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Item 1A. Risk Factors

2025-02-27 compared with 2024-02-26 · 160 added, 176 removed, 249 unchanged (57% of the section changed)

We are subject to numerous risks, many of which are inherent to our business.

As a financial services organization, we must balance revenue generation and profitability with the risks associated with our business activities.

For information about how our risk oversight and management process operates, see Item 7 of this Report, MD&A – "Risk Management.” The following discussion highlights specific risks that could affect us and our business, financial condition, results of operations and cash flows.

Based on the information currently known, we believe that the following information identifies the material risk factors affecting us.

The risks and uncertainties we face are not limited to those described below.

Additional risks and uncertainties not presently known or that we currently believe to be immaterial may also adversely affect our business.

For information about how our risk oversight and management process operates, see Item 7 of this Report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management.” The following discussion highlights certain material risks that, based on the information currently known to us, could affect us and our business, financial condition, results of operations and cash flows.

You should carefully consider each of the following risks and all the other information set forth in this Report.

If any of the following risks and uncertainties develop into actual events or if the circumstances described in the risks and uncertainties occur or continue to occur, these events or circumstances could have a material adverse effect on our business, financial condition, results of operations, cash flows, competitive position or reputation, including by materially increasing expenses or decreasing revenues, which could result in material losses or a decrease in earnings.

These events could also have a negative effect on the trading price of our securities.

In addition, the risks and uncertainties we face involve certain factors that are subject to change, and are not limited to those described below.

This discussion is intended to highlight risks that we believe are important factors to consider when evaluating our business and an investment in our securities.

Additional risks and uncertainties not presently known or that we currently believe to be immaterial may also adversely affect our business.

Our results of operations are significantly affected by the ability of our borrowers to repay their loans.

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Furthermore, the application of various federal and state laws may limit the amount that can be recovered on these loans.

For additional information, see the Lending Activity section of MD&A, which is included in Item 7 of this Report.

For additional information, see Item 7 of this Report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Lending Activity.”

Our mortgage banking profitability could be significantly reduced if we are not able to originate and resell a high volume of mortgage loans.

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During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations.

• Future changes to our eligibility to participate in the programs offered by the government-sponsored entities (GSEs) and other secondary purchasers, or the loan criteria of the GSEs and other secondary purchasers could also result in a lower volume of corresponding loan originations and sales.

• Future changes to our eligibility to participate in the programs offered by the government-sponsored enterprises (GSEs) and other secondary purchasers, or the loan criteria of the GSEs and other secondary purchasers could also result in a lower volume of corresponding loan originations and sales.

• The estimates of revenues produced by the models we use to assess the impact of interest rates on mortgage-related revenues are dependent on estimates and assumptions of future loan demand, prepayment speeds and other factors which may differ from actual subsequent experience.

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There is no precise method of predicting loan losses.

We can give no assurance that our ACL will be sufficient to absorb actual loan losses.

Our ACL may not be sufficient to absorb actual loan losses that we experience.

Excess loan losses could have a material adverse effect on our financial condition and results of operations.

The level of the ACL reflects the judgment and estimates of management regarding the amount and timing of future cash flows, current fair value of the underlying collateral and other qualitative risk factors that may affect the loan.

The level of the ACL incorporates the judgment and estimates of our management regarding the amount and timing of future cash flows, current fair value of the underlying collateral and other qualitative risk factors that may affect our loan portfolio.

Determination of the allowance is inherently subjective and is based on factors that are susceptible to significant change.

Continuing deterioration in economic conditions affecting borrowers, new information regarding existing loans, suspected fraud, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the ACL.

In addition, bank regulatory agencies periodically review our ACL and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different from those of management.

In addition, if charge-offs in future periods exceed the ACL, we will need additional provisions to increase the ACL.

Any increases in the ACL will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations.

For additional discussion relating to this matter, refer to the Allowance and Provision for Credit Losses section of MD&A, which is included in Item 7 of this Report.

For additional discussion relating to this matter, refer to Item 7 of this Report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Credit Losses."

Our business and financial performance is impacted significantly by market interest rates and changes in those rates.

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• such changes may decrease the demand for interest rate-based products or services, including bank loans and deposit products and the subordinated notes offered by our subsidiary, FNB Financial Services, LP;

• such changes can also affect our ability to hedge various forms of market and interest rate risks and may decrease the profitability or increase the risk associated with such hedges;

• movements in interest rates also affect mortgage repayment speeds and could result in impairments of MSAs or otherwise affect the profitability of such assets.

• such changes can affect our ability to hedge various forms of market and interest rate risks and may decrease the profitability or increase the risk associated with such hedges;

• movements in interest rates affect mortgage repayment speeds and could result in impairments of mortgage servicing assets or otherwise affect the profitability of such assets.

The monetary, tax and other policies of the U.S.

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Due to elevated levels of inflation and corresponding pressure to raise interest rates, the FRB announced in January 2022 that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time, which it did from March 2022 to July 2023.

The FOMC has since paused increases to the target federal funds rate.

Although economists are projecting that the target funds rate will likely decline in small periodic increments, the timing, extent, and frequency of such reductions remain uncertain.

The FOMC began cutting the target federal funds rate in September 2024, most recently to a range of 4.25% to 4.50%, as announced in its FOMC policy statement issued on December 18, 2024.

Economists are projecting that the target funds rate will likely decline further in small periodic increments, however the timing, extent, and frequency of such reductions remain uncertain.

Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits;

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and (iii) the average duration of our mortgage portfolio and other interest-earning assets.

If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected.

Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

If the interest rates paid on deposits and other borrowings decrease at a slower rate than the interest rates received on loans and other investments, or vice versa, our net interest income, and therefore earnings, could be adversely affected.

Earnings could also be adversely affected if the interest rates received on loans and other

investments fall more quickly than the interest rates paid on deposits and other borrowings.

A reduction in interest rates could result in unanticipated or adverse changes in depositor behavior, which could negatively affect our broader asset and liability management strategy.

Interest rate risk may also result from timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, hedging activity and the potential exercise of explicit or embedded options.

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations, and any related economic downturn, especially domestically and in the regions in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations.

Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual or future interest rate changes on our balance sheet.

Changes in interest rates could reduce the value of our AFS securities holdings which would increase our accumulated other comprehensive loss and thereby negatively impact stockholders’ equity.

Our interest rate risk modeling techniques and assumptions may not fully predict or capture the impact of actual or future interest rate changes on our balance sheet.

Any substantial, unexpected, or prolonged change in market interest rates, or if the assumptions used for our models are substantially different than actual events, could result in material adverse effects on our financial condition and results of operations, and any related economic downturn, especially domestically and in the regions in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations.

Changes in interest rates could reduce the value of our AFS securities holdings which would increase our accumulated other comprehensive loss and thereby negatively impact shareholders’ equity.

We maintain an investment portfolio consisting of various high-quality liquid fixed-income securities.

The total carrying value of the AFS securities portfolio as of December 31, 2023 was $3.3 billion and the estimated duration of the portfolio was approximately 3 years.

The total carrying value of the AFS securities portfolio as of December 31, 2024 was $3.5 billion with an estimated duration of approximately 2.9 years.

The nature of fixed-income securities is such that changes in market interest rates impact the value of these assets.

