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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 March 31, 2021
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 001-31940  
 
F.N.B. CORPORATION
(Exact name of registrant as specified in its charter) 
 
Pennsylvania25-1255406
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One North Shore Center, 12 Federal Street, Pittsburgh, PA15212
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 800-555-5455

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


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on which Registered
Common Stock, par value $0.01 per shareFNBNew York Stock Exchange
Depositary Shares each representing 1/40th interest in a
share of Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series E
FNBPrENew York Stock Exchange
  
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding atApril 30, 2021
Common Stock, $0.01 Par Value319,385,342 Shares

2


F.N.B. CORPORATION
FORM 10-Q
March 31, 2021
INDEX
 
 PAGE
PART I – FINANCIAL INFORMATION 
Item 1.Financial Statements
Item 2.
Item 3.
Item 4.
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
3



Glossary of Acronyms and Terms
Acronym
Description
Acronym
Description
ACL
Allowance for credit losses
HTM
Held to maturity
AFS
Available for sale
LGD
Loss given default
ALCO
Asset/Liability Committee
LIBOR
London Inter-bank Offered Rate
AOCI
Accumulated other comprehensive income
LIHTC
Low income housing tax credit
ASC
Accounting Standards Codification
MD&A
Management's Discussion and Analysis of
Financial Condition and Results of Operations
ASU
Accounting Standards Update
MSRs
Mortgage servicing rights
AULC
Allowance for unfunded loan commitments
OCC
Office of the Comptroller of the Currency
BOLI
Bank owned life insurance
OREO
Other real estate owned
CARES Act
Coronavirus Aid, Relief and Economic Security Act
PCD
Purchased credit deteriorated
CECL
Current expected credit losses
PPPPaycheck Protection Program
CET1
Common equity tier 1
R&S
Reasonable and Supportable
COVID-19
Novel coronavirus disease of 2019
RRR
Reference Rate Reform
EVE
Economic value of equity
SBA
Small Business Administration
FASB
Financial Accounting Standards Board
SEC
Securities and Exchange Commission
FDIC
Federal Deposit Insurance Corporation
SOFR
Secured Overnight Financing Rate
FHLB
Federal Home Loan Bank
TDR
Troubled debt restructuring
FNB
F.N.B. Corporation
TPS
Trust preferred securities
FNBPA
First National Bank of Pennsylvania
U.S.
United States of America
FRB
Board of Governors of the Federal Reserve
System
UST
U.S. Department of the Treasury
FTE
Fully taxable equivalent
VIE
Variable interest entity
GAAP
U.S. generally accepted accounting principles
4


PART I – FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share and per share data)
March 31,
2021
December 31,
2020
 (Unaudited) 
Assets
Cash and due from banks$339 $369 
Interest-bearing deposits with banks2,329 1,014 
Cash and Cash Equivalents2,668 1,383 
Debt securities available for sale (amortized cost of $3,110 and $3,380; allowance for credit losses of $0 and $0)
3,166 3,463 
Debt securities held to maturity (fair value of $3,114 and $2,973; allowance for credit losses of $0 and $0 )
3,043 2,868 
Loans held for sale (includes $165 and $144 measured at fair value(1))
185 154 
Loans and leases, net of unearned income of $93 and $77
25,532 25,459 
Allowance for credit losses(362)(363)
Net Loans and Leases25,170 25,096 
Premises and equipment, net330 332 
Goodwill2,262 2,262 
Core deposit and other intangible assets, net51 54 
Bank owned life insurance549 549 
Other assets1,051 1,193 
Total Assets$38,475 $37,354 
Liabilities
Deposits:
Non-interest-bearing demand$9,935 $9,042 
Interest-bearing demand13,684 13,157 
Savings3,351 3,261 
Certificates and other time deposits3,384 3,662 
Total Deposits30,354 29,122 
Short-term borrowings1,687 1,804 
Long-term borrowings1,091 1,095 
Other liabilities369 374 
Total Liabilities33,501 32,395 
Stockholders’ Equity
Preferred stock - $0.01 par value; liquidation preference of $1,000 per share
Authorized – 20,000,000 shares
Issued – 110,877 shares
107 107 
Common stock - $0.01 par value
Authorized – 500,000,000 shares
Issued – 328,213,157 and 328,057,368 shares
3 3 
Additional paid-in capital4,099 4,087 
Retained earnings921 869 
Accumulated other comprehensive loss(51)(39)
Treasury stock – 9,516,731 and 6,427,839 shares at cost
(105)(68)
Total Stockholders’ Equity4,974 4,959 
Total Liabilities and Stockholders’ Equity$38,475 $37,354 
(1)Amount represents loans for which we have elected the fair value option. See Note 18.
See accompanying Notes to Consolidated Financial Statements (unaudited)
5


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share data)
Unaudited
 Three Months Ended
March 31,
 20212020
Interest Income
Loans and leases, including fees$221 $266 
Securities:
Taxable22 31 
Tax-exempt8 8 
Other 1 
Total Interest Income251 306 
Interest Expense
Deposits15 49 
Short-term borrowings7 14 
Long-term borrowings6 11 
Total Interest Expense28 74 
Net Interest Income223 232 
Provision for credit losses6 48 
Net Interest Income After Provision for Credit Losses217 184 
Non-Interest Income
Service charges28 30 
Trust services9 8 
Insurance commissions and fees7 7 
Securities commissions and fees6 5 
Capital markets income8 11 
Mortgage banking operations16 (1)
Dividends on non-marketable equity securities2 5 
Bank owned life insurance3 3 
Other4 1 
Total Non-Interest Income
83 69 
Non-Interest Expense
Salaries and employee benefits107 104 
Net occupancy16 21 
Equipment17 16 
Amortization of intangibles3 3 
Outside services17 17 
FDIC insurance5 6 
Bank shares and franchise taxes4 4 
Other16 24 
Total Non-Interest Expense
185 195 
Income Before Income Taxes115 58 
Income taxes22 11 
Net Income93 47 
Preferred stock dividends2 2 
Net Income Available to Common Stockholders$91 $45 
Earnings per Common Share
Basic$0.28 $0.14 
Diluted0.28 0.14 
See accompanying Notes to Consolidated Financial Statements (unaudited)
6


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
Unaudited
 
 Three Months Ended
March 31,
20212020
Net income$93 $47 
Other comprehensive income (loss):
Securities available for sale:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $(6) and $15
(21)53 
Derivative instruments:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $1 and $(10)
4 (35)
Reclassification adjustment for gains (losses) included in net income, net of tax expense (benefit) of $1 and $0
4 1 
Pension and postretirement benefit obligations:
Unrealized gains arising during the period, net of tax expense of $0 and $0
1 1 
Other Comprehensive Income (Loss)(12)20 
Comprehensive Income$81 $67 
See accompanying Notes to Consolidated Financial Statements (unaudited)

7


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions, except per share data)
Unaudited
 
Preferred
Stock
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Three Months Ended March 31, 2020
Balance at beginning of period$107 $3 $4,067 $798 $(65)$(27)$4,883 
Comprehensive income47 20 67 
Dividends declared:
Preferred stock: $18.13/share
(2)(2)
Common stock: $0.12/share
(39)(39)
Repurchase of common stock(25)(25)
Restricted stock compensation8 8 
Adoption of new accounting standards(50)(50)
Balance at end of period$107 $3 $4,075 $754 $(45)$(52)$4,842 
Three Months Ended March 31, 2021
Balance at beginning of period$107 $3 $4,087 $869 $(39)$(68)$4,959 
Comprehensive income93 (12)81 
Dividends declared:
Preferred stock: $18.13/share
(2)(2)
Common stock: $0.12/share
(39)(39)
Issuance of common stock 1 (1) 
Repurchase of common stock(36)(36)
Restricted stock compensation11 11 
Balance at end of period$107 $3 $4,099 $921 $(51)$(105)$4,974 
See accompanying Notes to Consolidated Financial Statements (unaudited)

8


F.N.B. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Unaudited
 
 Three Months Ended
March 31,
 20212020
Operating Activities
Net income$93 $47 
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion1 4 
Provision for credit losses6 48 
Deferred tax expense (benefit)(1)2 
Loans originated for sale(566)(301)
Loans sold550 275 
Net gain on sale of loans(16)(5)
Net change in:
   Interest receivable1 21 
   Interest payable(4)(2)
   Bank owned life insurance, excluding purchases (2)
Other, net151 (292)
Net cash flows (used in) provided by operating activities215 (205)
Investing Activities
Net change in loans and leases, excluding sales and transfers(59)(500)
Debt securities available for sale:
Purchases(567)(54)
Maturities/payments835 215 
Debt securities held to maturity:
Purchases(365)(59)
Maturities/payments188 154 
Increase in premises and equipment(8)(8)
Net cash flows provided by (used in) investing activities24 (252)
Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts1,510 126 
Time deposits(278)(166)
Short-term borrowings(117)228 
Proceeds from issuance of long-term borrowings4 307 
Repayment of long-term borrowings(7)(15)
Repurchases of common stock(36)(25)
Cash dividends paid:
Preferred stock(2)(2)
Common stock(39)(39)
Other, net11 8 
Net cash flows provided by financing activities1,046 422 
Net Increase (Decrease) in Cash and Cash Equivalents1,285 (35)
Cash and cash equivalents at beginning of period1,383 599 
Cash and Cash Equivalents at End of Period$2,668 $564 
See accompanying Notes to Consolidated Financial Statements (unaudited)
9


F.N.B. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2021
The terms “FNB,” “the Corporation,” “we,” “us” and “our” throughout this Report mean F.N.B. Corporation and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, F.N.B. Corporation. When we refer to "FNBPA" in this Report, we mean our bank subsidiary, First National Bank of Pennsylvania, and its subsidiaries.
NATURE OF OPERATIONS
F.N.B. Corporation, headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in 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.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. As of March 31, 2021, we had 337 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina, South Carolina, Washington D.C. and Virginia.
We provide a full range of commercial banking, consumer banking and wealth management solutions through our subsidiary network which is led by our largest affiliate, FNBPA, founded in 1864. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, government banking, business credit, capital markets and lease financing. Consumer banking provides a full line of consumer banking products and services, including deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. Wealth management services include asset management, private banking and insurance.

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements (unaudited) include subsidiaries in which we have a controlling financial interest. We own and operate FNBPA, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, Bank Capital Services, LLC and F.N.B. Capital Corporation, 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 conform to the current period presentation. Such reclassifications had no impact on our net income and stockholders’ equity. Events occurring subsequent to March 31, 2021 have been evaluated for potential recognition or disclosure in the Consolidated Financial Statements through the date of the filing of the Consolidated Financial Statements with the Securities and Exchange Commission.
Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results FNB expects for the full year. These interim unaudited Consolidated Financial
10


Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021.
Use of Estimates
Our accounting and reporting policies conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements (unaudited). Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the ACL, fair value of financial instruments, goodwill and other intangible assets, income taxes and deferred tax assets and litigation reserves, which are listed in the critical accounting estimates. For a detailed description of our significant accounting policies and critical accounting estimates, see Note 1, "Summary of Significant Accounting Policies" and the "Application of Critical Accounting Policies" section in the MD&A, both in our 2020 Annual Report on Form 10-K.
11


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

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

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

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

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

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

We will continue to assess the impact of adoption through the termination date of these Updates on December 31, 2022.
12


NOTE 3.    SECURITIES
The amortized cost and fair value of AFS debt securities are presented in the table below. There was no ACL in the AFS portfolio at March 31, 2021 and December 31, 2020. Accrued interest receivable on AFS debt securities totaled $5.9 million and $6.2 million at March 31, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets. Accordingly, we have excluded accrued interest receivable from both the fair value and the amortized cost basis of AFS debt securities.
TABLE 3.1
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities AFS:
March 31, 2021
U.S. Treasury$100 $ $ $100 
U.S. government agencies175   175 
U.S. government-sponsored entities160 1 (1)160 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,074 30 (1)1,103 
Agency collateralized mortgage obligations1,242 26 (5)1,263 
Commercial mortgage-backed securities328 9 (2)335 
States of the U.S. and political subdivisions (municipals)29  (1)28 
Other debt securities2   2 
Total debt securities AFS$3,110 $66 $(10)$3,166 
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities AFS:
December 31, 2020
U.S. Treasury$600 $ $ $600 
U.S. government agencies172   172 
U.S. government-sponsored entities160 1  161 
Residential mortgage-backed securities:
Agency mortgage-backed securities959 35  994 
Agency collateralized mortgage obligations1,094 31 (1)1,124 
Commercial mortgage-backed securities361 17  378 
States of the U.S. and political subdivisions (municipals)32   32 
Other debt securities2   2 
Total debt securities AFS$3,380 $84 $(1)$3,463 
13


The amortized cost and fair value of HTM debt securities are presented in the table below. The ACL for the HTM municipal bond portfolio was $0.04 million at both March 31, 2021 and December 31, 2020. Accrued interest receivable on HTM debt securities totaled $11.5 million and $12.5 million at March 31, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets.
TABLE 3.2
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities HTM:
March 31, 2021
U.S. Treasury$1 $ $ $1 
U.S. government agencies1   1 
U.S. government-sponsored entities100   100 
Residential mortgage-backed securities:
Agency mortgage-backed securities889 22 (2)909 
Agency collateralized mortgage obligations643 14 (2)655 
Commercial mortgage-backed securities314 4 (3)315 
States of the U.S. and political subdivisions (municipals)1,095 39 (1)1,133 
Total debt securities HTM$3,043 $79 $(8)$3,114 
(in millions)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
 Value
Debt Securities HTM:
December 31, 2020
U.S. Treasury$1 $ $ $1 
U.S. government agencies1   1 
U.S. government-sponsored entities120 1  121 
Residential mortgage-backed securities:
Agency mortgage-backed securities769 29  798 
Agency collateralized mortgage obligations562 17  579 
Commercial mortgage-backed securities307 10  317 
States of the U.S. and political subdivisions (municipals)1,108 48  1,156 
Total debt securities HTM$2,868 $105 $ $2,973 
There were no significant gross gains or gross losses realized on securities during the three months ended March 31, 2021 or 2020.
14


As of March 31, 2021, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:
TABLE 3.3
Available for SaleHeld to Maturity
(in millions)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due in one year or less$185 $186 $100 $101 
Due after one year but within five years70 69 21 21 
Due after five years but within ten years127 126 145 147 
Due after ten years84 84 931 966 
466 465 1,197 1,235 
Residential mortgage-backed securities:
Agency mortgage-backed securities1,074 1,103 889 909 
Agency collateralized mortgage obligations1,242 1,263 643 655 
Commercial mortgage-backed securities328 335 314 315 
Total debt securities$3,110 $3,166 $3,043 $3,114 
Actual maturities may differ from contractual terms because security issuers may have the right to call or prepay obligations with or without penalties. Periodic principal payments are received on residential mortgage-backed securities based on the payment patterns of the underlying collateral.
Following is information relating to securities pledged:
TABLE 3.4
(dollars in millions)March 31,
2021
December 31,
2020
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law$5,429 $5,384 
As collateral for short-term borrowings434 402 
Securities pledged as a percent of total securities94.4 %91.4 %
At March 31, 2021, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in any amount greater than 10% of stockholders’ equity.
15


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

TABLE 3.5
Less than 12 Months12 Months or MoreTotal
(dollars in millions)#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
Debt Securities AFS
March 31, 2021
U.S. government agencies1 $1 $ 16 $65 $ 17 $66 $ 
U.S. government-sponsored entities2 74 (1)   2 74 (1)
Residential mortgage-backed securities:
Agency mortgage-backed securities2 103 (1)   2 103 (1)
Agency collateralized mortgage obligations10 399 (5)   10 399 (5)
Commercial mortgage-backed securities4 103 (2)   4 103 (2)
States of the U.S. and political subdivisions (municipals)8 22 (1)   8 22 (1)
Other debt securities   1 2  1 2  
Total 27 $702 $(10)17 $67 $ 44 $769 $(10)
Less than 12 Months12 Months or MoreTotal
(dollars in millions)#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
#Fair
 Value
Unrealized
Losses
Debt Securities AFS
December 31, 2020
U.S. government agencies1 $13 $ 16 $69 $ 17 $82 $ 
U.S. government-sponsored entities1 25     1 25  
Residential mortgage-backed securities:
Agency collateralized mortgage obligations5 130 (1)   5 130 (1)
Other debt securities   1 2  1 2  
Total7 $168 $(1)17 $71 $ 24 $239 $(1)
We evaluated the AFS debt securities that were in an unrealized loss position at March 31, 2021. Based on the credit ratings and implied government guarantee for these securities, we concluded the loss position is temporary and caused by the movement of interest rates and does not reflect any expected credit losses. We do not intend to sell the AFS debt securities and it is not more likely than not that we will be required to sell the securities before the recovery of their amortized cost basis.
16


Credit Quality Indicators
We use credit ratings and the most recent financial information to help evaluate the credit quality of our credit-related AFS and HTM securities portfolios. Management reviews the credit profile of each issuer on a quarterly basis. Based on the nature of the issuers and current conditions, we have determined that securities backed by the UST, Fannie Mae, Freddie Mac, FHLB, Ginnie Mae, and the SBA have zero expected credit loss.
Our municipal bond portfolio, with a carrying amount of $1.1 billion as of March 31, 2021 is highly rated with an average rating of AA and 99% of the portfolio having an A or better rating. All of the securities in the municipal portfolio are general obligation bonds. Geographically, municipal bonds support our primary footprint as 65% of the securities are from municipalities located in the primary states within which we conduct business. The average holding size of the securities in the municipal bond portfolio is $3.6 million. In addition to the strong stand-alone ratings, 62% 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, 1970-2019 study.
By using these components, we derive the expected credit loss on the HTM general obligation bond portfolio. We further refine the expected credit loss by factoring in economic forecast data using our Commercial and Industrial Non-Manufacturing loan portfolio forecast adjustment as derived through our assessment of the loan portfolio as a proxy for our municipal bond portfolio.
For the year-to-date periods ending March 31, 2021 and 2020, we had no significant provision expense and no charge-offs or recoveries. The ACL on the HTM portfolio was $0.04 million as of both March 31, 2021 and December 31, 2020, respectively. No other securities portfolios had an ACL. At March 31, 2021 and December 31, 2020, there were no securities that were past due or on non-accrual.
17


