# FNB Corp: Form 10-Q for the period ended Mar 31, 2023

- Company: [FNB Corp](/companies/fnb.md) (CIK 37808)
- Form: 10-Q
- Filed: 2023-05-05
- Accepted by EDGAR: May 5, 2023, 11:57 ET
- Period: 2023-03-31
- Accession: 0000037808-23-000009
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/37808/000003780823000009/fnb-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/37808/000003780823000009/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $107.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $35.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $147.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.40 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.40 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 364,930,288 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $19.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $33.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-01-01 to 2023-03-31 | $44.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2023-01-01 to 2023-03-31 | $12.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-03-31 | $1.72bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-03-31 | $44.15bn | us-gaap:Assets |
| Total liabilities | at 2023-03-31 | $38.36bn | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $1.30bn | us-gaap:LongTermDebt |
| Short-term borrowings | at 2023-03-31 | $2.15bn | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-03-31 | $5.79bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 104,551 characters.

MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the three-month periods ended March 31, 2023 and 2022. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023. Our results of operations for the three months ended March 31, 2023 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 potential additional novel coronavirus disease of 2019 (COVID-19) challenges can also impact our ability to respond to customer needs and meet competitive demands.
- Business and operating results can also be affected by widespread natural and other disasters, pandemics and post-pandemic return to normalcy, global events, including the Ukraine-Russia conflict, shortages of labor, supply chain disruptions and shipping delays, terrorist activities, system failures, security breaches, significant political events, cyber-attacks or international hostilities through impacts on the economy and financial markets generally, or on us or our counterparties specifically.
- 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 agencies and 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.
- Changes to regulations or 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, and in additional expenses and collateral costs, and may cause reputational harm to FNB.
- 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.
- The COVID-19 pandemic and the federal, state, and local regulatory and governmental actions implemented in response to COVID-19 have resulted in increased volatility of the financial markets and national and local economic conditions, supply chain challenges, rising inflationary pressures, increased levels of unemployment and business failures, and the potential to have a material impact on, among other things, our business, financial condition, results of operations, liquidity, or on our management, employees, customers and critical vendors and suppliers. In view of the many unknowns associated with the COVID-19 pandemic, our forward-looking statements continue to be subject to various conditions that may be substantially different in the future than what we are currently experiencing or expecting, including, but not limited to, challenging headwinds for the U.S. economy and labor market and the possible change in commercial and consumer customer fundamentals, expectations and sentiments. As a result of the COVID-19 impact, including uncertainty regarding the potential impact of continuing variant mutations of the virus, U.S. government responsive measures to manage it or provide financial relief, the uncertainty regarding its duration and the success of vaccination efforts, it is possible the pandemic may have a material adverse impact on our business, operations and financial performance.

The risks identified here are not exclusive or the types of risks we may confront 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 2022 Annual Report on Form 10-K, our subsequent 2023 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other 2023 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. More specifically, our forward-looking statements may be subject to the evolving risks and uncertainties related to the COVID-19 pandemic and its macro-economic impact and the resulting governmental, business and societal responses to it. 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 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023 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, 2022.

### 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 equity to tangible assets, the ratio of tangible common equity to tangible assets, 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, initial provision for non-PCD loans acquired 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. The merger expenses and branch consolidation costs principally represent expenses to satisfy contractual obligations of the acquired entity or closed branch without any useful ongoing benefit to us. 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 the 2023 and 2022 periods were calculated using a federal statutory income tax rate of 21%.

### FINANCIAL SUMMARY

Net income available to common stockholders for the first quarter of 2023 was $144.5 million or $0.40 per diluted common share, compared to net income available to common stockholders for the first quarter of 2022 of $51.0 million or $0.15 per diluted common share. On an operating basis, earnings per diluted common share (non-GAAP) was $0.40 for the first quarter of 2023, excluding $2.1 million (pre-tax) in merger-related significant items, while the first quarter of 2022 was $0.26, excluding $47.8 million (pre-tax) in merger-related significant items and $4.2 million (pre-tax) in branch consolidation costs.

During the first quarter, we reported record total revenue of $416.0 million, a $103.6 million, or 33% increase from the prior-year quarter, with strong momentum on several key performance metrics including return on average tangible common equity (non-GAAP) of 20%, return on average assets of 1.4%, and an efficiency ratio (non-GAAP) of 50.6%. Our strong financial performance was due to the consistent execution of our conservative business model and focus on customer primacy which led to stable deposit balances, solid capital with a CET1 ratio of 10% and ample liquidity to cover our uninsured and non-collateralized deposits by 170%.

### Income Statement Highlights (First quarter of 2023 compared to first quarter of 2022, except as noted)

- Record total revenue of $416.0 million increased $103.6 million, or 33.2%.
- Net interest income increased $102.6 million, or 43.8%, to $336.7 million primarily due to the benefit of growth in earning assets, the impact from the higher interest rate environment, strong deposit growth and prudent management of deposit pricing and betas.
- On a linked-quarter basis net interest income of $336.7 million increased $1.8 million, or 0.5%, from the prior quarter total of $334.9 million, primarily due to growth in average earning assets and net benefits from the higher interest rate environment.
- Net interest margin (FTE) (non-GAAP) increased 95 basis points primarily due to higher yields on loans, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment, partially offset by increased cost of funds.
- On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) increased 3 basis points to 3.56% as the earning asset yield (non-GAAP) increased 39 basis points and the cost of funds increased 38 basis points.
- The annualized net charge-offs to total average loans ratio was 0.18%, compared to 0.03%. While slightly elevated from recent quarters, net charge-offs remain at historically low levels and largely utilized previously established specific reserves.
- The effective tax rate was 19.5%, compared to 20.9%, driven by higher deduction levels from employee stock compensation vesting.
- The efficiency ratio (non-GAAP) was 50.6%, fueled by higher revenue, compared to 60.7% for the year-ago quarter.

### Balance Sheet Highlights (period-end balances, March 31, 2023 compared to December 31, 2022, unless otherwise indicated)

- Total average deposits increased $274.2 million, or 0.8%, from the fourth quarter 2022 levels, reflecting organic growth in new and existing customer relationships and inflows from the Union acquisition.
- Period-end deposits remained stable with a slight decrease of $579.7 million, or 1.7%, primarily due to normal seasonal declines in public funds and other corporate deposit balances. From March 8, 2023 to quarter end, total deposit balances decreased slightly by $226 million, or 0.7%, largely due to normal wholesale and retail customer activity. This time frame represents the beginning period of the disruption in the banking industry due to the recent bank failures. We ended the quarter with approximately 76% of deposits insured by the FDIC or collateralized.
- Total average deposits grew $1.2 billion, or 3.7%, from the same prior-year period, led by increases in average time deposits of $1.2 billion, or 42.1%, average non-interest-bearing deposits of $154.6 million, or 1.4%, and average savings deposits of $148.5 million, or 3.8%, more than offsetting the decline in average interest-bearing demand deposits of $323.5 million, or 2.2%. Average deposit growth reflected organic growth in new and existing customer relationships and inflows from the Union acquisition which closed in December 2022 and the Howard acquisition that closed in January 2022.
- Period-end total loans and leases, increased $3.8 billion, or 14.3%, as compared to March 31, 2022, which includes the Union acquired loans. Commercial loans and leases increased $1.9 billion, or 11.0%, and consumer loans increased $1.9 billion, or 20.6%. Our strong organic loan growth was driven by the continued success of our strategy to grow high-quality loans across our diverse geographic footprint.
- On a linked-quarter basis, period-end loans and leases increased $418.3 million, or 1.4%, including an increase of $222.0 million in commercial loans and leases and $196.4 million in consumer loans. Average loans and leases increased $1.0 billion, or 3.6%, linked-quarter, with growth of $795.4 million in commercial loans and leases and $254.3 million in consumer loans.
- The ratio of loans to deposits was 89.7%, compared to 87.0%, as loan growth outpaced deposits. Additionally, the deposit funding mix reflected non-interest-bearing deposits of 33% of total deposits, compared to 34%, reflecting customers' preferences migrating towards savings and time deposits given higher available rates on those products.
- Total assets were $44.1 billion, compared to $43.7 billion, an increase of $421.0 million, or 1.0%, primarily due to organic growth in loans.
- The ratio of the ACL to total loans and leases was stable at 1.32%, compared to 1.33%. The ACL on loans and leases totaled $403 million, compared to $402 million.
- The ratio of non-performing loans and OREO to total loans and OREO decreased 2 basis points to 0.38%. Total delinquency decreased 11 basis points to 0.60%, compared to 0.71%, and continues to remain at a historically low level.
- Tangible book value per common share (non-GAAP) of $8.66, increased $0.39, or 4.7%. AOCI reduced the tangible book value per common share (non-GAAP) by $0.87 as of March 31, 2023, primarily due to the impact of higher interest rates on the fair value of AFS securities, a $0.12 improvement compared to a $0.99 reduction as of December 31, 2022.
- The CET1 regulatory capital ratio was 10.0%, up slightly from 9.8% at December 31, 2022, benefiting from the strong retained earnings growth in the quarter.
- During the first quarter of 2023, we repurchased 850,000 shares of common stock at a weighted average share price of $13.78.

