UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



☒	Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2018



☐	Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-31940

F.N.B. CORPORATION

(Exact name of registrant as specified in its charter)



Pennsylvania	25-1255406
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



One North Shore Center, 12 Federal Street, Pittsburgh, PA	15212
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 800-555-5455

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer	☒	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller reporting company	☐

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class	Outstanding at	~~October~~July 31, ~~2017~~2018
Common Stock, $0.01 Par Value	~~323,310,106~~324,258,342	Shares

Table of Contents

F.N.B. CORPORATION

FORM 10-Q

~~September~~June 30, ~~2017~~2018

INDEX



		PAGE
PART I – FINANCIAL INFORMATION

	Glossary of Acronyms and Terms	3

Item 1.	Financial Statements

	Consolidated Balance Sheets	34
	Consolidated Statements of Income	45
	Consolidated Statements of Comprehensive Income	56
	Consolidated Statements of Stockholders’ Equity	67
	Consolidated Statements of Cash Flows	78
	Notes to Consolidated Financial Statements	89

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6356

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9487

Item 4.	Controls and Procedures	9488

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	9588

Item 1A.	Risk Factors	9588

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9688

Item 3.	Defaults Upon Senior Securities	9688

Item 4.	Mine Safety Disclosures	9688

Item 5.	Other Information	9689

Item 6.	Exhibits	9789

Signatures		9889

Table of Contents

Glossary of Acronyms and Terms


AFS	Available for sale


ALCO	Asset/Liability Committee


AOCI	Accumulated other comprehensive income


ASC	Accounting Standards Codification


ASU	Accounting Standards Update


BOLI	Bank owned life insurance


Basel III	Basel III Capital Rules


EVE	Economic value of equity


FDIC	Federal Deposit Insurance Corporation


FHLB	Federal Home Loan Bank


FNB	F.N.B. Corporation


FNBPA	First National Bank of Pennsylvania


FRB	Board of Governors of the Federal Reserve System


FTE	Fully taxable equivalent


FVO	Fair value option


GAAP	U.S. generally accepted accounting principles


HTM	Held to maturity


IRLC	Interest rate lock commitments


LCR	Liquidity Coverage Ratio


LIBOR	London Inter-bank Offered Rate


MCH	Months of Cash on Hand


MSR	Mortgage servicing rights


OCC	Office of the Comptroller of the Currency


OREO	Other real estate owned


OTTI	Other-than-temporary impairment


Regency	Regency Finance Company


SBA	Small Business Administration


SEC	Securities and Exchange Commission


TCJA	Tax Cuts and Jobs Act of 2017


TDR	Troubled debt restructuring


TPS	Trust preferred securities


UST	U.S. Department of the Treasury


YDKN	Yadkin Financial Corporation

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except share and per share data


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	433,442		$	303,526		$	398,641		$	408,718
Interest bearing deposits with banks	81,898			67,881			35,058			70,725
Cash and Cash Equivalents	515,340			371,407			433,699			479,443
Securities available for sale	2,855,350			2,231,987			3,002,787			2,764,562
Securities held to maturity (fair value of $2,970,701 and $2,294,777)	2,985,921			2,337,342
Loans held for sale (includes $72,585 and $0 measured at fair value) ⁽¹⁾	113,778			11,908
Loans and leases, net of unearned income of $54,620 and $52,723	20,817,436			14,896,943
Debt securities held to maturity (fair value of $3,181,275 and $3,218,379)							3,295,081			3,242,268
Loans held for sale (includes $28,213 and $56,458 measured at fair value) ⁽¹⁾							44,112			92,891
Loans and leases, net of unearned income of $39,202 and $50,680							21,659,582			20,998,766
Allowance for credit losses	(170,016		)	(158,059		)	(176,574		)	(175,380		)
Net Loans and Leases	20,647,420			14,738,884			21,483,008			20,823,386
Premises and equipment, net	336,294			243,956			324,659			336,540
Goodwill	2,254,831			1,032,129			2,251,349			2,249,188
Core deposit and other intangible assets, net	129,042			67,327			84,096			92,075
Bank owned life insurance	498,698			330,152			532,135			526,818
Other assets	786,621			479,725			806,637			810,464
Total Assets	$	31,123,295		$	21,844,817		$	32,257,563		$	31,417,635
Liabilities
Deposits:
Non-interest-bearing demand	$	5,569,239		$	4,205,337		$	5,926,473		$	5,720,030
Interest-bearing demand	9,675,170			6,931,381			9,134,954			9,571,038
Savings	2,513,163			2,352,434			2,607,372			2,488,178
Certificates and other time deposits	4,171,599			2,576,495			4,870,988			4,620,479
Total Deposits	21,929,171			16,065,647			22,539,787			22,399,725
Short-term borrowings	3,872,301			2,503,010			4,334,146			3,678,337
Long-term borrowings	658,783			539,494			628,938			668,173
Other liabilities	227,119			165,049			281,450			262,206
Total Liabilities	26,687,374			19,273,200			27,784,321			27,008,441
Stockholders’ Equity
Preferred stock - $0.01 par value; liquidation preference of $1,000 per share
Authorized – 20,000,000 shares
Issued – 110,877 shares	106,882			106,882			106,882			106,882
Common stock - $0.01 par value
Authorized – 500,000,000 shares
Issued – 324,930,173 and 212,378,494 shares	3,251			2,125
Issued – 326,064,004 and 325,095,055 shares							3,262			3,253
Additional paid-in capital	4,029,334			2,234,366			4,043,124			4,033,567
Retained earnings	369,861			304,397			457,326			367,658
Accumulated other comprehensive loss	(54,310		)	(61,369		)	(115,885		)	(83,052		)
Treasury stock – 1,628,625 and 1,318,947 shares at cost	(19,097		)	(14,784		)
Treasury stock – 1,805,662 and 1,629,915 shares at cost							(21,467		)	(19,114		)
Total Stockholders’ Equity	4,435,921			2,571,617			4,473,242			4,409,194
Total Liabilities and Stockholders’ Equity	$	31,123,295		$	21,844,817		$	32,257,563		$	31,417,635


(1)	Amount represents loans for which we have elected the fair value option. See Note ~~17.~~18.

See accompanying Notes to Consolidated Financial Statements (unaudited)

Table of Contents

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Dollars in thousands, except per share data

Unaudited


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Interest Income
Loans and leases, including fees	$	232,834	$	154,272	$	622,554	$	442,113	$	257,895	$	221,091	$	496,989	$	389,720
Securities:
Taxable	24,763		18,432		72,258		52,901		28,995		25,029		55,874		47,495
Tax-exempt	5,597		2,254		13,675		6,401		6,960		4,677		13,554		8,078
Dividends	—		9		85		23		—		76		—		85
Other	320		143		669		357		267		161		627		349
Total Interest Income	263,514		175,110		709,241		501,795		294,117		251,034		567,044		445,727
Interest Expense
Deposits	18,987		10,477		47,480		30,387		31,049		16,753		57,518		28,493
Short-term borrowings	14,387		3,607		32,020		8,527		18,409		10,959		33,616		17,633
Long-term borrowings	4,909		3,520		13,343		10,652		5,304		4,907		10,450		8,434
Total Interest Expense	38,283		17,604		92,843		49,566		54,762		32,619		101,584		54,560
Net Interest Income	225,231		157,506		616,398		452,229		239,355		218,415		465,460		391,167
Provision for credit losses	16,768		14,639		44,374		43,047		15,554		16,756		30,049		27,606
Net Interest Income After Provision for Credit Losses	208,463		142,867		572,024		409,182		223,801		201,659		435,411		363,561
Non-Interest Income
Service charges	33,610		25,411		91,806		72,349		31,114		32,090		61,191		56,671
Trust services	5,748		5,268		17,210		15,955		6,469		5,715		12,917		11,462
Insurance commissions and fees	5,029		4,866		14,517		13,892		4,567		4,347		9,702		9,488
Securities commissions and fees	4,038		3,404		11,548		10,400		4,526		3,887		8,845		7,510
Capital markets income	2,822		4,497		11,673		11,493		5,854		5,004		11,068		8,851
Mortgage banking operations	5,437		3,564		14,400		7,912		5,940		5,173		11,469		8,963
Bank owned life insurance	3,123		3,348		8,368		8,035		3,077		3,092		6,362		5,245
Net securities gains	2,777		299		5,895		596		31		493		31		3,118
Other	3,567		2,583		11,928		10,063		3,311		6,277		10,807		9,886
Total Non-Interest Income	66,151		53,240		187,345		150,695		64,889		66,078		132,392		121,194
Non-Interest Expense
Salaries and employee benefits	82,383		60,927		240,860		178,681		98,671		84,899		187,997		158,477
Net occupancy	13,723		10,333		39,132		29,792		16,149		14,060		31,717		25,409
Equipment	13,711		10,034		35,761		28,604		13,183		12,420		27,648		22,050
Amortization of intangibles	4,805		3,571		12,716		9,608		3,811		4,813		8,029		7,911
Outside services	15,439		11,756		41,965		30,884		17,045		13,483		31,770		26,526
FDIC insurance	9,183		5,274		23,946		14,345		9,167		9,376		18,001		14,763
Supplies	1,925		2,787		6,595		8,195
Bank shares and franchise taxes	2,814		2,404		8,536		7,934		3,240		2,742		6,692		5,722
Merger-related	1,381		299		55,459		35,790		—		1,354		—		54,078
Other	18,379		13,665		50,042		43,494		21,747		20,567		42,242		36,333
Total Non-Interest Expense	163,743		121,050		515,012		387,327		183,013		163,714		354,096		351,269
Income Before Income Taxes	110,871		75,057		244,357		172,550		105,677		104,023		213,707		133,486
Income taxes	33,178		22,889		69,279		52,950		20,471		29,617		41,739		36,101
Net Income	77,693		52,168		175,078		119,600		85,206		74,406		171,968		97,385
Preferred stock dividends	2,010		2,010		6,030		6,030		2,010		2,010		4,020		4,020
Net Income Available to Common Stockholders	$	75,683	$	50,158	$	169,048	$	113,570	$	83,196	$	72,396	$	167,948	$	93,365
Earnings per Common Share
Basic	$	0.23	$	0.24	$	0.57	$	0.55	$	0.26	$	0.22	$	0.52	$	0.33
Diluted	$	0.23	$	0.24	$	0.57	$	0.55	$	0.26	$	0.22	$	0.52	$	0.33
Cash Dividends per Common Share	$	0.12	$	0.12	$	0.36	$	0.36	$	0.12	$	0.12	$	0.24	$	0.24

See accompanying Notes to Consolidated Financial Statements (unaudited)

Table of Contents

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Dollars in thousands

Unaudited

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income $ 77,693
$ 52,168
$ 175,078
$ 119,600
Other comprehensive income:
Securities available for sale:
Unrealized gains arising during the period, net of tax expense (benefit) of $724, $(1,535), $4,503 and $9,818
1,288
(2,851 ) 8,027
18,234
Reclassification adjustment for gains included in net income, net of tax expense of $215, $105, $223 and $209
(384 ) (195 ) (398 ) (388 )
Derivative instruments:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $76, $284, $(1,265) and $2,811
136
528
(2,254 ) 5,221
Reclassification adjustment for (losses) gains included in net income, net of tax (benefit) expense of $(44), $138, $45 and $517
78
(256 ) (81 ) (960 )
Pension and postretirement benefit obligations:
Unrealized gains arising during the period, net of tax expense of $535, $205, $987 and $632
955
380
1,765
1,173
Other comprehensive income 2,073
(2,394 ) 7,059
23,280
Comprehensive income $ 79,766
$ 49,774
$ 182,137
$ 142,880



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net income	$	85,206		$	74,406		$	171,968		$	97,385
Other comprehensive (loss) income:
Securities available for sale:
Unrealized (losses) gains arising during the period, net of tax (benefit) expense of $(2,523), $403, $(10,990) and $3,779	(8,873		)	720			(38,660		)	6,739
Reclassification adjustment for (gains) losses included in net income, net of tax expense (benefit) of $7, $(427), $7 and $8	(24		)	761			(24		)	(14		)
Derivative instruments:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $511, $(766), $1,593 and $(1,341)	1,796			(1,365		)	5,600			(2,390		)
Reclassification adjustment for gains included in net income, net of tax expense of $156, $(40), $205 and $89	(548		)	70			(721		)	(159		)
Pension and postretirement benefit obligations:
Unrealized (losses) gains arising during the period, net of tax (benefit) expense of $138, $224, $274 and $452	488			400			972			810
Other comprehensive (loss) income	(7,161		)	586			(32,833		)	4,986
Comprehensive income	$	78,045		$	74,992		$	139,135		$	102,371

See accompanying Notes to Consolidated Financial Statements (unaudited)

Table of Contents

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Dollars in thousands, except per share data

