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FNB F.N.B.

Filed: 4 Nov 21, 1:32pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q  
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the quarterly period ended September 30, 2021
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from                     to                     
Commission file number 001-31940  
 
F.N.B. CORPORATION
(Exact name of registrant as specified in its charter) 
 
Pennsylvania25-1255406
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One North Shore Center,12 Federal Street,Pittsburgh,PA15212
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 800-555-5455

(Former name, former address and former fiscal year, if changed since last report) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller reporting company
Emerging Growth Company
1


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on which Registered
Common Stock, par value $0.01 per shareFNBNew York Stock Exchange
Depositary Shares each representing 1/40th interest in a
share of Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series E
FNBPrENew York Stock Exchange
  
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding atOctober 31, 2021
Common Stock, $0.01 Par Value318,927,908 Shares
2


F.N.B. CORPORATION
FORM 10-Q
September 30, 2021
INDEX
 
3



Glossary of Acronyms and Terms
AcronymDescriptionAcronymDescription
ACLAllowance for credit lossesHowardHoward Bancorp, Inc.
AFSAvailable for saleHTMHeld to maturity
ALCOAsset/Liability CommitteeLGDLoss given default
AOCIAccumulated other comprehensive incomeLIBORLondon Inter-bank Offered Rate
ASCAccounting Standards CodificationLIHTCLow income housing tax credit
ASUAccounting Standards UpdateMD&A
Management's Discussion and Analysis of
Financial Condition and Results of Operations
AULCAllowance for unfunded loan commitmentsMSRsMortgage servicing rights
BOLIBank owned life insuranceOCCOffice of the Comptroller of the Currency
CARES ActCoronavirus Aid, Relief and Economic Security ActOREOOther real estate owned
CECLCurrent expected credit lossesPCDPurchased credit deteriorated
CET1Common equity tier 1PPPPaycheck Protection Program
COVID-19Novel coronavirus disease of 2019R&SReasonable and Supportable
EVEEconomic value of equityRRRReference Rate Reform
FASBFinancial Accounting Standards BoardSBASmall Business Administration
FDICFederal Deposit Insurance CorporationSECSecurities and Exchange Commission
FHLBFederal Home Loan BankSOFRSecured Overnight Financing Rate
FNBF.N.B. CorporationTDRTroubled debt restructuring
FNBPAFirst National Bank of PennsylvaniaTPSTrust preferred securities
FRB
Board of Governors of the Federal Reserve
System
U.S.United States of America
FTEFully taxable equivalentUSTU.S. Department of the Treasury
GAAPU.S. generally accepted accounting principlesVIEVariable interest entity
4


PART I – FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share and per share data)
September 30,
2021
December 31,
2020
 (Unaudited) 
Assets
Cash and due from banks$402 $369 
Interest-bearing deposits with banks3,708 1,014 
Cash and Cash Equivalents4,110 1,383 
Debt securities available for sale (amortized cost of $3,162 and $3,380; allowance for credit losses of $0 and $0)
3,208 3,463 
Debt securities held to maturity (fair value of $3,267 and $2,973; allowance for credit losses of $0 and $0)
3,202 2,868 
Loans held for sale (includes $227 and $144 measured at fair value) (1)
253 154 
Loans and leases, net of unearned income of $51 and $77
24,716 25,459 
Allowance for credit losses on loans and leases(349)(363)
Net Loans and Leases24,367 25,096 
Premises and equipment, net342 332 
Goodwill2,262 2,262 
Core deposit and other intangible assets, net45 54 
Bank owned life insurance545 549 
Other assets1,027 1,193 
Total Assets$39,361 $37,354 
Liabilities
Deposits:
Non-interest-bearing demand$10,502 $9,042 
Interest-bearing demand14,360 13,157 
Savings3,537 3,261 
Certificates and other time deposits3,045 3,662 
Total Deposits31,444 29,122 
Short-term borrowings1,563 1,804 
Long-term borrowings886 1,095 
Other liabilities370 374 
Total Liabilities34,263 32,395 
Stockholders’ Equity
Preferred stock - $0.01 par value; liquidation preference of $1,000 per share
Authorized – 20,000,000 shares
Issued – 110,877 shares
107 107 
Common stock - $0.01 par value
Authorized – 500,000,000 shares
Issued – 329,449,382 and 328,057,368 shares
3 
Additional paid-in capital4,106 4,087 
Retained earnings1,051 869 
Accumulated other comprehensive loss(52)(39)
Treasury stock – 10,527,766 and 6,427,839 shares at cost
(117)(68)
Total Stockholders’ Equity5,098 4,959 
Total Liabilities and Stockholders’ Equity$39,361 $37,354 
(1)Amount represents loans for which we have elected the fair value option. See Note 18.
See accompanying Notes to Consolidated Financial Statements (unaudited)
5


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
Unaudited
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Interest Income
Loans and leases, including fees$226 $239 $671 $750 
Securities:
Taxable22 25 65 84 
Tax-exempt7 22 24 
Other1 2 
Total Interest Income256 273 760 860 
Interest Expense
Deposits11 27 38 111 
Short-term borrowings7 21 31 
Long-term borrowings6 10 18 30 
Total Interest Expense24 46 77 172 
Net Interest Income232 227 683 688 
Provision for credit losses(2)27 3 105 
Net Interest Income After Provision for Credit Losses234 200 680 583 
Non-Interest Income
Service charges31 24 89 78 
Trust services10 28 23 
Insurance commissions and fees7 20 19 
Securities commissions and fees5 17 13 
Capital markets income12 27 32 
Mortgage banking operations8 18 31 34 
Dividends on non-marketable equity securities2 7 10 
Bank owned life insurance3 11 11 
Loss on debt extinguishment (4) (4)
Other10 21 10 
Total Non-Interest Income88 80 251 226 
Non-Interest Expense
Salaries and employee benefits105 100 314 298 
Net occupancy13 14 45 49 
Equipment18 17 52 49 
Amortization of intangibles3 9 10 
Outside services18 16 54 50 
FDIC insurance4 13 15 
Bank shares and franchise taxes3 11 12 
Merger-related1 — 1 — 
Other19 22 52 68 
Total Non-Interest Expense184 180 551 551 
Income Before Income Taxes138 100 380 258 
Income taxes27 17 74 44 
Net Income111 83 306 214 
Preferred stock dividends2 6 
Net Income Available to Common Stockholders$109 $81 $300 $208 
Earnings per Common Share
Basic$0.34 $0.25 $0.94 $0.64 
Diluted0.34 0.25 0.93 0.64 
See accompanying Notes to Consolidated Financial Statements (unaudited)
6


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
Unaudited
 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Net income$111 $83 $306 $214 
Other comprehensive income (loss):
Securities available for sale:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $(3), $(1), $(8) and $18
(10)(3)(29)63 
Derivative instruments:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $0, $2, $1 and $(9)
(1)3 (32)
Reclassification adjustment for gains included in net income, net of tax expense of $1, $1, $3 and $2
4 11 
Pension and postretirement benefit obligations:
Unrealized gains arising during the period, net of tax expense of $1, $0, $1 and $0
1 — 2 
Other Comprehensive Income (Loss)(6)(13)39 
Comprehensive Income$105 $92 $293 $253 
See accompanying Notes to Consolidated Financial Statements (unaudited)
7


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions, except per share data)
Unaudited
 
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Three Months Ended September 30, 2020
Balance at beginning of period$107 $$4,081 $796 $(35)$(55)$4,897 
Comprehensive income83 92 
Dividends declared:
Preferred stock: $18.13/share(2)(2)
Common stock: $0.12/share(39)(39)
Issuance of common stock— — 
Restricted stock compensation
Balance at end of period$107 $$4,084 $838 $(26)$(55)$4,951 
Three Months Ended September 30, 2021
Balance at beginning of period$107 $3 $4,101 $981 $(46)$(109)$5,037 
Comprehensive income111 (6)105 
Dividends declared:
Preferred stock: $18.13/share(2)(2)
Common stock: $0.12/share(39)(39)
Issuance of common stock   (1)(1)
Repurchase of common stock(7)(7)
Restricted stock compensation5 5 
Balance at end of period$107 $3 $4,106 $1,051 $(52)$(117)$5,098 
8


Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Nine Months Ended September 30, 2020
Balance at beginning of period$107 $$4,067 $798 $(65)$(27)$4,883 
Comprehensive income214 39 253 
Dividends declared:
Preferred stock: $54.39/share(6)(6)
Common stock: $0.36/share(118)(118)
Issuance of common stock— (3)
Repurchase of common stock(25)(25)
Restricted stock compensation13 13 
Adoption of new accounting standards(50)— (50)
Balance at end of period$107 $$4,084 $838 $(26)$(55)$4,951 
Nine Months Ended September 30, 2021
Balance at beginning of period$107 $3 $4,087 $869 $(39)$(68)$4,959 
Comprehensive income306 (13)293 
Dividends declared:
Preferred stock: $54.39/share(6)(6)
Common stock: $0.36/share(117)(117)
Issuance of common stock 3 (1)(6)(4)
Repurchase of common stock(43)(43)
Restricted stock compensation16 16 
Balance at end of period$107 $3 $4,106 $1,051 $(52)$(117)$5,098 
See accompanying Notes to Consolidated Financial Statements (unaudited)
9


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Unaudited
 
 Nine Months Ended
September 30,
 20212020
Operating Activities
Net income$306 $214 
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation, amortization and accretion(1)
Provision for credit losses3 105 
Deferred tax expense (benefit)8 (24)
Loans originated for sale(1,593)(1,351)
Loans sold1,533 1,258 
Net gain on sale of loans(39)(28)
Net change in:
   Interest receivable14 18 
   Interest payable(5)(7)
   Bank owned life insurance, excluding purchases4 (6)
Other, net154 (265)
Net cash flows provided by (used in) operating activities384 (81)
Investing Activities
Net change in loans and leases, excluding sales and transfers800 (2,809)
Debt securities available for sale:
Purchases(1,207)(1,168)
Maturities/payments1,415 1,429 
Debt securities held to maturity:
Purchases(993)(163)
Maturities/payments652 469 
Increase in premises and equipment(43)(33)
Other, net 
Net cash flows provided by (used in) investing activities624 (2,274)
Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts2,939 4,753 
Time deposits(617)(702)
Short-term borrowings(240)(1,316)
Proceeds from issuance of long-term borrowings18 322 
Repayment of long-term borrowings(227)(266)
Repurchases of common stock(43)(25)
Cash dividends paid:
Preferred stock(6)(6)
Common stock(117)(118)
Other, net12 14 
Net cash flows provided by financing activities1,719 2,656 
Net Increase in Cash and Cash Equivalents2,727 301 
Cash and cash equivalents at beginning of period1,383 599 
Cash and Cash Equivalents at End of Period$4,110 $900 
See accompanying Notes to Consolidated Financial Statements (unaudited)
10


F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2021
The terms “FNB,” “the Corporation,” “we,” “us” and “our” throughout this Report mean F.N.B. Corporation and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, F.N.B. Corporation. When we refer to "FNBPA" in this Report, we mean our bank subsidiary, First National Bank of Pennsylvania, and its subsidiaries.
NATURE OF OPERATIONS
F.N.B. Corporation, headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in 7 states and the District of Columbia. Our market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. As of September 30, 2021, we had 332 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina, Washington D.C. and Virginia.
We provide a full range of commercial banking, consumer banking and wealth management solutions through our subsidiary network which is led by our largest affiliate, FNBPA, founded in 1864. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, government banking, business credit, capital markets and lease financing. Consumer banking provides a full line of consumer banking products and services, including deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. Wealth management services include asset management, private banking and insurance.

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements (unaudited) include subsidiaries in which we have a controlling financial interest. We own and operate FNBPA, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, Bank Capital Services, LLC, F.N.B. Capital Corporation, LLC and Waubank Securities, LLC, and include results for each of these entities in the accompanying Consolidated Financial Statements.
Companies in which we hold a controlling financial interest, or are a VIE in which we have the power to direct the activities of an entity that most significantly impact the entity’s economic performance and have an obligation to absorb losses or the right to receive benefits which could potentially be significant to the VIE, are consolidated. For a voting interest entity, a controlling financial interest is generally where we hold more than 50% of the outstanding voting shares. VIEs in which we do not hold the power to direct the activities of the entity that most significantly impact the entity’s economic performance or an obligation to absorb losses or the right to receive benefits which could potentially be significant to the VIE are not consolidated. Investments in companies that are not consolidated are accounted for using the equity method when we have the ability to exert significant influence or the cost method when we do not have the ability to exert significant influence. Investments in private investment partnerships that are accounted for under the equity method or the cost method are included in other assets and our proportional interest in the equity investments’ earnings are included in other non-interest income. Investment interests accounted for under the cost and equity methods are periodically evaluated for impairment.
The accompanying interim unaudited Consolidated Financial Statements include all adjustments that are necessary, in the opinion of management, to fairly reflect our financial position and results of operations in accordance with GAAP. All significant intercompany balances and transactions have been eliminated. Events occurring subsequent to September 30, 2021 have been evaluated for potential recognition or disclosure in the Consolidated Financial Statements through the date of the filing of the Consolidated Financial Statements with the SEC.
Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results FNB expects for the full year. These interim unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021.
11


Use of Estimates
Our accounting and reporting policies conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements (unaudited). Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the ACL, fair value of financial instruments, goodwill and other intangible assets, income taxes and deferred tax assets and litigation reserves, which are listed in the critical accounting estimates. For a detailed description of our significant accounting policies and critical accounting estimates, see Note 1, "Summary of Significant Accounting Policies" and the "Application of Critical Accounting Policies" section in the MD&A, both in our 2020 Annual Report on Form 10-K.
12


NOTE 2.    NEW ACCOUNTING STANDARDS
The following table summarizes accounting pronouncements issued by the FASB that we recently adopted.
TABLE 2.1
StandardDescriptionFinancial Statements Impact
Reference Rate Reform
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

ASU 2021-01, Reference Rate Reform (Topic 848): Scope
These Updates provide temporary optional expedients and exceptions for applying GAAP to financial contracts, hedging relationships and other transactions affected by RRR if certain criteria are met.