### TABLE 1

| Quarterly Results Summary Reported results | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income available to common stockholders (millions) | **$144.5** | $51.0 |
| Net income per diluted common share | **0.40** | 0.15 |
| Book value per common share (period-end) | **15.76** | 15.19 |
| **Operating results (non-GAAP)** |  |  |
| Operating net income available to common stockholders (millions) | **$146.1** | $92.0 |
| Operating net income per diluted common share | **0.40** | 0.26 |
| **Average diluted common shares outstanding (thousands)** | **364,930** | 348,926 |
| **Significant items impacting earnings(1) (millions)** |  |  |
| Pre-tax merger-related expenses | **$(2.1)** | $(28.6) |
| After-tax impact of merger-related expenses | **(1.6)** | (22.6) |
| Pre-tax provision expense related to acquisition | **—** | (19.1) |
| After-tax impact of provision expense related to acquisition | **—** | (15.1) |
| Pre-tax branch consolidation costs | **—** | (4.2) |
| After-tax impact of branch consolidation costs | **—** | (3.3) |
| Total significant items pre-tax | **$(2.1)** | $(51.9) |
| Total significant items after-tax | **$(1.6)** | $(41.0) |
| **Capital measures** |  |  |
| Common equity tier 1 | **10.0%** | 10.0% |
| Tangible common equity to tangible assets (period-end) (non-GAAP) | **7.50** | 7.18 |
| Tangible book value per common share (period-end) (non-GAAP) | **$8.66** | $8.09 |
| (1) Favorable (unfavorable) impact on earnings |  |  |

### Industry Developments

### BANKING INDUSTRY DISRUPTION

During the second week of March 2023, Silicon Valley Bank failed and was taken over by federal regulators. The size of the bank, being over $200 billion in assets, made it the second largest U.S. bank to fail. Subsequently that week, Signature Bank with assets over $100 billion, was also closed by federal regulators. On May 1, 2023, it was announced that First Republic Bank was another bank closed by federal regulators. While these failures were idiosyncratic in nature, these events called into question the stability of the entire banking sector and also sparked customer fears of potential loss of deposit balances exceeding the FDIC's $250,000 insurance limit.

While the high-profile bank failures had a diminishing effect on public confidence of the banking system, the federal government took mitigating action. To strengthen public confidence, the federal government announced that that all depositors of both banks would be protected with any losses to the DIF recovered by a special assessment on banks. In addition to those actions, the FRB made available additional funding to eligible depository institutions to help assure banks the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.

The additional funding was made available through the creation of a new BTFP, offering loans of up to one year in length to banks, savings associations, credit unions and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress. As of March 31, 2023, we have not participated in this program. Additionally, our total deposit balances have remained stable as a result of our granular deposit base with our average customer deposit account balance at approximately $30,000 (below the peer median) and our median consumer deposit account balance at approximately $5,000 as of quarter-end. FDIC-insured or collateralized deposits represented approximately 76% of our total deposits at March 31, 2023, which was higher than our peer median (based on peer data as of December 31, 2022) and we had ample liquidity to fund up to 170% of our uninsured and non-collateralized deposits.

### LIBOR and SOFR

The United Kingdom’s Financial Conduct Authority (FCA), who is the regulator of LIBOR, announced on March 5, 2021 that they will no longer require any panel bank to continue to submit LIBOR after December 31, 2021. As it pertains to U.S. Dollar LIBOR, the FCA announced that certain LIBOR tenors will continue to be published through June 30, 2023. Bank regulators, in a joint statement urged banks to stop using LIBOR altogether on new transactions by the end of 2021 to avoid the possible creation of safety and soundness risk. The FRB of New York has created a working group called the Alternative Reference Rate Committee (ARRC) to assist U.S. institutions in transitioning away from LIBOR as a benchmark interest rate. The ARRC has recommended the use of SOFR as a replacement index for LIBOR.

On March 15, 2022, the Adjustable Interest Rate Act (the LIBOR Act) was signed into law. As required by the LIBOR Act, the FRB's final rule, effective February 27, 2023, identifies FRB-based benchmark replacements for LIBOR contracts that will not mature prior to the LIBOR replacement date and do not contain clear and practical benchmark replacements. The final rule identifies different SOFR-based FRB-selected benchmark replacements for different categories of LIBOR contracts. In addition, the final rule identifies certain benchmark replacement conforming changes related to the implementation, administration and calculation of the FRB-selected benchmark replacement. The final rule expressly indicates that a determining person may select the FRB-selected benchmark which will become the benchmark replacement. Finally, the FRB's final rule preempts any state or local law or standard relating to the selection or use of a benchmark replacement or conforming changes.

We have LIBOR exposure in various agreements, including variable rate loans, derivatives and debt we issued and acquired. We created an internal transition team that is managing our transition away from LIBOR. This transition team is a cross-functional team composed of representatives from the commercial, retail and mortgage banking lines of business, as well as representatives from loan operations, information technology, legal, finance and other support functions. The transition team determined that the primary index to be utilized for loans will be SOFR-based.

Beginning in September 2020, adjustable rate mortgage loans have been originated with SOFR as the underlying index. We started originating commercial loans utilizing SOFR and other indices in the fourth quarter of 2021 and, effective January 1, 2022, ceased origination of LIBOR-based loans. For all existing LIBOR-based loans, remediation efforts are scheduled to be completed by June 30, 2023.

Our transition team continues to work within the guidelines established by the FCA, FRB and the ARRC to provide for a smooth transition away from LIBOR.

### RESULTS OF OPERATIONS

### Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Net income available to common stockholders for the first three months of 2023 was $144.5 million or $0.40 per diluted common share, compared to $51.0 million or $0.15 per diluted common share for the first three months of 2022. On an operating basis (non-GAAP), net income available to common stockholders for the first three months of 2023 was $146.1 million, or $0.40, compared to $92.0 million or $0.26 per diluted common share for the first three months of 2022. Net interest income totaled $336.7 million, an increase of $102.6 million, or 43.8%, compared to $234.1 million, as total average earning assets increased $2.1 billion, or 5.6%, including a $4.2 billion increase in average loans and leases from organic origination activity and acquired Union loans, as well as a $313.3 million increase in average investment securities. The net interest margin (FTE) (non-GAAP) increased 95 basis points to 3.56%, as the yield on earning assets (non-GAAP) increased 185 basis points to 4.68%, primarily due to higher yields on loans, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment. The total cost of funds increased 96 basis points to 1.18% with a 136 basis point increase in interest-bearing deposit costs to 1.50%. Between March 31, 2022, and March 31, 2023, the FOMC raised the target Federal Funds interest rate by 450 basis points. The provision for credit losses for the first three months of 2023 totaled $14.1 million, compared to $18.0 million. The year-ago quarter included $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition. Non-interest income totaled $79.4 million, an increase of $1.1 million, or 1.4%, reflecting increased contributions from wealth management and dividends on non-marketable equity securities, partially offset by reduced contributions from mortgage banking due to the sharp increase in interest rates in 2022. Non-interest expense totaled $219.9 million, decreasing $7.5 million, or 3.3%. On an operating basis (non-GAAP), non-interest expense totaled $217.9 million, an increase of $23.2 million, or 11.9%, compared to the first quarter of 2022. Salaries and benefits increased $8.1 million, or 7.2%, due to annual merit increases, reduced salary deferrals given lower loan origination volumes and the addition of the acquired Howard and Union expense bases.

Financial highlights are summarized below:

### TABLE 2

*(in thousands, except per share data)*

|  | Three Months Ended March 31, 2023 | 2022 | $% Change | Change |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | **$336,654** | $234,076 | $102,578 | 43.8% |
| Provision for credit losses | **14,061** | 17,959 | (3,898) | (21.7) |
| Non-interest income | **79,389** | 78,322 | 1,067 | 1.4 |
| Non-interest expense | **219,917** | 227,426 | (7,509) | (3.3) |
| Income taxes | **35,560** | 14,015 | 21,545 | 153.7 |
| **Net income** | **146,505** | 52,998 | 93,507 | 176.4 |
| Less: Preferred stock dividends | **2,010** | 2,010 | — | — |
| **Net income available to common stockholders** | **$144,495** | $50,988 | $93,507 | 183.4% |
| Earnings per common share – Basic | **$0.40** | $0.15 | $0.25 | 166.7% |
| Earnings per common share – Diluted | **0.40** | 0.15 | 0.25 | 166.7 |
| Cash dividends per common share | **0.12** | 0.12 | — | — |

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

### TABLE 3

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Return on average equity | **10.37%** | 3.94% |
| Return on average tangible common equity (2) | **19.68** | 7.49 |
| Return on average assets | **1.37** | 0.52 |
| Return on average tangible assets (2) | **1.49** | 0.58 |
| Book value per common share (1) | **$15.76** | $15.19 |
| Tangible book value per common share (1) (2) | **8.66** | 8.09 |
| Equity to assets (1) | **13.11%** | 12.94% |
| Average equity to average assets | **13.20** | 13.25 |
| Common equity to assets (1) | **12.87** | 12.69 |
| Tangible equity to tangible assets (1) (2) | **7.76** | 7.45 |
| Tangible common equity to tangible assets (1) (2) | **7.50** | 7.18 |
| Common equity tier 1 capital ratio (1) | **10.0** | 10.0 |
| Dividend payout ratio | **30.30** | 83.74 |

