FNB CORP/PA/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the six-month periods ended June 30, 2024 and 2023. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024. Our results of operations for the six months ended June 30, 2024 are not necessarily indicative of results expected for the full year. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Report may contain statements regarding our outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset quality levels, financial position and other matters regarding or affecting our current or future business and operations. These statements can be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve various assumptions, risks and uncertainties which can change over time. Actual results or future events may be different from those anticipated in our forward-looking statements and may not align with historical performance and events. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance upon such statements. Forward-looking statements are typically identified by words such as "believe," "plan," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "will," "should," "project," "goal," and other similar words and expressions. We do not assume any duty to update forward-looking statements, except as required by federal securities laws. Our forward-looking statements are subject to the following principal risks and uncertainties: • Our business, financial results and balance sheet values are affected by business, economic and political circumstances, including, but not limited to: (i) developments with respect to the U.S. and global financial markets; (ii) supervision, regulation, enforcement and other actions by several governmental agencies, including the FRB, FDIC, Financial Stability Oversight Council (FSOC), DOJ, CFPB, UST, OCC and Department of Housing and Urban Development (HUD), state attorney generals and other governmental agencies whose actions may affect, among other things, our consumer and mortgage lending and deposit practices, capital structure, investment practices, dividend policy, annual FDIC insurance premium assessment and growth, money supply, market interest rates or otherwise affect business activities of the financial services industry; (iii) a slowing of the U.S. economy in general and regional and local economies within our market area; (iv) inflation concerns; (v) the impacts of tariffs or other trade policies of the U.S. or its global trading partners; and (vi) the sociopolitical environment in the U.S. • Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards. • Competition can have an impact on customer acquisition, growth and retention, and on credit spreads, deposit gathering and product pricing, which can affect market share, loans, deposits and revenues. Our ability to anticipate, react quickly and continue to respond to technological changes and significant adverse industry and economic events can also impact our ability to respond to customer needs and meet competitive demands. • Business and operating results can also be affected by difficult to predict uncertainties, such as widespread natural and other disasters, wars, pandemics, including post-pandemic return to normalcy, global events and geopolitical instability, including the Ukraine-Russia conflict and the military conflict in Israel and Gaza, shortages of labor, supply chain disruptions and shipping delays, terrorist activities, system failures, security breaches, significant political events, cyber-attacks, international hostilities or other extraordinary events which are beyond our control and may significantly impact the U.S. or global economy and financial markets generally, or us or our counterparties, customers or third-party vendors specifically. • Our ability to take certain capital actions, including returning capital to shareholders, is subject to us meeting or exceeding minimum capital levels. Our regulatory capital ratios in the future will depend on, among other things, our financial performance, the scope and terms of final capital regulations then in effect and management actions affecting the composition of our balance sheet. • Historically we have grown our business in part through acquisitions, new strategic and business initiatives and new products. Potential risks and uncertainties include those presented by the nature of the business acquired, the strategic or business initiative or the new product, including in some cases those associated with our entry into new business lines or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks 58 and uncertainties related to the acquisition transactions themselves, increased scrutiny associated with the regulatory approval process, other regulatory issues stemming from such acquisitions or new initiatives or product lines, the integration of the acquired businesses into us after closing or any failure to execute strategic or operational plans. • Legal, regulatory and accounting developments could have an impact on our ability to operate and grow our businesses, financial condition, results of operations, competitive position, and reputation. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and the ability to attract and retain talent. These developments could include: ◦ Policies and priorities of the current U.S. presidential administration, including legislative and regulatory reforms, more aggressive approaches to supervisory or enforcement priorities with consumer and anti-discrimination lending laws by the federal banking regulatory agencies and the DOJ, changes affecting oversight of the financial services industry, regulatory obligations or restrictions, consumer protection, taxes, employee benefits, compensation practices, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles. ◦ Ability to continue to attract, develop and retain key talent. ◦ Changes to laws and regulations, including changes affecting the oversight of the financial services industry along with changes in enforcement and interpretation of such laws and regulations, and changes to accounting standards governing bank capital requirements, loan loss reserves and liquidity standards. ◦ Changes in monetary and fiscal policies, including interest rate policies and strategies of the FOMC. ◦ Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or inquiries. These matters may result in monetary judgments or settlements, enforcement actions or other remedies, including fines, penalties, restitution or alterations in our business practices, including financial and other types of commitments, and in additional expenses and collateral costs, and may cause reputational harm to us. ◦ Results of the regulatory examination and supervision process, including our failure to satisfy requirements imposed by the federal bank regulatory agencies or other governmental agencies. ◦ Business and operating results are affected by our ability to effectively identify and manage risks inherent in our businesses, including, where appropriate, through effective use of policies, processes, systems and controls, third-party insurance, derivatives, and capital and liquidity management techniques. ◦ The impact on our financial condition, results of operations, financial disclosures and future business strategies related to the impact on the ACL due to changes in forecasted macroeconomic conditions as a result of applying the “current expected credit loss” accounting standard, or CECL. ◦ A failure or disruption in or breach of our operational or security systems or infrastructure, or those of third parties, including as a result of cyber-attacks or campaigns. ◦ Increased funding costs and market volatility due to market illiquidity and competition for funding. We caution that the risks identified here are not exhaustive of the types of risks that may adversely impact us and actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties described under Item 1A. Risk Factors and the Risk Management sections of our 2023 Annual Report on Form 10-K (including the MD&A section), our subsequent 2024 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other 2024 filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-information/reports-and-filings or the SEC's website at www.sec.gov. We have included our web address as an inactive textual reference only. Information on our website is not part of our SEC filings. APPLICATION OF CRITICAL ACCOUNTING POLICIES A description of our critical accounting policies is included in the MD&A section of our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024 under the heading “Application of Critical Accounting Policies”. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2023. 59 USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS To supplement our Consolidated Financial Statements presented in accordance with GAAP, we use certain non-GAAP financial measures, such as operating net income available to common stockholders, operating earnings per diluted common share, return on average tangible common equity, operating return on average tangible common equity, return on average tangible assets, tangible book value per common share, the ratio of tangible common equity to tangible assets, pre-provision net revenue (reported), operating pre-provision net revenue , operating non-interest expense, efficiency ratio and net interest margin (FTE) to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers. Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities. The non-GAAP financial measures and key performance indicators we use may differ from the non-GAAP financial measures and key performance indicators other financial institutions use to assess their performance and trends. These non-GAAP financial measures should be viewed as supplemental in nature, and not as a substitute for, or superior to, our reported results prepared in accordance with GAAP. When non-GAAP financial measures are disclosed, the SEC's Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included later in this report under the heading “Reconciliations of Non-GAAP Financial Measures and Key Performance Indicators to GAAP”. Management believes items such as merger expenses, preferred deemed dividend at redemption, FDIC special assessment, loss on indirect auto loan sale and branch consolidation costs are not organic to run our operations and facilities. These items are considered significant items impacting earnings as they are deemed to be outside of ordinary banking activities. These costs are specific to each individual transaction and may vary significantly based on the size and complexity of the transaction. To facilitate peer comparisons of net interest margin and efficiency ratio, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets (loans and investments) to make it fully equivalent to interest income earned on taxable investments (this adjustment is not permitted under GAAP). Taxable-equivalent amounts for 2024 and 2023 were calculated using a federal statutory income tax rate of 21%. FINANCIAL SUMMARY Net income available to common stockholders for the second quarter of 2024 was $123.0 million or $0.34 per diluted common share, compared to net income available to common stockholders for the second quarter of 2023 of $140.4 million or $0.39 per diluted common share. On an operating basis, earnings per diluted common share (non-GAAP) was $0.34 for the second quarter of 2024, excluding less than $0.01 of significant items impacting earnings per diluted common share, while the second quarter of 2023 was $0.39, excluding less than $0.01 of significant items impacting earnings per diluted common share. Pre-provision net revenue (non-GAAP) increased over 4%, on a linked-quarter basis, supported by our well-managed expenses and strong non-interest income levels. Tangible book value per share grew 12% year-over-year to reach a record high at $9.88. We continue to execute on our strategy to steadily increase market share by leveraging our investments in eStore® and our experienced banking teams, shown by our linked-quarter loan and deposit growth of 3.6% and 0.7%, respectively, including non-interest-bearing deposit growth of 0.8%. Our capital position remained strong as we were able to support robust loan growth and maintain the tangible common equity ratio (non-GAAP) near 8% and the CET1 regulatory capital ratio at 10.2%. Our comprehensive approach to credit risk management has led to strong and stable asset quality results with non-performing loans and OREO to total loans and leases plus OREO ending at 0.33%, a multi-year low, and net charge-offs to total average loans and leases at 0.09%. Income Statement Highlights (second quarter of 2024 compared to second quarter of 2023, except as noted) • Net interest income decreased $13.4 million, or 4.1%, to $315.9 million primarily due to higher deposit costs, including balance migration to higher yielding deposit products, as well as higher total average borrowings, partially offset by growth in earning assets and higher earning asset yields. • Net interest margin (FTE) (non-GAAP) decreased 28 basis points to 3.09% as a 49 basis point increase in the total yield on earnings assets (non-GAAP) was more than offset by total cost of funds increasing 82 basis points. 