Unaudited


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total			Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance at January 1, 2016	$	106,882	$	1,766	$	1,808,210	$	243,217		$	(51,133	)	$	(12,760	)	$	2,096,182
Comprehensive income							119,600			23,280						142,880
Dividends declared:
Preferred stock							(6,030		)							(6,030		)
Common stock: $0.36/share							(76,133		)							(76,133		)
Issuance of common stock			10		6,694								(1,990		)	4,714
Issuance of common stock - acquisitions			341		403,690											404,031
Restricted stock compensation					4,644											4,644
Tax benefit of stock-based compensation					292											292
Balance at September 30, 2016	$	106,882	$	2,117	$	2,223,530	$	280,654		$	(27,853	)	$	(14,750	)	$	2,570,580
Balance at January 1, 2017	$	106,882	$	2,125	$	2,234,366	$	304,397		$	(61,369	)	$	(14,784	)	$	2,571,617		$	106,882	$	2,125	$	2,234,366	$	304,397		$	(61,369	)	$	(14,784	)	$	2,571,617
Comprehensive income							175,078			7,059						182,137									97,385			4,986						102,371
Dividends declared:
Preferred stock							(6,030		)							(6,030		)							(4,020		)							(4,020		)
Common stock: $0.36/share							(103,584		)							(103,584		)
Common stock: $0.24/share																									(64,561		)							(64,561		)
Issuance of common stock			10		5,178								(4,313		)	875					9		4,039								(4,304		)	(256		)
Issuance of common stock - acquisitions			1,116		1,782,308											1,783,424					1,116		1,780,819											1,781,935
Assumption of warrant due to acquisition					1,394											1,394							1,394											1,394
Restricted stock compensation					6,088											6,088							3,958											3,958
Balance at September 30, 2017	$	106,882	$	3,251	$	4,029,334	$	369,861		$	(54,310	)	$	(19,097	)	$	4,435,921
Balance at June 30, 2017																			$	106,882	$	3,250	$	4,024,576	$	333,201		$	(56,383	)	$	(19,088	)	$	4,392,438
Balance at January 1, 2018																			$	106,882	$	3,253	$	4,033,567	$	367,658		$	(83,052	)	$	(19,114	)	$	4,409,194
Comprehensive income																									171,968			(32,833		)				139,135
Dividends declared:
Preferred stock																									(4,020		)							(4,020		)
Common stock: $0.24/share																									(78,280		)							(78,280		)
Issuance of common stock																					9		4,858								(2,353		)	2,514
Restricted stock compensation																							4,699											4,699
Balance at June 30, 2018																			$	106,882	$	3,262	$	4,043,124	$	457,326		$	(115,885	)	$	(21,467	)	$	4,473,242

See accompanying Notes to Consolidated Financial Statements (unaudited)

Table of Contents

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in thousands

Unaudited


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Operating Activities
Net income	$	175,078		$	119,600		$	171,968		$	97,385
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion	60,349			45,059			57,388			36,392
Provision for credit losses	44,374			43,047			30,049			27,606
Deferred tax expense	36,706			10,390			15,541			21,226
Net securities gains	(5,895		)	(596		)	(31		)	(3,118		)
Tax benefit of stock-based compensation	(735		)	(292		)	(357		)	(724		)
Loans originated for sale	(787,957		)	(484,249		)	(529,376		)	(519,973		)
Loans sold	709,323			478,218			589,823			380,522
Gain on sale of loans	(10,583		)	(7,051		)	(11,668		)	(4,716		)
Net change in:
Interest receivable	(10,104		)	(1,372		)	1,044			(462		)
Interest payable	938			945			2,658			58
Bank owned life insurance	(8,100		)	(3,103		)	(5,367		)	(5,063		)
Other, net	(78,095		)	(10,708		)	27,613			(114,988		)
Net cash flows provided by operating activities	125,299			189,888
Net cash flows provided by (used in) operating activities							349,285			(85,855		)
Investing Activities
Net change in loans and leases	(886,944		)	(666,413		)	(719,659		)	(582,236		)
Securities available for sale:
Purchases	(1,042,784		)	(753,544		)	(581,769		)	(592,601		)
Sales	786,762			615,199			—			755,866
Maturities	404,618			437,406			288,337			247,930
Securities held to maturity:
Debt securities held to maturity:
Purchases	(842,020		)	(875,597		)	(224,229		)	(782,281		)
Sales	57,050			—			—			1,574
Maturities	309,075			259,202			168,333			214,739
Purchase of bank owned life insurance	(25,102		)	(16,579		)
Increase in premises and equipment	(46,781		)	(37,074		)	(10,333		)	(34,832		)
Net cash received in business combinations	196,964			245,762			—			196,964
Other, net							(32		)	(5,805		)
Net cash flows used in investing activities	(1,089,162		)	(791,638		)	(1,079,352		)	(580,682		)
Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts	384,103			858,937			(110,447		)	(45,049		)
Time deposits	306,745			(134,234		)	252,901			(143,154		)
Short-term borrowings	573,102			(15,192		)	655,809			1,126,769
Proceeds from issuance of long-term borrowings	96,917			39,888			17,490			77,223
Repayment of long-term borrowings	(150,420		)	(119,005		)	(56,343		)	(133,162		)
Net proceeds from issuance of common stock	6,963			9,358			7,213			3,702
Tax benefit of stock-based compensation	—			292
Cash dividends paid:
Preferred stock	(6,030		)	(6,030		)	(4,020		)	(4,020		)
Common stock	(103,584		)	(76,133		)	(78,280		)	(64,561		)
Net cash flows provided by financing activities	1,107,796			557,881			684,323			817,748
Net Increase (Decrease) in Cash and Cash Equivalents	143,933			(43,869		)	(45,744		)	151,211
Cash and cash equivalents at beginning of period	371,407			489,119			479,443			371,407
Cash and Cash Equivalents at End of Period	$	515,340		$	445,250		$	433,699		$	522,618

See accompanying Notes to Consolidated Financial Statements (unaudited)

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F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~September~~June 30, ~~2017~~2018

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 only bank subsidiary, First National Bank of Pennsylvania, and its subsidiaries.

NATURE OF OPERATIONS

F.N.B. Corporation, ~~(FNB),~~ headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in eight states. Through FNBPA, we have over 150 years of serving the financial and banking needs of our customers. We hold a significant retail deposit market share in attractive markets including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; and Charlotte, ~~Raleigh, Durham~~Raleigh-Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. As of ~~September~~June 30, ~~2017,~~2018, we had ~~423~~404 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina and South Carolina. 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, ~~First National Bank of Pennsylvania (FNBPA).~~FNBPA. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, ~~international 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 fiduciary and brokerage services, asset management, private banking and insurance. We also operate Regency Finance Company, ~~(Regency),~~ which had 7677 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee as of ~~September~~June 30, ~~2017.~~2018.

~~The terms “FNB,” “the Corporation,” “we,” “us” and “our” throughout this Report mean F.N.B. Corporation and its subsidiaries, when appropriate.~~


1.	~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Our accompanying ~~consolidated financial statements~~Consolidated Financial Statements and these ~~notes~~Notes to the ~~financial statements~~Financial Statements 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, ~~(FNIA),~~ Regency, 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.~~Consolidated Financial Statements.

The accompanying ~~consolidated financial statements~~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 U.S. generally accepted accounting ~~principles (GAAP).~~principles. 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 the date of the ~~September~~June 30, ~~2017 balance sheet~~2018 Balance Sheet have been evaluated for potential recognition or disclosure in the ~~consolidated financial statements~~Consolidated Financial Statements through the date of the filing of the ~~consolidated financial statements~~Consolidated Financial Statements with the Securities and Exchange ~~Commission (SEC).~~Commission.

Certain information and ~~note~~Note disclosures normally included in ~~consolidated financial statements~~Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results FNB expects for the full year. These interim unaudited ~~consolidated financial statements~~Consolidated Financial Statements should be read in conjunction with the audited ~~consolidated financial statements~~Consolidated Financial Statements and ~~notes~~Notes thereto included in FNB’s 2017 Annual Report on Form 10-K filed with the SEC on February ~~23, 2017.~~28, 2018. For a detailed description of our significant accounting policies, see Note 1 "Summary of Significant Accounting Policies" in the 2017 Form 10-K. The accounting policies presented below have been added or amended for newly material items or the adoption of new accounting standards.

Use of Estimates

Our accounting and reporting policies conform with GAAP. The preparation of ~~financial statements~~Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the ~~consolidated financial statements~~Consolidated Financial Statements and accompanying ~~notes.~~Notes. Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the allowance for credit losses, accounting for acquired loans, fair value of financial instruments, goodwill and other intangible assets, income taxes and ~~income taxes.~~

deferred tax assets and litigation.

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~~Loans Held~~Revenue from Contracts with Customers

We earn certain revenues from contracts with customers. These revenues are recognized when control of the promised services is transferred to the customers in an amount that reflects the consideration we expect to be entitled to in an exchange for ~~Sale~~those services.

In determining the appropriate revenue recognition for our contracts with customers, we consider whether the contract has commercial substance and ~~Loan Commitments~~is approved by both parties with identifiable contractual rights, payment terms, and the collectability of consideration is probable. Generally, we satisfy our performance obligations upon the completion of services at the amount to which we have the right to invoice or charge under contracts with an original expected duration of one year or less. We apply this guidance on a portfolio basis to contracts with similar characteristics and for which we believe the results would not differ materially from applying this guidance to individual contracts.

~~Certain of our residential mortgage loans~~Our services provided under contracts with customers are ~~originated for sale~~transferred at the point in time when the services are rendered. Generally, we do not defer incremental direct costs to obtain contracts with customers that would be amortized in one year or less under the practical expedient. These costs are recognized as expense, primarily salary and benefit expense, in the ~~secondary mortgage loan market. Effective January 1, 2017,~~period incurred.

Deposit Services.We recognize revenue on deposit services based on published fees for services provided. Demand and savings deposit customers have the right to cancel their depository arrangements and withdraw their deposited funds at any time without prior notice. When services involve deposited funds that can be retrieved by customers without penalties, we ~~made an automatic election~~consider the service contract term to ~~account for all future residential mortgage loans under~~be day-to-day, where each day represents the ~~fair value option (FVO). The FVO election is intended to better reflect the underlying economics and better facilitate the economic hedging~~renewal of the ~~loans.~~contract. The ~~FVO~~contract does not extend beyond the services performed and revenue is ~~applied~~recognized at the end of the contract term (daily) as the performance obligation is satisfied.

No deposit services fees exist for long-term deposit products beyond early withdrawal penalties, which are earned on ~~an instrument~~these products at the time of early termination.

Revenue from deposit services fees are reduced where we have a history of waived or reduced fees by ~~instrument~~customer request or due to a customer service issue, by historical experience, or another acceptable method in the same period as the related revenues. Revenues from deposit services are reported in the Consolidated Statements of Income as service charges and in the Community Banking segment as non-interest income.

Wealth Management Services.Wealth advisory and trust services are provided on a month-to-month basis and ~~is an irrevocable election. Additionally, with the election of the FVO, fees and costs associated with the origination and acquisition of residential mortgage loans~~invoiced as services are ~~expensed as incurred, rather than deferred. Changes in fair value under the FVO~~rendered. Fees are ~~recorded in mortgage banking operations non-interest income~~based on a fixed amount or a scale based on the ~~consolidated statements~~level of ~~income. Fair~~services provided or assets under management. The customer has the right to terminate their services agreement at any time. We determine the value ~~is determined~~of services performed based on the ~~basis of rates obtained~~fee schedule in ~~the respective secondary market for the type of loan held for sale. Prior to the FVO election, loans were generally sold~~effect at a premium or discount from the carrying amount of the loan which represented the lower of cost or fair value. Gain or loss on the sale of loans is recorded in mortgage banking operations non-interest income. Interest income on loans held for sale is recorded in interest income.

We routinely issue interest rate lock commitments for residential mortgage loans that we intend to sell. These interest rate lock commitments are considered derivatives. We also enter into loan sale commitments to sell these loans when funded to mitigate the risk that the market value of residential mortgage loans may decline between the time the ~~rate commitment is issued~~services are performed. Revenues from wealth advisory and trust services are reported in the Consolidated Statements of Income as trust services and securities commissions and fees, and in the Wealth segment as non-interest income.

Insurance Services.Insurance services include full-service insurance brokerage services offering numerous lines of commercial and personal insurance through major carriers to businesses and individuals within our geographic markets. We recognize revenue on insurance contracts in effect based on contractually specified commission payments on premiums that are paid by the customer to the ~~customer~~insurance carrier. Contracts are cancellable at any time and we have no performance obligation to the customers beyond the time the insurance is placed into effect. Revenues from insurance services are reported in the Consolidated Statements of Income as insurance commissions and fees, and in the Insurance segment as non-interest income.

Debt Securities

Debt securities comprise a significant portion of our Consolidated Balance Sheets. Such securities can be classified as trading, HTM or AFS. As of June 30, 2018 and 2017, we ~~sell~~did not hold any trading debt securities.

Debt securities HTM are the ~~loan. These loan sale commitments~~securities that management has the positive intent and ability to hold until their maturity. Such securities are ~~also derivatives. Both types~~carried at cost, adjusted for related amortization of ~~derivatives~~premiums and accretion of discounts through interest income from securities, and subject to evaluation for OTTI.

Debt securities that are ~~recorded~~not classified as trading or HTM are classified as AFS. Such securities are carried at fair value ~~on the consolidated balance sheets~~ with ~~changes in fair value recorded in mortgage banking operations non-interest income.~~

~~We also originate loans guaranteed by the Small Business Administration (SBA) for the purchase of businesses, business startups, business expansion, equipment,~~net unrealized gains and working capital. All SBA loans are underwritten and documented as prescribed by the SBA. Starting in the first quarter of 2017, the guaranteed portion of SBA loans originated with the intention to sell on the secondary market are classified as held for sale and are carried at the lower of cost or fair value. At the time of the sale, we allocate the carrying value of the entire loan between the guaranteed portion sold and the unguaranteed portion retained based on their relative fair value which results in a discount recorded on the retained portion of the loan. The guaranteed portion is typically sold at a premium and the gain is recognized in other income for any net premium received in excess of the relative fair value of the portion of the loan transferred. The net carrying value of the retained portion of the loans is included in the appropriate loan classification for disclosure purposes, primarily commercial real estate or commercial and industrial.