Based on the duration of our AFS securities portfolio, a one percent increase or decrease in market rates is projected to positively or negatively impact the market value of the AFS securities portfolio by approximately $100 million.

Increases or decreases in market interest rates are expected to further increase or decrease our AOCI (loss) and thereby decrease stockholders’ equity.

Increases or decreases in market interest rates are expected to further increase or decrease our AOCI (loss) and thereby decrease or increase shareholders’ equity.

Further, the FRB and the OCC may consider increases in AOCI when evaluating our regulatory capital position, although current capital regulations permit AOCI to be excluded from capital for institutions of our size.

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However, the sale of all or a material portion of our securities portfolio to increase liquidity in the face of withdrawals would cause the realization of significant losses that would, in turn, reduce our regulatory capital position.

Our growth may require us to raise additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations (see discussion under “Government Supervision and Regulation” included in Item 1 of this Report).

As a financial holding company, we seek to maintain capital sufficient to meet the “well-capitalized” standard set by regulators.

While we anticipate that our current capital resources will satisfy our capital requirements for the foreseeable future, we may, at some point need to raise additional capital to support current operations or continued growth.

The availability of additional capital or financing will depend on a variety of factors, many of which are outside of our control, including market conditions, credit availability, our credit ratings and credit capacity, marketability of our stock, and the possibility that lenders and investors could develop a negative perception of our long- or short-term financial prospects if we incur large credit losses or if the level of business activity decreases due to economic conditions.

Accordingly, there can be no assurance of our ability to expand our operations through organic growth or acquisitions.

As such, we may be forced to delay raising capital, issue shorter-term securities than desired or bear an unattractive cost of capital, which could decrease profitability and significantly reduce financial flexibility.

In addition, if we decide to raise additional equity capital, it could be dilutive to our existing stockholders.

We are dependent on dividends from our subsidiaries to meet our financial obligations and pay dividends to stockholders.

The proportion of our deposit account balances that exceed FDIC insurance limits may expose FNBPA to enhanced liquidity risk in times of financial distress.

In the wake of the failures of Silicon Valley Bank (SIVB), Signature Bank (SBNY) and First Republic Bank (FRC), which the FDIC concluded were generated by, in significant part, a high volume of uninsured deposits, many large depositors across the industry have withdrawn deposits in excess of applicable deposit insurance limits and deposited these funds in other financial institutions.

In many instances, depositors moved these funds into money market mutual funds or other similar securities accounts in an effort to diversify the risk of further bank failure(s).

Uninsured deposits historically have been viewed by the FDIC as less stable than insured deposits.

The federal banking agencies, including the FDIC and OCC, issued an interagency policy statement in July 2023, noting that banks should maintain actionable contingency funding plans that take into account a range of possible stress scenarios, assess the stability of their funding and maintain a broad range of funding sources, ensure that collateral is available for borrowing, and review and revise contingency funding plans periodically and more frequently as market conditions and strategic initiatives change.

If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, we may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin.

Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period.

Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited.

Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits.

This spread may be exacerbated by higher prevailing interest rates.

In addition, because our AFS investment securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may be diminished during periods when interest rates are elevated.

Under such circumstances, we may be required to access funding from sources such as the FRB’s discount window in order to manage our liquidity risk.

We are dependent on dividends from our subsidiaries to meet our financial obligations and pay dividends to shareholders.

We are a holding company and conduct almost all our operations through our subsidiaries.

We do not have any significant assets other than cash and the stock of our subsidiaries.

Accordingly, we depend on dividends from our subsidiaries, in

particular FNBPA, to meet our financial obligations and to pay dividends to stockholders.

Accordingly, we depend on dividends from our subsidiaries, in particular FNBPA, to meet our financial obligations and to pay dividends to shareholders.

Our right to participate in any distribution of earnings or assets of our subsidiaries is subject to the prior claims of creditors of such subsidiaries.

Under federal law, the amount of dividends that a national bank, such as FNBPA, may pay in a calendar year is dependent on the amount of our net income for the current year combined with our retained net income for the two preceding years.

The OCC has the authority to prohibit FNBPA from paying dividends if it determines such payment would be an unsafe and unsound banking practice.

Likewise, our state-based entities are subject to state laws governing dividend practices and payments.

Under federal law, the amount of dividends that a national bank, such as FNBPA, may pay in a calendar year is generally limited to the amount of our net income for the current year combined with our retained net income for the two preceding years.

Likewise, our state incorporated entities are subject to state laws governing dividend practices and payments.

Regulatory authorities may restrict our ability to pay dividends on, and make repurchases of, our common stock.

Dividends on our common stock will be payable only if, when and as authorized and declared by our Board of Directors;

however, our ability to pay dividends and make stock repurchases may be limited due to banking laws and regulations and limitations imposed by our banking regulators (including OCC limiting dividends from FNBPA).

In certain circumstances, we will not be able to make a capital distribution unless the FRB approves such distribution, including if the dividend could not be fully funded by our net income over the last four quarters (net of dividends paid), our prospective rate of earnings retention appears inconsistent with our capital needs, asset quality, and overall financial condition, or we will not be able to continue meeting the minimum required capital ratios.

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If we experience a material deterioration in our financial condition, liquidity, capital, results of operations or risk profile, our regulators may not permit us to make future payments on our TPS, which would also prevent us from paying any dividends on our common stock.

Our growth may require us to raise additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations (see Item 1 of this Report, “Business – Government Supervision and Regulation”).

As a financial holding company, we seek to maintain capital sufficient to meet the “well-capitalized” standard set by regulators.

While we anticipate that our current capital resources will satisfy our capital requirements for the foreseeable future, we may in the future need to raise additional capital to support current operations or continued growth.

The availability of additional capital or financing will depend on a variety of factors, many of which are outside of our control, including market conditions, credit availability, our credit ratings and credit capacity, marketability of our capital stock, and the possibility that lenders and investors could develop a negative perception of our long- or short-term financial prospects if we incur large credit losses or if the level of business activity decreases due to economic conditions.

As such, we may be forced to delay raising capital, issue shorter-term securities than desired or bear an unattractive cost of capital, which could decrease profitability, significantly reduce financial flexibility and adversely affect our ability to grow organically or through acquisitions.

In addition, if we decide to raise additional equity capital, it could be dilutive to our existing shareholders.

Reputation Risk

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Although we monitor developments for areas of potential risk to our reputation and brand, negative perceptions or publicity could materially and adversely affect our revenues and profitability.

We are subject to environmental, social and governance (ESG) risks that could adversely affect our reputation and the market price of our securities.

We are subject to a variety of risks arising from ESG matters.

ESG matters include climate risk, hiring practices, the diversity of our work force, and equitable treatment of our employees, customers and third parties with whom we otherwise do business.

Risks arising from ESG matters, including shifts in investor approaches related to ESG, may adversely affect, among other things, our reputation and the market price of our securities.

Further, we may be exposed to negative publicity (e.g., traditional and social media) based on the identity and activities of those to whom we lend and with which we otherwise do business, and the public’s view of the approach and performance of our customers and business partners with respect to ESG matters.

Such negative publicity could adversely impact our relationships and reputation with our existing and prospective customers and potentially have an adverse effect on our ability to attract and retain customers and employees and could have a negative impact on the market price for our securities.