60 • On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) decreased 9 basis points to 3.09% largely due to increased short-term borrowings to fund the strong loan growth in the quarter as a 3 basis point increase in the total yield on earning assets (non-GAAP) to 5.43% was more than offset by a 13 basis point increase in the total cost of funds to 2.46%. • The provision for credit losses of $20.2 million supported the strong loan growth as well as net charge-off activity. • Non-interest income totaled $87.9 million, benefiting from our diversified business model. • Pre-provision net revenue (non-GAAP) totaled $177.2 million, a 4.4% increase from the prior quarter. On an operating basis, pre-provision net revenue (non-GAAP) totaled $178.0 million, a 3.0% increase from the prior quarter, driven by a decrease in non-interest expense and continued strong non-interest income generation, more than offsetting the decrease in net interest income. Reported non-interest expense included an additional FDIC insurance special assessment expense (pre-tax) of $0.8 million due to last year's bank failures, bringing the year-to-date FDIC special assessment expense to $5.2 million. • Non-interest expense totaled $226.6 million, a decrease of $10.5 million, or 4.4%, on a linked-quarter basis. The second quarter of 2024 included significant items of $0.8 million (pre-tax) of FDIC special assessment. The second quarter of 2023 included a significant item of $0.2 million (pre-tax) of merger expenses. On an operating basis, non-interest expense (non-GAAP) totaled $225.8 million and increased $14.0 million, or 6.6%, when adjusting for significant items. • The efficiency ratio (non-GAAP) remained at a solid level of 54.4%, compared to 50.0% at June 30, 2023, and 56.0% at March 31, 2024. Balance Sheet Highlights • Period-end total loans and leases increased $2.4 billion, or 7.7%, compared to June 30, 2023. Commercial loans and leases increased $1.4 billion, or 7.2%, and consumer loans increased $989.5 million, or 8.5%. Our loan growth was driven by the continued success of our strategy to grow high-quality loans and deepen customer relationships across our diverse geographic footprint. • On a linked-quarter basis, period-end total loans and leases increased $1.2 billion, or 3.6%, as consumer loans increased $632.7 million and commercial loans and leases increased $540.1 million, including healthy growth in commercial and industrial loans and equipment finance, as well as the seasonal peak for residential mortgage originations. • Period-end total deposits increased $1.2 billion, or 3.5%, compared to June 30, 2023, driven by an increase of $1.6 billion in time deposits and $879.2 million in interest-bearing demand deposits which more than offset the decline in non-interest-bearing demand deposits of $851.5 million and savings deposits of $410.6 million as customers continued to opt for higher-yielding deposit products given the interest rate environment. • On a linked-quarter basis, period-end total deposits increased $258.6 million, or 0.7%, with an increase in non-interest-bearing deposits of 0.8%. The mix of non-interest-bearing deposits to total deposits equaled 29% at June 30, 2024, consistent with the prior two quarter-ends. • The loan-to-deposit ratio was 96% at June 30, 2024, compared to the prior quarter at 94%, driven by the strong seasonal loan growth. • The ratio of non-performing loans plus OREO to total loans and leases plus OREO decreased 14 basis points to 0.33%. Total delinquency decreased 12 basis points to 0.63%, compared to 0.75% at June 30, 2023. Both measures continue to remain at or near historically low levels. • The second quarter of 2024 reflected net charge-offs of $7.8 million, or 0.09% annualized of total average loans. • The ACL was $418.8 million, an increase of $6.0 million compared to June 30, 2023, with the ratio of the ACL to total loans and leases decreasing 8 basis points to 1.24% reflecting net loan growth and charge-off activity. • Tangible book value per common share (non-GAAP) of $9.88, increased $1.09, or 12.4%, compared to June 30, 2023. AOCI reduced the tangible book value per common share (non-GAAP) by $0.67 as of June 30, 2024, primarily due to 61 the impact of higher interest rates on the fair value of AFS securities, compared to a $0.70 reduction as of March 31, 2024, and a $0.99 reduction as of June 30, 2023. • Our capital position remained strong as we were able to support robust loan growth and maintain the tangible common equity ratio near 8% and the CET1 regulatory capital ratio at 10.2%. • During the second quarter of 2024, we repurchased 250,000 shares of our common stock at a weighted average share price of $13.56 while maintaining capital at or above stated operating levels and supporting loan growth in the quarter. 62 TABLE 1 Three Months Ended June 30, Quarterly Results Summary 2024 2023 Reported results Net income available to common stockholders (millions) $ 123.0 $ 140.4 Net income per diluted common share 0.34 0.39 Book value per common share 16.94 15.92 Operating results (non-GAAP) Operating net income available to common stockholders (millions) 123.7 140.5 Operating net income per diluted common share 0.34 0.39 Average diluted common shares outstanding (thousands) 362,701 362,626 Significant items impacting earnings (1) (millions) Pre-tax merger-related expenses $ — $ (0.2) After-tax impact of merger-related expenses — (0.1) Pre-tax FDIC assessment (0.8) — After-tax impact of FDIC assessment (0.6) — Total significant items after-tax $ (0.6) $ (0.1) Capital measures Common equity tier 1 10.19 % 10.05 % Tangible common equity to tangible assets (non-GAAP) 7.86 7.47 Tangible book value per common share (non-GAAP) $ 9.88 $ 8.79 Six Months Ended June 30, Year-to-Date Results Summary 2024 2023 Reported results Net income available to common stockholders (millions) $ 239.4 $ 284.9 Net income per diluted common share 0.66 0.78 Operating results (non-GAAP) Operating net income available to common stockholders (millions) 246.4 286.6 Operating net income per diluted common share 0.68 0.79 Average diluted common shares outstanding (thousands) 362,660 363,777 Significant items impacting earnings (1) (millions) Preferred dividend equivalent at redemption $ (4.0) $ — Pre-tax merger-related expenses — (2.2) After-tax impact of merger-related expenses — (1.8) Pre-tax branch consolidation costs (1.2) — After-tax impact of branch consolidation costs (0.9) — Pre-tax FDIC assessment (5.2) — After-tax impact of FDIC assessment (4.1) — Pre-tax reduction of previous estimated loss on indirect auto loan sale 2.6 — After-tax impact of previous estimated loss on indirect auto loan sale 2.1 — Total significant items after-tax $ (6.9) $ (1.8) (1) Favorable (unfavorable) impact on earnings 63 RESULTS OF OPERATIONS Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023 Net income available to common stockholders for the three months ended June 30, 2024 was $123.0 million or $0.34 per diluted common share, compared to $140.4 million or $0.39 per diluted common share for the three months ended June 30, 2023. On an operating basis, second quarter of 2024 earnings per diluted common share (non-GAAP) was $0.34, excluding $0.8 million (pre-tax) of FDIC insurance special assessment expense. By comparison, second quarter of 2023 earnings per diluted common share (non-GAAP) was $0.39 on an operating basis, excluding $2.1 million (pre-tax) in merger-related significant items. Net interest income totaled $315.9 million a decrease of $13.4 million, or 4.1%, primarily due to higher deposit costs resulting from balance migration to higher yielding deposit products, as well as increased total average borrowings, partially offset by growth in earning assets and higher earning asset yields. The net interest margin (FTE) (non-GAAP) decreased 28 basis points to 3.09%. The yield on earning assets (non-GAAP) increased 49 basis points to 5.43%, reflecting the higher interest rate environment as the FOMC raised the target federal funds rate by 25 basis points on July 27, 2023. The earning assets yield increase was driven by a 65 basis point increase on investment securities to 3.14% which benefited from the balance sheet restructuring in late 2023 and a 43 basis point increase on loans to 5.96%. Total cost of funds increased 82 basis points to 2.46% with a 96 basis point increase in interest-bearing deposit costs to 2.93%, and an increase of 122 basis points in short-term borrowing costs. The provision for credit losses was $20.2 million, compared to $18.5 million with the current quarter's level supporting strong loan growth. Non-interest income increased by $7.6 million, or 9.5%, reflecting increased service charges income, mortgage banking operations income, wealth management revenues and dividends on non-marketable equity securities, offset by reduced capital markets income and interchange and card transaction fees. Non-interest expense for the second quarter of 2024 increased $14.7 million, or 6.9%. The biggest drivers of the non-interest expense increase were salaries and benefits expense with an increase of $7.0 million, or 6.1%, primarily from production-related commissions and normal annual merit increases, and net occupancy and equipment expense with an increase of $4.9 million, or 13.0%, largely from technology-related investments. Income taxes of $34.0 million declined $2.7 million, or 7.4% from lower pre-tax income levels. Financial highlights are summarized below: TABLE 2 Three Months Ended June 30, $ % (in thousands, except per share data) 2024 2023 Change Change Net interest income $ 315,890 $ 329,244 $ (13,354) (4.1) % Provision for credit losses 20,189 18,516 1,673 9.0 Non-interest income 87,922 80,309 7,613 9.5 Non-interest expense 226,612 211,955 14,657 6.9 Income taxes 33,974 36,690 (2,716) (7.4) Net income 123,037 142,392 (19,355) (13.6) Less: Preferred stock dividends — 2,010 (2,010) (100.0) Net income available to common stockholders $ 123,037 $ 140,382 $ (17,345) (12.4) % Earnings per common share – Basic $ 0.34 $ 0.39 $ (0.05) (12.8) % Earnings per common share – Diluted 0.34 0.39 (0.05) (12.8) Cash dividends per common share 0.12 0.12 — — 64 The following table presents selected financial ratios and other relevant data used to analyze our performance: TABLE 3 Three Months Ended June 30, 2024 2023 Return on average equity 8.20 % 9.79 % Return on average tangible common equity (1) 14.54 18.28 Return on average assets 1.06 1.29 Return on average tangible assets (1) 1.16 1.40 Book value per common share $ 16.94 $ 15.92 Tangible book value per common share (1) 9.88 8.79 Equity to assets 12.76 % 12.99 % Average equity to average assets 12.99 13.13 Common equity to assets 12.76 12.75 Tangible common equity to tangible assets (1) 7.86 7.47 Common equity tier 1 capital ratio 10.19 10.05 Dividend payout ratio 35.42 30.88 (1) Non-GAAP 65 The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities: TABLE 4 Three Months Ended June 30, 2024 2023 (dollars in thousands) Average Balance Interest Income/ Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate Assets Interest-earning assets: Interest-bearing deposits with banks $ 868,390 $ 8,207 3.80 % $ 1,234,026 $ 13,131 4.27 % Taxable investment securities (1) 6,154,907 47,564 3.09 6,084,971 35,244 2.32 Tax-exempt investment securities (1)(2) 1,033,552 8,911 3.45 1,059,893 9,207 3.47 Loans held for sale 110,855 2,519 9.09 102,187 1,844 7.23 Loans and leases (2)(3) 33,255,738 492,902 5.96 31,048,352 428,043 5.53 Total interest-earning assets (2) 41,423,442 560,103 5.43 39,529,429 487,469 4.94 Cash and due from banks 387,374 427,287 Allowance for credit losses (414,372) (410,566) Premises and equipment 484,851 459,966 Other assets 4,590,486 4,404,196 Total assets $ 46,471,781 $ 44,410,312 Liabilities Interest-bearing liabilities: Deposits: Interest-bearing demand $ 14,662,774 98,211 2.69 $ 13,922,773 63,861 1.84 Savings 3,360,593 10,136 1.21 3,843,785 9,117 0.95 Certificates and other time 6,645,682 71,613 4.33 5,003,024 38,820 3.11 Total interest-bearing deposits 24,669,049 179,960 2.93 22,769,582 111,798 1.97 Short-term borrowings 2,640,985 32,837 4.99 2,340,603 22,041 3.77 Long-term borrowings 2,164,983 28,501 5.29 1,703,667 21,117 4.97 Total interest-bearing liabilities 29,475,017 241,298 3.29 26,813,852 154,956 2.32 Non-interest-bearing demand 9,921,073 11,006,705 Total deposits and borrowings 39,396,090 2.46 37,820,557 1.64 Other liabilities 1,037,452 756,569 Total liabilities 40,433,542 38,577,126 Stockholders’ equity 6,038,239 5,833,186 Total liabilities and stockholders’ equity $ 46,471,781 $ 44,410,312 Net interest-earning assets $ 11,948,425 $ 12,715,577 Net interest income (FTE) (2) 318,805 332,513 Tax-equivalent adjustment (2,915) (3,269) Net interest income $ 315,890 $ 329,244 Net interest spread 2.14 % 2.62 % Net interest margin (2) 3.09 % 3.37 % (1) The average balances and yields earned on securities are based on historical cost. (2) The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. The yield on earning assets and the net interest margin are presented on an FTE basis (non-GAAP). We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. (3) Average loans and leases consist of average total loans, including non-accrual loans, less average unearned income. 