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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, 2024
| | | | | |
| ☐ | 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)
| | | | | | | | |
| Pennsylvania | | 25-1255406 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| | | | | | | | | | | | | | | | | |
| One North Shore Center, | 12 Federal Street, | Pittsburgh, | PA | | 15212 |
| (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 Filer | ☒ | Accelerated Filer | ☐ |
| | | |
| Non-accelerated Filer | ☐ | Smaller reporting company | ☐ |
| | | |
| | Emerging Growth Company | ☐ |
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 Class | | Trading Symbol(s) | | Name of Exchange on which Registered |
| Common Stock, par value $0.01 per share | | FNB | | New 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.
| | | | | | | | |
| Class | Outstanding at | October 31, 2024 |
| Common Stock, $0.01 Par Value | 359,585,508 | | Shares |
F.N.B. CORPORATION
FORM 10-Q
September 30, 2024
INDEX
| | | | | | | | |
| | PAGE |
| PART I – FINANCIAL INFORMATION | |
| | |
| | |
| | |
| Item 1. | Financial Statements | |
| | |
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| PART II – OTHER INFORMATION | |
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Glossary of Acronyms and Terms
| | | | | | | | | | | | | | |
Acronym | Description | | Acronym | Description |
ACL | Allowance for credit losses | | FTE | Fully taxable equivalent |
AFS | Available for sale | | GAAP | U.S. generally accepted accounting principles |
ALCO | Asset/Liability Committee | | HTM | Held to maturity |
AOCI | Accumulated other comprehensive income | | LGD | Loss given default |
ASU | Accounting Standards Update | | LIHTC | Various partnerships of affordable housing |
AULC | Allowance for unfunded loan commitments | | MBS | Mortgage-backed securities |
CECL | Current expected credit losses | | MD&A | Management's Discussion and Analysis of Financial Condition and Results of Operations |
CET1 | Common equity tier 1 | | MSRs | Mortgage servicing rights |
| CFPB | Consumer Financial Protection Bureau | | OCC | Office of the Comptroller of the Currency |
| DOJ | U.S. Department of Justice | | OREO | Other real estate owned |
EVE | Economic value of equity | | R&S | Reasonable and Supportable |
FASB | Financial Accounting Standards Board | | SBA | Small Business Administration |
FDIC | Federal Deposit Insurance Corporation | | SEC | Securities and Exchange Commission |
FHLB | Federal Home Loan Bank | | SOFR | Secured Overnight Financing Rate |
| FICO | Fair Isaac Corporation | | TPS | Trust preferred securities |
FNB | F.N.B. Corporation | | U.S. | United States of America |
FNBPA | First National Bank of Pennsylvania | | UST | U.S. Department of the Treasury |
| FOMC | Federal Open Market Committee | | VIE | Variable interest entity |
FRB | Board of Governors of the Federal Reserve System | | | |
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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,
2024 | | December 31,
2023 |
| | | (Unaudited) | | |
| Assets | | | | |
| Cash and due from banks | | $ | 596 | | | $ | 447 | |
| Interest-bearing deposits with banks | | 1,482 | | | 1,129 | |
| Cash and Cash Equivalents | | 2,078 | | | 1,576 | |
Debt securities available for sale (amortized cost of $3,620 and $3,460; allowance for credit losses of $0 and $0) | | 3,494 | | | 3,254 | |
Debt securities held to maturity (fair value of $3,581 and $3,593; allowance for credit losses of $0 and $0) | | 3,820 | | | 3,911 | |
Loans held for sale (includes $191 and $150 measured at fair value) (1) | | 193 | | | 488 | |
Loans and leases, net of unearned income of $92 and $91 (includes $49 and $45 measured at fair value) (1) | | 33,717 | | | 32,323 | |
| Allowance for credit losses on loans and leases | | (420) | | | (406) | |
| Net Loans and Leases | | 33,297 | | | 31,917 | |
| Premises and equipment, net | | 505 | | | 461 | |
| Goodwill | | 2,478 | | | 2,477 | |
| Core deposit and other intangible assets, net | | 56 | | | 69 | |
| Bank owned life insurance | | 657 | | | 660 | |
| Other assets | | 1,398 | | | 1,345 | |
| Total Assets | | $ | 47,976 | | | $ | 46,158 | |
| Liabilities | | | | |
| Deposits: | | | | |
| Non-interest-bearing demand | | $ | 9,870 | | | $ | 10,222 | |
| Interest-bearing demand | | 15,999 | | | 14,809 | |
| Savings | | 3,231 | | | 3,465 | |
| Certificates and other time deposits | | 7,671 | | | 6,215 | |
| Total Deposits | | 36,771 | | | 34,711 | |
| Short-term borrowings | | 1,562 | | | 2,506 | |
| Long-term borrowings | | 2,515 | | | 1,971 | |
| | | | |
| Other liabilities | | 879 | | | 920 | |
| Total Liabilities | | 41,727 | | | 40,108 | |
| Stockholders’ Equity | | | | |
| Preferred stock | | | | |
Issued – 0 and 110,877 shares - $0.01 par value | | — | | | 107 | |
Common stock - $0.01 par value | | | | |
Authorized – 500,000,000 shares | | | | |
Issued – 374,995,179 and 374,939,537 shares | | 4 | | | 4 | |
| Additional paid-in capital | | 4,693 | | | 4,692 | |
| Retained earnings | | 1,886 | | | 1,669 | |
| Accumulated other comprehensive loss | | (154) | | | (235) | |
Treasury stock – 15,409,635 and 16,110,120 shares at cost | | (180) | | | (187) | |
| Total Stockholders’ Equity | | 6,249 | | | 6,050 | |
| Total Liabilities and Stockholders’ Equity | | $ | 47,976 | | | $ | 46,158 | |
(1)Amount represents loans for which we have elected the fair value option. See Note 18.
See accompanying Notes to Consolidated Financial Statements (unaudited)
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, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Interest Income | | | | | | | |
| Loans and leases, including fees | $ | 516 | | | $ | 455 | | | $ | 1,491 | | | $ | 1,278 | |
| Securities: | | | | | | | |
| Taxable | 48 | | | 38 | | | 142 | | | 109 | |
| Tax-exempt | 7 | | | 7 | | | 21 | | | 21 | |
| | | | | | | |
| Other | 12 | | | 13 | | | 29 | | | 33 | |
| Total Interest Income | 583 | | | 513 | | | 1,683 | | | 1,441 | |
| Interest Expense | | | | | | | |
| Deposits | 199 | | | 139 | | | 549 | | | 335 | |
| Short-term borrowings | 30 | | | 23 | | | 90 | | | 55 | |
| Long-term borrowings | 31 | | | 25 | | | 86 | | | 59 | |
| Total Interest Expense | 260 | | | 187 | | | 725 | | | 449 | |
| Net Interest Income | 323 | | | 326 | | | 958 | | | 992 | |
| Provision for credit losses | 23 | | | 25 | | | 57 | | | 58 | |
| Net Interest Income After Provision for Credit Losses | 300 | | | 301 | | | 901 | | | 934 | |
| Non-Interest Income | | | | | | | |
| Service charges | 24 | | | 22 | | | 68 | | | 62 | |
| Interchange and card transaction fees | 13 | | | 13 | | | 39 | | | 39 | |
| Trust services | 11 | | | 11 | | | 34 | | | 32 | |
| Insurance commissions and fees | 5 | | | 5 | | | 18 | | | 19 | |
| Securities commissions and fees | 8 | | | 7 | | | 24 | | | 21 | |
| Capital markets income | 6 | | | 7 | | | 17 | | | 20 | |
| Mortgage banking operations | 5 | | | 4 | | | 20 | | | 14 | |
| Dividends on non-marketable equity securities | 7 | | | 5 | | | 20 | | | 15 | |
| Bank owned life insurance | 6 | | | 3 | | | 13 | | | 9 | |
| | | | | | | |
| | | | | | | |
| Other | 4 | | | 4 | | | 12 | | | 10 | |
| Total Non-Interest Income | 89 | | | 81 | | | 265 | | | 241 | |
| Non-Interest Expense | | | | | | | |
| Salaries and employee benefits | 126 | | | 114 | | | 376 | | | 348 | |
| Net occupancy | 22 | | | 18 | | | 61 | | | 52 | |
| Equipment | 24 | | | 24 | | | 72 | | | 67 | |
| Amortization of intangibles | 4 | | | 5 | | | 13 | | | 15 | |
| Outside services | 24 | | | 21 | | | 70 | | | 61 | |
| Marketing | 6 | | | 5 | | | 15 | | | 13 | |
| FDIC insurance | 10 | | | 8 | | | 33 | | | 23 | |
| Bank shares and franchise taxes | 4 | | | 4 | | | 12 | | | 12 | |
| Merger-related | — | | | — | | | — | | | 2 | |
| | | | | | | |
| Other | 29 | | | 19 | | | 61 | | | 57 | |
| Total Non-Interest Expense | 249 | | | 218 | | | 713 | | | 650 | |
| Income Before Income Taxes | 140 | | | 164 | | | 453 | | | 525 | |
| Income taxes | 30 | | | 19 | | | 98 | | | 91 | |
| Net Income | 110 | | | 145 | | | 355 | | | 434 | |
| Preferred stock dividends | — | | | 2 | | | 6 | | | 6 | |
| Net Income Available to Common Stockholders | $ | 110 | | | $ | 143 | | | $ | 349 | | | $ | 428 | |
| Earnings per Common Share | | | | | | | |
| Basic | $ | 0.30 | | | $ | 0.40 | | | $ | 0.97 | | | $ | 1.19 | |
| Diluted | 0.30 | | | 0.40 | | | 0.96 | | | 1.18 | |
See accompanying Notes to Consolidated Financial Statements (unaudited)
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Unaudited
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Net income | $ | 110 | | | $ | 145 | | | $ | 355 | | | $ | 434 | |
| Other comprehensive income (loss): | | | | | | | |
| Securities available for sale: | | | | | | | |
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $21, $(7), $18 and $(6) | 73 | | | (26) | | | 62 | | | (22) | |
| | | | | | | |
| | | | | | | |
| Derivative instruments: | | | | | | | |
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $1, $(2), $(2) and $(5) | 6 | | | (7) | | | (6) | | | (17) | |
Reclassification adjustment for gains included in net income, net of tax expense of $3, $2, $7 and $4 | 9 | | | 6 | | | 24 | | | 13 | |
| Pension and postretirement benefit obligations: | | | | | | | |
Unrealized gains arising during the period, net of tax expense of $0, $0, $0 and $0 | 1 | | | — | | | 1 | | | 1 | |
| Other Comprehensive Income (Loss) | 89 | | | (27) | | | 81 | | | (25) | |
| Comprehensive Income | $ | 199 | | | $ | 118 | | | $ | 436 | | | $ | 409 | |
See accompanying Notes to Consolidated Financial Statements (unaudited)
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, 2023 | | | | | | | | | | | | | |
| Balance at beginning of period | $ | 107 | | | $ | 4 | | | $ | 4,686 | | | $ | 1,564 | | | $ | (355) | | | $ | (188) | | | $ | 5,818 | |
| Comprehensive income (loss) | | | | | | | 145 | | | (27) | | | | | 118 | |
| Dividends declared: | | | | | | | | | | | | | |
Preferred stock: $18.13/share | | | | | | | (2) | | | | | | | (2) | |
Common stock: $0.12/share | | | | | | | (43) | | | | | | | (43) | |
| | | | | | | | | | | | | |
| Issuance of common stock | | | — | | | 1 | | | — | | | | | — | | | 1 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Restricted stock compensation | | | | | 2 | | | | | | | | | 2 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance at end of period | $ | 107 | | | $ | 4 | | | $ | 4,689 | | | $ | 1,664 | | | $ | (382) | | | $ | (188) | | | $ | 5,894 | |
| Three Months Ended September 30, 2024 | | | | | | | | | | | | | |
| Balance at beginning of period | $ | — | | | $ | 4 | | | $ | 4,690 | | | $ | 1,820 | | | $ | (243) | | | $ | (181) | | | $ | 6,090 | |
| Comprehensive income (loss) | | | | | | | 110 | | | 89 | | | | | 199 | |
| Dividends declared: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Common stock: $0.12/share | | | | | | | (44) | | | | | | | (44) | |
| | | | | | | | | | | | | |
| Issuance of common stock | | | — | | | (1) | | | — | | | | | 1 | | | — | |
| | | | | | | | | | | | | |
| Repurchase of common stock | | | | | | | | | | | — | | | — | |
| | | | | | | | | | | | | |
| Restricted stock compensation | | | | | 4 | | | | | | | | | 4 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance at end of period | $ | — | | | $ | 4 | | | $ | 4,693 | | | $ | 1,886 | | | $ | (154) | | | $ | (180) | | | $ | 6,249 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred
Stock | | Common
Stock | | Additional
Paid-In
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury
Stock | | Total |
Nine Months Ended September 30, 2023 | | | | | | | | | | | | | |
| Balance at beginning of period | $ | 107 | | | $ | 4 | | | $ | 4,696 | | | $ | 1,370 | | | $ | (357) | | | $ | (167) | | | $ | 5,653 | |
| Comprehensive income (loss) | | | | | | | 434 | | | (25) | | | | | 409 | |
| Dividends declared: | | | | | | | | | | | | | |
Preferred stock: $54.39/share | | | | | | | (6) | | | | | | | (6) | |
Common stock: $0.36/share | | | | | | | (130) | | | | | | | (130) | |
| | | | | | | | | | | | | |
| Issuance of common stock | | | — | | | (21) | | | (4) | | | | | 16 | | | (9) | |
| | | | | | | | | | | | | |
| Repurchase of common stock | | | | | | | | | | | (37) | | | (37) | |
| | | | | | | | | | | | | |
| Restricted stock compensation | | | | | 14 | | | | | | | | | 14 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance at end of period | $ | 107 | | | $ | 4 | | | $ | 4,689 | | | $ | 1,664 | | | $ | (382) | | | $ | (188) | | | $ | 5,894 | |
Nine Months Ended September 30, 2024 | | | | | | | | | | | | | |
| Balance at beginning of period | $ | 107 | | | $ | 4 | | | $ | 4,692 | | | $ | 1,669 | | | $ | (235) | | | $ | (187) | | | $ | 6,050 | |
| Comprehensive income (loss) | | | | | | | 355 | | | 81 | | | | | 436 | |
| Dividends declared: | | | | | | | | | | | | | |
Preferred stock: $18.13/share | | | | | | | (2) | | | | | | | (2) | |
Common stock: $0.36/share | | | | | | | (131) | | | | | | | (131) | |
| Redemption of preferred stock | (107) | | | | | | | (4) | | | | | | | (111) | |
| Issuance of common stock | | | — | | | (15) | | | — | | | | | 10 | | | (5) | |
| | | | | | | | | | | | | |
| Repurchase of common stock | | | | | | | | | | | (3) | | | (3) | |
| | | | | | | | | | | | | |
| Restricted stock compensation | | | | | 16 | | | | | | | | | 16 | |
| Adoption of new accounting standard | | | | | | | (1) | | | | | | | (1) | |
| Balance at end of period | $ | — | | | $ | 4 | | | $ | 4,693 | | | $ | 1,886 | | | $ | (154) | | | $ | (180) | | | $ | 6,249 | |
See accompanying Notes to Consolidated Financial Statements (unaudited)
F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Unaudited
| | | | | | | | | | | |
| | Nine Months Ended
September 30, |
| | 2024 | | 2023 |
| Operating Activities | | | |
| Net income | $ | 355 | | | $ | 434 | |
| Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: | | | |
| Depreciation, amortization and accretion | 49 | | | 61 | |
| Provision for credit losses | 57 | | | 58 | |
| Deferred tax expense (benefit) | 17 | | | 3 | |
| | | |
| | | |
| Loans originated for sale | (1,109) | | | (839) | |
| Loans sold | 1,069 | | | 821 | |
| Net (gain) loss on sale of loans | (10) | | | (1) | |
| Net change in: | | | |
| Interest receivable | (6) | | | (32) | |
| Interest payable | 3 | | | 29 | |
| Bank owned life insurance, excluding purchases | 3 | | | (7) | |
| Other, net | (112) | | | (84) | |
| Net cash flows provided by operating activities | 316 | | | 443 | |
| Investing Activities | | | |
| Net change in loans and leases, excluding sales and transfers | (1,857) | | | (1,917) | |
| Debt securities available for sale: | | | |
| Purchases | (864) | | | (262) | |
| | | |
| Maturities/payments | 707 | | | 359 | |
| Debt securities held to maturity: | | | |
| Purchases | (187) | | | (104) | |
| | | |
| Maturities/payments | 283 | | | 271 | |
| | | |
| | | |
| Increase in premises and equipment | (91) | | | (71) | |
| | | |
| Net proceeds from sales of portfolio loans | 776 | | | — | |
| | | |
| Net cash flows provided by (used in) investing activities | (1,233) | | | (1,724) | |
| Financing Activities | | | |
| Net change in: | | | |
| Demand (non-interest-bearing and interest-bearing) and savings accounts | 605 | | | (2,335) | |
| Time deposits | 1,453 | | | 2,178 | |
| Short-term borrowings | (944) | | | 694 | |
| Proceeds from issuance of long-term borrowings | 877 | | | 1,226 | |
| Repayment of long-term borrowings | (335) | | | (351) | |
| Redemption of preferred stock | (111) | | | — | |
| Repurchases of common stock | (3) | | | (37) | |
| Cash dividends paid: | | | |
| Preferred stock | (2) | | | (6) | |
| Common stock | (131) | | | (130) | |
| Other, net | 10 | | | 5 | |
| Net cash flows provided by (used in) financing activities | 1,419 | | | 1,244 | |
| Net Increase (Decrease) in Cash and Cash Equivalents | 502 | | | (37) | |
| Cash and cash equivalents at beginning of period | 1,576 | | | 1,674 | |
| Cash and Cash Equivalents at End of Period | $ | 2,078 | | | $ | 1,637 | |
See accompanying Notes to Consolidated Financial Statements (unaudited)
F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2024
The terms “FNB,” “the Corporation,” “we,” “us” and “our” throughout this Report mean F.N.B. Corporation and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, F.N.B. Corporation. When we refer to "FNBPA" in this Report, we mean our bank subsidiary, First National Bank of Pennsylvania, and its subsidiaries.
NATURE OF OPERATIONS
F.N.B. Corporation, headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in seven states and the District of Columbia. Our market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina; and Charleston, South Carolina. As of September 30, 2024, we had 349 branches throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina, Washington D.C. and Virginia.
We provide a full range of commercial banking, consumer banking and wealth management solutions through our subsidiary network which is led by our largest affiliate, FNBPA, founded in 1864. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, government banking, business credit, capital markets and lease financing. Consumer banking provides a full line of consumer banking products and services, including deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. Wealth management services include asset management, private banking and insurance.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements (unaudited) include subsidiaries in which we have a controlling financial interest. We own and operate FNBPA, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, Bank Capital Services, LLC, F.N.B. Capital Corporation, LLC and Waubank Securities, LLC, and include results for each of these entities in the accompanying Consolidated Financial Statements.
Companies in which we hold a controlling financial interest, or are a VIE in which we have the power to direct the activities of an entity that most significantly impact the entity’s economic performance and have an obligation to absorb losses or the right to receive benefits which could potentially be significant to the VIE, are consolidated. For a voting interest entity, a controlling financial interest is generally where we hold more than 50% of the outstanding voting shares. VIEs in which we do not hold the power to direct the activities of the entity that most significantly impact the entity’s economic performance or an obligation to absorb losses or the right to receive benefits which could potentially be significant to the VIE are not consolidated. Investments in companies that are not consolidated are accounted for using the equity method when we have the ability to exert significant influence or the cost method when we do not have the ability to exert significant influence. Investments in private investment partnerships that are accounted for under the equity method or the cost method are included in other assets and our proportional interest in the equity investments’ earnings are included in other non-interest income. Investment interests accounted for under the cost and equity methods are periodically evaluated for impairment.
The accompanying interim unaudited Consolidated Financial Statements include all adjustments that are necessary, in the opinion of management, to fairly reflect our financial position and results of operations in accordance with GAAP. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to the current period presentation. Such reclassifications had no impact on our net income and stockholders' equity. Events occurring subsequent to September 30, 2024 have been evaluated for potential recognition or disclosure in the Consolidated Financial Statements through the date of the filing of the Consolidated Financial Statements with the SEC.
Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results we expect for the full year. These interim unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024.
Use of Estimates
Our accounting and reporting policies conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements (unaudited). Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the ACL, fair value of financial instruments, goodwill and other intangible assets and income taxes and deferred tax assets, which are listed in the critical accounting estimates. For a detailed description of our significant accounting policies and critical accounting estimates, see Note 1, "Summary of Significant Accounting Policies" and the "Application of Critical Accounting Policies" section in the MD&A, both in our 2023 Annual Report on Form 10-K. Adoption of New Accounting Standards
Effective January 1, 2024, we adopted the provision of ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which permits reporting entities to make an accounting policy election to account for tax equity investments using the proportional amortization method if certain conditions are met. The election is to be made on a tax-credit-program-by-tax-credit-program basis and should be applied consistently to all investments within an elected tax credit program. Upon the adoption of ASU 2023-02, we elected to apply the proportional amortization method of accounting to our qualifying historic and new market tax credit investments. The proportional amortization method recognizes the amortized cost of the investment as a component of income tax expense on the consolidated statements of income and as a component of operating activities within other assets and other liabilities on the consolidated statements of cash flows. We historically applied proportional amortization to the majority of our LIHTC investments. LIHTCs that do not meet the requirements of the proportional amortization method are recognized using the equity method. See Note 8, "Variable Interest Entities" for additional information.
NOTE 2. NEW ACCOUNTING STANDARDS
The following table summarizes accounting pronouncements issued by the FASB that we recently adopted or will be adopting in the future.
TABLE 2.1
| | | | | | | | | | | | | | |
| Standard | | Description | | Financial Statements Impact |
| | | | |
| Income Taxes | | | | |
| ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures | | This Update requires public business entities to disclose additional categories of information about federal, state, and foreign income taxes in the tabular rate reconciliation table. Additionally, entities must provide more details regarding reconciling items in some categories if the items are equal to or greater than a specified quantitative threshold. This Update also requires all entities to annually disclose income taxes paid, net of refunds received, disaggregated by federal, state, and foreign taxes and further disaggregated by jurisdiction based on a specified quantitative threshold. | | This Update is to be applied using a prospective method with an option to apply it retrospectively for each period presented and will be effective as of January 1, 2025. Early adoption is permitted. We are currently evaluating the effect this Update will have on our consolidated financial statements, the related disclosures and our processes, systems, and controls related to disclosures. |
| | | | | | | | | | | | | | |
| Standard | | Description | | Financial Statements Impact |
| Segment Reporting | | | | |
| ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure | | This Update requires all public entities to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required in annual disclosures. | | This Update is to be applied using a retrospective method to all prior periods presented and is effective for annual periods beginning on January 1, 2024, and will be effective for interim periods beginning on January 1, 2025. Early adoption is permitted. We do not expect the adoption of this Update to materially impact our consolidated financial statements and we are currently evaluating the effect this Update will have on the related disclosures. |
| Tax Equity Investments | | | | |
| ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method | | This Update expands the use of the proportional amortization method of accounting, previously only allowable for LIHTC investments, to equity investments in other tax credit structures that meet certain criteria.
The Update also removed the specialized guidance for LIHTC investments that are not accounted for using the proportional amortization method or equity method and require that those investments are accounted for using Topic 321 regarding equity investments. | | This Update is to be applied using either a modified retrospective or a retrospective method and is effective as of January 1, 2024. Early adoption of this Update is permitted.
We adopted this Update on January 1, 2024 on a modified retrospective basis for tax credit programs that are eligible to apply proportional amortization. As a result, we recorded a reduction of $0.5 million in retained earnings for the cumulative effect of the adoption. |
NOTE 3. SECURITIES
The amortized cost and fair value of AFS debt securities are presented in the table below. There was no ACL associated with the AFS portfolio at September 30, 2024 and December 31, 2023. Accrued interest receivable on AFS debt securities totaled $14.1 million at September 30, 2024 and $9.6 million at December 31, 2023, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and amortized cost basis of AFS debt securities.
TABLE 3.1
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | | | Fair
Value |
| Debt Securities AFS: | | | | | | | | | |
| September 30, 2024 | | | | | | | | | |
| U.S. Treasury | $ | 199 | | | $ | 2 | | | $ | — | | | | | $ | 201 | |
| U.S. government agencies | 62 | | | — | | | — | | | | | 62 | |
| U.S. government-sponsored entities | 302 | | | 1 | | | (1) | | | | | 302 | |
| Residential MBS: | | | | | | | | | |
| Agency MBS | 898 | | | 4 | | | (43) | | | | | 859 | |
| Agency collateralized mortgage obligations | 832 | | | — | | | (83) | | | | | 749 | |
| | | | | | | | | |
| Agency commercial MBS | 1,256 | | | 20 | | | (24) | | | | | 1,252 | |
| States of the U.S. and political subdivisions (municipals) | 25 | | | — | | | (2) | | | | | 23 | |
| Other debt securities | 46 | | | 1 | | | (1) | | | | | 46 | |
| Total debt securities AFS | $ | 3,620 | | | $ | 28 | | | $ | (154) | | | | | $ | 3,494 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Debt Securities AFS: | | | | | | | |
| December 31, 2023 | | | | | | | |
| U.S. Treasury | $ | 422 | | | $ | — | | | $ | (2) | | | $ | 420 | |
| U.S. government agencies | 78 | | | 1 | | | — | | | 79 | |
| U.S. government-sponsored entities | 227 | | | — | | | (4) | | | 223 | |
| Residential MBS: | | | | | | | |
| Agency MBS | 814 | | | — | | | (62) | | | 752 | |
| Agency collateralized mortgage obligations | 946 | | | — | | | (114) | | | 832 | |
| | | | | | | |
| Agency commercial MBS | 905 | | | 9 | | | (30) | | | 884 | |
| States of the U.S. and political subdivisions (municipals) | 30 | | | — | | | (3) | | | 27 | |
| Other debt securities | 38 | | | — | | | (1) | | | 37 | |
| Total debt securities AFS | $ | 3,460 | | | $ | 10 | | | $ | (216) | | | $ | 3,254 | |
The amortized cost and fair value of HTM debt securities are presented in the following table. The ACL for the HTM portfolio was $0.25 million and $0.28 million at September 30, 2024 and December 31, 2023, respectively. Accrued interest receivable on HTM debt securities totaled $13.0 million and $14.7 million at September 30, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and amortized cost basis of HTM debt securities.
TABLE 3.2
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | |
| Debt Securities HTM: | | | | | | | | | |
| September 30, 2024 | | | | | | | | | |
| U.S. Treasury | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | | | |
| | | | | | | | | |
| U.S. government-sponsored entities | 29 | | | — | | | — | | | 29 | | | |
| Residential MBS: | | | | | | | | | |
| Agency MBS | 938 | | | 3 | | | (75) | | | 866 | | | |
| Agency collateralized mortgage obligations | 741 | | | — | | | (82) | | | 659 | | | |
| | | | | | | | | |
| Agency commercial MBS | 1,102 | | | 11 | | | (31) | | | 1,082 | | | |
| States of the U.S. and political subdivisions (municipals) | 993 | | | 1 | | | (65) | | | 929 | | | |
| Other debt securities | 16 | | | — | | | (1) | | | 15 | | | |
| Total debt securities HTM | $ | 3,820 | | | $ | 15 | | | $ | (254) | | | $ | 3,581 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | |
| Debt Securities HTM: | | | | | | | | | |
| December 31, 2023 | | | | | | | | | |
| | | | | | | | | |
| U.S. government agencies | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | | | |
| U.S. government-sponsored entities | 68 | | | — | | | — | | | 68 | | | |
| Residential MBS: | | | | | | | | | |
| Agency MBS | 1,057 | | | 2 | | | (101) | | | 958 | | | |
| Agency collateralized mortgage obligations | 824 | | | — | | | (104) | | | 720 | | | |
| | | | | | | | | |
| Agency commercial MBS | 929 | | | 4 | | | (43) | | | 890 | | | |
| States of the U.S. and political subdivisions (municipals) | 1,017 | | | 2 | | | (77) | | | 942 | | | |
| Other debt securities | 15 | | | — | | | (1) | | | 14 | | | |
| Total debt securities HTM | $ | 3,911 | | | $ | 8 | | | $ | (326) | | | $ | 3,593 | | | |
There were no significant gross gains or gross losses realized on securities during the nine months ended September 30, 2024 or 2023. In the fourth quarter of 2023, we sold $648.7 million of AFS securities resulting in a realized loss of $67.4 million as part of a proactive balance sheet management strategy. Unrealized losses on the AFS and HTM portfolios are due to the increase in market interest rates with 85.3% of these securities backed or sponsored by the U.S. government as of September 30, 2024.
As of September 30, 2024, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:
TABLE 3.3
| | | | | | | | | | | | | | | | | | | | | | | |
| Available for Sale | | Held to Maturity |
| (in millions) | Amortized
Cost | | Fair
Value | | Amortized
Cost | | Fair
Value |
| Due in one year or less | $ | 118 | | | $ | 117 | | | $ | 33 | | | $ | 33 | |
| Due after one year but within five years | 456 | | | 458 | | | 61 | | | 59 | |
| Due after five years but within ten years | 31 | | | 31 | | | 221 | | | 211 | |
| Due after ten years | 29 | | | 28 | | | 724 | | | 671 | |
| 634 | | | 634 | | | 1,039 | | | 974 | |
| Residential MBS: | | | | | | | |
| Agency MBS | 898 | | | 859 | | | 938 | | | 866 | |
| Agency collateralized mortgage obligations | 832 | | | 749 | | | 741 | | | 659 | |
| | | | | | | |
| Agency commercial MBS | 1,256 | | | 1,252 | | | 1,102 | | | 1,082 | |
| Total debt securities | $ | 3,620 | | | $ | 3,494 | | | $ | 3,820 | | | $ | 3,581 | |
Actual maturities may differ from contractual terms because security issuers may have the right to call or prepay obligations with or without penalties. Periodic principal payments are received on residential MBS based on the payment patterns of the underlying collateral.