The following optional expedients, exceptions and elections are permitted for certain contracts that are modified because of RRR and meet certain scope guidance:
Contract modifications may be accounted for prospectively as a continuation of existing contracts rather than a new contract without re-measurement or reassessment of significant contract amendments
modifications of leases to be accounted for as a continuation of the existing contracts without reassessment of lease classification and discount rate or re-measurement of lease payments
to not reassess the original conclusion about whether a contract contains an embedded derivative that is clearly and closely related to the host contract
changes to critical terms of hedging relationships, on a hedge-by-hedge basis, without designation of the hedging relationship and various practical expedients and elections designed to allow hedge accounting to continue uninterrupted
modifications of certain derivatives modified to change the rate used for margining, discounting or contract price alignment.

For securities affected by RRR that were classified as HTM before January 1, 2020, the Updates also allow an entity to make a one-time election to sell and/or transfer these securities to AFS or Trading.
RRR Updates are effective for all entities from the beginning of an interim period that includes or is subsequent to March 12, 2020 and terminates on December 31, 2022 on a full retrospective or prospective basis.

Although we do not expect RRR to have a material accounting impact on our consolidated financial position or results of operations, the Updates will ease the administrative burden in accounting for the effects of RRR.

We adopted these updates on October 1, 2020 by retrospective application. The adoption did not have a material impact on our consolidated financial position or results of operations.

We will continue to assess the impact of adoption through the termination date of these Updates on December 31, 2022.
13


NOTE 3.    SECURITIES
The amortized cost and fair value of AFS debt securities are presented in the table below. There was no ACL in the AFS portfolio at September 30, 2021 and December 31, 2020. Accrued interest receivable on AFS debt securities totaled $5.8 million and $6.2 million at September 30, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and the amortized cost basis of AFS debt securities.
TABLE 3.1
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities AFS:
September 30, 2021
U.S. Treasury$49 $ $ $49 
U.S. government agencies152 2  154 
U.S. government-sponsored entities170 1 (1)170 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,286 26 (1)1,311 
Agency collateralized mortgage obligations1,171 18 (6)1,183 
Commercial mortgage-backed securities299 8 (1)306 
States of the U.S. and political subdivisions (municipals)33   33 
Other debt securities2   2 
Total debt securities AFS$3,162 $55 $(9)$3,208 
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities AFS:
December 31, 2020
U.S. Treasury$600 $— $— $600 
U.S. government agencies172 — — 172 
U.S. government-sponsored entities160 — 161 
Residential mortgage-backed securities:
Agency mortgage-backed securities959 35 — 994 
Agency collateralized mortgage obligations1,094 31 (1)1,124 
Commercial mortgage-backed securities361 17 — 378 
States of the U.S. and political subdivisions (municipals)32 — — 32 
Other debt securities— — 
Total debt securities AFS$3,380 $84 $(1)$3,463 
14


The amortized cost and fair value of HTM debt securities are presented in the table below. The ACL for the HTM municipal bond portfolio was $0.06 million and $0.04 million at September 30, 2021 and December 31, 2020, respectively. Accrued interest receivable on HTM debt securities totaled $10.9 million and $12.5 million at September 30, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and the amortized cost basis of HTM debt securities.
TABLE 3.2
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities HTM:
September 30, 2021
U.S. Treasury$1 $ $ $1 
U.S. government agencies1   1 
U.S. government-sponsored entities20   20 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,174 21 (2)1,193 
Agency collateralized mortgage obligations690 9 (4)695 
Commercial mortgage-backed securities284 5 (2)287 
States of the U.S. and political subdivisions (municipals)1,032 39 (1)1,070 
Total debt securities HTM$3,202 $74 $(9)$3,267 
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities HTM:
December 31, 2020
U.S. Treasury$$— $— $
U.S. government agencies— — 
U.S. government-sponsored entities120 — 121 
Residential mortgage-backed securities:
Agency mortgage-backed securities769 29 — 798 
Agency collateralized mortgage obligations562 17 — 579 
Commercial mortgage-backed securities307 10 — 317 
States of the U.S. and political subdivisions (municipals)1,108 48 — 1,156 
Total debt securities HTM$2,868 $105 $— $2,973 
There were no significant gross gains or gross losses realized on securities during the nine months ended September 30, 2021 or 2020.
15


As of September 30, 2021, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:
TABLE 3.3
Available for SaleHeld to Maturity
(in millions)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due in one year or less$45 $46 $21 $21 
Due after one year but within five years194 194 22 22 
Due after five years but within ten years103 103 122 125 
Due after ten years64 65 889 924 
406 408 1,054 1,092 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,286 1,311 1,174 1,193 
Agency collateralized mortgage obligations1,171 1,183 690 695 
Commercial mortgage-backed securities299 306 284 287 
Total debt securities$3,162 $3,208 $3,202 $3,267 
Actual maturities may differ from contractual terms because security issuers may have the right to call or prepay obligations with or without penalties. Periodic principal payments are received on residential mortgage-backed securities based on the payment patterns of the underlying collateral.
Following is information relating to securities pledged:
TABLE 3.4
(dollars in millions)September 30,
2021
December 31,
2020
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law$5,714 $5,384 
As collateral for short-term borrowings412 402 
Securities pledged as a percent of total securities95.6 %91.4 %
At September 30, 2021, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in any amount greater than 10% of stockholders’ equity.
16


Following are summaries of the fair values of AFS debt securities in an unrealized loss position for which an ACL has not been recorded, segregated by security type and length of continuous loss position:

TABLE 3.5
Less than 12 Months12 Months or MoreTotal
(dollars in millions)#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
Debt Securities AFS
September 30, 2021
U.S. Treasury1 $49 $  $ $ 1 $49 $ 
U.S. government agencies   9 9  9 9  
U.S. government-sponsored entities3 74 (1)   3 74 (1)
Residential mortgage-backed securities:
Agency mortgage-backed securities9 428 (1)   9 428 (1)
Agency collateralized mortgage obligations14 534 (6)   14 534 (6)
Commercial mortgage-backed securities3 91 (1)   3 91 (1)
States of the U.S. and political subdivisions (municipals)5 11     5 11  
Other debt securities   1 2  1 2  
Total35 $1,187 $(9)10 $11 $ 45 $1,198 $(9)
Less than 12 Months12 Months or MoreTotal
(dollars in millions)#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
Debt Securities AFS
December 31, 2020
U.S. government agencies$13 $— 16 $69 $— 17 $82 $— 
U.S. government-sponsored entities25 — — — — 25 — 
Residential mortgage-backed securities:
Agency collateralized mortgage obligations130 (1)— — — 130 (1)
Other debt securities— — — — — 
Total$168 $(1)17 $71 $— 24 $239 $(1)
We evaluated the AFS debt securities that were in an unrealized loss position at September 30, 2021. Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the movement of interest rates and does not reflect any expected credit losses. We do not intend to sell the AFS debt securities and it is not more likely than not that we will be required to sell the securities before the recovery of their amortized cost basis.
17


Credit Quality Indicators
We use credit ratings and the most recent financial information to help evaluate the credit quality of our credit-related AFS and HTM securities portfolios. Management reviews the credit profile of each issuer on a quarterly basis. Based on the nature of the issuers and current conditions, we have determined that securities backed by the UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA have zero expected credit loss.
Our municipal bond portfolio, with a carrying amount of $1.1 billion as of September 30, 2021 is highly rated with an average rating of AA and 100% of the portfolio having an A or better rating. All of the securities in the municipal portfolio are general obligation bonds. Geographically, municipal bonds support our primary footprint as 63% of the securities are from municipalities located in the primary states within which we conduct business. The average holding size of the securities in the municipal bond portfolio is $3.5 million. In addition to the strong stand-alone ratings, 60% of the municipal bonds have some formal credit enhancement (e.g., insurance) that strengthens the creditworthiness of the bond.
The ACL on the HTM municipal bond portfolio is calculated on each bond using:
The bond’s underlying credit rating, time to maturity and exposure amount;
Credit enhancements that improve the bond’s credit rating (e.g., insurance); and
Moody’s U.S. Bond Defaults and Recoveries, 1970-2020 study.
By using these components, we derive the expected credit loss on the HTM general obligation bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our Commercial and Industrial Non-Manufacturing loan portfolio forecast adjustment as derived through our assessment of the loan portfolio as a proxy for our municipal bond portfolio.
For the year-to-date periods ending September 30, 2021 and 2020, we had no significant provision expense and no charge-offs or recoveries. The ACL on the HTM portfolio was $0.06 million and $0.04 million as of September 30, 2021 and December 31, 2020, respectively. No other securities portfolios had an ACL. At September 30, 2021 and December 31, 2020, there were no securities that were past due or on non-accrual.
18


NOTE 4.    LOANS AND LEASES
Accrued interest receivable on loans and leases, which totaled $51.4 million at September 30, 2021 and $62.9 million at December 31, 2020, is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets for both periods and not included in the tables below. Upon adoption of CECL on January 1, 2020, PCD assets were adjusted to reflect the addition of a $50.3 million ACL and a remaining noncredit discount of $110.0 million included in the amortized cost. The remaining noncredit discount was $34.2 million and $50.9 million at September 30, 2021 and December 31, 2020, respectively.
Loans and Leases by Portfolio Segment
Following is a summary of total loans and leases, net of unearned income:
TABLE 4.1
(in millions)September 30, 2021December 31, 2020
Commercial real estate$9,871 $9,731 
Commercial and industrial5,960 7,214 
Commercial leases489 485 
Other81 40 
Total commercial loans and leases16,401 17,470 
Direct installment2,250 2,020 
Residential mortgages3,588 3,433 
Indirect installment1,230 1,218 
Consumer lines of credit1,247 1,318 
Total consumer loans8,315 7,989 
Total loans and leases, net of unearned income$24,716 $25,459 

The loans and leases portfolio categories are comprised of the following types of loans, where in each case the LGD is dependent on the nature and value of the respective collateral:

Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties where operational cash flows on owner-occupied properties or rents received by our borrowers from their tenant(s) on both a property and global basis are the primary default risk drivers, including rents paid by stand-alone business customers for owner-occupied properties;
Commercial and industrial includes loans to businesses that are not secured by real estate where the borrower's leverage and cash flows from operations are the primary default risk drivers. PPP loans are included in the commercial and industrial category and comprise $0.7 billion and $2.2 billion of this category's outstanding balance at September 30, 2021 and December 31, 2020, respectively. The PPP loans are 100% guaranteed by the SBA, which provides a reduced risk of loss to us on these loans;
Commercial leases consist of leases for new or used equipment where the borrower's cash flow from operations is the primary default risk driver;
Other is comprised primarily of credit cards and mezzanine loans where the borrower's cash flow from operations is the primary default risk driver;
Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans where the primary default risk driver is the borrower's employment status and income;
Residential mortgages consist of conventional and jumbo mortgage loans for 1-4 family properties where the primary default risk driver is the borrower's employment status and income;
19


Indirect installment is comprised of loans originated by approved third parties and underwritten by us, primarily automobile loans where the primary default risk driver is the borrower's employment status and income; and
Consumer lines of credit include home equity lines of credit and consumer lines of credit that are either unsecured or secured by collateral other than home equity where the primary default risk driver is the borrower's employment status and income.
The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market in 7 states and the District of Columbia. Our primary market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina.
The following table shows occupancy information relating to commercial real estate loans:
TABLE 4.2
(dollars in millions)September 30,
2021
December 31,
2020
Commercial real estate:
Percent owner-occupied28.2 %28.1 %
Percent non-owner-occupied71.8 71.9 

Credit Quality
Management monitors the credit quality of our loan portfolio using several performance measures based on payment activity and borrower performance. We use an internal risk rating assigned to a commercial loan or lease at origination, summarized below.
TABLE 4.3
Rating CategoryDefinition
Passin general, the condition of the borrower and the performance of the loan is satisfactory or better
Special Mentionin general, the condition of the borrower has deteriorated, requiring an increased level of monitoring
Substandardin general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected
Doubtfulin general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable
The use of these internally assigned credit quality categories within the commercial loan and lease portfolio permits management’s use of transition matrices to establish a basis which is then impacted by quantitative inputs from our econometric model forecasts over the R&S period. Our internal credit risk grading system is based on past experiences with similarly graded loans and leases and conforms to regulatory categories. In general, loan and lease risk ratings within each category are reviewed on an ongoing basis according to our policy for each class of loans and leases. Each quarter, management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the commercial loan and lease portfolio. Loans and leases within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans and leases that migrate toward the Substandard or Doubtful credit categories. Accordingly, management applies higher risk factors to Substandard and Doubtful credit categories.
20


The following tables summarize the designated loan rating category by loan class including term loans on an amortized cost basis by origination year:
TABLE 4.4
September 30, 202120212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
   Pass$1,290 $1,817 $1,706 $964 $797 $2,385 $148 $9,107 
   Special Mention15 16 45 111 115 175 2 479 
   Substandard 8 34 38 44 158 3 285 
Total commercial real estate1,305 1,841 1,785 1,113 956 2,718 153 9,871 
Commercial and Industrial:
Risk Rating:
   Pass1,500 980 788 422 200 293 1,335 5,518 
   Special Mention 31 15 5 18 64 35 168 
   Substandard2 6 22 61 65 21 97 274 
Total commercial and industrial1,502 1,017 825 488 283 378 1,467 5,960 
Commercial Leases:
Risk Rating:
   Pass139 124 107 58 43 2  473 
   Special Mention   2 3 2  7 
   Substandard 4 3 2    9 
Total commercial leases139 128 110 62 46 4  489 
Other Commercial:
Risk Rating:
   Pass23     9 49 81 
   Substandard        
Total other commercial23     9 49 81 
Total commercial2,969 2,986 2,720 1,663 1,285 3,109 1,669 16,401 
CONSUMER
Direct Installment:
   Current707 585 240 141 106 458  2,237 
   Past due  1 1  11  13 
Total direct installment707 585 241 142 106 469  2,250 
Residential Mortgages:
   Current996 986 445 167 240 715 2 3,551 
   Past due 2 4 4 3 24  37 
Total residential mortgages996 988 449 171 243 739 2 3,588 
Indirect Installment:
   Current415 290 180 210 80 45  1,220 
   Past due2 2 2 2 1 1  10 
Total indirect installment417 292 182 212 81 46  1,230 
Consumer Lines of Credit:
   Current13 3 4 6 3 126 1,078 1,233 
   Past due     12 2 14 
Total consumer lines of credit13 3 4 6 3 138 1,080 1,247 
Total consumer2,133 1,868 876 531 433 1,392 1,082 8,315 
Total loans and leases$5,102 $4,854 $3,596 $2,194 $1,718 $4,501 $2,751 $24,716 
21