66 Net Interest Income Net interest income on an FTE basis (non-GAAP) decreased $13.7 million, or 4.1%, to $318.8 million for the second quarter of 2024 primarily due to higher deposit costs resulting from the continued deposit balance migration to higher yielding products as well as increased total average borrowings, partially offset by growth in earning assets and higher earning asset yields. Average earning assets of $41.4 billion increased $1.9 billion, or 4.8%, driven by an increase in average loans and leases from solid origination activity. Average interest-bearing liabilities of $29.5 billion increased $2.7 billion, or 9.9%, driven by an increase of $1.9 billion in average interest-bearing deposits and an increase in average borrowings of $761.7 million to support strong loan growth. Our net interest margin FTE (non-GAAP) decreased 28 basis points to 3.09%, as the total cost of funds increased 82 basis points to 2.46% which more than offset the increase in the yield on earning assets (non-GAAP) of 49 basis points to 5.43%. The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended June 30, 2024, compared to the three months ended June 30, 2023: TABLE 5 (in thousands) Volume Rate Net Interest Income (1) Interest-bearing deposits with banks $ (3,814) $ (1,110) $ (4,924) Securities (2) 370 11,654 12,024 Loans held for sale 158 517 675 Loans and leases (2) 30,962 33,897 64,859 Total interest income (2) 27,676 44,958 72,634 Interest Expense (1) Deposits: Interest-bearing demand 7,815 26,535 34,350 Savings 228 791 1,019 Certificates and other time 14,322 18,471 32,793 Short-term borrowings 4,048 6,748 10,796 Long-term borrowings 5,838 1,546 7,384 Total interest expense 32,251 54,091 86,342 Net change (2) $ (4,575) $ (9,133) $ (13,708) (1) The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the net size of the rate and volume changes. (2) Interest income amounts are reflected on an FTE basis (non-GAAP) which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. Interest income on an FTE basis (non-GAAP) of $560.1 million for the second quarter of 2024, increased $72.6 million, or 14.9%, from the same quarter of 2023, resulting from the interest rate increases by the FOMC and an increase in average earning assets of $1.9 billion. The increase in earning assets was primarily driven by a $2.2 billion, or 7.1%, increase in average loans and leases, partially offset by a decrease of $365.6 million in average cash balances. Average commercial loan growth of $1.3 billion, or 6.4%, was led by increases of $970.6 million in commercial real estate, $224.7 million in commercial and industrial loans and $68.3 million in commercial leases. The increase in average commercial loans and leases was driven by activity across the footprint, with double-digit year-over-year growth across the Carolinas. The Pittsburgh and Cleveland regions and commercial equipment finance also posted strong contributions. The increase in commercial real estate included fundings on previously originated projects. Average consumer loans increased $943.7 million, or 8.3%, with a $1.3 billion increase in residential mortgages largely due to the continued successful execution in key markets by our expanded mortgage banker team and long-standing strategy of serving the purchase market. This growth was partially offset by a decrease in indirect auto loans of $363.0 million reflecting the sale of $332 million that closed in the first quarter of 2024. The yield on average earning assets (non-GAAP) increased 49 basis points to 5.43% for the second quarter of 2024, primarily due to higher yields on loans and investment securities reflecting the higher interest rate environment. The increase was driven by a 65 basis 67 point increase on investment securities to 3.14%, which benefited from the balance sheet restructuring in late 2023 and a 43 basis point increase on loans to 5.96%. Interest expense of $241.3 million for the second quarter of 2024 increased $86.3 million from the same quarter of 2023, primarily due to the higher interest rate environment and an increase in average interest-bearing deposits and borrowings. Average interest-bearing deposits increased $1.9 billion, or 8.3%, while average non-interest-bearing deposits decreased $1.1 billion, or 9.9%, as customers continued to migrate balances into higher-yielding products. The growth in average total deposits reflected organic growth in new and existing customer relationships. Average short-term borrowings increased $300.4 million, or 12.8%, primarily reflecting increases of $251.9 million and $99.1 million in short-term FHLB advances and Federal Funds purchased, respectively, partially offset by a decrease of $56.5 million in repurchase agreements. Average long-term borrowings increased $461.3 million, or 27.1%, primarily reflecting an increase in long-term FHLB advances as we have maintained additional liquidity following the banking industry disruption and in a continued effort to support strong loan growth. The rate paid on interest-bearing liabilities increased 97 basis points from 2.32% to 3.29%. The total cost of funds increased 82 basis points to 2.46% with a 96 basis point increase in interest-bearing deposit costs to 2.93%, and an increase of 122 basis points in short-term borrowing costs to fund the strong loan growth. Since the current interest rate increases began in March 2022, our total cumulative spot deposit beta equaled 38% at June 30,2024, consistent with our expectations. Provision for Credit Losses Provision for credit losses is determined based on management’s estimates of the appropriate level of ACL needed to absorb expected life-of-loan losses in the loan and lease portfolio, after giving consideration to charge-offs and recoveries for the period. The following table presents information regarding the provision for credit loss expense and net charge-offs: TABLE 6 Three Months Ended June 30, $ % (dollars in thousands) 2024 2023 Change Change Provision for credit losses on loans and leases $ 20,312 $ 18,026 $ 2,286 12.7 % Provision for unfunded loan commitments (119) 490 (609) (124.3) Total provision for credit losses on loans and leases 20,193 18,516 1,677 9.1 Provision for securities (4) — (4) n/m Total provision for credit losses $ 20,189 $ 18,516 $ 1,673 9.0 % Net loan charge-offs $ 7,849 $ 8,700 $ (851) (9.8) % Net loan charge-offs (annualized) / total average loans and leases 0.09 % 0.11 % n/m - not meaningful Provision for credit losses was $20.2 million during the second quarter of 2024, an increase of $1.7 million from the same period of 2023. The second quarter of 2024 is comprised of a $20.3 million provision for loans and leases outstanding and a $0.1 million net benefit on provision for unfunded loan commitments. The net increase supported the strong loan growth. The second quarter of 2024 reflected net charge-offs of $7.8 million, or 0.09% annualized of total average loans, compared to $8.7 million, or 0.11% annualized, in the second quarter of 2023. For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses on Loans and Leases section of this Management’s Discussion and Analysis. 68 Non-Interest Income The breakdown of non-interest income for the three months ended June 30, 2024 and 2023 is presented in the following table: TABLE 7 Three Months Ended June 30, $ % (dollars in thousands) 2024 2023 Change Change Service charges $ 23,332 $ 20,534 $ 2,798 13.6 % Interchange and card transaction fees 13,005 13,522 (517) (3.8) Trust services 11,475 10,630 845 7.9 Insurance commissions and fees 5,973 5,996 (23) (0.4) Securities commissions and fees 7,980 7,021 959 13.7 Capital markets income 5,143 5,884 (741) (12.6) Mortgage banking operations 6,956 4,907 2,049 41.8 Dividends on non-marketable equity securities 6,895 5,467 1,428 26.1 Bank owned life insurance 3,419 2,995 424 14.2 Net securities gains (losses) (3) (6) 3 — Other 3,747 3,359 388 11.6 Total non-interest income $ 87,922 $ 80,309 $ 7,613 9.5 % Total non-interest income increased by $7.6 million, or 9.5%, to $87.9 million for the second quarter of 2024, compared to $80.3 million for the second quarter of 2023. The variances in the individual non-interest income items are explained in the following paragraphs. Service charges of $23.3 million increased $2.8 million, or 13.6%, with strong treasury management activity and higher consumer transaction activity. Wealth management revenues increased $1.8 million, or 10.2%, as securities commissions and fees and trust income increased 13.7% and 7.9%, respectively, through contributions across the geographic footprint and the $506.8 million, or 5.9%, increase in the market value of assets under management. Capital markets income decreased $0.7 million, or 12.6%, reflecting lower commercial customer transaction activity. Mortgage banking operations income increased $2.0 million, or 41.8%, driven by improved gain on sale from strong production volumes. During the second quarter of 2024, we sold $324.9 million of residential mortgage loans, compared to $228.7 million for the same period of 2023. Dividends on non-marketable equity securities increased $1.4 million, or 26.1%, reflecting higher FHLB dividends due to additional borrowings. 69 Non-Interest Expense The breakdown of non-interest expense for the three months ended June 30, 2024 and 2023 is presented in the following table: TABLE 8 Three Months Ended June 30, $ % (dollars in thousands) 2024 2023 Change Change Salaries and employee benefits $ 120,917 $ 113,946 $ 6,971 6.1 % Net occupancy 18,632 16,689 1,943 11.6 Equipment 24,335 21,345 2,990 14.0 Amortization of intangibles 4,379 5,044 (665) (13.2) Outside services 23,250 20,539 2,711 13.2 Marketing 4,006 3,943 63 1.6 FDIC insurance 9,954 7,717 2,237 29.0 Bank shares and franchise taxes 3,930 3,926 4 0.1 Merger-related — 163 (163) (100.0) Other 17,209 18,643 (1,434) (7.7) Total non-interest expense $ 226,612 $ 211,955 $ 14,657 6.9 % Total non-interest expense of $226.6 million for the second quarter of 2024 increased $14.7 million, or 6.9%, from the same period of 2023. Non-interest expense increased $14.0 million, or 6.6%, when excluding significant items of $0.8 million of FDIC special assessment expense in the second quarter of 2024 related to last year's bank failures and merger-related costs of $0.2 million in the second quarter 2023. The variances in the individual non-interest expense items are explained in the following paragraphs. Salaries and employee benefits of $120.9 million increased $7.0 million, or 6.1%, primarily from normal annual merit increases and higher production-related commissions from strong non-interest income activity. Net occupancy and equipment of $43.0 million increased $4.9 million, or 13.0%, largely from continued technology-related investments. Outside services of $23.3 million increased $2.7 million, or 13.2%, with higher third-party and volume-related technology costs. FDIC insurance of $10.0 million increased $2.2 million, or 29.0%, reflecting a $0.8 million estimated special assessment to further replenish the FDIC's Deposit Insurance Fund associated with protecting uninsured depositors following the failed banks in early 2023 based on updated loss information provided by the FDIC, as well as loan growth and balance sheet mix changes. The following table presents non-interest expense excluding significant items for the three months ended June 30, 2024 and 2023: TABLE 9 Three Months Ended June 30, $ % (dollars in thousands) 2024 2023 Change Change Total non-interest expense, as reported $ 226,612 $ 211,955 $ 14,657 6.9 % Significant items: Merger-related — (163) 163 FDIC special assessment (804) — (804) Total non-interest expense, excluding significant items (1) $ 225,808 $ 211,792 $ 14,016 6.6 % (1) Non-GAAP Current period significant items relate to a continuation of prior period significant items. 70 Income Taxes The following table presents information regarding income tax expense and certain tax rates: TABLE 10 Three Months Ended June 30, (dollars in thousands) 2024 2023 Income tax expense $ 33,974 $ 36,690 Effective tax rate 21.6 % 20.5 % Statutory federal tax rate 21.0 21.0 Income tax expense was lower due to lower pre-tax earnings, partially offset by lower stock compensation vesting deductions, higher disallowance of FDIC premium deductions, and higher levels of proportional amortization for certain tax credit investments resulting from the adoption of FASB ASU 2023-02 on January 1, 2024. The effective tax rate increased for the three months ended June 30, 2024 as a result of these offsetting items. Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023 Net income available to common stockholders for the first six months of 2024 was $239.4 million or $0.66 per diluted common share, compared to $284.9 million or $0.78 per diluted common share for the first six months of 2023. On an operating basis (non-GAAP), net income available to common stockholders for the first six months of 2024 was $246.4 million, or $0.68 per diluted common share, compared to $286.6 million or $0.79 per diluted common share for the first six months of 2023. Net interest income totaled $634.9 million, a decrease of $31.0 million, or 4.7%, compared to $665.9 million. The net interest margin (FTE) (non-GAAP) decreased 33 basis points to 3.13%, as the total cost of funds increased 99 basis points to 2.40% with a 115-basis point increase in interest-bearing deposit costs to 2.88%, as well as an increase of 32 basis points in long-term debt costs. These funding cost increases were partially offset by an increase in the yield on earning assets (non-GAAP) of 60 basis points to 5.41%, primarily due to higher yields on loans and investment securities. Between June 30, 2023 and June 30, 2024, the FOMC raised the target Federal Funds interest rate by 25 basis points in July of 2023. The provision for credit losses for the first six months of 2024 totaled $34.1 million, compared to $32.6 million. Non-interest income totaled $175.8 million, a 10.1% increase compared to $159.7 million, reflecting increased mortgage banking operations income, continued strong wealth management revenues, and higher levels of service charges and dividends on non-marketable equity securities, partially offset by lower insurance commissions and fees. Non-interest expense totaled $463.7 million, increasing $31.8 million, or 7.4%. On an operating basis (non-GAAP), non-interest expense totaled $459.9 million, an increase of $30.2 million, or 7.0%, compared to the first six months of 2023. Salaries and benefits increased $15.9 million, or 6.8%, due largely to normal annual merit increases and higher production-related commissions from strong non-interest income activity. Additionally, net occupancy and equipment expense increased $8.9 million, or 11.4%, largely from technology-related investments. FDIC insurance increased $7.8 million, or 52.4%, primarily due to incremental FDIC special assessment expense of $5.2 million to further replenish the FDIC's Deposit Insurance Fund after the 2023 bank failures. 71 Financial highlights are summarized below: TABLE 11 Six Months Ended June 30, $ % (in thousands, except per share data) 2024 2023 Change Change Net interest income $ 634,898 $ 665,898 $ (31,000) (4.7) % Provision for credit losses 34,079 32,577 1,502 4.6 Non-interest income 175,784 159,698 16,086 10.1 Non-interest expense 463,708 431,872 31,836 7.4 Income taxes 67,527 72,250 (4,723) (6.5) Net income 245,368 288,897 (43,529) (15.1) Less: Preferred stock dividends 6,005 4,020 1,985 49.4 Net income available to common stockholders $ 239,363 $ 284,877 $ (45,514) (16.0) % Earnings per common share – Basic $ 0.66 $ 0.79 $ (0.13) (16.5) % Earnings per common share – Diluted 0.66 0.78 (0.12) (15.4) Cash dividends per common share 0.24 0.24 — — The following table presents selected financial ratios and other relevant data used to analyze our performance: TABLE 12 Six Months Ended June 30, 2024 2023 Return on average equity 8.17 % 10.07 % Return on average tangible common equity (1) 14.27 18.96 Return on average assets 1.07 1.33 Return on average tangible assets (1) 1.17 1.45 Book value per common share $ 16.94 $ 15.92 Tangible book value per common share (1) 9.88 8.79 Equity to assets 12.76 % 12.99 % Average equity to average assets 13.11 13.17 Common equity to assets 12.76 12.75 Tangible common equity to tangible assets (1) 7.86 7.47 Common equity tier 1 capital ratio 10.19 10.05 Dividend payout ratio 36.56 30.59 (1) Non-GAAP 72 The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities: TABLE 13 Six Months Ended June 30, 2024 2023 (dollars in thousands) Average Balance Interest Income/ Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate Assets Interest-earning assets: Interest-bearing deposits with banks $ 870,372 $ 17,385 4.02 % $ 1,027,117 $ 19,784 3.88 % Taxable investment securities (1) 6,138,237 93,388 3.04 6,149,284 70,719 2.30 Tax-exempt investment securities (1)(2) 1,037,388 17,883 3.45 1,057,554 18,366 3.47 Loans held for sale 173,981 6,805 7.84 109,137 3,438 6.32 Loans and leases (2) (3) 32,818,345 971,049 5.94 30,731,126 821,939 5.39 Total interest-earning assets (2) 41,038,323 1,106,510 5.41 39,074,218 934,246 4.81 Cash and due from banks 399,027 434,956 Allowance for credit losses (412,119) (408,149) Premises and equipment 477,183 451,252 Other assets 4,572,271 4,366,564 Total assets $ 46,074,685 $ 43,918,841 Liabilities Interest-bearing liabilities: Deposits: Interest-bearing demand $ 14,608,616 192,953 2.66 $ 14,258,082 116,151 1.64 Savings 3,386,231 20,135 1.20 3,932,627 16,958 0.87 Certificates and other time 6,472,481 137,270 4.26 4,595,128 62,781 2.76 Total interest-bearing deposits 24,467,328 350,358 2.88 22,785,837 195,890 1.73 Short-term borrowings 2,520,544 60,538 4.82 1,953,125 31,785 3.28 Long-term borrowings 2,111,400 54,891 5.23 1,394,571 34,130 4.94 Total interest-bearing liabilities 29,099,272 465,787 3.22 26,133,533 261,805 2.02 Non-interest-bearing demand 9,930,212 11,207,490 Total deposits and borrowings 39,029,484 2.40 37,341,023 1.41 Other liabilities 1,006,295 795,124 Total liabilities 40,035,779 38,136,147 Stockholders’ equity 6,038,906 5,782,694 Total liabilities and stockholders’ equity $ 46,074,685 $ 43,918,841 Net interest-earning assets $ 11,939,051 $ 12,940,685 Net interest income (FTE) (2) 640,723 672,441 Tax-equivalent adjustment (5,825) (6,543) Net interest income $ 634,898 $ 665,898 Net interest spread 2.19 % 2.79 % Net interest margin (2) 3.13 % 3.46 % (1) The average balances and yields earned on securities are based on historical cost. (2) The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. The yield on earning assets and the net interest margin are presented on an FTE basis (non-GAAP). We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. (3) Average loans and leases consist of average total loans, including non-accrual loans, less average unearned income. 73 Net Interest Income Net interest income on an FTE basis (non-GAAP) totaled $640.7 million, decreasing $31.7 million, or 4.7%, primarily due to higher interest-bearing deposit costs from continued balance migration to higher yielding deposit products in the current interest rate environment and higher total average borrowings, partially offset by growth in earning assets and higher earning asset yields. Average earning assets grew $2.0 billion, or 5.0%, primarily driven by loan growth. Total average commercial loans increased $1.2 billion, or 6.1%. Average consumer loans increased $901.8 million, or 8.0%, with an increase in residential mortgage loans of $1.3 billion, or 23.6%, largely due to the continued successful execution in key markets by our expanded mortgage banker team and long-standing strategy of serving the purchase market. Partially offsetting the growth in residential mortgage loans, indirect installment loans decreased $382.4 million, or 24.9%, reflecting the $332 million sale that closed in the first quarter of 2024. Additionally, we reinvested the proceeds of the AFS securities sold in December 2023 as part of our balance sheet repositioning with an average yield of 1.08% into securities with yields approximately 350 basis points higher and a similar duration and convexity profile. For interest-bearing liabilities, average time deposits increased $1.9 billion, or 40.9%, given the continued migration into higher-yielding deposit products. Total average borrowings increased $1.3 billion due to maintaining additional liquidity on the balance sheet following the banking industry disruption in 2023 and to support strong loan growth. The net interest margin (FTE) (non-GAAP) decreased 33 basis points to 3.13%. The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023: TABLE 14 (in thousands) Volume Rate Net Interest Income (1) Interest-bearing deposits with banks $ (2,964) $ 565 $ (2,399) Securities (2) (401) 22,587 22,186 Loans held for sale 1,039 2,328 3,367 Loans and leases (2) 59,176 89,934 149,110 Total interest income (2) 56,850 115,414 172,264 Interest Expense (1) Deposits: Interest-bearing demand 10,600 66,202 76,802 Savings 501 2,676 3,177 Certificates and other time 30,825 43,664 74,489 Short-term borrowings 14,272 14,481 28,753 Long-term borrowings 18,216 2,545 20,761 Total interest expense 74,414 129,568 203,982 Net change (2) $ (17,564) $ (14,154) $ (31,718) (1) The amount of change not solely due to rate or volume changes was allocated between the change due to rate and the change due to volume based on the net size of the rate and volume changes. (2) Interest income amounts are reflected on an FTE basis (non-GAAP) which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. 74 Provision for Credit Losses The following table presents information regarding the provision for credit loss expense and net charge-offs: TABLE 15 Six Months Ended June 30, $ % (dollars in thousands) 2024 2023 Change Change Provision for credit losses on loans and leases $ 33,821 $ 32,917 $ 904 2.7 % Provision for unfunded loan commitments 268 (434) 702 161.8 Total provision for credit losses on loans and leases 34,089 32,483 1,606 4.9 Provision for securities (10) 95 (105) (110.5) Total provision for credit losses $ 34,079 $ 32,578 $ 1,501 4.6 % Net loan charge-offs $ 20,626 $ 21,897 $ (1,271) (5.8) % Net loan charge-offs (annualized) / total average loans and leases 0.13 % 0.14 % The provision for credit losses was $34.1 million, compared to $32.6 million in the first six months of 2023. The provision for credit losses for the first six months of 2024 was primarily due to loan growth and charge-off activity. The provision for credit losses in the first six months of 2023 was primarily due to loan growth, CECL-related model impacts from forecasted macroeconomic conditions and charge-off activity. Our non-performing loan coverage position remains strong at 388%. The first six months of 2024 reflected net charge-offs of $20.6 million, or 0.13% annualized of total average loans, compared to $21.9 million, or 0.14% annualized, in the first six months of 2023. The ACL was $418.8 million, an increase of $6.0 million, with the ratio of the ACL to total loans and leases decreasing 8 basis points to 1.24%, reflecting net loan growth and charge-off activity. Non-Interest Income The breakdown of non-interest income for the six months ended June 30, 2024 and 2023 is presented in the following table: TABLE 16 Six Months Ended June 30, $ % (dollars in thousands) 2024 2023 Change Change Service charges $ 43,901 $ 40,798 $ 3,103 7.6 % Interchange and card transaction fees 25,705 25,898 (193) (0.7) Trust services 22,899 21,241 1,658 7.8 Insurance commissions and fees 12,725 13,783 (1,058) (7.7) Securities commissions and fees 16,135 14,403 1,732 12.0 Capital markets income 11,474 12,677 (1,203) (9.5) Mortgage banking operations 14,870 9,762 5,108 52.3 Dividends on non-marketable equity securities 13,088 9,575 3,513 36.7 Bank owned life insurance 6,762 5,820 942 16.2 Net securities gains (losses) (3) (23) 20 — Other 8,228 5,764 2,464 42.7 Total non-interest income $ 175,784 $ 159,698 $ 16,086 10.1 % Total non-interest income increased by $16.1 million, or 10.1%. The variances in significant individual non-interest income items are explained in the following paragraphs. Service charges increased $3.1 million, or 7.6%, primarily due to strong treasury management activity and higher consumer transaction activity. 75 Wealth management revenues increased $3.4 million, or 9.5%, as securities commissions and fees and trust income increased 12.0% and 7.8%, respectively, through continued strong contributions across the geographic footprint. Mortgage banking operations income increased $5.1 million, or 52.3%, driven by improved gain on sale from strong production volumes. During the first six months of 2024, we sold $654.1 million of residential mortgage loans, a 49.2% increase compared to $438.3 million for the same period of 2023. Dividends on non-marketable equity securities increased $3.5 million, or 36.7%, reflecting higher FHLB dividends due to additional borrowings. Non-Interest Expense The breakdown of non-interest expense for the six months ended June 30, 2024 and 2023 is presented in the following table: TABLE 17 Six Months Ended June 30, $ % (dollars in thousands) 2024 2023 Change Change Salaries and employee benefits $ 250,043 $ 234,193 $ 15,850 6.8 % Net occupancy 38,227 34,059 4,168 12.2 Equipment 48,107 43,417 4,690 10.8 Amortization of intangibles 8,821 10,163 (1,342) (13.2) Outside services 46,130 39,937 6,193 15.5 Marketing 9,437 7,644 1,793 23.5 FDIC insurance 22,616 14,836 7,780 52.4 Bank shares and franchise taxes 8,056 8,098 (42) (0.5) Merger-related — 2,215 (2,215) (100.0) Other 32,271 37,310 (5,039) (13.5) Total non-interest expense $ 463,708 $ 431,872 $ 31,836 7.4 % Total non-interest expense of $463.7 million for the first six months of 2024 increased $31.8 million, a 7.4% increase from the same period of 2023. On an operating basis, non-interest expense (non-GAAP) totaled $459.9 million and increased $30.2 million, or 7.0%, when adjusting for significant items of $3.8 million and $2.2 million in the first six months of 2024 and 2023, respectively. See Table 18 in this section for a list of significant items. The variances in the individual non-interest expense items are further explained in the following paragraphs. Salaries and employee benefits increased $15.9 million, or 6.8%, related to normal annual merit increases and higher production-related commissions from strong non-interest income activity. Included in salaries and employee benefits in the first quarter of 2024 and 2023 were $6.9 million and $6.7 million, respectively, related to normal seasonal long-term compensation expense. Net occupancy and equipment expense of $86.3 million increased $8.9 million, or 11.4%, primarily from continued technology-related investments. Outside services increased $6.2 million, or 15.5%, with higher volume-related technology and third-party costs. Marketing expense of $9.4 million increased $1.8 million, or 23.5%, primarily due to the timing of marketing campaigns. FDIC insurance increased $7.8 million, or 52.4%, primarily due to special assessment expense of $5.2 million in 2024 to further replenish the FDIC's Deposit Insurance Fund associated with protecting uninsured depositors following the failed banks in early 2023 based on updated loss information provided by the FDIC, as well as loan growth and balance sheet mix changes. We recorded $2.2 million in merger-related costs for the first six months of 2023 related to the UB Bancorp acquisition completed in December 2022. 