Investors may consider the steps taken and resources allocated by financial institutions and other commercial organizations to address ESG matters when making investment decisions.

Certain investors have incorporated the business risks of climate change and the adequacy of companies’ responses to the risks posed by climate change into their investment theses.

Increased attention to ESG matters also has caused public officials, including certain state attorneys general, treasurers, and legislators, to take various actions to impact the extent to which ESG principles are considered by private investors, including actions to limit business with government entities or the initiation of an investigation or enforcement action because of what is perceived to be, depending on the governmental authority, either our unwarranted focus or lack of focus on ESG matters.

Increasing, complex, evolving and conflicting regulatory, stakeholder, and other third-party expectations on ESG and DEI matters could adversely affect our reputation, our access to capital and the market price of our securities.

We are subject to a variety of risks arising from environmental, social and governance (ESG) and diversity, equity and inclusion (DEI) matters, which include, among other things, climate change, human capital, and human rights.

Risks arising from such matters may adversely affect, among other things, our reputation and the market price of our securities.

While we engage in various initiatives to help manage our sustainability and governance profile and respond to stakeholder expectations, which continue to evolve, such initiatives can be costly and may not have the desired effect.

Moreover, stakeholder expectations are not uniform, and both opponents and proponents of various ESG- and DEI-related matters have increasingly resulted in a range of activism to advocate for their positions.

In addition to the potential for broader "anti-ESG/DEI" policies and laws, on January 20, 2025, President Trump issued an Executive Order requiring all federal agencies to terminate any policies, programs, mandates, guidance, regulations, and other actions and orders establishing DEI-based preferences, and to enforce federal civil rights laws to combat such preferences, mandates, policies, programs and activities of entities operating in the private sector.

Further, the Executive Order directs federal agencies to take appropriate action to discourage private sector DEI-based initiatives.

While the enforceability of the Executive Order and the steps that various federal agencies may take in response to it are uncertain at this time, the Executive Order signals a material shift in federal DEI policy that reasonably can be expected to have implications for the private sector, including the banking industry.

In this regard, any scrutiny by federal government authorities of our human capital and strategic businesses practices, or those of the banking sector generally, may have a material adverse effect on us.

Please refer to Item 1 – “Business – Human Capital.”

Navigating varying expectations of policymakers and other stakeholders has inherent costs, and any failure to successfully navigate such expectations may expose us to negative publicity, shareholder activism, and litigation or other engagement from pro- and anti-ESG/DEI stakeholders, as well as the potential for civil investigations and enforcement by federal governmental authorities.

We could be required to incur significant costs responding to any such activity and our relationships and reputation with our existing and prospective customers and third parties with which we do business could be affected as well.

This could have an adverse effect on our ability to attract and retain customers and employees and could have a negative impact on the market price for our securities.

Certain of our customers, suppliers, or other stakeholders are also subject to such expectations and risks, which may result in additional or augmented risks to us.

Operational Risk

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Financial institutions are interrelated as a result of trading, clearing, counterparty and other relationships.

FNB, FNBPA and other affiliates are exposed to many different industries and counterparties and they routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks and other institutional clients.

Many of these types of transactions expose FNB, FNBPA and other affiliates to credit risk in the event of default of the counterparty or client.

In addition, FNBPA and other affiliates’ credit risks may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices that are not sufficient to recover the full amount of the loan or derivative exposure that we are due.

We are subject to operational risk that could damage our reputation and our business.

We engage in a variety of businesses and rely on systems, employees, service providers and counterparties to properly process a high volume of transactions.

Like all businesses, we are subject to operational risk, which represents the risk of loss resulting from inadequate or failed internal processes in our systems, human error and external events.

Operational risk also encompasses technology, compliance and legal risk.

Many strategic initiatives, including those related to products, staffing, and business processes, could substantially increase operational risk.

We are also exposed to operational risk through our outsourcing arrangements, and the effect the changes in circumstances or capabilities of our outsourcing vendors can have on our ability to continue to perform operational functions necessary to our business.

External and internal risk has proliferated in recent years.

The shift in recent years to digital, mobile, and online platforms have resulted in a large volume of payment transactions being executed more quickly leaving banks less time to identify and counteract fraud, and recover the funds misappropriated by fraudulent actors.

Moreover, the level of sophistication of fraud has increased in part due to greater collaboration among bad actors, including the exchange of stolen data, new techniques and expertise available on the dark web.

The financial services industry is continually developing and forcing countermeasures to prevent, detect and remediate the ever-shifting fraud landscape and the ability to quickly adapt to new threats is a critical element of fraud prevention.

FNB, FNBPA and our affiliates are exposed to many different industries and counterparties and they routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks and other institutional clients.

Many of these types of transactions expose FNB, FNBPA and our affiliates to credit risk in the event of default of the

counterparty or client.

In addition, FNBPA and our affiliates’ credit risks may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices that are not sufficient to recover the full amount of the loan or derivative exposure that we are due.

Changes and instability in economic conditions and financial markets, including a contraction of economic activity, could adversely impact our business, results of operations and financial condition.

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In particular, interest rates are highly sensitive to many factors that are beyond our control, including global, domestic and local economic conditions and the policies of various governmental and regulatory agencies and, specifically, the FRB.

Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate on 11 separate occasions citing economic and geopolitical disruptions, and signaled that current FRB direction is to begin lowering rates at some point during 2024 as inflation returns to more normalized levels.

Financial institutions also face a comparatively heightened credit risk.

Of note, because we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral, which, in turn, can adversely affect the value of our loan and investment portfolios.

Adverse economic developments, specifically including inflation-related impacts, may have a negative effect on the ability of our borrowers to make timely repayments of their loans or to finance future home purchases.

According to the FRB’s October 2023 Financial Stability Report, commercial real estate (CRE) values remained elevated relative to fundamentals, even as prices continued to decline.

While CRE values continue to fluctuate, some markets are showing signs of stabilizing prices.

According to the FRB’s November 2024 Financial Stability Report, aggregate commercial real estate (CRE) prices measured in inflation-adjusted terms were little changed over the prior six months of the report, with the pace of prior declines appearing to have slowed broadly across CRE sectors.

This Financial Stability Report notes that these prices still may not fully reflect the deterioration in CRE market prices because, rather than realizing losses, many owners wait for more favorable conditions to put their properties on the market.

The report also notes that the strains on the office sector resulting from an ongoing post-pandemic adjustment have continued to mount.

However, the outlook for CRE remains dependent on the broader economic environment and, specifically, how major subsectors respond to a rising interest rate environment and higher prices for commodities, goods and services.

In addition, this Financial Stability Report notes that residential real estate values have continued to increase over the prior six months from the report from prices that were already elevated relative to historical standards.

The report suggests that valuations in housing markets remained stretched.

In any case, credit performance over the medium-and long-term is susceptible to economic and market forces and therefore forecasts remain uncertain, with some degree of instability in the CRE markets expected in the coming quarters as loans are refinanced in markets with higher vacancy rates under current economic conditions.

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For instance, in response to the Russia-Ukraine war, the U.S.

has imposed, and is likely to continue to impose, significant financial and economic sanctions and export controls against certain Russian organizations and individuals, with similar actions being taken by the European Union, the United Kingdom and other jurisdictions.

has imposed significant financial and economic sanctions and export controls against certain Russian organizations and individuals, with similar actions being taken by the European Union, the United Kingdom and other jurisdictions.