NOTE 4.    LOANS AND LEASES
Accrued interest receivable on loans and leases, which totaled $63.5 million at March 31, 2021 and $62.9 million at December 31, 2020, is excluded from the estimate of credit losses and assessed separately in other assets in the Consolidated Balance Sheets for both periods and not included in the tables below. Upon adoption of CECL on January 1, 2020, PCD assets were adjusted to reflect the addition of a $50.3 million ACL and a remaining noncredit discount of $110.0 million included in the amortized cost. The remaining noncredit discount was $44.3 million and $50.9 million at March 31, 2021 and December 31, 2020, respectively.
Loans and Leases by Portfolio Segment
Following is a summary of total loans and leases, net of unearned income:
TABLE 4.1
(in millions)March 31, 2021December 31, 2020
Commercial real estate$9,799 $9,731 
Commercial and industrial7,401 7,214 
Commercial leases471 485 
Other25 40 
Total commercial loans and leases17,696 17,470 
Direct installment2,025 2,020 
Residential mortgages3,329 3,433 
Indirect installment1,201 1,218 
Consumer lines of credit1,281 1,318 
Total consumer loans7,836 7,989 
Total loans and leases, net of unearned income$25,532 $25,459 

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

Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties where operational cash flows on owner-occupied properties or rents received by our borrowers from their tenant(s) on both a property and global basis are the primary default risk drivers, including rents paid by stand-alone business customers for owner-occupied properties;
Commercial and industrial includes loans to businesses that are not secured by real estate where the borrower's leverage and cash flows from operations are the primary default risk drivers. PPP loans are included in the commercial and industrial category and comprise $2.5 billion and $2.2 billion of this category's outstanding balance at March 31, 2021 and December 31, 2020, respectively. The PPP loans are 100% guaranteed by the SBA, which provides a reduced risk of loss to us on these loans;
Commercial leases consist of leases for new or used equipment where the borrower's cash flow from operations is the primary default risk driver;
Other is comprised primarily of credit cards and mezzanine loans where the borrower's cash flow from operations is the primary default risk driver;
Direct installment is comprised of fixed-rate, closed-end consumer loans for personal, family or household use, such as home equity loans and automobile loans where the primary default risk driver is the borrower's employment status and income;
Residential mortgages consist of conventional and jumbo mortgage loans for 1-4 family properties where the primary default risk driver is the borrower's employment status and income;
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
18


Consumer lines of credit include home equity lines of credit and consumer lines of credit that are either unsecured or secured by collateral other than home equity where the primary default risk driver is the borrower's employment status and income.
The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market in 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.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina.
The following table shows occupancy information relating to commercial real estate loans:
TABLE 4.2
(dollars in millions)March 31,
2021
December 31,
2020
Commercial real estate:
Percent owner-occupied28.1 %28.1 %
Percent non-owner-occupied71.9 71.9 

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


19


The following tables summarize the designated loan rating category by loan class including term loans on an amortized cost basis by origination year:
TABLE 4.4
March 31, 202120212020201920182017PriorRevolving Loans Amortized Cost BasisTotal
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
   Pass$323 $1,876 $1,874 $1,080 $881 $2,680 $145 $8,859 
   Special Mention5 12 32 93 151 191 5 489 
   Substandard 8 33 41 73 291 5 451 
Total commercial real estate328 1,896 1,939 1,214 1,105 3,162 155 9,799 
Commercial and Industrial:
Risk Rating:
   Pass1,116 2,642 921 561 280 354 1,030 6,904 
   Special Mention 32 20 9 28 67 53 209 
   Substandard2 8 28 57 45 44 104 288 
Total commercial and industrial1,118 2,682 969 627 353 465 1,187 7,401 
Commercial Leases:
Risk Rating:
   Pass34 158 124 73 52 6  447 
   Special Mention  1 3 3 3  10 
   Substandard 8 3 2 1   14 
Total commercial leases34 166 128 78 56 9  471 
Other Commercial:
Risk Rating:
   Pass6     4 15 25 
   Substandard        
Total other commercial6     4 15 25 
Total commercial1,486 4,744 3,036 1,919 1,514 3,640 1,357 17,696 
CONSUMER
Direct Installment:
   Current154 676 306 182 130 560  2,008 
   Past due  1 1 1 14  17 
Total direct installment154 676 307 183 131 574  2,025 
Residential Mortgages:
   Current248 1,033 586 239 327 856 1 3,290 
   Past due 1 2 3 4 29  39 
Total residential mortgages248 1,034 588 242 331 885 1 3,329 
Indirect Installment:
   Current122 353 233 289 123 75  1,195 
   Past due 1 2 1 1 1  6 
Total indirect installment122 354 235 290 124 76  1,201 
Consumer Lines of Credit:
   Current1 4 5 8 3 132 1,114 1,267 
   Past due     13 1 14 
Total consumer lines of credit1 4 5 8 3 145 1,115 1,281 
Total consumer525 2,068 1,135 723 589 1,680 1,116 7,836 
Total loans and leases$2,011 $6,812 $4,171 $2,642 $2,103 $5,320 $2,473 $25,532 
20


December 31, 202020202019201820172016PriorRevolving Loans Amortized Cost BasisTotal
(in millions)
COMMERCIAL
Commercial Real Estate:
Risk Rating:
   Pass$1,879 $1,854 $1,135 $927 $888 $1,911 $163 $8,757 
   Special Mention9 30 80 158 70 163 4 514 
   Substandard4 32 29 81 116 192 6 460 
Total commercial real estate1,892 1,916 1,244 1,166 1,074 2,266 173 9,731 
Commercial and Industrial:
Risk Rating:
   Pass3,286 1,007 590 304 120 311 1,095 6,713 
   Special Mention30 23 13 28 10 35 79 218 
   Substandard8 26 65 44 6 37 97 283 
Total commercial and industrial3,324 1,056 668 376 136 383 1,271 7,214 
Commercial Leases:
Risk Rating:
   Pass178 134 83 56 5 3  459 
   Special Mention1 1 4 4 1 2  13 
   Substandard7 2 2 1 1   13 
Total commercial leases186 137 89 61 7 5  485 
Other Commercial:
Risk Rating:
   Pass     4 35 39 
   Substandard     1  1 
Total other commercial     5 35 40 
Total commercial5,402 3,109 2,001 1,603 1,217 2,659 1,479 17,470 
CONSUMER
Direct Installment:
   Current706 337 200 143 171 442 1 2,000 
   Past due 1 2 1 2 14  20 
Total direct installment706 338 202 144 173 456 1 2,020 
Residential Mortgages:
   Current1,079 707 283 378 330 603 1 3,381 
   Past due1 5 7 4 6 29  52 
Total residential mortgages1,080 712 290 382 336 632 1 3,433 
Indirect Installment:
   Current372 260 332 147 67 27  1,205 
   Past due1 3 4 2 2 1  13 
Total indirect installment373 263 336 149 69 28  1,218 
Consumer Lines of Credit:
   Current4 7 8 3 5 127 1,146 1,300 
   Past due     15 3 18 
Total consumer lines of credit4 7 8 3 5 142 1,149 1,318 
Total consumer2,163 1,320 836 678 583 1,258 1,151 7,989 
Total loans and leases$7,565 $4,429 $2,837 $2,281 $1,800 $3,917 $2,630 $25,459 
We use delinquency transition matrices within the consumer and other loan classes to establish the basis for the R&S forecast portion of the credit risk. Each month, management analyzes payment and volume activity, Fair Isaac Corporation (FICO) scores and Debt-to-Income (DTI) scores and other external factors such as unemployment, to determine how consumer loans are performing.
21


Non-Performing and Past Due
The following tables provide an analysis of the aging of loans by class.
TABLE 4.5
(in millions)30-89 Days
Past Due
> 90 Days
Past Due
and Still
Accruing
Non-
Accrual
Total
Past Due
CurrentTotal
Loans and
Leases
Non-accrual with No ACL
March 31, 2021
Commercial real estate$8 $ $78 $86 $9,713 $9,799 $30 
Commercial and industrial2  36 38 7,363 7,401 15 
Commercial leases3  2 5 466 471  
Other    25 25  
Total commercial loans and leases13  116 129 17,567 17,696 45 
Direct installment5 1 11 17 2,008 2,025  
Residential mortgages12 6 21 39 3,290 3,329  
Indirect installment4  2 6 1,195 1,201  
Consumer lines of credit4 3 7 14 1,267 1,281  
Total consumer loans25 10 41 76 7,760 7,836  
Total loans and leases$38 $10 $157 $205 $25,327 $25,532 $45 
(in millions)30-89 Days
Past Due
> 90 Days
Past Due
and Still
Accruing
Non-
Accrual
Total
Past Due
CurrentTotal
Loans and
Leases
Non-accrual with No ACL
December 31, 2020
Commercial real estate$13 $ $85 $98 $9,633 $9,731 $36 
Commercial and industrial8  44 52 7,162 7,214 16 
Commercial leases2  2 4 481 485  
Other  1 1 39 40  
Total commercial loans and leases23  132 155 17,315 17,470 52 
Direct installment7 2 11 20 2,000 2,020  
Residential mortgages23 11 18 52 3,381 3,433  
Indirect installment10 1 2 13 1,205 1,218  
Consumer lines of credit9 2 7 18 1,300 1,318  
Total consumer loans49 16 38 103 7,886 7,989  
Total loans and leases$72 $16 $170 $258 $25,201 $25,459 $52 
22


Following is a summary of non-performing assets:
TABLE 4.6
(dollars in millions)March 31,
2021
December 31,
2020
Non-accrual loans$157 $170 
Total non-performing loans
157 170 
Other real estate owned 9 10 
Total non-performing assets
$166 $180 
Asset quality ratios:
Non-performing loans / total loans and leases
0.62 %0.67 %
Non-performing assets + 90 days past due + OREO / total loans and leases + OREO
0.68 0.77 
The carrying value of residential-secured consumer OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $1.6 million at March 31, 2021 and $2.5 million at December 31, 2020. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at March 31, 2021 and December 31, 2020 totaled $7.6 million and $8.2 million, respectively. During 2020 and 2021, we extended the residential mortgage foreclosure moratorium beyond the requirements for government-backed loans, under the CARES Act, to all residential mortgage loan customers.
Approximately $85 million of commercial loans are collateral dependent at March 31, 2021. Repayment is expected to be substantially through the operation or sale of the collateral on the loan. These loans are primarily secured by business assets or commercial real estate.

Troubled Debt Restructurings
TDRs are loans whose contractual terms have been modified in a manner that grants a concession to a borrower experiencing financial difficulties. TDRs typically result from loss mitigation activities and could include the extension of a maturity date, interest rate reduction, principal forgiveness, deferral or decrease in payments for a period of time and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Consistent with the CARES Act and interagency bank regulatory guidance which allows temporary relief for current borrowers affected by COVID-19, we are working with borrowers and granting certain modifications through programs related to COVID-19 relief. As of March 31, 2021, we had $269 million in loans that have been granted short-term modifications as a result of financial disruptions associated with the COVID-19 pandemic. Also, consistent with the CARES Act and the interagency bank regulatory guidelines, such modifications are not included in our TDR totals.
Following is a summary of the composition of total TDRs:
TABLE 4.7
(in millions)March 31,
2021
December 31,
2020
Accruing$58 $58 
Non-accrual40 33 
Total TDRs$98 $91 

TDRs that are accruing and performing include loans that met the criteria for non-accrual of interest prior to restructuring for which we can reasonably estimate the timing and amount of the expected cash flows on such loans and for which we expect to fully collect the new carrying value of the loans. During the three months ended March 31, 2021, we returned to accruing status $3.9 million in restructured residential mortgage loans that have consistently met their modified obligations for more than six months. TDRs that are on non-accrual are not placed on accruing status until all delinquent principal and interest have been paid and the ultimate collectability of the remaining principal and interest is reasonably assured. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and may result in potential incremental losses which are factored into the ACL.
23


Commercial loans over $1.0 million whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured based on the fair value of the underlying collateral. Our ACL includes specific reserves for commercial TDRs of $1.6 million at March 31, 2021 compared to $2.8 million at December 31, 2020, and pooled reserves for individual loans of $2.5 million for those same periods based on loan segment LGD. Upon default, the amount of the recorded investment in the TDR in excess of the fair value of the collateral, less estimated selling costs, is generally considered a confirmed loss and is charged-off against the ACL.
All other classes of loans whose terms have been modified in a TDR are pooled and measured based on the loan segment LGD. Our ACL included pooled reserves for these classes of loans of $3.9 million for March 31, 2021 and $4.1 million for December 31, 2020. Upon default of an individual loan, our charge-off policy is followed for that class of loan.

Following is a summary of TDR loans, by class, for loans that were modified during the periods indicated:
TABLE 4.8
Three Months Ended March 31, 2021
(dollars in millions)Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Commercial real estate11 $17 $17 
Commercial and industrial1   
Total commercial loans12 17 17 
Direct installment10   
Residential mortgages2 1 1 
Consumer lines of credit10 1 1 
Total consumer loans22 2 2 
Total34 $19 $19 

 Three Months Ended March 31, 2020
(dollars in millions)Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Commercial real estate5 $1 $1 
Commercial and industrial7 1  
Total commercial loans12 2 1 
Direct installment19 2 2 
Residential mortgages14 1 1 
Consumer lines of credit15   
Total consumer loans48 3 3 
Total60 $5 $4 
The year-to-date items in the above tables have been adjusted for loans that have been paid off and/or sold.
24


Following is a summary of TDRs, by class, for which there was a payment default, excluding loans that have been paid off and/or sold. Default occurs when a loan is 90 days or more past due and is within 12 months of restructuring.
TABLE 4.9
 Three Months Ended
March 31, 2021
(dollars in millions)Number of
Contracts
Recorded
Investment
Commercial and industrial1 $ 
Total commercial loans1  
Residential mortgages1  
Total consumer loans1  
Total2 $ 

 Three Months Ended
March 31, 2020
(dollars in millions)Number of
Contracts
Recorded
Investment
Commercial real estate10 $4 
Commercial and industrial2  
Total commercial loans12 4 
Direct installment4  
Residential mortgages1  
Total consumer loans5  
Total17 $4 

NOTE 5.    ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES
Beginning January 1, 2020, the former incurred loss method was replaced with the CECL method to calculate estimated loan losses. The CECL model takes into consideration the expected credit losses over the expected life of the loan compared to the incurred loss model under the prior standard. At the time of CECL adoption, we recorded a one-time cumulative-effect adjustment of $50.6 million as a reduction to Retained Earnings. The ACL balance increased by $105 million and included a “gross-up" to purchased credit impaired (PCD under CECL) loan balances and the ACL of $50 million. Included in the CECL adoption impact was a Day 1 increase to our AULC of $10 million.
The ACL addresses credit losses expected in the existing loan and lease portfolio and is presented as a reserve against loans and leases on the Consolidated Balance Sheets. Loan and lease losses are charged off against the ACL, with recoveries of amounts previously charged off credited to the ACL. Provisions for credit losses are charged to operations based on management’s periodic evaluation of the appropriate level of the ACL. Included in Table 5.1 is the impact to the ACL from our CECL (ASC 326) adoption on January 1, 2020.
25


Following is a summary of changes in the ACL, by loan and lease class:
TABLE 5.1
(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
Charge-
Offs
Provision for Credit LossesBalance at
End of
Period
Three Months Ended March 31, 2021
Commercial real estate$181 $(1)$1 $ $3 $184 
Commercial and industrial81 (8)1 (7)5 79 
Commercial leases17  1 1 (1)17 
Other1 (1)1   1 
Total commercial loans and leases280 (10)4 (6)7 281 
Direct installment26     26 
Residential mortgages34    (2)32 
Indirect installment11 (2)1 (1)1 11 
Consumer lines of credit12     12 
Total consumer loans83 (2)1 (1)(1)81 
Total allowance for credit losses on loans and leases363 (12)5 (7)6 362 
Allowance for unfunded loan commitments14     14 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$377 $(12)$5 $(7)$6 $376 

(in millions)Balance at
Beginning of
Period
Charge-
Offs
RecoveriesNet
Charge-
Offs
Provision
for Credit
Losses
ASC 326 Adoption ImpactInitial ACL on PCD LoansBalance at
End of
Period
Three Months Ended March 31, 2020
Commercial real estate$60 $(2)$4 $2 $12 $38 $40 $152 
Commercial and industrial53 (4)1 (3)26 8 4 88 
Commercial leases11    2   13 
Other9 (1) (1)2 (9) 1 
Total commercial loans and leases133 (7)5 (2)42 37 44 254 
Direct installment13 (1) (1)3 10 1 26 
Residential mortgages22    (1)6 4 31 
Indirect installment19 (3)1 (2)2 2  21 
Consumer lines of credit9 (1) (1)2  1 11 
Total consumer loans63 (5)1 (4)6 18 6 89 
Total allowance for credit losses on loans and leases196 (12)6 (6)48 55 50 343 
Allowance for unfunded loan commitments (1)
3    1 10  14 
Total allowance for credit losses on loans and leases and allowance for unfunded loan commitments$199 $(12)$6 $(6)$49 $65 $50 $357 
(1) The $1 million provision for the AULC is included in other non-interest expense on the Consolidated Statements of Income.
26


Following is a summary of changes in the AULC by portfolio segment:
TABLE 5.2
Three Months Ended
March 31,
20212020
(in millions)
Balance at beginning of period$14 $3 
Provision for unfunded loan commitments and letters of credit:
Commercial portfolio  
Consumer portfolio  
Other adjustments:
Commercial portfolio 1 
ASC 326 adoption impact:
Commercial portfolio 8 
Consumer portfolio 2 
Balance at end of period$14 $14 
The model used to calculate the ACL is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates. Specifically, the following considerations are incorporated into the ACL calculation:
a third-party macroeconomic forecast scenario;
a 24-month R&S forecast period for macroeconomic factors with a reversion to the historical mean on a straight-line basis over a 12-month period; and
the historical through-the-cycle mean was calculated using an expanded period to include a prior recessionary period.
COVID-19 Impacts on the ACL
Beginning in March 2020, the broader economy experienced a significant deterioration in the macroeconomic environment driven by the COVID-19 pandemic resulting in notable adverse changes to forecasted economic variables utilized in our ACL modeling process. Based on these changes, we utilized a third-party pandemic recessionary scenario from the first quarter of 2020 through the third quarter of 2020 for ACL modeling purposes. At December 31, 2020 and March 31, 2021, we utilized a third-party consensus macroeconomic forecast due to the improving macroeconomic environment. Macroeconomic variables that we utilized from this scenario for our ACL calculation as of December 31, 2020 included, but were not limited to: (i) gross domestic product, which reflects growth of 4% in 2021, (ii) the Dow Jones Total Stock Market Index, which grows steadily throughout the R&S forecast period, (iii) unemployment, which steadily declines and averages 6% over the R&S forecast period and (iv) the Volatility Index, which remains stable over the R&S forecast period. For our ACL calculation at March 31, 2021, the macroeconomic variables that we utilized included, but were not limited to: (i) gross domestic product, which reflects growth of 6% in 2021 and 2% in 2022, (ii) the Dow Jones Total Stock Market Index, which remains relatively flat through the R&S forecast period, (iii) unemployment, which averages 5% over the R&S forecast period and (iv) the Volatility Index, which remains stable over the R&S forecast period.