~~Premises and Equipment~~

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the asset’s estimated useful life. Leasehold improvements are expensed over the lesser of the asset’s estimated useful life or the term of the lease including renewal periods when reasonably assured. Useful lives are dependent upon the nature and condition of the asset and range from 3 to 40 years. Maintenance and repairs are charged to expense as incurred, while major improvements are capitalized and amortized to expense over the identified useful life.

~~Premises and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Assets~~losses deemed to be ~~disposed~~temporary and OTTI attributable to non-credit factors reported separately as a component of ~~are transferred to~~ other ~~assets and are reported at the lower~~comprehensive income, net of ~~the carrying amount or fair value less costs to sell.~~

~~Goodwill and Other Intangible Assets~~

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as core deposit intangibles, customer relationship intangibles and renewal lists, are amortized over their estimated useful lives and subject to periodic impairment testing. Core deposit intangibles are primarily amortized over ten years using accelerated methods. Customer renewal lists are amortized over their estimated useful lives which range from eight to thirteen years.

Goodwill and other intangibles are subject to impairment testing at the reporting unit level, which must be conducted at least annually. We perform impairment testing during the fourth quarter of each year, or more frequently if impairment indicators exist. We also continue to monitor other intangibles for impairment and to evaluate carrying amounts, as necessary.

We perform a quantitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Prior to 2017, if, after assessing updated quantitative factors, we determined it was more likely than not that the fair value of a reporting unit was less than its carrying amount, we performed the two-step goodwill impairment test to measure a goodwill impairment charge.tax.

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~~Determining~~We evaluate our debt securities in a loss position for OTTI on a quarterly basis at the ~~fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of~~ individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test are judgmental and often involve the use of significant estimates and assumptions. Similarly, estimates and assumptions are used in determining the fair value of other intangible assets. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation of appropriate market comparables. Based on the results of quantitative assessments of all reporting units, we concluded that no impairment existed at December 31, 2016. However, future events could cause us to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impactsecurity level based on our ~~financial condition~~intent to sell. If we intend to sell the debt security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, OTTI must be recognized in earnings equal to the entire difference between the investments’ amortized cost basis and ~~results of operations.~~

Beginning in 2017, as permitted under the early adoption provisions of ASU 2017-4, we changed our impairment policy to record an impairment loss, if any, based on the excess of a reporting unit’s carrying amount over its fair value. ~~This change in accounting principle~~If we do not intend to sell the debt security and it is not more likely than not that we will be ~~applied prospectively. We believe this change~~required to sell the security before recovery of its amortized cost basis, OTTI must be separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss will be recognized in ~~accounting policy is preferable as it reduces the cost and complexity~~earnings. The amount related to other market factors will be recognized in other comprehensive income, net of ~~accounting for goodwill impairment.~~

~~Loan Servicing Rights~~applicable taxes.

We ~~have two primary classes~~perform our OTTI evaluation process in a consistent and systematic manner and include an evaluation of ~~servicing rights, residential mortgage loan servicing~~all available evidence. This process considers factors such as length of time and SBA-guaranteed loan servicing. We recognize the right to service residential mortgage loans and SBA-guaranteed loans for others as an asset whether we purchase the servicing rights or as a result from a sale of loans that we originate when the servicing is contractually separated from the underlying loan and retained by us.

We initially record servicing rights at fair value in core deposit and other intangible assets, net on the consolidated balance sheet. Subsequently, servicing rights are measured at the lower of cost or fair value. Servicing rights are amortized in proportion to, and over theanticipated recovery period of ~~estimated net servicing income against servicing income during~~ the ~~period in mortgage banking operations income for residential mortgage loans~~impairment, recent events specific to the issuer and ~~non-interest income for SBA-guaranteed loans. The amount~~recent experience regarding principal and ~~timing of estimated future net cash flows are updated based on actual results and updated projections.~~

Mortgage servicing rights (MSRs) are separated into pools based on common risk characteristics of the underlying loans and evaluated for impairment at least quarterly. SBA-guaranteed servicing rights are evaluated for impairment at least quarterly on an aggregate basis. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. If impairment exists at the pool level for residential mortgage loans or on an aggregate basis for SBA-guaranteed loans, the servicing right is written down through a valuation allowance and is charged against mortgage banking operations income or non-interest income, respectively.

~~Bank-Owned Life Insurance (BOLI)~~

We have purchased life insurance policies on certain current and former directors, officers and employees for which the Corporation is the owner and beneficiary. These policies are recorded in the consolidated balance sheet at their cash surrender value, or the amount that could be realized by surrendering the policies. Tax-exempt income from death benefits and changes in the net cash surrender value are recorded in bank owned life insurance income.interest payments.

Low Income Housing Tax Credit (LIHTC) Partnerships

We invest in various affordable housing projects that qualify for ~~low income housing tax credits (LIHTCs).~~LIHTCs. The net investments are recorded in other assets on the ~~consolidated balance sheets.~~Consolidated Balance Sheets. These investments generate a return through the realization of federal tax credits. We use the proportional amortization method to account for a majority of our investments in these entities. LIHTCs that do not meet the requirements of the proportional amortization method are recognized using the equity method. Our net investment in LIHTCs was ~~$18.1~~$27.3 million and ~~$14.0~~$20.9 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

~~Per Share Amounts~~

~~Earnings per common share is computed using net income available to common stockholders, which is net income adjusted for preferred stock dividends.~~

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.

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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, warrants Our unfunded commitments in LIHTCs were $57.0 million and ~~restricted shares, as calculated using the treasury stock method. Adjustments to net income available to common stockholders~~$67.2 million at June 30, 2018 and ~~the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.~~

~~Beginning in~~December 31, 2017, the assumed proceeds from applying the treasury stock method when computing diluted earnings per share excludes the amount of excess tax benefits that would have been recognized in accumulated paid-in capital in accordance with newly adopted accounting guidance.

~~Stock Based Compensation~~

~~We account for our stock based compensation awards in accordance with ASC 718,~~ ~~Compensation - Stock Compensation,~~ which requires the measurement and recognition of compensation expense, based on estimated fair values, for all stock-based awards, including stock options and restricted stock, made to employees and directors.

ASC 718 requires companies to estimate the fair value of stock-based awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense in our consolidated statements of comprehensive income over the shorter of requisite service periods or the period through the date that the employee first becomes eligible to retire. Some of our plans contain performance targets that affect vesting and can be achieved after the requisite service period and are accounted for as performance conditions. Beginning in 2016, the performance target is not reflected in the estimation of the award’s grant date fair value and compensation cost is recognized in the period in which it becomes probable that the performance condition will be achieved.

Because stock-based compensation expense is based on awards that are ultimately expected to vest, stock-based compensation expense has been reduced to account for estimated forfeitures. Beginning in 2017, with the adoption of ASU 2016-09, we elected to change our accounting policy to account for forfeitures as they occur. The estimate for forfeitures prior to adoption of ASU 2016-09 was immaterial to our consolidated financial statements. We believe this change in accounting policy reduces the cost and complexity of accounting for stock-based compensation and is preferable to estimating forfeitures at the time of grant.respectively.


2. NOTE 2. NEW ACCOUNTING STANDARDS	~~NEW ACCOUNTING STANDARDS~~

The following ~~paragraphs summarize~~table summarizes accounting pronouncements issued by the Financial Accounting Standards Board ~~(FASB)~~ that we recently adopted or will be adopting in the future.

~~Stock Based Compensation~~

~~Accounting Standards Update (ASU or Update) 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting~~, provides guidance about which changes to the terms and conditions of a share-based payment award requires the application of modification accounting. The Update is effective in the first quarter of 2018. Early adoption is permitted. This Update was adopted in the third quarter of 2017 by prospective application to awards modified on or after the adoption date. This Update did not have a material effect on our consolidated financial statements.

~~ASU 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,~~ simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Update was adopted in the first quarter of 2017 by an application method determined by the type of transaction impacted by the adoption. This Update did not have a material effect on our consolidated financial statements.

~~Securities~~

~~ASU 2017-08,~~ ~~Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities~~ which shortens the amortization period for the premium on certain purchased callable securities to the earliest call date. The accounting for purchased callable debt securities held at a discount does not change. The Update is effective in the first quarter of 2019. Early adoption is permitted. The Update is to be applied using a modified retrospective transition method and is not expected to have a material effect on our consolidated financial statements.



Standard	Description	Required Date of Adoption	Financial Statements Impact
Derivative and Hedging Activities
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities	This Update improves the financial reporting of hedging to better align with a company’s risk management activities. In addition, this Update makes certain targeted improvements to simplify the application of the current hedge accounting guidance.	January 1, 2019 Early adoption is permitted.	This Update is to be applied using a modified retrospective method. The presentation and disclosure guidance are applied prospectively. We are currently assessing the potential impact to our Consolidated Financial Statements.
Securities
ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities	This Update shortens the amortization period for the premium on certain purchased callable securities to the earliest call date. The accounting for purchased callable debt securities held at a discount does not change.	January 1, 2019 Early adoption is permitted.	This Update is to be applied using a modified retrospective transition method. The adoption of this Update is not expected to have a material effect on our Consolidated Financial Statements.

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~~Retirement Benefits~~



Standard	Description	Required Date of Adoption	Financial Statements Impact
Retirement Benefits
ASU 2017-07, ~~Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,~~ requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The Update is effective the first quarter of 2018. Early adoption is permitted. The Update is to be applied using a retrospective transition method to adopt the requirement for separate presentation in the income statement of service costs and other components and a prospective transition method to adopt the requirement to limit the capitalization of benefit costs to the service cost component. We are currently assessing the potential impact to our consolidated financial statements. ~~Goodwill~~ ~~ASU 2017-04,~~ ~~Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~, eliminates the requirement of Step 2 in the current guidance to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value in Step 1 of the current guidance. The Update is effective the first quarter of 2020. Early adoption is permitted for annual or interim goodwill impairment tests with a measurement date after January 1, 2017. We adopted this Update in the first quarter of 2017 for the next goodwill impairment test. This Update is applied prospectively and is not expected to have a material effect on our consolidated financial statements. ~~Business Combinations~~ ~~ASU 2017-01,~~ ~~Business Combinations (Topic 850): Clarifying the Definition of a Business~~, clarifies the definition of a business with the objective of providing guidance to assist in the evaluation of whether transactions should be accounted for as acquisitions (disposals) of assets or businesses. The Update is effective for the first quarter of 2018. Early adoption is permitted for transactions that occurred before the issuance date or effective date of the Update if the transactions were not reported in financial statements that have been issued or made available for issuance. We adopted this Update in the first quarter of 2017. This Update is applied prospectively and is not expected to have a material effect on our consolidated financial statements. ~~Statement of Cash Flows~~ ~~ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force),~~ adds or clarifies guidance on eight cash flow issues. The Update is effective the first quarter of 2018. This Update will be applied retrospectively to all periods presented. Early adoption is permitted. We are currently assessing the potential impact to our consolidated financial statements. ~~Credit Losses~~ ~~ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, commonly referred to as “CECL,” replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses for most financial assets measured at amortized cost and certain other instruments, including loans, held-to-maturity debt securities, net investments in leases and off-balance sheet credit exposures. In addition, the Update will require the use of a modified available-for-sale debt security impairment model and eliminate the current accounting for purchased credit impaired loans and debt securities. The Update is effective the first quarter of 2020. Early adoption is permitted for fiscal years beginning after December 15, 2018. We continue to assess the potential impact to our consolidated financial statements. We are reviewing our business processes, information systems and controls to support recognition and disclosures under this Update. This review includes an assessment of our existing credit models and the financial statement disclosure requirements. The impact of this Update will be dependent on the portfolio composition, credit quality and economic conditions at the time of adoption. ~~Revenue Recognition~~ ~~ASU 2017-05,~~ Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~, clarifies the scope for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers.~~ ~~ASU 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,~~ ~~addresses certain issues in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.~~Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	This Update requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the Income Statement and allows only the service cost component of net benefit cost to be eligible for capitalization.	January 1, 2018	We adopted this Update in the first quarter of 2018 by a retrospective transition method. The adoption of this Update did not have a material effect on our Consolidated Financial Statements.
Statement of Cash Flows
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)	This Update adds or clarifies guidance on eight cash flow issues.	January 1, 2018	We adopted this Update in the first quarter of 2018 by retrospective application. The adoption of this Update did not have a material effect on our Consolidated Financial Statements.
Credit Losses
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	This Update replaces the current incurred loss impairment methodology with a methodology that reflects current expected credit losses (commonly referred to as CECL) for most financial assets measured at amortized cost and certain other instruments, including loans, HTM debt securities, net investments in leases and off-balance sheet credit exposures. CECL requires loss estimates for the remaining life of the financial asset at the time the asset is originated or acquired, considering historical experience, current conditions and reasonable and supportable forecasts. In addition, the Update will require the use of a modified AFS debt security impairment model and eliminate the current accounting for purchased credit impaired loans and debt securities.	January 1, 2020 Early adoption is permitted for fiscal years beginning after December 15, 2018	This Update is to be applied using a cumulative-effect adjustment to retained earnings. The CECL model is a significant change from existing GAAP and may result in a material change to our accounting for financial instruments and regulatory capital. We have created a cross-functional steering committee to govern implementation as we continue to review and enhance our business processes, information systems and controls to support recognition and disclosures under this Update including designing and building the models that will be used to calculate the expected credit losses. The impact of this Update will be dependent on the portfolio composition, credit quality and forecasts of economic conditions at the time of adoption.
Extinguishments of Liabilities
ASU 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force)	This Update requires entities that sell prepaid stored-value products redeemable for goods, services or cash at third-party merchants to recognize breakage.	January 1, 2018	We adopted this Update in the first quarter of 2018. The adoption of this Update did not have a material effect on our Consolidated Financial Statements.