(1) Period-end

(2) Non-GAAP

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

*(dollars in thousands)*

| Assets Interest-earning assets: | Three Months Ended March 31, 2023 Average Balance | Interest Income/ Expense | Yield/ Rate | 2022 Average Balance | Interest Income/ Expense | Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing deposits with banks | **$817,910** | **$6,653** | **3.30%** | $3,105,599 | $1,507 | 0.20% |
| Taxable investment securities (1) | **6,214,311** | **35,476** | **2.28** | 5,930,948 | 23,785 | 1.60 |
| Tax-exempt investment securities (1)(2) | **1,055,189** | **9,159** | **3.47** | 1,025,284 | 8,732 | 3.41 |
| Loans held for sale | **116,164** | **1,594** | **5.51** | 259,362 | 2,392 | 3.70 |
| Loans and leases (2) (3) | **30,410,376** | **393,895** | **5.24** | 26,238,804 | 219,762 | 3.39 |
| **Total interest-earning assets (2)** | **38,613,950** | **446,777** | **4.68** | 36,559,997 | 256,178 | 2.83 |
| Cash and due from banks | **442,712** |  |  | 410,716 |  |  |
| Allowance for credit losses | **(405,705)** |  |  | (360,392) |  |  |
| Premises and equipment | **442,441** |  |  | 378,090 |  |  |
| Other assets | **4,328,511** |  |  | 4,132,660 |  |  |
| **Total assets** | **$43,421,909** |  |  | $41,121,071 |  |  |
| **Liabilities** |  |  |  |  |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Interest-bearing demand | **$14,596,006** | **52,278** | **1.45** | $14,919,488 | 3,416 | 0.09 |
| Savings | **4,023,568** | **7,853** | **0.79** | 3,875,020 | 143 | 0.01 |
| Certificates and other time | **4,182,700** | **23,961** | **2.32** | 2,944,377 | 4,126 | 0.57 |
| **Total interest-bearing deposits** | **22,802,274** | **84,092** | **1.50** | 21,738,885 | 7,685 | 0.14 |
| Short-term borrowings | **1,561,343** | **9,744** | **2.53** | 1,509,971 | 5,802 | 1.56 |
| Long-term borrowings | **1,082,040** | **13,013** | **4.88** | 709,817 | 6,017 | 3.44 |
| **Total interest-bearing liabilities** | **25,445,657** | **106,849** | **1.70** | 23,958,673 | 19,504 | 0.33 |
| Non-interest-bearing demand | **11,410,506** |  |  | 11,255,917 |  |  |
| **Total deposits and borrowings** | **36,856,163** |  | **1.18** | 35,214,590 |  | 0.22 |
| Other liabilities | **834,106** |  |  | 457,587 |  |  |
| **Total liabilities** | **37,690,269** |  |  | 35,672,177 |  |  |
| **Stockholders’ equity** | **5,731,640** |  |  | 5,448,894 |  |  |
| **Total liabilities and stockholders’ equity** | **$43,421,909** |  |  | $41,121,071 |  |  |
| **Net interest-earning assets** | **$13,168,293** |  |  | $12,601,324 |  |  |
| **Net interest income (FTE) (2)** |  | **339,928** |  |  | 236,674 |  |
| Tax-equivalent adjustment |  | **(3,274)** |  |  | (2,598) |  |
| **Net interest income** |  | **$336,654** |  |  | $234,076 |  |
| Net interest spread |  |  | **2.98%** |  |  | 2.50% |
| **Net interest margin (2)** |  |  | **3.56%** |  |  | 2.61% |

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

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

### Net Interest Income

Net interest income on an FTE basis (non-GAAP) totaled $339.9 million, increasing $103.3 million, or 43.6%, as the higher interest rate environment benefited earning asset yields given the asset sensitive positioning of the balance sheet, which was partially offset by the higher cost of interest-bearing deposits given customers' preferences migrating toward time deposits and the current competitive interest rate environment. Average earning assets grew $2.1 billion, or 5.6%, primarily driven by organic loan origination activity and acquired Union and Howard loans and an increase in average investment securities. The net interest margin (FTE) (non-GAAP) increased 95 basis points to 3.56%, primarily reflecting higher yields on loans, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended March 31, 2023, compared to the three months ended March 31, 2022:

### TABLE 5

*(in thousands)*

| Interest Income (1) | Volume | Rate | Net |
| --- | ---: | ---: | ---: |
| Interest-bearing deposits with banks | $(1,099) | $6,245 | $5,146 |
| Securities (2) | 1,637 | 10,481 | 12,118 |
| Loans held for sale | (1,262) | 464 | (798) |
| Loans and leases (2) | 36,996 | 137,137 | 174,133 |
| **Total interest income (2)** | 36,272 | 154,327 | 190,599 |
| **Interest Expense (1)** |  |  |  |
| Deposits: |  |  |  |
| Interest-bearing demand | (32) | 48,894 | 48,862 |
| Savings | 17 | 7,693 | 7,710 |
| Certificates and other time | 2,491 | 17,344 | 19,835 |
| Short-term borrowings | 1,028 | 2,914 | 3,942 |
| Long-term borrowings | 3,918 | 3,078 | 6,996 |
| **Total interest expense** | 7,422 | 79,923 | 87,345 |
| **Net change (2)** | $28,850 | $74,404 | $103,254 |

(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 $446.8 million for the first three months of 2023, increased $190.6 million, or 74.4%, from the same period of 2022, resulting from the interest rate increases by the FOMC and a $2.1 billion increase in earning assets. The increase in earning assets was primarily driven by a $4.2 billion, or 15.9%, increase in average loans and an increase in average investment securities of $313.3 million, partially offset by a decrease of $2.3 billion, or 73.7%, in average cash balances. Growth in total average commercial loans included $1.1 billion, or 17.9%, in commercial and industrial loans and $960.9 million, or 9.1%, in commercial real estate driven by a combination of organic loan origination activity led by the Pittsburgh, Cleveland and North Carolina markets, as well as adding the Union loans to portfolio balances. Average consumer loans increased $2.1 billion, or 22.8%, with an increase in residential mortgage loans of $1.4 billion, or 35.0%, reflecting adjustable-rate mortgages held in portfolio on the balance sheet and the continued success of the Physicians First mortgage program, which is a digital program that provides a bundled suite of specialized products to meet the personal and professional needs of physicians, dentists, veterinarians and other healthcare professionals. Additionally, indirect installment loans increased $325.7 million, or 26.8%, and direct home equity installment loans increased $283.3 million, or 11.4%, driven by strong organic loan origination activity throughout 2022. Additionally, the net increase in the securities interest income was a result of replacing maturing securities with higher yielding securities, as the average securities yield increased 59 basis points. For the first three months of 2023, the yield on average earning assets (non-GAAP) increased 185 basis points to 4.68%, compared to the first three months of 2022, primarily due to higher yields on loans, investment securities and interest-bearing deposits with banks reflecting the higher interest rate environment.

Interest expense of $106.8 million for the first three months of 2023 increased $87.3 million, or 447.8%, from the same period of 2022, primarily due to the higher interest rate environment and an increase in average interest-bearing deposits. The growth in average deposits reflected solid organic growth in new and existing customer relationships and inflows from the Union and Howard acquisition. Average interest-bearing deposits increased $1.1 billion, or 4.9%, which reflects the benefit of solid organic growth in customer relationships and the addition of the Union and Howard acquisition. Average time deposits increased $1.2 billion, or 42.1%, as customer preferences shifted towards certificates of deposits as interest rates increased. Average long-term borrowings increased $372.2 million, or 52.4%, primarily due to an increase of $228.5 million in senior debt resulting from the issuance of $350 million in 5.150% fixed-rate senior notes during August 2022, partially offset by the maturity of $300 million in 2.20% fixed-rate senior notes in February 2023. Additionally, long-term FHLB borrowings increased $101.1 million. The rate paid on interest-bearing liabilities increased 137 basis points to 1.70% for the first three months of 2023, compared to the first three months of 2022, as the cost of interest-bearing deposits increased 136 basis points from 0.14% to 1.50%. These increases were primarily a result of the interest rate actions taken by the FOMC, combined with the issuance of senior debt in August 2022.

### Provision for Credit Losses

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

### TABLE 6

*(dollars in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 | $% Change | Change |
| --- | ---: | ---: | ---: | ---: |
| Provision for credit losses on loans and leases | **$14,891** | $18,236 | $(3,345) | (18.3)% |
| Provision for unfunded loan commitments | **(925)** | (340) | (585) | 172.1 |
| Total provision for credit losses on loans and leases | **13,966** | 17,896 | (3,930) | (22.0) |
| Provision for securities | **95** | 63 | 32 | 50.8 |
| Total provision for credit losses | **$14,061** | $17,959 | $(3,898) | (21.7)% |
| Net loan charge-offs | **13,197** | 1,888 | 11,309 | 599.0 |
| Net loan charge-offs (annualized) / total average loans and leases | **0.18%** | 0.03% |  |  |

The provision for credit losses was $14.1 million, compared to $18.0 million in the first quarter of 2022. The provision for credit losses in the first quarter of 2022 included $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition. The provision for credit losses for the first quarter of 2023 was primarily due to loan growth, CECL-related model impacts from forecasted macroeconomic conditions, and charge-off activity. The first quarter of 2023 reflected net charge-offs of $13.2 million, or 0.18% annualized of total average loans, compared to $1.9 million, or 0.03% annualized, in the first quarter of 2022. While slightly elevated from the year-ago quarter, net charge-offs remain at historically low levels. The ACL was $403.4 million, an increase of $32.8 million, with the ratio of the ACL to total loans and leases decreasing 7 basis points to 1.32%, reflecting the strong loan growth, partially offset by the increase in the ACL.