The ACL of $362.0 million at March 31, 2021 decreased $1.1 million, or 0.3%, from December 31, 2020 due to the improving macroeconomic environment, as noted previously. Our ending ACL coverage ratio at March 31, 2021 was 1.42%, compared to 1.43% at December 31, 2020. Total provision for credit losses for the three months ended March 31, 2021 was $5.9 million. Net charge-offs were $7.1 million during the three months ended March 31, 2021, compared to $5.7 million during the three months ended March 31, 2020.


27


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)March 31,
2021
December 31,
2020
Mortgage loans sold with servicing retained$4,670 $4,653 

The following table summarizes activity relating to mortgage loans sold with servicing retained:
TABLE 6.2
Three Months Ended
March 31,
(in millions)20212020
Mortgage loans sold with servicing retained$506 $260 
Pretax net gains resulting from above loan sales (1)
17 7 
Mortgage servicing fees (1)
3 3 
(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
March 31,
(in millions)20212020
Balance at beginning of period$35.6 $42.6 
Additions5.2 2.5 
Payoffs and curtailments(4.1)(1.9)
(Impairment charge) / recovery2.5 (7.7)
Amortization(0.6)(0.6)
Balance at end of period$38.6 $34.9 
Fair value, beginning of period$35.6 $45.0 
Fair value, end of period40.2 34.9 
We had a $4.8 million valuation allowance for MSRs as of March 31, 2021, compared to $7.3 million at December 31, 2020.
The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third-party valuations. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSRs and as interest rates increase, mortgage loan prepayments decline, which results in an increase in the fair value of MSRs. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.
28


Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions:
TABLE 6.4
(dollars in millions)March 31,
2021
December 31,
2020
Weighted average life (months)71.366.6
Constant prepayment rate (annualized)12.6 %13.4 %
Discount rate9.5 %9.5 %
Effect on fair value due to change in interest rates:
+0.25%$3 $2 
+0.50%5 4 
-0.25%(3)(2)
-0.50%(6)(3)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. Also, in this table, the effects of an adverse variation in a particular assumption on the fair value of MSRs is calculated without changing any other assumptions, while in reality, changes in one factor may result in changing another, which may magnify or contract the effect of the change.
NOTE 7.    OPERATING LEASES

We have operating leases primarily for certain branches, office space, land and office equipment. Our operating leases expire at various dates through the year 2046 and generally include one or more options to renew. The exercise of lease renewal options is at our sole discretion. As of March 31, 2021, we had operating lease right-of-use assets and operating lease liabilities of $122.5 million and $130.4 million, respectively.
Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As of March 31, 2021, we have certain operating lease agreements, primarily for administrative office space, that have not yet commenced. At commencement, it is expected that these leases will add approximately $21.5 million in right-of-use assets and other liabilities. These operating leases are currently expected to commence in 2021 with lease terms of 3 years to 20 years.
The components of lease expense were as follows:
TABLE 7.1
Three Months Ended
March 31,
(dollars in millions)20212020
Operating lease cost$7 $7 
Variable lease cost1 1 
Total lease cost$8 $8 
29


Other information related to leases is as follows:
TABLE 7.2
Three Months Ended
March 31,
(dollars in millions)20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$7 $6 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 4 
Weighted average remaining lease term (years):
Operating leases9.399.64
Weighted average discount rate:
Operating leases2.6 %2.9 %

Maturities of operating lease liabilities were as follows:
TABLE 7.3
(in millions)March 31,
2021
2021$19 
202222 
202317 
202416 
202512 
Later years64 
Total lease payments150 
Less: imputed interest(20)
Present value of lease liabilities$130 

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, at March 31, 2021 and December 31, 2020.
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TABLE 8.1
(in millions)Total AssetsTotal LiabilitiesMaximum Exposure to Loss
March 31, 2021
Trust preferred securities (1)
$1 $66 $ 
Affordable housing tax credit partnerships115 41 115 
Other investments26 7 26 
Total $142 $114 $141 
December 31, 2020
Trust preferred securities (1)
$1 $66 $ 
Affordable housing tax credit partnerships119 45 119 
Other investments26 8 26 
Total $146 $119 $145 
(1) Represents our investment in unconsolidated subsidiaries.

Trust-Preferred Securities

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

Each issue of the junior subordinated debentures has an interest rate equal to the corresponding TPS distribution rate. We have the right to defer payment of interest on the debentures at any time, or from time-to-time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the related debentures. During any such extension period, distributions to the TPS will also be deferred and our ability to pay dividends on our common stock will be restricted. Periodic cash payments and payments upon liquidation or redemption with respect to TPS are guaranteed by us to the extent of funds held by the trusts. The guarantee ranks subordinate and junior in right of payment to all of our indebtedness to the same extent as the junior subordinated debt. The guarantee does not place a limitation on the amount of additional indebtedness that may be incurred by us.
Affordable Housing Tax Credit Partnerships
We make equity investments as a limited partner in various partnerships that sponsor affordable housing projects utilizing the LIHTC pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to support initiatives associated with the Community Reinvestment Act while earning a satisfactory return. The activities of these LIHTC partnerships include the development and operation of multi-family housing that is leased to qualifying residential tenants. These partnerships are generally located in communities where we have a banking presence and meet the definition of a VIE; however, we are not the primary beneficiary of the entities, as the general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses beyond our own equity investment. We record our investment in LIHTC partnerships as a component of other assets.
We use the proportional amortization method to account for a majority of our investments in LIHTC partnerships. Investments that do not meet the requirements of the proportional amortization method are recognized using the equity method. Amortization related to investments under the proportional amortization method are recorded on a net basis as a component of the provision of income taxes on the Consolidated Statements of Income, while write-downs and losses related to investments under the equity method are included in non-interest expense.
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The following table presents the balances of our affordable housing tax credit investments and related unfunded commitments:
TABLE 8.2
(in millions)March 31,
2021
December 31,
2020
Proportional amortization method investments included in other assets$71 $71 
Equity method investments included in other assets3 3 
Total LIHTC investments included in other assets$74 $74 
Unfunded LIHTC commitments$41 $45 
The following table summarizes the impact of these LIHTC investments on specific line items of our Consolidated Statements of Income:
TABLE 8.3
Three Months Ended
March 31,
(in millions)20212020
Non-interest income:
Amortization of tax credit investments under equity method, net of tax benefit$ $ 
Provision for income taxes:
Amortization of LIHTC investments under proportional method$3 $3 
Low-income housing tax credits(3)(3)
Other tax benefits related to tax credit investments(1)(1)
Total provision for income taxes$(1)$(1)
Other Investments
Other investments we also consider to be unconsolidated VIE’s include investments in Small Business Investment Companies, Historic Tax Credit Investments, and other equity method investments.

NOTE 9.    BORROWINGS
Following is a summary of short-term borrowings:
TABLE 9.1
(in millions)March 31,
2021
December 31,
2020
Securities sold under repurchase agreements$435 $403 
Federal Home Loan Bank advances1,130 1,280 
Subordinated notes122 121 
Total short-term borrowings$1,687 $1,804 
Borrowings with original maturities of one year or less are classified as short-term. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are sweep accounts with next-day maturities utilized by larger commercial customers to earn interest on their funds. Securities are pledged to these customers in an amount at least equal to the outstanding balance. We did not have any short-term FHLB advances with overnight maturities as of March 31, 2021 or December 31, 2020. At March 31, 2021, $1.1 billion, or 100.0%, of the short-term FHLB advances were swapped to a fixed rate with maturities in 2021. This compares to $1.3 billion, or 100.0%, as of December 31, 2020.
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Following is a summary of long-term borrowings:
TABLE 9.2
(in millions)March 31,
2021
December 31,
2020
Federal Home Loan Bank advances$400 $400 
Senior notes299 299 
Subordinated notes78 81 
Junior subordinated debt66 66 
Other subordinated debt248 249 
Total long-term borrowings$1,091 $1,095 
Our banking affiliate has available credit with the FHLB of $8.3 billion, of which $1.5 billion was utilized as of March 31, 2021. These advances are secured by loans collateralized by residential mortgages, home equity lines of credit, commercial real estate and FHLB stock and are scheduled to mature in various amounts periodically through the year 2021. Effective interest rates paid on the long-term advances ranged from 0.26% to 0.29% for the three months ended March 31, 2021 and 0.30% to 0.34% for the year ended December 31, 2020.
The following table provides information relating to our senior debt and other subordinated debt as of March 31, 2021. These debt issuances are fixed-rate, with the exception of the debt offering in 2019, which is fixed-to-floating rate after February 14, 2024. The subordinated notes are eligible for treatment as tier 2 capital for regulatory capital purposes.
TABLE 9.3
(dollars in millions)Aggregate Principal Amount Issued
Net Proceeds (2)
Carrying ValueStated Maturity DateInterest
Rate
2.20% Senior Notes due February 24, 2023
$300 $298 $299 2/24/20232.20 %
4.95% Fixed-To-Floating Rate Subordinated Notes due 2029
120 118 118 2/14/20294.95 %
4.875% Subordinated Notes due 2025
100 98 99 10/2/20254.875 %
7.625% Subordinated Notes due August 12, 2023 (1)
38 46 31 8/12/20237.625 %
Total$558 $560 $547 
(1) Assumed from a prior acquisition and adjusted to fair value at the time of acquisition.
(2) After deducting underwriting discounts and commissions and offering costs. For the debt assumed from a prior acquisition, this is the fair value of the debt at the time of the acquisition.
The junior subordinated debt is comprised of the debt securities issued by FNB in relation to our unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated VIEs, and are included on the Consolidated Balance Sheets in long-term borrowings. Since third-party investors are the primary beneficiaries, the Trusts are not consolidated in our Financial Statements. We record the distributions on the junior subordinated debt issued to the Trusts as interest expense.
The following table provides information relating to the Trusts as of March 31, 2021:
TABLE 9.4
(dollars in millions)Trust
Preferred
Securities
Common
Securities
Junior
Subordinated
Debt
Stated
Maturity
Date
Interest Rate
Rate Reset Factor
F.N.B. Statutory Trust II$22 $1 $22 6/15/20361.83 %
LIBOR + 165 basis points (bps)
Yadkin Valley Statutory Trust I25 1 22 12/15/20371.50 %
LIBOR + 132 bps
FNB Financial Services Capital Trust I25 1 22 9/30/20351.66 %
LIBOR + 146 bps
Total$72 $3 $66 

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NOTE 10.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate risk, primarily by managing the amount, source, and duration of our assets and liabilities, and through the use of derivative instruments. Derivative instruments are used to reduce the effects that changes in interest rates may have on net income and cash flows. We also use derivative instruments to facilitate transactions on behalf of our customers.
All derivatives are carried on the Consolidated Balance Sheets at fair value and do not take into account the effects of master netting arrangements we have with other financial institutions. Credit risk is included in the determination of the estimated fair value of derivatives. Derivative assets are reported in the Consolidated Balance Sheets in other assets and derivative liabilities are reported in other liabilities. Changes in fair value are recognized in earnings except for certain changes related to derivative instruments designated as part of a cash flow hedging relationship.
The following table presents notional amounts and gross fair values of our derivative assets and derivative liabilities which are not offset in the Consolidated Balance Sheets:
TABLE 10.1
March 31, 2021December 31, 2020
NotionalFair ValueNotionalFair Value
(in millions)AmountAssetLiabilityAmountAssetLiability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated$1,180 $2 $ $1,430 $3 $ 
Interest rate swaps – not designated4,947 4 25 4,791  37 
Total subject to master netting arrangements6,127 6 25 6,221 3 37 
Not subject to master netting arrangements:
Interest rate swaps – not designated4,947 211 32 4,791 349  
Interest rate lock commitments – not designated549 10 1 531 24  
Forward delivery commitments – not designated571 9  500  2 
Credit risk contracts – not designated425  1 437  1 
Total not subject to master netting arrangements6,492 230 34 6,259 373 3 
Total$12,619 $236 $59 $12,480 $376 $40 
Certain derivative exchanges have enacted a rule change which in effect results in the legal characterization of variation margin payments for certain derivative contracts as settlement of the derivatives mark-to-market exposure and not collateral. Accordingly, we have changed our reporting of certain derivatives to record variation margin on trades cleared through these exchanges as settled.  The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument. The fair value of interest rate swaps - not designated has increased from December 31, 2020 primarily due to the significantly lower interest rate environment since year-end.
We adopted RRR on October 1, 2020, and the guidance will be followed until the Update terminates on December 31, 2022. As of October 16, 2020, we changed our valuation methodology to reflect changes made by central clearinghouses that changed the discounting methodology and interest calculation of cash migration from overnight index swap (OIS) to SOFR for U.S. dollar cleared interest rate swaps to better reflect prices obtainable in the markets in which we transact. Certain of these valuation methodology changes were applied to eligible hedging relationships. Accordingly, we have updated our hedge documentation to reflect the election of certain expedients and exceptions related to our cash flow hedging programs. The change in valuation methodology was applied prospectively as a change in accounting estimate and did not have a material impact on our consolidated financial position or results of operations.

34


Derivatives Designated as Hedging Instruments under GAAP
Interest Rate Contracts. We entered into interest rate derivative agreements to modify the interest rate characteristics of certain commercial loans and certain of our FHLB advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges, hedging the exposure to variability in expected future cash flows. The derivative’s gain or loss, including any ineffectiveness, is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same line item associated with the forecasted transaction when the forecasted transaction affects earnings.
The following table shows amounts reclassified from AOCI:
TABLE 10.2
Amount of Gain (Loss) Recognized in OCI on DerivativesLocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
Three Months Ended
March 31,
Three Months Ended
March 31,
(in millions)2021202020212020
Derivatives in cash flow hedging relationships:
   Interest rate contracts $5 $(45)Interest income (expense)$(5)$(1)
The following table represents gains (losses) recognized in the Consolidated Statements of Income on cash flow hedging relationships:
TABLE 10.3
Three months ended March 31,
20212020
(in millions)Interest Income - Loans and LeasesInterest Expense - Short-Term BorrowingsInterest Income - Loans and LeasesInterest Expense - Short-Term Borrowings
Total amounts of income and expense line items presented in the Consolidated Statements of Income (the effects of cash flow hedges are included in these line items)$221 $7 $266 $14 
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 (5) (1)
As of March 31, 2021, the maximum length of time over which forecasted interest cash flows are hedged is 3.6 years. In the twelve months that follow March 31, 2021, we expect to reclassify from the amount currently reported in AOCI net derivative losses of $18.0 million ($14.0 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 March 31, 2021.
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 three months ended March 31, 2021 and 2020, there were no gains or losses from cash flow hedge derivatives reclassified to earnings because it became probable that the original forecasted transactions would not occur.
Derivatives Not Designated as Hedging Instruments under GAAP
A description of interest rate swaps, interest rate lock commitments, forward delivery commitments and credit risk contracts can be found in Note 15, "Derivative Instruments and Hedging Activities" in the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021.
35


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 $291.9 million as of March 31, 2021 have remaining terms ranging from one month to twenty years. Under these agreements, our maximum exposure assuming a customer defaults on their obligation to perform under certain derivative swap contracts with third parties would be $0.3 million at March 31, 2021 and $0.6 million at December 31, 2020. The fair values of risk participation agreements purchased and sold were $0.1 million and $0.3 million, respectively, at March 31, 2021 and $0.2 million and $0.6 million, respectively at December 31, 2020.
The following table presents the effect of certain derivative financial instruments on the Consolidated Statements of Income:
TABLE 10.4
Three Months Ended
March 31,
(in millions)Consolidated Statements of Income Location20212020
Interest rate swapsNon-interest income - other$ $ 
Interest rate lock commitmentsMortgage banking operations  
Forward delivery contractsMortgage banking operations9 (1)
Credit risk contractsNon-interest income - other  
Counterparty Credit Risk
We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash to our clearing agency. Collateral positions are settled or valued daily, and adjustments to amounts received and pledged by us are made as appropriate to maintain proper collateralization for these transactions.
Certain master netting agreements contain provisions that, if violated, could cause the counterparties to request immediate settlement or demand full collateralization under the derivative instrument. If we had breached our agreements with our derivative counterparties we would be required to settle our obligations under the agreements at the termination value and would be required to pay an additional $0.1 million and $0.3 million as of March 31, 2021 and December 31, 2020, respectively, in excess of amounts previously posted as collateral with the respective counterparty.
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The following table presents a reconciliation of the net amounts of derivative assets and derivative liabilities presented in the Consolidated Balance Sheets to the net amounts that would result in the event of offset:
TABLE 10.5
  Amount Not Offset in the
Consolidated Balance Sheets
 
(in millions)Net Amount
Presented in
the Consolidated Balance
Sheets
Financial
Instruments
Cash
Collateral
Net
Amount
March 31, 2021
Derivative Assets
Interest rate contracts:
Designated$2 $ $2 $ 
Not designated4  4  
Total$6 $ $6 $ 
Derivative Liabilities
Interest rate contracts:
Not designated$25 $ $25 $ 
Total$25 $ $25 $ 
December 31, 2020
Derivative Assets
Interest rate contracts:
Designated$3 $ $3 $ 
Total$3 $ $3 $ 
Derivative Liabilities
Interest rate contracts:
Not designated$37 $ $37 $ 
Total$37 $ $37 $ 

NOTE 11.    COMMITMENTS, CREDIT RISK AND CONTINGENCIES
We have commitments to extend credit and standby letters of credit that involve certain elements of credit risk in excess of the amount stated in the Consolidated Balance Sheets. Our exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loans and leases to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.
Following is a summary of off-balance sheet credit risk information:
TABLE 11.1
(in millions)March 31,
2021
December 31,
2020
Commitments to extend credit$9,806 $9,285 
Standby letters of credit168 158 
At March 31, 2021, funding of 74.6% 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
37


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 $13.5 million at March 31, 2021. Additional information relating to the AULC is provided in Note 5, "Allowance for Credit Losses on Loans and Leases" in the Notes to Consolidated Financial Statements.
In addition to the above commitments, subordinated notes issued by FNB Financial Services, LP, a wholly-owned finance subsidiary, are fully and unconditionally guaranteed by FNB. These subordinated notes are included in the summaries of short-term borrowings and long-term borrowings in Note 9, “Borrowings” in the Notes to Consolidated Financial Statements.
Other Legal Proceedings
In the ordinary course of business, we may assert claims in legal proceedings against another party or parties, and we are routinely named as defendants in, or made parties to, pending and potential legal actions. Also, as regulated entities, we are subject to governmental and regulatory examinations, information-gathering requests, and may be subject to investigations and proceedings (both formal and informal). Such threatened claims, litigation, investigations, regulatory and administrative proceedings typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted in many of these types of legal actions, while claims for disgorgement, restitution, penalties and/or other remedial actions or sanctions may be sought in regulatory matters. In these instances, if we determine that we have meritorious defenses, we will engage in an aggressive defense. However, if management determines, in consultation with counsel, that settlement of a matter is in the best interest of FNB and our shareholders, we may do so. It is inherently difficult to predict the eventual outcomes of such matters given their complexity and the particular facts and circumstances at issue in each of these matters. However, on the basis of current knowledge and understanding, and advice of counsel, we do not believe that judgments, sanctions, settlements or orders, if any, that 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 have a material effect on net income in a given period.
In view of the inherent unpredictability of outcomes in litigation and governmental and regulatory matters, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel legal theories or a large number of parties, as a matter of course, there is considerable uncertainty surrounding the timing or ultimate resolution of litigation and governmental and regulatory matters, including a possible eventual loss, fine, penalty, business or adverse reputational impact, if any, associated with each such matter. In accordance with applicable accounting guidance, we establish accruals for litigation and governmental and regulatory matters when those matters proceed to a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. We will continue to monitor such matters for developments that could affect the amount of the accrual, and will adjust the accrual amount as appropriate. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. We believe that our accruals for legal proceedings are appropriate and, in the aggregate, are not material to our consolidated financial position, although future accruals could have a material effect on net income in a given period.