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~~ASU 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,~~ clarifies several aspects of identifying performance obligations and licensing implementation guidance, including guidance that is expected to reduce cost and complexity by eliminating the need to assess whether goods and services are performance obligations if they are immaterial in the context of the contract with the customer.

~~ASU 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),~~ clarifies the guidance on principal versus agent considerations when another party is involved in providing goods and services to a customer. The guidance requires a company to determine whether it is required to provide the specific good or service itself or to arrange for that good or service to be provided by another party.

~~ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606),~~ modifies the guidance used to recognize revenue from contracts with customers for transfers of goods and services and transfers of nonfinancial assets, unless those contracts are within the scope of other guidance. The guidance also requires new qualitative and quantitative disclosures about contract balances and performance obligations.

We expect to adopt ASU 2014-09 in the first quarter of 2018 under the modified retrospective method where the cumulative effect is recognized at the date of initial application. Our evaluation of ASU 2014-09 is ongoing and not complete. The FASB has issued, and may issue in the future, interpretative guidance which may cause our evaluation to change. Based on our evaluation under the current guidance, we estimate that substantially all of our interest income and non-interest income will not be impacted by the adoption of ASU 2014-09 because either the revenue from those contracts with customers is covered by other guidance in U.S. GAAP or the revenue recognition outcomes anticipated with the adoption of ASU 2014-09 will likely be similar to our current revenue recognition practices. In addition, we are reviewing our business processes, systems and controls to support recognition and disclosures under the new standard. This Update is not expected to have a material effect on our consolidated financial statements.

~~Investments~~

~~ASU 2016-07,~~ ~~Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting,~~ eliminates the requirement for an investor to retrospectively apply the equity method when an investment that it had accounted for by another method qualifies for use of the equity method. The Update was adopted in the first quarter of 2017 by prospective application. This Update did not have a material effect on our consolidated financial statements.

~~Derivative and Hedging Activities~~

~~ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, improves the financial reporting of hedging to better align with the entity’s risk management activities. In addition, this Update makes certain targeted improvements to simplify the application of the current hedge accounting guidance. The Update is effective in the first quarter of 2019 by modified retrospective method. The presentation and disclosure guidance are applied prospectively. Early adoption is permitted. We are currently assessing the potential impact to our consolidated financial statements.

~~ASU 2016-06,~~ ~~Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force),~~ provides clarification that determination of whether an embedded contingent put or call option in a financial instrument is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence described in ASC 815-15-25-42. The Update was adopted in the first quarter of 2017 by modified retrospective application. This Update did not have a material effect on our consolidated financial statements.

~~ASU 2016-05,~~ ~~Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force),~~ clarifies that a change in counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided all other hedge accounting criteria continue to be met. The Update was adopted in the first quarter of 2017 by prospective application. This Update did not have a material effect on our consolidated financial statements.

~~Extinguishments of Liabilities~~

~~ASU 2016-04,~~ ~~Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force),~~ requires entities that sell prepaid stored-value products redeemable for goods, services or cash at third-party merchants to recognize breakage. The Update is effective in the first quarter of 2018 with either the modified retrospective method by means of a cumulative-effect adjustment to retained earnings or retrospective application. Early adoption is permitted. This Update is not expected to have a material effect on our consolidated financial statements.

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~~Leases~~

~~ASU 2016-02,~~ ~~Leases (Topic 842),~~ requires lessees to put most leases on their balance sheets but recognize expenses in the income statement similar to current accounting. In addition, the Update changes the guidance for sale-leaseback transactions, initial direct costs and lease executory costs for most entities. All entities will classify leases to determine how to recognize lease related revenue and expense. The Update is effective in the first quarter of 2019 with modified retrospective application including a number of optional practical expedients. Early adoption is permitted. We are currently assessing the potential impact to our consolidated financial statements.

~~Financial Instruments – Recognition and Measurement~~

~~ASU 2016-01,~~ ~~Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,~~ amends the presentation and accounting for certain financial instruments, including liabilities measured at fair value under the fair value option, and equity investments. The guidance also updates fair value presentation and disclosure requirements for financial instruments measured at amortized cost. The Update is effective in the first quarter of 2018 with a cumulative-effect adjustment as of the beginning of the fiscal year of adoption. Early adoption is prohibited except for the provision requiring the recognition of changes in fair value related to changes in an entity’s own credit risk in other comprehensive income for financial liabilities measured using the fair value option. This Update is not expected to have a material effect on our consolidated financial statements.



3.Standard	~~MERGERS AND ACQUISITIONS~~	Description	Required Date of Adoption	Financial Statements Impact
Leases
ASU 2016-02, Leases (Topic 842) ASU 2018-10, Codification Improvements to Topic 842, Leases ASU 2018-11, Leases (Topic 842), Targeted Improvements		These Updatesrequire lessees to put most leases on their Balance Sheets but recognize expenses in the Income Statement similar to current accounting. In addition, the Update changes the guidance for sale-leaseback transactions, initial direct costs and lease executory costs for most entities. All entities will classify leases to determine how to recognize lease related revenue and expense.	January 1, 2019 Early adoption is permitted.	These Updates are to be applied using a modified retrospective application including a number of optional practical expedients. We are in the process of classifying our existing lease portfolios, implementing a software solution, and assessing the potential impact to our Consolidated Financial Statements. We do not believe this update will materially impact our consolidated net income.
Financial Instruments – Recognition and Measurement
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities		This Update amends the presentation and accounting for certain financial instruments, including liabilities measured at fair value under the FVO, and equity investments. The guidance also updates fair value presentation and disclosure requirements for financial instruments measured at amortized cost.	January 1, 2018	We adopted this Update in the first quarter of 2018 by a cumulative-effect adjustment. The adoption of this Update did not have a material effect on our Consolidated Financial Statements. During the first quarter of 2018, we transferred marketable equity securities totaling $1.1 million from securities AFS to other assets.
Revenue Recognition
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)		This Update modifies the guidance used to recognize revenue from contracts with customers for transfers of goods and services and transfers of nonfinancial assets, unless those contracts are within the scope of other guidance. The guidance also requires new qualitative and quantitative disclosures about contract balances and performance obligations.	January 1, 2018	We adopted this Update in the first quarter of 2018 under the modified retrospective method. The adoption of this Update did not have a material effect on our Consolidated Financial Statements.

NOTE 3. MERGERS AND ACQUISITIONS

Yadkin Financial Corporation

On March 11, 2017, we completed our acquisition of ~~Yadkin Financial Corporation (YDKN),~~YDKN, a bank holding company based in Raleigh, North Carolina. YDKN’s banking affiliate, Yadkin Bank, was ~~also~~ merged into FNBPA on March 11, 2017. YDKN’s results of operations have been included in our ~~consolidated statements~~Consolidated Statements of ~~income~~Income since that date. The acquisition enabled us to enter ~~the attractive~~several North Carolina markets, including Raleigh, Charlotte and the Piedmont Triad, which is comprised of Winston-Salem, Greensboro and High Point. We also completed the core systems conversion activities during the first ~~quarter.~~quarter of 2017.

On the acquisition date, the ~~preliminary estimated~~ fair values of YDKN included $6.8 billion in assets, of which there was $5.1 billion in loans, and $5.2 billion in deposits. The acquisition was valued at $1.8 billion based on the acquisition date FNB common stock closing price of $15.97 and resulted in FNB issuing 111,619,622 shares of our common stock in exchange for 51,677,565 shares of YDKN common stock. Under the terms of the merger agreement, shareholders of YDKN received 2.16 shares of FNB common stock for each share of YDKN common stock and cash in lieu of fractional shares. YDKN’s fully vested and outstanding stock options were converted into options to purchase and receive FNB common stock. In conjunction with the acquisition, we assumed a warrant that was issued by YDKN to the ~~U.S. Department of the Treasury (UST)~~UST under the Capital Purchase ~~Program (CPP).~~Program. Based on the exchange ratio, this

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warrant, which expires in 2019, was converted into a warrant to purchase up to 207,320 shares of FNB common stock with an exercise price of $9.63.

The acquisition of YDKN constituted a business combination and has been accounted for using the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments, which can be updated for up to a year following the acquisition. ~~As of September 30, 2017, we continue to review information relating to events or circumstances existing at the acquisition date. Management anticipates that this review could result in~~Any adjustments to ~~the preliminary acquisition date valuation amounts presented due~~fair values and related adjustments to the complexity and time required by management and third-parties involved in the valuation of loans, core deposit intangibles, premises and equipment, and other real estate owned (OREO). Acquired loans and core deposit intangiblesgoodwill were recorded at provisional amounts based on our preliminary third party valuations. Acquired premises and equipment and OREO were recorded at provisional amounts, and are currently being valued in conjunction with third parties. The valuation ofwithin the acquired loans was not final prior to March 31, 2017. An estimate was recorded during the 2017 first quarter based on the results of a valuation exercise conducted and applied to the March 11, 2017 balance of loans acquired from YDKN.

During both the second and third quarters of 2017, we continued to analyze the valuations assigned to the acquired assets and assumed liabilities. Our third-party valuation firm provided revised valuations for loans based on the March 11, 2017 balances, which affected the valuation estimates. Due to the complexity in valuing the loans and the significant amount of data inputs required, the valuation of the loans is not yet final. As a result of revising the loan valuation, the purchase accounting accretion and unfunded commitment amortization amounts are also subject to change. In addition, we have now received third-party

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12-month period.

valuations on acquired premises resulting in the revised fair values below. Based on the revised valuations and new information, we updated our estimated fair values of these items within our Consolidated Balance Sheet with a corresponding adjustment to goodwill. There was no significant impact on the consolidated income statement for the three months ended September 30, 2017. The measurement period adjustments are reflected in the following table:

(in thousands)
Acquired Asset or Liability Balance Sheet Line Item Provisional Estimate Revised Estimate Increase (Decrease)
Loans and leases Loans and leases, net $ 5,116,497
$ 5,114,355
$ (2,142 )
Premises and equipment Premises and equipment, net 95,208
70,370
(24,838 )
Deferred taxes Other assets 94,307
115,017
20,710
Other liabilities Other liabilities 70,761
69,863
(898 )

Based on the preliminary purchase price allocation, we recorded $1.2 billion in goodwill and $55.7 million in core deposit intangibles as a result of the acquisition. The core deposit intangible asset is being amortized over the estimated useful life of approximately ten years utilizing an accelerated method. Goodwill is not amortized, but is periodically evaluated for impairment. None of the goodwill is deductible for income tax purposes.

The following pro forma financial information for the periods presented reflects our estimated consolidated pro forma results of operations as if the YDKN acquisition occurred on January 1, 2016, unadjusted for potential cost savings and other business synergies we expect to receive as a result of the acquisition:

(dollars in thousands, except per share data) FNB YDKN
Pro Forma
Adjustments

Pro Forma
Combined
Nine Months Ended September 30, 2017
Revenue (net interest income and non-interest income) $ 782,844
$ 74,574
$ 519
$ 857,937
Net income 203,352
22,435
(1,832 ) 223,955
Net income available to common stockholders 197,322
22,435
(1,832 ) 217,925
Earnings per common share – basic 0.79
1.06
—
0.74
Earnings per common share – diluted 0.79
1.06
—
0.73
Nine Months Ended September 30, 2016
Revenue (net interest income and non-interest income) 602,924
219,305
(3,968 ) 818,261
Net income 119,600
41,490
(5,897 ) 155,193
Net income available to common stockholders 113,570
41,490
(5,897 ) 149,163
Earnings per common share – basic 0.55
0.88
—
0.48
Earnings per common share – diluted 0.55
0.88
—
0.48

~~The pro forma adjustments reflect amortization and associated taxes related to the preliminary purchase accounting adjustments made to record various acquired items at fair value.~~

In connection with the YDKN acquisition, we incurred expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into FNB. These merger-related expenses, that were expensed as incurred, amounted to $55.1 million for the nine months ended September 30, 2017. Contract terminations and severance costs comprised 31.3% and 25.0%, respectively, of the merger-related expenses, with the remainder consisting of other non-interest expenses, including professional services, marketing and advertising, technology and communications, occupancy and equipment, and charitable contributions. We also incurred issuance costs of $0.6 million which were charged to additional paid-in capital.

~~Branch Purchase – Fifth Third Bank~~

On April 22, 2016, we completed our purchase of 17 branch-banking locations and certain consumer loans in the Pittsburgh, Pennsylvania metropolitan area from Fifth Third Bank (Fifth Third). The fair value of the acquired assets totaled $312.4 million, including $198.9 million in cash, $95.4 million in loans and $14.1 million in fixed and other assets. We also assumed $302.5 million in deposits, for which we paid a deposit premium of 1.97%, as part of the transaction. The assets and liabilities

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relating to these purchased branches were recorded on our balance sheet at their fair values as of April 22, 2016, and the related results of operations for these branches have been included in our consolidated income statement since that date. We recorded $14.1 million in goodwill and $4.1 million in core deposit intangibles as a result of the purchase transaction. The goodwill for this transaction is deductible for income tax purposes.