76 Other non-interest expense was $32.3 million and $37.3 million for the first six months of 2024 and 2023, respectively. The first six months of 2024 included a $2.6 million reduction to the previously estimated loss on the indirect auto loan sale. The following table presents non-interest expense excluding significant items impacting earnings: TABLE 18 Six Months Ended June 30, $ % (dollars in thousands) 2024 2023 Change Change Total non-interest expense, as reported $ 463,708 $ 431,872 $ 31,836 7.4 % Significant items: Branch consolidations (1,194) — (1,194) Merger-related — (2,215) 2,215 FDIC special assessment (5,212) — (5,212) Reduction in previously estimated loss on indirect auto loan sale 2,603 — 2,603 Total non-interest expense, excluding significant items (1) $ 459,905 $ 429,657 $ 30,248 7.0 % (1) Non-GAAP Income Taxes The following table presents information regarding income tax expense and certain tax rates: TABLE 19 Six Months Ended June 30, (dollars in thousands) 2024 2023 Income tax expense $ 67,527 $ 72,250 Effective tax rate 21.6 % 20.0 % Statutory federal tax rate 21.0 21.0 Income tax expense was lower in the first six months of 2024 due to lower pre-tax earnings, partially offset by lower stock compensation vesting deductions, higher disallowance of FDIC premium deductions, and higher levels of proportional amortization for certain tax credit investments resulting from the adoption of FASB ASU 2023-02 on January 1, 2024. The effective tax rate increased for the six months ended June 30, 2024 as a result of these offsetting items. 77 FINANCIAL CONDITION The following table presents our condensed Consolidated Balance Sheets: TABLE 20 (dollars in millions) June 30, 2024 December 31, 2023 $ Change % Change Assets Cash and cash equivalents $ 1,880 $ 1,576 $ 304 19.3 % Securities 7,257 7,165 92 1.3 Loans held for sale 132 488 (356) (73.0) Loans and leases, net 33,338 31,917 1,421 4.5 Goodwill and other intangibles 2,537 2,546 (9) (0.4) Other assets 2,571 2,466 105 4.3 Total Assets $ 47,715 $ 46,158 $ 1,557 3.4 % Liabilities and Stockholders’ Equity Deposits $ 34,994 $ 34,711 $ 283 0.8 % Borrowings 5,632 4,477 1,155 25.8 Other liabilities 999 920 79 8.6 Total Liabilities 41,625 40,108 1,517 3.8 Stockholders’ Equity 6,090 6,050 40 0.7 Total Liabilities and Stockholders’ Equity $ 47,715 $ 46,158 $ 1,557 3.4 % Lending Activity The loan and lease portfolio consists principally of loans and leases to individuals and small- and medium-sized businesses within our primary markets 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. Loans held for sale declined $356 million, or 73.0%, from December 31, 2023 due primarily to the sale of $332 million of indirect auto loans that closed in the first quarter of 2024. Following is a summary of loans and leases: TABLE 21 June 30, 2024 December 31, 2023 $ Change % Change (in millions) Commercial real estate $ 12,664 $ 12,305 $ 359 2.9 % Commercial and industrial 7,597 7,482 115 1.5 Commercial leases 683 599 84 14.0 Other 145 110 35 31.8 Total commercial loans and leases 21,089 20,496 593 2.9 Direct installment 2,700 2,741 (41) (1.5) Residential mortgages 7,459 6,640 819 12.3 Indirect installment 1,188 1,149 39 3.4 Consumer lines of credit 1,321 1,297 24 1.9 Total consumer loans 12,668 11,827 841 7.1 Total loans and leases $ 33,757 $ 32,323 $ 1,434 4.4 % 78 The growth in commercial loans and leases was across our footprint. For consumer lending, average residential mortgages increased $1.3 billion, primarily driven by seasonal growth in mortgage originations in the second quarter of 2024. Our commercial real estate portfolio included $8.9 billion of non-owner-occupied loans of which 19.6% represented office space. Our top 25 non-owner-occupied commercial real estate loans averaged approximately $24 million per exposure although the office space was primarily made up of mid-sized offices located outside of metropolitan business districts with 41% of the office portfolio averaging less than $5 million per exposure. Non-Performing Assets Following is a summary of non-performing assets: TABLE 22 (in millions) June 30, 2024 December 31, 2023 $ Change % Change Commercial real estate $ 33 $ 42 $ (9) (21.4) % Commercial and industrial 45 39 6 15.4 Commercial leases 3 3 — — Other 2 — 2 — Total commercial loans and leases 83 84 (1) (1.2) Direct installment 5 5 — — Residential mortgages 12 10 2 20.0 Indirect installment 2 2 — — Consumer lines of credit 6 6 — — Total consumer loans 25 23 2 8.7 Total non-performing loans and leases 108 107 1 0.9 Other real estate owned 3 3 — — Total non-performing assets $ 111 $ 110 $ 1 0.9 % Non-performing assets increased slightly by $0.6 million, from $110.0 million at December 31, 2023 to $110.5 million at June 30, 2024, and remain at or near historically low levels. Allowance for Credit Losses on Loans and Leases The CECL model takes into consideration the expected credit losses over the life of the loan at the time the loan is originated. The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation: • 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 default mean 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 79 (iv) bankruptcies, which increase steadily over the R&S forecast period but average below the historical through the cycle period. Following is a summary of certain data related to the ACL and loans and leases: TABLE 23 Net Loan Charge-Offs Net Loan Charge-Offs to Average Loans ACL at Six Months Ended June 30, Six Months Ended June 30, June 30, 2024 2023 2024 2023 2024 (dollars in millions) Commercial real estate $ 9.1 $ 6.0 0.06 % 0.04 % $ 157.7 Commercial and industrial 6.1 9.7 0.04 0.07 93.5 Commercial leases 0.1 — — — 22.9 Other commercial 1.0 1.9 0.01 0.01 4.0 Direct installment 0.2 0.1 — — 30.9 Residential mortgages 0.1 0.4 — — 88.2 Indirect installment 3.9 3.7 0.02 0.02 13.1 Consumer lines of credit 0.1 0.1 — — 8.5 Total net loan charge-offs on loans and leases, net loan charge-offs (annualized)/average loans $ 20.6 $ 21.9 0.13 % 0.14 % $ 418.8 Allowance for credit losses/total loans and leases 1.24 % 1.32 % Allowance for credit losses/non-performing loans 388.11 % 289.45 % The ACL on loans and leases of $418.8 million at June 30, 2024 increased $13.2 million, or 3.3%, from December 31, 2023. Our ending ACL coverage ratio was stable at 1.24% at June 30, 2024 compared to 1.25% at December 31, 2023. Total provision for credit losses for the six months ended June 30, 2024 was $34.1 million, compared to $32.6 million for the same period in 2023. Net charge-offs were $20.6 million for the six months ended June 30, 2024, compared to $21.9 million for the first six months of 2023. The ACL as a percentage of non-performing loans for the total portfolio increased slightly to 388% as of June 30, 2024, compared to 378% as of December 31, 2023. Deposits Our primary source of funds is deposits. Our diversified and granular deposit base are provided by business, consumer and municipal customers who we serve within our footprint. Following is a summary of deposits: TABLE 24 (in millions) June 30, 2024 December 31, 2023 $ Change % Change Non-interest-bearing demand $ 10,062 $ 10,222 $ (160) (1.6) % Interest-bearing demand 14,697 14,809 (112) (0.8) Savings 3,348 3,465 (117) (3.4) Certificates and other time deposits 6,887 6,215 672 10.8 Total deposits $ 34,994 $ 34,711 $ 283 0.8 % Total deposits increased $283.1 million, or 0.8%, from December 31, 2023, however we continued to experience balance migration into higher-yielding deposit products. We ended the quarter with approximately 78% of all deposits insured by the FDIC or collateralized. 80 Capital Resources and Regulatory Matters Our capital position depends in part on the access to, and cost of, funding for new business initiatives, the ability to engage in expanded business activities, the ability to pay dividends and the level and nature of regulatory oversight. The assessment of capital adequacy depends on a number of factors such as expected organic growth in the Consolidated Balance Sheet, asset quality, liquidity, earnings performance and sustainability, changing competitive conditions, regulatory changes or actions, and economic forces. We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to current operations and to promote public confidence. Pursuant to and in compliance with applicable SEC laws, rules and regulations, we may, from time to time, issue and sell in one or more offerings any combination of common stock, preferred stock, debt securities, depositary shares, warrants, stock purchase contracts or units. Since inception of our $300 million stock purchase program, we repurchased 14.1 million shares at a weighted average share price of $11.39 for $164.3 million, with $135.7 million remaining for repurchase. Any repurchases will be made from time to time on the open market at prevailing market prices or in privately negotiated transactions. The purchases will be funded from available working capital. There is no guarantee as to the exact number of shares that will be repurchased and we may discontinue purchases at any time. The Inflation Reduction Act of 2022 includes a 1% excise tax on stock repurchases beginning January 1, 2023. On February 15, 2024, we redeemed all our Series E, 7.25% Fixed Rate / Floating Rate Non-Cumulative Perpetual Preferred Stock in the amount of $111 million. The preferred stock is no longer outstanding and dividends will no longer accrue on such securities. Capital management is a continuous process, with capital plans and stress testing for FNB and FNBPA updated at least annually. These capital plans include assessing the adequacy of expected capital levels assuming various scenarios by projecting capital needs for a forecast period of 2-3 years beyond the current year. From time to time, we issue shares initially acquired by us as treasury stock under our various benefit plans. We may issue additional preferred or common stock to maintain our well-capitalized status. FNB and FNBPA are subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulators to ensure capital adequacy require FNB and FNBPA to maintain minimum amounts and ratios of total, tier 1 and CET1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of leverage ratio (as defined). Failure to meet minimum capital requirements could lead to initiation of certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our Consolidated Financial Statements, dividends and future business and corporate strategies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FNB and FNBPA must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. FNB’s and FNBPA’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. At June 30, 2024, the capital levels of both FNB and FNBPA exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered “well-capitalized” for regulatory purposes. In December 2018, the FRB and other U.S. banking agencies approved a rule to address the impact of CECL on regulatory capital by allowing bank holding companies (BHCs) and banks, including FNB, the option to phase in the day-one impact of CECL over a three-year period. In March 2020, the FRB and other U.S. banking agencies issued a final rule that became effective on March 31, 2020, and provides BHCs and banks with an alternative option to temporarily delay the impact of CECL, relative to the incurred loss methodology for the ACL, on regulatory capital. We have elected this alternative option instead of the one described in the December 2018 rule. As a result, under the final rule, we delayed recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extended through December 31, 2021. Beginning on January 1, 2022, we were required to phase in 25% of the previously deferred capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. Under the final rule, the estimated impact of CECL on regulatory capital that we will defer and later phase in is calculated as the entire day-one impact at adoption plus 25% of the subsequent change in the ACL during the two-year deferral period. As of June 30, 2024, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $17.2 million, or 5 basis points, which will be eliminated in 2025. 