NOTE 12.    STOCK INCENTIVE PLANS
Restricted Stock
We issue restricted stock awards to key employees under our Incentive Compensation Plan (Plan). We issue time-based awards and performance-based awards under this Plan, both of which are based on a three-year vesting period. The grant date fair value of the time-based awards is equal to the price of our common stock on the grant date. The fair value of the performance-based awards is based on a Monte-Carlo simulation valuation of our common stock as of the grant date. The assumptions used for this valuation include stock price volatility, risk-free interest rate and dividend yield. We issued 542,136 and 1,988,225 restricted stock units during the three months ended March 31, 2021 and 2020, respectively, including 325,284 and 571,932 performance-based restricted stock units during those same periods, respectively. As of March 31, 2021, we had available up to 5,362,034 shares of common stock to issue under this Plan, which includes 4,640,000 additional shares registered during the third quarter of 2020.
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The unvested restricted stock unit awards are eligible to receive cash dividends or dividend equivalents which are ultimately used to purchase additional shares of stock and are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met. These awards are subject to certain accelerated vesting provisions upon retirement, death, disability or in the event of a change of control as defined in the award agreements.
The following table summarizes the activity relating to restricted stock units during the periods indicated:
TABLE 12.1
Three Months Ended March 31,
20212020
UnitsWeighted
Average
Grant
Price per
Share
UnitsWeighted
Average
Grant
Price per
Share
Unvested units outstanding at beginning of period4,322,115 $9.46 2,858,357 $12.56 
Granted542,136 12.61 1,988,225 6.95 
Net adjustment due to performance327,256 11.84   
Vested(142,687)7.29 (1,717)14.15 
Forfeited/expired(8,334)7.52 (11,362)12.85 
Dividend reinvestment42,310 13.43 39,865 8.57 
Unvested units outstanding at end of period5,082,796 10.05 4,873,368 10.23 
The following table provides certain information related to restricted stock units:
TABLE 12.2
(in millions)Three Months Ended
March 31,
 20212020
Stock-based compensation expense$12 $8 
Tax benefit related to stock-based compensation expense3 2 
Fair value of units vested1  
As of March 31, 2021, there was $10.0 million of unrecognized compensation cost related to unvested restricted stock units, including $1.2 million that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement.
The components of the restricted stock units as of March 31, 2021 are as follows:
TABLE 12.3
(dollars in millions)Service-
Based
Units
Performance-
Based
Units
Total
Unvested restricted stock units3,076,326 2,006,470 5,082,796 
Unrecognized compensation expense$7 $3 $10 
Intrinsic value$39 $25 $64 
Weighted average remaining life (in years)1.641.271.49
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Stock Options
All outstanding stock options were assumed from acquisitions and are fully vested. Upon consummation of our acquisitions, all outstanding stock options issued by the acquired companies were converted into equivalent FNB stock options. We issue shares of treasury stock or authorized but unissued shares to satisfy stock options exercised.
As of March 31, 2021, we had 182,747 stock options outstanding and exercisable at a weighted average exercise price per share of $8.86, compared to 231,646 stock options outstanding and exercisable at a weighted average exercise price per share of $8.22 as of March 31, 2020.
The intrinsic value of outstanding and exercisable stock options at March 31, 2021 was $0.7 million. The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price.

NOTE 13.      INCOME TAXES
Income Tax Expense
Federal and state income tax expense and the statutory tax rate and the actual effective tax rate consist of the following:
TABLE 13.1
Three Months Ended
March 31,
(in millions)20212020
Current income taxes:
Federal taxes$21 $7 
State taxes2 2 
Total current income taxes23 9 
Deferred income taxes:
Federal taxes(1)2 
State taxes  
Total deferred income taxes(1)2 
Total income taxes$22 $11 
Statutory tax rate21.0 %21.0 %
Effective tax rate18.9 %18.8 %
The effective tax rates for the three months ended March 31, 2021 and March 31, 2020 were lower than the statutory federal tax rate primarily due to tax benefits resulting from tax-exempt income on investments and loans, tax credits and income from BOLI.
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 $56.1 million and $51.0 million at March 31, 2021 and December 31, 2020, respectively.

40


NOTE 14.    OTHER COMPREHENSIVE INCOME
The following table presents changes in AOCI, net of tax, by component:
TABLE 14.1
(in millions)Unrealized
Net Gains (Losses) on
Debt Securities
Available
for Sale
Unrealized
Net Gains
(Losses) on
Derivative
Instruments
Unrecognized
Pension and
Postretirement
Obligations
Total
Three Months Ended March 31, 2021
Balance at beginning of period$65 $(40)$(64)$(39)
Other comprehensive (loss) income before reclassifications(21)4 1 (16)
Amounts reclassified from AOCI 4  4 
Net current period other comprehensive (loss) income(21)8 1 (12)
Balance at end of period$44 $(32)$(63)$(51)
The amounts reclassified from AOCI related to debt securities AFS are included in net securities gains on the Consolidated Statements of Income, while the amounts reclassified from AOCI related to derivative instruments in cash flow hedge programs are generally included in interest income on loans and leases on the Consolidated Statements of Income.
The tax (benefit) expense amounts reclassified from AOCI in connection with the debt securities AFS and derivative instruments reclassifications are included in income taxes on the Consolidated Statements of Income.

NOTE 15.    EARNINGS PER COMMON SHARE
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding net of unvested shares of restricted stock.
Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, adjusted for the dilutive effect of potential common shares issuable for stock options and restricted shares, as calculated using the treasury stock method. Adjustments to the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.
The following table sets forth the computation of basic and diluted earnings per common share:
TABLE 15.1
Three Months Ended
March 31,
(dollars in millions, except per share data)
20212020
Net income$93 $47 
Less: Preferred stock dividends2 2 
Net income available to common stockholders$91 $45 
Basic weighted average common shares outstanding320,975,209 324,247,710 
Net effect of dilutive stock options, warrants and restricted stock3,769,650 1,797,472 
Diluted weighted average common shares outstanding324,744,859 326,045,182 
Earnings per common share:
Basic$0.28 $0.14 
Diluted$0.28 $0.14 
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The following table shows the average shares excluded from the above calculation as their effect would have been anti-dilutive: 
TABLE 15.2
Three Months Ended
March 31,
20212020
Average shares excluded from the diluted earnings per common share calculation 450 

NOTE 16.    CASH FLOW INFORMATION
Following is a summary of supplemental cash flow information:
TABLE 16.1
Three Months Ended
March 31,
(in millions)20212020
Interest paid on deposits and other borrowings$32 $75 
Income taxes paid5  
Transfers of loans to other real estate owned 1 

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 and investment advisory services, mutual funds and annuities.
The Insurance segment includes a full-service insurance brokerage service offering all lines of commercial and personal insurance through major carriers. The Insurance segment also includes a reinsurer.
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The following tables provide financial information for these segments of FNB. The information provided under the caption “Parent and Other” represents operations not considered to be reportable segments and/or general operating expenses of FNB, and includes the parent company, other non-bank subsidiaries and eliminations and adjustments to reconcile to the Consolidated Financial Statements.
TABLE 17.1
(in millions)Community
Banking
Wealth
Management
InsuranceParent and
Other
Consolidated
At or for the Three Months Ended March 31, 2021
Interest income$251 $ $ $ $251 
Interest expense25   3 28 
Net interest income226   (3)223 
Provision for credit losses6    6 
Non-interest income63 15 6 (1)83 
Non-interest expense (1)
165 10 5 2 182 
Amortization of intangibles3    3 
Income tax expense (benefit)22 1  (1)22 
Net income (loss)93 4 1 (5)93 
Total assets38,360 40 34 41 38,475 
Total intangibles2,276 9 28  2,313 
At or for the Three Months Ended March 31, 2020
Interest income$306 $ $ $ $306 
Interest expense68   6 74 
Net interest income238   (6)232 
Provision for credit losses48    48 
Non-interest income52 13 6 (2)69 
Non-interest expense (1)
176 10 5 1 192 
Amortization of intangibles3    3 
Income tax expense (benefit)12 1  (2)11 
Net income (loss)51 2 1 (7)47 
Total assets34,933 34 36 46 35,049 
Total intangibles2,288 9 29  2,326 
(1) Excludes amortization of intangibles, which is presented separately.
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NOTE 18.    FAIR VALUE MEASUREMENTS
Refer to Note 25 "Fair Value Measurements" to the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 for a description of additional valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis.
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:
TABLE 18.1
(in millions)Level 1Level 2Level 3Total
March 31, 2021
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury$100 $ $ $100 
U.S. government agencies 175  175 
U.S. government-sponsored entities 160  160 
Residential mortgage-backed securities:
Agency mortgage-backed securities 1,103  1,103 
Agency collateralized mortgage obligations 1,263  1,263 
Commercial mortgage-backed securities 335  335 
States of the U.S. and political subdivisions (municipals) 28  28 
Other debt securities 2  2 
Total debt securities available for sale100 3,066  3,166 
Loans held for sale 165  165 
Derivative financial instruments
Trading 214  214 
Not for trading 12 10 22 
Total derivative financial instruments 226 10 236 
Total assets measured at fair value on a recurring basis$100 $3,457 $10 $3,567 
Liabilities Measured at Fair Value
Derivative financial instruments
Trading$ $58 $ $58 
Not for trading  1 1 
Total derivative financial instruments 58 1 59 
Total liabilities measured at fair value on a recurring basis$ $58 $1 $59 
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(in millions)Level 1Level 2Level 3Total
December 31, 2020
Assets Measured at Fair Value
Debt securities available for sale
U.S. Treasury$600 $ $ $600 
U.S. government agencies 172  172 
U.S. government-sponsored entities 161  161 
Residential mortgage-backed securities:
Agency mortgage-backed securities 994  994 
Agency collateralized mortgage obligations 1,124  1,124 
Commercial mortgage-backed securities 378  378 
States of the U.S. and political subdivisions (municipals) 32  32 
Other debt securities 2  2 
Total debt securities available for sale600 2,863  3,463 
Loans held for sale 144  144 
Derivative financial instruments
Trading 349  349 
Not for trading 3 24 27 
Total derivative financial instruments 352 24 376 
Total assets measured at fair value on a recurring basis$600 $3,359 $24 $3,983 
Liabilities Measured at Fair Value
Derivative financial instruments
Trading$ $37 $ $37 
Not for trading 3  3 
Total derivative financial instruments 40  40 
Total liabilities measured at fair value on a recurring basis$ $40 $ $40 

The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:
TABLE 18.2 
(in millions)Interest
Rate
Lock
Commitments
Total
Three Months Ended March 31, 2021
Balance at beginning of period$24 $24 
Purchases, issuances, sales and settlements:
Issuances10 10 
Settlements(24)(24)
Balance at end of period$10 $10 
Year Ended December 31, 2020
Balance at beginning of period$3 $3 
Purchases, issuances, sales and settlements:
Issuances24 24 
Settlements(3)(3)
Balance at end of period$24 $24 
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We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. There were no transfers of assets or liabilities between the hierarchy levels during the first three months of 2021 or 2020.
From time to time, we measure certain assets at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of the lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were described in Note 25, "Fair Value Measurements" to the Consolidated Financial Statements included in 2020 Annual Report on Form 10-K. For assets measured at fair value on a non-recurring basis still held at the Balance Sheet date, the following table provides the hierarchy level and the fair value of the related assets or portfolios:
TABLE 18.3
(in millions)Level 1Level 2Level 3Total
March 31, 2021
Collateral dependent loans$ $ $14 $14 
Other assets - MSRs  14 14 
Other assets - SBA servicing asset  3 3 
Other real estate owned    
December 31, 2020
Collateral dependent loans$ $ $45 $45 
Other assets - MSRs  36 36 
Other assets - SBA servicing asset  3 3 
Other real estate owned  3 3 

The fair value amounts for collateral dependent loans and OREO in the table above were estimated at a date during the three months or twelve months ended March 31, 2021 and December 31, 2020, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end. Collateral dependent loans measured or re-measured at fair value on a non-recurring basis during the three months ended March 31, 2021 had a carrying amount of $19.2 million, which includes an allocated ACL of $18.0 million. The ACL includes a provision applicable to the current period fair value measurements of $6.8 million, which was included in provision for credit losses for the three months ended March 31, 2021.
MSRs measured at fair value on a non-recurring basis had a carrying value of $13.9 million, which included a valuation allowance of $4.8 million, as of March 31, 2021. The valuation allowance includes a recovery of $2.5 million included in earnings for the three months ended March 31, 2021. SBA servicing assets measured at fair value on a non-recurring basis had a carrying value of $3.1 million, which included a valuation allowance of $0.9 million, as of March 31, 2021. The valuation allowance includes a recovery of $0.2 million included in earnings for the three months ended March 31, 2021.
OREO measured at fair value on a non-recurring basis during 2021 had a carrying amount of $0.5 million and was written down to $0.4 million, resulting in a loss of $0.1 million, which was included in earnings for the three months ended March 31, 2021.
Fair Value of Financial Instruments
Refer to Note 25, "Fair Value Measurements" to the Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 for a description of methods and assumptions that were used to estimate the fair value of each financial instrument.