The Russian invasion and subsequent sanctions had and could continue to have certain negative impacts on global and regional financial markets and economic conditions.

In addition, the attacks by Hamas on Israel in October 2023, Israel’s response and a potential broader armed conflict in the Middle East are likely to continue impacting the global economy, including that of the United States and have added to concerns of a widening conflict in the Middle East.

In particular, oil prices have become increasingly volatile in the aftermath of the attacks on Israel.

and have added to concerns of a widening conflict in the Middle East.

In particular, oil and gas prices have become increasingly volatile in the aftermath of the attacks on Israel and may be adversely affected by actions taken by the Ukraine related to Russian-supplied natural gas to the European Union.

Each of the developments described above, or any combination of them, could adversely affect our businesses, financial condition and results of operations.

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The economic conditions in these local markets may be different from, and in some instances worse than, economic conditions in the U.S.

Challenging macroeconomic, recessionary and employment conditions in the market areas we serve could result in the following consequences, any of which could have a material adverse effect on our business, financial condition and results of operations, such as:

Challenging macroeconomic, recessionary and employment conditions in the market areas we serve could result in the following consequences, among others, any of which could have a material adverse effect on our business, financial condition and results of operations:

demand for our loans, deposits and services may decline;

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Certain characteristics of digital asset transactions, including their speed and anonymity are appealing to certain consumers notwithstanding the various risks posed by such transactions.

Accordingly, digital asset service providers - which, at present are not subject to the extensive regulation as banking organizations and other financial institutions - have become active competitors for our customers' banking business.

Accordingly, digital asset service providers - which, at present are not subject to the same extensive regulation as banking organizations and other financial institutions - have become active competitors for our customers' banking business.

The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.

Further, an initiative by the CFPB, as prompted by the Biden Administration, to promote “open and decentralized banking” through the proposal of a Personal Financial Data Rights rule designed to facilitate the transfer of customer information at the direction of the customer to other financial institutions could lead to greater

competition for products and services among banks and non-banks alike if a final rule is adopted.

The timing of and prospects for any such action are uncertain at this time.

The loss of these revenue streams and the higher cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

An interruption in or breach in security of our information systems, or other cybersecurity risks, could result in a loss of customer business, increased compliance and remediation costs, civil litigation or governmental regulatory action, and have an adverse effect on our results of operations, financial condition and cash flows.

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We may also need to expend substantial resources to comply with the data security breach notification requirements adopted by banking regulators and the states, which have varying levels of individual, consumer, regulatory or law enforcement notification and remediation requirements in certain circumstances in the event of a security breach.

Cybersecurity risks appear to be growing and, as a result, the cyber-resilience of banking organizations is of increased importance to federal and state banking agencies and other regulators.

Cybersecurity risks continue to grow and, as a result, the cyber-resilience of banking organizations is of increased importance to federal and state banking agencies and other regulators.

New or revised laws and regulations may significantly impact our current and planned privacy, data protection and information security-related practices, the collection, use, sharing, retention and safeguarding of consumer and employee information, and current or planned business activities.

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Although we maintain specific “cyber” insurance coverage, the amount or form of coverage may not be adequate in any particular case.

As cyber threats continue to evolve and increase, we may be required to spend significant additional resources to continue to modify or enhance our protective and preventative measures or to investigate and remediate any information security vulnerabilities.

O ur day-to-day operations rely heavily on the proper functioning of products, information systems and services provided by third-party, external vendors.

As cyber threats continue to

evolve and increase, we may be required to spend significant additional resources to continue to modify or enhance our protective and preventative measures or to investigate and remediate any information security vulnerabilities.

Our day-to-day operations rely heavily on the proper functioning of products, information systems and services provided by third-party, external vendors.

We rely on certain external vendors to provide products, information systems and services necessary, including our core processing system, to maintain our day-to-day operations.

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Also, information we provide to the public or to our regulators based on poorly designed or implemented models could be inaccurate or misleading.

Certain decisions that the regulators make, including those related to capital distributions and dividends to our stockholders, could be adversely affected due to the regulator’s perception that the quality of the models used to generate our relevant information is insufficient.

Our asset valuations may include methodologies, estimations and assumptions that are subject to differing interpretations and this, along with market factors such as volatility in one or more markets or industries, could result in changes to asset valuations that may materially adversely affect our results of operations or financial condition.

Certain decisions that regulators make, including those related to capital distributions and dividends to our shareholders, could be adversely affected due to the regulator’s perception that the quality of the models used to generate our relevant information is insufficient.

Our asset valuations may include methodologies, estimations and assumptions that are subject to differing interpretations which, along with market factors such as volatility in one or more markets or industries, could result in changes to asset valuations that may materially adversely affect our results of operations or financial condition.

We must use estimates, assumptions and judgments when assets are measured and reported at fair value.

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Even if a weather event does not cause any physical damage in our markets, it could affect the market value of property within our footprint, particularly agricultural interests, which are highly sensitive to excessive rainfall or droughts.

We grow our business in part by acquiring other banks and financial services businesses from time to time.

Acquisitions present a number of risks and uncertainties related both to the acquisition transactions themselves and to the integration of the acquired businesses with us after closing.

Acquisitions of other banks and financial services companies or of financial assets and deposits and other liabilities present risks and uncertainties to us in addition to those presented by the nature of the business acquired, which may materially and adversely affect our results of operations.

Our ability to analyze the risks presented by prospective acquisitions, as well as our

ability to prepare in advance of closing for integration, may be limited to the extent that we cannot gather necessary or desirable information with respect to the business we are acquiring.

We may also make certain assumptions related to an acquisition that may prove to be inaccurate that limit the anticipated benefits (such as cost savings from synergies or strategic gains or be able to offer enhanced product sets) or make the acquisition more expensive or take longer to complete and integrate than anticipated.

Prior to closing an acquisition, prospective acquisition targets are also subject to their own risks that we cannot manage or control.

Our ability to complete an acquisition may be dependent on regulatory agencies with responsibilities for reviewing or approving the transaction, which could delay, restrictively condition or result in denial of an acquisition, or otherwise limit the benefits of the acquisition.

Changes in regulatory rules or standards or the application of those rules or standards, or future regulatory initiatives designed to mitigate risk or promote competition may also limit our ability to complete an acquisition (see discussion under Government Supervision and Regulation, Expansion and Acquisitions).

Further, once an acquisition is completed, it may be difficult for us to integrate the acquired business with our operations and we may not see the anticipated benefits of any such acquisition.

Legal and Compliance Risk

We could be adversely affected by changes in the law, especially changes in the regulation of the banking industry.

We operate in a highly regulated environment and our businesses are subject to supervision, regulation, enforcement and prosecution by numerous governmental agencies, including at the federal and state levels.

Regulations are generally intended to provide protection for depositors, borrowers and other customers, as well as the stability of the financial services industry, rather than for investors in our securities.

We are subject to changes in federal and state law, regulations, governmental policies, agency supervisory and enforcement policies and priorities, and tax laws and accounting principles.

