term FHLB advances was Overnight SOFR plus an average spread of 33.1 basis points for the three months ended June 30, 2024. There were no variable rate advances for the year ended December 31, 2023. The following table provides information relating to our senior notes and other subordinated debt as of June 30, 2024. The subordinated notes are eligible for treatment as tier 2 capital for regulatory capital purposes. TABLE 9.3 (dollars in millions) Aggregate Principal Amount Issued Net Proceeds (5) Carrying Value Stated Maturity Date Interest Rate Senior Notes: 5.150 % Senior Notes due August 25, 2025 $ 350 $ 347 $ 349 8/25/2025 5.150 % Total senior notes 350 347 349 Other Subordinated Debt: 7.984 % Fixed-To-Floating Rate Subordinated Notes due 2029 (1) 120 118 119 2/14/2029 7.984 % 4.875 % Subordinated Notes due 2025 100 98 100 10/2/2025 4.875 % 8.620 % Fixed-To-Floating Rate Subordinated Notes due December 6, 2028 (2) (4) 25 26 24 12/6/2028 8.620 % 5.000 % Fixed-To-Floating Rate Subordinated Note due May 29, 2030 (3) (4) 25 24 24 5/29/2030 5.000 % Total other subordinated debt 270 266 267 Total $ 620 $ 613 $ 616 (1) Floating rate effective February 14, 2024, determined by the Benchmark Replacement (three-month CME term SOFR plus a tenor spread adjustment of 26 basis points) plus 240 basis points. (2) Floating rate effective December 6, 2023, determined by the Benchmark Replacement (three-month CME term SOFR plus a tenor spread adjustment of 26 basis points) plus 302 basis points. (3) Fixed rate until May 29, 2025, at which time it converts to a floating rate determined by three-month SOFR plus 464 basis points. (4) Assumed from an acquisition and adjusted to fair value at the time of acquisition. (5) After deducting underwriting discounts and commissions and offering costs. For the debt assumed from acquisitions, this is the fair value of the debt at the time of the acquisition. The junior subordinated debt is comprised of the debt securities issued by FNB, or companies we acquired, in relation to our four unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated VIEs, and are included on the Consolidated Balance Sheets in long-term borrowings. Since third-party investors are the primary beneficiaries, the Trusts are 41 not consolidated in our Financial Statements. We record the distributions on the junior subordinated debt issued to the Trusts as interest expense. The following table provides information relating to the Trusts as of June 30, 2024: TABLE 9.4 (dollars in millions) Trust Preferred Securities Common Securities Junior Subordinated Debt Stated Maturity Date Interest Rate Rate Reset Factor F.N.B. Statutory Trust II $ 22 $ 1 $ 22 6/15/2036 7.25 % SOFR + 165 bps Yadkin Valley Statutory Trust I 25 1 23 12/15/2037 6.92 % SOFR + 132 bps FNB Financial Services Capital Trust I 25 1 23 9/30/2035 7.05 % SOFR + 146 bps Patapsco Statutory Trust I 5 — 5 12/15/2035 7.08 % SOFR + 148 bps Total $ 77 $ 3 $ 73 The SOFR rate used for the rate reset factors in the above table is the Benchmark Replacement (three-month CME term SOFR plus a tenor spread adjustment of 26 basis points). Other Credit Availability Our banking affiliate has additional unused other wholesale credit availability of $ 7.9 billion as of June 30, 2024. NOTE 10. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate risk, primarily by managing the amount, source, and duration of our assets and liabilities, and through the use of derivative instruments. Derivative instruments are used to reduce the effects that changes in interest rates may have on net income and cash flows. We also use derivative instruments to facilitate transactions on behalf of our customers. All derivatives are carried on the Consolidated Balance Sheets at fair value and do not take into account the effects of master netting arrangements we have with other financial institutions. Credit risk is included in the determination of the estimated fair value of derivatives. Derivative assets are reported in the Consolidated Balance Sheets in other assets and derivative liabilities are reported in other liabilities. Cash flow activity relating to derivative assets and derivative liabilities is reported in the other, net line in operating activities on the Consolidated Statements of Cash Flows. Changes in fair value are recognized in earnings except for certain changes related to derivative instruments designated as part of a cash flow hedging relationship, which are recognized in other comprehensive income. 