December 31, 202020202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
   Pass$1,879 $1,854 $1,135 $927 $888 $1,911 $163 $8,757 
   Special Mention30 80 158 70 163 514 
   Substandard32 29 81 116 192 460 
Total commercial real estate1,892 1,916 1,244 1,166 1,074 2,266 173 9,731 
Commercial and Industrial:
Risk Rating:
   Pass3,286 1,007 590 304 120 311 1,095 6,713 
   Special Mention30 23 13 28 10 35 79 218 
   Substandard26 65 44 37 97 283 
Total commercial and industrial3,324 1,056 668 376 136 383 1,271 7,214 
Commercial Leases:
Risk Rating:
   Pass178 134 83 56 — 459 
   Special Mention— 13 
   Substandard— — 13 
Total commercial leases186 137 89 61 — 485 
Other Commercial:
Risk Rating:
   Pass— — — — — 35 39 
   Substandard— — — — — — 
Total other commercial— — — — — 35 40 
Total commercial5,402 3,109 2,001 1,603 1,217 2,659 1,479 17,470 
CONSUMER
Direct Installment:
   Current706 337 200 143 171 442 2,000 
   Past due— 14 — 20 
Total direct installment706 338 202 144 173 456 2,020 
Residential Mortgages:
   Current1,079 707 283 378 330 603 3,381 
   Past due29 — 52 
Total residential mortgages1,080 712 290 382 336 632 3,433 
Indirect Installment:
   Current372 260 332 147 67 27 — 1,205 
   Past due— 13 
Total indirect installment373 263 336 149 69 28 — 1,218 
Consumer Lines of Credit:
   Current127 1,146 1,300 
   Past due— — — — — 15 18 
Total consumer lines of credit142 1,149 1,318 
Total consumer2,163 1,320 836 678 583 1,258 1,151 7,989 
Total loans and leases$7,565 $4,429 $2,837 $2,281 $1,800 $3,917 $2,630 $25,459 
We use delinquency transition matrices within the consumer and other loan classes to establish the basis for the R&S forecast portion of the credit risk. Each month, management analyzes payment and volume activity, Fair Isaac Corporation (FICO) scores and Debt-to-Income (DTI) scores and other external factors such as unemployment, to determine how consumer loans are performing.
22


Non-Performing and Past Due
The following tables provide an analysis of the aging of loans by class.
TABLE 4.5
(in millions)30-89 Days
Past Due
> 90 Days
Past Due
and Still
Accruing
Non-
Accrual
Total
Past Due
CurrentTotal
Loans and
Leases
Non-accrual with No ACL
September 30, 2021
Commercial real estate$6 $ $55 $61 $9,810 $9,871 $20 
Commercial and industrial13  23 36 5,924 5,960 4 
Commercial leases4  1 5 484 489  
Other  1 1 80 81  
Total commercial loans and leases23  80 103 16,298 16,401 24 
Direct installment4 1 8 13 2,237 2,250  
Residential mortgages18 5 14 37 3,551 3,588  
Indirect installment8  2 10 1,220 1,230  
Consumer lines of credit6 2 6 14 1,233 1,247  
Total consumer loans36 8 30 74 8,241 8,315  
Total loans and leases$59 $8 $110 $177 $24,539 $24,716 $24 
(in millions)30-89 Days
Past Due
> 90 Days
Past Due
and Still
Accruing
Non-
Accrual
Total
Past Due
CurrentTotal
Loans and
Leases
Non-accrual with No ACL
December 31, 2020
Commercial real estate$13 $— $85 $98 $9,633 $9,731 $36 
Commercial and industrial— 44 52 7,162 7,214 16 
Commercial leases— 481 485 — 
Other— — 39 40 — 
Total commercial loans and leases23 — 132 155 17,315 17,470 52 
Direct installment11 20 2,000 2,020 — 
Residential mortgages23 11 18 52 3,381 3,433 — 
Indirect installment10 13 1,205 1,218 — 
Consumer lines of credit18 1,300 1,318 — 
Total consumer loans49 16 38 103 7,886 7,989 — 
Total loans and leases$72 $16 $170 $258 $25,201 $25,459 $52 
23


Following is a summary of non-performing assets:
TABLE 4.6
(dollars in millions)September 30,
2021
December 31,
2020
Non-accrual loans$110 $170 
Total non-performing loans110 170 
Other real estate owned8 10 
Total non-performing assets$118 $180 
Asset quality ratios:
Non-performing loans / total loans and leases0.45 %0.67 %
Non-performing assets + 90 days past due + OREO / total loans and leases + OREO0.51 0.77 
The carrying value of residential-secured consumer OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $1.1 million at September 30, 2021 and $2.5 million at December 31, 2020. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at September 30, 2021 and December 31, 2020 totaled $6.3 million and $8.2 million, respectively. During 2020 and 2021, we extended the residential mortgage foreclosure moratorium beyond the requirements for government-backed loans, under the CARES Act, to all residential mortgage loan customers.
Approximately $40 million of commercial loans are collateral dependent at September 30, 2021. Repayment is expected to be substantially through the operation or sale of the collateral on the loan. These loans are primarily secured by business assets or commercial real estate.

Troubled Debt Restructurings
TDRs are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs typically result from loss mitigation activities and could include the extension of a maturity date, interest rate reduction, principal forgiveness, deferral or decrease in payments for a period of time and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Consistent with the CARES Act and interagency bank regulatory guidance which allows temporary relief for current borrowers affected by COVID-19, we are working with borrowers and granting certain modifications through programs related to COVID-19 relief. As of September 30, 2021, we had $54 million in loans that have been granted short-term modifications as a result of financial disruptions associated with the COVID-19 pandemic, compared to $397 million as of December 31, 2020 and $2.4 billion as of June 30, 2020, the highest point during the pandemic. Also, consistent with the CARES Act and the interagency bank regulatory guidelines, such modifications are not included in our TDR totals.
Following is a summary of the composition of total TDRs:
TABLE 4.7
(in millions)September 30,
2021
December 31,
2020
Accruing$58 $58 
Non-accrual35 33 
Total TDRs$93 $91 

TDRs that are accruing and performing include loans that met the criteria for non-accrual of interest prior to restructuring for which we can reasonably estimate the timing and amount of the expected cash flows on such loans and for which we expect to fully collect the new carrying value of the loans. During the nine months ended September 30, 2021, we returned to accruing status $7.8 million in restructured residential mortgage loans that have consistently met their modified obligations for more than six months. TDRs that are on non-accrual are not placed on accruing status until all delinquent principal and interest have been paid and the ultimate collectability of the remaining principal and interest is reasonably assured. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and may result in potential incremental losses which are factored into the ACL.
24


Commercial loans over $1.0 million whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured based on the fair value of the underlying collateral. Our ACL includes specific reserves for commercial TDRs of $1.4 million at September 30, 2021 compared to $2.8 million at December 31, 2020, and pooled reserves for individual loans of $1.8 million and $2.5 million for those same periods, respectively, based on loan segment LGD. Upon default, the amount of the recorded investment in the TDR in excess of the fair value of the collateral, less estimated selling costs, is generally considered a confirmed loss and is charged-off against the ACL.
All other classes of loans whose terms have been modified in a TDR are pooled and measured based on the loan segment LGD. Our ACL included pooled reserves for these classes of loans of $3.8 million for September 30, 2021 and $4.1 million for December 31, 2020. Upon default of an individual loan, our charge-off policy is followed for that class of loan.

Following is a summary of TDR loans, by class, for loans that were modified during the periods indicated:
TABLE 4.8
Three Months Ended September 30, 2021Nine Months Ended September 30, 2021
(dollars in millions)Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Commercial real estate5 $2 $2 21 $20 $20 
Commercial and industrial3   8 1  
Other1   1   
Total commercial loans9 2 2 30 21 20 
Direct installment8   26 1 1 
Residential mortgages12 2 2 15 2 2 
Consumer lines of credit7   31 2 2 
Total consumer loans27 2 2 72 5 5 
Total36 $4 $4 102 $26 $25 

 Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
(dollars in millions)Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Commercial real estate$$23 $$
Commercial and industrial— — 19 
Other— — — — — 
Total commercial loans11 43 11 
Direct installment14 50 
Residential mortgages18 
Consumer lines of credit— — 36 
Total consumer loans25 104 
Total36 $$147 $18 $14 
The year-to-date items in the above tables have been adjusted for loans that have been paid off and/or sold.
25


Following is a summary of TDRs, by class, for which there was a payment default, excluding loans that have been paid off and/or sold. Default occurs when a loan is 90 days or more past due and is within 12 months of restructuring.
TABLE 4.9
 Three Months Ended
September 30, 2021
Nine Months Ended
September 30, 2021
(dollars in millions)Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
Commercial and industrial $ 1 $ 
Total commercial loans  1  
Direct installment1  1  
Residential mortgages  1  
Total consumer loans1  2  
Total1 $ 3 $ 

 Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
(dollars in millions)Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
Commercial real estate— $— $
Commercial and industrial— — 
Total commercial loans— 11 
Direct installment— 12 
Residential mortgages— — — 
Consumer lines of credit— — 
Total consumer loans— 17 
Total$— 28 $

NOTE 5.    ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
Beginning January 1, 2020, the former incurred loss method was replaced with the CECL method to calculate estimated loan losses. The CECL model takes into consideration the expected credit losses over the expected life of the loan compared to the incurred loss model under the prior standard. At the time of CECL adoption, we recorded a one-time cumulative-effect adjustment of $50.6 million as a reduction to Retained Earnings. The ACL balance increased by $105 million and included a “gross-up" to purchased credit impaired (PCD under CECL) loan balances and the ACL of $50 million. Included in the CECL adoption impact was a Day 1 increase to our AULC of $10 million.
The ACL addresses credit losses expected in the existing loan and lease portfolio and is presented as a reserve against loans and leases on the Consolidated Balance Sheets. Loan and lease losses are charged off against the ACL, with recoveries of amounts previously charged off credited to the ACL. Provisions for credit losses are charged to operations based on management’s periodic evaluation of the appropriate level of the ACL. Included in Table 5.1 is the impact to the ACL from our CECL (ASC 326) adoption on January 1, 2020.
26


Following is a summary of changes in the ACL, by loan and lease class:
TABLE 5.1

(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
Charge-
Offs
Provision for Credit LossesBalance at
End of
Period
Three Months Ended September 30, 2021
Commercial real estate$176 $(3)$2 $(1)$(14)$161 
Commercial and industrial81 (2)2  6 87 
Commercial leases16     16 
Other1    1 2 
Total commercial loans and leases274 (5)4 (1)(7)266 
Direct installment27 (1) (1) 26 
Residential mortgages33     33 
Indirect installment12    1 13 
Consumer lines of credit11 (1)1   11 
Total consumer loans83 (2)1 (1)1 83 
Total allowance for credit losses on loans and leases357 (7)5 (2)(6)349 
Allowance for unfunded loan commitments14    4 18 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$371 $(7)$5 $(2)$(2)$367 
Nine Months Ended September 30, 2021
Commercial real estate$181 $(9)$5 $(4)$(16)$161 
Commercial and industrial81 (11)4 (7)13 87 
Commercial leases17  1 1 (2)16 
Other1 (2)1 (1)2 2 
Total commercial loans and leases280 (22)11 (11)(3)266 
Direct installment26 (1) (1)1 26 
Residential mortgages34    (1)33 
Indirect installment11 (3)2 (1)3 13 
Consumer lines of credit12 (1)1  (1)11 
Total consumer loans83 (5)3 (2)2 83 
Total allowance for credit losses on loans and leases363 (27)14 (13)(1)349 
Allowance for unfunded loan commitments14    4 18 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$377 $(27)$14 $(13)$3 $367 
27


(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
Charge-
Offs
Provision
for Credit
Losses
ASC 326 Adoption ImpactInitial ACL on PCD LoansBalance at
End of
Period
Three Months Ended September 30, 2020
Commercial real estate$163 $(3)$$(2)$23 $— $— $184 
Commercial and industrial98 (17)(16)11 — — 93 
Commercial leases17 — — — — — — 17 
Other(1)— (1)— — 
Total commercial loans and leases279 (21)(19)35 — — 295 
Direct installment25 — — — (1)— — 24 
Residential mortgages33 (1)— (2)— — 31 
Indirect installment17 (1)— (5)— — 12 
Consumer lines of credit11 — — — — — — 11 
Total consumer loans86 (2)— (8)— — 78 
Total allowance for credit losses on loans and leases365 (23)(19)27 — — 373 
Allowance for unfunded loan commitments (1)
15 — — — — — — 15 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$380 $(23)$$(19)$27 $— $— $388 
Nine Months Ended September 30, 2020
Commercial real estate$60 $(8)$$(2)$48 $38 $40 $184 
Commercial and industrial53 (25)(22)50 93 
Commercial leases11 — — — — — 17 
Other(3)— (3)(9)— 
Total commercial loans and leases133 (36)(27)108 37 44 295 
Direct installment13 (1)— (1)10 24 
Residential mortgages22 (1)— (1)31 
Indirect installment19 (6)(3)(6)— 12 
Consumer lines of credit(2)— (2)— 11 
Total consumer loans63 (10)(6)(3)18 78 
Total allowance for credit losses on loans and leases196 (46)13 (33)105 55 50 373 
Allowance for unfunded loan commitments (1)
— — — 10 — 15 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$199 $(46)$13 $(33)$107 $65 $50 $388 
(1) The net benefit of $0.3 million for the quarter and $2 million for the year-to-date provision for the AULC is included in other non-interest expense on the Consolidated Statements of Income.
28


Following is a summary of changes in the AULC by portfolio segment:
TABLE 5.2
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
(in millions)
Balance at beginning of period$14 $15 $14 $
Provision for unfunded loan commitments and letters of credit:
Commercial portfolio4 — 4 — 
Consumer portfolio —  — 
Other adjustments:
Commercial portfolio —  
ASC 326 adoption impact:
Commercial portfolio —  
Consumer portfolio —  
Balance at end of period$18 $15 $18 $15 
The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation:
a third-party macroeconomic forecast scenario;
a 24-month R&S forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 12-month period; and
the historical through-the-cycle mean was calculated using an expanded period to include a prior recessionary period.
COVID-19 Impacts on the ACL
Beginning in March 2020, the broader economy experienced a significant deterioration in the macroeconomic environment driven by the COVID-19 pandemic resulting in notable adverse changes to forecasted economic variables utilized in our ACL modeling process. Based on these changes, we utilized a third-party pandemic recessionary scenario from the first quarter of 2020 through the third quarter of 2020 for ACL modeling purposes. At September 30, 2021 and December 31, 2020, we utilized a third-party consensus macroeconomic forecast due to the improving macroeconomic environment. Macroeconomic variables that we utilized from this scenario for our ACL calculation as of December 31, 2020 included, but were not limited to: (i) gross domestic product, which reflects growth of 4% in 2021, (ii) the Dow Jones Total Stock Market Index, which grows steadily throughout the R&S forecast period, (iii) unemployment, which steadily declines and averages 6% over the R&S forecast period and (iv) the Volatility Index, which remains stable over the R&S forecast period. For our ACL calculation at September 30, 2021, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which reflects growth of 6.1% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which reflects growth of 9.5% over our R&S forecast period, (iii) S&P Volatility, which increases 7.7% in 2022 before declining 2.7% in 2023 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below historical levels. While we have not changed our ACL modeling methodology, we continually assess our key macroeconomic variables and their correlation to our historical and expected portfolio performance. During the quarter, we changed certain macroeconomic variables used for ACL modeling purposes as the new variables better correlate to our historical performance over the economic cycles.