~~Metro Bancorp, Inc.~~

On February 13, 2016, we completed our acquisition of Metro Bancorp, Inc. (METR), a bank holding company based in Harrisburg, Pennsylvania. The acquisition enhanced our distribution and scale across Central Pennsylvania, strengthened our position as the largest Pennsylvania-based regional bank and allowed us to leverage the significant infrastructure investments made in connection with the expansion of our product offerings and risk management systems. On the acquisition date, the fair values of METR included $2.8 billion in assets, of which there was $1.9 billion in loans and $2.3 billion in deposits.

The acquisition was valued at $404.2 million and resulted in FNB issuing 34,041,181 shares of our common stock in exchange for 14,345,319 shares of METR common stock. We also acquired the fully vested outstanding stock options of METR. The assets and liabilities of METR were recorded on our consolidated balance sheet at their fair values as of the acquisition date and METR’s results of operations have been included in our consolidated income statement since that date. METR’s banking affiliate, Metro Bank, was merged into FNBPA on February 13, 2016. Based on the purchase price allocation, we recorded $185.1 million in goodwill and $24.2 million in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes.

In connection with the METR acquisition, we incurred expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into FNB. These merger-related charges, that were expensed as incurred, amounted to $0.4 million for the nine months ended September 30, 2017 and $31.0 million for the year ended December 31, 2016. Severance costs comprised 39.9% of the merger-related expenses, with the remainder consisting of other non-interest expenses, including professional services, marketing and advertising, technology and communications, occupancy and equipment, and charitable contributions. We also incurred issuance costs of $0.7 million which were charged to additional paid-in capital.

~~The following table summarizes the amounts recorded on the consolidated balance sheets as of each of the acquisition dates in conjunction with the acquisitions discussed above:~~

(in thousands) YDKN
Fifth
Third
Branches
METR
Fair value of consideration paid $ 1,784,783
$ —
$ 404,242
Fair value of identifiable assets acquired:
Cash and cash equivalents 196,964
198,872
46,890
Securities 940,272
—
722,980
Loans 5,114,355
95,354
1,862,447
Core deposit and other intangible assets 69,555
4,129
24,163
Fixed and other assets 460,124
14,069
127,185
Total identifiable assets acquired 6,781,270
312,424
2,783,665
Fair value of liabilities assumed:
Deposits 5,176,915
302,529
2,328,238
Borrowings 969,385
—
227,539
Other liabilities 72,754
24,041
8,700
Total liabilities assumed 6,219,054
326,570
2,564,477
Fair value of net identifiable assets acquired 562,216
(14,146 ) 219,188
Goodwill recognized ⁽¹⁾
$ 1,222,567
$ 14,146
$ 185,054


~~(1)~~	~~All of the goodwill for these transactions has been recorded in the Community Banking Segment.~~

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NOTE 4.SECURITIES

The amortized cost and fair value of securities are as follows:


(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale (AFS):
September 30, 2017
U.S. Treasury	$	19,976	$	4	$	—		$	19,980
Securities Available for Sale:
June 30, 2018
U.S. government agencies										$	96,085	$	—	$	(559	)	$	95,526
U.S. government-sponsored entities	357,706		371		(2,465		)	355,612		312,903		—		(5,969		)	306,934
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,646,390		3,213		(7,828		)	1,641,775		1,626,353		390		(49,147		)	1,577,596
Agency collateralized mortgage obligations	807,342		191		(10,203		)	797,330		863,976		29		(32,188		)	831,817
Non-agency collateralized mortgage obligations	1		—		—			1		—		—		—			—
Commercial mortgage-backed securities	—		—		—			—		168,466		154		(296		)	168,324
States of the U.S. and political subdivisions	29,986		28		(9		)	30,005		20,795		2		(62		)	20,735
Other debt securities	9,903		11		(208		)	9,706		1,949		—		(94		)	1,855
Total debt securities	2,871,304		3,818		(20,713		)	2,854,409
Equity securities	587		362		(8		)	941
Total securities available for sale	$	2,871,891	$	4,180	$	(20,721	)	$	2,855,350
December 31, 2016
U.S. Treasury	$	29,874	$	79	$	—		$	29,953
Total debt securities available for sale										$	3,090,527	$	575	$	(88,315	)	$	3,002,787
December 31, 2017
U.S. government-sponsored entities	367,604		864		(3,370		)	365,098		$	347,767	$	52	$	(3,877	)	$	343,942
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,267,535		2,257		(16,994		)	1,252,798		1,615,168		1,225		(17,519		)	1,598,874
Agency collateralized mortgage obligations	546,659		419		(11,104		)	535,974		813,034		—		(18,077		)	794,957
Non-agency collateralized mortgage obligations	891		6		—			897		1		—		—			1
Commercial mortgage-backed securities	1,292		—		(1		)	1,291
States of the U.S. and political subdivisions	36,065		86		(302		)	35,849		21,151		6		(64		)	21,093
Other debt securities	9,828		94		(435		)	9,487		4,913		—		(243		)	4,670
Total debt securities	2,259,748		3,805		(32,206		)	2,231,347		2,802,034		1,283		(39,780		)	2,763,537
Equity securities	273		367		—			640		587		438		—			1,025
Total securities available for sale	$	2,260,021	$	4,172	$	(32,206	)	$	2,231,987	$	2,802,621	$	1,721	$	(39,780	)	$	2,764,562

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(in thousands)
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Securities Held to Maturity (HTM):
September 30, 2017
U.S. Treasury $ 500
$ 142
$ —
$ 642
U.S. government-sponsored entities 247,462
268
(3,413 ) 244,317
Residential mortgage-backed securities:
Agency mortgage-backed securities 1,133,911
6,811
(4,355 ) 1,136,367
Agency collateralized mortgage obligations 713,642
557
(13,703 ) 700,496
Commercial mortgage-backed securities 81,144
867
(357 ) 81,654
States of the U.S. and political subdivisions 809,262
8,870
(10,907 ) 807,225
Total securities held to maturity $ 2,985,921
$ 17,515
$ (32,735 ) $ 2,970,701
December 31, 2016
U.S. Treasury $ 500
$ 137
$ —
$ 637
U.S. government-sponsored entities 272,645
348
(4,475 ) 268,518
Residential mortgage-backed securities:
Agency mortgage-backed securities 852,215
5,654
(8,645 ) 849,224
Agency collateralized mortgage obligations 743,148
447
(17,801 ) 725,794
Non-agency collateralized mortgage obligations 1,689
3
(6 ) 1,686
Commercial mortgage-backed securities 49,797
181
(226 ) 49,752
States of the U.S. and political subdivisions 417,348
1,456
(19,638 ) 399,166
Total securities held to maturity $ 2,337,342
$ 8,226
$ (50,791 ) $ 2,294,777

During the first nine months of 2017, we received proceeds of $786.8 million from sales of AFS securities and realized a net gain of $3.7 million (gross gains of $4.7 million and gross losses of $1.0 million). We also received proceeds of $57.0 million from sales of HTM securities with a net carrying value of $54.9 million and realized a net gain of $2.2 million (gross gains of $2.2 million and gross losses of $4,000). The HTM securities that were sold represented amortizing securities that had already returned more than 85% of their principal outstanding at the time we acquired the securities and could be sold without tainting the remaining HTM portfolio.



(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt Securities Held to Maturity:
June 30, 2018
U.S. Treasury	$	500	$	107	$	—		$	607
U.S. government agencies	2,056		60		—			2,116
U.S. government-sponsored entities	245,017		—		(6,030		)	238,987
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,125,947		295		(33,439		)	1,092,803
Agency collateralized mortgage obligations	840,073		768		(34,063		)	806,778
Commercial mortgage-backed securities	79,124		7		(1,555		)	77,576
States of the U.S. and political subdivisions	1,002,364		1,626		(41,582		)	962,408
Total debt securities held to maturity	$	3,295,081	$	2,863	$	(116,669	)	$	3,181,275
December 31, 2017
U.S. Treasury	$	500	$	134	$	—		$	634
U.S. government-sponsored entities	247,310		93		(4,388		)	243,015
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,219,802		3,475		(9,058		)	1,214,219
Agency collateralized mortgage obligations	777,146		32		(20,095		)	757,083
Commercial mortgage-backed securities	80,786		414		(575		)	80,625
States of the U.S. and political subdivisions	916,724		13,209		(7,130		)	922,803
Total debt securities held to maturity	$	3,242,268	$	17,357	$	(41,246	)	$	3,218,379

Gross gains and gross losses were realized on securities as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2017 2016 2017 2016
Gross gains $ 2,834
$ 299
$ 6,845
$ 597
Gross losses (57 ) —
(950 ) (1 )
Net gains $ 2,777
$ 299
$ 5,895
$ 596

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	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2018		2017			2018		2017
Gross gains	$	31	$	611		$	31	$	4,011
Gross losses	—		(118		)	—		(893		)
Net gains	$	31	$	493		$	31	$	3,118

As of ~~September~~June 30, ~~2017,~~2018, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:


	Available for Sale				Held to Maturity				Available for Sale				Held to Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	70,291	$	70,310	$	15,610	$	15,584	$	65,485	$	65,271	$	55,457	$	55,236
Due from one to five years	326,956		324,861		240,285		237,150		262,288		256,488		201,924		196,157
Due from five to ten years	17,358		17,299		79,476		80,669		19,860		19,709		95,166		94,334
Due after ten years	2,966		2,833		721,853		718,781		84,099		83,582		897,390		858,391
	417,571		415,303		1,057,224		1,052,184		431,732		425,050		1,249,937		1,204,118
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,646,390		1,641,775		1,133,911		1,136,367		1,626,353		1,577,596		1,125,947		1,092,803
Agency collateralized mortgage obligations	807,342		797,330		713,642		700,496		863,976		831,817		840,073		806,778
Non-agency collateralized mortgage obligations	1		1		—		—
Commercial mortgage-backed securities	—		—		81,144		81,654		168,466		168,324		79,124		77,576
Equity securities	587		941		—		—
Total securities	$	2,871,891	$	2,855,350	$	2,985,921	$	2,970,701
Total debt securities									$	3,090,527	$	3,002,787	$	3,295,081	$	3,181,275

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Maturities may differ from contractual terms because borrowers may have the right to call or prepay obligations with or without penalties. Periodic payments are received on residential mortgage-backed securities based on the payment patterns of the underlying collateral.

Following is information relating to securities pledged:

(dollars in thousands) September 30,
2017 December 31,
2016
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law $ 3,642,235
$ 2,779,335
As collateral for short-term borrowings 336,392
322,038
Securities pledged as a percent of total securities 68.1 % 67.9 %

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(dollars in thousands)	June 30, 2018			December 31, 2017
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law	$	3,370,601		$	3,491,634
As collateral for short-term borrowings	261,140			263,756
Securities pledged as a percent of total securities	57.7		%	62.5		%

Following are summaries of the fair values and unrealized losses of temporarily impaired debt securities, segregated by length of impairment:


	Less than 12 Months						12 Months or More						Total						Less than 12 Months						12 Months or More						Total
(dollars in thousands)	#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses
Securities Available for Sale
September 30, 2017
U.S. government-sponsored entities	10	$	193,778	$	(1,219	)	2	$	38,754	$	(1,246	)	12	$	232,532	$	(2,465	)
Residential mortgage-backed securities:
Agency mortgage-backed securities	49	1,032,211		(7,828		)	—	—		—			49	1,032,211		(7,828		)
Agency collateralized mortgage obligations	21	411,642		(4,846		)	18	173,880		(5,357		)	39	585,522		(10,203		)
Non-agency collateralized mortgage obligations	—	—		—			—	—		—			—	—		—
Commercial mortgage-backed securities	—	—		—			—	—		—			—	—		—
States of the U.S. and political subdivisions	4	7,882		(6		)	1	886		(3		)	5	8,768		(9		)
Other debt securities	—	—		—			3	4,704		(208		)	3	4,704		(208		)
Equity securities	1	185		(8		)	—	—		—			1	185		(8		)
Total temporarily impaired securities AFS	85	$	1,645,698	$	(13,907	)	24	$	218,224	$	(6,814	)	109	$	1,863,922	$	(20,721	)
December 31, 2016
Debt Securities Available for Sale
June 30, 2018
U.S. government agencies																			13	$	95,526	$	(559	)	—	$	—	$	—		13	$	95,526	$	(559	)
U.S. government-sponsored entities	11	$	211,636	$	(3,370	)	—	$	—	$	—		11	$	211,636	$	(3,370	)	5	106,668		(1,236		)	10	200,266		(4,733		)	15	306,934		(5,969		)
Residential mortgage-backed securities:
Agency mortgage-backed securities	55	1,056,731		(16,994		)	—	—		—			55	1,056,731		(16,994		)	59	1,145,743		(30,600		)	28	418,672		(18,547		)	87	1,564,415		(49,147		)
Agency collateralized mortgage obligations	26	346,662		(7,261		)	9	89,040		(3,843		)	35	435,702		(11,104		)	17	491,313		(16,023		)	33	292,579		(16,165		)	50	783,892		(32,188		)
Commercial mortgage-backed securities	1	1,291		(1		)	—	—		—			1	1,291		(1		)	2	74,167		(296		)	—	—		—			2	74,167		(296		)
States of the U.S. and political subdivisions	20	28,631		(302		)	—	—		—			20	28,631		(302		)	7	11,476		(55		)	1	877		(7		)	8	12,353		(62		)
Other debt securities	—	—		—			3	4,470		(435		)	3	4,470		(435		)	—	—		—			3	1,855		(94		)	3	1,855		(94		)
Total temporarily impaired securities AFS	113	$	1,644,951	$	(27,928	)	12	$	93,510	$	(4,278	)	125	$	1,738,461	$	(32,206	)
Total temporarily impaired debt securities AFS																			103	$	1,924,893	$	(48,769	)	75	$	914,249	$	(39,546	)	178	$	2,839,142	$	(88,315	)
December 31, 2017
U.S. government-sponsored entities																			7	$	106,809	$	(363	)	10	$	201,485	$	(3,514	)	17	$	308,294	$	(3,877	)
Residential mortgage-backed securities:
Agency mortgage-backed securities																			43	976,738		(7,723		)	28	473,625		(9,796		)	71	1,450,363		(17,519		)
Agency collateralized mortgage obligations																			14	409,005		(6,231		)	33	335,452		(11,846		)	47	744,457		(18,077		)
States of the U.S. and political subdivisions																			7	11,254		(55		)	1	879		(9		)	8	12,133		(64		)
Other debt securities																			—	—		—			3	4,670		(243		)	3	4,670		(243		)
Total temporarily impaired debt securities AFS																			71	$	1,503,806	$	(14,372	)	75	$	1,016,111	$	(25,408	)	146	$	2,519,917	$	(39,780	)