### Non-Interest Income

The breakdown of non-interest income for the three months ended March 31, 2023 and 2022 is presented in the following table:

### TABLE 7

*(dollars in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 | $% Change | Change |
| --- | ---: | ---: | ---: | ---: |
| Service charges | **$32,640** | $31,515 | $1,125 | 3.6% |
| Trust services | **10,611** | 10,349 | 262 | 2.5 |
| Insurance commissions and fees | **7,787** | 7,605 | 182 | 2.4 |
| Securities commissions and fees | **7,382** | 5,691 | 1,691 | 29.7 |
| Capital markets income | **6,793** | 7,127 | (334) | (4.7) |
| Mortgage banking operations | **4,855** | 6,667 | (1,812) | (27.2) |
| Dividends on non-marketable equity securities | **4,108** | 2,150 | 1,958 | 91.1 |
| Bank owned life insurance | **2,825** | 2,642 | 183 | 6.9 |
| Net securities gains (losses) | **(17)** | — | (17) | — |
| Other | **2,405** | 4,576 | (2,171) | (47.4) |
| **Total non-interest income** | **$79,389** | $78,322 | $1,067 | 1.4% |

Total non-interest income increased $1.1 million, or 1.4%. The variances in significant individual non-interest income items are explained in the following paragraphs.

Service charges of $32.6 million increased $1.1 million, or 3.6%, driven by treasury management services and interchange fees, offsetting the expected decline in overdraft and non-sufficient fund service charges from the previously announced overdraft practice changes that we implemented in the first quarter of 2023.

Securities commissions and fees of $7.4 million increased $1.7 million, or 29.7%, due to record securities commissions and fees driven by higher transaction activity and annuity sales.

Mortgage banking operations income of $4.9 million decreased $1.8 million, or 27.2%, as secondary market revenue and mortgage held-for-sale pipelines declined from 2022 levels given the sharp increase in mortgage rates and growth in adjustable-rate mortgage originations which we held in portfolio on the balance sheet. During the first three months of 2023, we sold $206.7 million of residential mortgage loans, a 45.7% decrease compared to $380.7 million for the same period of 2022.

Dividends on non-marketable equity securities of $4.1 million increased $2.0 million, or 91.1%, reflecting increases in both FRB and FHLB dividends given the higher interest-rate environment.

Other non-interest income was $2.4 million and $4.6 million for the first three months of 2023 and 2022, respectively, as SBA premium income declined $1.1 million from elevated 2022 levels as the higher interest rate environment reduced market premiums and correspondingly lowered sold loan volumes. Additionally, Small Business Investment Company (SBIC) funds income was $0.9 million lower.

62

### Non-Interest Expense

The breakdown of non-interest expense for the three months ended March 31, 2023 and 2022 is presented in the following table:

### TABLE 8

*(dollars in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 | $% Change | Change |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | **$120,247** | $112,189 | $8,058 | 7.2% |
| Net occupancy | **17,370** | 18,189 | (819) | (4.5) |
| Equipment | **22,072** | 18,005 | 4,067 | 22.6 |
| Amortization of intangibles | **5,119** | 3,227 | 1,892 | 58.6 |
| Outside services | **19,398** | 17,033 | 2,365 | 13.9 |
| Marketing | **3,701** | 3,256 | 445 | 13.7 |
| FDIC insurance | **7,119** | 4,574 | 2,545 | 55.6 |
| Bank shares and franchise taxes | **4,172** | 4,027 | 145 | 3.6 |
| Merger-related | **2,052** | 28,629 | (26,577) | (92.8) |
| Other | **18,667** | 18,297 | 370 | 2.0 |
| **Total non-interest expense** | **$219,917** | $227,426 | $(7,509) | (3.3)% |

Total non-interest expense of $219.9 million for the first three months of 2023 decreased $7.5 million, a 3.3% decrease from the same period of 2022. On an operating basis, non-interest expense (non-GAAP) increased $23.2 million, or 11.9%, when excluding significant items of $2.1 million in merger-related costs in the first three months of 2023, compared to $28.6 million in merger-related costs and $4.2 million in branch consolidation costs in the first three months of 2022. The variances in the individual non-interest expense items are further explained in the following paragraphs.

Salaries and employee benefits of $120.2 million increased $8.1 million, or 7.2%, due to annual merit increases, reduced salary deferrals given lower loan origination volumes and the addition of the acquired Howard and Union expense bases. Included in salaries and employee benefits in the first quarter of 2023 and 2022 were $6.7 million and $6.2 million, respectively, related to normal seasonal long-term compensation expense.

Net occupancy and equipment expense of $39.4 million increased $3.2 million, or 9.0%, primarily from the acquired Howard and Union expense bases, as well as technology-related investments.

Amortization of intangibles of $5.1 million increased $1.9 million, or 58.6%, primarily related to the Union core deposit intangible.

Outside services increased $2.4 million, or 13.9%, with higher volume-related technology and third-party costs, as well as the acquired Howard and Union expense bases.

FDIC insurance of $7.1 million increased $2.5 million, or 55.6%, primarily due to the previously announced FDIC assessment rate increase which was effective in the first quarter of 2023.

We recorded $2.1 million in merger-related costs related to the Union acquisition completed in December 2022, compared to $28.6 million in the first three months of 2022 related to the Howard acquisition completed in January 2022.

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

### TABLE 9

*(dollars in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 | $% Change | Change |
| --- | ---: | ---: | ---: | ---: |
| Total non-interest expense, as reported | $219,917 | $227,426 | $(7,509) | (3.3)% |
| Significant items: |  |  |  |  |
| Branch consolidations | — | (4,178) | 4,178 |  |
| Merger-related | (2,052) | (28,629) | 26,577 |  |
| Total non-interest expense, excluding significant items (1) | $217,865 | $194,619 | $23,246 | 11.9% |

(1) Non-GAAP

### Income Taxes

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

### TABLE 10

*(dollars in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Income tax expense | **$35,560** | $14,015 |
| Effective tax rate | **19.5%** | 20.9% |
| Statutory federal tax rate | **21.0** | 21.0 |

Income tax expense was higher in 2023 due to higher pre-tax earnings, as we had merger-related expense from the Howard acquisition in 2022. However, the effective tax rate was lower in 2023 as a result of higher deduction levels from employee stock compensation vesting.

### FINANCIAL CONDITION

The following table presents our condensed Consolidated Balance Sheets:

### TABLE 11

*(dollars in millions)*

| Assets | March 31, 2023 | December 31, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | **$1,723** | $1,674 | $49 | 2.9% |
| Securities | **7,274** | 7,362 | (88) | (1.2) |
| Loans held for sale | **100** | 124 | (24) | (19.4) |
| Loans and leases, net | **30,270** | 29,853 | 417 | 1.4 |
| Goodwill and other intangibles | **2,561** | 2,566 | (5) | (0.2) |
| Other assets | **2,218** | 2,146 | 72 | 3.4 |
| **Total Assets** | **$44,146** | $43,725 | $421 | 1.0% |
| **Liabilities and Stockholders’ Equity** |  |  |  |  |
| Deposits | **$34,190** | $34,770 | $(580) | (1.7)% |
| Borrowings | **3,447** | 2,465 | 982 | 39.8 |
| Other liabilities | **721** | 837 | (116) | (13.9) |
| Total Liabilities | **38,358** | 38,072 | 286 | 0.8 |
| Stockholders’ Equity | **5,788** | 5,653 | 135 | 2.4 |
| **Total Liabilities and Stockholders’ Equity** | **$44,146** | $43,725 | $421 | 1.0% |

### 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.

Following is a summary of loans and leases:

### TABLE 12

*(in millions)*

|  | March 31, 2023 | December 31, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Commercial real estate | **$11,528** | $11,526 | $2 | —% |
| Commercial and industrial | **7,246** | 7,131 | 115 | 1.6 |
| Commercial leases | **562** | 519 | 43 | 8.3 |
| Other | **176** | 114 | 62 | 54.4 |
| **Total commercial loans and leases** | **19,512** | 19,290 | 222 | 1.2 |
| Direct installment | **2,752** | 2,784 | (32) | (1.1) |
| Residential mortgages | **5,589** | 5,297 | 292 | 5.5 |
| Indirect installment | **1,525** | 1,553 | (28) | (1.8) |
| Consumer lines of credit | **1,295** | 1,331 | (36) | (2.7) |
| **Total consumer loans** | **11,161** | 10,965 | 196 | 1.8 |
| **Total loans and leases** | **$30,673** | $30,255 | $418 | 1.4% |

65

The commercial and industrial growth was led by activity in the Pittsburgh, Cleveland and North Carolina markets while the growth in residential mortgages reflected growth in adjustable-rate mortgages held in portfolio on the balance sheet and the continued success of our Physicians First mortgage program. Our commercial real estate portfolio was comprised of $8 billion of non-owner occupied loans of which 22% represented office space. Office space was primarily made up of smaller offices located outside of metropolitan business districts.

### Non-Performing Assets

Following is a summary of non-performing assets:

### TABLE 13

*(in millions)*

|  | March 31, 2023 | December 31, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Commercial real estate | **$44** | $39 | $5 | 12.8% |
| Commercial and industrial | **41** | 44 | (3) | (6.8) |
| Commercial leases | **1** | 1 | — | — |
| **Total commercial loans and leases** | **86** | 84 | 2 | 2.4 |
| Direct installment | **6** | 7 | (1) | (14.3) |
| Residential mortgages | **13** | 14 | (1) | (7.1) |
| Indirect installment | **2** | 1 | 1 | 100.0 |
| Consumer lines of credit | **6** | 7 | (1) | (14.3) |
| **Total consumer loans** | **27** | 29 | (2) | (6.9) |
| **Total non-performing loans and leases** | **113** | 113 | — | — |
| Other real estate owned | **6** | 6 | — | — |
| **Non-performing assets** | **$119** | $119 | $— | —% |

Non-performing assets decreased $0.8 million, from $119.5 million at December 31, 2022 to $118.7 million at March 31, 2023. This reflects a decrease of $0.1 million in non-performing loans and leases and a decrease of $0.7 million in OREO.