The ACL of $349.3 million at September 30, 2021 decreased $13.9 million, or 3.8%, from December 31, 2020 due to the improving macroeconomic environment and positive credit quality trends. Our ending ACL coverage ratio at September 30, 2021 was 1.41%, compared to 1.43% at December 31, 2020. Total provision for credit losses for the three months ended September 30, 2021 was a net benefit of $1.8 million. Net charge-offs were $1.6 million during the three months ended September 30, 2021, compared to $19.3 million during the three months ended September 30, 2020, reflecting COVID-19 impacts on certain segments of the loan portfolio. Total provision for credit losses for the nine months ended September 30,
29


2021 was $3.0 million. Net charge-offs were $12.5 million during the nine months ended September 30, 2021, compared to $33.4 million during the nine months ended September 30, 2020.

NOTE 6.    LOAN SERVICING
Mortgage Loan Servicing
We retain the servicing rights on certain mortgage loans sold. The unpaid principal balance of mortgage loans serviced for others is listed below:
TABLE 6.1
(in millions)September 30,
2021
December 31,
2020
Mortgage loans sold with servicing retained$4,797 $4,653 

The following table summarizes activity relating to mortgage loans sold with servicing retained:
TABLE 6.2
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2021202020212020
Mortgage loans sold with servicing retained$382 $466 $1,406 $1,142 
Pretax net gains resulting from above loan sales (1)
10 25 36 47 
Mortgage servicing fees (1)
3 9 
(1) Recorded in mortgage banking operations on the Consolidated Statements of Income.
Following is a summary of activity relating to MSRs:
TABLE 6.3
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2021202020212020
Balance at beginning of period$40.5 $34.0 $35.6 $42.6 
Additions4.4 4.5 15.3 11.0 
Payoffs and curtailments(2.8)(4.6)(10.4)(10.5)
(Impairment charge) / recovery1.0 0.5 3.8 (7.5)
Amortization(0.6)(0.6)(1.8)(1.8)
Balance at end of period$42.5 $33.8 $42.5 $33.8 
Fair value, beginning of period$40.8 $34.0 $35.6 $45.0 
Fair value, end of period43.2 33.8 43.2 33.8 
We had a $3.5 million valuation allowance for MSRs as of September 30, 2021, compared to $7.3 million at December 31, 2020.
The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third-party valuations. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSRs and as interest rates increase, mortgage loan prepayments decline, which results in an increase in the fair value of MSRs. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.
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Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions:
TABLE 6.4
(dollars in millions)September 30,
2021
December 31,
2020
Weighted average life (months)74.366.6
Constant prepayment rate (annualized)11.8 %13.4 %
Discount rate9.5 %9.5 %
Effect on fair value due to change in interest rates:
+0.25%$3 $
+0.50%5 
-0.25%(3)(2)
-0.50%(6)(3)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. Also, in this table, the effects of an adverse variation in a particular assumption on the fair value of MSRs is calculated without changing any other assumptions, while in reality, changes in one factor may result in changing another, which may magnify or contract the effect of the change.
NOTE 7.    LEASES

We have operating leases primarily for certain branches, office space, land and office equipment. We have finance leases for certain branches. Our operating leases expire at various dates through the year 2046 and generally include one or more options to renew. Our finance leases expire at various dates through the year 2051 and generally include one or more options to renew. The exercise of lease renewal options is at our sole discretion. As of September 30, 2021, we had operating lease right-of-use assets and operating lease liabilities of $122.6 million and $130.8 million, respectively. We have finance leases of $9.6 million.
Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As of September 30, 2021, we have certain operating lease agreements, primarily for administrative office space, that have not yet commenced. At commencement, it is expected that these leases will add approximately $69.2 million and $109.8 million in right-of-use assets and other liabilities, respectively. These operating leases are currently expected to commence in 2021 - 2023 with lease terms up to 16 years. These operating leases include the lease, with a related party, of the future new FNB headquarters building in Pittsburgh, Pennsylvania. The related party operating the lease is accounted for in a manner consistent with all other leases on the basis of the legally enforceable terms and conditions of the lease and represents a VIE for which we are not the primary beneficiary.
The components of lease expense were as follows:
TABLE 7.1
Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in millions)2021202020212020
Operating lease cost$7 $$21 $20 
Short-term lease cost  
Variable lease cost1 3 
Total lease cost$8 $$24 $24 
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Other information related to leases is as follows:
TABLE 7.2
Nine Months Ended
September 30,
(dollars in millions)20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$7 $19 
Operating cash flows from finance leases$ $— 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$7 $
Finance leases$ $— 
Weighted average remaining lease term (years):
Operating leases9.059.51
Finance leases24.130
Weighted average discount rate:
Operating leases2.5 %2.8 %
Finance leases1.9 %— %

Maturities of lease liabilities were as follows:
TABLE 7.3
(in millions)Operating LeasesFinance LeasesTotal Leases
September 30, 2021
2021$7 $ $7 
202223  23 
202319  19 
202417  17 
202513  13 
Later years67 12 79 
Total lease payments146 12 158 
Less: imputed interest(15)(2)(17)
Present value of lease liabilities$131 $10 $141 

As a lessor we offer commercial leasing services to customers in need of new or used equipment primarily within our market areas of Pennsylvania, Ohio, Maryland, North Carolina, South Carolina and West Virginia. Additional information relating to commercial leasing is provided in Note 4, “Loans and Leases” in the Notes to Consolidated Financial Statements.

NOTE 8.     VARIABLE INTEREST ENTITIES
We evaluate our interest in certain entities to determine if these entities meet the definition of a VIE and whether we are the primary beneficiary and required to consolidate the entity based on the variable interest we held both at inception and when there is a change in circumstances that requires a reconsideration.
32


Unconsolidated VIEs

The following table provides a summary of the assets and liabilities included in our Consolidated Financial Statements, as well as the maximum exposure to losses, associated with our interests related to VIEs for which we hold an interest, but are not the primary beneficiary, at September 30, 2021 and December 31, 2020.

TABLE 8.1
(in millions)Total AssetsTotal LiabilitiesMaximum Exposure to Loss
September 30, 2021
Trust preferred securities (1)
$1 $67 $ 
Affordable housing tax credit partnerships113 37 113 
Other investments26 4 26 
Total$140 $108 $139 
December 31, 2020
Trust preferred securities (1)
$$66 $— 
Affordable housing tax credit partnerships119 45 119 
Other investments26 26 
Total$146 $119 $145 
(1) Represents our investment in unconsolidated subsidiaries.

Trust-Preferred Securities

We have certain wholly-owned trusts whose assets, liabilities, equity, income and expenses are not included within our Consolidated Financial Statements. These trusts have been formed for the sole purpose of issuing TPS, from which the proceeds are then invested in our junior subordinated debentures, which are reflected in our Consolidated Balance Sheets as subordinated notes. The TPS are the obligations of the trusts, and as such, are not consolidated within our Consolidated Financial Statements. For additional information relating to our TPS, see Note 9, “Borrowings” in the Notes to Consolidated Financial Statements.

Each issue of the junior subordinated debentures has an interest rate equal to the corresponding TPS distribution rate. We have the right to defer payment of interest on the debentures at any time, or from time-to-time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the related debentures. During any such extension period, distributions to the TPS will also be deferred and our ability to pay dividends on our common stock will be restricted. Periodic cash payments and payments upon liquidation or redemption with respect to TPS are guaranteed by us to the extent of funds held by the trusts. The guarantee ranks subordinate and junior in right of payment to all of our indebtedness to the same extent as the junior subordinated debt. The guarantee does not place a limitation on the amount of additional indebtedness that may be incurred by us.
Affordable Housing Tax Credit Partnerships
We make equity investments as a limited partner in various partnerships that sponsor affordable housing projects utilizing the LIHTC pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to support initiatives associated with the Community Reinvestment Act while earning a satisfactory return. The activities of these LIHTC partnerships include the development and operation of multi-family housing that is leased to qualifying residential tenants. These partnerships are generally located in communities where we have a banking presence and meet the definition of a VIE; however, we are not the primary beneficiary of the entities, as the general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses beyond our own equity investment. We record our investment in LIHTC partnerships as a component of other assets.
We use the proportional amortization method to account for a majority of our investments in LIHTC partnerships. Investments that do not meet the requirements of the proportional amortization method are recognized using the equity method.
33


Amortization related to investments under the proportional amortization method is recorded on a net basis as a component of the provision for income taxes on the Consolidated Statements of Income, while write-downs and losses related to investments under the equity method are included in non-interest expense.
The following table presents the balances of our affordable housing tax credit investments and related unfunded commitments:
TABLE 8.2
(in millions)September 30,
2021
December 31,
2020
Proportional amortization method investments included in other assets$74 $71 
Equity method investments included in other assets2 
Total LIHTC investments included in other assets$76 $74 
Unfunded LIHTC commitments$37 $45 
The following table summarizes the impact of these LIHTC investments on specific line items of our Consolidated Statements of Income:
TABLE 8.3
Three Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2021202020212020
Non-interest income:
Amortization of tax credit investments under equity method, net of tax benefit$ $— $1 $
Provision for income taxes:
Amortization of LIHTC investments under proportional method$3 $$10 $
Low-income housing tax credits(4)(3)(11)(9)
Other tax benefits related to tax credit investments — (2)(2)
Total impact on provision for income taxes$(1)$(1)$(3)$(3)
Other Investments
Other investments we also consider to be unconsolidated VIE’s include investments in Small Business Investment Companies, Historic Tax Credit Investments, and other equity method investments.

NOTE 9.    BORROWINGS
Following is a summary of short-term borrowings:
TABLE 9.1
(in millions)September 30,
2021
December 31,
2020
Securities sold under repurchase agreements$407 $403 
Federal Home Loan Bank advances1,030 1,280 
Subordinated notes126 121 
Total short-term borrowings$1,563 $1,804 
Borrowings with original maturities of one year or less are classified as short-term. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are sweep accounts with next-day maturities utilized by larger
34


commercial customers to earn interest on their funds. Securities are pledged to these customers in an amount at least equal to the outstanding balance. We did not have any short-term FHLB advances with overnight maturities as of September 30, 2021 or December 31, 2020. At September 30, 2021, $1.0 billion, or 100.0%, of the short-term FHLB advances were swapped to fixed rates with various maturities through 2024. This compares to $1.3 billion, or 100.0%, as of December 31, 2020.
Following is a summary of long-term borrowings:
TABLE 9.2
(in millions)September 30,
2021
December 31,
2020
Federal Home Loan Bank advances$200 $400 
Senior notes299 299 
Subordinated notes72 81 
Junior subordinated debt67 66 
Other subordinated debt248 249 
Total long-term borrowings$886 $1,095 
Our banking affiliate has available credit with the FHLB of $8.3 billion, of which $1.2 billion was utilized as of September 30, 2021. These advances are secured by loans collateralized by residential mortgages, home equity lines of credit, commercial real estate and FHLB stock and are scheduled to mature in various amounts periodically through the year 2021. Effective interest rates paid on the long-term advances ranged from 0.26% to 0.29% for the nine months ended September 30, 2021 and 0.30% to 0.34% for the year ended December 31, 2020.
The following table provides information relating to our senior debt and other subordinated debt as of September 30, 2021. These debt issuances are fixed-rate, with the exception of the Subordinated Notes due in 2029, which are fixed-rate and become floating-rate after February 14, 2024. The subordinated notes are eligible for treatment as tier 2 capital for regulatory capital purposes.
TABLE 9.3
(dollars in millions)Aggregate Principal Amount Issued
Net Proceeds (2)
Carrying ValueStated Maturity DateInterest
Rate
2.20% Senior Notes due February 24, 2023$300 $298 $299 2/24/20232.20 %
4.95% Fixed-To-Floating Rate Subordinated Notes due 2029120 118 119 2/14/20294.95 %
4.875% Subordinated Notes due 2025100 98 99 10/2/20254.875 %
7.625% Subordinated Notes due August 12, 2023 (1)
38 46 30 8/12/20237.625 %
Total$558 $560 $547 
(1) Assumed from a prior acquisition and adjusted to fair value at the time of acquisition.
(2) After deducting underwriting discounts and commissions and offering costs. For the debt assumed from a prior acquisition, this is the fair value of the debt at the time of the acquisition.
The junior subordinated debt is comprised of the debt securities issued by FNB in relation to our unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated VIEs, and are included on the Consolidated Balance Sheets in long-term borrowings. Since third-party investors are the primary beneficiaries, the Trusts are not consolidated in our Financial Statements. We record the distributions on the junior subordinated debt issued to the Trusts as interest expense.
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The following table provides information relating to the Trusts as of September 30, 2021:
TABLE 9.4
(dollars in millions)Trust
Preferred
Securities
Common
Securities
Junior
Subordinated
Debt
Stated
Maturity
Date
Interest Rate
Rate Reset Factor
F.N.B. Statutory Trust II$22 $$22 6/15/20361.77 %LIBOR + 165 basis points (bps)
Yadkin Valley Statutory Trust I25 22 12/15/20371.44 %LIBOR + 132 bps
FNB Financial Services Capital Trust I25 23 9/30/20351.59 %LIBOR + 146 bps
Total$72 $$67 
NOTE 10.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate risk, primarily by managing the amount, source, and duration of our assets and liabilities, and through the use of derivative instruments. Derivative instruments are used to reduce the effects that changes in interest rates may have on net income and cash flows. We also use derivative instruments to facilitate transactions on behalf of our customers.
All derivatives are carried on the Consolidated Balance Sheets at fair value and do not take into account the effects of master netting arrangements we have with other financial institutions. Credit risk is included in the determination of the estimated fair value of derivatives. Derivative assets are reported in the Consolidated Balance Sheets in other assets and derivative liabilities are reported in other liabilities. Changes in fair value are recognized in earnings except for certain changes related to derivative instruments designated as part of a cash flow hedging relationship.
The following table presents notional amounts and gross fair values of our derivative assets and derivative liabilities which are not offset in the Consolidated Balance Sheets:
TABLE 10.1
September 30, 2021December 31, 2020
NotionalFair ValueNotionalFair Value
(in millions)AmountAssetLiabilityAmountAssetLiability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated$1,580 $2 $ $1,430 $$— 
Interest rate swaps – not designated5,332 2 25 4,791 — 37 
Total subject to master netting arrangements6,912 4 25 6,221 37 
Not subject to master netting arrangements:
Interest rate swaps – not designated5,332 211 16 4,791 349 — 
Interest rate lock commitments – not designated524 13  531 24 — 
Forward delivery commitments – not designated575 2  500 — 
Credit risk contracts – not designated390   437 — 
Total not subject to master netting arrangements6,821 226 16 6,259 373 
Total$13,733 $230 $41 $12,480 $376 $40 
Certain derivative exchanges have enacted a rule change which in effect results in the legal characterization of variation margin payments for certain derivative contracts as settlement of the derivatives mark-to-market exposure and not collateral. Accordingly, we have changed our reporting of certain derivatives to record variation margin on trades cleared through these
36