Changes in regulations or the regulatory environment could adversely affect the banking and financial services industry as a whole and could limit our growth and returns to investors by restricting such activities as the payment of dividends and stock repurchases, balance sheet growth, investments, loans and interest rates, assessments of fees, such as overdraft and interchange fees, the provision of securities, insurance, brokerage or trust services, mergers with or acquisitions of other institutions or branches, the types of deposit and non-deposit activities in which our subsidiaries may engage, and offering of new products and services.

Under regulatory capital adequacy guidelines and other regulatory requirements, FNB and FNBPA must meet guidelines subject to qualitative judgments by regulators about components, risk weightings and other factors.

On July 27, 2023, the federal banking agencies, including the OCC, issued a proposed rule to implement the final components of the Basel III Capital Rules.

Among other things, the proposed rule would substantially change the existing calculation of risk-weighted assets and require banking organizations to use revised models for such calculations.

While the proposed rule would not apply to FNB or FNBPA directly based upon our current asset size, many of the principles included in this proposed rulemaking could result in increased supervisory expectations and closer regulatory scrutiny for institutions that experience substantial growth.

The federal banking agencies are likely to substantially revise and re-propose this rule which may result in changes to capital and liquidity requirements that are currently applicable to us.

Changes to present capital and liquidity requirements could restrict our activities and require us to maintain additional capital.

Compliance with heightened capital standards may reduce our ability to generate or originate revenue-producing assets and thereby restrict revenue generation from banking and non-banking operations.

If we fail to meet these minimum capital guidelines and other regulatory requirements, our financial condition would be materially and adversely affected.

In response to several large bank failures in the spring of 2023, the federal banking agencies have engaged in rulemaking that could increase compliance costs should we grow in excess of $50 billion in assets, including the FDIC adopting resolution planning requirements for IDIs with $50 billion or more in assets.

We are subject to supervision and examination by U.S.

government authorities and may become subject to investigations, enforcement actions, fines, and other adverse effects.

The federal banking agencies, including the OCC, FRB and CFPB, as well as the DOJ, have in recent years adopted a more aggressive enforcement posture in line with general enforcement priorities - specifically with respect to consumer protection issues and anti-discrimination lending laws.

These government agencies have expressed a heightened interest in fair lending and loan servicing, mortgage loan origination and servicing, bank and financial institution sales practices, management of consumer accounts and the charging of overdraft and various other fees, fair credit reporting, predatory lending, debt collection, and meaningful disclosure of credit and savings terms, among others, and perform periodic reviews, examinations, and investigations in these areas.

An adverse finding or outcome of any such review, examination, or investigation that involves an assertion of regulatory noncompliance, or a violation of law could result in possible fines, penalties, restitution, or other forms of remediation that could have a material adverse effect on our business, financial condition, results of operations, or reputation.

Fiscal challenges facing the U.S.

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by credit rating agencies, could have an adverse impact on financial markets, interest rates and economic conditions in the U.S.

and worldwide.

and worldwide, which could have an adverse effect on our financial position or results of operations.

Federal budget deficit concerns and the potential for political conflict over legislation to fund U.S.

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Many of our investment securities are issued by the U.S.

government and government agencies and sponsored entities.

government and government agencies and sponsored enterprises.

As a result of uncertain domestic political conditions, including potential future federal government shutdowns, possible reductions in federal government spending, and the possibility of the federal government defaulting on its obligations for a period of time, investments in financial instruments issued or guaranteed by the federal government pose liquidity risks.

A further downgrade, or a downgrade by other rating agencies, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the U.S.

and worldwide.

and worldwide, which could adversely impact us.

In addition to affecting the price and liquidity of U.S.

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government securities (Repos), a type of secured financing transaction used by many financial institutions, including FNBPA, to manage short-term funding needs, invest short-term cash balances and manage inventories of government securities.

Overnight rates on Repo transactions are used by the

FRB to calculate SOFR.

Overnight rates on Repo transactions are used by the FRB to calculate SOFR.

A disruption in the Repo markets could affect interest rates paid on SOFR-benchmarked loans and payments on swaps and other financial contracts that use SOFR as a benchmark rate.

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government to support the financial stability of Fannie Mae, Freddie Mac and the FHLBs, with which we do business, obtains financing, engages with for sales of mortgages, and in whose securities we invest.

Our financial condition and results of operations may be adversely affected by changes in federal, state or local tax rules and regulations, or interpretations.

We are subject to legislative tax rate changes that could increase our effective tax rates.

Depending on enactment dates, these law changes may be retroactive to previous periods which could negatively affect our current and future financial performance.

Our future effective tax rates could be affected by additional changes in the federal tax rates and in tax rates in jurisdictions where our income is earned, by changes in or our interpretation of tax rules and regulations in the jurisdictions in which we do business, by unexpected negative changes in business and market conditions that could reduce certain tax benefits, or by changes in the valuation of our DTAs and DTLs.

Changes in statutory tax rates or DTAs and DTLs may adversely affect our profitability and results of operations in future periods.

Our financial condition and results of operations may be adversely affected by changes in accounting policies, standards and interpretations.

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Changes resulting from these new standards may result in materially different financial results and may require that we change how we process, analyze and report financial information and that we change financial reporting controls.

Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business.

The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment.

Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change.

Such initiatives have been pursued with rigor under the current Presidential Administration.

The leadership of the federal banking agencies, including the FRB and the OCC, have emphasized that their supervisory charge is not to regulate climate concerns, but rather focus on climate-related risks that are faced by banking organizations of all types and sizes, specifically including physical and transition risks, and are in the process of enhancing supervisory expectations through the implementation of climate related regulations and guidelines governing banks' risk management practices, which will likely result in increased compliance costs and other compliance-related risks.

The above measures may also result in the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational changes, each of which may require us to expend significant capital and incur compliance, operating, maintenance and remediation costs.

Given the lack of empirical data on the credit and other financial risks posed by climate change, it is impossible to predict how climate change may impact our financial condition and operations;

however, as a banking organization, the physical effects of climate change may present certain unique risks to us.

Additionally, in March 2022, the SEC proposed new climate-related disclosure rules, which if adopted, would require new climate-related disclosures in SEC filings and audited financial statements.

If adopted, these rules would impose increased costs, which could materially and adversely affect our financial performance.

We could be adversely affected by changes in the law, especially changes in the regulation of the banking industry.

We are subject to changes in federal and state law, regulations, governmental policies, agency supervisory and enforcement policies and priorities, and tax laws and accounting principles.

Changes in regulations or the regulatory environment could adversely affect the banking and financial services industry as a whole and could limit our growth and the return to investors by restricting such activities as, the payment of dividends and stock repurchases, balance sheet growth, investments, loans and interest rates, assessments of fees, such as overdraft and interchange fees, the provision of

securities, insurance, brokerage or trust services, mergers with or acquisitions of other institutions or branches, the types of deposit and non-deposit activities in which our subsidiaries may engage, and offering of new products and services.

On July 27, 2023, the federal banking agencies, including the OCC, issued a proposed rule to implement the final components of the Basel III standards.

Among other things, the proposed rule would substantially change the existing calculation of risk-weighted assets and require banking organizations to use revised models for such calculations.

For example, the proposed rule would add back the impact of AOCI (loss) to the calculation of regulatory capital for institutions above $100 billion in assets and institutions below that threshold would be subject to federal banking agencies' discretion to require institutions to have higher capital cushions to address a variety of supervisory concerns, which may include a high level of AOCI (loss).