### Allowance for Credit Losses on Loans and Leases

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 March 31, 2023 and December 31, 2022, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment. For our ACL calculation at March 31, 2023, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which declines 2.5% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 4.6% over our R&S forecast period, (iii) S&P Volatility, which decreases 39.7% in 2023 and 10.5% in 2024 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historic levels. Macroeconomic variables that we utilized for our ACL calculation as of December 31, 2022 included, but were not limited to: (i) the purchase only Housing Price Index, which declines 3.7% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which declines 0.9% over our R&S forecast period, (iii) S&P Volatility, which decreases 41.0% in 2023 and 8.1% in 2024 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical levels.

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

### TABLE 14

*(dollars in millions)*

|  | Net Loan Charge-Offs Three Months Ended March 31, 2023 | 2022 | Net Loan Charge-Offs to Average Loans Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Commercial real estate | **$5.5** | $(0.4) | **0.07%** | —% |
| Commercial and industrial | **4.9** | 1.9 | **0.07** | 0.03 |
| Commercial leases | **—** | 0.1 | **—** | — |
| Other commercial | **0.5** | 0.5 | **0.01** | — |
| Direct installment | **0.1** | (0.2) | **—** | — |
| Residential mortgages | **0.2** | (0.1) | **—** | — |
| Indirect installment | **2.0** | 0.3 | **0.03** | — |
| Consumer lines of credit | **—** | (0.2) | **—** | — |
| Total net loan charge-offs on loans and leases, net loan charge-offs (annualized)/average loans | **$13.2** | $1.9 | **0.18%** | 0.03% |
| Allowance for credit losses/total loans and leases |  |  | **1.32%** | 1.38% |
| Allowance for credit losses/non-performing loans |  |  | **356.09%** | 364.99% |

The ACL on loans and leases of $403.4 million at March 31, 2023 increased $1.7 million, or 0.4%, from December 31, 2022. Our ending ACL coverage ratio at March 31, 2023 was stable at 1.32%, compared to 1.33% at December 31, 2022. Total provision for credit losses for the three months ended March 31, 2023 was $14.1 million, compared to $18.0 million for the same period in 2022 with the year-ago quarter reflecting $19.1 million of initial provision for non-PCD loans associated with the Howard acquisition. Net charge-offs were $13.2 million for the three months ended March 31, 2023, compared to $1.9 million for the first three months of 2022. While slightly elevated from the year-ago quarter, net charge-offs remain at historically low levels. The ACL as a percentage of non-performing loans for the total portfolio was flat at 356% as of March 31, 2023 compared to 354% as of December 31, 2022.

### 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 15

*(in millions)*

|  | March 31, 2023 | December 31, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Non-interest-bearing demand | **$11,297** | $11,916 | $(619) | (5.2)% |
| Interest-bearing demand | **14,091** | 15,100 | (1,009) | (6.7) |
| Savings | **4,053** | 4,142 | (89) | (2.1) |
| Certificates and other time deposits | **4,749** | 3,612 | 1,137 | 31.5 |
| **Total deposits** | **$34,190** | $34,770 | $(580) | (1.7)% |

Total deposits decreased $579.7 million, or 1.7%, from December 31, 2022, primarily due to normal seasonal declines in public funds deposit balances. Even with the banking industry disruption in early March, our deposit balances remained stable as total deposit balances decreased slightly by $226 million, or 0.7%, from March 8, 2023 to quarter end, largely due to normal business and consumer activity of our customers. We ended the quarter with approximately 76% of all deposits insured by the FDIC or collateralized. Additionally, customer preferences shifted to certificates of deposits as interest rates increased.

### Capital Resources and Regulatory Matters

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 depend, in part, on our capital position.

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.

We have an effective shelf registration statement filed with the SEC. Pursuant to this registration statement, we may, from time to time, issue and sell in one or more offerings any combination of common stock, preferred stock, debt securities, depositary shares, warrants, stock purchase contracts or units. On August 25, 2022, we completed an offering of $350 million of 5.150% fixed-rate senior notes due in 2025 under this registration statement. The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering expenses were $347.4 million. We used the net proceeds from the sale of the notes for general corporate purposes, including repayment of the $300 million in 2.200% senior notes that matured in February 2023, investments at the holding company level, capital to support the growth of FNBPA and refinancing of outstanding indebtedness.

On April 18, 2022, we announced that our Board of Directors approved an additional $150 million for the repurchase of our common stock through our existing share repurchase program bringing the total authorization to $300 million. Since inception, we repurchased 11.8 million shares at a weighted average share price of $11.50 for $136.1 million under this repurchase program, with $163.9 million remaining for repurchase. The 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.

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 (see discussion under “Enhanced Regulatory Capital Standards”). 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 March 31, 2023, 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

March 31, 2023, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $34.4 million, or 10 basis points, which will continue to be reduced by approximately $17.2 million annually.

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 constituencies under stressful financial conditions.

Following are the capital amounts and related ratios for FNB and FNBPA:

### TABLE 16

*(dollars in millions)*

| As of March 31, 2023 F.N.B. Corporation | Actual Amount | Ratio | Well-Capitalized Requirements (1) Amount | Ratio | Minimum Capital Requirements plus Capital Conservation Buffer Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total capital | **$4,286** | **12.35%** | **$3,470** | **10.00%** | **$3,644** | **10.50%** |
| Tier 1 capital | **3,591** | **10.35** | **2,082** | **6.00** | **2,950** | **8.50** |
| Common equity tier 1 | **3,484** | **10.04** | **n/a** | **n/a** | **2,429** | **7.00** |
| Leverage | **3,591** | **8.70** | **n/a** | **n/a** | **1,650** | **4.00** |
| Risk-weighted assets | **34,703** |  |  |  |  |  |
| **FNBPA** |  |  |  |  |  |  |
| Total capital | **4,411** | **12.74%** | **3,462** | **10.00%** | **3,635** | **10.50%** |
| Tier 1 capital | **3,701** | **10.69** | **2,769** | **8.00** | **2,943** | **8.50** |
| Common equity tier 1 | **3,621** | **10.46** | **2,250** | **6.50** | **2,423** | **7.00** |
| Leverage | **3,701** | **8.99** | **2,059** | **5.00** | **1,647** | **4.00** |
| Risk-weighted assets | **34,619** |  |  |  |  |  |
| **As of December 31, 2022** |  |  |  |  |  |  |
| **F.N.B. Corporation** |  |  |  |  |  |  |
| Total capital | $4,183 | 12.06% | $3,467 | 10.00% | $3,640 | 10.50% |
| Tier 1 capital | 3,511 | 10.13 | 2,080 | 6.00 | 2,947 | 8.50 |
| Common equity tier 1 | 3,405 | 9.82 | n/a | n/a | 2,427 | 7.00 |
| Leverage | 3,511 | 8.64 | n/a | n/a | 1,626 | 4.00 |
| Risk-weighted assets | 34,671 |  |  |  |  |  |
| **FNBPA** |  |  |  |  |  |  |
| Total capital | 4,327 | 12.51% | 3,459 | 10.00% | 3,632 | 10.50% |
| Tier 1 capital | 3,640 | 10.52 | 2,767 | 8.00 | 2,940 | 8.50 |
| Common equity tier 1 | 3,560 | 10.29 | 2,248 | 6.50 | 2,421 | 7.00 |
| Leverage | 3,640 | 8.97 | 2,029 | 5.00 | 1,623 | 4.00 |
| Risk-weighted assets | 34,589 |  |  |  |  |  |

(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.

### 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 2022 Annual Report on Form 10-K as filed with the SEC on February 24, 2023.

### 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 adequate 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. 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. FNB 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.

The principal sources of the parent company’s liquidity are its strong existing cash resources plus dividends and interest it receives from its subsidiaries. These dividends may be impacted by the parent’s or its subsidiaries’ capital 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. The cash position at March 31, 2023 was $360.3 million, down $294.0 million from year-end, primarily due to the repayment of $300 million in Senior Notes due in February 2023. During the third quarter of 2022, we completed a Senior Debt offering of which $347.7 million net proceeds were used to retire debt in February of 2023 (for additional information, see Note 10, "Borrowings" in the Notes to the Consolidated Financial Statements in this Report). Management has utilized various strategies to ensure sufficient cash on hand is available to meet the parent's funding needs.

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 cash on hand.