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The fair values of our financial instruments are as follows:
TABLE 18.4
  Fair Value Measurements
(in millions)Carrying
Amount
Fair
 Value
Level 1Level 2Level 3
March 31, 2021
Financial Assets
Cash and cash equivalents$2,668 $2,668 $2,668 $ $ 
Debt securities available for sale3,166 3,166 100 3,066  
Debt securities held to maturity3,043 3,114 1 3,113  
Net loans and leases, including loans held for sale25,355 24,938  165 24,773 
Loan servicing rights42 43   43 
Derivative assets236 236  226 10 
Accrued interest receivable89 89 89   
Financial Liabilities
Deposits30,354 30,376 26,970 3,406  
Short-term borrowings1,687 1,688 1,688   
Long-term borrowings1,091 1,088   1,088 
Derivative liabilities59 59  58 1 
Accrued interest payable9 9 9   
December 31, 2020
Financial Assets
Cash and cash equivalents$1,383 $1,383 $1,383 $ $ 
Debt securities available for sale3,463 3,463 600 2,863  
Debt securities held to maturity2,868 2,973  2,973  
Net loans and leases, including loans held for sale25,250 25,012  144 24,868 
Loan servicing rights39 39   39 
Derivative assets376 376  352 24 
Accrued interest receivable90 90 90   
Financial Liabilities
Deposits29,122 29,158 25,460 3,698  
Short-term borrowings1,804 1,809 1,809   
Long-term borrowings1,095 1,068   1,068 
Derivative liabilities40 40  40  
Accrued interest payable13 13 13   
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the three-month periods ended March 31, 2021 and 2020. This MD&A should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained herein and our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021. Our results of operations for the three months ended March 31, 2021 are not necessarily indicative of results expected for the full year.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Report may contain statements regarding our outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset quality levels, financial position and other matters regarding or affecting our current or future business and operations. These statements can be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve various assumptions, risks and uncertainties which can change over time. Actual results or future events may be different from those anticipated in our forward-looking statements and may not align with historical performance and events. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance upon such statements. Forward-looking statements are typically identified by words such as "believe," "plan," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "will," "should," "project," "goal," and other similar words and expressions. We do not assume any duty to update forward-looking statements, except as required by federal securities laws.
Our forward-looking statements are subject to the following principal risks and uncertainties:
Our business, financial results and balance sheet values are affected by business, economic and political circumstances, including, but not limited to: (i) developments with respect to the U.S. and global financial markets; (ii) actions by the FRB, FDIC, UST, OCC and other governmental agencies, especially those that impact money supply, market interest rates or otherwise affect business activities of the financial services industry; (iii) a slowing of the U.S. economic environment; (iv) the impacts of tariffs or other trade policies of the U.S. or its global trading partners; and the sociopolitical environment in the U.S.
Business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards.
Competition can have an impact on customer acquisition, growth and retention, and on credit spreads, deposit gathering and product pricing, which can affect market share, deposits and revenues. Our ability to anticipate, react quickly and continue to respond to technological changes and COVID-19 challenges can also impact our ability to respond to customer needs and meet competitive demands.
Business and operating results can also be affected by widespread natural and other disasters, pandemics, including the ongoing COVID-19 pandemic crisis, dislocations, terrorist activities, system failures, security breaches, significant political events, cyber-attacks or international hostilities through impacts on the economy and financial markets generally, or on us or our counterparties specifically.
Legal, regulatory and accounting developments could have an impact on our ability to operate and grow our businesses, financial condition, results of operations, competitive position, and reputation. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and the ability to attract and retain management. These developments could include:
Changes resulting from a new U.S. presidential administration, including legislative and regulatory reforms, different approaches to supervisory or enforcement priorities, changes affecting oversight of the financial services industry, regulatory obligations or restrictions, consumer protection, taxes, employee benefits, compensation practices, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.
Changes to regulations or accounting standards governing bank capital requirements, loan loss reserves and liquidity standards.
Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other
48


remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to FNB.
Results of the regulatory examination and supervision process, including our failure to satisfy requirements imposed by the federal bank regulatory agencies or other governmental agencies.
The impact on our financial condition, results of operations, financial disclosures and future business strategies related to ACL changes due to changes in forecasted macroeconomic scenarios commonly referred to as the “current expected credit loss” standard, or CECL.
A failure or disruption in or breach of our operational or security systems or infrastructure, or those of third parties, including as a result of cyber-attacks or campaigns.
The COVID-19 pandemic and the federal, state, and local regulatory and governmental actions implemented in response to COVID-19 have resulted in a deterioration and disruption of the financial markets and national and local economic conditions, increased levels of unemployment and business failures, and the potential to have a material impact on, among other things, our business, financial condition, results of operations, liquidity, or on our management, employees, customers and critical vendors and suppliers. In view of the many unknowns associated with the COVID-19 pandemic, our forward-looking statements continue to be subject to various conditions that may be substantially different in the future than what we are currently experiencing or expecting, including, but not limited to, a prolonged recovery of the U.S. economy and labor market and the possible change in commercial and consumer customer fundamentals, expectations and sentiments. As a result, the COVID-19 impact, including U.S. government responsive measures to manage it or provide financial relief, the uncertainty regarding its duration and the success of vaccination efforts, it is possible the pandemic may have a material adverse impact on our business, operations and financial performance.
The risks identified here are not exclusive or the types of risks we may confront and actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties described under Item 1A. Risk Factors and the Risk Management sections of our 2020 Annual Report on Form 10-K, our subsequent 2021 Quarterly Reports on Form 10-Q (including the risk factors and risk management discussions) and our other 2021 filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/investor-relations-shareholder-services. More specifically, our forward-looking statements may be subject to the evolving risks and uncertainties related to the COVID-19 pandemic and its macro-economic impact and the resulting governmental, business and societal responses to it. We have included our web address as an inactive textual reference only. Information on our website is not part of our SEC filings.

APPLICATION OF CRITICAL ACCOUNTING POLICIES
A description of our critical accounting policies is included in the MD&A section of our 2020 Annual Report on Form 10-K filed with the SEC on February 25, 2021 under the heading “Application of Critical Accounting Policies”. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2020.

USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS
To supplement our Consolidated Financial Statements presented in accordance with GAAP, we use certain non-GAAP financial measures, such as operating net income available to common stockholders, operating earnings per diluted common share, return on average tangible common equity, return on average tangible assets, tangible book value per common share, the ratio of tangible equity to tangible assets, the ratio of tangible common equity to tangible assets, ACL to loans and leases, excluding PPP loans, pre-provision net revenue to average tangible common equity, efficiency ratio and net interest margin (FTE) to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers. Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities. The non-GAAP financial measures and key performance indicators we use may differ from the non-GAAP financial measures and key performance indicators other financial institutions use to assess their performance and trends.
These non-GAAP financial measures should be viewed as supplemental in nature, and not as a substitute for or superior to, our reported results prepared in accordance with GAAP. When non-GAAP financial measures are disclosed, the SEC's Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. Reconciliations of non-GAAP operating
49


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 charges such as branch consolidation costs and COVID-19 expenses are not organic costs to run our operations and facilities. These charges are considered significant items impacting earnings as they are deemed to be outside of ordinary banking activities. The branch consolidation charges principally represent expenses to satisfy contractual obligations of the closed branches without any useful ongoing benefit to us. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction. The COVID-19 expenses represent special company initiatives to support our employees and the communities we serve during an unprecedented time of a pandemic.
To provide more meaningful comparisons of net interest margin and efficiency ratio, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets (loans and investments) to make it fully equivalent to interest income earned on taxable investments (this adjustment is not permitted under GAAP).  Taxable-equivalent amounts for the 2021 and 2020 periods were calculated using a federal statutory income tax rate of 21%.

FINANCIAL SUMMARY
Net income available to common stockholders for the first quarter of 2021 was $91.2 million or $0.28 per diluted common share, compared to net income available to common stockholders for the first quarter of 2020 of $45.4 million or $0.14 per diluted common share. On an operating basis, the first quarter of 2021 earnings per diluted common share (non-GAAP) was also $0.28, compared to the first quarter of 2020 earnings per diluted common share (non-GAAP) of $0.16, excluding $0.02 for significant items.
Non-interest income totaled a record $82.8 million for the three months ended March 31, 2021, up $14.3 million, or 20.8% compared to the first quarter of 2020. Return on average tangible common equity was 14.95% (non-GAAP) for the three months ended March 31, 2021, and total revenue increased on both a linked-quarter and year-over-year basis. We originated $0.9 billion in PPP loans during the first quarter of 2021, and non-interest-bearing deposits reached $9.9 billion, a year-over-year increase of 52.6%, as customer activity is increasing across the footprint with the U.S. economy moving toward reopening. Since the beginning of 2020, we have successfully leveraged our investments in technology and have had a significant amount of loan and deposit applications processed through our digital channels. Compared to March 31, 2020, loans and deposits increased $1.7 billion and $5.6 billion, respectively, resulting in a loan-to-deposit ratio of 84.1% and 96.5% at March 31, 2021 and 2020, respectively. We continued to strengthen our capital levels as tangible book value per share (non-GAAP) increased to $8.01 and our CET1 risk-based capital ratio reached an all-time high of 10.0%.
Income Statement Highlights (First quarter of 2021 compared to first quarter of 2020, except as noted)
Earnings per diluted common share were $0.28, compared to $0.14, in the first quarter of 2020, and $0.22 in the fourth quarter of 2020.
Operating earnings per diluted common share (non-GAAP) was $0.28, compared to $0.16, an increase of 75.0%.
Total revenue of $305.7 million, up 1.5%, compared to $301.2 million, and up 1.0% compared to $302.8 million in the fourth quarter of 2020.
Net interest income decreased $9.7 million, or 4.2%, as the lower interest rate environment impacted asset yields.
Net interest margin (FTE) (non-GAAP) declined 39 basis points to 2.75% from 3.14%, reflecting the extended, pandemic-impacted low rate environment, as lower yields on securities, higher cash balances earning an average of 11 basis points and lower loan origination rates drove asset yields lower. However, the growth in average earning assets, reductions in the cost of interest-bearing-deposits, strong growth in non-interest-bearing deposits and the termination of higher-rate FHLB borrowings partially offset the impact of the lower rate environment. On a linked-quarter basis, the net interest margin (FTE) (non-GAAP) decreased 12 basis points to 2.75% as earning asset yields declined 22 basis points and the total cost of funds decreased 9 basis points, with the cost of interest-bearing deposits decreasing 12 basis points.
Record non-interest income of $82.8 million increased $14.3 million, or 20.8%, due primarily to strong contributions from mortgage banking, and our fee-based businesses of insurance, capital markets and wealth management.
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The annualized net charge-offs to total average loans ratio was 0.11%, compared to 0.10%, as a result of stable asset quality trends and an improving macroeconomic environment at the beginning of 2021.
Provision for credit losses declined $41.9 million, or 87.6%, as the first quarter of 2020 provision reflected a significant deterioration in the macroeconomic environment driven by the uncertainty caused by the COVID-19 pandemic.
Income tax expense increased $10.7 million, or 97.3%, primarily due to higher pre-tax earnings, as the effective tax rate was 18.9%, compared to 18.8%.
The efficiency ratio (non-GAAP) equaled 58.7%, compared to 59.0%.
Balance Sheet Highlights (period-end balances, March 31, 2021 compared to December 31, 2020, unless otherwise indicated)
Growth in total average loans compared to the first quarter of 2020 was $1.9 billion, or 8.3%, reflecting commercial loan growth of $2.7 billion, or 17.8%, partially offset by a $0.7 billion, or 8.3%, decrease in average consumer loans primarily attributable to the sale of $0.5 billion in indirect auto loans in November 2020. PPP loans totaled $2.5 billion at March 31, 2021, reflecting $0.9 billion of originations during the quarter, partially offset by $0.5 billion in SBA loan forgiveness processed. There were no PPP loans outstanding at March 31, 2020.
Total average deposits grew $4.7 billion, or 19.3%, compared to the first quarter of 2020, primarily due to increases in average non-interest-bearing deposits of $2.9 billion, or 46.3%, and interest-bearing demand deposits of $2.3 billion, or 21.0%, partially offset by a decrease in average time deposits of $1.2 billion, or 24.7%. Average deposit growth reflected inflows from the PPP and government stimulus activities, in addition to organic growth in new and existing customer relationships.
The ratio of loans to deposits was 84.1%, compared to 87.4%, as deposit growth outpaced loan growth. Additionally, the funding mix continued to improve with non-interest-bearing deposits totaling 33% of total deposits, compared to 31%. Cash balances increased $1.3 billion to $2.7 billion due primarily to deposits from PPP funding and government stimulus inflows.
Total assets were $38.5 billion, compared to $37.4 billion, an increase of $1.1 billion, or 3.0%, primarily due to the increase in cash and cash equivalents due to significant deposit growth.
The dividend payout ratio for the first quarter of 2021 was 42.8%, compared to 86.2% for the first quarter of 2020.
The ratio of the ACL to total loans and leases decreased to 1.42% from 1.43% at December 31, 2020. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loan and leases ratio (non-GAAP) equaled 1.57%, compared to 1.56%. The ACL on loans and leases totaled $362 million at March 31, 2021, essentially unchanged from $363 million at December 31, 2020.
Tangible book value per share (non-GAAP) of $8.01 increased 7% from March 31, 2020, reflecting FNB's continued strategy to build tangible book value per share while optimizing capital deployment.
The CET1 regulatory capital ratio increased to 10.0%, up from 9.1%.
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TABLE 1
Quarterly Results Summary1Q211Q20
Reported results
Net income available to common stockholders (millions)$91.2 $45.4 
Net income per diluted common share0.28 0.14 
Book value per common share (period-end)15.27 14.67 
Pre-provision net revenue (reported) (millions)120.9 106.3 
Common equity tier 1 capital ratio10.0 %9.1 %
Operating results (non-GAAP)
Operating net income available to common stockholders (millions)$91.2 $53.5 
Operating net income per diluted common share0.28 0.16 
Tangible common equity to tangible assets (period-end)7.06 %7.36 %
Tangible book value per common share (period-end)$8.01 $7.46 
Pre-provision net revenue (operating) (millions)$120.9 $116.5 
Average diluted common shares outstanding (thousands)324,745 326,045 
Significant items impacting earnings(1) (millions)
Pre-tax COVID-19 expense$ $(2.0)
After-tax impact of COVID-19 expense (1.6)
Pre-tax branch consolidation costs (8.3)
After-tax impact of branch consolidation costs (6.5)
Total significant items pre-tax$ $(10.3)
Total significant items after-tax$ $(8.1)
(1) Favorable (unfavorable) impact on earnings

Industry Developments
LIBOR
The United Kingdom’s Financial Conduct Authority (FCA), who is the regulator of LIBOR, announced on March 5, 2021 that they will no longer require any panel bank to continue to submit LIBOR after December 31, 2021. As it pertains to U.S. dollar LIBOR, the FCA will consider the case to require continued publication, on a synthetic basis, of 1-month, 3-month and 6-month LIBOR settings through June 30, 2023. After such date, the LIBOR settings will no longer be representative and representativeness will no longer be restored. It should be noted, however, that bank regulators, in a joint statement have urged banks to stop using LIBOR altogether on new transactions by the end of 2021 to avoid the creation of safety and soundness risk. The FRB of New York has created a working group called the Alternative Reference Rate Committee (ARRC) to assist U.S. institutions in transitioning away from LIBOR as a benchmark interest rate. The ARRC has recommended the use of the Secured Overnight Financing Rate (SOFR) as a replacement index for LIBOR.
Similarly, we created an internal transition team that is managing our transition away from LIBOR. This transition team is a cross-functional team composed of representatives from the commercial, retail and mortgage banking lines of business, as well as representatives of loan operations, information technology, legal, finance and other support functions. The transition team has completed an assessment of tasks needed for the transition, identified contracts that contain LIBOR language, is in the process of reviewing existing contract language for the presence of appropriate fallback rate language, developed and implemented loan fallback rate language for when LIBOR is retired and identified risks associated with the transition. The transition team is considering SOFR and other alternative indices as a replacement to LIBOR. The financial impact regarding pricing, valuation and operations of the transition is not yet known. Our transition team will work within the guidelines established by the FCA and ARRC to provide for a smooth transition away from LIBOR.
Effective October 1, 2020, we finalized the transition of new adjustable rate mortgages away from LIBOR to SOFR. Additionally, effective October 16, 2020, we modified our valuation methodology to reflect changes made by central clearinghouses to their discounting methodology and interest calculation of cash margin to SOFR for U.S. dollar cleared interest rate swaps.

52


RESULTS OF OPERATIONS

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
Net income available to common stockholders for the first three months of 2021 was $91.2 million or $0.28 per diluted common share, compared to net income available to common stockholders for the first three months of 2020 of $45.4 million or $0.14 per diluted common share. The provision for credit losses totaled $5.9 million, compared to $47.8 million in the first quarter of 2020 with the year-ago quarter level primarily attributable to the COVID-19 impacts on macroeconomic forecasts used in the ACL model under the CECL standard. Non-interest income totaled $82.8 million, increasing $14.3 million, or 20.8%. Non-interest expense totaled $184.9 million, decreasing $10.0 million, or 5.1%. The first three months of 2020 included the impact of branch consolidation costs of $8.3 million and COVID-19 related expenses of $2.0 million.
Financial highlights are summarized below:
TABLE 2
Three Months Ended
March 31,
$%
(in thousands, except per share data)20212020ChangeChange
Net interest income$222,923 $232,631 $(9,708)(4.2)%
Provision for credit losses 5,911 47,838 (41,927)(87.6)
Non-interest income82,805 68,526 14,279 20.8 
Non-interest expense184,862 194,892 (10,030)(5.1)
Income taxes21,720 11,010 10,710 97.3 
Net income93,235 47,417 45,818 96.6 
Less: Preferred stock dividends2,010 2,010 — — 
Net income available to common stockholders$91,225 $45,407 $45,818 100.9 %
Earnings per common share – Basic$0.28 $0.14 $0.14 100.0 %
Earnings per common share – Diluted0.28 0.14 0.14 100.0 
Cash dividends per common share0.12 0.12 — — 
The following table presents selected financial ratios and other relevant data used to analyze our performance:
TABLE 3
 Three Months Ended
March 31,
20212020
Return on average equity7.62 %3.91 %
Return on average tangible common equity (2)
14.95 7.92 
Return on average assets1.00 0.55 
Return on average tangible assets (2)
1.10 0.62 
Book value per common share (1)
$15.27 $14.67 
Tangible book value per common share (1) (2)
8.01 7.46 
Equity to assets (1)
12.93 %13.81 %
Average equity to average assets13.19 14.07 
Common equity to assets (1)
12.65 13.51 
Tangible equity to tangible assets (1) (2)
7.36 7.69 
Tangible common equity to tangible assets (1) (2)
7.06 7.36 
Common equity tier 1 capital ratio10.0 9.1 
Dividend payout ratio42.78 86.24 
(1) Period-end
(2) Non-GAAP
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The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities:
TABLE 4          
 Three Months Ended March 31,
 20212020
(dollars in thousands)Average
Balance
Interest
Income/
Expense
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Assets
Interest-earning assets:
Interest-bearing deposits with banks$1,557,342 $423 0.11 %$163,450 $1,226 3.02 %
Taxable investment securities (1)
4,916,772 21,917 1.78 5,297,596 31,335 2.37 
Tax-exempt investment securities (1)(2)
1,127,197 9,721 3.45 1,125,766 10,068 3.58 
Loans held for sale164,374 1,493 3.64 76,457 984 5.15 
Loans and leases (2) (3)
25,452,831 220,777 3.51 23,509,124 265,828 4.54 
Total interest-earning assets (2)
33,218,516 254,331 3.09 30,172,393 309,441 4.12 
Cash and due from banks369,866 375,106 
Allowance for credit losses(369,792)(307,496)
Premises and equipment333,315 335,594 
Other assets4,074,810 4,079,637 
Total assets$37,626,715 $34,655,234 
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand$13,357,111 5,539 0.17 $11,035,736 25,145 0.92 
Savings3,280,324 172 0.02 2,618,395 1,827 0.28 
Certificates and other time3,516,533 9,534 1.10 4,669,556 22,495 1.94 
            Total interest-bearing deposits20,153,968 15,245 0.31 18,323,687 49,467 1.09 
Short-term borrowings1,819,822 7,040 1.57 3,305,058 13,760 1.67 
Long-term borrowings1,093,036 6,264 2.32 1,457,531 10,282 2.84 
Total interest-bearing liabilities23,066,826 28,549 0.50 23,086,276 73,509 1.28 
Non-interest-bearing demand9,213,181 6,296,976 
Total deposits and borrowings32,280,007 0.36 29,383,252 1.01 
Other liabilities385,016 397,515 
Total liabilities32,665,023 29,780,767 
Stockholders’ equity4,961,692 4,874,467 
Total liabilities and stockholders’ equity$37,626,715 $34,655,234 
Net interest-earning assets$10,151,690 $7,086,117 
Net interest income (FTE) (2)
225,782 235,932 
Tax-equivalent adjustment(2,859)(3,301)
Net interest income$222,923 $232,631 
Net interest spread2.59 %2.84 %
Net interest margin (2)
2.75 %3.14 %
(1)The average balances and yields earned on securities are based on historical cost.
(2)The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21%. The yield on earning assets and the net interest margin are presented on an FTE basis. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
(3)Average balances include non-accrual loans. Loans and leases consist of average total loans less average unearned income.
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Net Interest Income
Net interest income totaled $222.9 million, decreasing $9.7 million, or 4.2%. The decrease was primarily caused by the repricing impact on earning asset yields from lower interest rates and was partially offset by significant interest-earning asset growth of 10.1%. The net interest margin (FTE) (non-GAAP) declined 39 basis points to 2.75%.
The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended March 31, 2021, compared to the three months ended March 31, 2020:
TABLE 5
(in thousands)VolumeRateNet
Interest Income (1)
Interest-bearing deposits with banks$383 $(1,186)$(803)
Securities (2)
(3,513)(6,252)(9,765)
Loans held for sale779 (270)509 
Loans and leases (2)
19,256 (64,307)(45,051)
Total interest income (2)
16,905 (72,015)(55,110)
Interest Expense (1)
Deposits:
Interest-bearing demand1,236 (20,842)(19,606)
Savings31 (1,686)(1,655)
Certificates and other time(3,906)(9,055)(12,961)
Short-term borrowings(4,384)(2,336)(6,720)
Long-term borrowings(2,390)(1,628)(4,018)
Total interest expense(9,413)(35,547)(44,960)
Net change (2)
$26,318 $(36,468)$(10,150)
(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 $254.3 million for the first three months of 2021, decreased $55.1 million, or 17.8%, from the same period of 2020, resulting from the decrease in benchmark interest rates, partially offset by an increase in interest-earning assets of $3.0 billion. The increase in interest-earning assets was primarily driven by a $1.9 billion, or 8.3%, increase in average total loans due to PPP activity and core origination activity across the footprint. Average commercial loan growth totaled $2.7 billion, or 17.8%, including growth of $1.8 billion, or 33.4%, in commercial and industrial loans. Commercial loan growth was led by strong commercial activity in the Pittsburgh, Cleveland, South Carolina, and Mid-Atlantic regions. Average consumer loans declined $0.7 billion, or 8.3%, was primarily due to the sale of $0.5 billion of indirect auto installment loans in November 2020. Additionally, the net reduction in the securities portfolio was a result of management's strategy to deploy excess liquidity into higher yielding loans, as average securities decreased $379.4 million, or 5.9%, given historically low and unattractive interest rates available for reinvestment purposes. For the first three months of 2021, the yield on average interest-earning assets (non-GAAP) decreased 103 basis points to 3.09%, compared to the first three months of 2020, primarily due the lower interest rate environment.
Interest expense of $28.5 million for the first three months of 2021 decreased $45.0 million, or 61.2%, from the same period of 2020, primarily due to a decrease in rates paid, partially offset by an increase in average interest-bearing deposits. Average interest-bearing deposits increased $1.8 billion, or 10.0%, which reflects the benefit of organic growth, as well as deposits from PPP funding and government stimulus activities. Average long-term borrowings decreased $364.5 million, or 25.0%, primarily due to a decrease of $530.8 million in long-term FHLB borrowings, partially offset by an increase of $177.1 million in senior debt. During 2020, we utilized excess low-yielding cash to opportunistically terminate $715 million of FHLB borrowings, and in certain instances, their related interest rate swap. The terminated FHLB borrowings had a 2.49% interest rate with a
55