42 The following table presents notional amounts and gross fair values of our derivative assets and derivative liabilities which are not offset in the Consolidated Balance Sheets: TABLE 10.1 June 30, 2024 December 31, 2023 Notional Fair Value Notional Fair Value (in millions) Amount Asset Liability Amount Asset Liability Gross Derivatives Subject to master netting arrangements: Interest rate contracts – designated $ 1,600 $ — $ 3 $ 1,800 $ 1 $ — Interest rate swaps – not designated 5,806 104 16 5,660 74 35 Total subject to master netting arrangements 7,406 104 19 7,460 75 35 Not subject to master netting arrangements: Interest rate swaps – not designated 5,806 16 336 5,660 35 289 Interest rate lock commitments – not designated 323 3 — 239 5 — Forward delivery commitments – not designated 366 1 1 294 1 4 Credit risk contracts – not designated 762 — — 629 — — Total not subject to master netting arrangements 7,257 20 337 6,822 41 293 Total $ 14,663 $ 124 $ 356 $ 14,282 $ 116 $ 328 Certain derivative exchanges have enacted a rule change which in effect results in the legal characterization of variation margin payments for certain derivative contracts as settlement of the derivatives mark-to-market exposure and not collateral. Accordingly, we have changed our reporting of certain derivatives to record variation margin on trades cleared through these exchanges as settled. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument. We adopted Reference Rate Reform (RRR) on October 1, 2020, and the guidance will be followed until the Update terminates on December 31, 2024. As of October 16, 2020, we changed our valuation methodology to reflect changes made by central clearinghouses that changed the discounting methodology and interest calculation of cash migration from overnight index swap (OIS) to SOFR for U.S. dollar cleared interest rate swaps to better reflect prices obtainable in the markets in which we transact. Certain of these valuation methodology changes were applied to eligible hedging relationships. Accordingly, we have updated our hedge documentation to reflect the election of certain expedients and exceptions related to our cash flow hedging programs. The change in valuation methodology was applied prospectively as a change in accounting estimate and did not have a material impact on our consolidated financial position or results of operations. Derivatives Designated as Hedging Instruments under GAAP Interest Rate Contracts. We entered into interest rate derivative agreements to modify the interest rate characteristics of certain commercial loans and certain of our FHLB advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges, in the form of interest rate swaps and collars, hedging the exposure to variability in expected future cash flows. The derivative’s gain or loss, including any ineffectiveness, is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same line item associated with the forecasted transaction when the forecasted transaction affects earnings. 43 The following table shows amounts reclassified from AOCI: TABLE 10.2 Amount of Gain (Loss) Recognized in OCI on Derivatives Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income Six Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Derivatives in cash flow hedging relationships: Interest rate contracts $ ( 15 ) $ ( 13 ) Interest income (expense) $ ( 19 ) $ ( 9 ) Other income — — The following table represents gains (losses) recognized in the Consolidated Statements of Income on cash flow hedging relationships: TABLE 10.3 Six months ended June 30, 2024 2023 (in millions) Interest Income - Loans and Leases Interest Expense - Short-Term Borrowings Interest Income - Loans and Leases Interest Expense - Short-Term Borrowings Total amounts of income and expense line items presented in the Consolidated Statements of Income (the effects of cash flow hedges are included in these line items) $ 975 $ 60 $ 823 $ 32 The effects of cash flow hedging: Gain (loss) on cash flow hedging relationships: Interest rate contracts: Amount of gain (loss) reclassified from AOCI into net income ( 25 ) 6 ( 21 ) 12 As of June 30, 2024, the maximum length of time over which forecasted interest cash flows are hedged is 1.8 years. In the twelve months that follow June 30, 2024, we expect to reclassify from the amount currently reported in AOCI net derivative losses of $ 35.9 million ($ 27.8 million net of tax), in association with interest on the hedged loans and FHLB advances. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to June 30, 2024. There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to these cash flow hedges. Also, during the six months ended June 30, 2024 and 2023, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transactions would not occur. Derivatives Not Designated as Hedging Instruments under GAAP A description of interest rate swaps, interest rate lock commitments, forward delivery commitments and credit risk contracts can be found in Note 16, "Derivative Instruments and Hedging Activities" in the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024. Interest rate swap agreements with loan customers and with the offsetting counterparties are reported at fair value in other assets and other liabilities on the Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as other income or other expense. Risk participation agreements sold with notional amounts totaling $ 603.9 million as of June 30, 2024 have remaining terms ranging from one month to seventeen years . Under these agreements, our maximum exposure assuming a customer defaults on their obligation to perform under certain derivative swap contracts with third parties would be $ 0.1 million at both June 30, 44 2024 and December 31, 2023. The fair values of risk participation agreements purchased and sold were $ 0.1 million and $ 0.1 million, respectively, at June 30, 2024 and $ 0.2 million and $ 0.1 million, respectively at December 31, 2023. The following table presents the effect of certain derivative financial instruments on the Consolidated Statements of Income: TABLE 10.4 Six Months Ended June 30, (in millions) Consolidated Statements of Income Location 2024 2023 Interest rate swaps Non-interest income - other $ — $ — Interest rate lock commitments Mortgage banking operations — — Forward delivery contracts Mortgage banking operations 4 3 Credit risk contracts Non-interest income - other — — Counterparty Credit Risk We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash and securities to our clearing agency. Collateral positions are settled or valued daily, and adjustments to amounts received and pledged by us are made as appropriate to maintain proper collateralization for these transactions. Certain master netting agreements contain provisions that, if violated, could cause the counterparties to request immediate settlement or demand full collateralization under the derivative instrument. If we had breached our agreements with our derivative counterparties we would be required to settle our obligations under the agreements at the termination value and would be required to pay no thing as of June 30, 2024 or December 31, 2023, in excess of amounts previously posted as collateral with the respective counterparty. 45 The following table presents a reconciliation of the net amounts of derivative assets and derivative liabilities presented in the Consolidated Balance Sheets to the net amounts that would result in the event of offset: TABLE 10.5 Amount Not Offset in the Consolidated Balance Sheets (in millions) Net Amount Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Net Amount June 30, 2024 Derivative Assets Interest rate contracts: Not designated $ 104 $ — $ 103 $ 1 Total $ 104 $ — $ 103 $ 1 Derivative Liabilities Interest rate contracts: Designated $ 3 $ — $ 3 $ — Not designated 16 — 16 — Total $ 19 $ — $ 19 $ — December 31, 2023 Derivative Assets Interest rate contracts: Designated $ 1 $ — $ 1 $ — Not designated 74 — 74 — Total $ 75 $ — $ 75 $ — Derivative Liabilities Interest rate contracts: Not designated $ 35 $ — $ 35 $ — Total $ 35 $ — $ 35 $ — NOTE 11. COMMITMENTS, CREDIT RISK AND CONTINGENCIES We have commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the Consolidated Balance Sheets. Our exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loans and leases to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. 46 Following is a summary of off-balance sheet credit risk information: TABLE 11.1 (in millions) June 30, 2024 December 31, 2023 Commitments to extend credit $ 14,103 $ 13,656 Standby letters of credit 253 257 At June 30, 2024, funding of 76.8 % of the commitments to extend credit was dependent on the financial condition of the customer. We have the ability to withdraw such commitments at our discretion. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Based on management’s credit evaluation of the customer, collateral may be deemed necessary. Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. Standby letters of credit are conditional commitments issued by us that may require payment at a future date. The credit risk involved in issuing letters of credit is actively monitored through review of the historical performance of our portfolios. Our AULC for commitments that are not unconditionally cancellable, which is included in other liabilities on the Consolidated Balance Sheets, was $ 21.8 million at June 30, 2024 and $ 21.5 million at December 31, 2023. Additional information relating to the AULC is provided in Note 5, "Allowance for Credit Losses on Loans and Leases" in the Notes to Consolidated Financial Statements. In addition to the above commitments, subordinated notes issued by FNB Financial Services, LP, a wholly-owned finance subsidiary, are fully and unconditionally guaranteed by FNB. These subordinated notes are included in the summaries of short-term borrowings and long-term borrowings in Note 9, “Borrowings” in the Notes to Consolidated Financial Statements. Other Legal Proceedings In the ordinary course of business, we may assert claims in legal proceedings against another party or parties, and likewise may be named as defendants in, or made parties to, pending and potential legal actions. Also, as regulated entities, we are subject to governmental and regulatory examinations, information-gathering requests, and may be subject to investigations and proceedings (both formal and informal). Such asserted or threatened claims, litigation, investigations, inquiries, regulatory and administrative proceedings typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted in many of these types of legal actions, while claims for disgorgement, reimbursement, restitution, penalties and/or other remedial actions or sanctions may be sought in regulatory matters. In these instances, if we determine that we have meritorious defenses, we will engage in an aggressive defense. However, if management determines, in consultation with counsel, that settlement of a matter is in the best interest of FNB and our shareholders, we may do so. It is inherently difficult to predict the eventual outcomes of such matters given their complexity and the particular facts and circumstances at issue in each of these matters. However, on the basis of our current knowledge and understanding, and advice of counsel, we do not believe that judgments, sanctions, settlement resolutions, regulatory actions, investigations, inquiries, settlements or orders, if any, that have arisen or may arise from these matters (either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage) will have a material adverse effect on our financial position or liquidity, although they could potentially have a material effect on net income in a given period. In view of the inherent unpredictability of outcomes in litigation and governmental and regulatory matters, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel legal theories or a large number of parties, as a matter of course, there is considerable uncertainty surrounding the timing or ultimate resolution of litigation and governmental and regulatory matters, including a possible eventual loss, financial or other commitments, fine, restitution, penalty, business or adverse reputational impact, if any, associated with each such matter. In accordance with applicable accounting guidance, we establish accruals for litigation and governmental and regulatory matters when those matters proceed to a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. We will continue to monitor such matters, including ongoing reviews, examinations, and investigations by banking regulatory agencies and other government authorities, for developments that could affect the amount of the accrual, and will adjust the accrual amount as appropriate. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably 47 estimable. We believe that our accruals for legal proceedings are appropriate and, in the aggregate, are not material to our consolidated financial position, although future accruals could have a material effect on net income in a given period. On February 5, 2024, we announced that Yadkin Bank and its successor by merger, FNBPA, reached a settlement with the DOJ and the State of North Carolina to resolve their fair lending concerns, which FNBPA disputes, related to the assessment of mortgage lending activities during a four-year period in the Winston-Salem and Charlotte, North Carolina markets that began prior to Yadkin’s merger with FNBPA in March 2017. The settlement includes FNBPA's commitment to provide $ 11.75 million in subsidies on mortgages and home equity loans originated in the Charlotte and Winston-Salem, North Carolina markets beginning in 2024, continuing until the full amount has been deployed. This subsidy amount is part of our existing, previously announced commitment to underserved communities, including the Winston-Salem and Charlotte markets. The settlement was not initiated through a referral by a federal bank regulatory agency or consumer complaint, and included no civil money penalties levied against FNBPA. NOTE 12. STOCK INCENTIVE PLANS Restricted Stock We issue restricted stock awards to key employees under our Incentive Compensation Plan (Plan). We issue time-based awards and performance-based awards under this Plan, both of which are based on a three-year vesting period. The grant date fair value of the time-based awards is equal to the price of our common stock on the grant date. The fair value of the performance-based awards is based on a Monte-Carlo simulation valuation of our common stock as of the grant date. The assumptions used for this valuation include stock price volatility, risk-free interest rate and dividend yield. We granted 1,249,783 and 1,354,017 restricted stock units during the six months ended June 30, 2024 and 2023, respectively, including 331,182 and 282,106 performance-based restricted stock units during those same periods, respectively. We have shareholder approval under the Plan to issue up to 14,000,000 shares of common stock, including 8,000,000 shares registered during the second quarter of 2024. As of June 30, 2024, we had 9,106,891 remaining shares available for awards under the Plan. The unvested restricted stock unit awards are eligible to receive cash dividends or dividend equivalents which are ultimately used to purchase additional shares of stock and are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met. These awards are subject to certain accelerated vesting provisions upon retirement, death, disability or in the event of a change in control as defined in the award agreements. The following table summarizes the activity relating to restricted stock units during the periods indicated: TABLE 12.1 Six Months Ended June 30, 2024 2023 Units Weighted Average Grant Price per Share Units Weighted Average Grant Price per Share Unvested units outstanding at beginning of period 3,502,598 $ 12.89 4,821,182 $ 10.30 Granted 1,249,783 14.04 1,354,017 12.74 Net adjustment 341,857 — 306,917 8.43 Vested ( 1,499,097 ) 12.76 ( 2,303,266 ) 7.99 Forfeited/expired/canceled ( 27,777 ) 12.25 ( 578,493 ) 8.13 Dividend reinvestment — — 74,505 12.16 Unvested units outstanding at end of period 3,567,364 13.36 3,674,862 12.87 48 The following table provides certain information related to restricted stock units: TABLE 12.2 (in millions) Six Months Ended June 30, 2024 2023 Stock-based compensation expense $ 12 $ 13 Tax benefit related to stock-based compensation expense 3 3 Fair value of units vested 19 30 As of June 30, 2024, there was $ 15.6 million of unrecognized compensation cost related to unvested restricted stock units. The components of the restricted stock units as of June 30, 2024 are as follows: TABLE 12.3 (dollars in millions) Service- Based Units Performance- Based Units Total Unvested restricted stock units 2,614,032 953,332 3,567,364 Unrecognized compensation expense $ 15 $ 1 $ 16 Intrinsic value $ 36 $ 13 $ 49 Weighted average remaining life (in years) 1.96 1.72 1.89 NOTE 13. INCOME TAXES Income Tax Expense Federal and state income tax expense and the statutory tax rate and the actual effective tax rate consist of the following: TABLE 13.1 Three Months Ended June 30, Six Months Ended June 30, (dollars in millions) 2024 2023 2024 2023 Current income taxes: Federal taxes $ 30 $ 36 $ 47 $ 67 State taxes 2 3 4 5 Total current income taxes 32 39 51 72 Deferred income taxes: Federal taxes 1 ( 3 ) 14 ( 1 ) State taxes 1 1 3 1 Total deferred income taxes 2 ( 2 ) 17 — Total income taxes $ 34 $ 37 $ 68 $ 72 Statutory federal tax rate 21.0 % 21.0 % 21.0 % 21.0 % Effective tax rate 21.6 20.5 21.6 20.0 Income tax expense was lower for the six months ended June 30, 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 three months ended June 30, 2024 as a result of these offsetting items. 