Following is information relating to securities pledged:
TABLE 3.4
| | | | | | | | | | | |
| (dollars in millions) | September 30,
2024 | | December 31,
2023 |
| Securities pledged (carrying value): | | | |
| To secure public deposits, trust deposits and for other purposes as required by law | $ | 6,241 | | | $ | 6,190 | |
| As collateral for short-term borrowings | 210 | | | 250 | |
| Securities pledged as a percent of total securities | 88.2 | % | | 89.9 | % |
Following are summaries of the fair values of AFS debt securities in an unrealized loss position for which an ACL has not been recorded, segregated by security type and length of time in a continuous loss position:
TABLE 3.5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or More | | Total |
| (dollars in millions) | # | | Fair
Value | | Unrealized
Losses | | # | | Fair
Value | | Unrealized
Losses | | # | | Fair
Value | | Unrealized
Losses |
| Debt Securities AFS | | | | | | | | | | | | | | | | |
| September 30, 2024 | | | | | | | | | | | | | | | | | |
| U.S. Treasury | — | | | $ | — | | | $ | — | | | 2 | | | $ | 74 | | | $ | — | | | 2 | | | $ | 74 | | | $ | — | |
| U.S. government agencies | 1 | | | — | | | — | | | 12 | | | 29 | | | — | | | 13 | | | 29 | | | — | |
| U.S. government-sponsored entities | — | | | — | | | — | | | 7 | | | 126 | | | (1) | | | 7 | | | 126 | | | (1) | |
| Residential MBS: | | | | | | | | | | | | | | | | | |
| Agency MBS | — | | | — | | | — | | | 100 | | | 634 | | | (43) | | | 100 | | | 634 | | | (43) | |
| Agency collateralized mortgage obligations | — | | | — | | | — | | | 67 | | | 749 | | | (83) | | | 67 | | | 749 | | | (83) | |
| | | | | | | | | | | | | | | | | |
| Agency commercial MBS | 4 | | | 94 | | | (1) | | | 20 | | | 366 | | | (23) | | | 24 | | | 460 | | | (24) | |
| States of the U.S. and political subdivisions (municipals) | — | | | — | | | — | | | 11 | | | 23 | | | (2) | | | 11 | | | 23 | | | (2) | |
| Other debt securities | — | | | — | | | — | | | 7 | | | 19 | | | (1) | | | 7 | | | 19 | | | (1) | |
| Total | 5 | | | $ | 94 | | | $ | (1) | | | 226 | | | $ | 2,020 | | | $ | (153) | | | 231 | | | $ | 2,114 | | | $ | (154) | |
| | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or More | | Total |
| (dollars in millions) | # | | Fair
Value | | Unrealized
Losses | | # | | Fair
Value | | Unrealized
Losses | | # | | Fair
Value | | Unrealized
Losses |
| Debt Securities AFS | | | | | | | | | | | | | | | | |
| December 31, 2023 | | | | | | | | | | | | | | | | | |
| U.S. Treasury | — | | | $ | — | | | $ | — | | | 2 | | | $ | 73 | | | $ | (2) | | | 2 | | | $ | 73 | | | $ | (2) | |
| U.S. government agencies | 2 | | | 4 | | | — | | | 12 | | | 36 | | | — | | | 14 | | | 40 | | | — | |
| U.S. government-sponsored entities | 1 | | | 25 | | | — | | | 7 | | | 123 | | | (4) | | | 8 | | | 148 | | | (4) | |
| Residential MBS: | | | | | | | | | | | | | | | | | |
| Agency MBS | — | | | — | | | — | | | 104 | | | 750 | | | (62) | | | 104 | | | 750 | | | (62) | |
| Agency collateralized mortgage obligations | — | | | — | | | — | | | 71 | | | 832 | | | (114) | | | 71 | | | 832 | | | (114) | |
| | | | | | | | | | | | | | | | | |
| Agency commercial MBS | 1 | | | 32 | | | — | | | 20 | | | 377 | | | (30) | | | 21 | | | 409 | | | (30) | |
| States of the U.S. and political subdivisions (municipals) | — | | | — | | | — | | | 13 | | | 27 | | | (3) | | | 13 | | | 27 | | | (3) | |
| Other debt securities | 2 | | | 9 | | | — | | | 7 | | | 17 | | | (1) | | | 9 | | | 26 | | | (1) | |
| Total | 6 | | | $ | 70 | | | $ | — | | | 236 | | | $ | 2,235 | | | $ | (216) | | | 242 | | | $ | 2,305 | | | $ | (216) | |
We evaluated the AFS debt securities that were in an unrealized loss position at September 30, 2024. Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the significant movement of interest rates since 2022 and does not reflect any expected credit losses. We do not intend to sell these AFS debt securities and it is not more likely than not that we will be required to sell these securities before the recovery of their amortized cost basis.
Credit Quality Indicators
We use credit ratings and the most recent financial information to help evaluate the credit quality of our credit-related AFS and HTM securities portfolios. Management reviews the credit profile of each issuer on an annual basis, and more frequently as needed. Based on the nature of the issuers and current conditions, we have determined that securities backed by the UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA have zero expected credit loss.
Our municipal bond portfolio, with a carrying amount of $1.0 billion as of September 30, 2024 is highly rated with an average rating of AA and over 99% of the portfolio rated A or better. All of the securities in the municipal portfolio are general obligation bonds. Geographically, municipal bonds support our primary footprint as 59% of the securities are from municipalities located in the primary states within which we conduct business. The average holding size of the securities in the municipal bond portfolio is $2.5 million. In addition to the strong stand-alone ratings, 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, 1970-2022 study.
By using these components, we derive the expected credit loss on the HTM general obligation municipal bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our Commercial and Industrial Non-Manufacturing loan portfolio forecast adjustment as derived through our assessment of the loan portfolio as a proxy for our municipal bond portfolio.
Our corporate bond portfolio, with a carrying amount of $62.4 million as of September 30, 2024 primarily consists of subordinated debentures of banks within our footprint. The average holding size of the securities in the corporate bond portfolio is $3.3 million.
The ACL on the HTM corporate bond portfolio is calculated using:
•The bond’s credit rating, time to maturity and exposure amount;
•Moody’s Annual Default Study, 02/26/2024; and
•The most recent financial statements.
By using these components, we derive the expected credit loss on the HTM corporate bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our bank-wide loan portfolio forecast adjustment as derived through our assessment of FNBPA's loan portfolio as a proxy for our corporate bond portfolio.
For the year-to-date periods ending September 30, 2024 and 2023, we had no significant provision expense and no charge-offs or recoveries for the securities portfolio. The ACL on the HTM portfolio was $0.25 million, consisting of $0.06 million relating to the municipal bond portfolio and $0.19 million relating to other debt securities, as of September 30, 2024, and $0.06 million relating to the municipal bond portfolio and $0.22 million relating to other debt securities as of December 31, 2023. The AFS securities portfolios did not have an ACL at September 30, 2024 or December 31, 2023 and there were no securities that were past due or on non-accrual at either date.
NOTE 4. LOANS AND LEASES
Accrued interest receivable on loans and leases, which totaled $128.4 million at September 30, 2024 and $128.6 million at December 31, 2023, is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets for both periods and is not included in the following tables.
Loans and Leases by Portfolio Segment
Following is a summary of total loans and leases, net of unearned income:
TABLE 4.1
| | | | | | | | | | | |
| | | |
| (in millions) | September 30, 2024 | | December 31, 2023 |
| Commercial real estate | $ | 12,812 | | | $ | 12,305 | |
| Commercial and industrial | 7,541 | | | 7,482 | |
| Commercial leases | 709 | | | 599 | |
| Other | 120 | | | 110 | |
| Total commercial loans and leases | 21,182 | | | 20,496 | |
| Direct installment | 2,693 | | | 2,741 | |
| Residential mortgages | 7,789 | | | 6,640 | |
| Indirect installment | 706 | | | 1,149 | |
| Consumer lines of credit | 1,347 | | | 1,297 | |
| Total consumer loans | 12,535 | | | 11,827 | |
| Total loans and leases, net of unearned income | $ | 33,717 | | | $ | 32,323 | |
The remaining accretable discount included in the amortized cost of acquired loans was $32.9 million and $42.6 million at September 30, 2024 and December 31, 2023, respectively.
The loans and leases portfolio categories are comprised of the following types of loans, where in each case the LGD is dependent on the nature and value of the respective collateral:
•Commercial real estate includes both owner-occupied and non-owner-occupied loans, including construction loans, secured by commercial properties where operational cash flows on owner-occupied properties, including rents paid by stand-alone business customers, or rents received by our borrowers from their tenant(s) on both a property and global basis are the primary default risk drivers;
•Commercial and industrial includes loans to businesses that are not secured by real estate where the borrower's leverage and cash flows from operations are the primary default risk drivers;
•Commercial leases consist of leases for new or used equipment where the borrower's cash flow from operations is the primary default risk driver;
•Other is comprised primarily of credit cards and mezzanine loans where the borrower's cash flow from operations is the primary default risk driver;
•Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans where the primary default risk driver is the borrower's employment status and income;
•Residential mortgages consist of conventional and jumbo mortgage loans, including construction loans, for 1-4 family properties where the primary default risk driver is the borrower's employment status and income;
•Indirect installment is comprised of loans originated by approved third parties and underwritten by us, primarily automobile loans where the primary default risk driver is the borrower's employment status and income; and
•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.
During 2024, we sold $0.8 billion in indirect auto loans. We recognized a $9.0 million loss during the first nine months of 2024 related to the sales. The related servicing asset was not significant at September 30, 2024.
The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market in seven states and the District of Columbia. Our primary market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina; and Charleston, South Carolina.
The following table shows occupancy information relating to commercial real estate loans:
TABLE 4.2
| | | | | | | | | | | |
| (dollars in millions) | September 30,
2024 | | December 31,
2023 |
| Commercial real estate: | | | |
| Percent owner-occupied | 29.0 | % | | 29.0 | % |
| Percent non-owner-occupied | 71.0 | | | 71.0 | |
Credit Quality
We monitor the credit quality of our loan portfolio using several performance measures based on payment activity and borrower performance. We use an internal risk rating assigned to a commercial loan or lease at origination, summarized below.
TABLE 4.3
| | | | | |
| Rating Category | Definition |
| Pass | in general, the condition of the borrower and the performance of the loan is satisfactory or better |
| |
| Special Mention | in general, the condition of the borrower has deteriorated, requiring an increased level of monitoring |
| |
| Substandard | in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected |
| |
| Doubtful | in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable |
The use of these internally assigned credit quality categories within the commercial loan and lease portfolio permits our use of transition matrices to establish a basis which is then impacted by quantitative inputs from our econometric model forecasts over the R&S period. Our internal credit risk grading system is based on past experiences with similarly graded loans and leases and conforms to regulatory categories. In general, loan and lease risk ratings within each category are reviewed on an ongoing basis according to our policy for each class of loans and leases. Each quarter, we analyze the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the commercial loan and lease portfolio. Loans and leases within the Pass credit category or that migrate toward the Pass credit category generally have a lower risk of loss compared to loans and leases that migrate toward the Substandard or Doubtful credit categories. Accordingly, we apply higher risk factors to Substandard and Doubtful credit categories.
The following table summarizes the designated loan rating category by loan class including term loans on an amortized cost basis by origination year and year-to-date gross charge-offs by originating year:
TABLE 4.4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (in millions) | | | | | | | | | | | | | | | |
| COMMERCIAL | | | | | | | | | | | | | | | |
| Commercial Real Estate: | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | |
| Pass | $ | 1,061 | | | $ | 1,631 | | | $ | 2,136 | | | $ | 2,141 | | | $ | 1,282 | | | $ | 3,361 | | | $ | 175 | | | $ | 11,787 | |
| Special Mention | 1 | | | 10 | | | 113 | | | 63 | | | 105 | | | 239 | | | 36 | | | 567 | |
| Substandard | 6 | | | 22 | | | 122 | | | 62 | | | 52 | | | 190 | | | 4 | | | 458 | |
| | | | | | | | | | | | | | | |
| Total commercial real estate | 1,068 | | | 1,663 | | | 2,371 | | | 2,266 | | | 1,439 | | | 3,790 | | | 215 | | | 12,812 | |
| Commercial real estate current period gross charge-offs | — | | | 0.8 | | | 1.1 | | | 0.5 | | | 10.5 | | | 11.2 | | | — | | | 24.1 | |
| Commercial and Industrial: | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | |
| Pass | 816 | | | 1,239 | | | 1,128 | | | 752 | | | 488 | | | 758 | | | 1,802 | | | 6,983 | |
| Special Mention | 3 | | | 27 | | | 57 | | | 112 | | | 13 | | | 62 | | | 46 | | | 320 | |
| Substandard | 1 | | | 41 | | | 8 | | | 31 | | | 11 | | | 67 | | | 79 | | | 238 | |
| | | | | | | | | | | | | | | |
| Total commercial and industrial | 820 | | | 1,307 | | | 1,193 | | | 895 | | | 512 | | | 887 | | | 1,927 | | | 7,541 | |
| Commercial and industrial current period gross charge-offs | — | | | 3.7 | | | 1.2 | | | 1.6 | | | 5.3 | | | 6.9 | | | — | | | 18.7 | |
| Commercial Leases: | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | |
| Pass | 243 | | | 194 | | | 114 | | | 64 | | | 31 | | | 42 | | | — | | | 688 | |
| Special Mention | — | | | 1 | | | — | | | — | | | — | | | 1 | | | — | | | 2 | |
| Substandard | — | | | 7 | | | 2 | | | 4 | | | 6 | | | — | | | — | | | 19 | |
| | | | | | | | | | | | | | | |
| Total commercial leases | 243 | | | 202 | | | 116 | | | 68 | | | 37 | | | 43 | | | — | | | 709 | |
| Commercial leases current period gross charge-offs | — | | | — | | | — | | | — | | | — | | | 0.3 | | | — | | | 0.3 | |
| Other Commercial: | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | |
| Pass | 9 | | | 54 | | | — | | | — | | | — | | | 6 | | | 51 | | | 120 | |
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| Total other commercial | 9 | | | 54 | | | — | | | — | | | — | | | 6 | | | 51 | | | 120 | |
| Other commercial current period gross charge-offs | — | | | — | | | — | | | — | | | — | | | 3.1 | | | — | | | 3.1 | |
| Total commercial loans and leases | 2,140 | | | 3,226 | | | 3,680 | | | 3,229 | | | 1,988 | | | 4,726 | | | 2,193 | | | 21,182 | |
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| September 30, 2024 | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (in millions) | | | | | | | | | | | | | | | |
| CONSUMER | | | | | | | | | | | | | | | |
| Direct Installment: | | | | | | | | | | | | | | | |
| Current | 265 | | | 291 | | | 642 | | | 707 | | | 353 | | | 420 | | | — | | | 2,678 | |
| Past due | — | | | 1 | | | 2 | | | 2 | | | 1 | | | 9 | | | — | | | 15 | |
| Total direct installment | 265 | | | 292 | | | 644 | | | 709 | | | 354 | | | 429 | | | — | | | 2,693 | |
| Direct installment current period gross charge-offs | — | | | 0.1 | | | 0.1 | | | 0.1 | | | — | | | 0.5 | | | — | | | 0.8 | |
| Residential Mortgages: | | | | | | | | | | | | | | | |
| Current | 1,339 | | | 1,504 | | | 1,619 | | | 1,440 | | | 746 | | | 1,081 | | | — | | | 7,729 | |
| Past due | 2 | | | 10 | | | 8 | | | 5 | | | 2 | | | 33 | | | — | | | 60 | |
| Total residential mortgages | 1,341 | | | 1,514 | | | 1,627 | | | 1,445 | | | 748 | | | 1,114 | | | — | | | 7,789 | |
| Residential mortgages current period gross charge-offs | — | | | 0.1 | | | 0.1 | | | — | | | — | | | 0.1 | | | — | | | 0.3 | |
| Indirect Installment: | | | | | | | | | | | | | | | |
| Current | 314 | | | 25 | | | 71 | | | 164 | | | 60 | | | 54 | | | — | | | 688 | |
| Past due | — | | | 3 | | | 7 | | | 6 | | | 1 | | | 1 | | | — | | | 18 | |
| Total indirect installment | 314 | | | 28 | | | 78 | | | 170 | | | 61 | | | 55 | | | — | | | 706 | |
| Indirect installment current period gross charge-offs | 0.1 | | | 1.3 | | | 3.5 | | | 2.7 | | | 0.4 | | | 1.6 | | | — | | | 9.6 | |
| Consumer Lines of Credit: | | | | | | | | | | | | | | | |
| Current | 8 | | | 31 | | | 52 | | | 14 | | | 2 | | | 114 | | | 1,110 | | | 1,331 | |
| Past due | — | | | — | | | 1 | | | — | | | 1 | | | 11 | | | 3 | | | 16 | |
| Total consumer lines of credit | 8 | | | 31 | | | 53 | | | 14 | | | 3 | | | 125 | | | 1,113 | | | 1,347 | |
| Consumer lines of credit current period gross charge-offs | — | | | 0.1 | | | 0.1 | | | — | | | — | | | 0.8 | | | — | | | 1.0 | |
| Total consumer loans | 1,928 | | | 1,865 | | | 2,402 | | | 2,338 | | | 1,166 | | | 1,723 | | | 1,113 | | | 12,535 | |
| Total loans and leases | $ | 4,068 | | | $ | 5,091 | | | $ | 6,082 | | | $ | 5,567 | | | $ | 3,154 | | | $ | 6,449 | | | $ | 3,306 | | | $ | 33,717 | |
| Total charge-offs | $ | 0.1 | | | $ | 6.1 | | | $ | 6.1 | | | $ | 4.9 | | | $ | 16.2 | | | $ | 24.5 | | | $ | — | | | $ | 57.9 | |
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| December 31, 2023 | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (in millions) | | | | | | | | | | | | | | | |
| COMMERCIAL | | | | | | | | | | | | | | | |
| Commercial Real Estate: | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | |
| Pass | $ | 1,508 | | | $ | 2,133 | | | $ | 2,298 | | | $ | 1,449 | | | $ | 1,131 | | | $ | 2,711 | | | $ | 230 | | | $ | 11,460 | |
| Special Mention | 10 | | | 66 | | | 76 | | | 136 | | | 105 | | | 197 | | | 5 | | | 595 | |
| Substandard | 5 | | | 27 | | | 27 | | | 13 | | | 59 | | | 104 | | | 15 | | | 250 | |
| | | | | | | | | | | | | | | |
| Total commercial real estate | 1,523 | | | 2,226 | | | 2,401 | | | 1,598 | | | 1,295 | | | 3,012 | | | 250 | | | 12,305 | |
| Commercial real estate current period gross charge-offs | 0.2 | | | 0.4 | | | 0.4 | | | 0.7 | | | 0.2 | | | 10.5 | | | — | | | 12.4 | |
| Commercial and Industrial: | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | |
| Pass | 1,509 | | | 1,369 | | | 844 | | | 575 | | | 370 | | | 585 | | | 1,773 | | | 7,025 | |
| Special Mention | 12 | | | 3 | | | 56 | | | 2 | | | 12 | | | 35 | | | 35 | | | 155 | |
| Substandard | 34 | | | 26 | | | 62 | | | 9 | | | 24 | | | 58 | | | 89 | | | 302 | |
| | | | | | | | | | | | | | | |
| Total commercial and industrial | 1,555 | | | 1,398 | | | 962 | | | 586 | | | 406 | | | 678 | | | 1,897 | | | 7,482 | |
| Commercial and industrial current period gross charge-offs | 0.1 | | | 0.3 | | | 1.0 | | | 1.0 | | | 2.2 | | | 46.6 | | | — | | | 51.2 | |
| Commercial Leases: | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | |
| Pass | 247 | | | 134 | | | 82 | | | 47 | | | 24 | | | 41 | | | — | | | 575 | |
| Special Mention | — | | | 1 | | | — | | | — | | | — | | | 1 | | | — | | | 2 | |
| Substandard | 7 | | | 3 | | | 4 | | | 7 | | | 1 | | | — | | | — | | | 22 | |
| | | | | | | | | | | | | | | |
| Total commercial leases | 254 | | | 138 | | | 86 | | | 54 | | | 25 | | | 42 | | | — | | | 599 | |
| Commercial leases current period gross charge-offs | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other Commercial: | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | |
| Pass | 39 | | | — | | | — | | | — | | | — | | | 8 | | | 63 | | | 110 | |
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| Total other commercial | 39 | | | — | | | — | | | — | | | — | | | 8 | | | 63 | | | 110 | |
| Other commercial current period gross charge-offs | — | | | — | | | — | | | — | | | — | | | 4.5 | | | — | | | 4.5 | |
| Total commercial loans and leases | 3,371 | | | 3,762 | | | 3,449 | | | 2,238 | | | 1,726 | | | 3,740 | | | 2,210 | | | 20,496 | |
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| December 31, 2023 | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans Amortized Cost Basis | | Total |
| (in millions) | | | | | | | | | | | | | | | |
| CONSUMER | | | | | | | | | | | | | | | |
| Direct Installment: | | | | | | | | | | | | | | | |
| Current | 340 | | | 712 | | | 784 | | | 392 | | | 136 | | | 364 | | | — | | | 2,728 | |
| Past due | — | | | 1 | | | — | | | 1 | | | 1 | | | 10 | | | — | | | 13 | |
| Total direct installment | 340 | | | 713 | | | 784 | | | 393 | | | 137 | | | 374 | | | — | | | 2,741 | |
| Direct installment current period gross charge-offs | — | | | 0.2 | | | 0.1 | | | 0.1 | | | — | | | 0.2 | | | — | | | 0.6 | |
| Residential Mortgages: | | | | | | | | | | | | | | | |
| Current | 1,421 | | | 1,686 | | | 1,516 | | | 799 | | | 343 | | | 819 | | | 1 | | | 6,585 | |
| Past due | 3 | | | 6 | | | 5 | | | 3 | | | 3 | | | 35 | | | — | | | 55 | |
| Total residential mortgages | 1,424 | | | 1,692 | | | 1,521 | | | 802 | | | 346 | | | 854 | | | 1 | | | 6,640 | |
| Residential mortgages current period gross charge-offs | — | | | — | | | — | | | — | | | — | | | 0.7 | | | — | | | 0.7 | |
| Indirect Installment: | | | | | | | | | | | | | | | |
| Current | 311 | | | 387 | | | 238 | | | 100 | | | 42 | | | 49 | | | — | | | 1,127 | |
| Past due | 2 | | | 8 | | | 8 | | | 2 | | | 1 | | | 1 | | | — | | | 22 | |
| Total indirect installment | 313 | | | 395 | | | 246 | | | 102 | | | 43 | | | 50 | | | — | | | 1,149 | |
| Indirect installment current period gross charge-offs | 0.4 | | | 4.3 | | | 3.7 | | | 0.6 | | | 0.3 | | | 1.4 | | | — | | | 10.7 | |
| Consumer Lines of Credit: | | | | | | | | | | | | | | | |
| Current | 38 | | | 61 | | | 14 | | | 2 | | | 3 | | | 117 | | | 1,044 | | | 1,279 | |
| Past due | — | | | 1 | | | 1 | | | — | | | — | | | 13 | | | 3 | | | 18 | |
| Total consumer lines of credit | 38 | | | 62 | | | 15 | | | 2 | | | 3 | | | 130 | | | 1,047 | | | 1,297 | |
| Consumer lines of credit current period gross charge-offs | 0.1 | | | — | | | — | | | — | | | — | | | 0.9 | | | — | | | 1.0 | |
| Total consumer loans | 2,115 | | | 2,862 | | | 2,566 | | | 1,299 | | | 529 | | | 1,408 | | | 1,048 | | | 11,827 | |
| Total loans and leases | $ | 5,486 | | | $ | 6,624 | | | $ | 6,015 | | | $ | 3,537 | | | $ | 2,255 | | | $ | 5,148 | | | $ | 3,258 | | | $ | 32,323 | |
| Total charge-offs | $ | 0.8 | | | $ | 5.2 | | | $ | 5.2 | | | $ | 2.4 | | | $ | 2.7 | | | $ | 64.8 | | | $ | — | | | $ | 81.1 | |
We use delinquency transition matrices within the consumer and other loan classes to establish the basis for the R&S forecast portion of the credit risk. Each month, management analyzes payment and volume activity, FICO scores and Debt-to-Income (DTI) scores and other external factors such as unemployment, to determine how consumer loans are performing.
Non-Performing and Past Due
The following table provides an analysis of the aging of loans by class.
TABLE 4.5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | 30-89 Days
Past Due | | > 90 Days Past Due and Still Accruing | | Non-
Accrual | | Total
Past Due | | Current | | Total
Loans and
Leases | | Non-accrual with No ACL |
| September 30, 2024 | | | | | | | | | | | | | |
| Commercial real estate | $ | 41 | | | $ | — | | | $ | 49 | | | $ | 90 | | | $ | 12,722 | | | $ | 12,812 | | | $ | 17 | |
| Commercial and industrial | 12 | | | — | | | 48 | | | 60 | | | 7,481 | | | 7,541 | | | 22 | |
| Commercial leases | — | | | — | | | 3 | | | 3 | | | 706 | | | 709 | | | — | |
| Other | 1 | | | — | | | 2 | | | 3 | | | 117 | | | 120 | | | — | |
| Total commercial loans and leases | 54 | | | — | | | 102 | | | 156 | | | 21,026 | | | 21,182 | | | 39 | |
| Direct installment | 8 | | | 1 | | | 6 | | | 15 | | | 2,678 | | | 2,693 | | | — | |
| Residential mortgages | 38 | | | 8 | | | 14 | | | 60 | | | 7,729 | | | 7,789 | | | — | |
| Indirect installment | 15 | | | 1 | | | 2 | | | 18 | | | 688 | | | 706 | | | — | |
| Consumer lines of credit | 9 | | | 2 | | | 5 | | | 16 | | | 1,331 | | | 1,347 | | | — | |
| Total consumer loans | 70 | | | 12 | | | 27 | | | 109 | | | 12,426 | | | 12,535 | | | — | |
| Total loans and leases | $ | 124 | | | $ | 12 | | | $ | 129 | | | $ | 265 | | | $ | 33,452 | | | $ | 33,717 | | | $ | 39 | |
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| (in millions) | 30-89 Days
Past Due | | > 90 Days Past Due and Still Accruing | | Non-
Accrual | | Total
Past Due | | Current | | Total
Loans and
Leases | | Non-accrual with No ACL |
| December 31, 2023 | | | | | | | | | | | | | |
| Commercial real estate | $ | 21 | | | $ | — | | | $ | 42 | | | $ | 63 | | | $ | 12,242 | | | $ | 12,305 | | | $ | 18 | |
| Commercial and industrial | 9 | | | — | | | 39 | | | 48 | | | 7,434 | | | 7,482 | | | 7 | |
| Commercial leases | 2 | | | — | | | 3 | | | 5 | | | 594 | | | 599 | | | — | |
| Other | 1 | | | 1 | | | — | | | 2 | | | 108 | | | 110 | | | — | |
| Total commercial loans and leases | 33 | | | 1 | | | 84 | | | 118 | | | 20,378 | | | 20,496 | | | 25 | |
| Direct installment | 7 | | | 1 | | | 5 | | | 13 | | | 2,728 | | | 2,741 | | | — | |
| Residential mortgages | 38 | | | 7 | | | 10 | | | 55 | | | 6,585 | | | 6,640 | | | — | |
| Indirect installment | 19 | | | 1 | | | 2 | | | 22 | | | 1,127 | | | 1,149 | | | — | |
| Consumer lines of credit | 10 | | | 2 | | | 6 | | | 18 | | | 1,279 | | | 1,297 | | | — | |
| Total consumer loans | 74 | | | 11 | | | 23 | | | 108 | | | 11,719 | | | 11,827 | | | — | |
| Total loans and leases | $ | 107 | | | $ | 12 | | | $ | 107 | | | $ | 226 | | | $ | 32,097 | | | $ | 32,323 | | | $ | 25 | |
Following is a summary of non-performing assets:
TABLE 4.6
| | | | | | | | | | | |
| (dollars in millions) | September 30,
2024 | | December 31,
2023 |
| Non-accrual loans | $ | 129 | | | $ | 107 | |
| Total non-performing loans and leases | 129 | | | 107 | |
| Other real estate owned | 2 | | | 3 | |
| Total non-performing assets | $ | 131 | | | $ | 110 | |
| Asset quality ratios: | | | |
| Non-performing loans and leases / total loans and leases | 0.38 | % | | 0.33 | % |
Non-performing assets plus 90 days or more past due / total loans and leases plus OREO | 0.43 | | | 0.38 | |
The carrying value of residential-secured consumer OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $1.0 million at September 30, 2024 and $1.2 million at December 31, 2023. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at September 30, 2024 and December 31, 2023 totaled $12.9 million and $9.4 million, respectively.
Approximately $148.0 million of commercial loans are collateral dependent at September 30, 2024. Repayment is expected to be substantially made through the operation or sale of the collateral on the loan. These loans are primarily secured by business assets or commercial real estate. Loan Modifications
During the period, there are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. These modifications typically result from loss mitigation activities and could include a term extension, interest rate reduction, principal forgiveness and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Accrued interest receivable on loan modifications totaled $0.07 million and $0.08 million at September 30, 2024 and September 30, 2023, respectively, and is excluded from the amortized cost of loan modifications in the tables that follow.
The following table shows the amortized cost basis at the end of the reporting period of the loans modified during the period to borrowers experiencing financial difficulty, disaggregated by class of financing receivable, type of concession granted and the financial effect of the modifications made to borrowers experiencing financial difficulty:
TABLE 4.7
| | | | | | | | | | | | | | | | | |
| (dollars in millions) | Amortized Cost Basis | | % of Total Class of Financing Receivable | | Financial Effect |
| | | | | |
| Three Months Ended September 30, 2024 | | | |
| Term Extension | | | | | |
| Commercial real estate | $ | 0.3 | | | — | % | | The modified loans had an average increase in term of 7 months, extending the maturity date. |
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| | | | | |
| Direct installment | 0.1 | | | — | | | The modified loans had an average increase in term of 19 months extending the maturity date. |
| Residential mortgages | 1.0 | | | 0.01 | | | The modified loans had an average increase in term of 20 months extending the maturity date. |
| | | | | |
| Consumer lines of credit | 0.1 | | | 0.01 | | | The modified loans had an average increase in term of 181 months extending the maturity date. |
| Total | 1.5 | | | | | |
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| Term Extension and Rate Reduction | | | | | |
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| Residential mortgages | 0.1 | | | — | | | Multiple modifications were made with no material financial effect. |
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| Total | 0.1 | | | | | |
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| Balloon Payment | | | | | |
| Commercial real estate | 0.1 | | | — | | | Modifications were made with no material financial effect. |
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| Total | 0.1 | | | | | |
| Other | | | | | |
| Commercial real estate | 0.5 | | | — | | | Reduction of cash flow due to lower payments. |
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| Total | 0.5 | | | | | |
| Total Outstanding Modified | $ | 2.2 | | | | | |
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| (dollars in millions) | Amortized Cost Basis | | % of Total Class of Financing Receivable | | Financial Effect |
| Nine Months Ended September 30, 2024 | | | |
| Term Extension | | | | | |
| Commercial real estate | $ | 0.3 | | | — | % | | The modified loans had an average increase in term of 7 months, extending the maturity date. |
| Commercial and industrial | 0.1 | | | — | | | The modified loans had an average increase in term of 3 months, extending the maturity date. |
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| Direct installment | 1.0 | | | 0.04 | | | The modified loans had an average increase in term of 51 months, extending the maturity date. |
| Residential mortgages | 5.1 | | | 0.07 | | | The modified loans had an average increase in term of 31 months, extending the maturity date. |
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| Consumer lines of credit | 1.0 | | | 0.07 | | | The modified loans had an average increase in term of 206 months, extending the maturity date. |
| Total | 7.5 | | | | | |
| Rate Reduction | | | | | |
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| Residential mortgages | 0.1 | | | — | | | The term was extended, with a weighted average yield reduction of 100 basis points. |
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| Total | 0.1 | | | | | |
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| Term Extension and Rate Reduction | | | | | |
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| Residential mortgages | 0.8 | | | 0.01 | | | Multiple modifications were made with no material financial effect. |
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| Consumer lines of credit | 0.3 | | | 0.02 | | | Multiple modifications were made with no material financial effect. |
| Total | 1.1 | | | | | |
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| Balloon Payment | | | | | |
| Commercial real estate | 0.7 | | | 0.01 | | | Modifications were made with no material financial effect. |
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| Total | 0.7 | | | | | |
| Other | | | | | |
| Commercial real estate | 4.8 | | | 0.04 | | | 3 to 12 month payment deferrals with no income being earned on these loans. |
| Commercial and industrial | 0.5 | | | 0.01 | | | Multiple modifications were made with no material financial effect. |
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| Total | 5.3 | | | | | |
| Total Outstanding Modified | $ | 14.7 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| (dollars in millions) | Amortized Cost Basis | | % of Total Class of Financing Receivable | | Financial Effect |
| Three Months Ended September 30, 2023 | | | |
| Term Extension | | | | | |
| Commercial real estate | $ | 0.8 | | | 0.01 | % | | The modified loans had an average increase in term of 46 months, extending the maturity date. |
| Commercial and industrial | 0.7 | | | 0.01 | | | The modified loans had an average increase in term of 25 months, extending the maturity date. |
| | | | | |
| | | | | |
| Direct installment | 0.4 | | | 0.01 | | | The modified loans had an average increase in term of 74 months, extending the maturity date. |
| Residential mortgages | 1.1 | | | 0.02 | | | The modified loans had an average increase in term of 42 months, extending the maturity date. |
| | | | | |
| Consumer lines of credit | 0.2 | | | 0.02 | | | The lines were termed to an average of 243 months. |
| Total | 3.2 | | | | | |
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| Term Extension and Rate Reduction | | | | | |
| | | | | |
| Commercial and industrial | 0.1 | | | — | | | The term was extended and the rate was reduced, lowering the monthly payment. |
| | | | | |
| | | | | |
| Direct installment | 0.1 | | | — | | | The term was extended and the rate was reduced, lowering the monthly payment. |
| Residential mortgages | 0.1 | | | — | | | The term was extended and the rate was reduced, lowering the monthly payment. |
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| Total | 0.3 | | | | | |
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| Other | | | | | |
| Commercial real estate | 0.2 | | | — | | | Multiple modifications were made with no material financial effect. |
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| Direct installment | 0.1 | | | — | | | Multiple modifications were made with no material financial effect. |
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| Consumer lines of credit | 0.4 | | | 0.03 | | | Multiple modifications were made with no material financial effect. |
| Total | 0.7 | | | | | |
| Total Outstanding Modified | $ | 4.2 | | | | | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| (dollars in millions) | Amortized Cost Basis | | % of Total Class of Financing Receivable | | Financial Effect |
| Nine Months Ended September 30, 2023 | | | |
| Term Extension | | | | | |
| Commercial real estate | $ | 12.3 | | | 0.10 | % | | The modified loans had an average increase in term of 24 months, extending the maturity date. |
| Commercial and industrial | 3.0 | | | 0.04 | | | The modified loans had an average increase in term of 16 months, extending the maturity date. |
| | | | | |
| | | | | |
| Direct installment | 0.8 | | | 0.03 | | | The modified loans had an average increase in term of 99 months, extending the maturity date. |
| Residential mortgages | 2.7 | | | 0.04 | | | The modified loans had an average increase in term of 105 months, extending the maturity date. |
| | | | | |
| Consumer lines of credit | 0.4 | | | 0.03 | | | The repayment on the loans modified was extended, lowering the monthly repayment. |
| Total | 19.2 | | | | | |
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| Term Extension and Rate Reduction | | | | | |
| | | | | |
| Commercial and industrial | 0.3 | | | — | | | The term was extended, with a weighted average yield reduction of 462 basis points. |
| | | | | |
| | | | | |
| Direct installment | 0.4 | | | 0.01 | | | The modified loans had an average increase in term of 330 months, extending the maturity date. |
| Residential mortgages | 0.8 | | | 0.01 | | | The term was extended, with a weighted average yield reduction of 267 basis points. |
| | | | | |
| Consumer lines of credit | 0.6 | | | 0.05 | | | The term was extended, with a weighted average yield reduction of 321 basis points. |
| Total | 2.1 | | | | | |
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| Other | | | | | |
| Commercial real estate | 0.5 | | | — | | | Multiple modifications were made with no material financial effect. |
| | | | | |
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| Direct installment | 0.1 | | | — | | | Multiple modifications were made with no material financial effect. |
| Residential mortgages | 0.1 | | | — | | | Multiple modifications were made with no material financial effect. |
| | | | | |
| Consumer lines of credit | 0.6 | | | 0.05 | | | Multiple modifications were made with no material financial effect. |
| Total | 1.3 | | | | | |
| Total Outstanding Modified | $ | 22.6 | | | | | |
Some loan modifications may not ultimately result in the full collection of principal and interest, as modified, and may result in potential incremental losses which are factored into the ACL. There were no additional funds committed to borrowers whose loans were modified during the first nine months of 2024.