The LCR and MCH ratios are presented in the following table:

### TABLE 17

|  | March 31, 2023 | December 31, 2022 | Internal Limit |
| --- | --- | --- | --- |
| Liquidity coverage ratio | **2.5 times** | 1.7 times | \> 1 time |
| Months of cash on hand | **15.4 months** | 13.6 months | \> 12 months |

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

Over time, our liquidity position has been positively impacted by our ability to generate growth in relationship-based accounts. Organic growth in low-cost transaction deposits was complemented by management’s continued strategy of deposit gathering efforts focused on attracting new customer relationships and deepening relationships with existing customers, in part through internal lead generation efforts leveraging data analytics capabilities. Total deposits decreased $579.7 million, or 1.7%, from December 31, 2022, primarily due to normal seasonal declines in public funds and other corporate deposit balances. From March 8, 2023 to quarter-end, total deposit balances decreased slightly by $226 million, or 0.7%, largely due to normal wholesale and retail customer activity. We ended the quarter with approximately 76% of deposits insured by the FDIC or collateralized, an improvement from approximately 74% at December 31, 2022. Non-interest-bearing demand deposit accounts decreased $618.9 million, or 5.2%. Interest-bearing demand deposits decreased $1.0 billion, or 6.7% and savings account balances decreased $89.3 million, or 2.2%, while time deposits increased $1.1 billion, or 31.5%, as customers' preferences are shifting back to certificates of deposits (CDs) as interest rates have increased substantially. In an abundance of caution related to the banking industry disruption, between March 8th and March 31st, we executed approximately $1.3 billion in wholesale borrowings including advances from the FHLB and overnight borrowings in the Fed Funds market, which added cash on the balance sheet, supported loan growth and covered the deposit decline. Additionally, our cash balances held at the FRB increased $147.7 million from December 31, 2022 to $1.3 billion at March 31, 2023.

We continue to have ample unused borrowing capacity that could cover 1.7 times of the uninsured deposit and non-collateralized deposit balances as of March 31, 2023. A portion of this capacity includes the FRB's Discount Window and their newly created BTFP. We had no borrowings under either facility during the quarter. 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. We currently have excess cash to meet our pledging requirements. At March 31, 2023, we have $2.3 billion of cash and salable unpledged government and agency securities to total assets, or 5.2%. This compares to a policy minimum of 3.0%.

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

### TABLE 18

*(dollars in millions)*

|  | March 31, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Unused wholesale credit availability | **$16,070** | $15,669 |
| Unused wholesale credit availability as a % of FNBPA assets | **36.5%** | 35.9% |
| Salable unpledged government and agency securities | **$1,010** | $592 |
| Salable unpledged government and agency securities as a % of FNBPA assets | **2.3%** | 1.4% |
| Cash and salable unpledged government and agency securities as a % of FNBPA assets | **5.2%** | 3.9% |

Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis as of March 31, 2023 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals. 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 twelve-month cumulative gap to total assets ratio was 1.6% as of March 31, 2023, compared to 3.8% as of December 31, 2022. 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. Management calculates this ratio at least quarterly and it is reviewed regularly by ALCO.

### TABLE 19

*(dollars in millions)*

| Assets | Within 1 Month | 2-3 Months | 4-6 Months | 7-12 Months | Total 1 Year |
| --- | ---: | ---: | ---: | ---: | ---: |
| Loans | $727 | $1,515 | $1,785 | $3,376 | $7,403 |
| Investments | 1,387 | 165 | 248 | 475 | 2,275 |
|  | 2,114 | 1,680 | 2,033 | 3,851 | 9,678 |
| **Liabilities** |  |  |  |  |  |
| Non-maturity deposits | 297 | 595 | 893 | 1,787 | 3,572 |
| Time deposits | 477 | 963 | 764 | 1,626 | 3,830 |
| Borrowings | 983 | 114 | 148 | 338 | 1,583 |
|  | 1,757 | 1,672 | 1,805 | 3,751 | 8,985 |
| **Period Gap (Assets - Liabilities)** | $357 | $8 | $228 | $100 | $693 |
| **Cumulative Gap** | $357 | $365 | $593 | $693 |  |
| **Cumulative Gap to Total Assets** | 0.8% | 0.8% | 1.3% | 1.6% |  |

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. 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.

Interest rate risk is comprised of repricing risk, basis risk, yield curve risk and options risk. Repricing risk arises from differences in the cash flow or repricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are related to different market rate indices, which do not always change by the same amount. Yield curve risk arises when asset and liability portfolios are related to different maturities on a given yield curve; when the yield curve changes shape, the risk position is altered. Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their loans, which may be with or without penalty, when rates change, while certain depositors can redeem their certificates of deposit early, which may be with or without penalty, when rates change.

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 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.

The following repricing gap analysis as of March 31, 2023 compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. Management utilizes the repricing gap analysis as a diagnostic tool in managing net interest income and EVE risk measures.

### TABLE 20

*(dollars in millions)*

| Assets | Within 1 Month | 2-3 Months | 4-6 Months | 7-12 Months | Total 1 Year |
| --- | ---: | ---: | ---: | ---: | ---: |
| Loans | $12,146 | $923 | $1,008 | $1,985 | $16,062 |
| Investments | 1,395 | 175 | 329 | 465 | 2,364 |
|  | 13,541 | 1,098 | 1,337 | 2,450 | 18,426 |
| **Liabilities** |  |  |  |  |  |
| Non-maturity deposits | 10,164 | — | — | — | 10,164 |
| Time deposits | 599 | 962 | 762 | 1,621 | 3,944 |
| Borrowings | 1,617 | 180 | 32 | 8 | 1,837 |
|  | 12,380 | 1,142 | 794 | 1,629 | 15,945 |
| Off-balance sheet | (850) | 300 | (50) | (300) | (900) |
| **Period Gap (assets – liabilities + off-balance sheet)** | $311 | $256 | $493 | $521 | $1,581 |
| **Cumulative Gap** | $311 | $567 | $1,060 | $1,581 |  |
| **Cumulative Gap to Assets** | 0.8% | 1.4% | 2.7% | 4.0% |  |

The twelve-month cumulative repricing gap to total assets was 4.0% and 8.4% as of March 31, 2023 and December 31, 2022, respectively. The positive cumulative gap positions indicate that we have a greater amount of repricing earning assets than repricing interest-bearing liabilities over the subsequent twelve months. The change in the cumulative repricing gap at March 31, 2023, compared to December 31, 2022, is primarily related to customers moving into higher yielding deposit products and shorter-term time deposits.

The allocation of non-maturity deposits and customer repurchase agreements to the one-month maturity category above 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.

Using a static Balance Sheet structure and utilizing net interest income simulations, the following net interest income metrics were calculated using rate shocks which move market rates in an immediate and parallel fashion. The variance percentages represent the change between the net interest income and EVE calculated under the particular rate scenario compared to the net interest income and EVE that was calculated assuming market rates as of March 31, 2023. The measures do not reflect management's potential actions.

The following table presents an analysis of the potential sensitivity of our net interest income and EVE to changes in interest rates using rate shocks:

### TABLE 21

| Net interest income change (12 months): | March 31, 2023 | December 31, 2022 | ALCO Limits |
| --- | ---: | ---: | ---: |
| + 300 basis points | **4.1%** | 5.5% | n/a |
| + 200 basis points | **2.8** | 3.3 | (5.0)% |
| + 100 basis points | **1.4** | 1.1 | (5.0) |
| - 100 basis points | **2.9** | 1.2 | (5.0) |
| - 200 basis points | **3.6** | 0.9 | (5.0) |
| Economic value of equity: |  |  |  |
| + 300 basis points | **1.7** | (6.8) | (25.0) |
| + 200 basis points | **2.6** | (4.0) | (15.0) |
| + 100 basis points | **1.7** | (1.4) | (10.0) |
| - 100 basis points | **(3.5)** | (2.0) | (10.0) |
| - 200 basis points | **(8.3)** | (5.8) | (15.0) |

We also model rate scenarios which move all rates gradually over twelve months (Rate Ramps) and model scenarios that gradually change the shape of the yield curve. The comparative percentages are based on the projected base net interest income at the respective measurement dates. Assuming a static Balance Sheet, a +100 basis point Rate Ramp increases net interest income (12 months) by 1.0% at March 31, 2023 and 0.5% at December 31, 2022. For a +200 basis point Rate Ramp, net interest income (12 months) increases by 1.9% at March 31, 2023 and 2.0% at December 31, 2022. The corresponding metrics for a minus 100 basis point Rate Ramp are 1.6% and 0.6% at March 31, 2023 and December 31, 2022, respectively. These results use historical long-term deposit rate beta assumptions for both rising and falling rate scenarios. Recent market events and the relatively fast rise in short-term Treasury rates suggest the possibility of lower deposit rate betas in falling rate scenarios in an effort to retain deposit balances in the flat balance simulation. Sensitivity analysis using lower betas in the minus 100 basis point Rate Shock decreases net interest income (12 months) by (0.9%) at March 31, 2023. The corresponding metric for a minus 100 basis point Rate Ramp is (0.4%) at March 31, 2023. These changes are a direct result of our managing our interest rate exposure to benefit from higher rates during 2022. Management has reduced our exposure to higher interest rates as prospects for additional FOMC interest rate hikes has moderated and we will continue to manage to a more neutral position.

Forty-eight percent of our net loans and leases are indexed to short-term LIBOR, SOFR, Prime and other indices that reprice within the next three months. Our cash position related to increased deposits has also been a significant factor in our asset sensitivity metrics. The deployment of cash into loans and investments, as well as a higher base net interest income due to the increase in the loan indices, are the primary factors of the change in the percentage sensitivity since December. The FOMC increased the Federal Funds rate by 425 basis points in 2022 and by 50 basis points in the first quarter of 2023. Our balance sheet is positioned to benefit, in the near term, from further FOMC increases of the Federal Funds rate.

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 and expectations regarding future interest rates, as well as internal factors regarding product offerings, product mix and pricing of loans and deposits.