81 In this unprecedented economic and uncertain environment, we frequently run stress tests for a variety of economic situations, including severely adverse scenarios that have economic conditions like the current conditions. Under these scenarios, the results of these stress tests indicate that our regulatory capital ratios would remain above the regulatory requirements and we would be able to maintain appropriate liquidity levels, demonstrating our expected ability to continue to support our customers and communities under stressful financial conditions. Following are the capital amounts and related ratios for FNB and FNBPA: TABLE 25 Actual Well-Capitalized Requirements (1) Minimum Capital Requirements plus Capital Conservation Buffer (dollars in millions) Amount Ratio Amount Ratio Amount Ratio As of June 30, 2024 F.N.B. Corporation Total capital $ 4,508 12.01 % $ 3,754 10.00 % $ 3,941 10.50 % Tier 1 capital 3,825 10.19 2,252 6.00 3,191 8.50 Common equity tier 1 3,825 10.19 n/a n/a 2,628 7.00 Leverage 3,825 8.63 n/a n/a 1,773 4.00 Risk-weighted assets 37,538 FNBPA Total capital $ 4,692 12.58 % $ 3,731 10.00 % $ 3,917 10.50 % Tier 1 capital 3,866 10.36 2,984 8.00 3,171 8.50 Common equity tier 1 3,786 10.15 2,425 6.50 2,611 7.00 Leverage 3,866 8.77 2,205 5.00 1,764 4.00 Risk-weighted assets 37,306 As of December 31, 2023 F.N.B. Corporation Total capital $ 4,456 12.16 % $ 3,664 10.00 % $ 3,847 10.50 % Tier 1 capital 3,786 10.33 2,198 6.00 3,114 8.50 Common equity tier 1 3,680 10.04 n/a n/a 2,565 7.00 Leverage 3,786 8.72 n/a n/a 1,736 4.00 Risk-weighted assets 36,641 FNBPA Total capital $ 4,559 12.50 % $ 3,647 10.00 % $ 3,829 10.50 % Tier 1 capital 3,769 10.34 2,917 8.00 3,100 8.50 Common equity tier 1 3,689 10.12 2,370 6.50 2,553 7.00 Leverage 3,769 8.71 2,164 5.00 1,731 4.00 Risk-weighted assets 36,466 (1) Reflects the well-capitalized standard under Regulation Y for F.N.B. Corporation and the prompt corrective action framework for FNBPA. In accordance with Basel III Capital Rules, the minimum capital requirements plus capital conservation buffer, which are presented for each period above, represent the minimum requirements needed to avoid limitations on distributions of dividends and certain discretionary bonus payments. 82 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) The Dodd-Frank Act broadly affects the financial services industry by establishing a framework for systemic risk oversight, creating a resolution authority for institutions determined to be systemically important, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies and containing numerous other provisions aimed at strengthening the sound operation of the financial services sector that significantly change the system of regulatory oversight as described in more detail under Part I, Item 1, “Business - Government Supervision and Regulation” included in our 2023 Annual Report on Form 10-K as filed with the SEC on February 26, 2024. LIQUIDITY Our primary liquidity management goal is to satisfy the cash flow requirements of customers and the operating cash needs of FNB with cost-effective funding. Our Board of Directors has established an Asset/Liability Management Policy to guide management in achieving and maintaining earnings performance consistent with long-term goals, while maintaining acceptable levels of interest rate risk, a “well-capitalized” Balance Sheet and appropriate levels of liquidity. Our Board of Directors has also established Liquidity and Contingency Funding Policies to guide management in addressing the ability to identify, measure, monitor and control both normal and stressed liquidity conditions. These policies designate our ALCO as the body responsible for meeting these objectives. The ALCO, which is comprised of members of executive management, reviews liquidity on a continuous basis and approves significant changes in strategies that affect Balance Sheet or cash flow positions. Liquidity is centrally managed daily by our Treasury Department. Parent Company Liquidity The parent company’s funding requirements primarily consist of shareholder dividends, debt service, income taxes, operating expenses, funding of non-bank subsidiaries, and stock repurchases. The parent company’s funding sources primarily consist of dividends and interest received from the Bank and other direct subsidiaries, net taxes collected from subsidiaries included in the consolidated tax returns, fees for services provided to subsidiaries and the issuance of debt instruments. The dividends received from the Bank and other direct subsidiaries may be impacted by the parent’s or its subsidiaries’ capital and liquidity needs, statutory laws and regulations, corporate policies, contractual restrictions, profitability and other factors. In addition, through one of our subsidiaries, we regularly issue subordinated notes, which are guaranteed by FNB. Management utilizes various strategies to ensure sufficient cash on hand is available to meet the parent company's funding needs. During the third quarter of 2022, we completed a Senior Debt offering for $347.7 million in net proceeds. A portion of these proceeds was used to retire debt that matured in February 2023 (for additional information, see Note 9, "Borrowings" in the Notes to the Consolidated Financial Statements in this Report). We have historically been opportunistic when accessing the capital markets, and we will continue with that strategy. The parent company's cash position at June 30, 2024 was $282.9 million, down $92.5 million from year-end, primarily due to the redemption of all $111 million of our Series E, 7.25% Fixed Rate / Floating Rate Non-Cumulative Perpetual Preferred Stock in February 2024. The Board of Directors declared the redemption of the preferred stock given its higher relative cost of capital and our strong capital position with the regulatory CET1 ratio and Total Capital ratios at 10.2% and 12.0%, respectively, at June 30, 2024 with the Total Capital ratio reflecting the preferred stock redemption. Two metrics that are used to gauge the adequacy of the parent company’s cash position are the Liquidity Coverage Ratio (LCR) and Months of Cash on Hand (MCH). The LCR is defined as the sum of cash on hand plus projected cash inflows over the next 12 months divided by projected cash outflows over the next 12 months. The MCH is defined as the number of months of corporate expenses and dividends that can be covered by the existing cash on hand. The LCR and MCH ratios and Parent company cash on hand are presented in the following table: TABLE 26 June 30, 2024 December 31, 2023 Internal Limit Liquidity coverage ratio 2.7 times 2.0 times > 1 time Months of cash on hand 15.0 months 13.0 months > 12 months Parent company cash on hand (millions) $ 282.9 $ 375.4 n/a As previously mentioned, our parent company cash on hand declined from December 31, 2023 due to the preferred stock redemption, however our liquidity coverage ratio and months of cash on hand metrics improved primarily due to the lower 83 projected 12-month net cash outflow related to the preferred stock redemption. Management has concluded that our cash levels remain appropriate given the current market environment. Bank Liquidity Bank-level liquidity sources from assets include payments from loans and investments, as well as the ability to securitize, pledge or sell loans, investment securities and other assets. Liquidity sources from liabilities are generated primarily through the banking offices of FNBPA in the form of deposits and customer repurchase agreements. The Bank also has access to reliable and cost-effective wholesale sources of liquidity. Short- and long-term funds are available for use to help fund normal business operations, and unused credit availability can be utilized to serve as contingency funding if faced with a liquidity crisis. Over time, our liquidity position has been positively impacted by FNBPA's ability to generate growth in relationship-based accounts. Organic growth in low-cost transaction deposits has been complemented by management’s continued strategy of deposit gathering efforts focused on attracting new customer relationships across our geographic footprint and deepening relationships with existing customers, in part through internal lead generation efforts leveraging data analytics capabilities. At June 30, 2024, approximately 78% of our deposits were insured by the FDIC or collateralized, stable with December 31, 2023. Non-interest-bearing demand deposits decreased $160.4 million, compared to December 31, 2023. Interest-bearing demand deposits decreased $111.6 million and savings account balances decreased $117.0 million, while time deposits increased $672.0 million, compared to December 31, 2023, as customers continue to migrate deposits into higher-yielding deposit products. The mix of non-interest-bearing deposits to total deposits remained consistent with the prior quarter at 29%. Our cash balances held at the FRB were $1.4 billion at June 30, 2024 and $1.1 billion at December 31, 2023. Management will continue to evaluate appropriate levels of liquidity based on expected loan and deposit growth and other balance sheet activity. The following table presents certain information relating to FNBPA’s credit availability and salable unpledged securities: TABLE 27 (dollars in millions) June 30, 2024 December 31, 2023 Unused wholesale credit availability $ 14,914 $ 15,899 Unused wholesale credit availability as a % of FNBPA assets 31.4 % 34.6 % Salable unpledged government and agency securities $ 1,126 $ 657 Salable unpledged government and agency securities as a % of FNBPA assets 2.4 % 1.4 % Cash and salable unpledged government and agency securities as a % of FNBPA assets 5.4 % 3.8 % Our bank-level liquidity position was strong throughout the first half of 2024. Our contingency funding policy and periodic liquidity stress testing of multiple stress scenarios is particularly valuable as we successfully manage our liquidity. We continue to have ample unused borrowing capacity that could cover 1.9 times the uninsured deposit and non-collateralized deposit balances as of June 30, 2024. A portion of this capacity includes the FRB's Discount Window. We have no borrowings under this facility. Additional sources of unused wholesale credit availability for FNBPA include the ability to borrow from the FHLB, correspondent bank lines, and access to other channels. In addition to credit availability, FNBPA also possesses salable unpledged government and agency securities that could be utilized to meet funding needs and has excess cash to meet its pledging requirements. At June 30, 2024, FNBPA has $2.5 billion of cash and salable unpledged government and agency securities representing 5.4% of total assets. This compares to a policy minimum of 3.0%. Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis as of June 30, 2024 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals. Management calculates this ratio at least quarterly and it is reviewed regularly by ALCO. Management monitors the size of the liquidity gaps so that sources and uses of funds are reasonably matched in the normal course of business and in relation to implied forward rate expectations. A reasonably matched position lays a better foundation for dealing with additional funding needs during a potential liquidity crisis. A positive gap position means that more assets are expected to mature over the next 12 months than liabilities. The allocation of non-maturity deposits and customer repurchase agreements to the twelve-month categories is based on the estimated lives of each product. 84 TABLE 28 (dollars in millions) Within 1 Month 2-3 Months 4-6 Months 7-12 Months Total 1 Year Assets Loans $ 1,031 $ 1,705 $ 2,236 $ 3,534 $ 8,506 Investments 1,521 177 253 623 2,574 2,552 1,882 2,489 4,157 11,080 Liabilities Non-maturity deposits 292 585 877 1,754 3,508 Time deposits 978 1,367 1,996 1,972 6,313 Borrowings 3,044 112 264 645 4,065 4,314 2,064 3,137 4,371 13,886 Period Gap (Assets - Liabilities) $ (1,762) $ (182) $ (648) $ (214) $ (2,806) Cumulative Gap $ (1,762) $ (1,944) $ (2,592) $ (2,806) Cumulative Gap to Total Assets (3.7) % (4.1) % (5.4) % (5.9) % The twelve-month cumulative gap to total assets ratio was (5.9)% as of June 30, 2024, compared to (2.6)% as of December 31, 2023. The change in the twelve-month cumulative gap to total assets was primarily related to the active management of deposit pricing across the deposit product maturity tenors which reduced our asset sensitivity. In addition, the ALCO regularly monitors various liquidity ratios, stress scenarios of our liquidity position and assumptions considering market disruptions, lending demand, deposit behavior, and funding availability. The stress scenarios forecast that adequate funding will be available even under severe conditions. Management believes we have sufficient liquidity available to meet our normal operating and contingency funding cash needs. MARKET RISK Market risk refers to potential losses arising predominately from changes in interest rates, foreign exchange rates, equity prices and commodity prices. Interest rate risk is comprised of repricing risk, basis risk, yield curve risk and options risk. We are primarily exposed to interest rate risk inherent in our lending and deposit-taking activities as a financial intermediary. To succeed in this capacity, we offer an extensive variety of financial products to meet the diverse needs of our customers. These products sometimes contribute to interest rate risk for us when product groups do not complement one another. For example, depositors may want short-term deposits, while borrowers may desire long-term loans. Changes in market interest rates may result in changes in the fair value of our financial instruments, cash flows and net interest income. Subject to its ongoing oversight, the Board of Directors has given ALCO the responsibility for market risk management, which involves devising policy guidelines, risk measures and limits, and managing the amount of interest rate risk and its effect on net interest income and capital. We use derivative financial instruments for interest rate risk management purposes and not for trading or speculative purposes. We use an asset/liability model to measure our interest rate risk. Interest rate risk measures we utilize include earnings simulation, EVE and gap analysis. Gap analysis and EVE are static measures that do not incorporate assumptions regarding future business. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single rate environment. EVE’s long-term horizon helps identify changes in optionality and longer-term positions. However, EVE’s liquidation perspective does not translate into the earnings-based measures that are the focus of managing and valuing a going concern. Net interest income simulations explicitly measure the exposure to earnings from changes in market rates of interest. In these simulations, our current financial position is combined with assumptions regarding future business activities to calculate net interest income under various hypothetical rate scenarios. The ALCO regularly reviews earnings simulations over multiple years under various interest rate scenarios. Reviewing these various measures provides us with a comprehensive view of our interest rate risk profile, which provides the basis for balance sheet management strategies. 85 The following repricing gap analysis as of June 30, 2024 compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. The allocation of non-maturity deposits and customer repurchase agreements to the one-month maturity category below is based on the estimated sensitivity of each product to changes in market rates. For example, if a product’s rate is estimated to increase by 50% as much as the market rates, then 50% of the account balance was placed in this category. Management utilizes the repricing gap analysis as a diagnostic tool in managing net interest income and EVE risk measures. TABLE 29 (dollars in millions) Within 1 Month 2-3 Months 4-6 Months 7-12 Months Total 1 Year Assets Loans $ 15,695 $ 1,094 $ 947 $ 1,768 $ 19,504 Investments 1,530 181 315 618 2,644 17,225 1,275 1,262 2,386 22,148 Liabilities Non-maturity deposits 8,148 — — — 8,148 Time deposits 1,076 1,365 1,993 1,967 6,401 Borrowings 3,130 426 4 950 4,510 12,354 1,791 1,997 2,917 19,059 Off-balance sheet (1,200) 100 (100) 500 (700) Period Gap (Assets – Liabilities + Off-balance sheet) $ 3,671 $ (416) $ (835) $ (31) $ 2,389 Cumulative Gap $ 3,671 $ 3,255 $ 2,420 $ 2,389 Cumulative Gap to Earning Assets 8.6 % 7.6 % 5.7 % 5.6 % The twelve-month cumulative repricing gap to total assets was 5.6% and 10.3% as of June 30, 2024 and December 31, 2023, respectively. The positive cumulative gap positions indicate that we have a greater amount of repricing earning assets than repricing interest-bearing liabilities over the subsequent twelve months. The change in the cumulative repricing gap at June 30, 2024, compared to December 31, 2023, is primarily related to customers moving into shorter-term time deposits and the increase in short-term and variable-rate borrowings. In addition to the repricing gap analysis above, we model rate scenarios which move all rates gradually over twelve months (Rate Ramps). We also model rate scenarios which move all rates in an immediate and parallel fashion (Rate Shocks) and model scenarios that gradually change the shape of the yield curve. Using a static Balance Sheet structure and utilizing net interest income simulations, the following table presents an analysis of the potential sensitivity of our net interest income to changes in interest rates using Rate Ramps and the sensitivity of EVE using Rate Shocks. The variance percentages represent the change between the net interest income and EVE calculated under the particular rate scenario compared to the net interest income and EVE that was calculated assuming market rates as of June 30, 2024. The calculated results do not reflect management's potential actions. 86 TABLE 30 June 30, 2024 December 31, 2023 ALCO Limits Net interest income change over 12 months (Rate Ramps): + 200 basis points 2.9 % 3.9 % (10.0) % + 100 basis points 1.5 2.0 (10.0) - 100 basis points (1.5) (2.0) (10.0) - 200 basis points (3.1) (4.1) (10.0) Economic value of equity (Rate Shocks): + 300 basis points 4.8 4.6 (25.0) + 200 basis points 3.9 3.2 (15.0) + 100 basis points 2.4 1.6 (10.0) - 100 basis points (3.5) (2.5) (10.0) - 200 basis points (8.2) (8.0) (15.0) There are multiple factors that influence our interest rate risk position and impact net interest income. These include external factors such as the shape of the yield curve, the competitive landscape and expectations regarding future interest rates, as well as internal factors regarding product offerings, product mix and pricing of loans and deposits. Our current interest rate risk position is primarily driven by our loan portfolio. Total variable and adjustable-rate loans were 62.8% and 62.2% of total net loans and leases at June 30, 2024 and December 31, 2023, respectively. Forty-eight percent of our net loans and leases reprice within the next three months and are indexed to short-term SOFR, Prime and other indices. Furthermore, we regularly sell long-term fixed-rate residential mortgages in the secondary market and have been successful in the origination of consumer and commercial loans with short-term repricing characteristics. Management continues to be proactive in managing our interest rate risk (IRR) position with the intention to manage to a more neutral position given the current market expectations for future interest rates. During the first half of 2024, management adjusted the IRR position by slightly extending the duration of the investment securities portfolio, originating adjustable rate mortgage loans with longer-duration fixed periods, strategically meeting our customers' preferences for higher yielding deposit products, in particular, with shorter-term time deposits, and utilizing borrowings of variable rates and varying maturities. As a result, the net interest income change over 12 months shown above in both the up and down rate ramp scenarios is closer to neutral compared to December 31, 2023. We also utilize derivatives to manage the IRR position. These positions are used to protect the fair value of assets and liabilities by converting the contractual interest rate on a specified amount (i.e., notional amounts) to another interest rate index or to hedge the variability in cash flows attributable to the contractually specified interest rate by converting the variable rate index into a fixed rate. The volume, maturity and mix of derivative positions change periodically as we adjust our broader interest rate risk management objectives, and the balance sheet positions to be hedged. We currently have $1.2 billion (notional) of receive-fixed interest rate swaps designated as cash flow hedges for variable rate commercial loans with $1.0 billion (notional) of these swaps maturing at various dates throughout 2025 and $0.2 billion (notional) maturing in May 2026. Additionally, we have a $0.2 million (notional) interest rate collar on variable rate commercial loans with strike rates between 2.8525% and 5.50% that matures in April 2026. We also designated $0.2 billion (notional) of interest rate swaps as hedges of variable rate short-term debt with $0.1 billion and $0.1 billion maturing in July and November 2024, respectively. Derivative financial instruments are also offered to enable commercial customers to meet their financing and investing objectives and for their risk management purposes. We typically enter into offsetting third-party contracts with reputable counterparties with substantially matching terms to economically hedge the exposure related to these derivatives. At June 30, 2024, the commercial customer-related interest rate swaps totaled $5.8 billion (notional), up from $5.7 billion (notional) at December 31, 2023. For additional information regarding interest rate swaps, see Note 10, "Derivative Instruments and Hedging Activities" in the Notes to Consolidated Financial Statements in this Report. In addition to the rate ramp scenarios for net interest income changes shown above, we also model immediate interest rate shock scenarios. These results use historical long-term deposit rate beta assumptions that are regularly analyzed and adjusted as necessary for both rising and falling rate scenarios. Assuming a static Balance Sheet, a +100 basis point Rate Shock increases net interest income (12 months) by 2.5% at June 30, 2024 and 3.4% at December 31, 2023. For a +200 basis point Rate Shock, net interest income (12 months) increases by 4.9% at June 30, 2024 and 6.7% at December 31, 2023. The corresponding 87 metrics for a minus 100 basis point Rate Shock are (2.7)% and (3.6)% at June 30, 2024 and December 31, 2023, respectively. The drivers of the change in net interest income in the rate shock scenarios include the mix shift of deposit products into shorter-term time deposits, the pace of deposit repricing and assumed betas and loan prepayments. These results reflect a more neutral net interest income change over 12 months in both the up and down rate shock scenarios compared to December 31, 2023, consistent with the rate ramp results. We recognize that all asset/liability models have some inherent shortcomings. Asset/liability models require certain assumptions to be made, such as prepayment rates on interest-earning assets and repricing impact on non-maturity deposits, which may differ from actual experience. These business assumptions are based upon our experience, business plans, economic and market trends and available industry data. While management believes that its methodology for developing such assumptions is reasonable, there can be no assurance that modeled results will be achieved. Furthermore, the metrics are based upon the Balance Sheet structure as of the valuation date and do not reflect planned growth or management actions that could be taken. CREDIT RATINGS Our credit ratings affect the cost and availability of short- and long-term funding and collateral requirements for certain derivative instruments. Credit ratings are subject to ongoing review by rating agencies, which consider a number of factors, including our financial strength, performance, prospects and operations as well as factors not under our control. Other factors that influence our credit ratings include changes to the rating agencies’ methodologies for our industry or certain security types; the rating agencies’ assessment of the general operating environment for financial services companies; our relative positions in the markets in which we compete; our various risk exposures and risk management policies and activities; pending litigation and other contingencies; our reputation; our liquidity position, diversity of funding sources and funding costs; the current and expected level and volatility of our earnings; our capital position and capital management practices; our corporate governance; current or future regulatory and legislative initiatives; and the agencies’ views on whether the U.S. government would provide meaningful support to us or our subsidiaries in a crisis. Credit rating downgrades or negative watch warnings could negatively impact our reputation with lenders, investors and other third parties, which could also impair our ability to compete in certain markets or engage in certain transactions. In particular, holders of deposits which exceed FDIC insurance limits may perceive such a downgrade or warning negatively and withdraw all or a portion of such deposits. 