remaining term of 1.6 years. During the first quarter of 2020, we issued $300 million of 2.20% fixed rate senior notes due in 2023. The rate paid on interest-bearing liabilities decreased 78 basis points to 0.50% for the first three months of 2021, compared to the first three months of 2020, due to reduced costs on interest-bearing deposits and lower borrowing costs.

Provision for Credit Losses
The following table presents information regarding the credit loss expense and net charge-offs:
TABLE 6
Three Months Ended
March 31,
$%
(dollars in thousands)20212020ChangeChange
Provision for credit losses (on loans and leases)$6,065 $47,828 $(41,763)(87.3)%
Net loan charge-offs7,135 5,683 1,452 25.5 
Net loan charge-offs (annualized) / total average loans and leases0.11 %0.10 %
The provision for credit losses on loans and leases for the three months ended March 31, 2021 was $6.1 million, a decrease of $41.8 million from the year-ago quarter that reflected COVID-19 related impacts on macroeconomic forecasts used in the ACL model. Net charge-offs were $7.1 million during the three months ended March 31, 2021, compared to $5.7 million during the three months ended March 31, 2020, with both periods reflecting strong asset quality.
Non-Interest Income
The breakdown of non-interest income for the three months ended March 31, 2021 and 2020 is presented in the following table:
TABLE 7
Three Months Ended
March 31,
$%
(dollars in thousands)20212020ChangeChange
Service charges$27,831 $30,128 $(2,297)(7.6)%
Trust services9,083 7,962 1,121 14.1 
Insurance commissions and fees7,185 6,552 633 9.7 
Securities commissions and fees5,618 4,539 1,079 23.8 
Capital markets income7,712 11,113 (3,401)(30.6)
Mortgage banking operations15,733 (1,033)16,766 n/m
Dividends on non-marketable equity securities2,276 4,678 (2,402)(51.3)
Bank owned life insurance2,948 3,177 (229)(7.2)
Net securities gains41 53 (12)(22.6)
Other4,378 1,357 3,021 222.6 
Total non-interest income$82,805 $68,526 $14,279 20.8 %
n/m - not meaningful
Total non-interest income increased $14.3 million, to $82.8 million for the first three months of 2021, a 20.8% increase from the same period of 2020. The variances in significant individual non-interest income items are further explained in the following paragraphs.
Service charges on loans and deposits of $27.8 million for the first three months of 2021 decreased $2.3 million, or 7.6%, due primarily to lower customer transaction volumes in the COVID-19 environment, although volumes have steadily increased since late in the second quarter of 2020.
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Trust services of $9.1 million for the first three months of 2021 increased $1.1 million, or 14.1%, from the same period of 2020, primarily driven by strong organic revenue production and the market value of assets under management increasing $1.5 billion, or 26.2%, to $7.2 billion at March 31, 2021.
Insurance commissions and fees of $7.2 million for the first three months of 2021 increased $0.6 million, or 9.7%, from the same period of 2020, primarily from organic revenue growth due to the benefit of our expanded footprint.
Securities commissions and fees increased $1.1 million, or 23.8%, due to strong activity levels across the footprint.
Capital markets income of $7.7 million for the first three months of 2021 decreased $3.4 million, or 30.6%, from $11.1 million for the same period of 2020, due to lower customer swap activity compared to record levels in the beginning of 2020 from heightened volatility in the interest rate environment.
Mortgage banking operations income of $15.7 million for the first three months of 2021 increased $16.8 million from the same period of 2020 as a result of expanded gain-on-sale margins based on our improved mix of retail originations and strong sold production levels. During the first quarter of 2021, we sold $0.5 billion of residential mortgage loans, a 68.7% increase compared to $0.3 billion for the same period of 2020. During the first three months of 2021, we recognized a $2.5 million favorable interest-rate related valuation adjustment on MSRs, compared to a $7.7 million unfavorable adjustment for the same period of 2020. Additionally, we recorded $2.3 million of higher MSR amortization for the first three months of 2021 due to higher prepayment speeds.
Dividends on non-marketable equity securities of $2.3 million for the first three months of 2021 decreased $2.4 million, or 51.3%, from the same period of 2020, primarily due to a decrease in the FHLB dividend rate and lower levels of FHLB borrowings given the strong growth in deposits.
Other non-interest income was $4.4 million and $1.4 million for the first three months of 2021 and 2020, respectively. The first three months of 2021 included a $0.9 million increase in gain on sale of SBA loans and a $0.7 million increase in Small Business Investment Company (SBIC) investment income.
Non-Interest Expense
The breakdown of non-interest expense for the three months ended March 31, 2021 and 2020 is presented in the following table:
TABLE 8
Three Months Ended
March 31,
$%
(dollars in thousands)20212020ChangeChange
Salaries and employee benefits$107,303 $103,805 $3,498 3.4 %
Net occupancy16,163 21,448 (5,285)(24.6)
Equipment17,030 16,046 984 6.1 
Amortization of intangibles3,050 3,339 (289)(8.7)
Outside services16,929 16,896 33 0.2 
FDIC insurance4,844 5,555 (711)(12.8)
Bank shares and franchise taxes3,779 4,092 (313)(7.6)
Other15,764 23,711 (7,947)(33.5)
Total non-interest expense$184,862 $194,892 $(10,030)(5.1)%
Total non-interest expense of $184.9 million for the first three months of 2021 decreased $10.0 million, a 5.1% decrease from the same period of 2020. On an operating basis, non-interest expense increased $0.2 million, or 0.1%, when excluding significant items of $8.3 million in branch consolidation costs and $2.0 million of expenses associated with COVID-19 in the first three months of 2020. The variances in the individual non-interest expense items are further explained in the following paragraphs.
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Salaries and employee benefits of $107.3 million for the first three months of 2021 increased $3.5 million or 3.4% from the same period of 2020, primarily related to production-related commissions and incentives corresponding with strong production levels from mortgage banking and our fee-based businesses and our normal annual merit increases.
Net occupancy and equipment expense of $33.2 million for the first three months of 2021 decreased $4.3 million, or 11.5%, from $37.5 million from the same period of 2020, primarily due to $7.2 million of branch consolidation costs in the first three months of 2020. On an operating basis, net occupancy and equipment expense increased $2.9 million, or 9.5%, primarily due to expansion in key regions such as the Mid-Atlantic and South Carolina and continued digital technology investment in the first three months of 2021.
FDIC insurance expense of $4.8 million for the first three months of 2021 decreased $0.7 million, or 12.8%, from the first three months of 2020, primarily due to increased subordinated debt at FNBPA and improved liquidity metrics.
Other non-interest expense was $15.8 million and $23.7 million for the first three months of 2021 and 2020, respectively, as the year-ago period included higher levels of community giving. Additional reductions during the first three months of 2021 included business development costs, OREO expense and operational losses, compared to the same period of 2020.
The following table presents non-interest expense excluding significant items for the three months ended March 31, 2021 and 2020:
TABLE 9
Three Months Ended
March 31,
$%
(dollars in thousands)20212020ChangeChange
Total non-interest expense, as reported $184,862 $194,892 $(10,030)(5.1)%
Significant items:
   Branch consolidations — (8,262)8,262 
   COVID-19 expense — (1,962)1,962 
Total non-interest expense, excluding significant items (1)
$184,862 $184,668 $194 0.1 %
(1) Non-GAAP

Income Taxes
The following table presents information regarding income tax expense and certain tax rates:
TABLE 10
 Three Months Ended
March 31,
(dollars in thousands)20212020
Income tax expense$21,720 $11,010 
Effective tax rate18.9 %18.8 %
Statutory federal tax rate21.0 21.0 
Both periods’ tax rates are lower than the federal statutory tax rates of 21% due to tax benefits primarily resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. Income tax expense was higher in the first quarter of 2021 compared to the year-ago quarter due to significantly higher pre-tax income.


58


FINANCIAL CONDITION
The following table presents our condensed Consolidated Balance Sheets:
TABLE 11
(dollars in millions)March 31,
2021
December 31,
2020
$
Change
%
Change
Assets
Cash and cash equivalents$2,668 $1,383 $1,285 92.9 %
Securities6,209 6,331 (122)(1.9)
Loans held for sale185 154 31 20.1 
Loans and leases, net25,170 25,096 74 0.3 
Goodwill and other intangibles2,313 2,316 (3)(0.1)
Other assets1,930 2,074 (144)(6.9)
Total Assets$38,475 $37,354 $1,121 3.0 %
Liabilities and Stockholders’ Equity
Deposits$30,354 $29,122 $1,232 4.2 %
Borrowings2,778 2,899 (121)(4.2)
Other liabilities369 374 (5)(1.3)
Total Liabilities33,501 32,395 1,106 3.4 
Stockholders’ Equity4,974 4,959 15 0.3 
Total Liabilities and Stockholders’ Equity$38,475 $37,354 $1,121 3.0 %

Cash and cash equivalents increased in 2021 due to continued customer expansion in our footprint, government stimulus programs and the strategic reduction in our investment portfolio, as reinvestment opportunities were less attractive in the low interest rate environment. The investment portfolio allocation shifted as exposure to prepayment sensitive securities was reduced.

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; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. Since the inception of the PPP program, we originated $3.6 billion of PPP loans, including $0.9 billion during the first quarter of 2021.

Paycheck Protection Program
The CARES Act included an allocation of $349 billion for loans to be issued by financial institutions through the SBA, utilizing the PPP. The Paycheck Protection Program and Health Care Enhancement Act (PPP/HCE Act) was passed by Congress on April 23, 2020 and signed into law on April 24, 2020. The PPP/HCE Act authorized an additional $320 billion of funding for PPP loans. As of March 31, 2021, we had approximately $2.5 billion of PPP loans outstanding, net of unamortized net deferred fees of $58.6 million, which are included in the commercial and industrial category. During the first quarter of 2021, $0.5 billion of PPP loan balances were forgiven by the SBA.

PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. Loans closed prior to June 5, 2020, carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. Payments are deferred until after a forgiveness determination is made, if submitted within ten months of the end of the loan forgiveness Covered Period. The loans are 100% guaranteed by the SBA, which provides a reduced risk of loss to us on these loans. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. This fee is recognized in interest income over the contractual life of the loan under the effective yield method, adjusted for expected prepayments on these pools of homogenous loans. We expect most of the remaining $58.6 million of net deferred fees to be recognized by March 31, 2022 based on expected loan forgiveness activity. On June 5, 2020,
59


the President signed the Paycheck Protection Program Flexibility Act (PPP Flexibility Act) which extended the term for new PPP loans to 5 years and permitted a lender to extend a 2-year PPP loan up to a 5-year term by mutual agreement of the lender and borrower. The PPP Flexibility Act also gives the borrower the option of 24 weeks to distribute the funds, and a borrower can remain eligible for loan forgiveness by using at least 60% of the funds for payroll costs. The SBA announced that lenders will have 60 days to review PPP loan forgiveness applications and that the SBA will remit the forgiveness payments within 90 days of receipt of approved forgiveness applications.

Following is a summary of loans and leases:

TABLE 12
March 31,
2021
December 31, 2020$
Change
%
Change
(in millions)
Commercial real estate$9,799 $9,731 $68 0.7 %
Commercial and industrial7,401 7,214 187 2.6 
Commercial leases471 485 (14)(2.9)
Other25 40 (15)(37.5)
Total commercial loans and leases17,696 17,470 226 1.3 
Direct installment2,025 2,020 0.2 
Residential mortgages3,329 3,433 (104)(3.0)
Indirect installment1,201 1,218 (17)(1.4)
Consumer lines of credit1,281 1,318 (37)(2.8)
Total consumer loans7,836 7,989 (153)(1.9)
Total loans and leases$25,532 $25,459 $73 0.3 %
The commercial and industrial category includes PPP loans totaling $2.5 billion and $2.2 billion at March 31, 2021 and December 31, 2020, respectively.
Non-Performing Assets
Following is a summary of non-performing assets:
TABLE 13
(in millions)March 31,
2021
December 31,
2020
$
Change
%
Change
Commercial real estate$78 $85 $(7)(8.2)%
Commercial and industrial36 44 (8)(18.2)
Commercial leases2 — — 
Other (1)(100.0)
Total commercial loans and leases116 132 (16)(12.1)
Direct installment12 11 9.1 
Residential mortgages21 18 16.7 
Indirect installment2 — — 
Consumer lines of credit6 (1)(14.3)
Total consumer loans41 38 7.9 
Total non-performing loans and leases157 170 (13)(7.6)
Other real estate owned9 10 (1)(10.0)
Non-performing assets$166 $180 $(14)(7.8)%
Non-performing assets decreased $14.6 million, from $180.7 million at December 31, 2020 to $166.1 million at March 31, 2021. This reflects a decrease of $12.8 million in non-performing loans and leases and a decrease of $1.8 million in OREO.
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The decrease in non-performing loans was driven by the resolution of a few commercial credits, and the decrease in OREO was largely driven by the sale of properties in both the commercial and residential mortgage categories.
As long as the borrower was not experiencing financial difficulties immediately prior to COVID-19, short-term modifications, such as principal and interest deferments, are not being included in TDRs. These modifications will be closely monitored for any change in status.
Troubled Debt Restructured Loans

Following is a summary of accruing and non-accrual TDRs, by class:

TABLE 14
(in millions)AccruingNon-
Accrual
Total
March 31, 2021
Commercial real estate$4 $27 $31 
Commercial and industrial1 1 2 
Total commercial loans 5 28 33 
Direct installment23 4 27 
Residential mortgages24 7 31 
Consumer lines of credit6 1 7 
Total consumer loans53 12 65 
Total TDRs$58 $40 $98 
December 31, 2020
Commercial real estate$$18 $22 
Commercial and industrial
Total commercial loans 21 26 
Direct installment23 27 
Residential mortgages24 31 
Consumer lines of credit
Total consumer loans53 12 65 
Total TDRs$58 $33 $91 

Allowance for Credit Losses on Loans and Leases
On January 1, 2020, we adopted CECL which changed how we calculate the ACL as more fully described in Note 1, "Summary of Significant Accounting Policies" of our 2020 Annual Report on Form 10-K. The CECL model takes into consideration the expected credit losses over the life of the loan at the time the loan is originated compared to the incurred loss model under the prior standard. 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.
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COVID-19 Impacts on the ACL
Beginning in March 2020, the broader economy experienced a significant deterioration in the macroeconomic environment driven by the COVID-19 pandemic resulting in notable adverse changes to forecasted economic variables utilized in our ACL modeling process. Based on these changes, we utilized a third-party pandemic recessionary scenario from the first quarter of 2020 through the third quarter of 2020 for ACL modeling purposes. At December 31, 2020 and March 31, 2021, we utilized a third-party consensus macroeconomic forecast due to the improving macroeconomic environment. Macroeconomic variables that we utilized from this scenario for our ACL calculation as of December 31, 2020 included, but were not limited to: (i) gross domestic product, which reflects growth of 4% in 2021, (ii) the Dow Jones Total Stock Market Index, which grows steadily throughout the R&S forecast period, (iii) unemployment, which steadily declines and averages 6% over the R&S forecast period and (iv) the Volatility Index, which remains stable over the R&S forecast period. For our ACL calculation at March 31, 2021, the macroeconomic variables that we utilized included, but were not limited to: (i) gross domestic product, which reflects growth of 6% in 2021 and 2% in 2022, (ii) the Dow Jones Total Stock Market Index, which remains relatively flat through the R&S forecast period, (iii) unemployment, which averages 5% over the R&S forecast period and (iv) the Volatility Index, which remains stable over the R&S forecast period.
The ACL of $362.0 million at March 31, 2021 decreased $1.1 million, or 0.3%, from December 31, 2020 due to the improving macroeconomic environment, as noted previously. Our ending ACL coverage ratio at March 31, 2021 was 1.42%. Excluding PPP loans that do not carry an ACL due to a 100% government guarantee, the ACL to total loan and leases ratio equaled 1.57%. Total provision for credit losses for the three months ended March 31, 2021 was $5.9 million. Net charge-offs were $7.1 million for the three months ended March 31, 2021, compared to $5.7 million for the three months ended March 31, 2020, with the increase primarily due two credits in the commercial and industrial portfolio. The ACL as a percentage of non-performing loans for the total portfolio increased from 213% as of December 31, 2020 to 230% as of March 31, 2021 following the decrease in non-performing loans during the quarter, while the total ACL remained largely unchanged.