exchanges as settled.  The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.
We adopted RRR on October 1, 2020, and the guidance will be followed until the Update terminates on December 31, 2022. As of October 16, 2020, we changed our valuation methodology to reflect changes made by central clearinghouses that changed the discounting methodology and interest calculation of cash migration from overnight index swap (OIS) to SOFR for U.S. dollar cleared interest rate swaps to better reflect prices obtainable in the markets in which we transact. Certain of these valuation methodology changes were applied to eligible hedging relationships. Accordingly, we have updated our hedge documentation to reflect the election of certain expedients and exceptions related to our cash flow hedging programs. The change in valuation methodology was applied prospectively as a change in accounting estimate and did not have a material impact on our consolidated financial position or results of operations.
Derivatives Designated as Hedging Instruments under GAAP
Interest Rate Contracts. We entered into interest rate derivative agreements to modify the interest rate characteristics of certain commercial loans and certain of our FHLB advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges, hedging the exposure to variability in expected future cash flows. The derivative’s gain or loss, including any ineffectiveness, is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same line item associated with the forecasted transaction when the forecasted transaction affects earnings.
The following table shows amounts reclassified from AOCI:
TABLE 10.2
Amount of Gain (Loss) Recognized in OCI on DerivativesLocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
Nine Months Ended
September 30,
Nine Months Ended
September 30,
(in millions)2021202020212020
Derivatives in cash flow hedging relationships:
   Interest rate contracts$3 $(42)Interest income (expense)$(14)$(9)
Other income (9)
The following table represents gains (losses) recognized in the Consolidated Statements of Income on cash flow hedging relationships:
TABLE 10.3
Nine months ended September 30,
20212020
(in millions)Interest Income - Loans and LeasesInterest Expense - Short-Term BorrowingsInterest Income - Loans and LeasesInterest Expense - Short-Term Borrowings
Total amounts of income and expense line items presented in the Consolidated Statements of Income (the effects of cash flow hedges are included in these line items)$671 $21 $750 $31 
The effects of cash flow hedging:
     Gain (loss) on cash flow hedging relationships:
     Interest rate contracts:
        Amount of gain (loss) reclassified from AOCI into net income1 (15)(11)
As of September 30, 2021, the maximum length of time over which forecasted interest cash flows are hedged is 4.0 years. In the twelve months that follow September 30, 2021, we expect to reclassify from the amount currently reported in AOCI net
37


derivative losses of $14.5 million ($11.3 million net of tax), in association with interest on the hedged loans and FHLB advances. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2021. During the third quarter of 2020, we terminated $225.0 million of notional value of interest rate contracts - designated subject to master netting arrangements.
There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to these cash flow hedges. Also, during the nine months ended September 30, 2021 and 2020, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transactions would not occur.
Derivatives Not Designated as Hedging Instruments under GAAP
A description of interest rate swaps, interest rate lock commitments, forward delivery commitments and credit risk contracts can be found in Note 15, "Derivative Instruments and Hedging Activities" in the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021.
Interest rate swap agreements with loan customers and with the offsetting counterparties are reported at fair value in other assets and other liabilities on the Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as other income or other expense.
Risk participation agreements sold with notional amounts totaling $261.8 million as of September 30, 2021 have remaining terms ranging from nine months to twenty years. Under these agreements, our maximum exposure assuming a customer defaults on their obligation to perform under certain derivative swap contracts with third parties would be $0.3 million at September 30, 2021 and $0.6 million at December 31, 2020. The fair values of risk participation agreements purchased and sold were $0.1 million and $0.3 million, respectively, at September 30, 2021 and $0.2 million and $0.6 million, respectively at December 31, 2020.
The following table presents the effect of certain derivative financial instruments on the Consolidated Statements of Income:
TABLE 10.4
Nine Months Ended
September 30,
(in millions)Consolidated Statements of Income Location20212020
Interest rate swapsNon-interest income - other$ $— 
Interest rate lock commitmentsMortgage banking operations — 
Forward delivery contractsMortgage banking operations2 (1)
Credit risk contractsNon-interest income - other — 
Counterparty Credit Risk
We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash to our clearing agency. Collateral positions are settled or valued daily, and adjustments to amounts received and pledged by us are made as appropriate to maintain proper collateralization for these transactions.
Certain master netting agreements contain provisions that, if violated, could cause the counterparties to request immediate settlement or demand full collateralization under the derivative instrument. If we had breached our agreements with our derivative counterparties we would be required to settle our obligations under the agreements at the termination value and would be required to pay an additional $0.5 million and $0.3 million as of September 30, 2021 and December 31, 2020, respectively, in excess of amounts previously posted as collateral with the respective counterparty.
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The following table presents a reconciliation of the net amounts of derivative assets and derivative liabilities presented in the Consolidated Balance Sheets to the net amounts that would result in the event of offset:
TABLE 10.5
  Amount Not Offset in the
Consolidated Balance Sheets
 
(in millions)Net Amount
Presented in
the Consolidated Balance
Sheets
Financial
Instruments
Cash
Collateral
Net
Amount
September 30, 2021
Derivative Assets
Interest rate contracts:
Designated$2 $ $2 $ 
Not designated2  2  
Total$4 $ $4 $ 
Derivative Liabilities
Interest rate contracts:
Not designated$25 $ $24 $1 
Total$25 $ $24 $1 
December 31, 2020
Derivative Assets
Interest rate contracts:
Designated$$— $$— 
Total$$— $$— 
Derivative Liabilities
Interest rate contracts:
Not designated$37 $— $37 $— 
Total$37 $— $37 $— 

NOTE 11.    COMMITMENTS, CREDIT RISK AND CONTINGENCIES
We have commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the Consolidated Balance Sheets. Our exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loans and leases to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
Following is a summary of off-balance sheet credit risk information:
TABLE 11.1
(in millions)September 30,
2021
December 31,
2020
Commitments to extend credit$11,015 $9,285 
Standby letters of credit200 158 
At September 30, 2021, funding of 70.7% of the commitments to extend credit was dependent on the financial condition of the customer. We have the ability to withdraw such commitments at our discretion. Commitments generally have fixed expiration
39


dates or other termination clauses and may require payment of a fee. Based on management’s credit evaluation of the customer, collateral may be deemed necessary. Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by us that may require payment at a future date. The credit risk involved in issuing letters of credit is actively monitored through review of the historical performance of our portfolios.
Our AULC for commitments that are not unconditionally cancellable, which is included in other liabilities on the Consolidated Balance Sheets, was $18.0 million at September 30, 2021 and $13.7 million at December 31, 2020. Additional information relating to the AULC is provided in Note 5, "Allowance for Credit Losses on Loans and Leases" in the Notes to Consolidated Financial Statements.
In addition to the above commitments, subordinated notes issued by FNB Financial Services, LP, a wholly-owned finance subsidiary, are fully and unconditionally guaranteed by FNB. These subordinated notes are included in the summaries of short-term borrowings and long-term borrowings in Note 9, “Borrowings” in the Notes to Consolidated Financial Statements.
Other Legal Proceedings
In the ordinary course of business, we may assert claims in legal proceedings against another party or parties, and we are routinely named as defendants in, or made parties to, pending and potential legal actions. Also, as regulated entities, we are subject to governmental and regulatory examinations, information-gathering requests, and may be subject to investigations and proceedings (both formal and informal). Such threatened claims, litigation, investigations, regulatory and administrative proceedings typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted in many of these types of legal actions, while claims for disgorgement, reimbursement, restitution, penalties and/or other remedial actions or sanctions may be sought in regulatory matters. In these instances, if we determine that we have meritorious defenses, we will engage in an aggressive defense. However, if management determines, in consultation with counsel, that settlement of a matter is in the best interest of FNB and our shareholders, we may do so. It is inherently difficult to predict the eventual outcomes of such matters given their complexity and the particular facts and circumstances at issue in each of these matters. However, on the basis of current knowledge and understanding, and advice of counsel, we do not believe that judgments, sanctions, settlement resolutions, regulatory actions, investigations, settlements or orders, if any, that have or may arise from these matters (either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage) will have a material adverse effect on our financial position or liquidity, although they could potentially have a material effect on net income in a given period.
In view of the inherent unpredictability of outcomes in litigation and governmental and regulatory matters, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel legal theories or a large number of parties, as a matter of course, there is considerable uncertainty surrounding the timing or ultimate resolution of litigation and governmental and regulatory matters, including a possible eventual loss, fine, restitution, penalty, business or adverse reputational impact, if any, associated with each such matter. In accordance with applicable accounting guidance, we establish accruals for litigation and governmental and regulatory matters when those matters proceed to a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. We will continue to monitor such matters for developments that could affect the amount of the accrual, and will adjust the accrual amount as appropriate. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. We believe that our accruals for legal proceedings are appropriate and, in the aggregate, are not material to our consolidated financial position, although future accruals could have a material effect on net income in a given period.

NOTE 12.    STOCK INCENTIVE PLANS
Restricted Stock
We issue restricted stock awards to key employees under our Incentive Compensation Plan (Plan). We issue time-based awards and performance-based awards under this Plan, both of which are based on a three-year vesting period. The grant date fair value of the time-based awards is equal to the price of our common stock on the grant date. The fair value of the performance-based awards is based on a Monte-Carlo simulation valuation of our common stock as of the grant date. The assumptions used for this valuation include stock price volatility, risk-free interest rate and dividend yield. We issued 1,113,314 and 2,004,895 restricted stock units during the nine months ended September 30, 2021 and 2020, respectively, including 325,284 and 571,932
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performance-based restricted stock units during those same periods, respectively. As of September 30, 2021, we had available up to 4,137,909 shares of common stock to issue under this Plan.
The unvested restricted stock unit awards are eligible to receive cash dividends or dividend equivalents which are ultimately used to purchase additional shares of stock and are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met. These awards are subject to certain accelerated vesting provisions upon retirement, death, disability or in the event of a change of control as defined in the award agreements.
The following table summarizes the activity relating to restricted stock units during the periods indicated:
TABLE 12.1
Nine Months Ended September 30,
20212020
UnitsWeighted
Average
Grant
Price per
Share
UnitsWeighted
Average
Grant
Price per
Share
Unvested units outstanding at beginning of period4,322,115 $9.46 2,858,357 $12.56 
Granted1,113,314 12.65 2,004,895 5.95 
Net adjustment due to performance412,540 11.72 47,290 13.00 
Vested(1,309,476)12.10 (592,602)14.50 
Forfeited/expired/canceled(112,002)10.94 (169,552)13.05 
Dividend reinvestment134,600 12.26 173,990 6.99 
Unvested units outstanding at end of period4,561,091 9.74 4,322,378 9.45 
The following table provides certain information related to restricted stock units:
TABLE 12.2
(in millions)Nine Months Ended
September 30,
 20212020
Stock-based compensation expense$17 $13 
Tax benefit related to stock-based compensation expense4 
Fair value of units vested16 
As of September 30, 2021, there was $11.7 million of unrecognized compensation cost related to unvested restricted stock units, including $1.0 million that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement.
The components of the restricted stock units as of September 30, 2021 are as follows:
TABLE 12.3
(dollars in millions)Service-
Based
Units
Performance-
Based
Units
Total
Unvested restricted stock units2,933,219 1,627,872 4,561,091 
Unrecognized compensation expense$10 $$12 
Intrinsic value$34 $19 $53 
Weighted average remaining life (in years)1.860.881.51

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Stock Options
All outstanding stock options were assumed from acquisitions and are fully vested. Upon consummation of our acquisitions, all outstanding stock options issued by the acquired companies were converted into equivalent FNB stock options. We issue shares of treasury stock or authorized but unissued shares to satisfy stock options exercised.
As of September 30, 2021, we had 170,529 stock options outstanding and exercisable at a weighted average exercise price per share of $8.75, compared to 207,030 stock options outstanding and exercisable at a weighted average exercise price per share of $8.42 as of September 30, 2020.
The intrinsic value of outstanding and exercisable stock options at September 30, 2021 was $0.5 million. The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price.

NOTE 13.      INCOME TAXES
Income Tax Expense
Federal and state income tax expense and the statutory tax rate and the actual effective tax rate consist of the following:
TABLE 13.1
Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in millions)2021202020212020
Current income taxes:
Federal taxes$22 $16 $62 $62 
State taxes1 4 
Total current income taxes23 17 66 68 
Deferred income taxes:
Federal taxes4 — 7 (24)
State taxes — 1 — 
Total deferred income taxes4 — 8 (24)
Total income taxes$27 $17 $74 $44 
Statutory tax rate21.0 %21.0 %21.0 %21.0 %
Effective tax rate19.7 17.0 19.5 17.0 
The effective tax rates for the nine months ended September 30, 2021 and 2020 were lower than the statutory federal tax rate primarily due to tax benefits resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. The lower tax effective tax rate in 2020 is primarily due to lower pre-tax income levels and the impact from renewable energy investment tax credits.

Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Deferred tax assets and liabilities are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Net deferred tax assets were $47.4 million and $51.0 million at September 30, 2021 and December 31, 2020, respectively.
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NOTE 14.    OTHER COMPREHENSIVE INCOME
The following table presents changes in AOCI, net of tax, by component:
TABLE 14.1
(in millions)Unrealized
Net Gains (Losses) on
Debt Securities
Available
for Sale
Unrealized
Net Gains
(Losses) on
Derivative
Instruments
Unrecognized
Pension and
Postretirement
Obligations
Total
Nine Months Ended September 30, 2021
Balance at beginning of period$65 $(40)$(64)$(39)
Other comprehensive (loss) income before reclassifications(29)(24)
Amounts reclassified from AOCI— 11 — 11 
Net current period other comprehensive (loss) income(29)14 (13)
Balance at end of period$36 $(26)$(62)$(52)
The amounts reclassified from AOCI related to debt securities AFS are included in net securities gains on the Consolidated Statements of Income, while the amounts reclassified from AOCI related to derivative instruments in cash flow hedge programs are generally included in interest income on loans and leases on the Consolidated Statements of Income.
The tax (benefit) expense amounts reclassified from AOCI in connection with the debt securities AFS and derivative instruments reclassifications are included in income taxes on the Consolidated Statements of Income.

NOTE 15.    EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding net of unvested shares of restricted stock.
Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options and restricted shares, as calculated using the treasury stock method. Adjustments to the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.
The following table sets forth the computation of basic and diluted earnings per common share:
TABLE 15.1
Three Months Ended
September 30,
Nine Months Ended
September 30,
(dollars in millions, except per share data)
2021202020212020
Net income$111 $83 $306 $214 
Less: Preferred stock dividends2 6 
Net income available to common stockholders$109 $81 $300 $208 
Basic weighted average common shares outstanding319,512,598 323,379,720 320,023,695 323,642,925 
Net effect of dilutive stock options, warrants and restricted stock3,348,329 2,283,060 3,611,960 2,051,221 
Diluted weighted average common shares outstanding322,860,927 325,662,780 323,635,655 325,694,146 
Earnings per common share:
Basic$0.34 $0.25 $0.94 $0.64 
Diluted$0.34 $0.25 $0.93 $0.64 
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The following table shows the average shares excluded from the above calculation as their effect would have been anti-dilutive: 
TABLE 15.2
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Average shares excluded from the diluted earnings per common share calculation 44,755  22,263 

NOTE 16.    CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information:
TABLE 16.1
Nine Months Ended
September 30,
(in millions)20212020
Interest paid on deposits and other borrowings$82 $179 
Income taxes paid53 34 
Transfers of loans to other real estate owned3 
Loans transferred to held for sale from portfolio 508 

NOTE 17.    BUSINESS SEGMENTS
We operate in 3 reportable segments: Community Banking, Wealth Management and Insurance.

The Community Banking segment provides commercial and consumer banking services. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, business credit, capital markets and lease financing. Consumer banking products and services include deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services.
The Wealth Management segment provides a broad range of personal and corporate fiduciary services including the administration of decedent and trust estates. In addition, it offers various alternative products, including securities brokerage and investment advisory services, mutual funds and annuities.
The Insurance segment includes a full-service insurance brokerage service offering all lines of commercial and personal insurance through major carriers. The Insurance segment also includes a reinsurer.
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The following tables provide financial information for these segments of FNB. The information provided under the caption “Parent and Other” represents operations not considered to be reportable segments and/or general operating expenses of FNB, and includes the parent company, other non-bank subsidiaries and eliminations and adjustments to reconcile to the Consolidated Financial Statements.

TABLE 17.1
(in millions)Community
Banking
Wealth
Management
InsuranceParent and
Other
Consolidated
At or for the Three Months Ended September 30, 2021
Interest income$255 $ $ $1 $256 
Interest expense20   4 24 
Net interest income235   (3)232 
Provision for credit losses(2)   (2)
Non-interest income68 15 6 (1)88 
Non-interest expense (1)
164 10 5 2 181 
Amortization of intangibles3    3 
Income tax expense (benefit)27 1  (1)27 
Net income (loss)111 4 1 (5)111 
Total assets39,238 43 34 46 39,361 
Total intangibles2,271 9 27  2,307 
At or for the Three Months Ended September 30, 2020
Interest income$273 $— $— $— $273 
Interest expense41 — — 46 
Net interest income232 — — (5)227 
Provision for credit losses27 — — — 27 
Non-interest income63 12 (2)80 
Non-interest expense (1)
162 177 
Amortization of intangibles— — — 
Income tax expense (benefit)18 (3)17 
Net income (loss)85 (6)83 
Total assets37,315 36 36 54 37,441 
Total intangibles2,282 28 — 2,319 
(1) Excludes amortization of intangibles, which is presented separately.
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(in millions)Community
Banking
Wealth
Management
InsuranceParent and
Other
Consolidated
At or for the Nine Months Ended September 30, 2021
Interest income$759 $ $ $1 $760 
Interest expense67   10 77 
Net interest income692   (9)683 
Provision for credit losses2   1 3 
Non-interest income191 45 19 (4)251 
Non-interest expense (1)
491 30 15 6 542 
Amortization of intangibles8  1  9 
Income tax expense (benefit)75 3 1 (5)74 
Net income (loss)307 12 2 (15)306 
Total assets39,238 43 34 46 39,361 
Total intangibles2,271 9 27  2,307 
At or for the Nine Months Ended September 30, 2020
Interest income$859 $— $— $$860 
Interest expense155 — — 17 172 
Net interest income704 — — (16)688 
Provision for credit losses105 — — — 105 
Non-interest income180 36 18 (8)226 
Non-interest expense (1)
495 26 14 541 
Amortization of intangibles— — 10 
Income tax expense (benefit)47 (6)44 
Net income (loss)228 (24)214 
Total assets37,315 36 36 54 37,441 
Total intangibles2,282 28 — 2,319 
(1) Excludes amortization of intangibles, which is presented separately.
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NOTE 18.    FAIR VALUE MEASUREMENTS
Refer to Note 25 "Fair Value Measurements" to the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 for a description of additional valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:
TABLE 18.1
(in millions)Level 1Level 2Level 3Total
September 30, 2021
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury$49 $ $ $49 
U.S. government agencies 154  154 
U.S. government-sponsored entities 170  170 
Residential mortgage-backed securities:
Agency mortgage-backed securities 1,311  1,311 
Agency collateralized mortgage obligations 1,183  1,183 
Commercial mortgage-backed securities 306  306 
States of the U.S. and political subdivisions (municipals) 33  33 
Other debt securities 2  2 
Total debt securities available for sale49 3,159  3,208 
Loans held for sale 227  227 
Derivative financial instruments
Trading 213  213 
Not for trading 4 13 17 
Total derivative financial instruments 217 13 230 
Total assets measured at fair value on a recurring basis$49 $3,603 $13 $3,665 
Liabilities Measured at Fair Value
Derivative financial instruments
Trading$ $41 $ $41 
Not for trading    
Total derivative financial instruments 41  41 
Total liabilities measured at fair value on a recurring basis$ $41 $ $41 
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(in millions)Level 1Level 2Level 3Total
December 31, 2020
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury$600 $— $— $600 
U.S. government agencies— 172 — 172 
U.S. government-sponsored entities— 161 — 161 
Residential mortgage-backed securities:
Agency mortgage-backed securities— 994 — 994 
Agency collateralized mortgage obligations— 1,124 — 1,124 
Commercial mortgage-backed securities— 378 — 378 
States of the U.S. and political subdivisions (municipals)— 32 — 32 
Other debt securities— — 
Total debt securities available for sale600 2,863 — 3,463 
Loans held for sale— 144 — 144 
Derivative financial instruments
Trading— 349 — 349 
Not for trading— 24 27 
Total derivative financial instruments— 352 24 376 
Total assets measured at fair value on a recurring basis$600 $3,359 $24 $3,983 
Liabilities Measured at Fair Value
Derivative financial instruments
Trading$— $37 $— $37 
Not for trading— — 
Total derivative financial instruments— 40 — 40 
Total liabilities measured at fair value on a recurring basis$— $40 $— $40 
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The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:
TABLE 18.2 
(in millions)Interest
Rate
Lock
Commitments
Total
Nine Months Ended September 30, 2021
Balance at beginning of period$24 $24 
Purchases, issuances, sales and settlements:
Issuances13 13 
Settlements(24)(24)
Balance at end of period$13 $13 
Year Ended December 31, 2020
Balance at beginning of period$$
Purchases, issuances, sales and settlements:
Issuances24 24 
Settlements(3)(3)
Balance at end of period$24 $24 
We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. There were no transfers of assets or liabilities between the hierarchy levels during the first nine months of 2021 or 2020.
From time to time, we measure certain assets at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of the lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were described in Note 25, "Fair Value Measurements" to the Consolidated Financial Statements included in 2020 Annual Report on Form 10-K. For assets measured at fair value on a non-recurring basis still held at the Balance Sheet date, the following table provides the hierarchy level and the fair value of the related assets or portfolios:
TABLE 18.3
(in millions)Level 1Level 2Level 3Total
September 30, 2021
Collateral dependent loans$ $ $9 $9 
Other assets - MSRs  15 15 
Other assets - SBA servicing asset  4 4 
Other real estate owned  1 1 
December 31, 2020
Collateral dependent loans$— $— $45 $45 
Other assets - MSRs— — 36 36 
Other assets - SBA servicing asset— — 
Other real estate owned— — 

The fair value amounts for collateral dependent loans and OREO in the table above were estimated at a date during the nine months or twelve months ended September 30, 2021 and December 31, 2020, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end. Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during the nine months ended September 30, 2021 had a carrying amount of $9.5 million, which
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includes an allocated ACL of $8.2 million. The ACL includes a provision applicable to the current period fair value measurements of $2.1 million, which was included in provision for credit losses for the nine months ended September 30, 2021.
MSRs measured at fair value on a non-recurring basis had a carrying value of $15.5 million, which included a valuation allowance of $3.5 million, as of September 30, 2021. The valuation allowance includes a recovery of $3.8 million included in earnings for the nine months ended September 30, 2021. SBA servicing assets measured at fair value on a non-recurring basis had a carrying value of $5.3 million, which included a valuation allowance of $0.9 million, as of September 30, 2021. The valuation allowance includes a recovery of $0.2 million included in earnings for the nine months ended September 30, 2021.
OREO measured at fair value on a non-recurring basis during 2021 had a carrying amount of $1.1 million, which included a valuation allowance of $0.3 million, as of September 30, 2021. The valuation allowance includes a loss of $0.3 million, which was included in earnings for the nine months ended September 30, 2021.
Fair Value of Financial Instruments
Refer to Note 25, "Fair Value Measurements" to the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 for a description of methods and assumptions that were used to estimate the fair value of each financial instrument.
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The fair values of our financial instruments are as follows:
TABLE 18.4

  Fair Value Measurements
(in millions)Carrying
Amount
Fair
 Value
Level 1Level 2Level 3
September 30, 2021
Financial Assets
Cash and cash equivalents$4,110 $4,110 $4,110 $ $ 
Debt securities available for sale3,208 3,208 49 3,159  
Debt securities held to maturity3,202 3,267 1 3,266  
Net loans and leases, including loans held for sale24,620 24,224  227 23,997 
Loan servicing rights46 47   47 
Derivative assets230 230  217 13 
Accrued interest receivable76 76 76   
Financial Liabilities
Deposits31,444 31,456 28,399 3,057  
Short-term borrowings1,563 1,565 1,565   
Long-term borrowings886 906   906 
Derivative liabilities41 41  41  
Accrued interest payable8 8 8   
December 31, 2020
Financial Assets
Cash and cash equivalents$1,383 $1,383 $1,383 $— $— 
Debt securities available for sale3,463 3,463 600 2,863 — 
Debt securities held to maturity2,868 2,973 — 2,973 — 
Net loans and leases, including loans held for sale25,250 25,012 — 144 24,868 
Loan servicing rights39 39 — — 39 
Derivative assets376 376 — 352 24 
Accrued interest receivable90 90 90 — — 
Financial Liabilities
Deposits29,122 29,158 25,460 3,698 — 
Short-term borrowings1,804 1,809 1,809 — — 
Long-term borrowings1,095 1,068 — — 1,068 
Derivative liabilities40 40 — 40 — 
Accrued interest payable13 13 13 — — 

NOTE 19.    MERGERS AND ACQUISITIONS
Pending Acquisition – Howard Bancorp, Inc.

On July 12, 2021, the Corporation entered into a definitive merger agreement to acquire Howard, a bank holding company based in Baltimore, Maryland with approximately $2.6 billion in total assets. The transaction is valued at approximately $418 million. Under the terms of the merger agreement, Howard voting common shareholders will be entitled to receive 1.8 shares of the Corporation’s common stock for each share of Howard common stock. The Corporation expects to issue approximately 33.8 million shares of its common stock in exchange for approximately 18.8 million shares of Howard common stock. Howard’s banking affiliate, Howard Bank, will be merged into FNBPA. We have received all regulatory clearances for the proposed merger to occur. The transaction is expected to be completed in early 2022, pending satisfaction of certain routine and customary closing conditions and approval by Howard's shareholders.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the three- and nine-month periods ended September 30, 2021 and 2020. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021. Our results of operations for the nine months ended September 30, 2021 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) actions by the FRB, FDIC, UST, OCC and other governmental agencies, especially those that impact money supply, market interest rates or otherwise affect business activities of the financial services industry; (iii) a slowing of the U.S. economic environment; (iv) inflation concerns; (v) the impacts of tariffs or other trade policies of the U.S. or its global trading partners; and 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 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, including the ongoing COVID-19 pandemic crisis, dislocations, risks associated with a post-pandemic return to normalcy, including 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 management. These developments could include:
Changes resulting from a new U.S. presidential administration, including legislative and regulatory reforms, different approaches to supervisory or enforcement priorities, 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.
Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other
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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.
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 a deterioration and disruption of the financial markets and national and local economic conditions, 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, a prolonged recovery of the U.S. economy and labor market and the possible change in commercial and consumer customer fundamentals, expectations and sentiments. As a result, the COVID-19 impact, including uncertainty regarding the potential impact of 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 2020 Annual Report on Form 10-K, our subsequent 2021 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other 2021 filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-relations-shareholder-services. 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 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 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, 2020.