Changes to present capital and liquidity requirements could restrict our activities and require us to maintain additional capital.

Compliance with heightened capital standards may reduce our ability to generate or originate revenue-producing assets and thereby restrict revenue generation from banking and non-banking operations.

If we fail to meet these minimum capital guidelines and other regulatory requirements, our financial condition would be materially and adversely affected.

In response to several large bank failures in the spring of 2023, the federal banking agencies have engaged in rulemaking that likely will significantly increase compliance costs should we grow in excess of $50 billion in assets.

Our overdraft protection programs and corresponding revenue may be impacted by possible new federal regulatory requirements or scrutiny or industry trends regarding such practices.

Our overdraft protection programs and corresponding revenue may be impacted by new federal regulatory requirements or scrutiny or industry trends regarding such practices.

Members of Congress and the leadership of the OCC, FDIC and CFPB have expressed a heightened interest in bank overdraft protection programs.

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The CFPB also has published guidance containing instructions for financial institutions to avoid the imposition of unlawful overdraft fees.

In January 2024, the CFPB proposed two rules addressing financial institutions’ consumer overdraft and non-sufficient funds (NSF) fee practices by narrowing an existing exemption from the Truth in Lending Act (Regulation Z) for the extension of overdraft credit, thereby subjecting overdraft credit to disclosure and other regulatory compliance obligations, and under those authorities prohibiting the imposition of NSF fees on transactions that are declined instantaneously or near-instantaneously.

Further, in 2023, the CFPB brought enforcement actions and imposed substantial civil money penalties against certain financial institutions for overdraft practices and inadequate disclosures that the CFPB alleged to be unlawful and inadequately disclosed for, among other things, systematically and repeatedly charging fees to customers with insufficient funds in their accounts, charging overdraft fees without proper consent, and misleading customers about the terms and costs of overdraft coverage.

Each of these actions is part of the CFPB’s broader supervision and enforcement initiative targeting so-called consumer “junk fees.”

On December 12, 2024, the CFPB finalized a rule that narrows an existing exemption from the TILA (Regulation Z) for the extension of overdraft credit, thereby subjecting overdraft credit to disclosure and other regulatory compliance obligations.

The final rule is scheduled to take effect in October 2025, but a lawsuit against the CFPB may delay the rule’s implementation.

In addition, the OCC issued a bulletin in April 2023 to address the risks associated with national banks’ overdraft protection programs and overdraft fees.

Specifically, the OCC noted in the bulletin that “authorize positive, settle negative” (APSN) transaction and representment fee practices may present a heightened risk of violations of Section 5 of the Federal Trade Commission Act of 2010, which prohibits unfair, deceptive, or abusive acts or practices.

Specifically, the OCC noted in the bulletin that “authorize positive, settle negative” (APSN) transaction and representment fee practices may present a heightened risk of violations of Section 5 of the FTC Act of 2010, which prohibits unfair, deceptive, or abusive acts or practices.

An APSN transaction refers to the practice of assessing overdraft fees on debit card transactions that authorize when a customer’s available balance is positive but later post to the account when the available balance is negative.

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In addition, as supervisory expectations and industry practices regarding overdraft protection programs change, our continued offering of overdraft protection may result in negative public opinion and increased reputation risk.

Despite our effort to modify our overdraft practices to conform to recent regulatory guidance and expectations, and industry

practices, we may remain subject to regulatory criticism or potential enforcement action, particularly in view of the CFPB's aggressive interpretations and guidance regarding bank overdraft practices, and potentially subject to negative public reaction through our continued offering of certain of these products and services.

Despite our effort to modify our overdraft practices to conform to recent regulatory guidance and expectations and industry practices, we may remain subject to regulatory criticism or potential enforcement action, particularly in view of the CFPB's aggressive interpretations and guidance regarding bank overdraft practices, and potentially subject to negative public reaction through our continued offering of certain of these products and services.

Certain provisions of our Articles of Incorporation and By-laws and Pennsylvania law may discourage takeovers.

Our Articles of Incorporation and By-laws contain certain anti-takeover provisions that may discourage or may make more difficult or expensive a tender offer, change in control or takeover attempt that is opposed by our Board of Directors.

In particular, our Articles of Incorporation and By-laws:

In particular, consistent with Pennsylvania law, our Articles of Incorporation and By-laws:

• require shareholders to give us advance notice to nominate candidates for election to our Board of Directors or to solicit proxies in support of such candidates, or to make shareholder proposals at a shareholders’ meeting;

• permit our Board of Directors to issue, without approval of our common shareholders unless otherwise required by law, preferred stock with such terms as our Board of Directors may determine;

• provide that a special meeting may only be called by shareholders holding not less than 25% of all votes entitled to be cast at the proposed special meeting;

• require the vote of the holders of at least 75% of our voting shares for shareholder amendments to our By-laws;

• in the case of a proposed business combination with a shareholder owning 10% or more of the voting shares of FNB, the vote of the holders of at least two-thirds of the voting shares not owned by such shareholder is required to approve the business combination, unless it is approved by a majority of FNB’s disinterested directors.

Under Pennsylvania law, only shareholders holding at least 25% of a corporation’s outstanding stock may call a special meeting for any purpose.

In addition, Pennsylvania law provides that in discharging their duties, including in the context of a takeover attempt, the board of directors, committees of the board and individual directors may consider a broad range of factors as they deem pertinent, which may include but is not limited to shareholders’ interests, in considering the best interests of the corporation.

These provisions of our Articles of Incorporation and By-laws and of Pennsylvania law could discourage potential acquisition proposals and could delay or prevent a change in control, even though the holders of a majority of our stock may consider such proposals desirable.

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Moreover, these provisions could diminish the opportunities for shareholders to participate in certain tender offers, including tender offers at prices above the then-current market price of our common stock, and may also inhibit increases in the trading price of our common stock that could result from takeover attempts.

Volatility in the banking sector, triggered by the failures of Silicon Valley Bank, Signature Bank and First Republic Bank, has resulted in agency rulemaking activities and changes in agency policies and priorities that could subject FNB and FNBPA to enhanced government regulation and supervision.

On March 10, 2023, Silicon Valley Bank (SIVB) was closed by the California Department of Financial Protection and Innovation (the CDFPI).

Two days later, on March 12, 2023, Signature Bank (SBNY) also failed.

Nearly two months later, on May 1, 2023, First Republic Bank (FRC) was closed by the CDFPI.

In each case, the FDIC was appointed as receiver.

Volatility in the banking sector, triggered by the failures of SIVB, SBNY and FRC, has resulted in agency rulemaking activities and changes in agency policies and priorities that could subject FNB and FNBPA to enhanced government regulation and supervision.

Over a three-month period from March to May of 2023, three banks, SIVB, SBNY and FRC failed and the FDIC was appointed as receiver for each of them.

Each of these institutions experienced significant deposit losses in the run-up to their ultimate failures.

Investor and customer confidence in the banking sector—particularly with regard to mid-size and larger regional banking organizations—waned in response to these failures.

Further evaluation of recent developments in the banking sector has led to governmental initiatives intended to prevent future bank failures and stem significant deposit outflows from the banking sector, including (i) agency rulemaking to modify and enhance relevant regulatory requirements, specifically with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices;

Further evaluation of recent developments in the banking sector has led to governmental initiatives intended to prevent future bank failures and stem significant deposit outflows from the banking sector, including (i) agency rulemaking to modify and enhance relevant regulatory requirements, which could include new rules with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices;

and (ii) enhancement of the agencies’ supervision and examination policies and priorities.