49 Deferred Income Taxes Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Deferred tax assets and liabilities are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Net deferred tax assets were $ 107.4 million and $ 120.8 million at June 30, 2024 and December 31, 2023, respectively. NOTE 14. OTHER COMPREHENSIVE INCOME (LOSS) The following table presents changes in AOCI, net of tax, by component: TABLE 14.1 (in millions) Unrealized Net Gains (Losses) on Debt Securities Available for Sale Unrealized Net Gains (Losses) on Derivative Instruments Unrecognized Pension and Postretirement Obligations Total Six Months Ended June 30, 2024 Balance at beginning of period $ ( 160 ) $ ( 33 ) $ ( 42 ) $ ( 235 ) Other comprehensive (loss) income before reclassifications ( 11 ) ( 12 ) — ( 23 ) Amounts reclassified from AOCI — 15 — 15 Net current period other comprehensive (loss) income ( 11 ) 3 — ( 8 ) Balance at end of period $ ( 171 ) $ ( 30 ) $ ( 42 ) $ ( 243 ) The amounts reclassified from AOCI related to debt securities AFS are included in net securities gains (losses) on the Consolidated Statements of Income, while the amounts reclassified from AOCI related to derivative instruments in cash flow hedge programs are generally included in interest income on loans and leases on the Consolidated Statements of Income. The tax (benefit) expense amounts reclassified from AOCI in connection with the debt securities AFS and derivative instruments reclassifications are included in income taxes on the Consolidated Statements of Income. NOTE 15. EARNINGS PER COMMON SHARE Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding net of unvested shares of restricted stock. Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options and restricted shares, as calculated using the treasury stock method. Adjustments to the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share. 50 The following table sets forth the computation of basic and diluted earnings per common share: TABLE 15.1 Three Months Ended June 30, Six Months Ended June 30, ( dollars in millions, except per share data) 2024 2023 2024 2023 Net income $ 123 $ 142 $ 245 $ 289 Less: Preferred stock dividends — 2 6 4 Net income available to common stockholders $ 123 $ 140 $ 239 $ 285 Basic weighted average common shares outstanding 361,754,312 360,124,415 361,500,357 360,489,630 Net effect of dilutive stock options and restricted stock 946,921 2,501,767 1,159,902 3,286,929 Diluted weighted average common shares outstanding 362,701,233 362,626,182 362,660,259 363,776,559 Earnings per common share: Basic $ 0.34 $ 0.39 $ 0.66 $ 0.79 Diluted $ 0.34 $ 0.39 $ 0.66 $ 0.78 There were no anti-dilutive shares for the six months ended June 30, 2024 and 2023. NOTE 16. CASH FLOW INFORMATION Following is a summary of supplemental cash flow information: TABLE 16.1 Six Months Ended June 30, (in millions) 2024 2023 Interest paid on deposits and other borrowings $ 461 $ 238 Income taxes paid 26 67 Transfers of loans to other real estate owned 1 1 Loans transferred to portfolio from held for sale 12 26 We did no t have any restricted cash as of June 30, 2024 and 2023. NOTE 17. BUSINESS SEGMENTS We operate in three reportable segments: Community Banking, Wealth Management and Insurance. • The Community Banking segment provides commercial and consumer banking services. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, business credit, capital markets and lease financing. Consumer banking products and services include deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. • The Wealth Management segment provides a broad range of personal and corporate fiduciary services including the administration of decedent and trust estates. In addition, it offers various alternative products, including securities brokerage (under a third-party arrangement) and investment advisory services, mutual funds and annuities. • The Insurance segment includes a full-service insurance brokerage service offering all lines of commercial and personal insurance through major carriers. The Insurance segment also includes a reinsurer. 