88 The following table presents the credit ratings for FNB and FNBPA as of June 30, 2024: TABLE 31 Moody's Standard & Poor's Kroll F.N.B. Corporation Issuer credit rating Baa2 BBB- A- Senior debt Baa2 BBB- A- Subordinated debt Baa2 n/a BBB+ First National Bank of Pennsylvania Baseline credit assessment Baa1 n/a n/a Issuer credit rating Baa1 BBB A Senior debt n/a n/a A Subordinated debt n/a n/a A- Bank deposits A2/P-1 n/a A Short-term borrowings n/a A-2 K1 Outlook for F.N.B. Corporation and First National Bank of Pennsylvania Negative Stable Stable n/a - not applicable 89 RISK MANAGEMENT As a financial institution, we take on a certain amount of risk in every business decision, transaction and activity. Accordingly, we have designed an Enterprise Risk Management Framework and risk management practices to help manage enterprise risks. Our Board of Directors and senior management have identified seven major categories of risk: credit risk, market risk, liquidity risk, operational risk, legal and compliance risk, reputation risk and strategic risk. In its oversight role of our risk management function, the Board of Directors focuses on the strategies, analyses and conclusions of management relating to identifying, understanding and managing risks to optimize total shareholder value, while balancing prudent business and safety and soundness considerations. We support our risk management processes and business oversight through the three lines of defense and a governance structure at the Board of Directors and management levels. The lines of defense model consists of: • First Line of Defense - consists of our businesses and enterprise support areas that engage in risk-taking activities and are principally responsible for owning and managing the day-to-day risk-taking activities in accordance with the risk frameworks. • Second Line of Defense - consists of Risk Management and Compliance Departments responsible for developing risk frameworks, overseeing risk-taking activities and identifying, assessing, monitoring and reporting on enterprise aggregate risks. • Third Line of Defense - is Internal Audit and provides independent assurance on the effectiveness of controls and risk management practices across our first and second lines of defense. Our Board of Directors is responsible for the oversight of management on behalf of our stockholders. The Board of Directors has assistance in carrying out its duties and may delegate authority through the following standing Board Committees: • Audit Committee - provides oversight of our internal and external audit processes. In addition, monitors the integrity of the consolidated financial statements, internal controls over financial reporting, qualifications and independence of our audit function. • Nominating and Corporate Governance Committee - responsible for selecting and recommending nominees for election to the FNB and FNBPA Boards of Directors. • Compensation Committee - reviews performance and compensation of senior management and reviews and implements compensation and benefit matters having corporate-wide significance. • Executive Committee - joint session of the FNB and FNBPA Board of Directors to cover special matters, as deemed necessary, in between regularly scheduled board meetings. • Risk Committee - provides oversight of our risk management and assessment processes, including the review and approval of risk management policies, procedures and practices, to identify, assess, monitor and report material risks. • Credit Fair Lending and CRA Committee - responsible for providing oversight of credit and lending strategies and objectives. The Risk Committee serves as the primary point of contact between our Board of Directors and the Risk Management Council (RMC), which is the senior management level committee responsible for identifying, assessing, monitoring and reporting on enterprise-wide risks. The Risk Committee and RMC are supported by other risk management committees, including Credit Risk Committees, Operational Risk Committee, Compliance Risk Committee and ALCO. Risk appetite is an integral element of our enterprise risk management framework and of our business and capital planning processes through our Board Risk Committee and Risk Management Council. We use our risk appetite processes to promote appropriate alignment of risk, capital and performance tactics, while also considering risk capacity and appetite constraints from both financial and non-financial risks. The Board of Directors adopted an enterprise risk appetite that defines acceptable risk limits under which we seek to operate in pursuit of optimizing returns. As such, we monitor a series of Key Risk Indicators for various business lines and operation units to measure performance alignment with our stated risk appetite. Our top-down risk 90 appetite process serves as a limit for undue risk-taking for bottom-up planning from our various business functions. Our Board Risk Committee, in collaboration with our Risk Management Council, approves our risk appetite on an annual basis, or more frequently, as needed to reflect changes in the risk, regulatory, economic and strategic plan environments, with the goal of ensuring that our risk appetite remains consistent with our strategic plans and business operations, regulatory environment and our shareholders' expectations. Our Enterprise Risk Management Framework provides the practices to identify, assess, control and monitor and report on risk across the organization. Reports relating to our risk appetite and strategic plans, and our ongoing monitoring thereof, and our aggregate risk profile, are regularly presented to our various management level risk oversight and planning committees and periodically reported up through our Board Risk Committee. The Board of Directors believes that our enterprise-wide risk management process is effective and enables the Board of Directors to: • assess the quality of the information they receive; • understand the businesses, investments and financial, accounting, legal, regulatory and strategic considerations, and the risks that FNB faces; • oversee and assess how senior management evaluates risk; and • assess appropriately the quality of our enterprise-wide risk management processes. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS TO GAAP Reconciliations of non-GAAP operating measures and key performance indicators discussed in this Report to the most directly comparable GAAP financial measures are included in the following tables. TABLE 32 Operating net income available to common stockholders Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Net income available to common stockholders $ 123,037 $ 140,382 $ 239,363 $ 284,877 Preferred dividend at redemption — — 3,995 — Merger-related expense — 163 — 2,215 Tax benefit of merger-related expense — (34) — (465) Branch consolidation costs — — 1,194 — Tax benefit of branch consolidation costs — — (251) — FDIC special assessment 804 — 5,212 — Tax benefit of FDIC special assessment (169) — (1,095) — Reduction of previous estimated loss on indirect auto loan sale — — (2,603) — Tax expense of reduction of previous estimated loss on indirect auto loan sale — — 547 — Operating net income available to common stockholders (non-GAAP) $ 123,672 $ 140,511 $ 246,362 $ 286,627 The table above shows how operating net income available to common stockholders (non-GAAP) is derived from amounts reported in our financial statements. We believe certain charges, such as merger expenses, preferred deemed dividend at redemption, FDIC special assessment, loss on indirect auto loan sale and branch consolidation costs are not organic costs to run our operations and facilities. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction. 91 TABLE 33 Operating earnings per diluted common share Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income per diluted common share $ 0.34 $ 0.39 $ 0.66 $ 0.78 Preferred dividend at redemption — — 0.01 — Merger-related expense — — — 0.01 Tax benefit of merger-related expense — — — — Branch consolidation costs — — — — Tax benefit of branch consolidation costs — — — — FDIC special assessment — — 0.01 — Tax benefit of FDIC special assessment — — — — Reduction of previous estimated loss on indirect auto loan sale — — (0.01) — Tax expense of reduction of previous estimated loss on indirect auto loan sale — — — — Operating earnings per diluted common share (non-GAAP) $ 0.34 $ 0.39 $ 0.68 $ 0.79 TABLE 34 Return on average tangible common equity Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2024 2023 2024 2023 Net income available to common stockholders (annualized) $ 494,851 $ 563,073 $ 481,357 $ 574,476 Amortization of intangibles, net of tax (annualized) 13,913 15,984 14,014 16,190 Tangible net income available to common stockholders (annualized) (non-GAAP) $ 508,764 $ 579,057 $ 495,371 $ 590,666 Average total stockholders’ equity $ 6,038,239 $ 5,833,186 $ 6,038,906 $ 5,782,694 Less: Average preferred stockholders' equity — (106,882) (26,427) (106,882) Less: Average intangible assets (1) (2,539,710) (2,558,631) (2,541,871) (2,561,087) Average tangible common equity (non-GAAP) $ 3,498,529 $ 3,167,673 $ 3,470,608 $ 3,114,725 Return on average tangible common equity (non-GAAP) 14.54 % 18.28 % 14.27 % 18.96 % (1) Excludes loan servicing rights. 92 TABLE 35 Operating return on average tangible common equity Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2024 2023 2024 2023 Operating net income available to common stockholders (annualized) $ 497,406 $ 563,588 $ 495,431 $ 578,005 Amortization of intangibles, net of tax (annualized) 13,913 15,984 14,014 16,190 Tangible operating net income available to common stockholders (annualized) (non-GAAP) $ 511,319 $ 579,572 $ 509,445 $ 594,195 Average total stockholders' equity $ 6,038,239 $ 5,833,186 $ 6,038,906 $ 5,782,694 Less: Average preferred stockholders' equity — (106,882) (26,427) (106,882) Less: Average intangible assets (1) (2,539,710) (2,558,631) (2,541,871) (2,561,087) Average tangible common equity (non-GAAP) $ 3,498,529 $ 3,167,673 $ 3,470,608 $ 3,114,725 Operating return on average tangible common equity (non-GAAP) 14.62 % 18.30 % 14.68 % 19.08 % (1) Excludes loan servicing rights. TABLE 36 Return on average tangible assets Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2024 2023 2024 2023 Net income (annualized) $ 494,851 $ 571,131 $ 493,431 $ 582,582 Amortization of intangibles, net of tax (annualized) 13,913 15,984 14,014 16,190 Tangible net income (annualized) (non-GAAP) $ 508,764 $ 587,115 $ 507,445 $ 598,772 Average total assets $ 46,471,781 $ 44,410,312 $ 46,074,685 $ 43,918,841 Less: Average intangible assets (1) (2,539,710) (2,558,631) (2,541,871) (2,561,087) Average tangible assets (non-GAAP) $ 43,932,071 $ 41,851,681 $ 43,532,814 $ 41,357,754 Return on average tangible assets (non-GAAP) 1.16 % 1.40 % 1.17 % 1.45 % (1) Excludes loan servicing rights. TABLE 37 Tangible book value per common share June 30, 2024 June 30, 2023 (dollars in thousands, except per share data) Total stockholders’ equity $ 6,089,634 $ 5,817,749 Less: Preferred stockholders’ equity — (106,882) Less: Intangible assets (1) (2,537,532) (2,556,307) Tangible common equity (non-GAAP) $ 3,552,102 $ 3,154,560 Ending common shares outstanding 359,558,026 358,820,568 Tangible book value per common share (non-GAAP) $ 9.88 $ 8.79 (1) Excludes loan servicing rights. 93 TABLE 38 Tangible common equity to tangible assets June 30, 2024 June 30, 2023 (dollars in thousands) Total stockholders' equity $ 6,089,634 $ 5,817,749 Less: Preferred stockholders' equity — (106,882) Less: Intangible assets (1) (2,537,532) (2,556,307) Tangible common equity (non-GAAP) $ 3,552,102 $ 3,154,560 Total assets $ 47,714,742 $ 44,777,964 Less: Intangible assets (1) (2,537,532) (2,556,307) Tangible assets (non-GAAP) $ 45,177,210 $ 42,221,657 Tangible common equity to tangible assets (non-GAAP) 7.86 % 7.47 % (1) Excludes loan servicing rights. TABLE 39 Operating non-interest expense Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (dollars in thousands) Non-interest expense $ 226,612 $ 211,955 $ 463,708 $ 431,872 Branch consolidations — — (1,194) — Merger-related — (163) — (2,215) FDIC special assessment (804) — (5,212) — Reduction of previous estimated loss on indirect auto loan sale — — 2,603 — Operating non-interest expense (non-GAAP) $ 225,808 $ 211,792 $ 459,905 $ 429,657 94 Key Performance Indicator s TABLE 40 Pre-provision net revenue: Three Months Ended (Dollars in thousands) June 30, 2024 March 31, 2024 Net interest income $ 315,890 $ 319,008 Non-interest income 87,922 87,862 Less: Non-interest expense (226,612) (237,096) Pre-provision net revenue (reported) (non-GAAP) $ 177,200 $ 169,774 Pre-provision net revenue (reported) (annualized) (non-GAAP) $ 712,695 $ 682,825 Adjustments: Add: Branch consolidation costs (non-interest expense) — 1,194 Add: FDIC special assessment (non-interest expense) 804 4,408 Less: Reduction of previous estimated loss on indirect auto loan sale (non-interest expense) — (2,603) Operating pre-provision net revenue (non-GAAP) $ 178,004 $ 172,773 Operating pre-provision net revenue (annualized) (non-GAAP) $ 715,928 $ 694,887 TABLE 41 Efficiency ratio Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2024 2023 2024 2023 Non-interest expense $ 226,612 $ 211,955 $ 463,708 $ 431,872 Less: Amortization of intangibles (4,379) (5,044) (8,821) (10,163) Less: OREO expense (200) (492) (390) (1,049) Less: Merger-related expense — (163) — (2,215) Less: Branch consolidation costs — — (1,194) — Less: FDIC special assessment (804) — (5,212) — Add: Reduction of previous estimated loss on indirect auto loan sale — — 2,603 — Adjusted non-interest expense $ 221,229 $ 206,256 $ 450,694 $ 418,445 Net interest income $ 315,890 $ 329,244 $ 634,898 $ 665,898 Taxable equivalent adjustment 2,915 3,269 5,825 6,543 Non-interest income 87,922 80,309 175,784 159,698 Less: Net securities (gains) losses 3 6 3 23 Adjusted net interest income (FTE) + non-interest income $ 406,730 $ 412,828 $ 816,510 $ 832,162 Efficiency ratio (FTE) (non-GAAP) 54.39 % 49.96 % 55.20 % 50.28 % 95 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by this item is provided in the Market Risk section of "MD&A," which is included in Item 2 of this Report, and is incorporated herein by reference.