Management continues to be proactive in managing our interest rate risk (IRR) position. In particular, we have made use of interest rate swaps to commercial borrowers (commercial swaps) to manage our IRR position as the commercial swaps effectively increase our level of adjustable-rate loans. Total variable and adjustable-rate loans were 60.4% of total net loans and leases as of March 31, 2023 and 60.2% as of December 31, 2022. As of March 31, 2023, the commercial swaps totaled $5.4 billion of notional principal, with $213 million in original notional swap principal originated during the first three months of 2023. 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. Further, during 2023, management has adjusted our IRR position by opportunistically deploying excess cash balances into higher yielding loans and actively managed customer preferences for higher yielding deposit products and, in particular, shorter term time deposits. We also have outstanding derivatives to manage the IRR position. For additional information regarding interest rate swaps, see Note 11, "Derivative Instruments and Hedging Activities" in the Notes to the Consolidated Financial Statements in this Report.

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 the planned growth or management actions that could be taken.

### RISK MANAGEMENT

As a financial institution, we take on a certain amount of risk in every business decision, transaction and activity. Our Board of Directors and senior management have identified seven major categories of risk: credit risk, market risk, liquidity risk, reputational risk, operational risk, legal and compliance 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.

The Board of Directors adopted a risk appetite statement that defines acceptable risk levels and limits under which we seek to operate in order to optimize returns. As such, the board monitors a series of KRIs, or Key Risk Indicators, for various business lines, operational units, and risk categories, providing insight into how our performance aligns with our stated risk appetite. These results are reviewed periodically by the Board of Directors and senior management to ensure adherence to our risk appetite statement, and where appropriate, adjustments are made to applicable business strategies and tactics where risks are approaching stated tolerances or for emerging risks.

We support our risk management process through a governance structure involving our Board of Directors and senior management. The joint Risk Committee of our Board of Directors and the FNBPA Board of Directors helps ensure that business decisions are executed within appropriate risk tolerances. The Risk Committee has oversight responsibilities with respect to the following:

- identification, measurement, assessment and monitoring of enterprise-wide risk;
- development of appropriate and meaningful risk metrics to use in connection with the oversight of our businesses and strategies;
- review and assessment of our policies and practices to manage our credit, market, liquidity, legal, regulatory and operating risk (including technology, operational, compliance and fiduciary risks); and
- identification and implementation of risk management best practices.

The Risk Committee serves as the primary point of contact between our Board of Directors and the Risk Management Council, which is the senior management level committee responsible for risk management. Risk appetite is an integral element 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. Our top-down risk appetite process serves as a limit for undue risk-taking for bottom-up planning from our various business functions. Our Board Risk Committee, in collaboration with our Risk Management Council, approves our risk appetite on an annual basis, or more frequently, as needed to reflect changes in the risk, regulatory, economic and strategic plan environments, with the goal of ensuring that our risk appetite remains consistent with our strategic plans and business operations, regulatory environment and our shareholders' expectations. Reports relating to our risk appetite and strategic plans, and our ongoing monitoring thereof, are regularly presented to our various management level risk oversight and planning committees and periodically reported up through our Board Risk Committee.

As noted above, we have a Risk Management Council comprised of senior management. The purpose of this committee is to provide regular oversight of specific areas of risk with respect to the level of risk and risk management structure. Management has also established an Operational Risk Committee that is responsible for identifying, evaluating and monitoring operational risks across FNB, evaluating and approving appropriate remediation efforts to address identified operational risks and providing periodic reports concerning operational risks to the Risk Management Council. The Risk Management Council reports on a regular basis to the Risk Committee of our Board of Directors regarding our enterprise-wide risk profile and other significant risk management issues. Our Chief Risk Officer is responsible for the design and implementation of our enterprise-wide risk management strategy and framework through the multiple second line of defense areas, including the following departments, which all report to the Chief Risk Officer to ensure the coordinated and consistent implementation of risk management initiatives and strategies on a day-to-day basis:

- Enterprise-Wide Risk Management Department - conducts risk and control assessments across all our business and operational areas to ensure the appropriate risk identification, risk management and reporting of risks enterprise wide.
- Fraud Risk Department - monitors for internal and external fraud risk across all our business and operational units.
- Loan Review Department - conducts independent testing of our loan risk ratings to ensure their accuracy, which is instrumental to calculating our ACL.
- Model Risk Management Department - oversees validation and testing of all models used in managing risk across our company.
- Third-Party Risk Management Department - ensures effective risk management and oversight of third-party relationships throughout the vendor life cycle.
- Anti-Money Laundering and Bank Secrecy Act Department - monitors for compliance with money laundering risk and associated regulatory compliance requirements.
- Appraisal Review Department - facilitates independent ordering and review of real estate appraisals obtained for determining the value of real estate pledged as collateral for loans to customers.
- Compliance Department - develops policies and procedures and monitors compliance with applicable laws and regulations which govern our business operations.
- Information and Cyber Security Department - maintains a risk assessment of our information and cybersecurity risks and ensures appropriate controls are in place to manage and control such risks, using the National Institute of Standards and Technology framework for improving critical infrastructure by measuring and evaluating the effectiveness of information and cybersecurity controls. This department also oversees our disaster recovery planning and testing efforts to allow us to be capable and ready for business resumption in the event of a disaster.

We have in place various business and emergency continuity plans to respond to different crises and circumstances which include rapid deployment of our Crisis Management Team, Incident Management Team and Business Continuity Coordinators to activate our plans for various types of emergency circumstances. Further, our audit function performs an independent assessment of our internal controls environment and plays an integral role in testing the operation of the internal controls systems and reporting findings to management and our Audit Committee. Each of the Risk, Audit, Credit Risk and CRA Committees of our Board of Directors regularly report on risk-related matters to the full Board of Directors. In addition, both the Risk Committee of our Board of Directors and our Risk Management Council regularly assess our enterprise-wide risk profile and provide guidance on actions needed to address key and emerging risk issues.

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 22

#### Operating net income available to common stockholders

*(in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income available to common stockholders | $144,495 | $50,988 |
| Merger-related expense | 2,052 | 28,629 |
| Tax benefit of merger-related expense | (431) | (6,012) |
| Provision expense related to acquisition | — | 19,127 |
| Tax benefit of provision expense related to acquisition | — | (4,017) |
| Branch consolidation costs | — | 4,178 |
| Tax benefit of branch consolidation costs | — | (877) |
| Operating net income available to common stockholders (non-GAAP) | $146,116 | $92,016 |

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, initial provision for non-PCD loans acquired and branch consolidation costs are not organic costs to run our operations and facilities. The merger expenses and branch consolidation costs principally represent expenses to satisfy contractual obligations of the acquired entity or closed branches without any useful ongoing benefit to us. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction.

### TABLE 23

#### Operating earnings per diluted common share

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income per diluted common share | $0.40 | $0.15 |
| Merger-related expense | 0.01 | 0.08 |
| Tax benefit of merger-related expense | — | (0.02) |
| Provision expense related to acquisition | — | 0.05 |
| Tax benefit of provision expense related to acquisition | — | (0.01) |
| Branch consolidation costs | — | 0.01 |
| Tax benefit of branch consolidation costs | — | — |
| Operating earnings per diluted common share (non-GAAP) | $0.40 | $0.26 |

77

### TABLE 24

#### Return on average tangible common equity

*(dollars in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income available to common stockholders (annualized) | $586,007 | $206,787 |
| Amortization of intangibles, net of tax (annualized) | 16,402 | 10,339 |
| Tangible net income available to common stockholders (annualized) (non-GAAP) | $602,409 | $217,126 |
| Average total stockholders’ equity | $5,731,640 | $5,448,894 |
| Less: Average preferred stockholders' equity | (106,882) | (106,882) |
| Less: Average intangible assets (1) | (2,563,569) | (2,444,395) |
| Average tangible common equity (non-GAAP) | $3,061,189 | $2,897,617 |
| Return on average tangible common equity (non-GAAP) | 19.68% | 7.49% |

(1) Excludes loan servicing rights.

### TABLE 25

#### Operating return on average tangible common equity

*(dollars in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Operating net income available to common stockholders (annualized) | $592,582 | $373,176 |
| Amortization of intangibles, net of tax (annualized) | 16,402 | 10,339 |
| Tangible operating net income available to common stockholders (annualized) (non-GAAP) | $608,984 | $383,515 |
| Average total stockholders' equity | $5,731,640 | $5,448,894 |
| Less: Average preferred stockholders' equity | (106,882) | (106,882) |
| Less: Average intangible assets (1) | (2,563,569) | (2,444,395) |
| Average tangible common equity (non-GAAP) | $3,061,189 | $2,897,617 |
| Operating return on average tangible common equity (non-GAAP) | 19.89% | 13.24% |

(1) Excludes loan servicing rights.

### TABLE 26

#### Return on average tangible assets

*(dollars in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income (annualized) | $594,159 | $214,935 |
| Amortization of intangibles, net of tax (annualized) | 16,402 | 10,339 |
| Tangible net income (annualized) (non-GAAP) | $610,561 | $225,274 |
| Average total assets | $43,421,909 | $41,121,071 |
| Less: Average intangible assets (1) | (2,563,569) | (2,444,395) |
| Average tangible assets (non-GAAP) | $40,858,340 | $38,676,676 |
| Return on average tangible assets (non-GAAP) | 1.49% | 0.58% |

(1) Excludes loan servicing rights.