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	Less than 12 Months						12 Months or More						Total						Less than 12 Months						12 Months or More						Total
(dollars in thousands)	#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses
Securities Held to Maturity
September 30, 2017
Debt Securities Held to Maturity
June 30, 2018
U.S. government-sponsored entities	9	$	162,966	$	(2,035	)	2	$	38,621	$	(1,378	)	11	$	201,587	$	(3,413	)	4	$	54,509	$	(508	)	10	$	184,478	$	(5,522	)	14	$	238,987	$	(6,030	)
Residential mortgage-backed securities:
Agency mortgage-backed securities	29	518,680		(4,355		)	—	—		—			29	518,680		(4,355		)	80	909,762		(25,390		)	11	164,501		(8,049		)	91	1,074,263		(33,439		)
Agency collateralized mortgage obligations	15	197,186		(2,462		)	23	332,491		(11,241		)	38	529,677		(13,703		)	17	299,575		(8,104		)	35	420,914		(25,959		)	52	720,489		(34,063		)
Commercial mortgage-backed securities	3	14,730		(106		)	1	7,562		(251		)	4	22,292		(357		)	8	54,920		(884		)	4	21,531		(671		)	12	76,451		(1,555		)
States of the U.S. and political subdivisions	53	189,773		(6,956		)	12	33,177		(3,951		)	65	222,950		(10,907		)	174	616,117		(24,296		)	37	110,429		(17,286		)	211	726,546		(41,582		)
Total temporarily impaired securities HTM	109	$	1,083,335	$	(15,914	)	38	$	411,851	$	(16,821	)	147	$	1,495,186	$	(32,735	)
December 31, 2016
Total temporarily impaired debt securities HTM																			283	$	1,934,883	$	(59,182	)	97	$	901,853	$	(57,487	)	380	$	2,836,736	$	(116,669	)
December 31, 2017
U.S. government-sponsored entities	10	$	185,525	$	(4,475	)	—	$	—	$	—		10	$	185,525	$	(4,475	)	4	$	54,790	$	(239	)	10	$	185,851	$	(4,149	)	14	$	240,641	$	(4,388	)
Residential mortgage-backed securities:
Agency mortgage-backed securities	36	551,404		(8,645		)	—	—		—			36	551,404		(8,645		)	36	648,485		(4,855		)	11	183,989		(4,203		)	47	832,474		(9,058		)
Agency collateralized mortgage obligations	29	516,237		(13,710		)	12	112,690		(4,091		)	41	628,927		(17,801		)	14	275,290		(1,701		)	35	473,257		(18,394		)	49	748,547		(20,095		)
Non-agency collateralized mortgage obligations	3	1,128		(6		)	—	—		—			3	1,128		(6		)
Commercial mortgage-backed securities	1	12,317		(10		)	1	8,267		(216		)	2	20,584		(226		)	3	26,399		(123		)	2	19,443		(452		)	5	45,842		(575		)
States of the U.S. and political subdivisions	94	247,301		(19,638		)	—	—		—			94	247,301		(19,638		)	16	56,739		(933		)	37	121,536		(6,197		)	53	178,275		(7,130		)
Total temporarily impaired securities HTM	173	$	1,513,912	$	(46,484	)	13	$	120,957	$	(4,307	)	186	$	1,634,869	$	(50,791	)
Total temporarily impaired debt securities HTM																			73	$	1,061,703	$	(7,851	)	95	$	984,076	$	(33,395	)	168	$	2,045,779	$	(41,246	)

We do not intend to sell the debt securities and it is not more likely than not that we will be required to sell the securities before recovery of their amortized cost basis.

Other-Than-Temporary Impairment

We evaluate our investment securities portfolio for ~~other-than-temporary impairment (OTTI)~~OTTI on a quarterly basis. Impairment is assessed at the individual security level. We consider an investment security impaired if the fair value of the security is less than its cost or amortized cost basis. We did not recognize any OTTI losses on securities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 or ~~2016.~~2017.

States of the U.S. and Political Subdivisions

Our municipal bond portfolio with a carrying amount of ~~$839.3 million~~$1.0 billion as of ~~September~~June 30, ~~2017~~2018 is highly rated with an average entity-specific rating of AA and ~~99%~~100% of the portfolio rated A or better. All of the securities in the municipal portfolio except one are general obligation bonds. Geographically, municipal bonds support our primary footprint as ~~64.1%~~65% of the securities are from municipalities located throughout Pennsylvania, Ohio, Maryland, North Carolina and South Carolina. The average holding size of the securities in the municipal bond portfolio is ~~$2.8~~$3.1 million. In addition to the strong stand-alone ratings, ~~62.0%~~62% of the municipalities have some formal credit enhancement insurance that strengthens the creditworthiness of their issue. Management reviews the credit profile of each issuer on a quarterly basis.

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5.	~~LOANS AND LEASES~~

NOTE 5. LOANS AND LEASES

Following is a summary of loans and leases, net of unearned income:


(in thousands)	Originated Loans and Leases		Acquired Loans		Total Loans and Leases		Originated Loans and Leases		Acquired Loans		Total Loans and Leases
September 30, 2017
June 30, 2018
Commercial real estate	$	4,903,796	$	3,918,227	$	8,822,023	$	5,754,367	$	3,079,955	$	8,834,322
Commercial and industrial	3,159,197		821,387		3,980,584		3,797,773		503,614		4,301,387
Commercial leases	238,724		—		238,724		337,397		—		337,397
Other							43,351		—		43,351
Total commercial loans and leases	8,301,717		4,739,614		13,041,331		9,932,888		3,583,569		13,516,457
Direct installment	1,757,830		168,165		1,925,995		1,772,090		119,990		1,892,080
Residential mortgages	1,904,620		705,043		2,609,663		2,297,558		553,412		2,850,970
Indirect installment	1,431,111		162		1,431,273		1,746,352		157		1,746,509
Consumer lines of credit	1,134,620		634,756		1,769,376		1,136,293		517,273		1,653,566
Other	39,798		—		39,798
Total consumer loans							6,952,293		1,190,832		8,143,125
Total loans and leases, net of unearned income	$	14,569,696	$	6,247,740	$	20,817,436	$	16,885,181	$	4,774,401	$	21,659,582
December 31, 2016
December 31, 2017
Commercial real estate	$	4,095,817	$	1,339,345	$	5,435,162	$	5,174,783	$	3,567,081	$	8,741,864
Commercial and industrial	2,711,886		330,895		3,042,781		3,495,247		675,420		4,170,667
Commercial leases	196,636		—		196,636		266,720		—		266,720
Other							17,063		—		17,063
Total commercial loans and leases	7,004,339		1,670,240		8,674,579		8,953,813		4,242,501		13,196,314
Direct installment	1,765,257		79,142		1,844,399		1,755,713		149,822		1,905,535
Residential mortgages	1,446,776		397,798		1,844,574		2,036,226		666,465		2,702,691
Indirect installment	1,196,110		203		1,196,313		1,448,268		165		1,448,433
Consumer lines of credit	1,099,627		201,573		1,301,200		1,151,470		594,323		1,745,793
Other	35,878		—		35,878
Total consumer loans							6,391,677		1,410,775		7,802,452
Total loans and leases, net of unearned income	$	12,547,987	$	2,348,956	$	14,896,943	$	15,345,490	$	5,653,276	$	20,998,766

The loans and leases portfolio categories are comprised of the following:

Commercial real estate includes both owner-occupied and non-owner-occupied loans secured by commercial properties;

Commercial and industrial includes loans to businesses that are not secured by real estate;

Commercial leases consist of leases for new or used equipment;

Other is comprised primarily of credit cards and mezzanine loans;

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;

Residential mortgages consist of conventional and jumbo mortgage loans for 1-4 family properties;

Indirect installment is comprised of loans originated by approved third parties and underwritten by us, primarily automobile loans; and

Consumer lines of credit include home equity lines of credit ~~(HELOC)~~ and consumer lines of credit that are either unsecured or secured by collateral other than home ~~equity; and~~equity.

~~Other is comprised primarily~~

Table of ~~credit cards, mezzanine loans and student loans.~~Contents

The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market areas of Pennsylvania, eastern Ohio, Maryland, North Carolina, South Carolina and northern West Virginia.

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The loans and leases portfolio also contains Regency consumer finance loans to individuals in Pennsylvania, Ohio, Tennessee and Kentucky. Due to the relative size of the Regency consumer finance loan portfolio, these loans are not segregated from other consumer loans. The following table shows certain information relating to the Regency consumer finance loans:

(dollars in thousands) September 30,
2017 December 31,
2016
Regency consumer finance loans $ 172,454
$ 184,687
Percent of total loans and leases 0.8 % 1.2 %

The following table shows certain information relating to commercial real estate loans:


(dollars in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Commercial construction, acquisition and development loans	$	1,095,080		$	597,617		$	1,176,326		$	1,170,175
Percent of total loans and leases	5.3		%	4.0		%	5.4		%	5.6		%
Commercial real estate:
Percent owner-occupied	35.1		%	36.2		%	35.0		%	35.3		%
Percent non-owner-occupied	64.9		%	63.8		%	65.0		%	64.7		%

Acquired Loans

All acquired loans were initially recorded at fair value at the acquisition date. Refer to the Acquired Loans section in Note 1 of our ~~2016~~2017 Annual Report on Form 10-K for a discussion of ASC 310-20 and ASC 310-30 loans. The outstanding balance and the carrying amount of acquired loans included in the ~~consolidated balance sheets~~Consolidated Balance Sheets are as follows:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Accounted for under ASC 310-30:
Outstanding balance	$	5,625,305	$	2,346,687	$	4,387,378	$	5,176,015
Carrying amount	5,266,494		2,015,904		4,101,583		4,834,256
Accounted for under ASC 310-20:
Outstanding balance	1,000,780		342,015		688,541		835,130
Carrying amount	974,463		325,784		668,859		812,322
Total acquired loans:
Outstanding balance	6,626,085		2,688,702		5,075,919		6,011,145
Carrying amount	6,240,957		2,341,688		4,770,442		5,646,578

The outstanding balance is the undiscounted sum of all amounts owed under the loan, including amounts deemed principal, interest, fees, penalties and other, whether or not currently due and whether or not any such amounts have been written or charged-off.

The carrying amount of purchased credit impaired loans included in the table above totaled ~~$20.3~~$1.7 million at ~~September~~June 30, ~~2017~~2018 and ~~$2.8~~$1.9 million at December 31, ~~2016,~~2017, representing ~~0.3%~~0.04% and ~~0.1%~~0.03%, respectively, of the carrying amount of total acquired loans as of each date.

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The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30. Loans accounted for under ASC 310-20 are not included in this table.


	Nine Months Ended September 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2018			2017
Balance at beginning of period	$	467,070		$	256,120		$	708,481		$	467,070
Acquisitions	444,715			308,311			—			444,715
Reduction due to unexpected early payoffs	(90,097		)	(60,920		)	(94,456		)	(61,093		)
Reclass from non-accretable difference	163,714			66,807			128,955			40,304
Disposals/transfers	(341		)	(343		)	(408		)	(324		)
Other	1,129			—			(1,619		)	—
Accretion	(164,219		)	(77,180		)	(116,006		)	(100,628		)
Balance at end of period	$	821,971		$	492,795		$	624,947		$	790,044

Cash flows expected to be collected on acquired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Improved cash flow expectations for loans or pools are recorded first as a reversal of previously recorded impairment, if any, and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as impairment through a charge to the provision for credit losses and credit to the allowance for credit losses.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, there was an overall improvement in cash flow expectations which resulted in a net reclassification of ~~$163.7~~$129.0 million from the non-accretable difference to accretable yield. This reclassification was ~~$66.8~~$40.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The reclassification from the non-accretable difference to the accretable yield results in prospective yield adjustments on the loan ~~pools.~~

~~The following table reflects amounts at acquisition for all purchased~~pools and was also positively impacted by the sale of $56.5 million of acquired residential mortgage loans ~~subject to ASC 310-30 (impaired and non-impaired loans with deteriorated credit quality) acquired from YDKN in 2017 based on the preliminary estimate of fair value as described in Note 3.~~

(in thousands)
Acquired
Impaired
Loans

Acquired
Performing
Loans
Total
Contractually required cash flows at acquisition $ 46,053
$ 5,085,712
$ 5,131,765
Non-accretable difference (expected losses and foregone interest) (23,924 ) (406,173 ) (430,097 )
Cash flows expected to be collected at acquisition 22,129
4,679,539
4,701,668
Accretable yield (3,266 ) (441,449 ) (444,715 )
Fair value of acquired loans at acquisition $ 18,863
$ 4,238,090
$ 4,256,953

~~In addition, loans purchased~~ in the ~~YDKN acquisition that were not subject to ASC 310-30 had the following balances at the date~~second quarter of ~~acquisition: fair value of $778.4 million; unpaid principal balance of $791.3 million; and contractual cash flows not expected to be collected of $122.9 million.~~2018.