Deposits
As a bank holding company, our primary source of funds is deposits. These deposits are provided by business, consumer and municipal customers who we serve within our footprint.

Following is a summary of deposits:
TABLE 15
(in millions)March 31,
2021
December 31,
2020
$
Change
%
Change
Non-interest-bearing demand$9,935 $9,042 $893 9.9 %
Interest-bearing demand13,684 13,157 527 4.0 
Savings3,351 3,261 90 2.8 
Certificates and other time deposits3,384 3,662 (278)(7.6)
Total deposits$30,354 $29,122 $1,232 4.2 %
Total deposits increased $1.2 billion, or 4.2%, from December 31, 2020, primarily as a result of growth in non-interest-bearing and interest-bearing balances due to an expansion of customer relationships and higher customer balances, which were aided by inflows from the PPP and government stimulus activity. Customer preferences continued to shift away from higher rate certificates of deposit to lower yielding, more liquid products. The deposit growth helped us eliminate overnight borrowings and reduce other short-term borrowings.

Capital Resources and Regulatory Matters
The access to, and cost of, funding for new business initiatives, the ability to engage in expanded business activities, the ability to pay dividends and the level and nature of regulatory oversight depend, in part, on our capital position.
The assessment of capital adequacy depends on a number of factors such as expected organic growth in the Consolidated Balance Sheet, asset quality, liquidity, earnings performance and sustainability, changing competitive conditions, regulatory changes or actions, and economic forces. We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to current operations and to promote public confidence.
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We have an effective shelf registration statement filed with the SEC. Pursuant to this registration statement, we may, from time to time, issue and sell in one or more offerings any combination of common stock, preferred stock, debt securities, depositary shares, warrants, stock purchase contracts or units. On February 24, 2020, we completed an offering of $300.0 million of 2.20% fixed rate senior notes due in 2023 under this registration statement. The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering expenses were $297.9 million. We used the net proceeds from the sale of the notes for general corporate purposes, which included investments at the holding company level, capital to support the growth of FNBPA, repurchase of our common shares and refinancing of outstanding indebtedness.
On September 23, 2019, we announced that our Board of Directors approved a share repurchase program for the repurchase of up to an aggregate of $150 million of our common stock. The repurchases will be made from time to time on the open market at prevailing market prices or in privately negotiated transactions. The purchases will be funded from available working capital. There is no guarantee as to the exact number of shares that will be repurchased and we may discontinue purchases at any time. During the first quarter of 2021, we repurchased 3.0 million shares at a weighted average share price of $11.91 for $36.2 million under this repurchase program.
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 in order to maintain our well-capitalized status.
FNB and FNBPA are subject to various regulatory capital requirements administered by the federal banking agencies (see discussion under “Enhanced Regulatory Capital Standards”). Quantitative measures established by regulators to ensure capital adequacy require FNB and FNBPA to maintain minimum amounts and ratios of total, tier 1 and CET1 capital (as defined in the regulations) to risk-weighted assets (as defined) and minimum leverage ratio (as defined). Failure to meet minimum capital requirements could lead to initiation of certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our Consolidated Financial Statements, dividends and future business and corporate strategies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FNB and FNBPA must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. FNB’s and FNBPA’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
At March 31, 2021, 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 final rule to address the impact of CECL on regulatory capital by allowing 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 an interim 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 interim final rule, we will delay recognizing the estimated impact of CECL on regulatory capital until after a two-year deferral period, which for us extends through December 31, 2021. Beginning on January 1, 2022, we will be 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 interim 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. During the first quarter of 2021, the total deferred impact on CET1 capital related to our adoption of CECL was approximately $66.8 million, or 25 basis points.
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 similar to the current conditions. Under these scenarios, the results of these stress tests indicate that our regulatory capital ratios would remain above the regulatory requirements and we would be able to maintain appropriate liquidity levels, demonstrating our expected ability to continue to support our constituencies under stressful financial conditions.
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Following are the capital amounts and related ratios for FNB and FNBPA:
TABLE 16
 Actual
Well-Capitalized
Requirements (1)
Minimum Capital
Requirements plus Capital Conservation Buffer
(dollars in millions)AmountRatioAmountRatioAmountRatio
As of March 31, 2021
F.N.B. Corporation
Total capital$3,349 12.49 %$2,683 10.00 %$2,817 10.50 %
Tier 1 capital2,787 10.39 1,610 6.00 2,280 8.50 
Common equity tier 12,680 9.99 n/an/a1,878 7.00 
Leverage2,787 7.87 n/an/a1,416 4.00 
Risk-weighted assets26,827 
FNBPA
Total capital3,494 13.05 %2,678 10.00 %2,812 10.50 %
Tier 1 capital2,978 11.12 2,142 8.00 2,276 8.50 
Common equity tier 12,898 10.82 1,741 6.50 1,875 7.00 
Leverage2,978 8.43 1,767 5.00 1,414 4.00 
Risk-weighted assets26,779 
As of December 31, 2020
F.N.B. Corporation
Total capital$3,324 12.33 %$2,695 10.00 %$2,830 10.50 %
Tier 1 capital2,759 10.24 1,617 6.00 2,291 8.50 
Common equity tier 12,652 9.84 n/an/a1,886 7.00 
Leverage2,759 7.83 n/an/a1,410 4.00 
Risk-weighted assets26,948 
FNBPA
Total capital3,400 12.64 %2,690 10.00 %2,825 10.50 %
Tier 1 capital2,882 10.71 2,152 8.00 2,287 8.50 
Common equity tier 12,802 10.42 1,749 6.50 1,883 7.00 
Leverage2,882 8.19 1,760 5.00 1,408 4.00 
Risk-weighted assets26,902 
(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 2020 Annual Report on Form 10-K as filed with the SEC on February 25, 2021. Certain aspects of the Dodd-Frank Act remain subject to regulatory rulemaking and amendments to such previously promulgated rules, thereby making it difficult to anticipate with certainty the impact to us or the financial services industry resulting from this rulemaking process.
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LIQUIDITY
Our goal in liquidity management is to satisfy the cash flow requirements of customers and the operating cash needs of FNB with cost-effective funding. Our Board of Directors has established an Asset/Liability Management Policy to guide management in achieving and maintaining earnings performance consistent with long-term goals, while maintaining acceptable levels of interest rate risk, a “well-capitalized” Balance Sheet and adequate levels of liquidity. Our Board of Directors has also established Liquidity and Contingency Funding Policies to guide management in addressing the ability to identify, measure, monitor and control both normal and stressed liquidity conditions. These policies designate our ALCO as the body responsible for meeting these objectives. The ALCO, which is comprised of members of executive management, reviews liquidity on a continuous basis and approves significant changes in strategies that affect Balance Sheet or cash flow positions. Liquidity is centrally managed daily by our Treasury Department.
FNBPA generates liquidity from its normal business operations. Liquidity sources from assets include payments from loans and investments, as well as the ability to securitize, pledge or sell loans, investment securities and other assets. Liquidity sources from liabilities are generated primarily through the banking offices of FNBPA in the form of deposits and customer repurchase agreements. FNB also has access to reliable and cost-effective wholesale sources of liquidity. Short- and long-term funds are used to help fund normal business operations, and unused credit availability can be utilized to serve as contingency funding if we would be faced with a liquidity crisis.
The principal sources of the parent company’s liquidity are its strong existing cash resources plus dividends it receives from its subsidiaries. These dividends may be impacted by the parent’s or its subsidiaries’ capital needs, statutory laws and regulations, corporate policies, contractual restrictions, profitability and other factors. In addition, through one of our subsidiaries, we regularly issue subordinated notes, which are guaranteed by FNB. Management has utilized various strategies to ensure sufficient cash on hand is available to meet the parent's funding needs.  On February 24, 2020, we completed a senior debt offering whereby we issued $300.0 million aggregate principal amount of 2.20% senior notes due in 2023. The proceeds from this transaction were used for general corporate purposes and were the primary factor resulting in an increase in our Months of Cash on Hand (MCH) liquidity metric as shown below.
Starting in March 2020, management incorporated potential liquidity impacts related to COVID-19 into our daily analysis. Management concluded that our cash levels remain appropriate given the current market environment. Two metrics that are used to gauge the adequacy of the parent company’s cash position are the Liquidity Coverage Ratio (LCR) and MCH. The LCR is defined as the sum of cash on hand plus projected cash inflows over the next 12 months divided by projected cash outflows over the next 12 months. The MCH is defined as the number of months of corporate expenses and dividends that can be covered by the cash on hand.
The LCR and MCH ratios are presented in the following table:
TABLE 17
March 31,
2021
December 31,
2020
Internal
limit
Liquidity coverage ratio 2.5 times2.7 times> 1 time
Months of cash on hand 18.0 months22.2 months> 12 months
Our liquidity position has been positively impacted by our ability to generate growth in relationship-based accounts. Organic growth in low-cost transaction deposits was complemented by management’s strategy of deposit gathering efforts focused on attracting new customer relationships and deepening relationships with existing customers, in part through internal lead generation efforts leveraging data analytics capabilities.  Total deposits were $30.4 billion at March 31, 2021, an increase of $1.2 billion, or 17.2% annualized, from December 31, 2020. Total non-interest-bearing demand deposit accounts grew $0.9 billion, or 40.1% annualized, and interest-bearing demand increased by $0.5 billion, or 16.2% annualized. Savings account balances increased $90.1 million, or 11.2% annualized. Time deposits declined $278.5 million, or 30.8% annualized. As mentioned earlier, inflows from PPP and government stimulus checks were a significant factor in the deposit growth.
Cash held at the FRB was $2.1 billion at March 31, 2021, an increase of $1.3 billion from December 31, 2020.
FNBPA has significant unused wholesale credit availability sources that include the availability to borrow from the FHLB, the FRB, correspondent bank lines, access to brokered deposits, the Paycheck Protection Program Liquidity Fund (PPPLF) and other channels. In addition to credit availability, FNBPA also possesses salable unpledged government and agency securities that could be utilized to meet funding needs. We currently also have excess cash to meet our pledging requirements. The
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ALCO is currently targeting a 1% guideline level for salable unpledged government and agency securities due to an elevated influx of related deposits, in part related to the PPP.
The following table presents certain information relating to FNBPA’s credit availability and salable unpledged securities:
TABLE 18
(dollars in millions)March 31,
2021
December 31,
2020
Unused wholesale credit availability$16,302 $16,434 
Unused wholesale credit availability as a % of FNBPA assets42.5 %44.1 %
Salable unpledged government and agency securities$346 $546 
Salable unpledged government and agency securities as a % of FNBPA assets0.9 %1.5 %
The PPPLF accounted for $2.5 billion of the unused wholesale credit availability at March 31, 2021. This funding source has been extended to June 30, 2021. We also had $2.2 billion, or 5.7% of total assets, in excess cash available to meet our pledging requirements.
Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis as of March 31, 2021 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals. Management seeks to limit the size of the liquidity gaps so that sources and uses of funds are reasonably matched in the normal course of business. A reasonably matched position lays a better foundation for dealing with additional funding needs during a potential liquidity crisis. The twelve-month cumulative gap to total assets ratio was 9.6% as of March 31, 2021, compared to 8.2% as of December 31, 2020. Management calculates this ratio at least quarterly and it is reviewed monthly by ALCO.
TABLE 19
(dollars in millions)Within
1 Month
2-3
Months
4-6
Months
7-12
Months
Total
1 Year
Assets
Loans$802 $1,534 $1,772 $3,323 $7,431 
Investments2,551 230 333 597 3,711 
3,353 1,764 2,105 3,920 11,142 
Liabilities
Non-maturity deposits528 1,055 1,018 1,723 4,324 
Time deposits294 422 548 1,105 2,369 
Borrowings212 26 137 362 737 
1,034 1,503 1,703 3,190 7,430 
Period Gap (Assets - Liabilities)$2,319 $261 $402 $730 $3,712 
Cumulative Gap$2,319 $2,580 $2,982 $3,712 
Cumulative Gap to Total Assets6.0 %6.7 %7.8 %9.6 %
In addition, the ALCO regularly monitors various liquidity ratios and stress scenarios of our liquidity position. 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.

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MARKET RISK
Market risk refers to potential losses arising predominately from changes in interest rates, foreign exchange rates, equity prices and commodity prices. We are primarily exposed to interest rate risk inherent in our lending and deposit-taking activities as a financial intermediary. To succeed in this capacity, we offer an extensive variety of financial products to meet the diverse needs of our customers. These products sometimes contribute to interest rate risk for us when product groups do not complement one another. For example, depositors may want short-term deposits, while borrowers may desire long-term loans.
Changes in market interest rates may result in changes in the fair value of our financial instruments, cash flows and net interest income. Subject to its ongoing oversight, the Board of Directors has given ALCO the responsibility for market risk management, which involves devising policy guidelines, risk measures and limits, and managing the amount of interest rate risk and its effect on net interest income and capital. We use derivative financial instruments for interest rate risk management purposes and not for trading or speculative purposes.
Interest rate risk is comprised of repricing risk, basis risk, yield curve risk and options risk. Repricing risk arises from differences in the cash flow or repricing between asset and liability portfolios. Basis risk arises when asset and liability portfolios are related to different market rate indices, which do not always change by the same amount. Yield curve risk arises when asset and liability portfolios are related to different maturities on a given yield curve; when the yield curve changes shape, the risk position is altered. Options risk arises from “embedded options” within asset and liability products as certain borrowers have the option to prepay their loans, which may be with or without penalty, when rates fall, while certain depositors can redeem their certificates of deposit early, which may be with or without penalty, when rates rise.
We use an asset/liability model to measure our interest rate risk. Interest rate risk measures we utilize include earnings simulation, EVE and gap analysis. Gap analysis and EVE are static measures that do not incorporate assumptions regarding future business. Gap analysis, while a helpful diagnostic tool, displays cash flows for only a single rate environment. EVE’s long-term horizon helps identify changes in optionality and longer-term positions. However, EVE’s liquidation perspective does not translate into the earnings-based measures that are the focus of managing and valuing a going concern. Net interest income simulations explicitly measure the exposure to earnings from changes in market rates of interest. In these simulations, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. The ALCO reviews earnings simulations over multiple years under various interest rate scenarios on a periodic basis. Reviewing these various measures provides us with a comprehensive view of our interest rate risk profile, which provides the basis for balance sheet management strategies.
The following repricing gap analysis as of March 31, 2021 compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. Management utilizes the repricing gap analysis as a diagnostic tool in managing net interest income and EVE risk measures.
TABLE 20
(dollars in millions)Within
1 Month
2-3
Months
4-6
Months
7-12
Months
Total
1 Year
Assets
Loans$11,664 $1,180 $1,126 $2,104 $16,074 
Investments2,551 242 483 588 3,864 
14,215 1,422 1,609 2,692 19,938 
Liabilities
Non-maturity deposits9,492 — — — 9,492 
Time deposits420 421 546 1,100 2,487 
Borrowings1,441 610 12 12 2,075 
11,353 1,031 558 1,112 14,054 
Off-balance sheet550 530 (100)(100)880 
Period Gap (assets – liabilities + off-balance sheet)$3,412 $921 $951 $1,480 $6,764 
Cumulative Gap$3,412 $4,333 $5,284 $6,764 
Cumulative Gap to Assets10.0 %12.6 %15.4 %19.7 %
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The twelve-month cumulative repricing gap to total assets was 19.7% and 19.6% as of March 31, 2021 and December 31, 2020, respectively. The positive cumulative gap positions indicate that we have a greater amount of repricing earning assets than repricing interest-bearing liabilities over the subsequent twelve months. If interest rates increase as modeled, net interest income will increase and, conversely, if interest rates decrease as modeled, net interest income will decrease. The change in the cumulative repricing gap at March 31, 2021, compared to December 31, 2020, is primarily related to growth in deposits. As mentioned earlier, inflows from PPP and government stimulus checks were a significant factor of growth in non-interest-bearing balances. We are also using this opportunity to expand customer relationships. Customer preferences continued to shift away from higher rate certificates of deposit to lower yielding, more liquid products. The deposit growth helped us eliminate overnight borrowings and reduce other short-term borrowings.
The allocation of non-maturity deposits and customer repurchase agreements to the one-month maturity category above is based on the estimated sensitivity of each product to changes in market rates. For example, if a product’s rate is estimated to increase by 50% as much as the market rates, then 50% of the account balance was placed in this category.
Utilizing net interest income simulations, the following net interest income metrics were calculated using rate shocks which move market rates in an immediate and parallel fashion. The variance percentages represent the change between the net interest income and EVE calculated under the particular rate scenario compared to the net interest income and EVE that was calculated assuming market rates as of March 31, 2021. Using a static Balance Sheet structure, the measures do not reflect all of management's potential counteractions.
The following table presents an analysis of the potential sensitivity of our net interest income and EVE to changes in interest rates using rate shocks:
TABLE 21
March 31,
2021
December 31,
2020
ALCO
Limits
Net interest income change (12 months):
+ 300 basis points21.1 %17.9 %n/a
+ 200 basis points14.1 12.0 (5.0)%
+ 100 basis points6.9 5.9 (5.0)
- 100 basis points(1.9)0.4 (5.0)
Economic value of equity:
+ 300 basis points7.3 8.8 (25.0)
+ 200 basis points5.8 7.1 (15.0)
+ 100 basis points3.6 4.5 (10.0)
- 100 basis points(6.9)(9.4)(10.0)
We also model rate scenarios which move all rates gradually over twelve months (Rate Ramps) and model scenarios that gradually change the shape of the yield curve. Assuming a static Balance Sheet, a +100 basis point Rate Ramp increases net interest income (12 months) by 3.6% at March 31, 2021 and 3.2% at December 31, 2020. The corresponding metrics for a minus 100 basis point Rate Ramp are (1.3)% and 0.4% at March 31, 2021 and December 31, 2020, respectively. Deposit rate assumptions are floored at zero in the negative scenarios.
The FRB's rapid and large downward interest rate moves in March 2020 as a response to the COVID-19 pandemic lowered all market interest rates, specifically 1-month LIBOR. Thirty-six percent of our net loans and leases are indexed to one-month LIBOR. Further, the yield curve flattened. These factors were the primary drivers of the increase in asset sensitivity off of a lower base net interest income. In this historically low rate environment, our strategy is to remain asset sensitive to benefit from future increases in interest rate.
There are multiple factors that influence our interest rate risk position and impact net interest income. These include external factors such as the shape of the yield curve and expectations regarding future interest rates, as well as internal factors regarding product offerings, product mix and pricing of loans and deposits.
Management utilizes various tactics to achieve our desired interest rate risk (IRR) position. In response to the change in interest rates, management was proactive in addressing our IRR position. As mentioned earlier, we were successful in growing our transaction deposits which provides funding that is less interest rate-sensitive than short-term time deposits and wholesale
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borrowings. Also, we were able to lower rates on deposit products and shorten the term of the certificates of deposit volumes. This continues to be an intense focus of management. Further, management took advantage of the interest rate environment to reduce borrowing costs. On the lending side, we regularly sell long-term fixed-rate residential mortgages to the secondary market and have been successful in the origination of consumer and commercial loans with short-term repricing characteristics. In particular, we have made use of interest rate swaps to commercial borrowers (commercial swaps) to manage our IRR position as the commercial swaps effectively increase adjustable-rate loans. Total variable and adjustable-rate loans were 56.0% of total net loans and leases as of both March 31, 2021 and December 31, 2020, with 80.7% of these loans, or 45.3% of total net loans and leases tied to the Prime or one-month LIBOR rates as of March 31, 2021. As of March 31, 2021, the commercial swaps totaled $4.9 billion of notional principal, with $294.3 million in original notional swap principal originated during the first three months of 2021. For additional information regarding interest rate swaps, see Note 10, "Derivative Instruments and Hedging Activities" in the Notes to the Consolidated Financial Statements in this Report. The investment portfolio is also used, in part, to manage our IRR position.
We recognize that all asset/liability models have some inherent shortcomings. Asset/liability models require certain assumptions to be made, such as prepayment rates on interest-earning assets and repricing impact on non-maturity deposits, which may differ from actual experience. These business assumptions are based upon our experience, business plans, economic and market trends and available industry data. While management believes that its methodology for developing such assumptions is reasonable, there can be no assurance that modeled results will be achieved. Furthermore, the metrics are based upon the Balance Sheet structure as of the valuation date and do not reflect the planned growth or management actions that could be taken.