Commercial loans over $1.0 million whose terms have been modified may be placed on non-accrual, individually analyzed and measured based on the fair value of the underlying collateral. Our ACL includes specific reserves for commercial loans modified. There were $0.4 million and $5.3 million in specific reserves for commercial loans modified at September 30, 2024 and December 31, 2023, respectively, and pooled reserves for individual loans of $1.5 million and $2.0 million for those same periods, respectively, based on loan segment LGD. Upon default, the amount of the recorded investment of the modified loan balance in excess of the fair value of the collateral, less estimated selling costs, is generally considered a confirmed loss and is charged-off against the ACL.
All other classes of loans whose terms have been modified are pooled and measured based on the loan segment LGD. Our ACL included pooled reserves for these classes of loans of $3.9 million and $3.8 million as of September 30, 2024 and December 31, 2023, respectively. Upon default of an individual loan, our charge-off policy is followed for that class of loan.
Following is a summary of loans modified in a manner that grants a concession to a borrower experiencing financial difficulties, by class, for which there was a payment default, excluding loans that have been paid off and/or sold. Default occurs when a loan is 90 days or more past due or in non-accrual and is within 12 months of restructuring.
TABLE 4.8
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized cost basis of modified financing receivables that subsequently defaulted: | | | | | | | | | | | | |
| (in millions) | Term Extension | | | | | | Term Extension and Rate Reduction | | | | | | | | Balloon Payment | | Other | | Total Outstanding Modified |
| Three Months Ended September 30, 2024 | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | $ | — | | | | | | | $ | — | | | | | | | | | $ | 0.1 | | | $ | — | | | $ | 0.1 | |
| Commercial and industrial | — | | | | | | | — | | | | | | | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total commercial loans and leases | — | | | | | | | — | | | | | | | | | 0.1 | | | — | | | 0.1 | |
| Direct installment | 0.4 | | | | | | | — | | | | | | | | | — | | | — | | | 0.4 | |
| Residential mortgages | 0.3 | | | | | | | 0.1 | | | | | | | | | — | | | — | | | 0.4 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total consumer loans | 0.7 | | | | | | | 0.1 | | | | | | | | | — | | | — | | | 0.8 | |
| Total | $ | 0.7 | | | | | | | $ | 0.1 | | | | | | | | | $ | 0.1 | | | $ | — | | | $ | 0.9 | |
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2024 | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | $ | 0.7 | | | | | | | $ | — | | | | | | | | | $ | 0.7 | | | $ | 8.9 | | | $ | 10.3 | |
| Commercial and industrial | 20.2 | | | | | | | 0.2 | | | | | | | | | — | | | 1.6 | | | 22.0 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total commercial loans and leases | 20.9 | | | | | | | 0.2 | | | | | | | | | 0.7 | | | 10.5 | | | 32.3 | |
| Direct installment | 0.5 | | | | | | | — | | | | | | | | | — | | | — | | | 0.5 | |
| Residential mortgages | 1.9 | | | | | | | 0.1 | | | | | | | | | — | | | — | | | 2.0 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total consumer loans | 2.4 | | | | | | | 0.1 | | | | | | | | | — | | | — | | | 2.5 | |
| Total | $ | 23.3 | | | | | | | $ | 0.3 | | | | | | | | | $ | 0.7 | | | $ | 10.5 | | | $ | 34.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Term Extension | | | | | | Term Extension and Rate Reduction | | | | | | | | | | Other | | Total Outstanding Modified |
| Three Months Ended September 30, 2023 | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | $ | — | | | | | | | $ | — | | | | | | | | | | | $ | 0.2 | | | $ | 0.2 | |
| Commercial and industrial | 0.5 | | | | | | | 0.1 | | | | | | | | | | | — | | | 0.6 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total commercial loans and leases | 0.5 | | | | | | | 0.1 | | | | | | | | | | | 0.2 | | | 0.8 | |
| Direct installment | 0.1 | | | | | | | — | | | | | | | | | | | — | | | 0.1 | |
| Residential mortgages | 0.1 | | | | | | | — | | | | | | | | | | | — | | | 0.1 | |
| | | | | | | | | | | | | | | | | | | |
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| Total consumer loans | 0.2 | | | | | | | — | | | | | | | | | | | — | | | 0.2 | |
| Total | $ | 0.7 | | | | | | | $ | 0.1 | | | | | | | | | | | $ | 0.2 | | | $ | 1.0 | |
| | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 | | | | | | | | | | | | | | | | | | | |
| Commercial real estate | $ | 0.4 | | | | | | | $ | — | | | | | | | | | | | $ | 0.9 | | | $ | 1.3 | |
| Commercial and industrial | 2.0 | | | | | | | 0.3 | | | | | | | | | | | — | | | 2.3 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total commercial loans and leases | 2.4 | | | | | | | 0.3 | | | | | | | | | | | 0.9 | | | 3.6 | |
| Direct installment | 0.1 | | | | | | | — | | | | | | | | | | | — | | | 0.1 | |
| Residential mortgages | 0.1 | | | | | | | 0.3 | | | | | | | | | | | — | | | 0.4 | |
| | | | | | | | | | | | | | | | | | | |
| Consumer lines of credit | 0.1 | | | | | | | — | | | | | | | | | | | — | | | 0.1 | |
| Total consumer loans | 0.3 | | | | | | | 0.3 | | | | | | | | | | | — | | | 0.6 | |
| Total | $ | 2.7 | | | | | | | $ | 0.6 | | | | | | | | | | | $ | 0.9 | | | $ | 4.2 | |
We closely monitor the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months:
TABLE 4.9 | | | | | | | | | | | | | | | | | |
| Payment status - amortization cost basis: |
| (in millions) | Current | | 30-89 Days Past Due | | 90+ Days Past Due |
| September 30, 2024 | | | | | |
| Commercial real estate | $ | 13.5 | | | $ | — | | | $ | — | |
| Commercial and industrial | 0.6 | | | — | | | — | |
| | | | | |
| | | | | |
| Total commercial loans and leases | 14.1 | | | — | | | — | |
| Direct installment | 1.6 | | | 0.2 | | | — | |
| Residential mortgages | 3.3 | | | 2.7 | | | 0.6 | |
| | | | | |
| Consumer lines of credit | 1.5 | | | 0.3 | | | — | |
| Total consumer loans | 6.4 | | | 3.2 | | | 0.6 | |
| Total | $ | 20.5 | | | $ | 3.2 | | | $ | 0.6 | |
| | | | | |
| (in millions) | Current | | 30-89 Days Past Due | | 90+ Days Past Due |
| September 30, 2023 | | | | | |
| Commercial real estate | $ | 12.9 | | | $ | — | | | $ | — | |
| Commercial and industrial | 3.2 | | | — | | | — | |
| | | | | |
| | | | | |
| Total commercial loans and leases | 16.1 | | | — | | | — | |
| Direct installment | 1.2 | | | 0.2 | | | — | |
| Residential mortgages | 2.6 | | | 0.8 | | | 0.1 | |
| | | | | |
| Consumer lines of credit | 1.6 | | | — | | | — | |
| Total consumer loans | 5.4 | | | 1.0 | | | 0.1 | |
| Total | $ | 21.5 | | | $ | 1.0 | | | $ | 0.1 | |
NOTE 5. ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
The ACL is maintained for credit losses expected in the existing loan and lease portfolio and is presented as a reserve against loans and leases on the Consolidated Balance Sheets. Loan and lease losses are charged off against the ACL, with recoveries of amounts previously charged off credited to the ACL. Provisions for credit losses are charged to operations based on management’s periodic evaluation of the appropriate level of the ACL.
Following is a summary of changes in the ACL, by loan and lease class:
TABLE 5.1
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Balance at
Beginning of
Period | | Charge-
Offs | | Recoveries | | Net
(Charge-
Offs) Recoveries | | Provision for Credit Losses | | | | | | Balance at
End of
Period |
| Three Months Ended September 30, 2024 | | | | | | | | | | | | | | | |
| Commercial real estate | $ | 157.7 | | | $ | (13.8) | | | $ | 0.9 | | | $ | (12.9) | | | $ | 40.1 | | | | | | | $ | 184.9 | |
| Commercial and industrial | 93.5 | | | (10.1) | | | 6.5 | | | (3.6) | | | (11.5) | | | | | | | 78.4 | |
| Commercial leases | 22.9 | | | (0.1) | | | — | | | (0.1) | | | (1.2) | | | | | | | 21.6 | |
| Other | 4.0 | | | (1.2) | | | 0.2 | | | (1.0) | | | 1.0 | | | | | | | 4.0 | |
| Total commercial loans and leases | 278.1 | | | (25.2) | | | 7.6 | | | (17.6) | | | 28.4 | | | | | | | 288.9 | |
| Direct installment | 30.9 | | | (0.2) | | | 0.2 | | | — | | | (1.7) | | | | | | | 29.2 | |
| Residential mortgages | 88.2 | | | (0.1) | | | 0.1 | | | — | | | (4.0) | | | | | | | 84.2 | |
| Indirect installment | 13.1 | | | (4.2) | | | 0.6 | | | (3.6) | | | (0.5) | | | | | | | 9.0 | |
| Consumer lines of credit | 8.5 | | | (0.4) | | | 0.1 | | | (0.3) | | | 0.7 | | | | | | | 8.9 | |
| Total consumer loans | 140.7 | | | (4.9) | | | 1.0 | | | (3.9) | | | (5.5) | | | | | | | 131.3 | |
| Total allowance for credit losses on loans and leases | 418.8 | | | (30.1) | | | 8.6 | | | (21.5) | | | 22.9 | | | | | | | 420.2 | |
| Allowance for unfunded loan commitments | 21.8 | | | — | | | — | | | — | | | 0.6 | | | | | | | 22.4 | |
| Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments | $ | 440.6 | | | $ | (30.1) | | | $ | 8.6 | | | $ | (21.5) | | | $ | 23.5 | | | | | | | $ | 442.6 | |
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2024 | | | | | | | | | | | | | | | |
| Commercial real estate | $ | 166.6 | | | $ | (24.1) | | | $ | 2.1 | | | $ | (22.0) | | | $ | 40.3 | | | | | | | $ | 184.9 | |
| Commercial and industrial | 87.8 | | | (18.7) | | | 9.0 | | | (9.7) | | | 0.3 | | | | | | | 78.4 | |
| Commercial leases | 21.2 | | | (0.3) | | | 0.1 | | | (0.2) | | | 0.6 | | | | | | | 21.6 | |
| Other | 3.7 | | | (3.1) | | | 1.1 | | | (2.0) | | | 2.3 | | | | | | | 4.0 | |
| Total commercial loans and leases | 279.3 | | | (46.2) | | | 12.3 | | | (33.9) | | | 43.5 | | | | | | | 288.9 | |
| Direct installment | 33.8 | | | (0.8) | | | 0.6 | | | (0.2) | | | (4.4) | | | | | | | 29.2 | |
| Residential mortgages | 70.5 | | | (0.3) | | | 0.2 | | | (0.1) | | | 13.8 | | | | | | | 84.2 | |
| Indirect installment | 12.8 | | | (9.6) | | | 2.1 | | | (7.5) | | | 3.7 | | | | | | | 9.0 | |
| Consumer lines of credit | 9.2 | | | (1.0) | | | 0.6 | | | (0.4) | | | 0.1 | | | | | | | 8.9 | |
| Total consumer loans | 126.3 | | | (11.7) | | | 3.5 | | | (8.2) | | | 13.2 | | | | | | | 131.3 | |
| Total allowance for credit losses on loans and leases | 405.6 | | | (57.9) | | | 15.8 | | | (42.1) | | | 56.7 | | | | | | | 420.2 | |
| Allowance for unfunded loan commitments | 21.5 | | | — | | | — | | | — | | | 0.9 | | | | | | | 22.4 | |
| Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments | $ | 427.1 | | | $ | (57.9) | | | $ | 15.8 | | | $ | (42.1) | | | $ | 57.6 | | | | | | | $ | 442.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Balance at
Beginning of
Period | | Charge-
Offs | | Recoveries | | Net
(Charge-
Offs) Recoveries | | Provision
for Credit
Losses | | | | | | Balance at
End of
Period |
| Three Months Ended September 30, 2023 | | | | | | | | | | | | | | |
| Commercial real estate | $ | 154.2 | | | $ | (0.6) | | | $ | 0.9 | | | $ | 0.3 | | | $ | 0.5 | | | | | | | $ | 155.0 | |
| Commercial and industrial | 114.3 | | | (37.2) | | | 1.4 | | | (35.8) | | | 17.1 | | | | | | | 95.6 | |
| Commercial leases | 15.2 | | | — | | | — | | | — | | | 2.9 | | | | | | | 18.1 | |
| Other | 3.8 | | | (0.9) | | | 0.2 | | | (0.7) | | | 1.1 | | | | | | | 4.2 | |
| Total commercial loans and leases | 287.5 | | | (38.7) | | | 2.5 | | | (36.2) | | | 21.6 | | | | | | | 272.9 | |
| Direct installment | 35.6 | | | (0.1) | | | 0.2 | | | 0.1 | | | (1.0) | | | | | | | 34.7 | |
| Residential mortgages | 63.4 | | | (0.1) | | | 0.1 | | | — | | | 4.0 | | | | | | | 67.4 | |
| Indirect installment | 16.6 | | | (2.1) | | | 0.5 | | | (1.6) | | | 1.1 | | | | | | | 16.1 | |
| Consumer lines of credit | 9.6 | | | (0.2) | | | 0.2 | | | — | | | (0.1) | | | | | | | 9.5 | |
| Total consumer loans | 125.2 | | | (2.5) | | | 1.0 | | | (1.5) | | | 4.0 | | | | | | | 127.7 | |
| Total allowance for credit losses on loans and leases | 412.7 | | | (41.2) | | | 3.5 | | | (37.7) | | | 25.6 | | | | | | | 400.6 | |
| Allowance for unfunded loan commitments | 21.0 | | | — | | | — | | | — | | | 0.3 | | | | | | | 21.3 | |
| Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments | $ | 433.7 | | | $ | (41.2) | | | $ | 3.5 | | | $ | (37.7) | | | $ | 25.9 | | | | | | | $ | 421.9 | |
| Nine Months Ended September 30, 2023 | | | | | | | | | | | | | | | |
| Commercial real estate | $ | 162.1 | | | $ | (8.9) | | | $ | 3.2 | | | $ | (5.7) | | | $ | (1.4) | | | | | | | $ | 155.0 | |
| Commercial and industrial | 102.1 | | | (48.5) | | | 3.0 | | | (45.5) | | | 39.0 | | | | | | | 95.6 | |
| Commercial leases | 13.5 | | | — | | | — | | | — | | | 4.6 | | | | | | | 18.1 | |
| Other | 4.0 | | | (3.3) | | | 0.7 | | | (2.6) | | | 2.8 | | | | | | | 4.2 | |
| Total commercial loans and leases | 281.7 | | | (60.7) | | | 6.9 | | | (53.8) | | | 45.0 | | | | | | | 272.9 | |
| Direct installment | 35.9 | | | (0.5) | | | 0.5 | | | — | | | (1.2) | | | | | | | 34.7 | |
| Residential mortgages | 55.5 | | | (0.7) | | | 0.3 | | | (0.4) | | | 12.3 | | | | | | | 67.4 | |
| Indirect installment | 17.3 | | | (6.9) | | | 1.6 | | | (5.3) | | | 4.1 | | | | | | | 16.1 | |
| Consumer lines of credit | 11.3 | | | (0.8) | | | 0.7 | | | (0.1) | | | (1.7) | | | | | | | 9.5 | |
| Total consumer loans | 120.0 | | | (8.9) | | | 3.1 | | | (5.8) | | | 13.5 | | | | | | | 127.7 | |
| Total allowance for credit losses on loans and leases | 401.7 | | | (69.6) | | | 10.0 | | | (59.6) | | | 58.5 | | | | | | | 400.6 | |
| Allowance for unfunded loan commitments | 21.4 | | | — | | | — | | | — | | | (0.1) | | | | | | | 21.3 | |
| Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments | $ | 423.1 | | | $ | (69.6) | | | $ | 10.0 | | | $ | (59.6) | | | $ | 58.4 | | | | | | | $ | 421.9 | |
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, |
| 2024 | | 2023 | | 2024 | | 2023 |
| (in millions) | | | | | | | |
| Balance at beginning of period | $ | 21.8 | | | $ | 21.0 | | | $ | 21.5 | | | $ | 21.4 | |
| Provision for unfunded loan commitments and letters of credit: | | | | | | | |
| Commercial portfolio | 0.6 | | | 0.3 | | | 1.0 | | | (0.1) | |
| Consumer portfolio | — | | | — | | | (0.1) | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance at end of period | $ | 22.4 | | | $ | 21.3 | | | $ | 22.4 | | | $ | 21.3 | |
The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation:
•a third-party macroeconomic forecast scenario;
•a 24-month R&S forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 12-month period; and
•the historical through-the-cycle mean was calculated using an expanded period to include a prior recessionary period.
At September 30, 2024 and December 31, 2023, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment. For our ACL calculation at September 30, 2024, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which increases 6.5% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which increases 12.7% over our R&S forecast period, (iii) S&P Volatility, which increases 8.0% in 2024 and 4.7% in 2025 and (iv) personal and business bankruptcies, which increase steadily over the R&S forecast period but average below the historical through the cycle period. Macroeconomic variables that we utilized for our ACL calculation as of December 31, 2023 included, but were not limited to: (i) the purchase only Housing Price Index, which increases 5.3% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which increases 0.1% over our R&S forecast period, (iii) S&P Volatility, which decreases 4.0% in 2024 and 2.9% in 2025 and (iv) bankruptcies, which increase steadily over the R&S forecast period but average below the historical through the cycle period.
The ACL on loans and leases of $420.2 million at September 30, 2024 increased $14.6 million, or 3.6%, from December 31, 2023. Our ending ACL coverage ratio at September 30, 2024 was 1.25%, compared to 1.25% at December 31, 2023. Total provision for credit losses for the three months ended September 30, 2024 was $23.5 million compared to $25.9 million for the same period of 2023, which included an $18.8 million specific reserve established for a single $31.9 million commercial and industrial loan downgraded to non-performing status during the second quarter of 2023. The third quarter of 2024 reflected net charge-offs of $21.5 million, or 0.25% annualized of average total loans, compared to $37.7 million, or 0.47% annualized, in the third quarter of 2023. Total provision for credit losses for the nine months ended September 30, 2024 was $57.6 million compared to $58.5 million, which included $31.9 million in provision for the previously disclosed isolated commercial loan charged off due to indications of alleged fraud and subsequent bankruptcy filings by our borrower and its primary supplier for the same period of 2023. Net charge-offs were $42.1 million, or 0.17% annualized of average total loans, during the nine months ended September 30, 2024, compared to $59.6 million, or 0.26% annualized, for the same period of 2023. The nine months ended September 30, 2023 was impacted by the previously disclosed isolated $31.9 million commercial loan.
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,
2024 | | December 31,
2023 |
| Mortgage loans sold with servicing retained | $ | 6,244 | | | $ | 5,729 | |
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) | 2024 | | 2023 | | 2024 | | 2023 |
| Mortgage loans sold with servicing retained | $ | 314 | | | $ | 322 | | | $ | 936 | | | $ | 781 | |
Pre-tax net gains (losses) resulting from above loan sales (1) | 7 | | | 1 | | | 18 | | | 1 | |
Mortgage servicing fees (1) | 4 | | | 3 | | | 11 | | | 10 | |
(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) | 2024 | | 2023 | | 2024 | | 2023 |
| Balance at beginning of period | $ | 65.1 | | | $ | 55.7 | | | $ | 59.5 | | | $ | 52.8 | |
| | | | | | | |
| Additions | 4.0 | | | 3.8 | | | 11.8 | | | 9.0 | |
| Payoffs and curtailments | (1.0) | | | (1.3) | | | (2.3) | | | (1.6) | |
| Impairment (charge) / recovery | (2.8) | | | — | | | (2.6) | | | — | |
| Amortization / other | (0.5) | | | 0.2 | | | (1.6) | | | (1.8) | |
| Balance at end of period | $ | 64.8 | | | $ | 58.4 | | | $ | 64.8 | | | $ | 58.4 | |
| Fair value, beginning of period | $ | 78.0 | | | $ | 72.1 | | | $ | 71.8 | | | $ | 68.6 | |
| Fair value, end of period | 75.2 | | | 75.1 | | | 75.2 | | | 75.1 | |
There was a $2.8 million valuation allowance for MSRs at September 30, 2024 and $0.2 million as of December 31, 2023.
The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and the use of independent third-party valuations. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSRs and as interest rates increase, mortgage loan prepayments decline, which results in an increase in the fair value of MSRs. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different point in time.
Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions:
TABLE 6.4
| | | | | | | | | | | |
| (dollars in millions) | September 30,
2024 | | December 31,
2023 |
| Weighted average life (months) | 87 | | 92 |
| Constant prepayment rate (annualized) | 9.0 | % | | 7.9 | % |
| Discount rate | 10.0 | % | | 10.2 | % |
| Effect on fair value due to change in interest rates: | | | |
| +2.00% | $ | 13 | | | $ | 7 | |
| +1.00% | 9 | | | 5 | |
| +0.50% | 5 | | | 3 | |
| +0.25% | 3 | | | 2 | |
| -0.25% | (2) | | | (2) | |
| -0.50% | (5) | | | (4) | |
| -1.00% | (9) | | | (8) | |
| -2.00% | (21) | | | (21) | |
| -3.00% | (41) | | | (42) | |
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. Also, in this table, the effects of an adverse variation in a particular assumption on the fair value of MSRs is calculated without changing any other assumptions, while, in reality, changes in one factor may result in changing another, which may magnify or contract the effect of the change. 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, 2024, we had operating lease right-of-use assets and operating lease liabilities of $199.0 million and $240.1 million, respectively. We have finance lease right-of-use assets and finance lease liabilities of $34.1 million and $35.9 million, respectively.
Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of September 30, 2024, we have certain operating lease agreements, primarily for administrative office space, that have not yet commenced. At commencement, it is expected that these leases will add approximately $30.8 million in right-of-use assets and $33.0 million in other liabilities. These operating leases are currently expected to commence in 2024 and 2025 with lease terms of up to 20 years. These operating leases include the lease, with a related party, of the future new FNB headquarters building in Pittsburgh, Pennsylvania. Beginning in 2023, several floors of the FNB headquarters building have been made available to FNB for the purpose of constructing our office spaces, and we commenced the lease of those floors. The related party operating lease is accounted for in a manner consistent with all other leases on the basis of the legally enforceable terms and conditions of the lease and the related party represents a VIE for which we are not the primary beneficiary.
The components of lease expense were as follows:
TABLE 7.1
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (dollars in millions) | 2024 | | 2023 | | 2024 | | 2023 |
| Operating lease cost | $ | 11 | | | $ | 9 | | | $ | 30 | | | $ | 25 | |
| | | | | | | |
| Variable lease cost | 1 | | | 1 | | | 4 | | | 3 | |
| | | | | | | |
| Finance lease cost | — | | | 1 | | | 2 | | | 3 | |
| Total lease cost | $ | 12 | | | $ | 11 | | | $ | 36 | | | $ | 31 | |
Other information related to leases is as follows:
TABLE 7.2
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| (dollars in millions) | 2024 | | 2023 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 25 | | | $ | 7 | |
| Operating cash flows from finance leases | $ | 1 | | | $ | — | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
| Operating leases | $ | 25 | | | $ | 31 | |
| Finance leases | $ | 4 | | | $ | — | |
| Weighted average remaining lease term (years): | | | |
| Operating leases | 11 | | 10.36 |
| Finance leases | 19 | | 19.75 |
| Weighted average discount rate: | | | |
| Operating leases | 3.9 | % | | 3.2 | % |
| Finance leases | 3.4 | % | | 3.2 | % |
Future cash flows of lease liabilities are as follows:
TABLE 7.3
| | | | | | | | | | | | | | | | | |
| (in millions) | Operating Leases | | Finance Leases | | Total Leases |
| September 30, 2024 | | | | | |
| 0 - 12 months | $ | 35 | | | $ | 2 | | | $ | 37 | |
| 13 - 24 months | 31 | | | 2 | | | 33 | |
| 25 - 36 months | 28 | | | 2 | | | 30 | |
| 37 - 48 months | 25 | | | 3 | | | 28 | |
| 49 - 60 months | 23 | | | 3 | | | 26 | |
| Later years | 161 | | | 37 | | | 198 | |
| Total lease payments | 303 | | | 49 | | | 352 | |
| Less: imputed interest | (63) | | | (13) | | | (76) | |
| Present value of lease liabilities | $ | 240 | | | $ | 36 | | | $ | 276 | |
As a lessor we offer commercial leasing services to customers in need of new or used equipment primarily within our market areas of Pennsylvania, Ohio, Maryland, North Carolina, South Carolina and West Virginia. Additional information relating to commercial leasing is provided in Note 4, “Loans and Leases” in the Notes to Consolidated Financial Statements.
NOTE 8. VARIABLE INTEREST ENTITIES
We evaluate our interest in certain entities to determine if these entities meet the definition of a VIE and whether we are the primary beneficiary and required to consolidate the entity based on the variable interest we held both at inception and when there is a change in circumstances that requires a reconsideration.
Unconsolidated VIEs
The following table provides a summary of the assets and liabilities included in our Consolidated Financial Statements, as well as the maximum exposure to losses, associated with our interests related to VIEs for which we hold an interest, but are not the primary beneficiary.
TABLE 8.1
| | | | | | | | | | | | | | | | | |
| (in millions) | Total Assets | | Total Liabilities | | Maximum Exposure to Loss |
| September 30, 2024 | | | | | |
Trust preferred securities (1) | $ | 3 | | | $ | 73 | | | $ | — | |
| Tax credit partnerships | 168 | | | 72 | | | 168 | |
| Other investments | 29 | | | — | | | 29 | |
| Total | $ | 200 | | | $ | 145 | | | $ | 197 | |
| December 31, 2023 | | | | | |
Trust preferred securities (1) | $ | 3 | | | $ | 73 | | | $ | — | |
| Tax credit partnerships | 143 | | | 62 | | | 143 | |
| Other investments | 40 | | | 6 | | | 40 | |
| Total | $ | 186 | | | $ | 141 | | | $ | 183 | |
| (1) Represents our investment in unconsolidated subsidiaries. | | | | | |
Trust-Preferred Securities
We have certain wholly-owned trusts whose assets, liabilities, equity, income and expenses are not included within our Consolidated Financial Statements. These trusts have been formed for the sole purpose of issuing TPS, from which the proceeds are then invested in our junior subordinated debentures, which are reflected in our Consolidated Balance Sheets as junior subordinated debt. The TPS are the obligations of the trusts, and as such, are not consolidated within our Consolidated Financial Statements. For additional information relating to our TPS, see Note 9, “Borrowings” in the Notes to Consolidated Financial Statements.
Each issue of the junior subordinated debentures has an interest rate equal to the corresponding TPS distribution rate. We have the right to defer payment of interest on the debentures at any time, or from time-to-time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the related debentures. During any such extension period, distributions to the TPS will also be deferred and our ability to pay dividends on our common stock will be restricted. Periodic cash payments and payments upon liquidation or redemption with respect to TPS are guaranteed by us to the extent of funds held by the trusts. The guarantee ranks subordinate and junior in right of payment to all our indebtedness to the same extent as the junior subordinated debt. The guarantee does not place a limitation on the amount of additional indebtedness that may be incurred by us.
Affordable Housing, Historic and New Market Tax Credit Partnerships
We make equity investments as a limited partner in various partnerships of affordable housing (LIHTC), historic tax credit (HTC) and new market tax credit (NMTC) programs pursuant to Sections 42, 47 and 45d of the Internal Revenue Code, respectively. The purpose of many of these investments is to support initiatives associated with the Community Reinvestment
Act while earning a satisfactory return. The activities of the LIHTC partnerships include the development and operation of multi-family housing that is leased to qualifying residential tenants. HTC partnerships allow us to make investments in projects that involve the rehabilitation of historic structures, often combining our investments with bank financing. NMTC partnerships are designed to channel investments into distressed communities, fostering community development and stimulating economic growth. These tax credit partnerships are generally located in communities where we have a banking presence and meet the definition of a VIE; however, we are not the primary beneficiary of the entities, as the general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses beyond our own equity investment.
We apply the proportional amortization method of accounting for our investments in LIHTC partnerships. Effective January 1, 2024, upon the adoption of ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, we also began applying the proportional amortization method of accounting to our investments in HTC and NMTC partnerships. The proportional amortization method recognizes the amortized cost of the investments in these tax credit partnerships as a component of income tax expense on the Consolidated Statements of Income. Prior to the adoption of ASU 2023-02, we applied the equity method of accounting to the investments in HTC and NMTC partnerships. The adoption of ASU 2023-02 did not have a material impact on our consolidated financial statements. We record our investment in tax credit partnerships as a component of other assets.
The following table presents the balances of our LIHTC, HTC and NMTC investments and related unfunded commitments:
TABLE 8.2
| | | | | | | | | | | |
| (in millions) | September 30,
2024 | | December 31,
2023 |
| Tax credit investments included in other assets | $ | 96 | | | $ | 81 | |
| Unfunded tax credit investments | 72 | | | 62 | |
In the first quarter of 2024, we adopted ASU 2023-02, resulting in the amortization of HTC and NMTC investments being recognized in the provision for income taxes as of the adoption of this standard. These activities were previously recognized in non-interest expense.
The following table summarizes the impact of these tax credit investments on the provision for income taxes in our Consolidated Statements of Income:
TABLE 8.3
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2024 | | 2023 | | 2024 | | 2023 |
| Provision for income taxes: | | | | | | | |
| Amortization of tax credit investments under proportional method | $ | 5 | | | $ | 4 | | | $ | 16 | | | $ | 12 | |
| Tax credits from tax credit investments | (5) | | | (4) | | | (16) | | | (12) | |
| Other tax benefits related to tax credit investments | — | | | (1) | | | (2) | | | (2) | |
| Total impact on provision for income taxes | $ | — | | | $ | (1) | | | $ | (2) | | | $ | (2) | |
Other Investments
Other investments we also consider to be unconsolidated VIEs include investments in Small Business Investment Companies and other equity method investments.