Credit Quality

Management monitors the credit quality of our loan ~~and lease~~ portfolio using several performance measures to do so based on payment activity and borrower performance.

Non-performing loans include non-accrual loans and non-performing ~~troubled debt restructurings (TDRs).~~TDRs. Past due loans are reviewed on a monthly basis to identify loans for non-accrual status. We place originated loans on non-accrual status and discontinue interest accruals on originated loans generally when principal or interest is due and has remained unpaid for a certain number of days or when the full amount of principal and interest is ~~deemed uncollectible,~~due and has remained unpaid for a certain number of days, unless the loan is both well secured and in

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the process of collection. Commercial loans and leases are placed on non-accrual at 90 days, installment loans are placed on non-accrual at 120 days and residential mortgages and consumer lines of credit are generally placed on non-accrual at 180 days, though we may place a loan on non-accrual prior to these past due thresholds as warranted. When a loan is placed on non-accrual status, all unpaid accrued interest is reversed. Non-accrual loans may not be restored to accrual status until all delinquent principal and interest have been paid and the ultimate ability to collect the remaining principal and interest is reasonably assured. The majority of TDRs are loans in which we have granted a concession on the interest rate or the original repayment terms due to the borrower’s financial distress.

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Following is a summary of non-performing assets:


(dollars in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Non-accrual loans	$	88,391		$	65,479		$	68,696		$	74,635
Troubled debt restructurings	23,147			20,428			24,820			23,481
Total non-performing loans	111,538			85,907			93,516			98,116
Other real estate owned (OREO)	35,416			32,490
Other real estate owned							39,240			40,606
Total non-performing assets	$	146,954		$	118,397		$	132,756		$	138,722
Asset quality ratios:
Non-performing loans / total loans and leases	0.54		%	0.58		%	0.43		%	0.47		%
Non-performing loans + OREO / total loans and leases + OREO	0.70		%	0.79		%	0.61		%	0.66		%
Non-performing assets / of total assets	0.47		%	0.54		%
Non-performing assets / total assets							0.41		%	0.44		%

The carrying value of residential ~~OREO~~other real estate owned held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure ~~totaled $4.7~~amounted to $6.0 million at ~~September~~June 30, ~~2017~~2018 and ~~$5.3~~$3.6 million at December 31, ~~2016.~~2017. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 totaled ~~$13.8~~$12.5 million and ~~$12.0~~$15.2 million, respectively.

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The following tables provide an analysis of the aging of loans by class segregated by loans and leases originated and loans acquired:


(in thousands)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans and Leases		30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due (4)		Current		Total Loans and Leases
Originated Loans and Leases	Originated Loans and Leases												Originated Loans and Leases
September 30, 2017
June 30, 2018
Commercial real estate	$	5,023	$	1	$	24,188	$	29,212	$	4,874,584	$	4,903,796	$	10,476	$	2	$	14,652	$	25,130	$	5,729,237	$	5,754,367
Commercial and industrial	4,880		1,906		32,541		39,327		3,119,870		3,159,197		5,663		3		23,367		29,033		3,768,740		3,797,773
Commercial leases	1,293		—		1,199		2,492		236,232		238,724		861		—		1,218		2,079		335,318		337,397
Other													163		204		1,000		1,367		41,984		43,351
Total commercial loans and leases	11,196		1,907		57,928		71,031		8,230,686		8,301,717		17,163		209		40,237		57,609		9,875,279		9,932,888
Direct installment	10,139		4,104		8,858		23,101		1,734,729		1,757,830		9,317		4,028		7,402		20,747		1,751,343		1,772,090
Residential mortgages	10,518		2,593		5,687		18,798		1,885,822		1,904,620		10,046		1,596		6,882		18,524		2,279,034		2,297,558
Indirect installment	7,765		437		1,927		10,129		1,420,982		1,431,111		7,592		355		2,152		10,099		1,736,253		1,746,352
Consumer lines of credit	4,545		704		2,456		7,705		1,126,915		1,134,620		4,187		1,039		3,280		8,506		1,127,787		1,136,293
Other	291		533		928		1,752		38,046		39,798
Total consumer loans													31,142		7,018		19,716		57,876		6,894,417		6,952,293
Total originated loans and leases	$	44,454	$	10,278	$	77,784	$	132,516	$	14,437,180	$	14,569,696	$	48,305	$	7,227	$	59,953	$	115,485	$	16,769,696	$	16,885,181
December 31, 2016
December 31, 2017
Commercial real estate	$	8,452	$	1	$	20,114	$	28,567	$	4,067,250	$	4,095,817	$	8,273	$	1	$	24,773	$	33,047	$	5,141,736	$	5,174,783
Commercial and industrial	16,019		3		24,141		40,163		2,671,723		2,711,886		8,948		3		17,077		26,028		3,469,219		3,495,247
Commercial leases	973		1		3,429		4,403		192,233		196,636		1,382		41		1,574		2,997		263,723		266,720
Other													83		153		1,000		1,236		15,827		17,063
Total commercial loans and leases	25,444		5		47,684		73,133		6,931,206		7,004,339		18,686		198		44,424		63,308		8,890,505		8,953,813
Direct installment	10,573		4,386		6,484		21,443		1,743,814		1,765,257		13,192		4,466		8,896		26,554		1,729,159		1,755,713
Residential mortgages	10,594		3,014		3,316		16,924		1,429,852		1,446,776		14,096		2,832		5,771		22,699		2,013,527		2,036,226
Indirect installment	9,312		513		1,983		11,808		1,184,302		1,196,110		10,313		611		2,240		13,164		1,435,104		1,448,268
Consumer lines of credit	3,529		1,112		1,616		6,257		1,093,370		1,099,627		5,859		1,014		2,313		9,186		1,142,284		1,151,470
Other	398		83		1,000		1,481		34,397		35,878
Total consumer loans													43,460		8,923		19,220		71,603		6,320,074		6,391,677
Total originated loans and leases	$	59,850	$	9,113	$	62,083	$	131,046	$	12,416,941	$	12,547,987	$	62,146	$	9,121	$	63,644	$	134,911	$	15,210,579	$	15,345,490

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(in thousands)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due (1) (2)		Current		Discount			Total Loans		30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due (1) (2) (3)		Current		(Discount) Premium			Total Loans
Acquired Loans
September 30, 2017
June 30, 2018
Commercial real estate	$	36,343	$	64,905	$	3,485	$	104,733	$	4,019,956	$	(206,462	)	$	3,918,227	$	20,622	$	53,440	$	3,231	$	77,293	$	3,181,557	$	(178,895	)	$	3,079,955
Commercial and industrial	8,764		4,968		6,151		19,883		845,806		(44,302		)	821,387		1,620		3,498		4,347		9,465		526,830		(32,681		)	503,614
Total commercial loans	45,107		69,873		9,636		124,616		4,865,762		(250,764		)	4,739,614		22,242		56,938		7,578		86,758		3,708,387		(211,576		)	3,583,569
Direct installment	3,471		1,721		—		5,192		161,616		1,357			168,165		3,766		1,131		—		4,897		115,496		(403		)	119,990
Residential mortgages	20,535		11,347		—		31,882		715,366		(42,205		)	705,043		10,424		7,697		—		18,121		552,387		(17,096		)	553,412
Indirect installment	—		1		—		1		18		143			162		—		1		—		1		1		155			157
Consumer lines of credit	6,726		5,253		971		12,950		635,765		(13,959		)	634,756		7,042		2,122		1,165		10,329		518,027		(11,083		)	517,273
Total consumer loans																21,232		10,951		1,165		33,348		1,185,911		(28,427		)	1,190,832
Total acquired loans	$	75,839	$	88,195	$	10,607	$	174,641	$	6,378,527	$	(305,428	)	$	6,247,740	$	43,474	$	67,889	$	8,743	$	120,106	$	4,894,298	$	(240,003	)	$	4,774,401
December 31, 2016
December 31, 2017
Commercial real estate	$	9,501	$	23,890	$	949	$	34,340	$	1,384,752	$	(79,747	)	$	1,339,345	$	34,928	$	63,092	$	3,975	$	101,995	$	3,657,152	$	(192,066	)	$	3,567,081
Commercial and industrial	1,789		2,942		2,111		6,842		353,494		(29,441		)	330,895		3,187		6,452		5,663		15,302		698,265		(38,147		)	675,420
Total commercial loans	11,290		26,832		3,060		41,182		1,738,246		(109,188		)	1,670,240		38,115		69,544		9,638		117,297		4,355,417		(230,213		)	4,242,501
Direct installment	2,317		1,344		—		3,661		73,479		2,002			79,142		5,267		2,013		—		7,280		141,386		1,156			149,822
Residential mortgages	8,428		10,816		—		19,244		416,561		(38,007		)	397,798		17,191		15,139		—		32,330		675,499		(41,364		)	666,465
Indirect installment	19		4		—		23		96		84			203		—		1		—		1		10		154			165
Consumer lines of credit	2,156		1,528		336		4,020		201,958		(4,405		)	201,573		6,353		3,253		1,353		10,959		596,298		(12,934		)	594,323
Total consumer loans																28,811		20,406		1,353		50,570		1,413,193		(52,988		)	1,410,775
Total acquired loans	$	24,210	$	40,524	$	3,396	$	68,130	$	2,430,340	$	(149,514	)	$	2,348,956	$	66,926	$	89,950	$	10,991	$	167,867	$	5,768,610	$	(283,201	)	$	5,653,276


(1)	Past due information for acquired loans is based on the contractual balance outstanding at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

(2)

Acquired loans are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, ~~as long as~~if we can reasonably estimate the timing and amount of expected cash flows on such loans. In these instances, we do not consider acquired contractually delinquent loans to be non-accrual or non-performing and continue to recognize interest income on these loans using the accretion method. Acquired loans are considered non-accrual or non-performing when, due to credit deterioration or other factors, we determine we are no longer able to reasonably estimate the timing and amount of expected cash flows on such loans. We do not recognize interest income on acquired loans considered non-accrual or non-performing.


(3)	Approximately $28.5 million of acquired past-due or non-accrual loans were sold during the second quarter of 2018.


(4)	Approximately $14.7 million of originated past-due or non-accrual loans were sold during the second quarter of 2018.

We utilize the following categories to monitor credit quality within our commercial loan and lease portfolio:



Rating Category	Definition
Pass	in general, the condition of the borrower and the performance of the ~~borrower~~loan is satisfactory or better

Special Mention	in general, the condition of the borrower has deteriorated, requiring an increased level of monitoring

Substandard	in general, the condition ~~and performance~~ of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected

Doubtful	in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable

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The use of these internally assigned credit quality categories within the commercial loan and lease portfolio permits management’s use of transition matrices to estimate a quantitative portion of credit risk. Our internal credit risk grading system is based on past experiences with similarly graded loans and leases and conforms with 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

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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.

The following tables present a summary of our commercial loans and leases by credit quality category, segregated by loans and leases originated and loans acquired:


	Commercial Loan and Lease Credit Quality Categories										Commercial Loan and Lease Credit Quality Categories
(in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans and Leases
September 30, 2017
June 30, 2018
Commercial real estate	$	4,694,676	$	111,657	$	97,047	$	416	$	4,903,796	$	5,499,238	$	131,806	$	123,297	$	26	$	5,754,367
Commercial and industrial	2,907,083		148,668		95,203		8,243		3,159,197		3,537,536		176,599		79,246		4,392		3,797,773
Commercial leases	232,622		4,689		1,413		—		238,724		326,574		2,274		8,549		—		337,397
Other											42,037		110		1,204		—		43,351
Total originated commercial loans and leases	$	7,834,381	$	265,014	$	193,663	$	8,659	$	8,301,717	$	9,405,385	$	310,789	$	212,296	$	4,418	$	9,932,888
December 31, 2016
December 31, 2017
Commercial real estate	$	3,895,764	$	130,452	$	69,588	$	13	$	4,095,817	$	4,922,872	$	152,744	$	98,728	$	439	$	5,174,783
Commercial and industrial	2,475,955		104,652		128,089		3,190		2,711,886		3,266,966		132,975		92,091		3,215		3,495,247
Commercial leases	188,662		3,789		4,185		—		196,636		260,235		4,425		2,060		—		266,720
Other											15,866		43		1,154		—		17,063
Total originated commercial loans and leases	$	6,560,381	$	238,893	$	201,862	$	3,203	$	7,004,339	$	8,465,939	$	290,187	$	194,033	$	3,654	$	8,953,813
Acquired Loans
September 30, 2017
June 30, 2018
Commercial real estate	$	3,368,100	$	315,350	$	234,555	$	222	$	3,918,227	$	2,661,433	$	200,723	$	217,626	$	173	$	3,079,955
Commercial and industrial	714,568		50,183		56,546		90		821,387		434,731		26,981		41,902		—		503,614
Total acquired commercial loans	$	4,082,668	$	365,533	$	291,101	$	312	$	4,739,614	$	3,096,164	$	227,704	$	259,528	$	173	$	3,583,569
December 31, 2016
December 31, 2017
Commercial real estate	$	1,144,676	$	85,894	$	108,128	$	647	$	1,339,345	$	3,102,788	$	250,987	$	213,089	$	217	$	3,567,081
Commercial and industrial	274,819		20,593		34,967		516		330,895		603,611		26,059		45,661		89		675,420
Total acquired commercial loans	$	1,419,495	$	106,487	$	143,095	$	1,163	$	1,670,240	$	3,706,399	$	277,046	$	258,750	$	306	$	4,242,501

Credit quality information for acquired loans is based on the contractual balance outstanding at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.