Examiners at the federal banking agencies generally have increased their focus on levels of uninsured deposits, liquidity and contingency funding plans.

We cannot predict with certainty which proposed rules will be adopted or if other initiatives may be pursued by lawmakers and agency leadership, nor can we predict the terms and scope of any such initiatives, including whether we would be impacted.

However, any of the proposed or potential changes could, among other things, subject us to additional costs, limit the types of financial services and products we may offer, and limit our future growth, any of which could materially and adversely affect our business, results of operations or financial condition.

The proportion of our deposit account balances that exceed FDIC insurance limits may expose FNBPA to enhanced liquidity risk in times of financial distress.

In the wake of the failures of SIVB, SBNY, and FRC, which the FDIC concluded were generated by, in significant part, a high volume of uninsured deposits, many large depositors across the industry have withdrawn deposits in excess of applicable deposit insurance limits and deposited these funds in other financial institutions.

In many instances, depositors moved these funds into money market mutual funds or other similar securities accounts in an effort to diversify the risk of further bank failure(s).

Uninsured deposits historically have been viewed by the FDIC as less stable than insured deposits.

Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period.

Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited.

Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits.

This spread may be exacerbated by higher prevailing interest rates.

Under such circumstances, we may be required to access funding from sources such as the Federal Reserve’s discount window in order to manage our liquidity risk.

We cannot predict with certainty which rules will be adopted or if other initiatives may be pursued by lawmakers and agency leadership, nor can we predict the terms and scope of any such initiatives, including whether we would be impacted.

However, any of the potential changes could, among other things, subject us to additional costs, limit the types of financial services and products we may offer, and limit our future growth, any of which could materially and adversely affect our business, results of operations or financial condition.

We have experienced increases in our FDIC insurance assessments due to the bank failures that occurred in 2023.

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This will occur if the total amount collected by the FDIC special assessment does not meet the final loss amounts of SIVB and SBNY after the termination of the receiverships.

FNBPA had uninsured deposits of $16.1 billion as of December 31, 2022, and we accrued and expensed a special assessment of $29.9 million based on the assessment base of $11.1 billion, which excludes the first $5 billion of FNBPA’s uninsured deposits as of December 31, 2022.

Although we cannot predict if there will be a subsequent shortfall after the eight quarters, any additional increase in our assessment fees could have a materially adverse effect on our results of operations and financial condition.

FNBPA had uninsured deposits of $16.1 billion as of December 31, 2022, and we accrued and expensed an initial special assessment of $29.9 million based on the assessment base of $11.1 billion, which excludes the first $5 billion of FNBPA’s uninsured deposits as of December 31, 2022.

During 2024, the FDIC revised its loss estimate and projected that the special assessment would be collected for an additional two quarters beyond its initial eight-quarter collection period.

As a result, FNBPA recognized an additional special assessment charge of $5.2 million in 2024.

Any additional increase in our assessment fees could have a materially adverse effect on our results of operations and financial condition.

Adverse changes to our credit ratings could limit our access to funding and increase our borrowing costs.

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While certain aspects of a credit rating downgrade are quantifiable, the impact that such a downgrade would have on our liquidity, business and results of operations in future periods is inherently uncertain and would depend on a number of interrelated factors, including, among other things, the magnitude of the downgrade, the rating relative to peers, the rating assigned by the relevant agency pre-downgrade, individual client behavior and future mitigating actions we might take.

We are subject to supervision and examination by U.S.

government authorities and may become subject to investigations, enforcement actions, fines, and other adverse effects.

The federal banking agencies, including the OCC, the CFPB, as well as the DOJ, have in recent years adopted a more aggressive enforcement posture in line with general enforcement priorities - specifically with respect to consumer protection issues and anti-discrimination lending laws.

These government agencies have expressed a heightened interest in fair lending and loan servicing, mortgage loan origination and mortgage loan servicing, bank and financial institution sales practices, management of consumer accounts and the charging of overdraft and various other fees, fair credit reporting, predatory lending, debt collection, and meaningful disclosure of credit and savings terms, among others, and perform periodic reviews, examinations, and investigations in these areas.

An adverse finding or outcome of any such review, examination, or investigation that involves an assertion of regulatory noncompliance or a violation of law could result in possible fines, penalties, restitution, or other forms of remediation that could have a material adverse effect on our business, financial condition, results of operations, or reputation.

Further evaluation of recent developments after the failures of SIVB, SBNY, and FRC may lead to legislative and regulatory initiatives intended to prevent future bank failures, raise capital requirements and stem significant deposit outflows from the banking sector.

Although we cannot predict with certainty which initiatives may be pursued by lawmakers and agency leadership, nor can we predict the terms and scope of any such initiatives, any potential changes could, among other things, subject us to additional costs and capital requirements, limit the types of financial services and products we may offer, and limit our future growth, any of which could materially and adversely affect our business, results of operations or financial condition.

We are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.

The CRA, the Equal Credit Opportunity Act (ECOA), the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.

The CRA, ECOA, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.

The CRA requires the OCC, in connection with its examination of a national bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution.

All institutions insured by the FDIC must publicly disclose their rating.

On October 24, 2023, the federal banking agencies issued a joint final rule to revise the regulations implementing CRA.

FNBPA is considered a “large bank” under the final rule and therefore will be evaluated under new lending, retail services and products, community development financing and community development services tests in respect of our compliance with the statute and rule.

The final rule also imposes certain data reporting requirements that will apply to FNBPA.

As we prepare for implementation of the final rule, we expect to incur increased compliance costs, and we may be exposed to compliance-related risks after the final rule has been implemented in full.

Our efforts to maintain a “Satisfactory” or better rating, including to comply with an October 2023 final rule that would revise the regulations implementing the CRA but is currently subject to a stay in federal court, may increase our costs.

The fair lending laws prohibit discrimination in the provision of banking services on the basis of prohibited factors including, among others, race, color, national origin, gender, and religion.

The enforcement of these laws has been an increasing focus for the CFPB and other regulators.

Of note, in March 2022, the Director of the CFPB has indicated that the CFPB will prioritize enforcement of ECOA, as implemented by the CFPB’s Regulation B, which prohibits discrimination in any aspect of a credit transaction, by revising its Supervision and Examination Manual to explicitly incorporate anti-discrimination considerations in respect of evaluations of potential unfair, deceptive, or abusive acts and practices (UDAAPs).

The CFPB’s action represents not only a continuation of the agency’s commitment to a more aggressive enforcement approach, but also a shift in supervision and examination policy and procedure that may result in the commencement of enforcement actions against financial institutions involving a broader range of cited violations of the federal consumer financial laws and expanded allegations of UDAAPs.

Under the fair lending laws, we may be liable if our policies result in a disparate treatment of or have a disparate impact on a protected class of applicants or borrowers and may also be subject to investigation by the DOJ.

A successful challenge to our institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion activity.

A successful challenge to our performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion activity.

Private parties may also have the ability to challenge our performance under fair lending laws in private class action litigation.