NOTE 9. BORROWINGS
Following is a summary of short-term borrowings:
TABLE 9.1
| | | | | | | | | | | |
| (in millions) | September 30,
2024 | | December 31,
2023 |
| Securities sold under repurchase agreements | $ | 192 | | | $ | 233 | |
| Federal Home Loan Bank advances | 930 | | | 1,900 | |
| Federal funds purchased | 310 | | | 260 | |
| Subordinated notes | 130 | | | 113 | |
| Total short-term borrowings | $ | 1,562 | | | $ | 2,506 | |
Borrowings with original maturities of one year or less are classified as short-term. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are sweep accounts with next-day maturities utilized by larger commercial customers to earn interest on their funds. Securities are pledged to these customers in an amount at least equal to the outstanding balance. Of the total short-term FHLB advances, $480.0 million, or 51.6%, had overnight maturities as of September 30, 2024, compared to $450.0 million, or 23.7%, as of December 31, 2023. At September 30, 2024, $100.0 million, or 10.8%, of the short-term FHLB advances was swapped to fixed rate with a 2024 maturity, compared to $400.0 million, or 21.1%, as of December 31, 2023. Federal funds purchased are overnight funds borrowed from other financial institutions. Subordinated notes are unsecured and subordinated to our other indebtedness. The short-term subordinated notes mature within one year.
Following is a summary of long-term borrowings:
TABLE 9.2
| | | | | | | | | | | |
| (in millions) | September 30,
2024 | | December 31,
2023 |
| Federal Home Loan Bank advances | $ | 1,750 | | | $ | 1,200 | |
| Senior notes | 349 | | | 349 | |
| Subordinated notes | 76 | | | 82 | |
| Junior subordinated debt | 73 | | | 73 | |
| Other subordinated debt | 267 | | | 267 | |
| Total long-term borrowings | $ | 2,515 | | | $ | 1,971 | |
Our banking affiliate has available credit with the FHLB of $11.9 billion, of which $2.7 billion was utilized and included in short-term and long-term borrowings and $750.0 million was utilized for a letter of credit for pledging of public funds as of September 30, 2024. These advances are secured by loans collateralized by residential mortgages, home equity lines of credit, commercial real estate and FHLB stock. The short-term borrowings are scheduled to mature in various amounts periodically during 2024 while the long-term borrowings are scheduled to mature periodically through 2028. Effective interest rates paid on fixed rate long-term FHLB advances ranged from 3.69% to 4.88% for the three months ended September 30, 2024 and 4.23% and 4.88% for the year ended December 31, 2023. The effective interest rate paid on variable rate long-term FHLB advances was Overnight SOFR plus an average spread of 34.1 basis points for the three months ended September 30, 2024. There were no variable rate advances for the year ended December 31, 2023.
The following table provides information relating to our senior notes and other subordinated debt as of September 30, 2024. The subordinated notes are eligible for treatment as tier 2 capital for regulatory capital purposes.
TABLE 9.3 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | Aggregate Principal Amount Issued | | Net Proceeds (5) | | Carrying Value | | Stated Maturity Date | | Interest
Rate |
| Senior Notes: | | | | | | | | | |
| | | | | | | | | |
5.150% Senior Notes due August 25, 2025 | $ | 350 | | | $ | 347 | | | $ | 349 | | | 8/25/2025 | | 5.150 | % |
| Total senior notes | 350 | | | 347 | | | 349 | | | | | |
| Other Subordinated Debt: | | | | | | | | | |
7.778% Fixed-To-Floating Rate Subordinated Notes due 2029 (1) | 120 | | | 118 | | | 119 | | | 2/14/2029 | | 7.778 | % |
4.875% Subordinated Notes due 2025 | 100 | | | 98 | | | 100 | | | 10/2/2025 | | 4.875 | % |
8.276% Fixed-To-Floating Rate Subordinated Notes due December 6, 2028 (2) (4) | 25 | | | 26 | | | 24 | | | 12/6/2028 | | 8.276 | % |
5.000% Fixed-To-Floating Rate Subordinated Note due May 29, 2030 (3) (4) | 25 | | | 24 | | | 24 | | | 5/29/2030 | | 5.000 | % |
| | | | | | | | | |
| Total other subordinated debt | 270 | | | 266 | | | 267 | | | | | |
| Total | $ | 620 | | | $ | 613 | | | $ | 616 | | | | | |
(1) Floating rate effective February 14, 2024, determined by the Benchmark Replacement (three-month CME term SOFR plus a tenor spread adjustment of 26 basis points) plus 240 basis points.
(2) Floating rate effective December 6, 2023, determined by the Benchmark Replacement (three-month CME term SOFR plus a tenor spread adjustment of 26 basis points) plus 302 basis points.
(3) Fixed rate until May 29, 2025, at which time it converts to a floating rate determined by three-month SOFR plus 464 basis points.
(4) Assumed from an acquisition and adjusted to fair value at the time of acquisition.
(5) After deducting underwriting discounts and commissions and offering costs. For the debt assumed from acquisitions, this is the fair value of the debt at the time of the acquisition.
The junior subordinated debt is comprised of the debt securities issued by FNB, or companies we acquired, in relation to our four unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated VIEs, and are included on the Consolidated Balance Sheets in long-term borrowings. Since third-party investors are the primary beneficiaries, the Trusts are not consolidated in our Financial Statements. We record the distributions on the junior subordinated debt issued to the Trusts as interest expense.
The following table provides information relating to the Trusts as of September 30, 2024:
TABLE 9.4
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | Trust
Preferred
Securities | | Common
Securities | | Junior
Subordinated
Debt | | Stated
Maturity
Date | | Interest Rate | |
Rate Reset Factor |
| F.N.B. Statutory Trust II | $ | 22 | | | $ | 1 | | | $ | 22 | | | 6/15/2036 | | 6.86 | % | | SOFR + 165 bps |
| | | | | | | | | | | |
| Yadkin Valley Statutory Trust I | 25 | | | 1 | | | 23 | | | 12/15/2037 | | 6.53 | % | | SOFR + 132 bps |
| FNB Financial Services Capital Trust I | 25 | | | 1 | | | 23 | | | 9/30/2035 | | 6.33 | % | | SOFR + 146 bps |
| Patapsco Statutory Trust I | 5 | | | — | | | 5 | | | 12/15/2035 | | 6.69 | % | | SOFR + 148 bps |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 77 | | | $ | 3 | | | $ | 73 | | | | | | | |
The SOFR rate used for the rate reset factors in the above table is the Benchmark Replacement (three-month CME term SOFR plus a tenor spread adjustment of 26 basis points).
Other Credit Availability
Our banking affiliate has additional unused other wholesale credit availability of $7.4 billion as of September 30, 2024.
NOTE 10. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate risk, primarily by managing the amount, source, and duration of our assets and liabilities, and through the use of derivative instruments. Derivative instruments are used to reduce the effects that changes in interest rates may have on net income and cash flows. We also use derivative instruments to facilitate transactions on behalf of our customers.
All derivatives are carried on the Consolidated Balance Sheets at fair value and do not take into account the effects of master netting arrangements we have with other financial institutions. Credit risk is included in the determination of the estimated fair value of derivatives. Derivative assets are reported in the Consolidated Balance Sheets in other assets and derivative liabilities are reported in other liabilities. Cash flow activity relating to derivative assets and derivative liabilities is reported in the other, net line in operating activities on the Consolidated Statements of Cash Flows. Changes in fair value are recognized in earnings except for certain changes related to derivative instruments designated as part of a cash flow hedging relationship, which are recognized in other comprehensive income.
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, 2024 | | December 31, 2023 |
| Notional | | Fair Value | | Notional | | Fair Value |
| (in millions) | Amount | | Asset | | Liability | | Amount | | Asset | | Liability |
| Gross Derivatives | | | | | | | | | | | |
| Subject to master netting arrangements: | | | | | | | | | | | |
| Interest rate contracts – designated | $ | 1,500 | | | $ | 2 | | | $ | — | | | $ | 1,800 | | | $ | 1 | | | $ | — | |
| Interest rate swaps – not designated | 5,903 | | | 54 | | | 62 | | | 5,660 | | | 74 | | | 35 | |
| | | | | | | | | | | |
| Total subject to master netting arrangements | 7,403 | | | 56 | | | 62 | | | 7,460 | | | 75 | | | 35 | |
| Not subject to master netting arrangements: | | | | | | | | | | | |
| Interest rate swaps – not designated | 5,903 | | | 62 | | | 200 | | | 5,660 | | | 35 | | | 289 | |
| Interest rate lock commitments – not designated | 424 | | | 7 | | | — | | | 239 | | | 5 | | | — | |
| Forward delivery commitments – not designated | 546 | | | 1 | | | 1 | | | 294 | | | 1 | | | 4 | |
| Credit risk contracts – not designated | 788 | | | — | | | — | | | 629 | | | — | | | — | |
| | | | | | | | | | | |
| Total not subject to master netting arrangements | 7,661 | | | 70 | | | 201 | | | 6,822 | | | 41 | | | 293 | |
| Total | $ | 15,064 | | | $ | 126 | | | $ | 263 | | | $ | 14,282 | | | $ | 116 | | | $ | 328 | |
Certain derivative exchanges have enacted a rule change which in effect results in the legal characterization of variation margin payments for certain derivative contracts as settlement of the derivatives mark-to-market exposure and not collateral. Accordingly, we have changed our reporting of certain derivatives to record variation margin on trades cleared through these exchanges as settled. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.
We adopted Reference Rate Reform (RRR) on October 1, 2020, and the guidance will be followed until the Update terminates on December 31, 2024. As of October 16, 2020, we changed our valuation methodology to reflect changes made by central clearinghouses that changed the discounting methodology and interest calculation of cash migration from overnight index swap (OIS) to SOFR for U.S. dollar cleared interest rate swaps to better reflect prices obtainable in the markets in which we transact. Certain of these valuation methodology changes were applied to eligible hedging relationships. Accordingly, we have updated our hedge documentation to reflect the election of certain expedients and exceptions related to our cash flow hedging programs. The change in valuation methodology was applied prospectively as a change in accounting estimate and did not have a material impact on our consolidated financial position or results of operations.
Derivatives Designated as Hedging Instruments under GAAP
Interest Rate Contracts. We entered into interest rate derivative agreements to modify the interest rate characteristics of certain commercial loans and certain of our FHLB advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges, in the form of interest rate swaps and collars, hedging the exposure to variability in expected future cash flows. The derivative’s gain or loss, including any ineffectiveness, is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same line item associated with the forecasted transaction when the forecasted transaction affects earnings.
The following table shows amounts reclassified from AOCI:
TABLE 10.2
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount of Gain (Loss) Recognized in OCI on Derivatives | | Location of Gain (Loss) Reclassified from AOCI into Income | | Amount of Gain (Loss) Reclassified from AOCI into Income |
| Nine Months Ended
September 30, | | | | Nine Months Ended
September 30, |
| (in millions) | 2024 | | 2023 | | | | 2024 | | 2023 |
| Derivatives in cash flow hedging relationships: | | | | | | | | | |
| Interest rate contracts | $ | (7) | | | $ | (21) | | | Interest income (expense) | | $ | (30) | | | $ | (16) | |
| | | | | | | | | |
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, |
| 2024 | | 2023 |
| (in millions) | Interest Income - Loans and Leases | | Interest Expense - Short-Term Borrowings | | Interest Income - Loans and Leases | | Interest Expense - Short-Term Borrowings |
| Total amounts of income and expense line items presented in the Consolidated Statements of Income (the effects of cash flow hedges are included in these line items) | $ | 1,491 | | | $ | 90 | | | $ | 1,278 | | | $ | 55 | |
| The effects of cash flow hedging: | | | | | | | |
| Gain (loss) on cash flow hedging relationships: | | | | | | | |
| Interest rate contracts: | | | | | | | |
| Amount of gain (loss) reclassified from AOCI into net income | (37) | | | 7 | | | (33) | | | 17 | |
| | | | | | | |
|
|
As of September 30, 2024, the maximum length of time over which forecasted interest cash flows are hedged is 1.6 years. In the twelve months that follow September 30, 2024, we expect to reclassify from the amount currently reported in AOCI net derivative losses of $20.8 million ($16.1 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, 2024.
There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to these cash flow hedges. Also, during the nine months ended September 30, 2024 and 2023, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transactions would not occur.
Derivatives Not Designated as Hedging Instruments under GAAP
A description of interest rate swaps, interest rate lock commitments, forward delivery commitments and credit risk contracts can be found in Note 16, "Derivative Instruments and Hedging Activities" in the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024. Interest rate swap agreements with loan customers and with the offsetting counterparties are reported at fair value in other assets and other liabilities on the Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as other income or other expense.
Risk participation agreements sold with notional amounts totaling $619.6 million as of September 30, 2024 have remaining terms ranging from one month to seventeen years. Under these agreements, our maximum exposure assuming a customer defaults on their obligation to perform under certain derivative swap contracts with third parties would be $0.1 million at both September 30, 2024 and December 31, 2023. The fair values of risk participation agreements purchased and sold were $0.2 million and $0.1 million, respectively, at September 30, 2024 and $0.2 million and $0.1 million, respectively at December 31, 2023.
The following table presents the effect of certain derivative financial instruments on the Consolidated Statements of Income:
TABLE 10.4
| | | | | | | | | | | | | | | | | |
| | | Nine Months Ended
September 30, |
| (in millions) | Consolidated Statements of Income Location | | 2024 | | 2023 |
| Interest rate swaps | Non-interest income - other | | $ | — | | | $ | (1) | |
| Interest rate lock commitments | Mortgage banking operations | | — | | | — | |
| Forward delivery contracts | Mortgage banking operations | | 3 | | | 4 | |
| Credit risk contracts | Non-interest income - other | | — | | | — | |
Counterparty Credit Risk
We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash and securities to our clearing agency. Collateral positions are settled or valued daily, and adjustments to amounts received and pledged by us are made as appropriate to maintain proper collateralization for these transactions.
Certain master netting agreements contain provisions that, if violated, could cause the counterparties to request immediate settlement or demand full collateralization under the derivative instrument. If we had breached our agreements with our derivative counterparties we would be required to settle our obligations under the agreements at the termination value and would be required to pay nothing as of September 30, 2024 or December 31, 2023, in excess of amounts previously posted as collateral with the respective counterparty.
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, 2024 | | | | | | | |
| Derivative Assets | | | | | | | |
| Interest rate contracts: | | | | | | | |
| Designated | $ | 2 | | | $ | — | | | $ | 2 | | | $ | — | |
| Not designated | 54 | | | — | | | 54 | | | — | |
| | | | | | | |
| Total | $ | 56 | | | $ | — | | | $ | 56 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Liabilities | | | | | | | |
| Interest rate contracts: | | | | | | | |
| | | | | | | |
| Not designated | $ | 62 | | | $ | — | | | $ | 62 | | | $ | — | |
| Total | $ | 62 | | | $ | — | | | $ | 62 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | | | | | | |
| Derivative Assets | | | | | | | |
| Interest rate contracts: | | | | | | | |
| Designated | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | |
| Not designated | 74 | | | — | | | 74 | | | — | |
| | | | | | | |
| Total | $ | 75 | | | $ | — | | | $ | 75 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Liabilities | | | | | | | |
| Interest rate contracts: | | | | | | | |
| | | | | | | |
| Not designated | $ | 35 | | | $ | — | | | $ | 35 | | | $ | — | |
| Total | $ | 35 | | | $ | — | | | $ | 35 | | | $ | — | |
NOTE 11. COMMITMENTS, CREDIT RISK AND CONTINGENCIES
We have commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the Consolidated Balance Sheets. Our exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loans and leases to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
Following is a summary of off-balance sheet credit risk information:
TABLE 11.1
| | | | | | | | | | | |
| (in millions) | September 30,
2024 | | December 31,
2023 |
| Commitments to extend credit | $ | 14,137 | | | $ | 13,656 | |
| Standby letters of credit | 259 | | | 257 | |
At September 30, 2024, funding of 79.5% of the commitments to extend credit was dependent on the financial condition of the customer. We have the ability to withdraw such commitments at our discretion. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Based on management’s credit evaluation of the customer, collateral may be deemed necessary. Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by us that may require payment at a future date. The credit risk involved in issuing letters of credit is actively monitored through review of the historical performance of our portfolios.
Our AULC for commitments that are not unconditionally cancellable, which is included in other liabilities on the Consolidated Balance Sheets, was $22.4 million at September 30, 2024 and $21.5 million at December 31, 2023. Additional information relating to the AULC is provided in Note 5, "Allowance for Credit Losses on Loans and Leases" in the Notes to Consolidated Financial Statements.
In addition to the above commitments, subordinated notes issued by FNB Financial Services, LP, a wholly-owned finance subsidiary, are fully and unconditionally guaranteed by FNB. These subordinated notes are included in the summaries of short-term borrowings and long-term borrowings in Note 9, “Borrowings” in the Notes to Consolidated Financial Statements.
Other Legal Proceedings
In the ordinary course of business, we may assert claims in legal proceedings against another party or parties, and likewise may be named as defendants in, or made parties to, pending and potential legal actions. Also, as regulated entities, we are subject to governmental and regulatory examinations, information-gathering requests, and may be subject to investigations and proceedings (both formal and informal). Such asserted or threatened claims, litigation, investigations, inquiries, regulatory and administrative proceedings typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted in many of these types of legal actions, while claims for disgorgement, reimbursement, restitution, penalties and/or other remedial actions or sanctions may be sought in regulatory matters. In these instances, if we determine that we have meritorious defenses, we will engage in an aggressive defense. However, if management determines, in consultation with counsel, that settlement of a matter is in the best interest of FNB and our shareholders, we may do so. It is inherently difficult to predict the eventual outcomes of such matters given their complexity and the particular facts and circumstances at issue in each of these matters. However, on the basis of our current knowledge and understanding, and advice of counsel, we do not believe that judgments, sanctions, settlement resolutions, regulatory actions, investigations, inquiries, settlements or orders, if any, that have arisen or may arise from these matters (either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage) will have a material adverse effect on our financial position or liquidity, although they could potentially have a material effect on net income in a given period.
In view of the inherent unpredictability of outcomes in litigation and governmental and regulatory matters, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel legal theories or a large number of parties, as a matter of course, there is considerable uncertainty surrounding the timing or ultimate resolution of litigation and governmental and regulatory matters, including a possible eventual loss, financial or other commitments, fine, restitution, penalty, business or adverse reputational impact, if any, associated with each such matter. In accordance with applicable accounting guidance, we establish accruals for litigation and governmental and regulatory matters when those matters proceed to a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. We will continue to monitor such matters, including ongoing reviews, examinations, and investigations by banking regulatory agencies and other government authorities, for developments that could affect the amount of the accrual, and will adjust the accrual amount as appropriate. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably
estimable. We believe that our accruals for legal proceedings are appropriate and, in the aggregate, are not material to our consolidated financial position, although future accruals could have a material effect on net income in a given period.
On February 5, 2024, we announced that Yadkin Bank and its successor by merger, FNBPA, reached a settlement with the DOJ and the State of North Carolina to resolve their fair lending concerns, which FNBPA disputes, related to the assessment of mortgage lending activities during a four-year period in the Winston-Salem and Charlotte, North Carolina markets that began prior to Yadkin’s merger with FNBPA in March 2017. The settlement includes FNBPA's commitment to provide $11.75 million in subsidies on mortgages and home equity loans originated in the Charlotte and Winston-Salem, North Carolina markets beginning in 2024, continuing until the full amount has been deployed. This subsidy amount is part of our existing, previously announced commitment to underserved communities, including the Winston-Salem and Charlotte markets. The settlement was not initiated through a referral by a federal bank regulatory agency or consumer complaint, and included no civil money penalties levied against FNBPA.
NOTE 12. STOCK INCENTIVE PLANS
Restricted Stock
We issue restricted stock awards to key employees under our Incentive Compensation Plan (Plan). We issue time-based awards and performance-based awards under this Plan, both of which are based on a three-year vesting period. The grant date fair value of the time-based awards is equal to the price of our common stock on the grant date. The fair value of the performance-based awards is based on a Monte-Carlo simulation valuation of our common stock as of the grant date. The assumptions used for this valuation include stock price volatility, risk-free interest rate and dividend yield. We granted 1,271,502 and 1,426,146 restricted stock units during the nine months ended September 30, 2024 and 2023, respectively, including 334,082 and 290,764 performance-based restricted stock units during those same periods, respectively. We have shareholder approval under the Plan to issue up to 14,000,000 shares of common stock, including 8,000,000 shares registered during the second quarter of 2024. As of September 30, 2024, we had 9,077,587 remaining shares available for awards under the Plan.
The unvested restricted stock unit awards are eligible to receive cash dividends or dividend equivalents which are ultimately used to purchase additional shares of stock and are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met. These awards are subject to certain accelerated vesting provisions upon retirement, death, disability or in the event of a change in control as defined in the award agreements.
The following table summarizes the activity relating to restricted stock units during the periods indicated:
TABLE 12.1
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
| Units | | Weighted
Average
Grant
Price per
Share | | Units | | Weighted
Average
Grant
Price per
Share |
| Unvested units outstanding at beginning of period | 3,502,598 | | | $ | 12.89 | | | 4,821,182 | | | $ | 10.30 | |
| Granted | 1,271,502 | | | 14.05 | | | 1,426,146 | | | 12.71 | |
| | | | | | | |
| Net adjustment | 362,042 | | | — | | | 172,874 | | | — | |
| Vested | (1,520,737) | | | 12.75 | | | (2,310,042) | | | 7.03 | |
| Forfeited/expired/canceled | (40,377) | | | 12.42 | | | (605,383) | | | 7.93 | |
| | | | | | | |
| Unvested units outstanding at end of period | 3,575,028 | | | 13.38 | | | 3,504,777 | | | 12.88 | |
The following table provides certain information related to restricted stock units:
TABLE 12.2
| | | | | | | | | | | |
| (in millions) | Nine Months Ended
September 30, |
| | 2024 | | 2023 |
| Stock-based compensation expense | $ | 15 | | | $ | 15 | |
| Tax benefit related to stock-based compensation expense | 3 | | | 3 | |
| Fair value of units vested | 19 | | | 18 | |
As of September 30, 2024, there was $12.9 million of unrecognized compensation cost related to unvested restricted stock units.
The components of the restricted stock units as of September 30, 2024 are as follows:
TABLE 12.3
| | | | | | | | | | | | | | | | | |
| (dollars in millions) | Service-
Based
Units | | Performance-
Based
Units | | Total |
| Unvested restricted stock units | 2,613,344 | | | 961,684 | | | 3,575,028 | |
| Unrecognized compensation expense | $ | 13 | | | $ | — | | | $ | 13 | |
| Intrinsic value | $ | 37 | | | $ | 14 | | | $ | 51 | |
| Weighted average remaining life (in years) | 1.82 | | 1.71 | | 1.79 |
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) | 2024 | | 2023 | | 2024 | | 2023 |
| Current income taxes: | | | | | | | |
| Federal taxes | $ | 27 | | | $ | 12 | | | $ | 74 | | | $ | 79 | |
| State taxes | 2 | | | 3 | | | 6 | | | 8 | |
| Total current income taxes | 29 | | | 15 | | | 80 | | | 87 | |
| Deferred income taxes: | | | | | | | |
| Federal taxes | 1 | | | 3 | | | 15 | | | 2 | |
| State taxes | — | | | 1 | | | 3 | | | 2 | |
| Total deferred income taxes | 1 | | | 4 | | | 18 | | | 4 | |
| Total income taxes | $ | 30 | | | $ | 19 | | | $ | 98 | | | $ | 91 | |
| Statutory federal tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Effective tax rate | 21.4 | | | 11.5 | | | 21.5 | | | 17.4 | |
Income tax expense was higher for the three and nine months ended September 30, 2024 driven by a renewable energy investment tax credit recognized as part of a solar project financing transaction that closed in September 2023. The increase was also attributable, to a lesser extent from lower stock compensation vesting deductions, higher disallowance of FDIC
premium deductions and higher levels of proportional amortization for certain tax credit investments resulting from the adoption of FASB ASU 2023-02 on January 1, 2024.
The higher effective tax rate for the three and nine months ended September 30, 2024 compared to 2023 was primarily due to the renewable energy investment tax credits as part of a solar project financing transaction that closed in September 2023.
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 $80.5 million and $120.8 million at September 30, 2024 and December 31, 2023, respectively.
NOTE 14. OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents changes in AOCI, net of tax, by component:
TABLE 14.1
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Unrealized
Net Gains (Losses) on
Debt Securities
Available
for Sale | | Unrealized
Net Gains
(Losses) on
Derivative
Instruments | | Unrecognized
Pension and
Postretirement
Obligations | | Total |
| Nine Months Ended September 30, 2024 | | | | | | | |
| Balance at beginning of period | $ | (160) | | | $ | (33) | | | $ | (42) | | | $ | (235) | |
| Other comprehensive (loss) income before reclassifications | 62 | | | (6) | | | 1 | | | 57 | |
| Amounts reclassified from AOCI | — | | | 24 | | | — | | | 24 | |
| Net current period other comprehensive income | 62 | | | 18 | | | 1 | | | 81 | |
| Balance at end of period | $ | (98) | | | $ | (15) | | | $ | (41) | | | $ | (154) | |
|
The amounts reclassified from AOCI related to debt securities AFS are included in net securities gains (losses) on the Consolidated Statements of Income, while the amounts reclassified from AOCI related to derivative instruments in cash flow hedge programs are generally included in interest income on loans and leases on the Consolidated Statements of Income. The tax (benefit) expense amounts reclassified from AOCI in connection with the debt securities AFS and derivative instruments reclassifications are included in income taxes on the Consolidated Statements of Income.
NOTE 15. EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding net of unvested shares of restricted stock.
Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options and restricted shares, as calculated using the treasury stock method. Adjustments to the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.
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) | 2024 | | 2023 | | 2024 | | 2023 |
| Net income | $ | 110 | | | $ | 145 | | | $ | 355 | | | $ | 434 | |
| Less: Preferred stock dividends | — | | | 2 | | | 6 | | | 6 | |
| Net income available to common stockholders | $ | 110 | | | $ | 143 | | | $ | 349 | | | $ | 428 | |
| Basic weighted average common shares outstanding | 361,272,879 | | | 360,847,457 | | | 361,425,077 | | | 360,603,432 | |
| Net effect of dilutive stock options and restricted stock | 1,152,649 | | | 930,968 | | | 1,157,928 | | | 2,501,504 | |
| Diluted weighted average common shares outstanding | 362,425,528 | | | 361,778,425 | | | 362,583,005 | | | 363,104,936 | |
| Earnings per common share: | | | | | | | |
| Basic | $ | 0.30 | | | $ | 0.40 | | | $ | 0.97 | | | $ | 1.19 | |
| Diluted | $ | 0.30 | | | $ | 0.40 | | | $ | 0.96 | | | $ | 1.18 | |
There were no anti-dilutive shares for the nine months ended September 30, 2024 and 2023. NOTE 16. CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information:
TABLE 16.1
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| (in millions) | 2024 | | 2023 |
| Interest paid on deposits and other borrowings | $ | 720 | | | $ | 420 | |
| Income taxes paid | 42 | | | 94 | |
| Transfers of loans to other real estate owned | 1 | | | 2 | |
| | | |
| Loans transferred to held for sale from portfolio | 431 | | | — | |
| Loans transferred to portfolio from held for sale | 14 | | 33 | |
We did not have any restricted cash as of September 30, 2024 and 2023.
NOTE 17. BUSINESS SEGMENTS
We operate in three reportable segments: Community Banking, Wealth Management and Insurance.
•The Community Banking segment provides commercial and consumer banking services. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, business credit, capital markets and lease financing. Consumer banking products and services include deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services.
•The Wealth Management segment provides a broad range of personal and corporate fiduciary services including the administration of decedent and trust estates. In addition, it offers various alternative products, including securities brokerage (under a third-party arrangement) and investment advisory services, mutual funds and annuities.
•The Insurance segment includes a full-service insurance brokerage service offering all lines of commercial and personal insurance through major carriers. The Insurance segment also includes a reinsurer.
The following table provides financial information for these segments of FNB. The information provided under the caption “Parent and Other” represents operations not considered to be reportable segments and/or general operating expenses of FNB, and includes the parent company, other non-bank subsidiaries and eliminations and adjustments to reconcile to the Consolidated Financial Statements.
TABLE 17.1
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| (in millions) | Community
Banking | | Wealth
Management | | Insurance | | Parent and
Other | | Consolidated |
| At or for the Three Months Ended September 30, 2024 | | | | | | | | |
| Interest income | $ | 581 | | | $ | — | | | $ | — | | | $ | 2 | | | $ | 583 | |
| Interest expense | 252 | | | — | | | — | | | 8 | | | 260 | |
| Net interest income | 329 | | | — | | | — | | | (6) | | | 323 | |
| Provision for credit losses | 23 | | | — | | | — | | | — | | | 23 | |
| Non-interest income | 67 | | | 19 | | | 5 | | | (2) | | | 89 | |
Non-interest expense (1) | 222 | | | 14 | | | 4 | | | 5 | | | 245 | |
| Amortization of intangibles | 4 | | | — | | | — | | | — | | | 4 | |
| Income tax expense (benefit) | 32 | | | 1 | | | — | | | (3) | | | 30 | |
| Net income (loss) | 115 | | | 4 | | | 1 | | | (10) | | | 110 | |
| Total assets | 47,662 | | | 41 | | | 32 | | | 241 | | | 47,976 | |
| Total intangibles | 2,499 | | | 9 | | | 26 | | | — | | | 2,534 | |
| At or for the Three Months Ended September 30, 2023 | | | | | | | | |
| Interest income | $ | 512 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 513 | |
| Interest expense | 180 | | | — | | | — | | | 7 | | | 187 | |
| Net interest income | 332 | | | — | | | — | | | (6) | | | 326 | |
| Provision for credit losses | 25 | | | — | | | — | | | — | | | 25 | |
| Non-interest income | 60 | | | 18 | | | 4 | | | (1) | | | 81 | |
Non-interest expense (1) | 194 | | | 12 | | | 5 | | | 2 | | | 213 | |
| Amortization of intangibles | 5 | | | — | | | — | | | — | | | 5 | |
| Income tax expense (benefit) | 19 | | | 2 | | | — | | | (2) | | | 19 | |
| Net income (loss) | 149 | | | 4 | | | (1) | | | (7) | | | 145 | |
| Total assets | 45,305 | | | 40 | | | 30 | | | 121 | | | 45,496 | |
| Total intangibles | 2,516 | | | 9 | | | 26 | | | — | | | 2,551 | |
| (1) Excludes amortization of intangibles, which is presented separately. | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Community
Banking | | Wealth
Management | | Insurance | | Parent and
Other | | Consolidated |
| At or for the Nine Months Ended September 30, 2024 | | | | | | | | |
| Interest income | $ | 1,678 | | | $ | — | | | $ | — | | | $ | 5 | | | $ | 1,683 | |
| Interest expense | 703 | | | — | | | — | | | 22 | | | 725 | |
| Net interest income | 975 | | | — | | | — | | | (17) | | | 958 | |
| Provision for credit losses | 57 | | | — | | | — | | | — | | | 57 | |
| Non-interest income | 194 | | | 59 | | | 18 | | | (6) | | | 265 | |
Non-interest expense (1) | 632 | | | 41 | | | 14 | | | 13 | | | 700 | |
| Amortization of intangibles | 13 | | | — | | | — | | | — | | | 13 | |
| Income tax expense (benefit) | 102 | | | 4 | | | 1 | | | (9) | | | 98 | |
| Net income (loss) | 365 | | | 14 | | | 3 | | | (27) | | | 355 | |
| Total assets | 47,662 | | | 41 | | | 32 | | | 241 | | | 47,976 | |
| Total intangibles | 2,499 | | | 9 | | | 26 | | | — | | | 2,534 | |
| At or for the Nine Months Ended September 30, 2023 | | | | | | | | |
| Interest income | $ | 1,437 | | | $ | — | | | $ | — | | | $ | 4 | | | $ | 1,441 | |
| Interest expense | 425 | | | — | | | — | | | 24 | | | 449 | |
| Net interest income | 1,012 | | | — | | | — | | | (20) | | | 992 | |
| Provision for credit losses | 58 | | | — | | | — | | | — | | | 58 | |
| Non-interest income | 172 | | | 54 | | | 18 | | | (3) | | | 241 | |
Non-interest expense (1) | 576 | | | 38 | | | 14 | | | 7 | | | 635 | |
| Amortization of intangibles | 15 | | | — | | | — | | | — | | | 15 | |
| Income tax expense (benefit) | 96 | | | 4 | | | 1 | | | (10) | | | 91 | |
| Net income (loss) | 439 | | | 12 | | | 3 | | | (20) | | | 434 | |
| Total assets | 45,305 | | | 40 | | | 30 | | | 121 | | | 45,496 | |
| Total intangibles | 2,516 | | | 9 | | | 26 | | | — | | | 2,551 | |
(1) Excludes amortization of intangibles, which is presented separately.