51 The following table provides financial information for these segments of FNB. The information provided under the caption “Parent and Other” represents operations not considered to be reportable segments and/or general operating expenses of FNB, and includes the parent company, other non-bank subsidiaries and eliminations and adjustments to reconcile to the Consolidated Financial Statements. TABLE 17.1 (in millions) Community Banking Wealth Management Insurance Parent and Other Consolidated At or for the Three Months Ended June 30, 2024 Interest income $ 555 $ — $ — $ 2 $ 557 Interest expense 233 — — 8 241 Net interest income 322 — — ( 6 ) 316 Provision for credit losses 20 — — — 20 Non-interest income 65 20 6 ( 3 ) 88 Non-interest expense (1) 199 14 6 3 222 Amortization of intangibles 5 — — — 5 Income tax expense (benefit) 36 1 — ( 3 ) 34 Net income (loss) 127 5 — ( 9 ) 123 Total assets 47,421 42 36 216 47,715 Total intangibles 2,503 9 25 — 2,537 At or for the Three Months Ended June 30, 2023 Interest income $ 483 $ — $ — $ 1 $ 484 Interest expense 147 — — 8 155 Net interest income 336 — — ( 7 ) 329 Provision for credit losses 19 — — — 19 Non-interest income 57 18 7 ( 1 ) 81 Non-interest expense (1) 187 13 5 2 207 Amortization of intangibles 5 — — — 5 Income tax expense (benefit) 39 1 1 ( 4 ) 37 Net income (loss) 143 4 1 ( 6 ) 142 Total assets 44,629 39 32 78 44,778 Total intangibles 2,521 9 26 — 2,556 (1) Excludes amortization of intangibles, which is presented separately. 52 (in millions) Community Banking Wealth Management Insurance Parent and Other Consolidated At or for the Six Months Ended June 30, 2024 Interest income $ 1,097 $ — $ — $ 3 $ 1,100 Interest expense 451 — — 14 465 Net interest income 646 — — ( 11 ) 635 Provision for credit losses 34 — — — 34 Non-interest income 127 40 13 ( 4 ) 176 Non-interest expense (1) 410 27 10 8 455 Amortization of intangibles 9 — — — 9 Income tax expense (benefit) 70 3 1 ( 6 ) 68 Net income (loss) 250 10 2 ( 17 ) 245 Total assets 47,421 42 36 216 47,715 Total intangibles 2,503 9 25 — 2,537 At or for the Six Months Ended June 30, 2023 Interest income $ 925 $ — $ — $ 3 $ 928 Interest expense 245 — — 17 262 Net interest income 680 — — ( 14 ) 666 Provision for credit losses 33 — — — 33 Non-interest income 112 36 14 ( 2 ) 160 Non-interest expense (1) 382 26 9 5 422 Amortization of intangibles 10 — — — 10 Income tax expense (benefit) 77 2 1 ( 8 ) 72 Net income (loss) 290 8 4 ( 13 ) 289 Total assets 44,629 39 32 78 44,778 Total intangibles 2,521 9 26 — 2,556 (1) Excludes amortization of intangibles, which is presented separately. 53 NOTE 18. FAIR VALUE MEASUREMENTS Refer to Note 26, "Fair Value Measurements" to the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024 for a description of additional valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis. The following table presents the balances of assets and liabilities measured at fair value on a recurring basis: TABLE 18.1 (in millions) Level 1 Level 2 Level 3 Total June 30, 2024 Assets Measured at Fair Value Debt securities available for sale U.S. Treasury $ 197 $ — $ — $ 197 U.S. government agencies — 67 — 67 U.S. government-sponsored entities — 298 — 298 Residential MBS: Agency MBS — 886 — 886 Agency collateralized mortgage obligations — 758 — 758 Agency commercial MBS — 1,092 — 1,092 States of the U.S. and political subdivisions (municipals) — 26 — 26 Other debt securities — 40 — 40 Total debt securities available for sale 197 3,167 — 3,364 Loans held for sale — 128 — 128 Loans receivable — — 47 47 Derivative financial instruments Trading — 120 — 120 Not for trading — 1 3 4 Total derivative financial instruments — 121 3 124 Total assets measured at fair value on a recurring basis $ 197 $ 3,416 $ 50 $ 3,663 Liabilities Measured at Fair Value Derivative financial instruments Trading $ — $ 353 $ — $ 353 Not for trading — 3 — 3 Total derivative financial instruments — 356 — 356 Total liabilities measured at fair value on a recurring basis $ — $ 356 $ — $ 356 54 (in millions) Level 1 Level 2 Level 3 Total December 31, 2023 Assets Measured at Fair Value Debt securities available for sale U.S. Treasury $ 420 $ — $ — $ 420 U.S. government agencies — 79 — 79 U.S. government-sponsored entities — 223 — 223 Residential MBS: Agency MBS — 752 — 752 Agency collateralized mortgage obligations — 832 — 832 Agency commercial MBS — 884 — 884 States of the U.S. and political subdivisions (municipals) — 27 — 27 Other debt securities — 37 — 37 Total debt securities available for sale 420 2,834 — 3,254 Loans held for sale — 150 — 150 Derivative financial instruments Trading — 109 — 109 Not for trading — 2 5 7 Total derivative financial instruments — 111 5 116 Total assets measured at fair value on a recurring basis $ 420 $ 3,095 $ 5 $ 3,520 Liabilities Measured at Fair Value Derivative financial instruments Trading $ — $ 324 $ — $ 324 Not for