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On February 5, 2024, FNBPA announced its entry into consent orders (together, the "Consent Orders") with the DOJ and the North Carolina State Department of Justice.

The Consent Orders resolve allegations that, from 2017 to 2021, FNBPA—including as a successor in interest to Yadkin Bank, which FNBPA acquired in 2017, committed violations of the Fair Housing Act and the Equal Credit Opportunity Act (Regulation B), as well as the North Carolina Unfair and Deceptive Practices Act,

within the Charlotte, North Carolina, and Winston-Salem, North Carolina assessment areas.

The Consent Orders resolve allegations that, from 2017 to 2021, FNBPA-(including as a successor in interest to Yadkin Bank, which FNBPA acquired in 2017) committed violations of the Fair Housing Act and the ECOA (Regulation B), as well as the North Carolina Unfair and Deceptive Practices Act, within the Charlotte, North Carolina, and Winston-Salem, North Carolina assessment areas.

The Consent Orders were approved by the U.S.

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Further, the existence of the Consent Orders may adversely affect our reputation in the communities we serve and among third parties with which we conduct business.

Under the current regulatory framework governing proposed business combinations, an institution’s compliance with the fair lending laws and whether it is subject to an open or pending enforcement action are significant factors for the federal banking agencies in determining whether a proposed transaction is consistent with safe and sound banking principles.

Further, the OCC has announced a proposed rule to amend and enhance its regulatory framework for review of proposed national bank merger transactions under the Bank Merger Act (BMA).

Under the OCC’s proposed rule, the OCC staff is unlikely to view a proposed merger transaction involving an acquirer with an open or pending fair lending enforcement action as being consistent with approval under the BMA.

Although the Consent Orders constitute the resolution of open enforcement actions, under the OCC’s proposed rule ongoing compliance in a timely manner with the Consent Orders would be an important factor in the OCC’s evaluation of any proposed transaction we may present to the OCC for approval.

In addition, the existence of the Consent Orders may adversely impact our CRA rating.

Under the regulatory framework governing proposed business combinations, an institution’s compliance with the fair lending laws, whether the institution is subject to an open or pending enforcement action, and the institution's CRA rating are significant factors for the federal banking agencies in determining whether a proposed transaction is consistent with safe and sound banking principles.

Further, the OCC's Policy Statement governing its review of proposed national bank merger transactions under the Bank Merger Act (BMA) provides that the OCC is unlikely to view a proposed merger transaction involving an acquirer with an open or pending fair lending enforcement action as being consistent with approval under the BMA unless the applicant has adequately addressed the underlying supervisory concerns.

Although the Consent Orders constitute the resolution of open enforcement actions, under the OCC’s Policy Statement, ongoing compliance in a timely manner with the Consent Orders would be an important factor in the OCC’s evaluation of any proposed transaction we may present to the OCC for approval.

The Consent Orders will be in effect for a minimum of five years, which term could be longer depending upon the extent and timing of the requisite loan subsidies that will be paid by FNBPA to qualified applicants.

Accordingly, if the OCC’s proposed rule is adopted as proposed, our ability to pursue strategic growth initiatives involving combinations with other banking organizations may be substantially limited.

Accordingly, our ability to pursue strategic growth initiatives involving combinations with other banking organizations may be substantially limited.

As a result, should we pursue future bank acquisitions, we expect the bank regulatory approval process to be prolonged and more costly than we have experienced in the past, which restrictions could materially adversely affect our business, results of operation and financial condition.

Our financial condition and results of operations may be adversely affected by changes in federal, state or local tax rules and regulations, or interpretations.

We are subject to legislative tax rate changes that could increase our effective tax rates.

Depending on enactment dates, these law changes may be retroactive to previous periods which could negatively affect our current and future financial performance.

Changes in statutory tax rates or DTAs and DTLs may adversely affect our profitability and results of operations in future periods.

Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business.

The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment.

Congress, state legislatures and federal and state regulatory agencies have proposed and advanced numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change.

The leadership of the federal banking agencies, including the FRB and the OCC, emphasized that their supervisory charge is not to regulate climate concerns, but rather focus on climate-related risks that are faced by large banking organizations, specifically including physical and transition risks.

Given the lack of empirical data on the credit and other financial risks posed by climate change, it is impossible to predict how climate change may impact our financial condition and operations;

however, as a banking organization, the physical effects of climate change may present certain unique risks to us.

Significant changes to the size, structure, powers and operations of the federal government may cause economic disruptions that could adversely impact our business, results of operations and financial condition.

The Trump Administration has commenced efforts to implement significant changes to the size and scope of the federal government and reform its operations to achieve stated goals that include reducing the federal budget deficit and national debt, improving the efficiency of government operations, and promoting innovation and economic growth.

To date, these efforts have been carried out through a mix of executive actions aimed at eliminating or modifying federal agency and federal program funding, reducing the size of the federal workforce, reducing or altering the scope of activities conducted by, and possibly eliminating, various federal agencies and bureaus, and encouraging the use of artificial intelligence and other advanced technologies within the public and private sectors.

These changes, may have varied effects on the economy that are difficult to predict.

For instance, the delivery of government services and the distribution of federal program funds and benefits may be disrupted or, in some cases, eliminated as a result of funding cuts or recasting of federal agency mandates.

Further, a substantial reduction of the federal workforce could adversely affect regional and local economies, both directly and indirectly, in geographies with significant concentrations of federal employees and contractors.

It is possible that such comprehensive changes to the federal government may be materially adverse to the regional and local economies where we conduct business and to our customers, which could be materially adverse to our business, financial condition and results of operations.

Strategic Risk

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If we are not able to continue our historical levels of growth, we may not be able to maintain our historical revenue trends.

On January 29, 2024, the OCC announced a proposed rule to amend the procedures and principles followed by the OCC when reviewing proposed national bank merger transactions under the BMA.

If adopted as proposed, the proposed rule would eliminate existing regulatory procedures under the OCC’s regulations providing for expedited review and streamlining of BMA applications for acquiring institutions that meet certain minimum qualifications and implement certain principles to be followed by the OCC when reviewing applications under the BMA.

Such principles would, among other things, establish indicators of proposed transactions that generally are consistent with regulatory approval, as well as those that raise supervisory or regulatory concerns and therefore would require applicants to address or remediate specific areas of concern in order to secure regulatory approval.

Of note, any transaction whereby the resulting institution would have combined assets of $50 billion or more would not be generally consistent with regulatory approval, nor would any transaction for which the applicant has insufficient CRA or examination ratings, is the subject of an open or pending BSA/anti-money laundering (AML) or fair lending enforcement action, or has failed to comply with the terms of an existing enforcement action.

In such cases, BMA applications would be subject to additional scrutiny and are more likely to involve extended processing periods and/or result in denials of approval or regulatory requests to withdraw the application.

The proposed rule is subject to a public comment period and the timing and prospects for the adoption by the OCC of a final rule are not certain at this time.

If the proposed rule is adopted as proposed, our ability to further grow through bank acquisitions may be substantially limited based upon our current asset size and the recent consent orders entered into by FNBPA with the DOJ and the North Carolina State Department of Justice to resolve allegations of fair lending violations.

Further, should we pursue future bank acquisitions, we expect the bank regulatory approval process to be prolonged and more costly than we have experienced in the past.

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What changed 10-K

Item 1A. Risk Factors