NOTE 18. FAIR VALUE MEASUREMENTS
Refer to Note 26, "Fair Value Measurements" to the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024 for a description of additional valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis. The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:
TABLE 18.1
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| September 30, 2024 | | | | | | | |
| Assets Measured at Fair Value | | | | | | | |
| Debt securities available for sale | | | | | | | |
| U.S. Treasury | $ | 201 | | | $ | — | | | $ | — | | | $ | 201 | |
| U.S. government agencies | — | | | 62 | | | — | | | 62 | |
| U.S. government-sponsored entities | — | | | 302 | | | — | | | 302 | |
| Residential MBS: | | | | | | | |
| Agency MBS | — | | | 859 | | | — | | | 859 | |
| Agency collateralized mortgage obligations | — | | | 749 | | | — | | | 749 | |
| | | | | | | |
| Agency commercial MBS | — | | | 1,252 | | | — | | | 1,252 | |
| States of the U.S. and political subdivisions (municipals) | — | | | 23 | | | — | | | 23 | |
| Other debt securities | — | | | 46 | | | — | | | 46 | |
| Total debt securities available for sale | 201 | | | 3,293 | | | — | | | 3,494 | |
| Loans held for sale | — | | | 191 | | | — | | | 191 | |
| Loans receivable | — | | | — | | | 49 | | | 49 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Derivative financial instruments | | | | | | | |
| Trading | — | | | 116 | | | — | | | 116 | |
| Not for trading | — | | | 3 | | | 7 | | | 10 | |
| Total derivative financial instruments | — | | | 119 | | | 7 | | | 126 | |
| Total assets measured at fair value on a recurring basis | $ | 201 | | | $ | 3,603 | | | $ | 56 | | | $ | 3,860 | |
| Liabilities Measured at Fair Value | | | | | | | |
| Derivative financial instruments | | | | | | | |
| Trading | $ | — | | | $ | 262 | | | $ | — | | | $ | 262 | |
| Not for trading | — | | | 1 | | | — | | | 1 | |
| Total derivative financial instruments | — | | | 263 | | | — | | | 263 | |
| Total liabilities measured at fair value on a recurring basis | $ | — | | | $ | 263 | | | $ | — | | | $ | 263 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| December 31, 2023 | | | | | | | |
| Assets Measured at Fair Value | | | | | | | |
| Debt securities available for sale | | | | | | | |
| U.S. Treasury | $ | 420 | | | $ | — | | | $ | — | | | $ | 420 | |
| U.S. government agencies | — | | | 79 | | | — | | | 79 | |
| U.S. government-sponsored entities | — | | | 223 | | | — | | | 223 | |
| Residential MBS: | | | | | | | |
| Agency MBS | — | | | 752 | | | — | | | 752 | |
| Agency collateralized mortgage obligations | — | | | 832 | | | — | | | 832 | |
| | | | | | | |
| Agency commercial MBS | — | | | 884 | | | — | | | 884 | |
| States of the U.S. and political subdivisions (municipals) | — | | | 27 | | | — | | | 27 | |
| Other debt securities | — | | | 37 | | | — | | | 37 | |
| Total debt securities available for sale | 420 | | | 2,834 | | | — | | | 3,254 | |
| Loans held for sale | — | | | 150 | | | — | | | 150 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Derivative financial instruments | | | | | | | |
| Trading | — | | | 109 | | | — | | | 109 | |
| Not for trading | — | | | 2 | | | 5 | | | 7 | |
| Total derivative financial instruments | — | | | 111 | | | 5 | | | 116 | |
| Total assets measured at fair value on a recurring basis | $ | 420 | | | $ | 3,095 | | | $ | 5 | | | $ | 3,520 | |
| Liabilities Measured at Fair Value | | | | | | | |
| Derivative financial instruments | | | | | | | |
| Trading | $ | — | | | $ | 324 | | | $ | — | | | $ | 324 | |
| Not for trading | — | | | 4 | | | — | | | 4 | |
| Total derivative financial instruments | — | | | 328 | | | — | | | 328 | |
| Total liabilities measured at fair value on a recurring basis | $ | — | | | $ | 328 | | | $ | — | | | $ | 328 | |
The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:
TABLE 18.2
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Other
Debt
Securities | | Loans Receivable | | | | Interest
Rate Lock
Commitments | | Total |
| Nine Months Ended September 30, 2024 | | | | | | | | | |
| Balance at beginning of period | $ | — | | | $ | — | | | | | $ | 5 | | | $ | 5 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Purchases, issuances, sales and settlements: | | | | | | | | | |
| | | | | | | | | |
| Issuances | — | | | — | | | | | 7 | | | 7 | |
| | | | | | | | | |
| Settlements | — | | | — | | | | | (5) | | | (5) | |
| | | | | | | | | |
| Transfers into Level 3 | — | | | 49 | | | | | — | | | 49 | |
| Balance at end of period | $ | — | | | $ | 49 | | | | | $ | 7 | | | $ | 56 | |
| Year Ended December 31, 2023 | | | | | | | | | |
| Balance at beginning of period | $ | — | | | $ | — | | | | | $ | — | | | $ | — | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Purchases, issuances, sales and settlements: | | | | | | | | | |
| | | | | | | | | |
| Issuances | — | | | — | | | | | 6 | | | 6 | |
| | | | | | | | | |
| Settlements | — | | | — | | | | | (1) | | | (1) | |
| | | | | | | | | |
| | | | | | | | | |
| Balance at end of period | $ | — | | | $ | — | | | | | $ | 5 | | | $ | 5 | |
We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. During the first nine months of 2024, $49.2 million in loans receivable were measured using the fair value option at Level 3 on a recurring basis. There were no transfers of assets or liabilities between the hierarchy levels during the first nine months of 2023.
From time to time, we measure certain assets at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of the lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were described in Note 26, "Fair Value Measurements" to the Consolidated Financial Statements included in 2023 Annual Report on Form 10-K. For assets measured at fair value on a non-recurring basis still held at the Balance Sheet date, the following table provides the hierarchy level and the fair value of the related assets or portfolios: TABLE 18.3
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Level 1 | | Level 2 | | Level 3 | | Total |
| September 30, 2024 | | | | | | | |
| Collateral dependent loans | $ | — | | | $ | — | | | $ | 100 | | | $ | 100 | |
| | | | | | | |
| Other assets - MSRs | — | | | — | | | 13 | | | 13 | |
| | | | | | | |
| | | | | | | |
| December 31, 2023 | | | | | | | |
| Collateral dependent loans | $ | — | | | $ | — | | | $ | 35 | | | $ | 35 | |
| Indirect installment loans held for sale | — | | | — | | | 338 | | | 338 | |
| Other assets - MSRs | — | | | — | | | 12 | | | 12 | |
| Other assets - SBA servicing asset | — | | | — | | | 1 | | | 1 | |
| Other real estate owned | — | | | — | | | 2 | | | 2 | |
The fair value amounts for collateral dependent loans and OREO in the table above were estimated at a date during the nine months or twelve months ended September 30, 2024 and December 31, 2023, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end. Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during the nine months ended September 30, 2024 had a carrying amount of $100.2 million, which includes an allocated ACL of $24.6 million. The ACL includes a provision applicable to the current period fair value measurements of $39.9 million, which was included in provision for credit losses for the nine months ended September 30, 2024.
MSRs measured at fair value on a non-recurring basis had a carrying value of $12.5 million, and a valuation allowance of $2.8 million as of September 30, 2024. The valuation allowance includes a provision of $2.6 million included in earnings for 2024.
Fair Value of Financial Instruments
Refer to Note 26, "Fair Value Measurements" to the Consolidated Financial Statements included in our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024 for a description of methods and assumptions that were used to estimate the fair value of each financial instrument.
The fair values of our financial instruments are as follows:
TABLE 18.4
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value Measurements |
| (in millions) | Carrying
Amount | | Fair
Value | | Level 1 | | Level 2 | | Level 3 |
| September 30, 2024 | | | | | | | | | |
| Financial Assets | | | | | | | | | |
| Cash and cash equivalents | $ | 2,078 | | | $ | 2,078 | | | $ | 2,078 | | | $ | — | | | $ | — | |
| Debt securities available for sale | 3,494 | | | 3,494 | | | 201 | | | 3,293 | | | — | |
| Debt securities held to maturity | 3,820 | | | 3,581 | | | 1 | | | 3,580 | | | — | |
| Net loans and leases, including loans held for sale | 33,490 | | | 32,090 | | | — | | | 191 | | | 31,899 | |
| Loan servicing rights | 66 | | | 77 | | | — | | | — | | | 77 | |
| | | | | | | | | |
| Derivative assets | 126 | | | 126 | | | — | | | 119 | | | 7 | |
| Accrued interest receivable | 166 | | | 166 | | | 166 | | | — | | | — | |
| Financial Liabilities | | | | | | | | | |
| Deposits | 36,771 | | | 36,746 | | | 29,100 | | | 7,646 | | | — | |
| Short-term borrowings | 1,562 | | | 1,564 | | | 1,564 | | | — | | | — | |
| Long-term borrowings | 2,515 | | | 2,530 | | | — | | | 1,758 | | | 772 | |
| Derivative liabilities | 263 | | | 263 | | | — | | | 263 | | | — | |
| Accrued interest payable | 72 | | | 72 | | | 72 | | | — | | | — | |
| December 31, 2023 | | | | | | | | | |
| Financial Assets | | | | | | | | | |
| Cash and cash equivalents | $ | 1,576 | | | $ | 1,576 | | | $ | 1,576 | | | $ | — | | | $ | — | |
| Debt securities available for sale | 3,254 | | | 3,254 | | | 420 | | | 2,834 | | | — | |
| Debt securities held to maturity | 3,911 | | | 3,593 | | | — | | | 3,593 | | | — | |
| Net loans and leases, including loans held for sale | 32,405 | | | 30,641 | | | — | | | 150 | | | 30,491 | |
| Loan servicing rights | 61 | | | 73 | | | — | | | — | | | 73 | |
| | | | | | | | | |
| Derivative assets | 116 | | | 116 | | | — | | | 111 | | | 5 | |
| Accrued interest receivable | 160 | | | 160 | | | 160 | | | — | | | — | |
| Financial Liabilities | | | | | | | | | |
| Deposits | 34,711 | | | 34,654 | | | 28,496 | | | 6,158 | | | — | |
| Short-term borrowings | 2,506 | | | 2,505 | | | 2,505 | | | — | | | — | |
| Long-term borrowings | 1,971 | | | 1,928 | | | — | | | 1,192 | | | 736 | |
| Derivative liabilities | 328 | | | 328 | | | — | | | 328 | | | — | |
| Accrued interest payable | 69 | | | 69 | | | 69 | | | — | | | — | |
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 nine-month periods ended September 30, 2024 and 2023. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024. Our results of operations for the nine months ended September 30, 2024 are not necessarily indicative of results expected for the full year. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Report may contain statements regarding our outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset quality levels, financial position and other matters regarding or affecting our current or future business and operations. These statements can be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve various assumptions, risks and uncertainties which can change over time. Actual results or future events may be different from those anticipated in our forward-looking statements and may not align with historical performance and events. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance upon such statements. Forward-looking statements are typically identified by words such as "believe," "plan," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "will," "should," "project," "goal," and other similar words and expressions. We do not assume any duty to update forward-looking statements, except as required by federal securities laws.
Our forward-looking statements are subject to the following principal risks and uncertainties:
•Our business, financial results and balance sheet values are affected by business, regulatory, economic and political circumstances, including, but not limited to: (i) developments with respect to the U.S. and global financial markets; (ii) supervision, regulation, enforcement and other actions by several governmental agencies, including the FRB, FDIC, Financial Stability Oversight Council (FSOC), DOJ, CFPB, UST, OCC and Department of Housing and Urban Development (HUD), state attorney generals and other governmental agencies whose actions may affect, among other things, our consumer and mortgage lending and deposit practices, capital structure, investment practices, dividend policy, annual FDIC insurance premium assessment, growth opportunities, money supply, market interest rates or otherwise affect business activities of the financial services industry; (iii) a slowing of the U.S. economy in general and regional and local economies within our market area; (iv) inflation concerns; (v) the impacts of tariffs or other trade policies of the U.S. or its global trading partners; and (vi) the sociopolitical environment in the U.S.
•Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards.
•Competition can have an impact on customer acquisition, growth and retention, and on credit spreads, deposit gathering and product pricing, which can affect market share, loans, deposits and revenues. Our ability to anticipate, react quickly and continue to respond to technological changes and significant adverse industry and economic events can also impact our ability to respond to customer needs and meet competitive demands.
•Business and operating results can also be affected by difficult to predict uncertainties, such as widespread natural and other disasters, wars, pandemics, global events and geopolitical instability, including the Ukraine-Russia conflict and the potential for broader conflict in the Middle East, shortages of labor, supply chain disruptions and shipping delays, terrorist activities, system failures, security breaches, significant political events, cyber-attacks, international hostilities or other extraordinary events which are beyond our control and may significantly impact the U.S. or global economy and financial markets generally, or us or our counterparties, customers or third-party vendors specifically.
•Our ability to take certain capital actions, including returning capital to shareholders, is subject to us meeting or exceeding minimum capital levels. Our regulatory capital ratios in the future will depend upon, among other things, our financial performance, the scope and terms of capital regulations then in effect and management actions affecting the composition of our balance sheet.
•Historically we have grown our business in part through acquisitions, new strategic and business initiatives and new products. Potential risks and uncertainties include those presented by the nature of the business acquired, the strategic or business initiative or the new product, including in some cases those associated with our entry into new business lines or new geographic or other markets and risks resulting from our inexperience in those new areas, as well as risks and uncertainties related to the acquisition transactions themselves, increased scrutiny associated with the regulatory
approval process, other regulatory issues stemming from such acquisitions or new initiatives or product lines, the integration of the acquired businesses into us after closing or any failure to execute strategic, risk management or operational plans.
•Legal, regulatory and accounting developments could have an impact on our ability to operate and grow our businesses, financial condition, results of operations, competitive position, and reputation. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and the ability to attract and retain talent. These developments could include:
◦Policies and priorities of the current U.S. presidential administration, including legislative and regulatory reforms, more aggressive approaches to supervisory or enforcement priorities with consumer and anti-discrimination lending laws by the federal banking regulatory agencies and the DOJ, changes affecting oversight of the financial services industry, regulatory obligations or restrictions, consumer protection, taxes, employee benefits, compensation practices, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.
◦Ability to continue to attract, develop and retain key talent.
◦Changes to laws and regulations, including changes affecting the oversight of the financial services industry along with changes in enforcement and interpretation of such laws and regulations, and changes to accounting standards governing bank capital requirements, loan loss reserves and liquidity standards.
◦Changes in governmental monetary and fiscal policies, including interest rate policies and strategies of the FOMC.
◦Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or inquiries. These matters may result in monetary judgments or settlements, enforcement actions or other remedies, including fines, penalties, restitution or alterations in our business practices, including financial and other types of commitments, and in additional expenses and collateral costs, and may cause reputational harm to us.
◦Results of the regulatory examination and supervision process, including our failure to satisfy requirements imposed by the federal bank regulatory agencies or other governmental agencies.
◦Business and operating results that are affected by our ability to effectively identify and manage risks inherent in our businesses, including, where appropriate, through effective use of policies, processes, systems and controls, third-party insurance, derivatives, and capital and liquidity management techniques.
◦The impact on our financial condition, results of operations, financial disclosures and future business strategies related to the impact on the ACL due to changes in forecasted macroeconomic conditions as a result of applying the “current expected credit loss” accounting standard, or CECL.
◦A failure or disruption in or breach of our operational or security systems or infrastructure, or those of third parties, including as a result of cyber-attacks or campaigns.
◦Increased funding costs and market volatility due to market illiquidity and competition for funding.
We caution that the risks identified here are not exhaustive of the types of risks that may adversely impact us and actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties described under Item 1A. Risk Factors and the Risk Management sections of our 2023 Annual Report on Form 10-K (including the MD&A section), our subsequent 2024 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other 2024 filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-information/reports-and-filings or the SEC's website at www.sec.gov. We have included our web address as an inactive textual reference only. Information on our website is not part of our SEC filings. APPLICATION OF CRITICAL ACCOUNTING POLICIES
A description of our critical accounting policies is included in the MD&A section of our 2023 Annual Report on Form 10-K filed with the SEC on February 26, 2024 under the heading “Application of Critical Accounting Policies”. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2023.
USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS
To supplement our Consolidated Financial Statements presented in accordance with GAAP, we use certain non-GAAP financial measures, such as operating net income available to common stockholders, operating earnings per diluted common share, return on average tangible common equity, operating return on average tangible common equity, return on average tangible assets, tangible book value per common share, the ratio of tangible common equity to tangible assets, pre-provision net revenue (reported), operating pre-provision net revenue, operating non-interest expense, net loan charge-offs, excluding an isolated commercial loan charge-off due to alleged fraud (annualized) to total average loans and leases, efficiency ratio and net interest margin (FTE) to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers. Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities. The non-GAAP financial measures and key performance indicators we use may differ from the non-GAAP financial measures and key performance indicators other financial institutions use to assess their performance and trends.
These non-GAAP financial measures should be viewed as supplemental in nature, and not as a substitute for, or superior to, our reported results prepared in accordance with GAAP. When non-GAAP financial measures are disclosed, the SEC's Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included later in this report under the heading “Reconciliations of Non-GAAP Financial Measures and Key Performance Indicators to GAAP”.
Management believes items such as merger expenses, preferred deemed dividend at redemption, FDIC special assessment, software impairment, loss on indirect auto loan sales and branch consolidation costs are not organic to run our operations and facilities. These items are considered significant items impacting earnings as they are deemed to be outside of ordinary banking activities. These costs are specific to each individual transaction and may vary significantly based on the size and complexity of the transaction.
To facilitate peer comparisons of net interest margin and efficiency ratio, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets (loans and investments) to make it fully equivalent to interest income earned on taxable investments (this adjustment is not permitted under GAAP). Taxable-equivalent amounts for 2024 and 2023 were calculated using a federal statutory income tax rate of 21%.
FINANCIAL SUMMARY
Net income available to common stockholders for the third quarter of 2024 was $110.1 million or $0.30 per diluted common share, compared to net income available to common stockholders for the third quarter of 2023 of $143.3 million or $0.40 per diluted common share. On an operating basis, earnings per diluted common share (non-GAAP) was $0.34 for the third quarter of 2024, excluding $0.04 per share of significant items impacting earnings, while the third quarter of 2023 was $0.40.
Our third quarter operating earnings per diluted common share (non-GAAP) totaled $0.34 with significant tangible book value per share (non-GAAP) growth of 15% year-over-year to a record $10.33, strong sequential annualized revenue growth of 9%, with record non-interest income of $90 million, and a solid operating return on average tangible common equity (non-GAAP) of 14%. We had robust linked-quarter deposit growth of $1.8 billion, or 5%, highlighting our ability to leverage our significant client relationships, digital and data analytics capabilities as part of our Clicks-to-Bricks strategy and our diverse geographic footprint to manage the loan-to-deposit ratio which improved nearly 500 basis points from last quarter to 91.7%. Our capital levels reached all-time highs with a tangible common equity ratio (non-GAAP) at 8.2% and CET1 ratio at 10.4%. Our credit metrics ended the quarter at solid levels with the reserve coverage ratio up slightly given our proactive approach to credit risk management.
Income Statement Highlights (third quarter of 2024 compared to third quarter of 2023, except as noted)
•Net interest income totaled $323.3 million, an increase of $7.4 million, or 2.4%, from the prior quarter, primarily due to improved earning asset yields and loan growth, as well as lower short-term borrowing levels, offsetting the higher cost of interest-bearing deposits.
•On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) remained stable with a 1 basis point decline to 3.08%, reflecting an 8 basis point increase in the total yield on earning assets (non-GAAP) and a 10 basis point increase
in the total cost of funds. In September 2024, the FOMC lowered the targeted Federal Funds interest rate by 50 basis points.
•The provision for credit losses was $23.4 million, an increase of $3.2 million from the prior quarter, with net charge-offs of $21.5 million compared to $7.8 million in the prior quarter.
•Non-interest income totaled a record $89.7 million, an increase of 10.0% from the year-ago quarter, benefiting from our diversified business model and related revenue generation.
•Pre-provision net revenue (non-GAAP) totaled $163.6 million, a 7.7% decrease from the prior quarter. On an operating basis, pre-provision net revenue (non-GAAP) totaled $178.8 million, a 0.5% increase from the prior quarter, driven by continued strong non-interest income generation and growth in net interest income, offset by an increase in non-interest expense.
•Non-interest expense totaled $249.4 million, compared to $226.6 million in the prior quarter, including $15.3 million (pre-tax) of significant items in the third quarter of 2024 and $0.8 million in the second quarter of 2024. When adjusting for the significant items, non-interest expense increased $8.4 million, or 3.7%, linked-quarter on an operating basis (non-GAAP).
•The efficiency ratio (non-GAAP) remained at a solid level of 55.2%, compared to 51.7% for the year-ago quarter and 54.4% for the prior quarter.
Balance Sheet Highlights
•Period-end total loans and leases increased $1.6 billion, or 4.9%, compared to September 30, 2023. Commercial loans and leases increased $1.0 billion, or 5.1%, and consumer loans increased $530.9 million, or 4.4%. Our loan growth was driven by the continued success of our strategy to grow high-quality loans and deepen customer relationships across our diverse geographic footprint.
•On a linked-quarter basis, period-end total loans and leases decreased $39.6 million, or 0.1%, with an increase in commercial loans and leases of $92.6 million and a decrease in consumer loans of $132.2 million. In September 2024, we sold $431 million of performing indirect auto loans as part of our balance sheet repositioning actions. The related loss on sale of $11.6 million is reflected as a significant item impacting earnings in other non-interest expense. The loan sale positively impacted the loan-to-deposit ratio by approximately 120 basis points and the CET1 regulatory capital ratio by approximately 10 basis points. Excluding the indirect auto loan sale, period-end total loans and leases increased $391.4 million, or 1.2%.
•Period-end total deposits increased $2.2 billion, or 6.2%, compared to September 30, 2023, driven by an increase of $1.9 billion in shorter-term time deposits and $1.5 billion in interest-bearing demand deposits offsetting the decline in non-interest-bearing demand deposits of $833.2 million and savings deposits of $357.6 million as customers continued to opt for higher-yielding deposit products given the interest rate environment.
•On a linked-quarter basis, period-end total deposits increased $1.8 billion, or 5.1%, with an increase in interest-bearing deposits of $1.3 billion, or 8.9%, and shorter-term time deposits of $783.4 million, offsetting the slight decline in non-interest-bearing demand deposits of $191.5 million and savings deposits of $117.0 million. The mix of non-interest-bearing deposits to total deposits equaled 27% at September 30, 2024, compared to 29% at the prior quarter-end, reflecting the strong interest-bearing deposit growth and fairly stable non-interest-bearing deposit balances.
•The loan-to-deposit ratio was 92% at September 30, 2024, compared to the prior quarter at 96%, reflecting $1.8 billion of linked-quarter deposit growth and the previously mentioned indirect auto loan sale.
•The ratio of non-performing loans plus OREO to total loans and leases plus OREO totaled 0.39%, compared to 0.33% in the prior quarter. Total delinquency increased 16 basis points to 0.79%, compared to 0.63% at September 30, 2023. While these two metrics increased compared to the prior periods shown, the overall asset quality metrics continue to remain near historically low levels.
•The third quarter of 2024 reflected net charge-offs of $21.5 million, or 0.25% annualized of total average loans, compared to $37.7 million, or 0.47% annualized, in the third quarter of 2023.
•The ACL on loans and leases was $420.2 million, an increase of $19.5 million compared to September 30, 2023, with the ratio of the ACL to total loans and leases stable at 1.25%.
•Tangible book value per common share (non-GAAP) of $10.33, increased $1.31, or 14.5%, compared to September 30, 2023. AOCI reduced the tangible book value per common share (non-GAAP) by $0.43 as of September 30, 2024, primarily due to the impact of higher interest rates on the fair value of AFS securities, compared to a $1.06 reduction as of September 30, 2023, an improvement of $0.63 on a year-over-year basis.
•Our capital levels reached all-time highs with the tangible common equity ratio (non-GAAP) at 8.2% and the CET1 regulatory capital ratio at 10.4%.
TABLE 1
| | | | | | | | | | | |
| Three Months Ended
September 30, |
| Quarterly Results Summary | 2024 | | 2023 |
| Reported results | | | |
| Net income available to common stockholders (millions) | $ | 110.1 | | | $ | 143.3 | |
| Net income per diluted common share | 0.30 | | | 0.40 | |
| Book value per common share | 17.38 | | | 16.13 | |
| Operating results (non-GAAP) | | | |
| Operating net income available to common stockholders (millions) | 122.2 | | | 143.3 | |
| Operating net income per diluted common share | 0.34 | | | 0.40 | |
| Average diluted common shares outstanding (thousands) | 362,426 | | | 361,778 | |
Significant items impacting earnings(1) (millions) | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Pre-tax software impairment | $ | (3.7) | | | $ | — | |
| After-tax impact of software impairment | (2.9) | | | — | |
| Pre-tax loss on indirect auto loan sale | (11.6) | | | — | |
| After-tax impact of loss on indirect auto loan sale | (9.1) | | | — | |
| Total significant items pre-tax | $ | (15.3) | | | $ | — | |
| Total significant items after-tax | $ | (12.0) | | | $ | — | |
| Capital measures | | | |
| Common equity tier 1 | 10.44 | % | | 10.17 | % |
| Tangible common equity to tangible assets (non-GAAP) | 8.17 | | | 7.54 | |
| Tangible book value per common share (non-GAAP) | $ | 10.33 | | | $ | 9.02 | |
|
| Nine Months Ended
September 30, |
| Year-to-Date Results Summary | 2024 | | 2023 |
| Reported results | | | |
| Net income available to common stockholders (millions) | $ | 349.5 | | | $ | 428.1 | |
| Net income per diluted common share | 0.96 | | | 1.18 | |
| Operating results (non-GAAP) | | | |
| Operating net income available to common stockholders (millions) | 368.5 | | | 429.9 | |
| Operating net income per diluted common share | 1.02 | | | 1.18 | |
| Average diluted common shares outstanding (thousands) | 362,583 | | | 363,105 | |
Significant items impacting earnings(1) (millions) | | | |
| Preferred dividend equivalent at redemption | $ | (4.0) | | | $ | — | |
| Pre-tax merger-related expenses | — | | | (2.2) | |
| After-tax impact of merger-related expenses | — | | | (1.8) | |
| | | |
| | | |
| Pre-tax branch consolidation costs | (1.2) | | | — | |
| After-tax impact of branch consolidation costs | (0.9) | | | — | |
| Pre-tax FDIC assessment | (5.2) | | | — | |
| After-tax impact of FDIC assessment | (4.1) | | | — | |
| | | |
| | | |
| Pre-tax software impairment | (3.7) | | | — | |
| After-tax impact of software impairment | (2.9) | | | — | |
| Pre-tax loss on indirect auto loan sales | (9.0) | | | — | |
| After-tax impact of loss on indirect auto loan sales | (7.1) | | | — | |
| | | |
| Total significant items after-tax | $ | (19.0) | | | $ | (1.8) | |
(1) Favorable (unfavorable) impact on earnings |
RESULTS OF OPERATIONS
Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023
Net income available to common stockholders for the three months ended September 30, 2024 was $110.1 million or $0.30 per diluted common share, compared to $143.3 million or $0.40 per diluted common share for the three months ended September 30, 2023. On an operating basis, third quarter of 2024 earnings per diluted common share (non-GAAP) was $0.34, excluding the $11.6 million loss on indirect auto loan sale and $3.7 million software impairment. By comparison, third quarter of 2023 earnings per diluted common share (non-GAAP) was $0.40 on an operating basis.
Net interest income totaled $323.3 million, a slight decrease of $3.3 million, or 1.0%, primarily due to higher deposit costs resulting from balance migration to higher yielding deposit products, partially offset by growth in earning assets and higher earning asset yields. The net interest margin (FTE) (non-GAAP) decreased 18 basis points to 3.08%. The yield on earning assets (non-GAAP) increased 40 basis points to 5.51%, driven by a 50 basis point increase on investment securities to 3.33% which benefited from the balance sheet restructuring in late 2023 and a 34 basis point increase in yields on loans to 6.03%. Total cost of funds increased 63 basis points to 2.56%, with a 72 basis point increase in interest-bearing deposit costs to 3.08% and an increase of 66 basis points in total borrowing costs. The provision for credit losses was $23.4 million, compared to $25.9 million. Non-interest income increased $8.1 million, or 10.0%, reflecting increased service charges income, mortgage banking operations income, wealth management revenues, bank owned life insurance and dividends on non-marketable equity securities, offset by reduced capital markets income and interchange and card transaction fees. Non-interest expense for the third quarter of 2024 increased $31.4 million, or 14.4%. Excluding significant items impacting earnings of $15.3 million, operating non-interest expense increased $16.2 million, or 7.4%, on an operating basis (non-GAAP). The biggest drivers of the non-interest expense increase were salaries and benefits expense with an increase of $12.7 million, or 11.2%, primarily from higher production-related commissions and normal annual merit increases, net occupancy and equipment expense with an increase of $4.3 million, or 10.3%, largely due to $3.7 million of software impairment and other non-interest expense, reflecting the $11.6 million loss on the indirect auto loan sale. Income taxes of $30.0 million increased $11.1 million, or 58.8%, as we had a reduction in 2023 income taxes due to renewable energy investment tax credits recognized in the third quarter of 2023 as part of a solar project financing transaction.