### TABLE 27

#### Tangible book value per common share

*(dollars in thousands, except per share data)*

|  | March 31, 2023 | March 31, 2022 |
| --- | ---: | ---: |
| Total stockholders’ equity | $5,787,383 | $5,438,595 |
| Less: Preferred stockholders’ equity | (106,882) | (106,882) |
| Less: Intangible assets (1) | (2,561,216) | (2,492,359) |
| Tangible common equity (non-GAAP) | $3,119,285 | $2,839,354 |
| Ending common shares outstanding | 360,359,857 | 350,911,030 |
| Tangible book value per common share (non-GAAP) | $8.66 | $8.09 |

(1) Excludes loan servicing rights.

### TABLE 28

#### Tangible equity to tangible assets

*(dollars in thousands)*

|  | March 31, 2023 | March 31, 2022 |
| --- | ---: | ---: |
| Total stockholders' equity | $5,787,383 | $5,438,595 |
| Less: Intangible assets (1) | (2,561,216) | (2,492,359) |
| Tangible equity (non-GAAP) | $3,226,167 | $2,946,236 |
| Total assets | $44,145,664 | $42,021,887 |
| Less: Intangible assets (1) | (2,561,216) | (2,492,359) |
| Tangible assets (non-GAAP) | $41,584,448 | $39,529,528 |
| Tangible equity / tangible assets (non-GAAP) | 7.76% | 7.45% |

(1) Excludes loan servicing rights.

### TABLE 29

#### Tangible common equity / tangible assets

*(dollars in thousands)*

|  | March 31, 2023 | March 31, 2022 |
| --- | ---: | ---: |
| Total stockholders' equity | $5,787,383 | $5,438,595 |
| Less: Preferred stockholders' equity | (106,882) | (106,882) |
| Less: Intangible assets (1) | (2,561,216) | (2,492,359) |
| Tangible common equity (non-GAAP) | $3,119,285 | $2,839,354 |
| Total assets | $44,145,664 | $42,021,887 |
| Less: Intangible assets (1) | (2,561,216) | (2,492,359) |
| Tangible assets (non-GAAP) | $41,584,448 | $39,529,528 |
| Tangible common equity / tangible assets (non-GAAP) | 7.50% | 7.18% |

(1) Excludes loan servicing rights.

79

### Key Performance Indicators

### TABLE 30

#### Efficiency ratio

*(dollars in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Non-interest expense | $219,917 | $227,426 |
| Less: Amortization of intangibles | (5,119) | (3,227) |
| Less: OREO expense | (557) | (315) |
| Less: Merger-related expense | (2,052) | (28,629) |
| Less: Branch consolidation costs | — | (4,178) |
| Adjusted non-interest expense | $212,189 | $191,077 |
| Net interest income | $336,654 | $234,076 |
| Taxable equivalent adjustment | 3,274 | 2,598 |
| Non-interest income | 79,389 | 78,322 |
| Less: Net securities (gains) losses | 17 | — |
| Adjusted net interest income (FTE) + non-interest income | $419,334 | $314,996 |
| Efficiency ratio (FTE) (non-GAAP) | 50.60% | 60.66% |

## Market risk

As filed, 174 characters.

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.

## Controls and procedures

As filed, 2,535 characters.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. FNB’s management, with the participation of our principal executive and financial officers, evaluated our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective as of such date at the reasonable assurance level as discussed below to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. FNB’s management, including the CEO and the CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within FNB have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

CHANGES IN INTERNAL CONTROLS. The CEO and the CFO have evaluated the changes to our internal controls over financial reporting that occurred during our fiscal quarter ended March 31, 2023, as required by paragraph (d) of Rules 13a–15 and 15d–15 under the Securities Exchange Act of 1934, as amended, and have concluded that there were no such changes that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 10,394 characters.

For information regarding risk factors that could affect our results of operations, financial condition and liquidity, see the risk factors disclosed in the “Risk Factors” section of our 2022 Annual Report on Form 10-K.

The risk factors below relate to the recent banking industry disruption, and are in addition to the risk factors previously disclosed in our 2022 Annual Report on Form 10-K.

***Recent volatility in the banking sector, triggered by the failures of Silicon Valley Bank and Signature Bank, may result in legislative initiatives, agency rulemaking activities, or 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 (SVB) was closed by the California Department of Financial Protection and Innovation. Two days later, on March 12, 2023, Signature Bank (SBNY) also failed. In each case, the FDIC was appointed as receiver. The FDIC, together with the FRB and the UST, then took action under applicable emergency systemic risk authority to fully protect the depositors of each bank as the institutions were wound down. SVB and SBNY each had substantial business relationships with, and exposure to, entities within the innovation sector, including financial technology and digital asset companies, and had received an influx of deposits over the course of several years which coincided with the rapid growth of that sector. In recent periods, however, SVB and SBNY each began to experience significant deposit withdrawals. These withdrawals increased rapidly in early March, ultimately causing each institution to fail as it became apparent that available sources of liquidity would be inadequate to cover the withdrawals. Subsequently on May 1, 2023 First Republic Bank (FRC) became another large bank to fail.

The SVB and SBNY bank failures and subsequent industry volatility may lead to governmental initiatives intended to prevent future bank failures and stem significant deposit outflows from the banking sector, including (i) legislation aimed at preventing similar future bank runs and failures and stabilizing confidence in the banking sector over the long term, (ii) 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, and (iii) enhancement of the agencies’ supervision and examination policies and priorities. More specifically, for instance, the federal banking agencies may modify the risk-based capital regulations to eliminate the ability of certain banks to offset portions of their AOCI when calculating regulatory capital requirements. Alternatively, the treatment of AOCI under GAAP also could be modified, the effect of which may carry through to banks’ capital management and regulatory compliance practices. The federal banking agencies may also re-evaluate applicable liquidity risk management standards, such as by reconsidering the mix of assets that are deemed to be “high-quality liquid assets” (HQLA) and/or how HQLA holdings and cash inflows and outflows are tabulated and weighted for liquidity management purposes.

Although we cannot predict which initiatives may be pursued by lawmakers and agency leadership, nor can we predict the terms and scope of any such initiatives, any of the potential changes referenced above could, among other things, subject us to additional material 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 may experience increases in FDIC insurance assessments.

The losses incurred by the DIF in connection with the resolution of SVB and SBNY, which are estimated to amount to approximately $22.5 billion in the aggregate, are required by law to be recovered through one or more special assessments on depository institutions and, potentially, their holding companies if the FDIC determines such action to be appropriate and the Secretary of the UST concurs with the FDIC’s determination. The FDIC must consider a variety of factors in determining the terms and applicability of any such special assessment, including, among others, the types of entities that benefit from the action taken by the agencies, economic conditions, and anticipated industry impacts. It is also possible that our regular deposit insurance assessment rates will increase should the FDIC alter the assessment rate schedule or calculation methodology for all larger financial institutions (including FNBPA) as a result of the recent bank failures. Although we cannot predict the specific timing and terms of any special assessment relating to the resolution of SVB and SBNY, or any other increase in our deposit insurance assessment rates, any increase in our assessment fees could have a materially adverse effect on our results of operations and financial condition.

***Liquidity risk could impair our ability to fund operations and meet our obligations as they become due.***

Our ability to implement our business strategy will depend on our liquidity and ability to obtain funding for loan originations, working capital and other general purposes. Liquidity is needed to fund various obligations, including credit commitments to borrowers, mortgage and other loan originations, withdrawals by depositors, repayment of borrowings, dividends to shareholders, operating expenses and capital expenditures. Liquidity risk is the potential that we will be unable to meet our obligations as they come due, capitalize on growth opportunities as they arise, or pay regular dividends on our common stock because of an inability to liquidate assets or obtain adequate funding on a timely basis, at a reasonable cost and within acceptable risk tolerances. Our preferred sources for funding are deposits and customer repurchase agreements, which are low cost and stable sources of funding for us. We compete with commercial banks, savings banks and credit unions, as well as nondepository competitors such as mutual funds, fintechs, securities and brokerage firms and insurance companies, for deposits and customer repurchase agreements. If a significant portion of our deposits were to be withdrawn within a short period of time or if we are unable to attract and maintain sufficient levels of deposits and customer repurchase agreements to fund our loan growth and liquidity objectives, we may be subject to paying higher funding costs by raising interest rates that are paid on deposits and customer repurchase agreements or cause us to source funds from third-party providers which may be higher cost funding, impacting our net interest margin. Additionally, our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Because our available-for-sale 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. However, should we sell all or a material portion of our securities portfolio to increase liquidity in the face of depositor withdrawals in the current interest rate environment, we would be required to realize significant losses that would, in turn, reduce our regulatory capital position.

***We are subject to supervision and examination by U.S. government authorities which could result in 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.

In addition, the recent failures of SVB, SBNY, and FRC have further increased the regulatory focus and scrutiny of financial institutions. Congress and the federal banking agencies have begun to evaluate the events leading to the failures of SVB, SBNY and FRC to ascertain possible explanations for these developments. Preliminarily, legislators and the leadership of the federal banking agencies have posited varying theories, including, for example, inadequate prudential regulation of regional banking organizations (generally, institutions with less than $250 billion in total assets), insufficient supervision of such organizations, and a failure by the institutions themselves to properly manage risks—specifically including interest rate and liquidity risks in consideration of each institution’s business model, exposure to the innovation sector, and substantial uninsured deposit liabilities.

Further evaluation of recent developments may lead to governmental initiatives intended to prevent future bank failures 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, 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.

Filed May 5, 2023.
Source: SEC EDGAR, the filing index for accession 0000037808-23-000009. Last ingested by Listed: Nov 3, 2026, 17:15 ET. No prices; not investment advice.