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, 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, ACL to loans and leases, excluding PPP loans, pre-provision net revenue to average tangible common equity, 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
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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, branch consolidation costs, loss on early debt extinguishment, COVID-19 expenses and gains on sale of Visa class B shares 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 charges principally represent expenses to satisfy contractual obligations of the closed operations and 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. Similarly, gains derived from the sale of Visa class B stock and losses on FHLB debt extinguishment and related hedge terminations are not organic to our operations. The COVID-19 expenses represent special Company initiatives to support our employees and the communities we serve during an unprecedented time of a pandemic.
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 2021 and 2020 periods were calculated using a federal statutory income tax rate of 21%.

FINANCIAL SUMMARY
Net income available to common stockholders for the third quarter of 2021 was $109.5 million or $0.34 per diluted common share, compared to net income available to common stockholders for the third quarter of 2020 of $80.8 million or $0.25 per diluted common share. On an operating basis, the third quarter of 2021 earnings per diluted common share (non-GAAP) was also $0.34, while the third quarter of 2020, was $0.26, excluding $0.01 for significant items.
Total revenue increased to a record of $321.3 million. Our financial results were highlighted by a return on tangible common equity (non-GAAP) of 16.77% and sequential tangible book value per share growth of 11% annualized, to $8.42. We have executed our strategic plan as demonstrated by our growing diversity of revenue sources and our ability to have two consecutive quarters of high-single digit loan growth, excluding PPP.
Income Statement Highlights (Third quarter of 2021 compared to third quarter of 2020, except as noted)
Record total revenue of $321.3 million, an increase of $14.1 million, or 4.6%, led to record operating net income available to common stockholders (non-GAAP) of $110.2 million, an increase of $24.8 million, or 29.0%.
On a linked-quarter basis, operating pre-provision net revenue (non-GAAP) increased $10.2 million, or 8.0%, to a record $138.0 million due to growth in total revenue of $13.6 million, or 4.4%, led by higher non-interest income, partially offset by an increase in non-interest expense of $3.4 million, or 1.9%, largely tied to the revenue growth.
Net interest income increased $5.3 million, or 2.3%, to $232.4 million due to higher PPP loan income and an improved funding mix offsetting lower yields on earnings assets. A $2.6 billion increase in low yielding interest-bearing deposits with banks was a significant contribution to the reduced earning asset yield.
On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) increased 2 basis points to 2.72% as the cost of funds decreased 2 basis points offsetting the earning asset yield decline of 1 basis point. The yield on total loans and leases increased 10 basis points to 3.61% largely due to higher contribution from PPP loans, while the investment portfolio yields declined by 13 basis points largely driven by the impact of higher cash and cash equivalents balances. The cost of funds decrease was led by the cost of interest-bearing deposits improving 3 basis points to 0.21%.
The annualized net charge-offs to total average loans ratio was 0.03%, compared to 0.29%, with favorable asset quality trends across the loan portfolio.
The provision for credit losses was a net benefit of $1.8 million for the third quarter, compared to a net benefit of $1.1 million in the second quarter of 2021 and an expense of $27.2 million in the third quarter of 2020, with the third quarter of 2020 level primarily attributable to the impacts of the pandemic.
Non-interest income was a record $88.9 million, an increase of $8.8 million, or 11.0%, due to strong contributions from capital markets and wealth management, as well as increased SBA premium income and higher service charges driven
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by increased customer activity, partially offset by lower contributions from mortgage banking given its record levels in the third quarter of 2020.
The effective tax rate was 19.7%, compared to 17.0%, reflecting residual benefits from renewable energy investment tax credits in the third quarter of 2020.
The efficiency ratio (non-GAAP) equaled 55.4%, compared to 55.3%.
Balance Sheet Highlights (period-end balances, September 30, 2021 compared to December 31, 2020, unless otherwise indicated)
Period-end total loans and leases, excluding PPP loans, increased $867.6 million, or 3.7%, as commercial loans increased $621.7 million, or 4.1%, and consumer loans increased $246.0 million, or 3.0%, inclusive of the sale of $0.5 billion in indirect auto loans in November 2020, compared to September 30, 2020. Total period-end loans and leases decreased $972.2 million, or 3.8%, due to a commercial loan decrease of $1.2 billion, or 6.9%, driven by PPP loan forgiveness compared to September 30, 2020.
On a linked-quarter basis, excluding PPP loans, period-end total loans increased $462.8 million, or 7.8% annualized, with commercial loans and leases increasing $289.3 million, or 7.4% annualized, and consumer loans increasing $173.5 million, or 8.5% annualized.
PPP loans outstanding totaled $0.7 billion at September 30, 2021, reflecting $2.9 billion in SBA loan forgiveness processed to date. There were $1.6 billion and $2.5 billion of PPP loans outstanding at June 30, 2021 and September 30, 2020, respectively.
Total average deposits grew $2.5 billion, or 8.6%, compared to the third quarter of 2020, led by increases in average non-interest-bearing deposits of $1.7 billion, or 19.2%, and average interest-bearing demand deposits of $1.3 billion, or 10.4%, partially offset by a decrease in average time deposits of $1.0 billion, or 25.0%. Average deposit growth reflected inflows from the PPP and government stimulus activities, organic growth in new and existing customer relationships, as well as current customer preferences to maintain larger balances in their deposit accounts than before the pandemic.
The ratio of loans to deposits was 78.6%, compared to 87.4%, as deposit growth outpaced loan growth. Additionally, the deposit funding mix continued to improve with non-interest-bearing deposits totaling 33% of total deposits, compared to 31%. Cash and cash equivalents balances increased $2.7 billion to $4.1 billion due primarily to PPP loan activity and government stimulus inflows.
Total assets were $39.4 billion, compared to $37.4 billion, an increase of $2.0 billion, or 5.4%, primarily due to the increase in cash and cash equivalents due to significant deposit growth, primarily due to the PPP and government stimulus activities.
The dividend payout ratio for the third quarter of 2021 was 35.4%, compared to 48.7% for the third quarter of 2020.
The ratio of the ACL to total loans and leases decreased to 1.41% from 1.43%. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loan and leases ratio (non-GAAP) equaled 1.45%, compared to 1.56%. The ACL on loans and leases totaled $349 million at September 30, 2021, compared to $363 million.
Tangible book value per share (non-GAAP) of $8.42, increased $0.61, or 8% from September 30, 2020, reflecting our continued strategy to build tangible book value per share while optimizing capital deployment. The CET1 regulatory capital ratio increased to 9.9%, up from 9.8%.
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TABLE 1
Three Months Ended
September 30,
Quarterly Results Summary20212020
Reported results
Net income available to common stockholders (millions)$109.5 $80.8 
Net income per diluted common share0.34 0.25 
Book value per common share (period-end)15.65 14.99 
Pre-provision net revenue (reported) (millions)137.0 126.9 
Common equity tier 1 capital ratio9.9 %9.6 %
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)$110.2 $85.5 
Operating net income per diluted common share0.34 0.26 
Tangible common equity to tangible assets (period-end)7.24 %7.19 %
Tangible book value per common share (period-end)$8.42 $7.81 
Pre-provision net revenue (operating) (millions)$138.0 $132.9 
Average diluted common shares outstanding (thousands)322,861 325,663 
Significant items impacting earnings(1) (millions)
Pre-tax merger-related expenses$(0.9)$— 
After-tax impact of merger-related expenses(0.7)— 
Pre-tax COVID-19 expense (2.7)
After-tax impact of COVID-19 expense (2.1)
Pre-tax gain on sale of Visa class B stock 13.8 
After-tax impact of gain on sale of Visa class B stock 10.9 
Pre-tax loss on FHLB debt extinguishment and related hedge terminations (13.3)
After-tax impact of loss on FHLB debt extinguishment and related hedge terminations (10.5)
Pre-tax service charge refunds (3.8)
After-tax impact of service charge refunds (3.0)
Total significant items pre-tax$(0.9)$(6.0)
Total significant items after-tax$(0.7)$(4.7)
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Nine Months Ended
September 30,
Year-to-Date Results Summary20212020
Reported results
Net income available to common stockholders (millions)$300.1 $207.8 
Net income per diluted common share0.93 0.64 
Pre-provision net revenue (reported) (millions)383.0 362.8 
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)302.9 222.1 
Operating net income per diluted common share0.94 0.68 
Pre-provision net revenue (operating) (millions)386.6 385.1 
Average diluted common shares outstanding (thousands)323,636 325,694 
Significant items impacting earnings(1) (millions)
Pre-tax merger-related expenses$(0.9)$— 
After-tax impact of merger-related expenses(0.7)— 
Pre-tax COVID-19 expense (6.6)
After-tax impact of COVID-19 expense (5.2)
Pre-tax gain on sale of Visa class B stock 13.8 
After-tax impact of gain on sale of Visa class B stock 10.9 
Pre-tax loss on FHLB debt extinguishment and related hedge terminations (13.3)
After-tax impact of loss on FHLB debt extinguishment and related hedge terminations (10.5)
Pre-tax branch consolidation costs(2.6)(8.3)
After-tax impact of branch consolidation costs(2.1)(6.5)
Pre-tax service charge refunds (3.8)
After-tax impact of service charge refunds (3.0)
Total significant items pre-tax$(3.5)$(18.2)
Total significant items after-tax$(2.8)$(14.3)
(1) Favorable (unfavorable) impact on earnings

Industry Developments
LIBOR
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, have 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 the Secured Overnight Financing Rate (SOFR) as a replacement index for LIBOR.
Similarly, 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 of loan operations, information technology, legal, finance and other support functions. The transition team has completed an assessment of tasks needed for the transition, identified contracts that contain LIBOR language, has reviewed existing contract language for the presence of appropriate fallback rate language, developed and implemented loan fallback rate language for when LIBOR is retired and identified risks associated with the transition. The transition team is considering SOFR and credit-sensitive alternative indices, that may gain market acceptance, as a replacement to LIBOR. The selected index, or indices, will be utilized in all new floating rate agreements no later than December 31, 2021 and we will be able to accommodate multiple indices for the benefit of our customer base. Our transition team continues to work within the guidelines established by the FCA and ARRC to provide for a smooth transition away from LIBOR.
As of September 30, 2021, approximately $10.1 billion, or 41%, of our loan portfolio consisted of loans whose variable rate index is LIBOR. Previously, we finalized the transition to SOFR for all new adjustable rate mortgage originations which has a balance of approximately $240 million as of September 30, 2021. Finally, we have approximately $200 million of FNB issued debt that uses LIBOR as its base index.
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RESULTS OF OPERATIONS

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020
Net income available to common stockholders for the three months ended September 30, 2021 was $109.5 million or $0.34 per diluted common share, compared to net income available to common stockholders for the three months ended September 30, 2020 of $80.8 million or $0.25 per diluted common share. The results for the third quarter of 2021 reflect record revenue of $321.3 million, an increase of $14.1 million, or 4.6%. Additionally, the provision for credit losses was a net benefit of $1.8 million due to continued improvement in the underlying portfolio credit trends. This compares to provision expense of $27.2 million for the third quarter of 2020, reflecting a recessionary environment under the CECL requirements. Non-interest income for the third quarter of 2021 included record capital markets income of $12.5 million, wealth management revenue of $14.9 million and increased SBA premium income. Non-interest expense for the third quarter of 2021 increased $4.0 million primarily due to higher salaries and employee benefits from higher production and performance-related commissions and incentives. The third quarter of 2021 included merger-related costs of $0.9 million due to the pending Howard acquisition.

Financial highlights are summarized below:
TABLE 2
Three Months Ended
September 30,
$%
(in thousands, except per share data)20212020ChangeChange
Net interest income$232,406 $227,098 $5,308 2.3 %
Provision for credit losses(1,806)27,227 (29,033)(106.6)
Non-interest income88,854 80,038 8,816 11.0 
Non-interest expense184,226 180,209 4,017 2.2 
Income taxes27,327 16,924 10,403 61.5 
Net income111,513 82,776 28,737 34.7 
Less: Preferred stock dividends2,010 2,010 — — 
Net income available to common stockholders$109,503 $80,766 $28,737 35.6 %
Earnings per common share – Basic$0.34 $0.25 $0.09 36.0 %
Earnings per common share – Diluted0.34 0.25 0.09 36.0 
Cash dividends per common share0.12 0.12 — — 
The following table presents selected financial ratios and other relevant data used to analyze our performance:
TABLE 3
 Three Months Ended
September 30,
 20212020
Return on average equity8.74 %6.70 %
Return on average tangible common equity (2)
16.77 13.34 
Return on average assets1.14 0.88 
Return on average tangible assets (2)
1.24 0.97 
Book value per common share (1)
$15.65 $14.99 
Tangible book value per common share (1) (2)
8.42 7.81 
Equity to assets (1)
12.95 %13.22 %
Average equity to average assets13.08 13.12 
Common equity to assets (1)
12.68 12.94 
Tangible equity to tangible assets (1) (2)
7.53 7.49 
Tangible common equity to tangible assets (1) (2)
7.24 7.19 
Common equity tier 1 capital ratio (1)
9.9 9.6 
Dividend payout ratio35.43 48.65 
(1) Period-end
(2) Non-GAAP