Financial highlights are summarized below:
TABLE 2
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | $ | | % |
| (in thousands, except per share data) | 2024 | | 2023 | | Change | | Change |
| Net interest income | $ | 323,329 | | | $ | 326,581 | | | $ | (3,252) | | | (1.0) | % |
| Provision for credit losses | 23,438 | | | 25,934 | | | (2,496) | | | (9.6) | |
| Non-interest income | 89,688 | | | 81,551 | | | 8,137 | | | 10.0 | |
| Non-interest expense | 249,431 | | | 217,998 | | | 31,433 | | | 14.4 | |
| Income taxes | 30,045 | | | 18,919 | | | 11,126 | | | 58.8 | |
| Net income | 110,103 | | | 145,281 | | | (35,178) | | | (24.2) | |
| Less: Preferred stock dividends | — | | | 2,010 | | | (2,010) | | | (100.0) | |
| Net income available to common stockholders | $ | 110,103 | | | $ | 143,271 | | | $ | (33,168) | | | (23.2) | % |
| Earnings per common share – Basic | $ | 0.30 | | | $ | 0.40 | | | $ | (0.10) | | | (25.0) | % |
| Earnings per common share – Diluted | 0.30 | | | 0.40 | | | (0.10) | | | (25.0) | |
| Cash dividends per common share | 0.12 | | | 0.12 | | | — | | | — | |
The following table presents selected financial ratios and other relevant data used to analyze our performance:
TABLE 3
| | | | | | | | | | | |
| | Three Months Ended
September 30, |
| | 2024 | | 2023 |
| Return on average equity | 7.10 | % | | 9.80 | % |
Return on average tangible common equity (1) | 12.43 | | | 18.15 | |
| Return on average assets | 0.92 | | | 1.28 | |
Return on average tangible assets (1) | 1.01 | | | 1.39 | |
| Book value per common share | $ | 17.38 | | | $ | 16.13 | |
Tangible book value per common share (1) | 10.33 | | | 9.02 | |
| Equity to assets | 13.02 | % | | 12.96 | % |
| Average equity to average assets | 13.01 | | | 13.04 | |
| Common equity to assets | 13.02 | | | 12.72 | |
Tangible common equity to tangible assets (1) | 8.17 | | | 7.54 | |
| Common equity tier 1 capital ratio | 10.44 | | | 10.17 | |
| Dividend payout ratio | 39.58 | | | 30.34 | |
(1) Non-GAAP
The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities:
TABLE 4
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2024 | | 2023 |
| (dollars in thousands) | Average
Balance | | Interest
Income/
Expense | | Yield/
Rate | | Average
Balance | | Interest
Income/
Expense | | Yield/
Rate |
| Assets | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | |
| Interest-bearing deposits with banks | $ | 1,003,513 | | | $ | 11,276 | | | 4.47 | % | | $ | 1,223,226 | | | $ | 12,835 | | | 4.16 | % |
| | | | | | | | | | | |
Taxable investment securities (1) | 6,177,736 | | | 48,317 | | | 3.13 | | | 6,046,294 | | | 37,140 | | | 2.46 | |
Tax-exempt investment securities (1)(2) | 1,023,050 | | | 8,816 | | | 3.45 | | | 1,051,475 | | | 9,107 | | | 3.46 | |
| Loans held for sale | 300,326 | | | 5,729 | | | 7.61 | | | 109,568 | | | 2,416 | | | 8.80 | |
Loans and leases (2)(3) | 33,802,701 | | | 511,564 | | | 6.03 | | | 31,739,561 | | | 454,780 | | | 5.69 | |
Total interest-earning assets (2) | 42,307,326 | | | 585,702 | | | 5.51 | | | 40,170,124 | | | 516,278 | | | 5.11 | |
| Cash and due from banks | 414,536 | | | | | | | 445,341 | | | | | |
| Allowance for credit losses | (427,826) | | | | | | | (415,722) | | | | | |
| Premises and equipment | 501,588 | | | | | | | 461,598 | | | | | |
| Other assets | 4,620,414 | | | | | | | 4,432,826 | | | | | |
| Total assets | $ | 47,416,038 | | | | | | | $ | 45,094,167 | | | | | |
| Liabilities | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | |
| Interest-bearing demand | $ | 15,215,815 | | | 108,762 | | | 2.84 | | | $ | 13,997,552 | | | 75,840 | | | 2.15 | |
| Savings | 3,281,732 | | | 10,406 | | | 1.26 | | | 3,676,239 | | | 9,875 | | | 1.07 | |
| Certificates and other time | 7,234,412 | | | 79,868 | | | 4.39 | | | 5,698,129 | | | 53,293 | | | 3.71 | |
| Total interest-bearing deposits | 25,731,959 | | | 199,036 | | | 3.08 | | | 23,371,920 | | | 139,008 | | | 2.36 | |
| Short-term borrowings | 2,345,960 | | | 29,934 | | | 5.06 | | | 2,245,089 | | | 23,207 | | | 4.09 | |
| Long-term borrowings | 2,314,914 | | | 30,473 | | | 5.24 | | | 1,974,017 | | | 24,565 | | | 4.94 | |
| Total interest-bearing liabilities | 30,392,833 | | | 259,443 | | | 3.39 | | | 27,591,026 | | | 186,780 | | | 2.69 | |
| Non-interest-bearing demand | 9,867,006 | | | | | | | 10,772,923 | | | | | |
| Total deposits and borrowings | 40,259,839 | | | | | 2.56 | | | 38,363,949 | | | | | 1.93 | |
| Other liabilities | 985,545 | | | | | | | 850,382 | | | | | |
| Total liabilities | 41,245,384 | | | | | | | 39,214,331 | | | | | |
| Stockholders’ equity | 6,170,654 | | | | | | | 5,879,836 | | | | | |
| Total liabilities and stockholders’ equity | $ | 47,416,038 | | | | | | | $ | 45,094,167 | | | | | |
| Net interest-earning assets | $ | 11,914,493 | | | | | | | $ | 12,579,098 | | | | | |
Net interest income (FTE) (2) | | | 326,259 | | | | | | | 329,498 | | | |
| Tax-equivalent adjustment | | | (2,930) | | | | | | | (2,917) | | | |
| Net interest income | | | $ | 323,329 | | | | | | | $ | 326,581 | | | |
| Net interest spread | | | | | 2.12 | % | | | | | | 2.42 | % |
Net interest margin (2) | | | | | 3.08 | % | | | | | | 3.26 | % |
(1)The average balances and yields earned on securities are based on historical cost.
(2)The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. The yield on earning assets and the net interest margin are presented on an FTE basis (non-GAAP). We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
(3)Average loans and leases consist of average total loans, including non-accrual loans, less average unearned income.
Net Interest Income
Net interest income on an FTE basis (non-GAAP) decreased $3.2 million, or 1.0%, to $326.3 million for the third quarter of 2024, primarily due to higher deposit costs resulting from the continued deposit balance migration to higher yielding products as well as increased total average borrowings, partially offset by growth in earning assets and higher earning asset yields. Average earning assets of $42.3 billion increased $2.1 billion, or 5.3%, driven by an increase in average loans and leases from the continued success of our strategy to grow high-quality loans and deepen customer relationships across our diverse geographic footprint. Average interest-bearing liabilities of $30.4 billion increased $2.8 billion, or 10.2%, driven by an increase of $2.4 billion in average interest-bearing deposits and an increase in average borrowings of $441.8 million to support strong loan growth. Our net interest margin FTE (non-GAAP) decreased 18 basis points on a year-over-year basis to 3.08%, as the total cost of funds increased 63 basis points to 2.56% which more than offset the increase in the yield on earning assets (non-GAAP) of 40 basis points to 5.51%.
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, 2024, compared to the three months ended September 30, 2023:
TABLE 5
| | | | | | | | | | | | | | | | | |
| (in thousands) | Volume | | Rate | | Net |
Interest Income (1) | | | | | |
| Interest-bearing deposits with banks | $ | (2,355) | | | $ | 796 | | | $ | (1,559) | |
| | | | | |
Securities (2) | 592 | | | 10,294 | | | 10,886 | |
| Loans held for sale | 2,317 | | | 996 | | | 3,313 | |
Loans and leases (2) | 30,747 | | | 26,037 | | | 56,784 | |
Total interest income (2) | 31,301 | | | 38,123 | | | 69,424 | |
Interest Expense (1) | | | | | |
| Deposits: | | | | | |
| Interest-bearing demand | 13,300 | | | 19,622 | | | 32,922 | |
| Savings | 284 | | | 247 | | | 531 | |
| Certificates and other time | 14,848 | | | 11,727 | | | 26,575 | |
| Short-term borrowings | 1,981 | | | 4,746 | | | 6,727 | |
| Long-term borrowings | 4,285 | | | 1,623 | | | 5,908 | |
| Total interest expense | 34,698 | | | 37,965 | | | 72,663 | |
Net change (2) | $ | (3,397) | | | $ | 158 | | | $ | (3,239) | |
(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 $585.7 million for the third quarter of 2024, increased $69.4 million, or 13.4%, from the same quarter of 2023, resulting from the interest rate increases by the FOMC and an increase in average earning assets of $2.1 billion. The increase in earning assets was primarily driven by a $2.1 billion, or 6.5%, increase in average loans and leases, partially offset by a decrease of $219.7 million in average cash balances. Average commercial loan growth of $1.2 billion, or 6.2%, was led by increases of $972.8 million in commercial real estate, $213.8 million in commercial and industrial loans and $62.1 million in commercial leases. The increase in average commercial loans and leases was driven by activity across the footprint, with over half of the year-over-year growth in North and South Carolina. The increase in commercial real estate included fundings on previously originated projects. Average consumer loans increased $819.7 million, or 6.9%, with a $1.4 billion increase in residential mortgages largely due to the continued successful execution in key markets by our expanded mortgage banker team and long-standing strategy of serving the purchase market. This growth was partially offset by a decrease in average indirect auto loans of $528.4 million reflecting the sale of $332 million of such loans that closed in the first quarter of 2024 and $431 million that closed in September of 2024, partially offset by new organic growth in the portfolio. The yield on average earning assets (non-GAAP) increased 40 basis points to 5.51% for the third quarter of 2024,
primarily due to higher yields on loans and investment securities, which benefited from the balance sheet restructuring in late 2023 and a 34 basis point increase in yields on loans to 6.03%.
Interest expense of $259.4 million for the third quarter of 2024 increased $72.7 million from the same quarter of 2023, primarily due to the higher interest rate environment and an increase in average interest-bearing deposits and borrowings. Average interest-bearing deposits increased $2.4 billion, or 10.1%, while average non-interest-bearing deposits decreased $905.9 million, or 8.4%, and average savings deposits of $394.5 million as customers continued to migrate balances into higher-yielding products. The growth in average total deposits reflected organic growth in new and existing customer relationships. Average short-term borrowings increased $100.9 million, or 4.5%, primarily reflecting an increase of $149.5 million in Federal Funds purchased, partially offset by a decrease of $62.3 million in repurchase agreements. Average long-term borrowings increased $340.9 million, or 17.3%, primarily reflecting an increase in long-term FHLB advances as we have maintained additional liquidity following the banking industry disruption in early 2023 and in a continued effort to support strong loan growth. The rate paid on interest-bearing liabilities increased 70 basis points from 2.69% to 3.39%. The total cost of funds increased 63 basis points to 2.56% with a 72 basis point increase in interest-bearing deposit costs to 3.08%, and an increase of 66 basis points in total borrowing costs to fund the strong loan growth. Since the current interest rate increases began in March 2022, our total cumulative spot deposit beta equaled 40% at August 31, 2024.
Provision for Credit Losses
Provision for credit losses is determined based on management’s estimates of the appropriate level of ACL needed to absorb expected life-of-loan losses in the loan and lease portfolio, after giving consideration to charge-offs and recoveries for the period. The following table presents information regarding the provision for credit loss expense and net charge-offs:
TABLE 6
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | $ | | % |
| (dollars in thousands) | 2024 | | 2023 | | Change | | Change |
| Provision for credit losses on loans and leases | $ | 22,850 | | | $ | 25,597 | | | $ | (2,747) | | | (10.7) | % |
Provision for unfunded loan commitments | 601 | | | 364 | | | 237 | | | 65.1 | |
| Total provision for credit losses on loans and leases | 23,451 | | | 25,961 | | | (2,510) | | | (9.7) | |
| Provision for securities | (13) | | | (27) | | | 14 | | | n/m |
| Total provision for credit losses | $ | 23,438 | | | $ | 25,934 | | | $ | (2,496) | | | (9.6) | % |
| Net loan charge-offs | $ | 21,450 | | | $ | 37,699 | | | $ | (16,249) | | | (43.1) | % |
| Net loan charge-offs (annualized) / total average loans and leases | 0.25 | % | | 0.47 | % | | | | |
| n/m - not meaningful | | | | | | | |
Provision for credit losses was $23.4 million during the third quarter of 2024, a decrease of $2.5 million from the same period of 2023. The third quarter of 2024 is comprised of a $22.9 million provision for loans and leases outstanding and a $0.6 million provision for unfunded loan commitments. The third quarter of 2024 reflected net charge-offs of $21.5 million, or 0.25% annualized of total average loans, compared to $37.7 million, or 0.47% annualized, in the third quarter of 2023. During the third quarter of 2023, there was a $31.9 million isolated commercial loan that was charged off due to alleged fraud. 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.
Non-Interest Income
The breakdown of non-interest income for the three months ended September 30, 2024 and 2023 is presented in the following table:
TABLE 7
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | $ | | % |
| (dollars in thousands) | 2024 | | 2023 | | Change | | Change |
| Service charges | $ | 24,024 | | | $ | 21,245 | | | $ | 2,779 | | | 13.1 | % |
| Interchange and card transaction fees | 12,922 | | | 13,521 | | | (599) | | | (4.4) | |
| Trust services | 11,120 | | | 10,526 | | | 594 | | | 5.6 | |
| Insurance commissions and fees | 5,118 | | | 5,047 | | | 71 | | | 1.4 | |
| Securities commissions and fees | 7,876 | | | 6,577 | | | 1,299 | | | 19.8 | |
| Capital markets income | 6,194 | | | 7,077 | | | (883) | | | (12.5) | |
| Mortgage banking operations | 5,540 | | | 3,914 | | | 1,626 | | | 41.5 | |
| Dividends on non-marketable equity securities | 6,560 | | | 5,779 | | | 781 | | | 13.5 | |
| Bank owned life insurance | 6,470 | | | 3,196 | | | 3,274 | | | 102.4 | |
| Net securities gains (losses) | (28) | | | (55) | | | 27 | | | — | |
| | | | | | | |
| Other | 3,892 | | | 4,724 | | | (832) | | | (17.6) | |
| Total non-interest income | $ | 89,688 | | | $ | 81,551 | | | $ | 8,137 | | | 10.0 | % |
Total non-interest income increased by $8.1 million, or 10.0%, to $89.7 million for the third quarter of 2024, compared to $81.6 million for the third quarter of 2023. The variances in the individual non-interest income items are explained in the following paragraphs.
Service charges of $24.0 million increased $2.8 million, or 13.1%, with strong treasury management activity and higher consumer transaction levels.
Wealth management revenues increased $1.9 million, or 11.1%, as securities commissions and fees and trust income increased 19.8% and 5.6%, respectively, through continued strong contributions across the geographic footprint and a $949.3 million, or 11.1%, increase in the market value of assets under management to $9.5 billion.
Capital markets income decreased $0.9 million, or 12.5%, reflecting lower commercial customer transaction activity.
Mortgage banking operations income increased $1.6 million, or 41.5%, driven by improved gain on sale, partially offset by an MSR impairment of $2.8 million in the third quarter of 2024 reflecting accelerating prepayment speed assumptions given the recent declines in mortgage rates at the end of the quarter. During the third quarter of 2024, we sold $339.2 million of residential mortgage loans, compared to $334.4 million for the same period of 2023. Bank owned life insurance increased $3.3 million, or 102.4%, reflecting higher life insurance claims.
Non-Interest Expense
The breakdown of non-interest expense for the three months ended September 30, 2024 and 2023 is presented in the following table:
TABLE 8
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | $ | | % |
| (dollars in thousands) | 2024 | | 2023 | | Change | | Change |
| Salaries and employee benefits | $ | 126,066 | | | $ | 113,351 | | | $ | 12,715 | | | 11.2 | % |
| Net occupancy | 22,384 | | | 18,241 | | | 4,143 | | | 22.7 | |
| Equipment | 23,469 | | | 23,332 | | | 137 | | | 0.6 | |
| Amortization of intangibles | 4,376 | | | 5,040 | | | (664) | | | (13.2) | |
| Outside services | 24,383 | | | 20,796 | | | 3,587 | | | 17.2 | |
| Marketing | 6,023 | | | 5,419 | | | 604 | | | 11.1 | |
| FDIC insurance | 10,064 | | | 8,266 | | | 1,798 | | | 21.8 | |
| Bank shares and franchise taxes | 3,931 | | | 3,927 | | | 4 | | | 0.1 | |
| | | | | | | |
| Other | 28,735 | | | 19,626 | | | 9,109 | | | 46.4 | |
| Total non-interest expense | $ | 249,431 | | | $ | 217,998 | | | $ | 31,433 | | | 14.4 | % |
Total non-interest expense of $249.4 million for the third quarter of 2024 increased $31.4 million, or 14.4%, from the same period of 2023. Non-interest expense increased $16.2 million, or 7.4%, when excluding significant items of $15.3 million in the third quarter of 2024. The variances in the individual non-interest expense items are explained in the following paragraphs.
Salaries and employee benefits of $126.1 million increased $12.7 million, or 11.2%, primarily from normal annual merit increases and higher production-related commissions from strong non-interest income activity, as well as strategic hiring associated with our focus to grow market share and continued investments in our risk management infrastructure.
Net occupancy and equipment of $45.9 million increased $4.3 million, or 10.3%, largely due to the $3.7 million software impairment.
Outside services of $24.4 million increased $3.6 million, or 17.2%, due to higher volume-related technology and third-party costs.
FDIC insurance of $10.1 million increased $1.8 million, or 21.8%, primarily due to loan growth and balance sheet mix shift.
Other non-interest expense of $28.7 million increased $9.1 million, or 46.4%, primarily due to the $11.6 million loss on the indirect auto loan sale during the third quarter of 2024.
The following table presents non-interest expense excluding significant items for the three months ended September 30, 2024 and 2023:
TABLE 9
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | $ | | % |
| (dollars in thousands) | 2024 | | 2023 | | Change | | Change |
| Total non-interest expense, as reported | $ | 249,431 | | | $ | 217,998 | | | $ | 31,433 | | | 14.4 | % |
| Significant items: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Software impairment | (3,690) | | | — | | | (3,690) | | | |
| Loss on indirect auto loan sale | (11,572) | | | — | | | (11,572) | | | |
Total non-interest expense, excluding significant items (1) | $ | 234,169 | | | $ | 217,998 | | | $ | 16,171 | | | 7.4 | % |
(1) Non-GAAP
Income Taxes
The following table presents information regarding income tax expense and certain tax rates:
TABLE 10
| | | | | | | | | | | |
| | Three Months Ended
September 30, |
| (dollars in thousands) | 2024 | | 2023 |
| Income tax expense | $ | 30,045 | | | $ | 18,919 | |
| Effective tax rate | 21.4 | % | | 11.5 | % |
| Statutory federal tax rate | 21.0 | | | 21.0 | |
Income tax expense was higher due to the recording of renewable energy investment tax credits recognized in the third quarter of 2023 as part of a solar project financing transaction. The increase was also attributable, to a lesser extent, from lower stock compensation vesting deductions, higher disallowance of FDIC premium deductions, and higher levels of proportional amortization for certain tax credit investments resulting from the adoption of FASB ASU 2023-02 on January 1, 2024. The effective tax rate increased for the three months ended September 30, 2024 as a result of these items.
Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023
Net income available to common stockholders for the first nine months of 2024 was $349.5 million or $0.96 per diluted common share, compared to $428.1 million or $1.18 per diluted common share for the first nine months of 2023. On an operating basis (non-GAAP), net income available to common stockholders for the first nine months of 2024 was $368.5 million, or $1.02 per diluted common share, compared to $429.9 million or $1.18 per diluted common share for the first nine months of 2023. Net interest income totaled $958.2 million, a decrease of $34.3 million, or 3.5%, compared to $992.5 million. The net interest margin (FTE) (non-GAAP) decreased 28 basis points to 3.11%, as the total cost of funds increased 87 basis points to 2.46% with a 100-basis point increase in interest-bearing deposit costs to 2.95%, as well as an increase of 29 basis points in long-term debt costs. These funding cost increases were partially offset by an increase in the yield on earning assets (non-GAAP) of 54 basis points to 5.45%, primarily due to higher yields on loans and investment securities. The provision for credit losses for the first nine months of 2024 totaled $57.5 million, compared to $58.5 million. Non-interest income totaled $265.5 million, a 10.0% increase compared to $241.2 million, reflecting increased mortgage banking operations income, continued strong wealth management revenues, and higher levels of service charges and dividends on non-marketable equity securities, partially offset by lower capital markets income and insurance commissions and fees. Non-interest expense totaled $713.1 million, increasing $63.3 million, or 9.7%. On an operating basis (non-GAAP), non-interest expense totaled $694.1 million, an increase of $46.4 million, or 7.2%, compared to the first nine months of 2023. Salaries and benefits increased $28.6 million, or 8.2%, due largely to normal annual merit increases and higher production-related commissions from strong non-interest income activity. Additionally, net occupancy and equipment expense increased $13.1 million, or 11.0%, due to the $3.7 million software impairment, combined with technology-related investments. FDIC insurance increased $9.6 million, or 41.5%, primarily due to incremental FDIC special assessment expense of $5.2 million to further replenish the FDIC's Deposit Insurance Fund after the 2023 bank failures, as well as loan growth and balance sheet mix changes.
Financial highlights are summarized below:
TABLE 11
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | $ | | % |
| (in thousands, except per share data) | 2024 | | 2023 | | Change | | Change |
| Net interest income | $ | 958,227 | | | $ | 992,479 | | | $ | (34,252) | | | (3.5) | % |
| Provision for credit losses | 57,517 | | | 58,511 | | | (994) | | | (1.7) | |
| Non-interest income | 265,472 | | | 241,249 | | | 24,223 | | | 10.0 | |
| Non-interest expense | 713,139 | | | 649,870 | | | 63,269 | | | 9.7 | |
| Income taxes | 97,572 | | | 91,169 | | | 6,403 | | | 7.0 | |
| Net income | 355,471 | | | 434,178 | | | (78,707) | | | (18.1) | |
| Less: Preferred stock dividends | 6,005 | | | 6,030 | | | (25) | | | (0.4) | |
| Net income available to common stockholders | $ | 349,466 | | | $ | 428,148 | | | $ | (78,682) | | | (18.4) | % |
| Earnings per common share – Basic | $ | 0.97 | | | $ | 1.19 | | | $ | (0.22) | | | (18.5) | % |
| Earnings per common share – Diluted | 0.96 | | | 1.18 | | | (0.22) | | | (18.6) | |
| Cash dividends per common share | 0.36 | | | 0.36 | | | — | | | — | |
The following table presents selected financial ratios and other relevant data used to analyze our performance:
TABLE 12
| | | | | | | | | | | |
| | Nine Months Ended
September 30, |
| 2024 | | 2023 |
| Return on average equity | 7.81 | % | | 9.98 | % |
Return on average tangible common equity (1) | 13.63 | | | 18.68 | |
| Return on average assets | 1.02 | | | 1.31 | |
Return on average tangible assets (1) | 1.11 | | | 1.43 | |
| Book value per common share | $ | 17.38 | | | $ | 16.13 | |
Tangible book value per common share (1) | 10.33 | | | 9.02 | |
| Equity to assets | 13.02 | % | | 12.96 | % |
| Average equity to average assets | 13.07 | | | 13.12 | |
| Common equity to assets | 13.02 | | | 12.72 | |
Tangible common equity to tangible assets (1) | 8.17 | | | 7.54 | |
| Common equity tier 1 capital ratio | 10.44 | | | 10.17 | |
| Dividend payout ratio | 37.51 | | | 30.50 | |
(1) Non-GAAP
The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities:
TABLE 13
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2024 | | 2023 |
| (dollars in thousands) | Average
Balance | | Interest
Income/
Expense | | Yield/
Rate | | Average
Balance | | Interest
Income/
Expense | | Yield/
Rate |
| Assets | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | |
| Interest-bearing deposits with banks | $ | 915,076 | | | $ | 28,661 | | | 4.18 | % | | $ | 1,093,206 | | | $ | 32,619 | | | 3.99 | % |
| | | | | | | | | | | |
Taxable investment securities (1) | 6,151,500 | | | 141,706 | | | 3.07 | | | 6,114,577 | | | 107,860 | | | 2.35 | |
Tax-exempt investment securities (1)(2) | 1,032,573 | | | 26,698 | | | 3.45 | | | 1,055,505 | | | 27,473 | | | 3.47 | |
| Loans held for sale | 216,403 | | | 12,534 | | | 7.73 | | | 109,282 | | | 5,854 | | | 7.15 | |
Loans and leases (2) (3) | 33,148,858 | | | 1,482,613 | | | 5.97 | | | 31,070,965 | | | 1,276,718 | | | 5.49 | |
Total interest-earning assets (2) | 41,464,410 | | | 1,692,212 | | | 5.45 | | | 39,443,535 | | | 1,450,524 | | | 4.91 | |
| Cash and due from banks | 404,234 | | | | | | | 438,456 | | | | | |
| Allowance for credit losses | (417,393) | | | | | | | (410,701) | | | | | |
| Premises and equipment | 485,378 | | | | | | | 454,738 | | | | | |
| Other assets | 4,588,437 | | | | | | | 4,388,894 | | | | | |
| Total assets | $ | 46,525,066 | | | | | | | $ | 44,314,922 | | | | | |
| Liabilities | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | |
| Interest-bearing demand | $ | 14,812,493 | | | 301,716 | | | 2.72 | | | $ | 14,170,285 | | | 191,992 | | | 1.81 | |
| Savings | 3,351,144 | | | 30,541 | | | 1.22 | | | 3,846,225 | | | 26,832 | | | 0.93 | |
| Certificates and other time | 6,728,312 | | | 217,137 | | | 4.31 | | | 4,966,835 | | | 116,074 | | | 3.12 | |
| Total interest-bearing deposits | 24,891,949 | | | 549,394 | | | 2.95 | | | 22,983,345 | | | 334,898 | | | 1.95 | |
| Short-term borrowings | 2,461,925 | | | 90,472 | | | 4.90 | | | 2,051,516 | | | 54,992 | | | 3.58 | |
| Long-term borrowings | 2,179,733 | | | 85,364 | | | 5.23 | | | 1,589,842 | | | 58,695 | | | 4.94 | |
| Total interest-bearing liabilities | 29,533,607 | | | 725,230 | | | 3.28 | | | 26,624,703 | | | 448,585 | | | 2.25 | |
| Non-interest-bearing demand | 9,908,989 | | | | | | | 11,061,043 | | | | | |
| Total deposits and borrowings | 39,442,596 | | | | | 2.46 | | | 37,685,746 | | | | | 1.59 | |
| Other liabilities | 999,327 | | | | | | | 813,745 | | | | | |
| Total liabilities | 40,441,923 | | | | | | | 38,499,491 | | | | | |
| Stockholders’ equity | 6,083,143 | | | | | | | 5,815,431 | | | | | |
| Total liabilities and stockholders’ equity | $ | 46,525,066 | | | | | | | $ | 44,314,922 | | | | | |
| Net interest-earning assets | $ | 11,930,803 | | | | | | | $ | 12,818,832 | | | | | |
Net interest income (FTE) (2) | | | 966,982 | | | | | | | 1,001,939 | | | |
| Tax-equivalent adjustment | | | (8,755) | | | | | | | (9,460) | | | |
| Net interest income | | | $ | 958,227 | | | | | | | $ | 992,479 | | | |
| Net interest spread | | | | | 2.17 | % | | | | | | 2.66 | % |
Net interest margin (2) | | | | | 3.11 | % | | | | | | 3.39 | % |
(1)The average balances and yields earned on securities are based on historical cost.
(2)The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. The yield on earning assets and the net interest margin are presented on an FTE basis (non-GAAP). We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
(3)Average loans and leases consist of average total loans, including non-accrual loans, less average unearned income.
Net Interest Income
Net interest income on an FTE basis (non-GAAP) totaled $967.0 million, decreasing $35.0 million, or 3.5%, primarily due to higher interest-bearing deposit costs from continued balance migration to higher yielding deposit products in the current interest rate environment and higher total average borrowings, partially offset by growth in earning assets and higher earning asset yields. Average earning assets grew $2.0 billion, or 5.1%, primarily driven by loan growth. Total average commercial loans increased $1.2 billion, or 6.1%. Average consumer loans increased $873.5 million, or 7.7%, with an increase in average residential mortgage loans of $1.3 billion, or 22.9%, largely due to the continued successful execution in key markets by our expanded mortgage banker team and long-standing strategy of serving the purchase market. Partially offsetting the growth in average residential mortgage loans, average indirect installment loans decreased $431.4 million, or 28.1%, reflecting the $332 million sale that closed in the first quarter of 2024 and $431 million sale that closed in September of 2024. Additionally, we reinvested the proceeds of the AFS securities sold in December 2023 as part of our balance sheet repositioning with an average yield of 1.08% into securities with yields approximately 350 basis points higher and a similar duration and convexity profile. For interest-bearing liabilities, average time deposits increased $1.8 billion, or 35.5%, given the continued migration into higher-yielding deposit products. Total average borrowings increased $1.0 billion due to maintaining additional liquidity on the balance sheet following the banking industry disruption in 2023 and to support strong loan growth. The net interest margin (FTE) (non-GAAP) decreased 28 basis points to 3.11%.
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 nine months ended September 30, 2024, compared to the nine months ended September 30, 2023:
TABLE 14
| | | | | | | | | | | | | | | | | |
| (in thousands) | Volume | | Rate | | Net |
Interest Income (1) | | | | | |
| Interest-bearing deposits with banks | $ | (5,287) | | | $ | 1,329 | | | $ | (3,958) | |
| | | | | |
Securities (2) | 208 | | | 32,863 | | | 33,071 | |
| Loans held for sale | 3,405 | | | 3,275 | | | 6,680 | |
Loans and leases (2) | 90,352 | | | 115,543 | | | 205,895 | |
Total interest income (2) | 88,678 | | | 153,010 | | | 241,688 | |
Interest Expense (1) | | | | | |
| Deposits: | | | | | |
| Interest-bearing demand | 23,210 | | | 86,514 | | | 109,724 | |
| Savings | 806 | | | 2,903 | | | 3,709 | |
| Certificates and other time | 46,805 | | | 54,258 | | | 101,063 | |
| Short-term borrowings | 16,529 | | | 18,951 | | | 35,480 | |
| Long-term borrowings | 22,494 | | | 4,175 | | | 26,669 | |
| Total interest expense | 109,844 | | | 166,801 | | | 276,645 | |
Net change (2) | $ | (21,166) | | | $ | (13,791) | | | $ | (34,957) | |
(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.
Provision for Credit Losses
The following table presents information regarding the provision for credit loss expense and net charge-offs:
TABLE 15
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | $ | | % |
| (dollars in thousands) | 2024 | | 2023 | | Change | | Change |
| Provision for credit losses on loans and leases | $ | 56,672 | | | $ | 58,514 | | | $ | (1,842) | | | (3.1) | % |
| Provision for unfunded loan commitments | 869 | | | (71) | | | 940 | | | 1,323.9 | |
| Total provision for credit losses on loans and leases | 57,541 | | | 58,443 | | | (902) | | | (1.5) | |
| Provision for securities | (24) | | | 68 | | | (92) | | | (135.3) | |
| Total provision for credit losses | $ | 57,517 | | | $ | 58,511 | | | $ | (994) | | | (1.7) | % |
| Net loan charge-offs | $ | 42,076 | | | $ | 59,596 | | | $ | (17,520) | | | (29.4) | % |
| Net loan charge-offs (annualized) / total average loans and leases | 0.17 | % | | 0.26 | % | | | | |
The provision for credit losses was $57.5 million, compared to $58.5 million in the first nine months of 2023. The provision for credit losses for the first nine months of 2024 was primarily due to loan growth and charge-off activity. The provision for credit losses in the first nine months of 2023 was primarily due to loan growth, CECL-related model impacts from forecasted macroeconomic conditions and charge-off activity, including a $31.9 million isolated commercial loan that was charged off due to alleged fraud. Our non-performing loan coverage position remains strong at 327%. The first nine months of 2024 reflected net charge-offs of $42.1 million, or 0.17% annualized of total average loans, compared to $59.6 million, or 0.26% annualized, in the first nine months of 2023. The ACL on loans and leases was $420.2 million, an increase of $19.5 million, with the ratio of the ACL to total loans and leases remaining stable at 1.25%.
Non-Interest Income
The breakdown of non-interest income for the nine months ended September 30, 2024 and 2023 is presented in the following table:
TABLE 16
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | $ | | % |
| (dollars in thousands) | 2024 | | 2023 | | Change | | Change |
| Service charges | $ | 67,925 | | | $ | 62,043 | | | $ | 5,882 | | | 9.5 | % |
| Interchange and card transaction fees | 38,627 | | | 39,419 | | | (792) | | | (2.0) | |
| Trust services | 34,019 | | | 31,767 | | | 2,252 | | | 7.1 | |
| Insurance commissions and fees | 17,843 | | | 18,830 | | | (987) | | | (5.2) | |
| Securities commissions and fees | 24,011 | | | 20,980 | | | 3,031 | | | 14.4 | |
| Capital markets income | 17,668 | | | 19,754 | | | (2,086) | | | (10.6) | |
| Mortgage banking operations | 20,410 | | | 13,676 | | | 6,734 | | | 49.2 | |
| Dividends on non-marketable equity securities | 19,648 | | | 15,354 | | | 4,294 | | | 28.0 | |
| Bank owned life insurance | 13,232 | | | 9,016 | | | 4,216 | | | 46.8 | |
| Net securities gains (losses) | (31) | | | (78) | | | 47 | | | — | |
| | | | | | | |
| Other | 12,120 | | | 10,488 | | | 1,632 | | | 15.6 | |
| Total non-interest income | $ | 265,472 | | | $ | 241,249 | | | $ | 24,223 | | | 10.0 | % |
Total non-interest income increased by $24.2 million, or 10.0%. The variances in significant individual non-interest income items are explained in the following paragraphs.
Service charges increased $5.9 million, or 9.5%, primarily due to strong treasury management activity and higher consumer transaction levels.
Wealth management revenues increased $5.3 million, or 10.0%, as securities commissions and fees and trust income increased 14.4% and 7.1%, respectively, through continued strong contributions across the geographic footprint. Additionally, the market value of assets under management increased $949.3 million, or 11.1%, to $9.5 billion.