trading — 4 — 4 Total derivative financial instruments — 328 — 328 Total liabilities measured at fair value on a recurring basis $ — $ 328 $ — $ 328 The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value: TABLE 18.2 (in millions) Other Debt Securities Loans Receivable Interest Rate Lock Commitments Total Six Months Ended June 30, 2024 Balance at beginning of period $ — $ — $ 5 $ 5 Purchases, issuances, sales and settlements: Issuances — — 3 3 Settlements — — ( 5 ) ( 5 ) Transfers into Level 3 — 47 — 47 Balance at end of period $ — $ 47 $ 3 $ 50 Year Ended December 31, 2023 Balance at beginning of period $ — $ — $ — $ — Purchases, issuances, sales and settlements: Issuances — — 6 6 Settlements — — ( 1 ) ( 1 ) Balance at end of period $ — $ — $ 5 $ 5 55 We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. During the first six months of 2024, $ 47.3 million in loans receivable were measured using the fair value option at Level 3 on a recurring basis. There were no transfers of assets or liabilities between the hierarchy levels during the first six months of 2023. From time to time, we measure certain assets at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of the lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were described in Note 26, "Fair Value Measurements" to the Consolidated Financial Statements included in 2023 Annual Report on Form 10-K . For assets measured at fair value on a non-recurring basis still held at the Balance Sheet date, the following table provides the hierarchy level and the fair value of the related assets or portfolios: TABLE 18.3 (in millions) Level 1 Level 2 Level 3 Total June 30, 2024 Collateral dependent loans $ — $ — $ 35 $ 35 Other assets - MSRs — — 1 1 December 31, 2023 Collateral dependent loans $ — $ — $ 35 $ 35 Indirect installment loans held for sale — — 338 338 Other assets - MSRs — — 12 12 Other assets - SBA servicing asset — — 1 1 Other real estate owned — — 2 2 The fair value amounts for collateral dependent loans and OREO in the table above were estimated at a date during the six months or twelve months ended June 30, 2024 and December 31, 2023, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end. Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during the six months ended June 30, 2024 had a carrying amount of $ 34.8 million, which includes an allocated ACL of $ 7.3 million. The ACL includes a provision applicable to the current period fair value measurements of $ 7.1 million, which was included in provision for credit losses for the six months ended June 30, 2024. MSRs measured at fair value on a non-recurring basis had a carrying value of $ 0.7 million, and there was no valuation allowance as of June 30, 2024. The valuation allowance includes a provision of $ 0.2 million included in earnings for 2024. Fair Value of Financial Instruments Refer to Note 26, "Fair Value Measurements" to the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024 for a description of methods and assumptions that were used to estimate the fair value of each financial instrument. 56 The fair values of our financial instruments are as follows: TABLE 18.4 Fair Value Measurements (in millions) Carrying Amount Fair Value Level 1 Level 2 Level 3 June 30, 2024 Financial Assets Cash and cash equivalents $ 1,880 $ 1,880 $ 1,880 $ — $ — Debt securities available for sale 3,364 3,364 197 3,167 — Debt securities held to maturity 3,893 3,532 — 3,532 — Net loans and leases, including loans held for sale 33,470 31,998 — 128 31,870 Loan servicing rights 67 79 — — 79 Derivative assets 124 124 — 121 3 Accrued interest receivable 178 178 178 — — Financial Liabilities Deposits 34,994 34,938 28,107 6,831 — Short-term borrowings 3,616 3,633 3,633 — — Long-term borrowings 2,016 2,043 — 1,274 769 Derivative liabilities 356 356 — 356 — Accrued interest payable 73 73 73 — — December 31, 2023 Financial Assets Cash and cash equivalents $ 1,576 $ 1,576 $ 1,576 $ — $ — Debt securities available for sale 3,254 3,254 420 2,834 — Debt securities held to maturity 3,911 3,593 — 3,593 — Net loans and leases, including loans held for sale 32,405 30,641 — 150 30,491 Loan servicing rights 61 73 — — 73 Derivative assets 116 116 — 111 5 Accrued interest receivable 160 160 160 — — Financial Liabilities Deposits 34,711 34,654 28,496 6,158 — Short-term borrowings 2,506 2,505 2,505 — — Long-term borrowings 1,971 1,928 — 1,192 736 Derivative liabilities 328 328 — 328 — Accrued interest payable 69 69 69 — — 57