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The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities:
TABLE 4
 Three Months Ended September 30,
 20212020
(dollars in thousands)Average
Balance
Interest
Income/
Expense
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Assets
Interest-earning assets:
Interest-bearing deposits with banks$3,186,841 $1,228 0.15 %$543,731 $226 0.17 %
Taxable investment securities (1)
5,109,559 20,746 1.62 4,849,384 24,710 2.04 
Tax-exempt investment securities (1)(2)
1,078,906 9,230 3.42 1,142,971 10,101 3.54 
Loans held for sale257,909 2,381 3.69 282,917 3,349 4.72 
Loans and leases (2)(3)
24,729,254 224,675 3.61 26,063,431 237,063 3.62 
Total interest-earning assets (2)
34,362,469 258,260 2.99 32,882,434 275,449 3.34 
Cash and due from banks389,659 369,263 
Allowance for credit losses(362,592)(371,199)
Premises and equipment343,070 335,711 
Other assets3,985,793 4,250,497 
Total assets$38,718,399 $37,466,706 
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand$13,888,928 4,487 0.13 $12,584,154 10,041 0.32 
Savings3,509,325 164 0.02 2,991,381 261 0.03 
Certificates and other time3,111,424 5,999 0.76 4,149,263 17,119 1.64 
            Total interest-bearing deposits20,509,677 10,650 0.21 19,724,798 27,421 0.55 
Short-term borrowings1,549,353 6,539 1.67 2,217,640 8,893 1.59 
Long-term borrowings886,637 6,045 2.70 1,526,968 9,019 2.35 
Total interest-bearing liabilities22,945,667 23,234 0.40 23,469,406 45,333 0.77 
Non-interest-bearing demand10,338,713 8,671,940 
Total deposits and borrowings33,284,380 0.28 32,141,346 0.56 
Other liabilities370,587 409,427 
Total liabilities33,654,967 32,550,773 
Stockholders’ equity5,063,432 4,915,933 
Total liabilities and stockholders’ equity$38,718,399 $37,466,706 
Net interest-earning assets$11,416,802 $9,413,028 
Net interest income (FTE) (2)
235,026 230,116 
Tax-equivalent adjustment(2,620)(3,018)
Net interest income$232,406 $227,098 
Net interest spread2.59 %2.57 %
Net interest margin (2)
2.72 %2.79 %
(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 balances include non-accrual loans. Loans and leases consist of average total loans less average unearned income.
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Net Interest Income
Net interest income on an FTE basis (non-GAAP) increased $4.9 million, or 2.1%, from $230.1 million for the third quarter of 2020 to $235.0 million for the third quarter of 2021. Average earning assets of $34.4 billion increased $1.5 billion, or 4.5%, from 2020, which included $3.6 billion of PPP loan originations since program inception in the second quarter of 2020, $2.9 billion in total PPP loan forgiveness and a $2.6 billion increase in average cash balances largely due to the continued impact from government stimulus and PPP activity. The growth in average earning assets was offset by the repricing impact on earning asset yields from lower interest rates, mitigated by the improved funding mix with reductions in higher-cost borrowings and the cost of interest-bearing deposits. Average interest-bearing liabilities of $22.9 billion decreased $0.5 billion, or 2.2%, from 2020, driven by a decrease in average borrowings of $1.3 billion partially offset by an increase of $0.8 billion in average interest-bearing deposits which included deposits for PPP funding and government stimulus activities, organic growth in new and existing customer relationships, as well as recent customer preferences to maintain larger deposit account balances than before the pandemic. Our net interest margin FTE (non-GAAP) declined 7 basis points to 2.72%, as the yield on earning assets decreased 35 basis points, primarily reflecting the impact of significant reductions in short-term benchmark interest rates on variable-rate loans, significantly lower yields on investment securities and the effect of higher average cash balances on the mix of earning assets. Partially offsetting the lower earning asset yields, the total cost of funds improved 28 basis points to 0.28%, compared to 0.56%, due to a 34 basis point reduction in interest-bearing deposit costs and an improved funding mix, as average non-interest-bearing deposits increased $1.7 billion, or 19.2%.
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 September 30, 2021, compared to the three months ended September 30, 2020:
TABLE 5
(in thousands)VolumeRateNet
Interest Income (1)
Interest-bearing deposits with banks$1,020 $(18)$1,002 
Securities (2)
1,192 (6,027)(4,835)
Loans held for sale125 (1,093)(968)
Loans and leases (2)
(15,895)3,507 (12,388)
Total interest income (2)
(13,558)(3,631)(17,189)
Interest Expense (1)
Deposits:
Interest-bearing demand445 (5,999)(5,554)
Savings23 (120)(97)
Certificates and other time(2,522)(8,598)(11,120)
Short-term borrowings(3,042)688 (2,354)
Long-term borrowings(3,738)764 (2,974)
Total interest expense(8,834)(13,265)(22,099)
Net change (2)
$(4,724)$9,634 $4,910 
 
(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 $258.3 million for the third quarter of 2021, decreased $17.2 million, or 6.2%, from the same quarter of 2020, primarily due to the repricing impact from lower interest rates, partially offset by increased earning assets of $1.5 billion. The increase in earning assets was primarily driven by a $2.6 billion increase in average cash and cash equivalents balances largely due to the continued impact from government stimulus and PPP loan activity, partially offset by a $1.3 billion, or 5.1%, decrease in average loans and leases. Average commercial loans declined $1.1 billion, or 6.2%. Excluding the PPP loans, commercial loan origination activity remained solid led by organic growth in the Pittsburgh, Mid-
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Atlantic (Washington D.C., northern Virginia and Maryland markets) and Cleveland regions. Average consumer loans declined $238.8 million, or 2.8%, primarily due to the sale of $0.5 billion of indirect auto installment loans in November 2020, partially offset by a $229.3 million increase in direct installment loans. Since PPP inception we originated $3.6 billion of PPP loans and had $2.9 billion in total PPP loan forgiveness. The yield on average earning assets (non-GAAP) decreased 35 basis points from 3.34% for the third quarter of 2020 to 2.99% for the third quarter of 2021, primarily reflecting the impact of significant reductions in the short-term benchmark interest rates on variable-rate loans, significantly lower yields on investment securities and the effect of higher average cash balances on the mix of earning assets.
Interest expense of $23.2 million for the third quarter of 2021 decreased $22.1 million, or 48.7%, from the same quarter of 2020, due to a decrease in rates paid on average interest-bearing liabilities and growth in average non-interest-bearing deposits over the same quarter of 2020. Average non-interest-bearing deposits increased $1.7 billion, or 19.2%, and average interest-bearing deposits increased $0.8 billion, or 4.0%. The growth in average deposits reflected inflows from the PPP and government stimulus activities, organic growth in new and existing customer relationships, as well as recent customer preferences to maintain larger deposit account balances than before the pandemic. Average short-term borrowings decreased $668.3 million, or 30.1%, primarily reflecting decreases of $654.1 million and $36.6 million in short-term FHLB advances and federal funds purchased, respectively. Average long-term borrowings decreased $640.3 million, or 41.9%, primarily reflecting a decrease of $628.9 million in long-term FHLB advances. During 2020, we utilized excess low-yielding cash to opportunistically terminate $715 million of FHLB borrowings, and in certain instances, the related interest rate swap. The terminated FHLB borrowings had a 2.49% interest rate with a remaining term of 1.6 years. The rate paid on interest-bearing liabilities decreased 37 basis points from 0.77% to 0.40% for the third quarter of 2021, primarily due to the interest rate actions made by the FOMC and our actions taken to reduce the cost of interest-bearing liabilities.

Provision for Credit Losses
Provision for credit losses is determined based on management’s estimates of the appropriate level of ACL needed to absorb probable life-of-loan losses in the loan and lease portfolio, after giving consideration to charge-offs and recoveries for the period. The following table presents information regarding the provision for credit loss expense and net charge-offs:
TABLE 6
Three Months Ended
September 30,
$%
(dollars in thousands)20212020ChangeChange
Provision for credit losses (on loans and leases)$(5,668)$27,233 $(32,901)(120.8)%
Provision for unfunded loan commitments (1)
3,847 (287)4,134 (1,440.4)
Net loan charge-offs1,591 19,256 (17,665)(91.7)
Net loan charge-offs (annualized) / total average loans and leases0.03 %0.29 %
(1) A net benefit of $0.3 million for the 2020 provision for unfunded loan commitments is included in other non-interest expense on the Consolidated Statements of Income.

Provision for credit losses was a net benefit of $1.8 million during the third quarter of 2021, a decrease of $28.8 million, from the same period of 2020. The third quarter of 2021 net benefit is comprised of $5.7 million net benefit on provision for loans and leases outstanding and a $3.8 million provision expense for unfunded loan commitments, driven by an increase in our commercial unfunded loan commitments. The decrease reflects improved credit trends in our portfolio credit metrics, with the year-ago quarter level primarily attributable to the impacts from the pandemic. Net loan charge-offs were $1.6 million, a decrease of $17.7 million, reflecting COVID-19 impacts on certain segments of the loan portfolio in 2020. For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses on Loans and Leases section of this Management’s Discussion and Analysis.

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Non-Interest Income
The breakdown of non-interest income for the three months ended September 30, 2021 and 2020 is presented in the following table:
TABLE 7
Three Months Ended
September 30,
$%
(dollars in thousands)20212020ChangeChange
Service charges$31,716 $24,296 $7,420 30.5 %
Trust services9,471 7,733 1,738 22.5 
Insurance commissions and fees6,776 6,401 375 5.9 
Securities commissions and fees5,465 4,494 971 21.6 
Capital markets income12,541 8,202 4,339 52.9 
Mortgage banking operations8,245 18,831 (10,586)(56.2)
Dividends on non-marketable equity securities1,857 2,496 (639)(25.6)
Bank owned life insurance3,279 3,867 (588)(15.2)
Net securities gains65 112 (47)(42.0)
Loss on debt extinguishment (4,360)4,360 — 
Other9,439 7,966 1,473 18.5 
Total non-interest income$88,854 $80,038 $8,816 11.0 %
Total non-interest income increased $8.8 million, or 11.0%, to $88.9 million for the third quarter of 2021 compared to $80.0 million for the third quarter of 2020. Excluding significant items, non-interest income increased $5.5 million, or 6.6%. The variances in the individual non-interest income items are explained in the following paragraphs.
Service charges on loans and deposits of $31.7 million for the third quarter of 2021 increased $7.4 million, or 30.5%, from the same period of 2020, as the year-ago quarter reflected a low point of customer activity during the pandemic.
Trust services of $9.5 million for the third quarter of 2021 increased $1.7 million, or 22.5%, from the same period of 2020. We continued to generate strong organic growth in accounts and services, while the market value of assets under management also increased $1.4 billion, or 20.9%, to $7.8 billion at September 30, 2021.
Securities commissions and fees of $5.5 million for the third quarter of 2021 increased $1.0 million, or 21.6%, from the same period of 2020 due to strong activity levels across the footprint.
Capital markets increased $4.3 million, or 52.9%, which included strong swap activity with solid contributions from commercial lending activity, as well as contributions from loan syndications, debt capital markets and international banking.
Mortgage banking operations income of $8.2 million for the third quarter of 2021 decreased $10.6 million, or 56.2%, from the same period of 2020, as secondary market revenue and mortgage held-for-sale pipelines normalized from record levels. During the third quarter of 2021, we sold $400.9 million of residential mortgage loans, compared to $478.3 million for the same period of 2020, a decrease of 16.2%.
Dividends on non-marketable equity securities of $1.9 million for the third quarter of 2021 decreased $0.6 million, or 25.6%, from the same period of 2020, primarily due to a decrease in the FHLB dividend rate and lower levels of FHLB borrowings given the strong growth in deposits.
The early termination of higher-rate long-term FHLB borrowings in the third quarter of 2020 resulted in a loss on debt extinguishment of $4.4 million.
Other non-interest income was $9.4 million and $8.0 million for the third quarter of 2021 and 2020, respectively. The third quarter of 2021 included $1.8 million more in SBA premium income, $0.9 million more from improved Small Business Investment Company (SBIC) fund performance, a $2.2 million recovery on a previously written-off other asset and various
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miscellaneous increases. The third quarter of 2020 included a $13.8 million gain on the sale of Visa class B stock, partially offset by $8.9 million in hedge termination costs related to the early termination of higher-rate long-term FHLB borrowings.
TABLE 8
Three Months Ended
September 30,
$%
(dollars in thousands)20212020ChangeChange
Total non-interest income, as reported$88,854 $80,038 $8,816 11.0 %
Significant items:
   Gain on sale of Visa class B stock— (13,818)13,818 
   Loss on FHLB debt extinguishment and related hedge terminations— 13,316 (13,316)
   Service charge refunds— 3,780 (3,780)
Total non-interest income, excluding significant items(1)
$88,854 $83,316 $5,538 6.6 %
(1) Non-GAAP

Non-Interest Expense
The breakdown of non-interest expense for the three months ended September 30, 2021 and 2020 is presented in the following table:
TABLE 9
Three Months Ended
September 30,
$%
(dollars in thousands)20212020ChangeChange
Salaries and employee benefits$104,899 $100,265 $4,634 4.6 %
Net occupancy12,913 13,837 (924)(6.7)
Equipment17,664 17,005 659 3.9 
Amortization of intangibles3,022 3,339 (317)(9.5)
Outside services17,839 16,676 1,163 7.0 
FDIC insurance4,380 4,064 316 7.8 
Bank shares and franchise taxes3,584 3,778 (194)(5.1)
Merger-related940 — 940 — 
Other18,985 21,245 (2,260)(10.6)
Total non-interest expense$184,226 $180,209 $4,017 2.2 %
Total non-interest expense of $184.2 million for the third quarter of 2021 increased $4.0 million, or 2.2%, from the same period of 2020. Non-interest expense increased $5.7 million, or 3.2%, when excluding significant items of $0.9 million of merger-related expenses in the third quarter of 2021 and $2.7 million of COVID-19 expenses in the third quarter of 2020. The variances in the individual non-interest expense items are further explained in the following paragraphs.
Salaries and employee benefits of $104.9 million for the third quarter of 2021 increased $4.6 million, or 4.6%, from the same period of 2020, primarily related to normal merit increases and higher production and performance-related commissions and incentives corresponding to strong production levels from mortgage banking and our fee-based businesses.
Outside services expense of $17.8 million for the third quarter of 2021 increased $1.2 million, or 7.0%, from $16.7 million from the same period of 2020, due to volume-related technology and higher legal costs. Additionally, the third quarter of 2020 included $0.3 million of COVID-19 expenses.
We recorded $0.9 million in merger-related costs in the third quarter of 2021 related to the pending Howard acquisition.
Other non-interest expense was $19.0 million and $21.2 million for the third quarter of 2021 and 2020, respectively. During the third quarter of 2020, we recorded over $2 million of COVID-19 related expenses.
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The following table presents non-interest expense excluding significant items for the three months ended September 30, 2021 and 2020:
TABLE 10
Three Months Ended September 30,$%
(dollars in thousands)20212020ChangeChange
Total non-interest expense, as reported$184,226 $180,209 $4,017 2.2 %
Significant items:
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