Capital markets decreased $2.1 million, or 10.6%, reflecting lower commercial customer transaction activity.
Mortgage banking operations income increased $6.7 million, or 49.2%, driven by improved gain on sale from strong production volumes, partially offset by an MSR impairment of $2.8 million in the third quarter of 2024 reflecting accelerating prepayment speed assumptions given the recent declines in mortgage rates. During the first nine months of 2024, we sold $993.3 million of residential mortgage loans, a 28.5% increase compared to $772.7 million for the same period of 2023.
Dividends on non-marketable equity securities increased $4.3 million, or 28.0%, reflecting higher FHLB dividends due to additional borrowings.
Bank owned life insurance increased $4.2 million, or 46.8%, reflecting higher life insurance claims. Non-Interest Expense
The breakdown of non-interest expense for the nine months ended September 30, 2024 and 2023 is presented in the following table:
TABLE 17
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | $ | | % |
| (dollars in thousands) | 2024 | | 2023 | | Change | | Change |
| Salaries and employee benefits | $ | 376,109 | | | $ | 347,544 | | | $ | 28,565 | | | 8.2 | % |
| Net occupancy | 60,611 | | | 52,300 | | | 8,311 | | | 15.9 | |
| Equipment | 71,576 | | | 66,749 | | | 4,827 | | | 7.2 | |
| Amortization of intangibles | 13,197 | | | 15,203 | | | (2,006) | | | (13.2) | |
| Outside services | 70,513 | | | 60,733 | | | 9,780 | | | 16.1 | |
| Marketing | 15,460 | | | 13,063 | | | 2,397 | | | 18.3 | |
| FDIC insurance | 32,680 | | | 23,102 | | | 9,578 | | | 41.5 | |
| Bank shares and franchise taxes | 11,987 | | | 12,025 | | | (38) | | | (0.3) | |
| Merger-related | — | | | 2,215 | | | (2,215) | | | (100.0) | |
| Other | 61,006 | | | 56,936 | | | 4,070 | | | 7.1 | |
| Total non-interest expense | $ | 713,139 | | | $ | 649,870 | | | $ | 63,269 | | | 9.7 | % |
Total non-interest expense of $713.1 million for the first nine months of 2024 increased $63.3 million, a 9.7% increase from the same period of 2023. On an operating basis, non-interest expense (non-GAAP) totaled $694.1 million and increased $46.4 million, or 7.2%, when adjusting for significant items of $19.1 million and $2.2 million in the first nine months of 2024 and 2023, respectively. See Table 18 in this section for a list of the significant items. The variances in the individual non-interest expense items are further explained in the following paragraphs.
Salaries and employee benefits increased $28.6 million, or 8.2%, related to normal annual merit increases and higher production-related commissions from strong non-interest income activity, as well as strategic hiring associated with our focus to grow market share and continued investments in our risk management infrastructure. Included in salaries and employee benefits in the first quarter of 2024 and 2023 were $6.9 million and $6.7 million, respectively, related to normal seasonal long-term compensation expense.
Net occupancy and equipment expense of $132.2 million increased $13.1 million, or 11.0%, primarily from continued technology-related investments, in addition to a $3.7 million software impairment.
Amortization of intangibles of $13.2 million decreased $2.0 million, or 13.2%, as certain intangibles have been fully amortized.
Outside services increased $9.8 million, or 16.1%, with higher volume-related technology and third-party costs.
Marketing expense of $15.5 million increased $2.4 million, or 18.3%, primarily due to the opportunistic timing of marketing campaigns related to our successful deposit initiatives.
FDIC insurance increased $9.6 million, or 41.5%, primarily due to special assessment expense of $5.2 million in 2024 to further replenish the FDIC's Deposit Insurance Fund associated with protecting uninsured depositors following the failed banks in early 2023 based on updated loss information provided by the FDIC, as well as loan growth and balance sheet mix changes.
Other non-interest expense was $61.0 million and $56.9 million for the first nine months of 2024 and 2023, respectively, with the increase primarily related to the $9.0 million loss on indirect auto loan sales which completed in the first and third quarters of 2024 offset by various miscellaneous items.
The following table presents non-interest expense excluding significant items impacting earnings:
TABLE 18
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, | | $ | | % |
| (dollars in thousands) | 2024 | | 2023 | | Change | | Change |
| Total non-interest expense, as reported | $ | 713,139 | | | $ | 649,870 | | | $ | 63,269 | | | 9.7 | % |
| Significant items: | | | | | | | |
| | | | | | | |
| Branch consolidations | (1,194) | | | — | | | (1,194) | | | |
| | | | | | | |
| Merger-related | — | | | (2,215) | | | 2,215 | | | |
| FDIC special assessment | (5,212) | | | — | | | (5,212) | | | |
| Software impairment | (3,690) | | | — | | | (3,690) | | | |
| Loss on indirect auto loan sales | (8,969) | | | — | | | (8,969) | | | |
Total non-interest expense, excluding significant items (1) | $ | 694,074 | | | $ | 647,655 | | | $ | 46,419 | | | 7.2 | % |
(1) Non-GAAP
Income Taxes
The following table presents information regarding income tax expense and certain tax rates:
TABLE 19
| | | | | | | | | | | |
| | Nine Months Ended
September 30, |
| (dollars in thousands) | 2024 | | 2023 |
| Income tax expense | $ | 97,572 | | | $ | 91,169 | |
| Effective tax rate | 21.5 | % | | 17.4 | % |
| Statutory federal tax rate | 21.0 | | | 21.0 | |
Income tax expense was higher in 2024 due to the recording of renewable energy investment tax credits recognized in the third quarter of 2023 as part of a solar project financing transaction. The increase was also attributable, to a lesser extent, from lower stock compensation vesting deductions, higher disallowance of FDIC premium deductions, and higher levels of proportional amortization for certain tax credit investments resulting from the adoption of FASB ASU 2023-02 on January 1, 2024. The effective tax rate increased for the nine months ended September 30, 2024 as a result of these items.
FINANCIAL CONDITION
The following table presents our condensed Consolidated Balance Sheets:
TABLE 20
| | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | September 30,
2024 | | December 31,
2023 | | $
Change | | %
Change |
| Assets | | | | | | | |
| Cash and cash equivalents | $ | 2,078 | | | $ | 1,576 | | | $ | 502 | | | 31.9 | % |
| Securities | 7,314 | | | 7,165 | | | 149 | | | 2.1 | |
| Loans held for sale | 193 | | | 488 | | | (295) | | | (60.5) | |
| Loans and leases, net | 33,297 | | | 31,917 | | | 1,380 | | | 4.3 | |
| Goodwill and other intangibles | 2,534 | | | 2,546 | | | (12) | | | (0.5) | |
| Other assets | 2,560 | | | 2,466 | | | 94 | | | 3.8 | |
| Total Assets | $ | 47,976 | | | $ | 46,158 | | | $ | 1,818 | | | 3.9 | % |
| Liabilities and Stockholders’ Equity | | | | | | | |
| Deposits | $ | 36,771 | | | $ | 34,711 | | | $ | 2,060 | | | 5.9 | % |
| Borrowings | 4,077 | | | 4,477 | | | (400) | | | (8.9) | |
| Other liabilities | 879 | | | 920 | | | (41) | | | (4.5) | |
| Total Liabilities | 41,727 | | | 40,108 | | | 1,619 | | | 4.0 | |
| Stockholders’ Equity | 6,249 | | | 6,050 | | | 199 | | | 3.3 | |
| Total Liabilities and Stockholders’ Equity | $ | 47,976 | | | $ | 46,158 | | | $ | 1,818 | | | 3.9 | % |
Lending Activity
The loan and lease portfolio consists principally of loans and leases to individuals and small- and medium-sized businesses within our primary markets in seven states and the District of Columbia. Our market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina; and Charleston, South Carolina. Loans held for sale declined $295 million, or 60.5%, from December 31, 2023 due primarily to the sale of $332 million of indirect auto loans that closed in the first quarter of 2024.
Following is a summary of loans and leases:
TABLE 21
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30,
2024 | | December 31,
2023 | | $
Change | | %
Change |
| (in millions) | | | | | | | |
| Commercial real estate | $ | 12,812 | | | $ | 12,305 | | | $ | 507 | | | 4.1 | % |
| Commercial and industrial | 7,541 | | | 7,482 | | | 59 | | | 0.8 | |
| Commercial leases | 709 | | | 599 | | | 110 | | | 18.4 | |
| Other | 120 | | | 110 | | | 10 | | | 9.1 | |
| Total commercial loans and leases | 21,182 | | | 20,496 | | | 686 | | | 3.3 | |
| Direct installment | 2,693 | | | 2,741 | | | (48) | | | (1.8) | |
| Residential mortgages | 7,789 | | | 6,640 | | | 1,149 | | | 17.3 | |
| Indirect installment | 706 | | | 1,149 | | | (443) | | | (38.6) | |
| Consumer lines of credit | 1,347 | | | 1,297 | | | 50 | | | 3.9 | |
| Total consumer loans | 12,535 | | | 11,827 | | | 708 | | | 6.0 | |
| Total loans and leases | $ | 33,717 | | | $ | 32,323 | | | $ | 1,394 | | | 4.3 | % |
The growth in commercial loans and leases was across our footprint. Our commercial real estate portfolio included $9.1 billion of non-owner-occupied loans of which 18.7% represented office loans. Our top 25 non-owner-occupied commercial real estate loans averaged approximately $23 million per exposure with the office component primarily made up of mid-sized offices located outside of central business districts with 43% of the office portfolio averaging less than $5 million per exposure. For consumer lending, average residential mortgages increased $1.3 billion, compared to September 2023, primarily driven by seasonal growth in mortgage originations in the second quarter of 2024.
Non-Performing Assets
Following is a summary of non-performing assets:
TABLE 22
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | September 30,
2024 | | December 31,
2023 | | $
Change | | %
Change |
| Commercial real estate | $ | 49 | | | $ | 42 | | | $ | 7 | | | 16.7 | % |
| Commercial and industrial | 48 | | | 39 | | | 9 | | | 23.1 | |
| Commercial leases | 3 | | | 3 | | | — | | | — | |
| Other | 2 | | | — | | | 2 | | | — | |
| Total commercial loans and leases | 102 | | | 84 | | | 18 | | | 21.4 | |
| Direct installment | 6 | | | 5 | | | 1 | | | 20.0 | |
| Residential mortgages | 14 | | | 10 | | | 4 | | | 40.0 | |
| Indirect installment | 2 | | | 2 | | | — | | | — | |
| Consumer lines of credit | 5 | | | 6 | | | (1) | | | (16.7) | |
| Total consumer loans | 27 | | | 23 | | | 4 | | | 17.4 | |
| Total non-performing loans and leases | 129 | | | 107 | | | 22 | | | 20.6 | |
| Other real estate owned | 2 | | | 3 | | | (1) | | | (33.3) | |
| Total non-performing assets | $ | 131 | | | $ | 110 | | | $ | 21 | | | 19.1 | % |
Non-performing assets increased $21.1 million, from $110.0 million at December 31, 2023 to $131.1 million at September 30, 2024, remaining at or near historically low levels.
Allowance for Credit Losses on Loans and Leases
The CECL model takes into consideration the expected credit losses over the life of the loan at the time the loan is originated. The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation:
•a third-party macroeconomic forecast scenario;
•a 24-month R&S forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 12-month period; and
•the historical through-the-cycle default mean calculated using an expanded period to include a prior recessionary period.
At September 30, 2024 and December 31, 2023, we utilized a third-party consensus macroeconomic forecast reflecting the current and projected macroeconomic environment. For our ACL calculation at September 30, 2024, the macroeconomic variables that we utilized included, but were not limited to: (i) the purchase only Housing Price Index, which increases 6.5% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which increases 12.7% over our R&S forecast period, (iii) S&P Volatility, which increases 8.0% in 2024 and 4.7% in 2025 and (iv) personal and business bankruptcies, which increase steadily over the R&S forecast period but average below the historical through-the-cycle period. Macroeconomic variables that we utilized for our ACL calculation as of December 31, 2023 included, but were not limited to: (i) the purchase only Housing Price Index, which increases 5.3% over our R&S forecast period, (ii) a Commercial Real Estate Price Index, which increases 0.1% over our R&S forecast period, (iii) S&P Volatility, which decreases 4.0% in 2024 and 2.9% in 2025 and
(iv) bankruptcies, which increase steadily over the R&S forecast period but average below the historical through the cycle period.
Following is a summary of certain data related to the ACL and loans and leases:
TABLE 23
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Loan Charge-Offs | | Net Loan Charge-Offs to Average Loans | | ACL at |
| Nine Months Ended
September 30, | | Nine Months Ended
September 30, | | September 30, |
| 2024 | | 2023 | | 2024 | | 2023 | | 2024 |
| (dollars in millions) | | | | | | | | | |
| Commercial real estate | $ | 22.0 | | | $ | 5.7 | | | 0.09 | % | | 0.03 | % | | $ | 184.9 | |
| Commercial and industrial | 9.7 | | | 45.5 | | | 0.04 | | | 0.20 | | | 78.4 | |
| Commercial leases | 0.2 | | | — | | | — | | | — | | | 21.6 | |
| Other commercial | 2.0 | | | 2.6 | | | 0.01 | | | 0.01 | | | 4.0 | |
| Direct installment | 0.2 | | | — | | | — | | | — | | | 29.2 | |
| Residential mortgages | 0.1 | | | 0.4 | | | — | | | — | | | 84.2 | |
| Indirect installment | 7.5 | | | 5.3 | | | 0.03 | | | 0.02 | | | 9.0 | |
| Consumer lines of credit | 0.4 | | | 0.1 | | | — | | | — | | | 8.9 | |
| Total net loan charge-offs on loans and leases, net loan charge-offs (annualized)/average loans | $ | 42.1 | | | $ | 59.6 | | | 0.17 | % | | 0.26 | % | | $ | 420.2 | |
| Allowance for credit losses/total loans and leases | | | | | 1.25 | % | | 1.25 | % | | |
| Allowance for credit losses/non-performing loans | | | | | 326.65 | % | | 353.73 | % | | |
The ACL on loans and leases of $420.2 million at September 30, 2024 increased $14.6 million, or 3.6%, from December 31, 2023. Our ending ACL coverage ratio was stable at 1.25% at both September 30, 2024 and December 31, 2023. Total provision for credit losses for the nine months ended September 30, 2024 was $57.5 million, compared to $58.5 million for the same period in 2023. Net charge-offs were $42.1 million for the nine months ended September 30, 2024, compared to $59.6 million for the first nine months of 2023. When excluding the impact of the previously disclosed $31.9 million isolated commercial loan that was charged-off during the third quarter of 2023, net charge-offs would have been $27.7 million, or 0.12% annualized of total average loans (non-GAAP). Net charge-offs for both years remain at historically low levels. The ACL as a percentage of non-performing loans for the total portfolio decreased to 327% as of September 30, 2024, compared to 378% as of December 31, 2023.
Deposits
Our primary source of funds is deposits. Our diversified and granular deposit base are provided by business, consumer and municipal customers who we serve within our footprint.
Following is a summary of deposits:
TABLE 24
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | September 30,
2024 | | December 31,
2023 | | $
Change | | %
Change |
| Non-interest-bearing demand | $ | 9,870 | | | $ | 10,222 | | | $ | (352) | | | (3.4) | % |
| Interest-bearing demand | 15,999 | | | 14,809 | | | 1,190 | | | 8.0 | |
| Savings | 3,231 | | | 3,465 | | | (234) | | | (6.8) | |
| Certificates and other time deposits | 7,671 | | | 6,215 | | | 1,456 | | | 23.4 | |
| Total deposits | $ | 36,771 | | | $ | 34,711 | | | $ | 2,060 | | | 5.9 | % |
Total deposits increased $2.1 billion, or 5.9%, from December 31, 2023, however we continued to experience balance migration into higher-yielding deposit products. We ended the quarter with approximately 78% of all deposits insured by the FDIC or collateralized.
Capital Resources and Regulatory Matters
Our capital position depends in part on the access to, and cost of, funding for new business initiatives, the ability to engage in expanded business activities, the ability to pay dividends and the level and nature of regulatory oversight.
The assessment of capital adequacy depends on a number of factors such as expected organic growth in the Consolidated Balance Sheet, asset quality, liquidity, earnings performance and sustainability, changing competitive conditions, regulatory changes or actions, and economic forces. We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to current operations and to promote public confidence.
Pursuant to and in compliance with applicable SEC laws, rules and regulations, we may, from time to time, issue and sell in one or more offerings any combination of common stock, preferred stock, debt securities, depositary shares, warrants, stock purchase contracts or units.
Since inception of our $300 million stock purchase program, we repurchased 14.4 million shares at a weighted average share price of $11.43 for $164.3 million, with $135.7 million remaining for repurchase. Any repurchases will be made from time to time on the open market at prevailing market prices or in privately negotiated transactions. The purchases will be funded from available working capital. There is no guarantee as to the exact number of shares that will be repurchased and we may discontinue purchases at any time. The Inflation Reduction Act of 2022 includes a 1% excise tax on stock repurchases beginning January 1, 2023.
On February 15, 2024, we redeemed all our Series E, 7.25% Fixed Rate / Floating Rate Non-Cumulative Perpetual Preferred Stock in the amount of $111 million. The preferred stock is no longer outstanding and dividends will no longer accrue on such securities.
Capital management is a continuous process, with capital plans and stress testing for FNB and FNBPA updated at least annually. These capital plans include assessing the adequacy of expected capital levels assuming various scenarios by projecting capital needs for a forecast period of 2-3 years beyond the current year. From time to time, we issue shares initially acquired by us as treasury stock under our various benefit plans. We may issue additional preferred or common stock to maintain our well-capitalized status.
FNB and FNBPA are subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulators to ensure capital adequacy require FNB and FNBPA to maintain minimum amounts and ratios of total, tier 1 and CET1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of leverage ratio (as defined). Failure to meet minimum capital requirements could lead to initiation of certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our Consolidated Financial Statements, dividends and future business and corporate strategies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FNB and FNBPA must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. FNB’s and FNBPA’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
At September 30, 2024, the capital levels of both FNB and FNBPA exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered “well-capitalized” for regulatory purposes.
In December 2018, the FRB and other U.S. banking agencies approved a rule to address the impact of CECL on regulatory capital by allowing bank holding companies (BHCs) and banks, including FNB, the option to phase in the day-one impact of CECL over a three-year period. In March 2020, the FRB and other U.S. banking agencies issued a final rule that became effective on March 31, 2020, and provides BHCs and banks with an alternative option to temporarily delay the impact of CECL, relative to the incurred loss methodology for the ACL, on regulatory capital. We have elected this alternative option instead of the one described in the December 2018 rule. As a result, under the final rule, we delayed recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extended through December 31, 2021. Beginning on January 1, 2022, we were required to phase in 25% of the previously deferred capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025. Under the final rule, the estimated impact of CECL on regulatory capital that we will defer and later phase in is calculated as
the entire day-one impact at adoption plus 25% of the subsequent change in the ACL during the two-year deferral period. As of September 30, 2024, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $17.2 million, or 5 basis points, which will be eliminated in 2025.
In this unprecedented economic and uncertain environment, we frequently run stress tests for a variety of economic situations, including severely adverse scenarios that have economic conditions like the current conditions. Under these scenarios, the results of these stress tests indicate that our regulatory capital ratios would remain above the regulatory requirements and we would be able to maintain appropriate liquidity levels, demonstrating our expected ability to continue to support our customers and communities under stressful financial conditions.
Following are the capital amounts and related ratios for FNB and FNBPA:
TABLE 25
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Well-Capitalized Requirements (1) | | Minimum Capital
Requirements plus Capital Conservation Buffer |
| (dollars in millions) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| As of September 30, 2024 | | | | | | | | | | | |
| F.N.B. Corporation | | | | | | | | | | | |
| Total capital | $ | 4,582 | | | 12.28 | % | | $ | 3,732 | | | 10.00 | % | | $ | 3,918 | | | 10.50 | % |
| Tier 1 capital | 3,898 | | | 10.44 | | | 2,239 | | | 6.00 | | | 3,172 | | | 8.50 | |
| Common equity tier 1 | 3,898 | | | 10.44 | | | n/a | | n/a | | 2,612 | | | 7.00 | |
| Leverage | 3,898 | | | 8.63 | | | n/a | | n/a | | 1,806 | | | 4.00 | |
| Risk-weighted assets | 37,319 | | | | | | | | | | | |
| FNBPA | | | | | | | | | | | |
| Total capital | $ | 4,740 | | | 12.79 | % | | $ | 3,707 | | | 10.00 | % | | $ | 3,892 | | | 10.50 | % |
| Tier 1 capital | 3,912 | | | 10.55 | | | 2,965 | | | 8.00 | | | 3,151 | | | 8.50 | |
| Common equity tier 1 | 3,832 | | | 10.34 | | | 2,409 | | | 6.50 | | | 2,595 | | | 7.00 | |
| Leverage | 3,912 | | | 8.71 | | | 2,245 | | | 5.00 | | | 1,796 | | | 4.00 | |
| Risk-weighted assets | 37,067 | | | | | | | | | | | |
| As of December 31, 2023 | | | | | | | | | | | |
| F.N.B. Corporation | | | | | | | | | | | |
| Total capital | $ | 4,456 | | | 12.16 | % | | $ | 3,664 | | | 10.00 | % | | $ | 3,847 | | | 10.50 | % |
| Tier 1 capital | 3,786 | | | 10.33 | | | 2,198 | | | 6.00 | | | 3,114 | | | 8.50 | |
| Common equity tier 1 | 3,680 | | | 10.04 | | | n/a | | n/a | | 2,565 | | | 7.00 | |
| Leverage | 3,786 | | | 8.72 | | | n/a | | n/a | | 1,736 | | | 4.00 | |
| Risk-weighted assets | 36,641 | | | | | | | | | | | |
| FNBPA | | | | | | | | | | | |
| Total capital | $ | 4,559 | | | 12.50 | % | | $ | 3,647 | | | 10.00 | % | | $ | 3,829 | | | 10.50 | % |
| Tier 1 capital | 3,769 | | | 10.34 | | | 2,917 | | | 8.00 | | | 3,100 | | | 8.50 | |
| Common equity tier 1 | 3,689 | | | 10.12 | | | 2,370 | | | 6.50 | | | 2,553 | | | 7.00 | |
| Leverage | 3,769 | | | 8.71 | | | 2,164 | | | 5.00 | | | 1,731 | | | 4.00 | |
| Risk-weighted assets | 36,466 | | | | | | | | | | | |
(1) Reflects the well-capitalized standard under Regulation Y for F.N.B. Corporation and the prompt corrective action framework for FNBPA.
In accordance with Basel III Capital Rules, the minimum capital requirements plus capital conservation buffer, which are presented for each period above, represent the minimum requirements needed to avoid limitations on distributions of dividends and certain discretionary bonus payments.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)
The Dodd-Frank Act broadly affects the financial services industry by establishing a framework for systemic risk oversight, creating a resolution authority for institutions determined to be systemically important, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies and containing numerous other provisions aimed at strengthening the sound operation of the financial services sector that significantly change the system of regulatory oversight as described in more detail under Part I, Item 1, “Business - Government Supervision and Regulation” included in our 2023 Annual Report on Form 10-K as filed with the SEC on February 26, 2024. LIQUIDITY
Our primary liquidity management goal is to satisfy the cash flow requirements of customers and the operating cash needs of FNB with cost-effective funding. Our Board of Directors has established an Asset/Liability Management Policy to guide management in achieving and maintaining earnings performance consistent with long-term goals, while maintaining acceptable levels of interest rate risk, a “well-capitalized” Balance Sheet and appropriate levels of liquidity. Our Board of Directors has also established Liquidity and Contingency Funding Policies to guide management in addressing the ability to identify, measure, monitor and control both normal and stressed liquidity conditions. These policies designate our ALCO as the body responsible for meeting these objectives. The ALCO, which is comprised of members of executive management, reviews liquidity on a continuous basis and approves significant changes in strategies that affect Balance Sheet or cash flow positions. Liquidity is centrally managed daily by our Treasury Department.
Parent Company Liquidity
The parent company’s funding requirements primarily consist of shareholder dividends, debt service, income taxes, operating expenses, funding of non-bank subsidiaries, and stock repurchases. The parent company’s funding sources primarily consist of dividends and interest received from the Bank and other direct subsidiaries, net taxes collected from subsidiaries included in the consolidated tax returns, fees for services provided to subsidiaries and the issuance of debt instruments. The dividends received from the Bank and other direct subsidiaries may be impacted by the parent’s or its subsidiaries’ capital and liquidity needs, statutory laws and regulations, corporate policies, contractual restrictions, profitability and other factors. In addition, through one of our subsidiaries, we regularly issue subordinated notes, which are guaranteed by FNB.
Management utilizes various strategies to ensure sufficient cash on hand is available to meet the parent company's funding needs. During the third quarter of 2022, we completed a Senior Debt offering for $347.7 million in net proceeds. A portion of these proceeds was used to retire debt that matured in February 2023 (for additional information, see Note 9, "Borrowings" in the Notes to the Consolidated Financial Statements in this Report). We have historically been opportunistic when accessing the capital markets, and we will continue with that strategy. The parent company's cash position at September 30, 2024 was $286.8 million, down $88.6 million from year-end, primarily due to the redemption of all $111 million of our Series E, 7.25% Fixed Rate / Floating Rate Non-Cumulative Perpetual Preferred Stock in February 2024. The Board of Directors declared the redemption of the preferred stock given its higher relative cost of capital and our strong capital position. Our regulatory CET1 ratio and Total Capital ratios were 10.4% and 12.3%, respectively, at September 30, 2024 with the Total Capital ratio reflecting the completed preferred stock redemption.
Two metrics that are used to gauge the adequacy of the parent company’s cash position are the Liquidity Coverage Ratio (LCR) and Months of Cash on Hand (MCH). The LCR is defined as the sum of cash on hand plus projected cash inflows over the next 12 months divided by projected cash outflows over the next 12 months. The MCH is defined as the number of months of corporate expenses and dividends that can be covered by the existing cash on hand. The LCR and MCH ratios and Parent company cash on hand are presented in the following table:
TABLE 26
| | | | | | | | | | | | | | | | | |
| September 30,
2024 | | December 31,
2023 | | Internal
Limit |
| Liquidity coverage ratio | 1.1 times | | 2.0 times | | > 1 time |
| Months of cash on hand | 6.0 months | | 13.0 months | | > 12 months |
| Parent company cash on hand (millions) | $ | 286.8 | | | $ | 375.4 | | | n/a |
As previously mentioned, our parent company cash on hand declined from December 31, 2023 due to the preferred stock redemption. The decrease in the LCR and MCH at September 30, 2024 are due to the scheduled maturity of $350 million in
senior debt due in August of 2025, which is considered a cash outflow for the ratio calculations. Assuming we replace the maturing senior debt, the ratios would be 2.8 times LCR and 15.3 MCH. Management has concluded that our cash levels remain appropriate given the current market environment.
Bank Liquidity
Bank-level liquidity sources from assets include payments from loans and investments, as well as the ability to securitize, pledge or sell loans, investment securities and other assets. Liquidity sources from liabilities are generated primarily through the banking offices of FNBPA in the form of deposits and customer repurchase agreements. The Bank also has access to reliable and cost-effective wholesale sources of liquidity. Short- and long-term funds are available for use to help fund normal business operations, and unused credit availability can be utilized to serve as contingency funding if faced with a liquidity crisis.
Over time, our liquidity position has been positively impacted by FNBPA's ability to generate growth in relationship-based accounts. Organic growth in low-cost transaction deposits has been complemented by management’s continued strategy of deposit gathering efforts focused on attracting new customer relationships across our geographic footprint and deepening relationships with existing customers, in part through internal lead generation efforts leveraging our data analytics capabilities. These strategies helped management successfully grow total deposits by $2.1 billion, when compared to December 31, 2023. These efforts resulted in time deposits and interest-bearing demand deposits increasing $1.5 billion and $1.2 billion, respectively, when compared to December 31, 2023. Non-interest-bearing demand deposits decreased $351.8 million and savings account balances declined $233.9 million compared to December 31, 2023 as customers continue to migrate deposits into higher-yielding deposit products. The mix of non-interest-bearing deposits to total deposits remained consistent with the prior quarter at 27%. At September 30, 2024, approximately 78% of our deposits were insured by the FDIC or collateralized, stable with December 31, 2023. The liquidity position of FNBPA was further strengthened by the sale of $431 million of indirect auto loans in the third quarter of 2024. Our cash balances held at the FRB were $1.5 billion at September 30, 2024 and $1.1 billion at December 31, 2023. Management will continue to evaluate appropriate levels of liquidity based on expected loan and deposit growth and other balance sheet activity.
The following table presents certain information relating to FNBPA’s credit availability and salable unpledged securities:
TABLE 27
| | | | | | | | | | | |
| (dollars in millions) | September 30,
2024 | | December 31,
2023 |
| Unused wholesale credit availability | $ | 16,011 | | | $ | 15,899 | |
| Unused wholesale credit availability as a % of FNBPA assets | 33.6 | % | | 34.6 | % |
| Salable unpledged government and agency securities | $ | 783 | | | $ | 657 | |
| Salable unpledged government and agency securities as a % of FNBPA assets | 1.6 | % | | 1.4 | % |
| Cash and salable unpledged government and agency securities as a % of FNBPA assets | 4.7 | % | | 3.8 | % |
Our bank-level liquidity position has remained strong throughout 2024. The strong deposit generation noted earlier provided management the flexibility to reduce short- and long-term borrowings by a combined $400 million. Our contingency funding policy and periodic liquidity stress testing of multiple stress scenarios is particularly valuable as we successfully manage our liquidity. We continue to have ample unused borrowing capacity that could cover 2.0 times the uninsured deposit and non-collateralized deposit balances as of September 30, 2024. A portion of this capacity includes the FRB's Discount Window. We have no borrowings under this facility. Additional sources of unused wholesale credit availability for FNBPA include the ability to borrow from the FHLB, correspondent bank lines, and access to other funding channels. In addition to credit availability, FNBPA also has salable unpledged government and agency securities that could be utilized to meet funding needs and has excess cash to meet its pledging requirements. At September 30, 2024, FNBPA has $783 million of cash and salable unpledged government and agency securities representing 4.7% of total assets. This compares to a policy minimum of 3.0%.
Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis as of September 30, 2024 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals. Management calculates this ratio at least quarterly and it is reviewed regularly by ALCO. Management monitors the size of the liquidity gaps so that sources and uses of funds are reasonably matched in the normal course of business and in relation to implied forward rate expectations. A reasonably matched position lays a better foundation for dealing with additional funding needs during a potential liquidity crisis. A positive gap position means that more assets are
expected to mature over the next 12 months than liabilities. The allocation of non-maturity deposits and customer repurchase agreements to the twelve-month categories is based on the estimated lives of each product.
TABLE 28
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | Within
1 Month | | 2-3
Months | | 4-6
Months | | 7-12
Months | | Total
1 Year |
| Assets | | | | | | | | | |
| Loans | $ | 1,133 | | | $ | 1,871 | | | $ | 2,061 | | | $ | 3,620 | | | $ | 8,685 | |
| Investments | 1,570 | | | 178 | | | 258 | | | 646 | | | 2,652 | |
| 2,703 | | | 2,049 | | | 2,319 | | | 4,266 | | | 11,337 | |
| Liabilities | | | | | | | | | |
| Non-maturity deposits | 310 | | | 620 | | | 931 | | | 1,861 | | | 3,722 | |
| Time deposits | 841 | | | 2,146 | | | 2,502 | | | 1,658 | | | 7,147 | |
| Borrowings | 995 | | | 259 | | | 521 | | | 745 | | | 2,520 | |
| 2,146 | | | 3,025 | | | 3,954 | | | 4,264 | | | 13,389 | |
| Period Gap (Assets - Liabilities) | $ | 557 | | | $ | (976) | | | $ | (1,635) | | | $ | 2 | | | $ | (2,052) | |
| Cumulative Gap | $ | 557 | | | $ | (419) | | | $ | (2,054) | | | $ | (2,052) | | | |
| Cumulative Gap to Total Assets | 1.2 | % | | (0.9) | % | | (4.3) | % | | (4.3) | % | | |
The twelve-month cumulative gap to total assets ratio was (4.3)% as of September 30, 2024, compared to (2.6)% as of December 31, 2023. The change in the twelve-month cumulative gap to total assets was primarily related to management's shorter-term time deposit pricing that effectively reduced the average maturity of new time deposits, which reduced our asset sensitivity. In addition, the ALCO regularly monitors various liquidity ratios, stress scenarios of our liquidity position and assumptions considering market disruptions, lending demand, deposit behavior, and funding availability. The stress scenarios forecast that adequate funding will be available even under severe conditions. Management believes we have sufficient liquidity available to meet our normal operating and contingency funding cash needs.