RISK MANAGEMENT
As a financial institution, we take on a certain amount of risk in every business decision, transaction and activity. Our Board of Directors and senior management have identified seven major categories of risk: credit risk, market risk, liquidity risk, reputational risk, operational risk, legal and compliance risk and strategic risk. In its oversight role of our risk management function, the Board of Directors focuses on the strategies, analyses and conclusions of management relating to identifying, understanding and managing risks so as to optimize total shareholder value, while balancing prudent business and safety and soundness considerations.
The Board of Directors adopted a risk appetite statement that defines acceptable risk levels and limits under which we seek to operate in order to optimize returns. As such, the board monitors a series of KRIs, or Key Risk Indicators, for various business lines, operational units, and risk categories, providing insight into how our performance aligns with our stated risk appetite. These results are reviewed periodically by the Board of Directors and senior management to ensure adherence to our risk appetite statement, and where appropriate, adjustments are made to applicable business strategies and tactics where risks are approaching stated tolerances or for emerging risks.
We support our risk management process through a governance structure involving our Board of Directors and senior management. The joint Risk Committee of our Board of Directors and the FNBPA Board of Directors helps ensure that business decisions are executed within appropriate risk tolerances. The Risk Committee has oversight responsibilities with respect to the following:

identification, measurement, assessment and monitoring of enterprise-wide risk;
development of appropriate and meaningful risk metrics to use in connection with the oversight of our businesses and strategies;
review and assessment of our policies and practices to manage our credit, market, liquidity, legal, regulatory and operating risk (including technology, operational, compliance and fiduciary risks); and
identification and implementation of risk management best practices.
The Risk Committee serves as the primary point of contact between our Board of Directors and the Risk Management Council, which is the senior management level committee responsible for risk management. Risk appetite is an integral element of our business and capital planning processes through our Board Risk Committee and Risk Management Council. We use our risk appetite processes to promote appropriate alignment of risk, capital and performance tactics, while also considering risk capacity and appetite constraints from both financial and non-financial risks. Our top-down risk appetite process serves as a limit for undue risk-taking for bottom-up planning from our various business functions. Our Board Risk Committee, in collaboration with our Risk Management Council, approves our risk appetite on an annual basis, or more frequently, as needed to reflect changes in the risk, regulatory, economic and strategic plan environments, with the goal of ensuring that our risk
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appetite remains consistent with our strategic plans and business operations, regulatory environment and our shareholders' expectations. Reports relating to our risk appetite and strategic plans, and our ongoing monitoring thereof, are regularly presented to our various management level risk oversight and planning committees and periodically reported up through our Board Risk Committee.
As noted above, we have a Risk Management Council comprised of senior management. The purpose of this committee is to provide regular oversight of specific areas of risk with respect to the level of risk and risk management structure. Management has also established an Operational Risk Committee that is responsible for identifying, evaluating and monitoring operational risks across FNB, evaluating and approving appropriate remediation efforts to address identified operational risks and providing periodic reports concerning operational risks to the Risk Management Council. The Risk Management Council reports on a regular basis to the Risk Committee of our Board of Directors regarding our enterprise-wide risk profile and other significant risk management issues. Our Chief Risk Officer is responsible for the design and implementation of our enterprise-wide risk management strategy and framework through the multiple second line of defense areas, including the following departments: Enterprise-Wide Risk Management, Fraud Risk, Loan Review, Model Risk Management, Third-Party Risk Management, Anti-Money Laundering and Bank Secrecy Act, Community Reinvestment Act, Appraisal Review, Compliance and Information and Cyber Security. All second line of defense departments report to the Chief Risk Officer to ensure the coordinated and consistent implementation of risk management initiatives and strategies on a day-to-day basis. Our Enterprise-Wide Risk Management Department conducts risk and control assessments across all of our business and operational areas to ensure the appropriate risk identification, risk management and reporting of risks enterprise-wide. The Fraud Risk Department monitors for internal and external fraud risk across all of our business and operational units. The Loan Review Department conducts independent testing of our loan risk ratings to ensure their accuracy, which is instrumental to calculating our ACL. Our Model Risk Management Department oversees validation and testing of all models used in managing risk across our company. Our Third-Party Risk Management Department ensures effective risk management and oversight of third-party relationships throughout the vendor life cycle. The Anti-Money Laundering and Bank Secrecy Act Department monitors for compliance with money laundering risk and associated regulatory compliance requirements. Our Community Reinvestment Department monitors for compliance with the requirements of the Community Reinvestment Act. The Appraisal Review Department facilitates independent ordering and review of real estate appraisals obtained for determining the value of real estate pledged as collateral for loans to customers. Our Compliance Department is responsible for developing policies and procedures and monitoring compliance with applicable laws and regulations which govern our business operations. Our Information and Cyber Security Department is responsible for maintaining a risk assessment of our information and cybersecurity risks and ensuring appropriate controls are in place to manage and control such risks, through the use of the National Institute of Standards and Technology framework for improving critical infrastructure by measuring and evaluating the effectiveness of information and cybersecurity controls. As discussed in more detail under the COVID-19 section of this Report, we have in place various business and emergency continuity plans to respond to different crises and circumstances which include rapid deployment of our Crisis Management Team, Incident Management Team and Business Continuity Coordinators to activate our plans for various types of emergency circumstance. Further, our audit function performs an independent assessment of our internal controls environment and plays an integral role in testing the operation of the internal controls systems and reporting findings to management and our Audit Committee. Each of the Risk, Audit, Credit Risk and CRA Committees of our Board of Directors regularly report on risk-related matters to the full Board of Directors. In addition, both the Risk Committee of our Board of Directors and our Risk Management Council regularly assess our enterprise-wide risk profile and provide guidance on actions needed to address key and emerging risk issues.
The Board of Directors believes that our enterprise-wide risk management process is effective and enables the Board of Directors to:

assess the quality of the information they receive;
understand the businesses, investments and financial, accounting, legal, regulatory and strategic considerations and the risks that FNB faces;
oversee and assess how senior management evaluates risk; and
assess appropriately the quality of our enterprise-wide risk management process.

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RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS TO GAAP
Reconciliations of non-GAAP operating measures and key performance indicators discussed in this Report to the most directly comparable GAAP financial measures are included in the following tables.
TABLE 22
Operating net income available to common stockholders
Three Months Ended
March 31,
(in thousands)20212020
Net income available to common stockholders$91,225 $45,407 
COVID-19 expense— 1,962 
Tax benefit of COVID-19 expense— (412)
Branch consolidation costs— 8,262 
Tax benefit of branch consolidation costs— (1,735)
Operating net income available to common stockholders (non-GAAP)$91,225 $53,484 
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 branch consolidation costs and COVID-19 expenses, are not organic costs to run our operations and facilities. The branch consolidation charges principally represent expenses to satisfy contractual obligations of the closed branches without any useful ongoing benefit to us. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction. The COVID-19 expenses represent special company initiatives to support our front-line employees and the communities we serve during an unprecedented time of a pandemic.
TABLE 23
Operating earnings per diluted common share
Three Months Ended
March 31,
 20212020
Net income per diluted common share$0.28 $0.14 
COVID-19 expense— 0.01 
Tax benefit of COVID-19 expense— — 
Branch consolidation costs— 0.03 
Tax benefit of branch consolidation costs— (0.01)
Operating earnings per diluted common share (non-GAAP)$0.28 $0.16 
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TABLE 24
Return on average tangible common equity
 Three Months Ended
March 31,
(dollars in thousands)20212020
Net income available to common stockholders (annualized)$369,970 $182,625 
Amortization of intangibles, net of tax (annualized)9,773 10,610 
Tangible net income available to common stockholders (annualized) (non-GAAP)$379,743 $193,235 
Average total stockholders’ equity$4,961,692 $4,874,467 
Less: Average preferred stockholders' equity(106,882)(106,882)
Less: Average intangible assets (1)
(2,315,012)(2,327,901)
Average tangible common equity (non-GAAP)$2,539,798 $2,439,684 
Return on average tangible common equity (non-GAAP)14.95 %7.92 %
(1) Excludes loan servicing rights.
TABLE 25
Return on average tangible assets
 Three Months Ended
March 31,
(dollars in thousands)20212020
Net income (annualized)$378,118 $190,710 
Amortization of intangibles, net of tax (annualized)9,773 10,610 
Tangible net income (annualized) (non-GAAP)$387,891 $201,320 
Average total assets$37,626,715 $34,655,234 
Less: Average intangible assets (1)
(2,315,012)(2,327,901)
Average tangible assets (non-GAAP)$35,311,703 $32,327,333 
Return on average tangible assets (non-GAAP)1.10 %0.62 %
(1) Excludes loan servicing rights.

TABLE 26
Tangible book value per common share
 Three Months Ended
March 31,
(dollars in thousands, except per share data)20212020
Total stockholders’ equity$4,973,676 $4,841,987 
Less: Preferred stockholders’ equity(106,882)(106,882)
Less: Intangible assets (1)
(2,313,478)(2,326,371)
Tangible common equity (non-GAAP)$2,553,316 $2,408,734 
Ending common shares outstanding318,696,426 322,674,191 
Tangible book value per common share (non-GAAP)$8.01 $7.46 
(1) Excludes loan servicing rights.

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TABLE 27
Tangible equity to tangible assets (period-end)
Three Months Ended
March 31,
(dollars in thousands)20212020
Total stockholders' equity$4,973,676 $4,841,987 
Less:  Intangible assets (1)
(2,313,478)(2,326,371)
Tangible equity (non-GAAP)$2,660,198 $2,515,616 
Total assets$38,475,371 $35,048,746 
Less:  Intangible assets (1)
(2,313,478)(2,326,371)
Tangible assets (non-GAAP)$36,161,893 $32,722,375 
Tangible equity / tangible assets (period-end) (non-GAAP)7.36 %7.69 %
(1) Excludes loan servicing rights.
TABLE 28
Tangible common equity / tangible assets (period-end)
Three Months Ended
March 31,
(dollars in thousands)20212020
Total stockholders' equity$4,973,676 $4,841,987 
Less:  Preferred stockholders' equity(106,882)(106,882)
Less:  Intangible assets (1)
(2,313,478)(2,326,371)
Tangible common equity (non-GAAP)$2,553,316 $2,408,734 
Total assets$38,475,371 $35,048,746 
Less:  Intangible assets (1)
(2,313,478)(2,326,371)
Tangible assets (non-GAAP)$36,161,893 $32,722,375 
Tangible common equity / tangible assets (period-end) (non-GAAP)7.06 %7.36 %
(1) Excludes loan servicing rights.
TABLE 29
Allowance for credit losses / loans and leases, excluding PPP loans (period-end)
Three Months Ended
March 31,
(dollars in thousands)2021
ACL - loans$362,037 
Loans and leases$25,532,163 
Less:  PPP loans outstanding(2,487,890)
Loans and leases, excluding PPP loans outstanding (non-GAAP)$23,044,273 
ACL loans / loans and leases, excluding PPP loans (non-GAAP)1.57 %



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Key Performance Indicators
TABLE 30
Pre-provision net revenue to average tangible common equity
Three Months Ended
March 31,
(dollars in thousands)20212020
Net interest income$222,923 $232,631 
Non-interest income82,805 68,526 
Less: Non-interest expense(184,862)(194,892)
Pre-provision net revenue (as reported)$120,866 $106,265 
Pre-provision net revenue (as reported) (annualized) $490,179 $427,395 
Adjustments:
Add: COVID-19 expense (non-interest expense)— 1,962 
Add: Branch consolidation costs (non-interest expense)— 8,262 
Pre-provision net revenue (operating) (non-GAAP)$120,866 $116,489 
Pre-provision net revenue (operating) (annualized)
(non-GAAP)
$490,179 $468,515 
Average total shareholders’ equity$4,961,692 $4,874,467 
Less: Average preferred shareholders’ equity(106,882)(106,882)
Less: Average intangible assets (1)
(2,315,012)(2,327,901)
Average tangible common equity (non-GAAP)$2,539,798 $2,439,684 
Pre-provision net revenue (reported) / average tangible common equity (non-GAAP)19.30 %17.52 %
Pre-provision net revenue (operating) / average tangible common equity (non-GAAP)19.30 %19.20 %
(1) Excludes loan servicing rights.

TABLE 31
Efficiency ratio
 Three Months Ended
March 31,
(dollars in thousands)20212020
Non-interest expense$184,862 $194,892 
Less: Amortization of intangibles(3,050)(3,339)
Less: OREO expense(786)(1,647)
Less: COVID-19 expense— (1,962)
Less: Branch consolidation costs— (8,262)
Adjusted non-interest expense$181,026 $179,682 
Net interest income$222,923 $232,631 
Taxable equivalent adjustment2,859 3,301 
Non-interest income82,805 68,526 
Less: Net securities gains(41)(53)
Adjusted net interest income (FTE) + non-interest income$308,546 $304,405 
Efficiency ratio (FTE) (non-GAAP)58.67 %59.03 %

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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 March 31, 2021, 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 2020 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, 2020.

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ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information regarding FNB's purchases of our common stock during the three-month period ended March 31, 2021.

PeriodTotal number of shares purchased Average price paid per shareTotal number of shares purchased as part of publicly announced plans or programs
Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (1)
January 1 - January 31, 2021199,500 $10.01 199,500 $109,572,262 
February 1 - February 28, 2021790,300 10.12 790,300 101,566,215 
March 1 - March 31, 20212,045,058 12.79 2,045,058 75,374,409 
Total3,034,858 $11.91 3,034,858 

(1) The number shown represents, as of the end of each period, the approximate dollar value of Common Stock that may yet be purchased under publicly-announced share repurchase authorizations. The shares may be purchased, from time-to-time, depending on market conditions.                

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
NONE

ITEM 4.    MINE SAFETY DISCLOSURES
Not Applicable.

ITEM 5.    OTHER INFORMATION
NONE

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ITEM 6.    EXHIBITS
Exhibit Index
Exhibit NumberDescription
31.1.
31.2.
32.1.
32.2.
101.INSInline 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.SCHInline XBRL Taxonomy Extension Schema Document (filed herewith).
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LABInline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
104Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

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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: May 6, 2021 /s/ Vincent J. Delie, Jr.
  Vincent J. Delie, Jr.
  Chairman, President and Chief Executive Officer
  (Principal Executive Officer)
Dated: May 6, 2021 /s/ Vincent J. Calabrese, Jr.
  Vincent J. Calabrese, Jr.
  Chief Financial Officer
  (Principal Financial Officer)
Dated: May 6, 2021 /s/ James L. Dutey
  James L. Dutey
  Corporate Controller
  (Principal Accounting Officer)
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