MARKET RISK
Market risk refers to potential losses arising predominately from changes in interest rates, foreign exchange rates, equity prices and commodity prices. Interest rate risk is comprised of repricing risk, basis risk, yield curve risk and options risk. We are primarily exposed to interest rate risk inherent in our lending and deposit-taking activities as a financial intermediary. To succeed in this capacity, we offer an extensive variety of financial products to meet the diverse needs of our customers. These products sometimes contribute to interest rate risk for us when product groups do not complement one another. For example, depositors may want short-term deposits, while borrowers may desire long-term loans.
Changes in market interest rates may result in changes in the fair value of our financial instruments, cash flows and net interest income. Subject to its ongoing oversight, the Board of Directors has given ALCO the responsibility for market risk management, which involves devising policy guidelines, risk measures and limits, and managing the amount of interest rate risk and its effect on net interest income and capital. We use derivative financial instruments for interest rate risk management purposes and not for trading or speculative purposes.
We use an asset/liability model to measure our interest rate risk. Interest rate risk measures we utilize include earnings simulation, EVE and gap analysis. Gap analysis and EVE are static measures that do not incorporate assumptions regarding future business. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single rate environment. EVE’s long-term horizon helps identify changes in optionality and longer-term positions. However, EVE’s liquidation perspective does not translate into the earnings-based measures that are the focus of managing and valuing a going concern. Net interest income simulations explicitly measure the exposure to earnings from changes in market rates of interest. In these simulations, our current financial position is combined with assumptions regarding future business activities to calculate net interest income under various hypothetical rate scenarios. The ALCO regularly reviews earnings simulations over multiple years under various interest rate scenarios. Reviewing these various measures provides us with a comprehensive view of our interest rate risk profile, which provides the basis for balance sheet management strategies.
The following repricing gap analysis as of September 30, 2024 compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing. The allocation of non-maturity deposits and customer repurchase agreements to the one-month maturity category below is based on the estimated sensitivity of each product to changes in market rates. For example, if a product’s rate is estimated to increase by 50% as much as the market rates, then 50% of the account balance was placed in this category.
Management utilizes the repricing gap analysis as a diagnostic tool in managing net interest income and EVE risk measures.
TABLE 29
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | Within
1 Month | | 2-3
Months | | 4-6
Months | | 7-12
Months | | Total
1 Year |
| Assets | | | | | | | | | |
| Loans | $ | 15,570 | | | $ | 1,224 | | | $ | 896 | | | $ | 1,703 | | | $ | 19,393 | |
| Investments | 1,579 | | | 183 | | | 314 | | | 662 | | | 2,738 | |
| 17,149 | | | 1,407 | | | 1,210 | | | 2,365 | | | 22,131 | |
| Liabilities | | | | | | | | | |
| Non-maturity deposits | 8,953 | | | — | | | — | | | — | | | 8,953 | |
| Time deposits | 933 | | | 2,144 | | | 2,499 | | | 1,653 | | | 7,229 | |
| Borrowings | 688 | | | 474 | | | 761 | | | 701 | | | 2,624 | |
| 10,574 | | | 2,618 | | | 3,260 | | | 2,354 | | | 18,806 | |
| Off-balance sheet | (1,200) | | | — | | | 250 | | | 500 | | | (450) | |
| Period Gap (Assets – Liabilities + Off-balance sheet) | $ | 5,375 | | | $ | (1,211) | | | $ | (1,800) | | | $ | 511 | | | $ | 2,875 | |
| Cumulative Gap | $ | 5,375 | | | $ | 4,164 | | | $ | 2,364 | | | $ | 2,875 | | | |
| Cumulative Gap to Earning Assets | 12.6 | % | | 9.8 | % | | 5.5 | % | | 6.7 | % | | |
The twelve-month cumulative repricing gap to total assets was 6.7% and 10.3% as of September 30, 2024 and December 31, 2023, respectively, primarily as a result of management's deposit pricing actions on shorter-term time deposits which effectively reduced the average maturity of new time deposits. The positive cumulative gap positions indicate that we have a greater amount of repricing earning assets than repricing interest-bearing liabilities over the subsequent twelve months. The change in the cumulative repricing gap at September 30, 2024, compared to December 31, 2023, is primarily related to customers moving into shorter-term time deposits and the increase in short-term and variable-rate borrowings.
In addition to the repricing gap analysis above, we model rate scenarios which move all rates gradually over twelve months (Rate Ramps). We also model rate scenarios which move all rates in an immediate and parallel fashion (Rate Shocks) and model scenarios that gradually change the shape of the yield curve. Using a static Balance Sheet structure and utilizing net interest income simulations, the following table presents an analysis of the potential sensitivity of our net interest income to changes in interest rates using Rate Ramps and the sensitivity of EVE using Rate Shocks. The variance percentages represent the change between the net interest income and EVE calculated under the particular rate scenario compared to the net interest income and EVE that was calculated assuming market rates as of September 30, 2024. The calculated results do not reflect management's potential actions.
TABLE 30
| | | | | | | | | | | | | | | | | |
| September 30,
2024 | | December 31,
2023 | | ALCO
Limits |
| Net interest income change over 12 months (Rate Ramps): | | | | | |
| + 200 basis points | 3.7 | % | | 3.9 | % | | (10.0) | % |
| + 100 basis points | 1.9 | | | 2.0 | | | (10.0) | |
| - 100 basis points | (2.0) | | | (2.0) | | | (10.0) | |
| - 200 basis points | (4.0) | | | (4.1) | | | (10.0) | |
| Economic value of equity (Rate Shocks): | | | | | |
| + 300 basis points | 6.9 | | | 4.6 | | | (25.0) | |
| + 200 basis points | 5.3 | | | 3.2 | | | (15.0) | |
| + 100 basis points | 3.4 | | | 1.6 | | | (10.0) | |
| - 100 basis points | (4.5) | | | (2.5) | | | (10.0) | |
| - 200 basis points | (10.4) | | | (8.0) | | | (15.0) | |
There are multiple factors that influence our interest rate risk position and impact net interest income. These include external factors such as the shape of the yield curve, the competitive landscape and expectations regarding future interest rates, as well as internal factors regarding product offerings, product mix and pricing and re-pricing of loans and deposits. Our current interest rate risk position is modestly asset sensitive. A key driver of this position resulted from the origination of consumer and commercial loans with short-term repricing characteristics, some of which have been swapped to a fixed rate. Total variable and adjustable-rate loans were 63.5% and 62.2% of total net loans and leases at September 30, 2024 and December 31, 2023, respectively. Forty-eight percent of our net loans and leases reprice within the next three months and are indexed to short-term SOFR, Prime and other indices. Furthermore, we regularly sell long-term fixed-rate residential mortgages in the secondary market.
Management continues to be proactive in managing our interest rate risk (IRR) position with the intention to manage to a more neutral position given the current market expectations for future interest rates. During the first nine months of 2024, management adjusted the IRR position by slightly extending the duration of the investment securities portfolio, originating adjustable-rate mortgage loans with longer-duration fixed-rate reset periods, strategically meeting our customers' preferences for higher yielding deposit products, with shorter-term time deposits, and utilizing borrowings of variable rates and varying maturities. As a result, the net interest income change over 12 months shown above in both the up and down rate ramp scenarios is closer to neutral compared to December 31, 2023.
We also utilize derivatives to manage the IRR position. These positions are used to protect the fair value of assets and liabilities by converting the contractual interest rate on a specified amount (i.e., notional amounts) to another interest rate index or to hedge the variability in cash flows attributable to the contractually specified interest rate by converting the variable rate index into a fixed rate. The volume, maturity and mix of derivative positions change periodically as we adjust our broader interest rate risk management objectives, and the balance sheet positions to be hedged. We currently have $1.2 billion (notional) of receive-fixed interest rate swaps designated as cash flow hedges for variable rate commercial loans that have an average rate of 1.37% and average maturity of 9.7 months with the last hedge scheduled to expire in May 2026. Additionally, we have a $0.2 million (notional) interest rate collar on variable rate commercial loans with strike rates between 2.8525% and 5.50% that matures in April 2026. We also designated $0.1 billion (notional) of interest rate swaps as hedges of variable rate short-term debt maturing in November 2024.
Derivative financial instruments are also offered to enable commercial customers to meet their financing and investing objectives and for their risk management purposes. We typically enter into offsetting third-party contracts with reputable counterparties with substantially matching terms to economically hedge the exposure related to these derivatives. At September 30, 2024, the commercial customer-related interest rate swaps totaled $5.9 billion (notional), up from $5.7 billion (notional) at December 31, 2023. For additional information regarding interest rate swaps, see Note 10, "Derivative Instruments and Hedging Activities" in the Notes to Consolidated Financial Statements in this Report.
In addition to the rate ramp scenarios for net interest income changes shown above, we also model immediate interest rate shock scenarios. These results use historical long-term deposit rate beta assumptions that are regularly analyzed and adjusted as necessary for both rising and falling rate scenarios. Assuming a static Balance Sheet, a +100 basis point Rate Shock increases net interest income (12 months) by 3.1% at September 30, 2024 and 3.4% at December 31, 2023. For a +200 basis point Rate
Shock, net interest income (12 months) increases by 5.9% at September 30, 2024 and 6.7% at December 31, 2023. The corresponding metrics for a minus 200 basis point Rate Shock are (7.2)% and (7.7)% at September 30, 2024 and December 31, 2023, respectively, compared to a minus 100 basis point Rate Shock of (3.4)% and (3.6)% at September 30, 2024 and December 31, 2023, respectively. The drivers of the change in net interest income in the rate shock scenarios include the mix shift of deposit products into shorter-term time deposits, the pace of deposit repricing and assumed betas and loan prepayments. These results reflect a more neutral net interest income change over 12 months in both the up and down rate shock scenarios compared to December 31, 2023, consistent with the rate ramp results.
We recognize that all asset/liability models have some inherent shortcomings. Asset/liability models require certain assumptions to be made, such as prepayment rates on interest-earning assets and repricing impact on non-maturity deposits, which may differ from actual experience. These business assumptions are based upon our experience, business plans, economic and market trends and available industry data. While management believes that its methodology for developing such assumptions is reasonable, there can be no assurance that modeled results will be achieved. Furthermore, the metrics are based upon the static Balance Sheet structure as of the valuation date and do not reflect planned growth or management actions that could be taken.
CREDIT RATINGS
Our credit ratings affect the cost and availability of short- and long-term funding and collateral requirements for certain derivative instruments.
Credit ratings are subject to ongoing review by rating agencies, which consider a number of factors, including our financial strength, performance, prospects and operations as well as factors not under our control. Other factors that influence our credit ratings include changes to the rating agencies’ methodologies for our industry or certain security types; the rating agencies’ assessment of the general operating environment for financial services companies; our relative positions in the markets in which we compete; our various risk exposures and risk management policies and activities; pending litigation and other contingencies; our reputation; our liquidity position, diversity of funding sources and funding costs; the current and expected level and volatility of our earnings; our capital position and capital management practices; our corporate governance; current or future regulatory and legislative initiatives; and the agencies’ views on whether the U.S. government would provide meaningful support to us or our subsidiaries in a crisis.
Credit rating downgrades or negative watch warnings could negatively impact our reputation with lenders, investors and other third parties, which could also impair our ability to compete in certain markets or engage in certain transactions. In particular, holders of deposits which exceed FDIC insurance limits may perceive such a downgrade or warning negatively and withdraw all or a portion of such deposits.
The following table presents the credit ratings for FNB and FNBPA as of September 30, 2024:
TABLE 31
| | | | | | | | | | | | | | | | | |
| Moody's | | Standard & Poor's | | Kroll |
| F.N.B. Corporation | | | | | |
| Issuer credit rating | Baa2 | | BBB- | | A- |
| Senior debt | Baa2 | | BBB- | | A- |
| Subordinated debt | Baa2 | | n/a | | BBB+ |
| | | | | |
| First National Bank of Pennsylvania | | | | | |
| Baseline credit assessment | Baa1 | | n/a | | n/a |
| Issuer credit rating | Baa1 | | BBB | | A |
| Senior debt | n/a | | n/a | | A |
| Subordinated debt | n/a | | n/a | | A- |
| Bank deposits | A2/P-1 | | n/a | | A |
| Short-term borrowings | n/a | | A-2 | | K1 |
| | | | | |
| Outlook for F.N.B. Corporation and First National Bank of Pennsylvania | Negative | | Stable | | Stable |
| n/a - not applicable | | | | | |
RISK MANAGEMENT
As a financial institution, we take on a certain amount of risk in every business decision, transaction and activity. Accordingly, we have designed an Enterprise Risk Management Framework and risk management practices to help manage enterprise risks. Our Board of Directors and senior management have identified seven major categories of risk: credit risk, market risk, liquidity risk, operational risk, legal and compliance risk, reputation risk and strategic risk. In its oversight role of our risk management function, the Board of Directors focuses on the strategies, analyses and conclusions of management relating to identifying, understanding and managing risks to optimize total shareholder value, while balancing prudent business and safety and soundness considerations.
We support our risk management processes and business oversight through the three lines of defense and a governance structure at the Board of Directors and management levels.
The lines of defense model consists of:
•First Line of Defense - consists of our businesses and enterprise support areas that engage in risk-taking activities and are principally responsible for owning and managing the day-to-day risk-taking activities in accordance with the risk frameworks.
•Second Line of Defense - consists of Risk Management and Compliance Departments responsible for developing risk frameworks, overseeing risk-taking activities and identifying, assessing, monitoring and reporting on enterprise aggregate risks.
•Third Line of Defense - is Internal Audit and provides independent assurance on the effectiveness of controls and risk management practices across our first and second lines of defense.
Our Board of Directors is responsible for the oversight of management on behalf of our stockholders. The Board of Directors has assistance in carrying out its duties and may delegate authority through the following standing Board Committees:
•Audit Committee - provides oversight of our internal and external audit processes. In addition, monitors the integrity of the consolidated financial statements, internal controls over financial reporting, qualifications and independence of our audit function.
•Nominating and Corporate Governance Committee - responsible for selecting and recommending nominees for election to the FNB and FNBPA Boards of Directors.
•Compensation Committee - reviews performance and compensation of senior management and reviews and implements compensation and benefit matters having corporate-wide significance.
•Executive Committee - joint session of the FNB and FNBPA Board of Directors to cover special matters, as deemed necessary, in between regularly scheduled board meetings.
•Risk Committee - provides oversight of our risk management and assessment processes, including the review and approval of risk management policies, procedures and practices, to identify, assess, monitor and report material risks.
•Credit Fair Lending and CRA Committee - responsible for providing oversight of credit and lending strategies and objectives.
The Risk Committee serves as the primary point of contact between our Board of Directors and the Risk Management Council (RMC), which is the senior management level committee responsible for identifying, assessing, monitoring and reporting on enterprise-wide risks. The Risk Committee and RMC are supported by other risk management committees, including Credit Risk Committees, Operational Risk Committee, Compliance Risk Committee and ALCO.
Risk appetite is an integral element of our enterprise risk management framework and of our business and capital planning processes through our Board Risk Committee and Risk Management Council. We use our risk appetite processes to promote appropriate alignment of risk, capital and performance tactics, while also considering risk capacity and appetite constraints from both financial and non-financial risks. The Board of Directors adopted an enterprise risk appetite that defines acceptable risk limits under which we seek to operate in pursuit of optimizing returns. As such, we monitor a series of Key Risk Indicators for various business lines and operation units to measure performance alignment with our stated risk appetite. Our top-down risk appetite process serves as a limit for undue risk-taking for bottom-up planning from our various business functions. Our Board Risk Committee, in collaboration with our Risk Management Council, approves our risk appetite on an annual basis, or more frequently, as needed to reflect changes in the risk, regulatory, economic and strategic plan environments, with the goal of ensuring that our risk appetite remains consistent with our strategic plans and business operations, regulatory environment and our shareholders' expectations.
Our Enterprise Risk Management Framework provides the practices to identify, assess, control and monitor and report on risk across the organization. Reports relating to our risk appetite and strategic plans, and our ongoing monitoring thereof, and our aggregate risk profile, are regularly presented to our various management level risk oversight and planning committees and periodically reported up through our Board Risk Committee.
We continue to assess our risk management practices on an ongoing basis and are making investments as necessary to position ourselves for continued growth and heightened regulatory risk management expectations for large banking institutions over $50 billion.
The Board of Directors believes that our enterprise-wide risk management process is effective and enables the Board of Directors to:
•assess the quality of the information they receive;
•understand the businesses, investments and financial, accounting, legal, regulatory and strategic considerations, and the risks that FNB faces;
•oversee and assess how senior management evaluates risk; and
•assess appropriately the quality of our enterprise-wide risk management processes.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS TO GAAP
Reconciliations of non-GAAP operating measures and key performance indicators discussed in this Report to the most directly comparable GAAP financial measures are included in the following tables.
TABLE 32
Operating net income available to common stockholders
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in thousands) | 2024 | | 2023 | | 2024 | | 2023 |
| Net income available to common stockholders | $ | 110,103 | | | $ | 143,271 | | | $ | 349,466 | | | $ | 428,148 | |
| Preferred dividend at redemption | — | | | — | | | 3,995 | | | — | |
| Merger-related expense | — | | | — | | | — | | | 2,215 | |
| Tax benefit of merger-related expense | — | | | — | | | — | | | (465) | |
| | | | | | | |
| | | | | | | |
| Branch consolidation costs | — | | | — | | | 1,194 | | | — | |
| Tax benefit of branch consolidation costs | — | | | — | | | (251) | | | — | |
| FDIC special assessment | — | | | — | | | 5,212 | | | — | |
| Tax benefit of FDIC special assessment | — | | | — | | | (1,095) | | | — | |
| | | | | | | |
| | | | | | | |
| Software impairment | 3,690 | | | — | | | 3,690 | | | — | |
| Tax benefit of software impairment | (775) | | | — | | | (775) | | | — | |
| Loss on indirect auto loan sales | 11,572 | | | — | | | 8,969 | | | — | |
| Tax benefit of loss on indirect auto loan sales | (2,430) | | | — | | | (1,883) | | | — | |
| Operating net income available to common stockholders (non-GAAP) | $ | 122,160 | | | $ | 143,271 | | | $ | 368,522 | | | $ | 429,898 | |
The table above shows how operating net income available to common stockholders (non-GAAP) is derived from amounts reported in our financial statements. We believe certain charges, such as merger expenses, preferred deemed dividend at redemption, FDIC special assessment, software impairment, loss on indirect auto loan sales and branch consolidation costs are not organic costs to run our operations and facilities. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction.
TABLE 33
Operating earnings per diluted common share
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2024 | | 2023 | | 2024 | | 2023 |
| Earnings per diluted common share | $ | 0.30 | | | $ | 0.40 | | | $ | 0.96 | | | $ | 1.18 | |
| Preferred dividend at redemption | — | | | — | | | 0.01 | | | — | |
| Merger-related expense | — | | | — | | | — | | | 0.01 | |
| Tax benefit of merger-related expense | — | | | — | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| Branch consolidation costs | — | | | — | | | — | | | — | |
| Tax benefit of branch consolidation costs | — | | | — | | | — | | | — | |
| FDIC special assessment | — | | | — | | | 0.01 | | | — | |
| Tax benefit of FDIC special assessment | — | | | — | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| Software impairment | 0.01 | | | — | | | 0.01 | | | — | |
| Tax benefit of software impairment | — | | | — | | | — | | | — | |
| Loss on indirect auto loan sales | 0.03 | | | — | | | 0.02 | | | — | |
| Tax benefit of loss on indirect auto loan sales | (0.01) | | | — | | | (0.01) | | | — | |
| Operating earnings per diluted common share (non-GAAP) | $ | 0.34 | | | $ | 0.40 | | | $ | 1.02 | | | $ | 1.18 | |
TABLE 34
Return on average tangible common equity
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (dollars in thousands) | 2024 | | 2023 | | 2024 | | 2023 |
| Net income available to common stockholders (annualized) | $ | 438,019 | | | $ | 568,414 | | | $ | 466,806 | | | $ | 572,432 | |
| Amortization of intangibles, net of tax (annualized) | 13,753 | | | 15,798 | | | 13,926 | | | 16,058 | |
| Tangible net income available to common stockholders (annualized) (non-GAAP) | $ | 451,772 | | | $ | 584,212 | | | $ | 480,732 | | | $ | 588,490 | |
| Average total stockholders’ equity | $ | 6,170,654 | | | $ | 5,879,836 | | | $ | 6,083,143 | | | $ | 5,815,431 | |
| Less: Average preferred stockholders' equity | — | | | (106,882) | | | (17,554) | | | (106,882) | |
Less: Average intangible assets (1) | (2,535,769) | | | (2,553,738) | | | (2,539,822) | | | (2,558,610) | |
| Average tangible common equity (non-GAAP) | $ | 3,634,885 | | | $ | 3,219,216 | | | $ | 3,525,767 | | | $ | 3,149,939 | |
| Return on average tangible common equity (non-GAAP) | 12.43 | % | | 18.15 | % | | 13.63 | % | | 18.68 | % |
(1) Excludes loan servicing rights.
TABLE 35
Operating return on average tangible common equity
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (dollars in thousands) | 2024 | | 2023 | | 2024 | | 2023 |
| Operating net income available to common stockholders (annualized) | $ | 485,984 | | | $ | 568,412 | | | $ | 492,259 | | | $ | 574,772 | |
| Amortization of intangibles, net of tax (annualized) | 13,753 | | | 15,798 | | | 13,926 | | | 16,058 | |
| Tangible operating net income available to common stockholders (annualized) (non-GAAP) | $ | 499,737 | | | $ | 584,210 | | | $ | 506,185 | | | $ | 590,830 | |
| Average total stockholders' equity | $ | 6,170,654 | | | $ | 5,879,836 | | | $ | 6,083,143 | | | $ | 5,815,431 | |
| Less: Average preferred stockholders' equity | — | | | (106,882) | | | (17,554) | | | (106,882) | |
Less: Average intangible assets (1) | (2,535,769) | | | (2,553,738) | | | (2,539,822) | | | (2,558,610) | |
| Average tangible common equity (non-GAAP) | $ | 3,634,885 | | | $ | 3,219,216 | | | $ | 3,525,767 | | | $ | 3,149,939 | |
| Operating return on average tangible common equity (non-GAAP) | 13.75 | % | | 18.15 | % | | 14.36 | % | | 18.76 | % |
(1) Excludes loan servicing rights.
TABLE 36
Return on average tangible assets
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (dollars in thousands) | 2024 | | 2023 | | 2024 | | 2023 |
| Net income (annualized) | $ | 438,019 | | | $ | 576,385 | | | $ | 474,826 | | | $ | 580,495 | |
| Amortization of intangibles, net of tax (annualized) | 13,753 | | | 15,798 | | | 13,926 | | | 16,058 | |
| Tangible net income (annualized) (non-GAAP) | $ | 451,772 | | | $ | 592,183 | | | $ | 488,752 | | | $ | 596,553 | |
| Average total assets | $ | 47,416,038 | | | $ | 45,094,167 | | | $ | 46,525,066 | | | $ | 44,314,922 | |
Less: Average intangible assets (1) | (2,535,769) | | | (2,553,738) | | | (2,539,822) | | | (2,558,610) | |
| Average tangible assets (non-GAAP) | $ | 44,880,269 | | | $ | 42,540,429 | | | $ | 43,985,244 | | | $ | 41,756,312 | |
| Return on average tangible assets (non-GAAP) | 1.01 | % | | 1.39 | % | | 1.11 | % | | 1.43 | % |
(1) Excludes loan servicing rights.TABLE 37
Tangible book value per common share
| | | | | | | | | | | |
| September 30, 2024 | | September 30, 2023 |
| (dollars in thousands, except per share data) | | | |
| Total stockholders’ equity | $ | 6,248,456 | | | $ | 5,894,280 | |
| Less: Preferred stockholders’ equity | — | | | (106,882) | |
Less: Intangible assets (1) | (2,533,856) | | | (2,551,266) | |
| Tangible common equity (non-GAAP) | $ | 3,714,600 | | | $ | 3,236,132 | |
| Ending common shares outstanding | 359,585,544 | | | 358,828,542 | |
| Tangible book value per common share (non-GAAP) | $ | 10.33 | | | $ | 9.02 | |
(1) Excludes loan servicing rights.
TABLE 38
Tangible common equity to tangible assets
| | | | | | | | | | | |
| September 30, 2024 | | September 30, 2023 |
| (dollars in thousands) | | | |
| Total stockholders' equity | $ | 6,248,456 | | | $ | 5,894,280 | |
| Less: Preferred stockholders' equity | — | | | (106,882) | |
Less: Intangible assets (1) | (2,533,856) | | | (2,551,266) | |
| Tangible common equity (non-GAAP) | $ | 3,714,600 | | | $ | 3,236,132 | |
| Total assets | $ | 47,975,574 | | | $ | 45,495,958 | |
Less: Intangible assets (1) | (2,533,856) | | | (2,551,266) | |
| Tangible assets (non-GAAP) | $ | 45,441,718 | | | $ | 42,944,692 | |
| Tangible common equity to tangible assets (non-GAAP) | 8.17 | % | | 7.54 | % |
(1) Excludes loan servicing rights.
TABLE 39
Operating non-interest expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Three Months Ended | | Nine Months Ended
September 30, |
| 2024 | | 2023 | | June 30, 2024 | | 2024 | | 2023 |
| (dollars in thousands) | | | | | | | | | |
| Non-interest expense | $ | 249,431 | | | $ | 217,998 | | | $ | 226,612 | | | $ | 713,139 | | | $ | 649,870 | |
| Branch consolidations | — | | | — | | | — | | | (1,194) | | | — | |
| Merger-related | — | | | — | | | — | | | — | | | (2,215) | |
| FDIC special assessment | — | | | — | | | (804) | | | (5,212) | | | — | |
| Software impairment | (3,690) | | | — | | | — | | | (3,690) | | | — | |
| Loss on indirect auto loan sales | (11,572) | | | — | | | — | | | (8,969) | | | — | |
| Operating non-interest expense (non-GAAP) | $ | 234,169 | | | $ | 217,998 | | | $ | 225,808 | | | $ | 694,074 | | | $ | 647,655 | |
TABLE 40
Net loan charge-offs, excluding isolated commercial loan charge-off due to alleged fraud (annualized) / total average loans and leases | | | | | | | |
| | | Nine Months Ended
September 30, |
| (dollars in thousands) | | | 2023 |
| Net loan charge-offs | | | $ | 59,596 | |
| Less: Isolated commercial loan charge-off | | | (31,900) | |
| Net loan charge-offs, excluding isolated commercial loan charge-off (non-GAAP) | | | $ | 27,696 | |
| Total average loans and leases | | | $ | 31,070,965 | |
| Net loan charge-offs (annualized) / total average loans and leases | | | 0.26 | % |
| Net loan charge-offs, excluding isolated commercial loan charge-off (annualized) / total average loans and leases (non-GAAP) | | | 0.12 | % |
Key Performance Indicators
TABLE 41
| | | | | | | | | | | |
| Pre-provision net revenue: | Three Months Ended |
| (Dollars in thousands) | September 30, 2024 | | June 30, 2024 |
| Net interest income | $ | 323,329 | | | $ | 315,890 | |
| Non-interest income | 89,688 | | | 87,922 | |
| Less: Non-interest expense | (249,431) | | | (226,612) | |
| Pre-provision net revenue (reported) (non-GAAP) | $ | 163,586 | | | $ | 177,200 | |
| Pre-provision net revenue (reported) (annualized) (non-GAAP) | $ | 650,789 | | | $ | 712,695 | |
| Adjustments: | | | |
| | | |
| | | |
| | | |
| Add: FDIC special assessment (non-interest expense) | $ | — | | | $ | 804 | |
| Add: Software impairment (non-interest expense) | 3,690 | | | — | |
| Add: Loss on indirect auto loan sales (non-interest expense) | 11,572 | | | — | |
| Operating pre-provision net revenue (non-GAAP) | $ | 178,848 | | | $ | 178,004 | |
| Operating pre-provision net revenue (annualized) (non-GAAP) | $ | 711,505 | | | $ | 715,928 | |
TABLE 42
Efficiency ratio
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Three Months Ended | | | |
| (dollars in thousands) | 2024 | | 2023 | | June 30, 2024 | | | | | |
| Non-interest expense | $ | 249,431 | | | $ | 217,998 | | | $ | 226,612 | | | | | | |
| Less: Amortization of intangibles | (4,376) | | | (5,040) | | | (4,379) | | | | | | |
| Less: OREO expense | (354) | | | (317) | | | (200) | | | | | | |
| Less: Merger-related expense | — | | | — | | | — | | | | | | |
| Less: Branch consolidation costs | — | | | — | | | — | | | | | | |
| Less: FDIC special assessment | — | | | — | | | (804) | | | | | | |
| Less: Software impairment | (3,690) | | | — | | | — | | | | | | |
| Less: Loss on indirect auto loan sales | (11,572) | | | — | | | — | | | | | | |
| Adjusted non-interest expense | $ | 229,439 | | | $ | 212,641 | | | $ | 221,229 | | | | | | |
| Net interest income | $ | 323,329 | | | $ | 326,581 | | | $ | 315,890 | | | | | | |
| Taxable equivalent adjustment | 2,930 | | | 2,917 | | | 2,915 | | | | | | |
| Non-interest income | 89,688 | | | 81,551 | | | 87,922 | | | | | | |
| Less: Net securities (gains) losses | 28 | | | 55 | | | 3 | | | | | | |
| | | | | | | | | | |
| Adjusted net interest income (FTE) + non-interest income | $ | 415,975 | | | $ | 411,104 | | | $ | 406,730 | | | | | | |
| Efficiency ratio (FTE) (non-GAAP) | 55.16 | % | | 51.72 | % | | 54.39 | % | | | | | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is provided in the Market Risk section of "MD&A," which is included in Item 2 of this Report, and is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. FNB’s management, with the participation of our principal executive and financial officers, evaluated our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective as of such date at the reasonable assurance level as discussed below to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. FNB’s management, including the CEO and the CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within FNB have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.
CHANGES IN INTERNAL CONTROLS. The CEO and the CFO have evaluated the changes to our internal controls over financial reporting that occurred during our fiscal quarter ended September 30, 2024, as required by paragraph (d) of Rules 13a–15 and 15d–15 under the Securities Exchange Act of 1934, as amended, and have concluded that there were no such changes that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by this Item is set forth in the “Other Legal Proceedings” discussion in Note 11, "Commitments, Credit Risk and Contingencies" of the Notes to the Consolidated Financial Statements, which is incorporated herein by reference in response to this Item.
ITEM 1A. RISK FACTORS
For information regarding risk factors that could affect our results of operations, financial condition and liquidity, see the risk factors disclosed in the “Risk Factors” section of our 2023 Annual Report on Form 10-K. There were no material changes in risk factors relevant to our results of operations, financial condition or liquidity since December 31, 2023. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2024, no director or officer of FNB, nor FNB itself, adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS
Exhibit Index
| | | | | | | | |
| Exhibit Number | | Description |
| 31.1. | | |
| | |
| 31.2. | | |
| | |
| 32.1. | | |
| | |
| 32.2. | | |
| | |
| 101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document (filed herewith). |
| | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith). |
| | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith). |
| | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith). |
| | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith). |
| | |
| 104 | | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | | | F.N.B. CORPORATION |
| | | | | |
| Dated: | | November 5, 2024 | | /s/ Vincent J. Delie, Jr. |
| | | | | Vincent J. Delie, Jr. |
| | | | | Chairman, President and Chief Executive Officer |
| | | | | (Principal Executive Officer) |
| | | |
| Dated: | | November 5, 2024 | | /s/ Vincent J. Calabrese, Jr. |
| | | | | Vincent J. Calabrese, Jr. |
| | | | | Chief Financial Officer |
| | | | | (Principal Financial Officer) |
| | | |
| Dated: | | November 5, 2024 | | /s/ James L. Dutey |
| | | | | James L. Dutey |
| | | | | Corporate Controller |
| | | | | (Principal Accounting Officer) |