We use delinquency transition matrices within the consumer and other loan classes to enable management to estimate a quantitative portion of credit risk. Each month, management analyzes payment and volume activity, ~~FICO~~Fair Isaac Corporation (FICO) scores and other external factors such as unemployment, to determine how consumer loans are performing.

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Following is a table showing consumer loans by payment status:


	Consumer Loan Credit Quality by Payment Status						Consumer Loan Credit Quality by Payment Status
(in thousands)	Performing		Non- Performing		Total		Performing		Non- Performing		Total
Originated loans
September 30, 2017
June 30, 2018
Direct installment	$	1,740,699	$	17,131	$	1,757,830	$	1,756,297	$	15,793	$	1,772,090
Residential mortgages	1,889,056		15,564		1,904,620		2,279,790		17,768		2,297,558
Indirect installment	1,428,988		2,123		1,431,111		1,744,007		2,345		1,746,352
Consumer lines of credit	1,130,884		3,736		1,134,620		1,131,322		4,971		1,136,293
Total originated consumer loans	$	6,189,627	$	38,554	$	6,228,181	$	6,911,416	$	40,877	$	6,952,293
December 31, 2016
December 31, 2017
Direct installment	$	1,750,305	$	14,952	$	1,765,257	$	1,739,060	$	16,653	$	1,755,713
Residential mortgages	1,433,409		13,367		1,446,776		2,019,816		16,410		2,036,226
Indirect installment	1,193,930		2,180		1,196,110		1,445,833		2,435		1,448,268
Consumer lines of credit	1,096,642		2,985		1,099,627		1,147,576		3,894		1,151,470
Total originated consumer loans	$	5,474,286	$	33,484	$	5,507,770	$	6,352,285	$	39,392	$	6,391,677
Acquired loans
September 30, 2017
June 30, 2018
Direct installment	$	168,093	$	72	$	168,165	$	119,921	$	69	$	119,990
Residential mortgages	705,043		—		705,043		553,412		—		553,412
Indirect installment	162		—		162		157		—		157
Consumer lines of credit	632,990		1,766		634,756		515,659		1,614		517,273
Total acquired consumer loans	$	1,506,288	$	1,838	$	1,508,126	$	1,189,149	$	1,683	$	1,190,832
December 31, 2016
December 31, 2017
Direct installment	$	79,142	$	—	$	79,142	$	149,751	$	71	$	149,822
Residential mortgages	397,798		—		397,798		666,465		—		666,465
Indirect installment	203		—		203		165		—		165
Consumer lines of credit	201,061		512		201,573		592,384		1,939		594,323
Total acquired consumer loans	$	678,204	$	512	$	678,716	$	1,408,765	$	2,010	$	1,410,775

Loans and leases are designated as impaired when, in the opinion of management, based on current information and events, the collection of principal and interest in accordance with the loan and lease contract is doubtful. Typically, we do not consider loans and leases for impairment unless a sustained period of delinquency (i.e., 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e., negative financial trends, bankruptcy filings, imminent foreclosure proceedings, etc.). Impairment is evaluated in the aggregate for consumer installment loans, residential mortgages, consumer lines of credit and commercial loan and lease relationships less than ~~$500,000~~$0.5 million based on loan and lease segment loss given default. For commercial loan and lease relationships greater than or equal to ~~$500,000,~~$0.5 million, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using a market interest rate or at the fair value of collateral if repayment is expected solely from the collateral. Consistent with our existing method of income recognition for loans and leases, interest income on impaired loans, except ~~for~~ those ~~loans~~ classified as non-accrual, is recognized using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

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Following is a summary of information pertaining to originated loans and leases considered to be impaired, by class of loan and lease:


(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Specific Reserve		Recorded Investment With Specific Reserve		Total Recorded Investment		Specific Reserve		Average Recorded Investment		Unpaid Contractual Principal Balance		Recorded Investment With No Specific Reserve		Recorded Investment With Specific Reserve		Total Recorded Investment		Specific Reserve		Average Recorded Investment
At or for the Nine Months Ended September 30, 2017
At or for the Six Months Ended June 30, 2018
Commercial real estate	$	28,519	$	21,804	$	2,269	$	24,073	$	416	$	24,348	$	16,428	$	14,308	$	201	$	14,509	$	26	$	20,912
Commercial and industrial	39,760		15,327		16,435		31,762		8,243		37,340		28,738		13,020		10,787		23,807		4,392		23,688
Commercial leases	1,199		1,199		—		1,199		—		1,608		1,218		1,218		—		1,218		—		1,309
Other													—		—		—		—		—		—
Total commercial loans and leases	69,478		38,330		18,704		57,034		8,659		63,296		46,384		28,546		10,988		39,534		4,418		45,909
Direct installment	19,648		17,131		—		17,131		—		16,729		18,603		15,793		—		15,793		—		15,693
Residential mortgages	16,883		15,564		—		15,564		—		15,059		19,180		17,768		—		17,768		—		16,973
Indirect installment	5,219		2,123		—		2,123		—		2,032		4,579		2,345		—		2,345		—		2,387
Consumer lines of credit	4,767		3,736		—		3,736		—		3,536		6,735		4,971		—		4,971		—		4,741
Other	—		—		—		—		—		—
Total consumer loans													49,097		40,877		—		40,877		—		39,794
Total	$	115,995	$	76,884	$	18,704	$	95,588	$	8,659	$	100,652	$	95,481	$	69,423	$	10,988	$	80,411	$	4,418	$	85,703
At or for the Year Ended December 31, 2016
At or for the Year Ended December 31, 2017
Commercial real estate	$	23,771	$	19,699	$	464	$	20,163	$	13	$	19,217	$	27,718	$	21,748	$	2,906	$	24,654	$	439	$	24,413
Commercial and industrial	25,719		14,781		8,996		23,777		3,190		29,730		29,307		11,595		4,457		16,052		3,215		23,907
Commercial leases	3,429		3,429		—		3,429		—		3,394		1,574		1,574		—		1,574		—		1,386
Other													—		—		—		—		—		—
Total commercial loans and leases	52,919		37,909		9,460		47,369		3,203		52,341		58,599		34,917		7,363		42,280		3,654		49,706
Direct installment	16,440		14,952		—		14,952		—		14,997		19,375		16,653		—		16,653		—		16,852
Residential mortgages	14,090		13,367		—		13,367		—		13,200		17,754		16,410		—		16,410		—		15,984
Indirect installment	5,172		2,180		—		2,180		—		2,037		5,709		2,435		—		2,435		—		2,279
Consumer lines of credit	3,858		2,985		—		2,985		—		2,813		5,039		3,894		—		3,894		—		3,815
Other	1,000		1,000		—		1,000		—		1,000
Total consumer loans													47,877		39,392		—		39,392		—		38,930
Total	$	93,479	$	72,393	$	9,460	$	81,853	$	3,203	$	86,388	$	106,476	$	74,309	$	7,363	$	81,672	$	3,654	$	88,636

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Interest income continued to accrue on certain impaired loans and totaled approximately ~~$3.7~~$3.1 million and ~~$3.4~~$2.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The above tables do not reflect the additional allowance for credit losses relating to acquired loans. Following is a summary of the allowance for credit losses required for acquired loans due to changes in credit quality subsequent to the acquisition date:

(in thousands) September 30,
2017 December 31,
2016
Commercial real estate $ 4,242
$ 4,538
Commercial and industrial —
500
Total commercial loans 4,242
5,038
Direct installment 1,637
1,005
Residential mortgages 647
632
Indirect installment 213
221
Consumer lines of credit 43
372
Total allowance on acquired loans $ 6,782
$ 7,268

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(in thousands)	June 30, 2018			December 31, 2017
Commercial real estate	$	2,892		$	4,976
Commercial and industrial	78			(415		)
Total commercial loans	2,970			4,561
Direct installment	562			1,553
Residential mortgages	191			484
Indirect installment	250			177
Consumer lines of credit	(14		)	(77		)
Total consumer loans	989			2,137
Total allowance on acquired loans	$	3,959		$	6,698

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.

Following is a summary of the ~~payment status~~composition of total TDRs:


(in thousands)	Originated		Acquired		Total		Originated		Acquired		Total
September 30, 2017
June 30, 2018
Accruing:
Performing	$	16,601	$	252	$	16,853	$	19,352	$	168	$	19,520
Non-performing	19,629		3,518		23,147		21,689		3,131		24,820
Non-accrual	14,192		—		14,192		9,323		51		9,374
Total TDRs	$	50,422	$	3,770	$	54,192	$	50,364	$	3,350	$	53,714
December 31, 2016
December 31, 2017
Accruing:
Performing	$	17,105	$	365	$	17,470	$	19,538	$	266	$	19,804
Non-performing	20,252		176		20,428		20,173		3,308		23,481
Non-accrual	9,035		—		9,035		10,472		234		10,706
Total TDRs	$	46,392	$	541	$	46,933	$	50,183	$	3,808	$	53,991

TDRs that are accruing and performing include loans that met the criteria for non-accrual of interest prior to restructuring for which we can reasonably estimate the timing and amount of the expected cash flows on such loans and for which we expect to fully collect the new carrying value of the loans. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we returned to performing status ~~$3.7~~$2.2 million in restructured residential mortgage loans that have consistently met their modified obligations for more than six months. TDRs that are accruing and non-performing are comprised of consumer loans that have not demonstrated a consistent repayment pattern on the modified terms for more than six months, however it is expected that we will collect all future principal and interest payments. 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 allowance for credit losses.

Table of Contents

Excluding purchased impaired loans, commercial loans over ~~$500,000~~$0.5 million whose terms have been modified in a TDR are generally placed on non-accrual, individually analyzed and measured for estimated impairment based on the fair value of the underlying collateral. Our allowance for credit losses included specific reserves for commercial TDRs and pooled reserves for ~~individual~~individually impaired loans under ~~$500,000~~$0.5 million based on loan segment loss given default. 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 allowance for credit losses. The reserve for commercial TDRs included in the allowance for credit losses is presented in the following table:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Specific reserves for commercial TDRs	$	253	$	291	$	14	$	95
Pooled reserves for individual loans under $500	262		276
Pooled reserves for individual commercial loans					529		469

All other classes of loans, which are primarily secured by residential properties, whose terms have been modified in a TDR are pooled and measured for estimated impairment based on the expected net present value of the estimated future cash flows of the pool. Our allowance for credit losses included pooled reserves for these classes of loans of ~~$3.9~~$4.2 million for June 30, 2018 and ~~$3.7~~$4.0 million ~~at September 30, 2017 and~~for December 31, ~~2016, respectively.~~2017. Upon default of an individual loan, our charge-off policy is followed accordingly for that class of loan.

Following is a summary of TDR loans, by class:



	Three Months Ended June 30, 2018					Six Months Ended June 30, 2018
(dollars in thousands)	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate	1	$	125	$	122	1	$	125	$	122
Commercial and industrial	13	862		780		13	2,524		1,384
Total commercial loans	14	987		902		14	2,649		1,506
Direct installment	178	2,372		2,276		357	3,404		3,209
Residential mortgages	8	304		298		19	807		799
Indirect installment	7	11		11		16	24		23
Consumer lines of credit	22	382		298		41	709		513
Total consumer loans	215	3,069		2,883		433	4,944		4,544
Total	229	$	4,056	$	3,785	447	$	7,593	$	6,050



	Three Months Ended June 30, 2017					Six Months Ended June 30, 2017
(dollars in thousands)	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate	1	$	463	$	463	2	$	595	$	566
Commercial and industrial	2	4,038		4,204		2	3,542		4,204
Total commercial loans	3	4,501		4,667		4	4,137		4,770
Direct installment	162	1,448		1,301		333	2,951		2,688
Residential mortgages	9	405		345		16	570		497
Indirect installment	4	15		14		9	31		27
Consumer lines of credit	21	311		208		43	1,054		905
Total consumer loans	196	2,179		1,868		401	4,606		4,117
Total	199	$	6,680	$	6,535	405	$	8,743	$	8,887

Table of Contents

~~The majority of TDRs are the result of interest rate concessions for a limited period of time. Following is a summary of loans, by class, that have been restructured:~~

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
(dollars in thousands)
Number
of
Contracts

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number
of
Contracts

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment
Commercial real estate —
$ —
$ —
2
$ 595
$ 560
Commercial and industrial 1
15
10
3
3,568
4,169
Total commercial loans 1
15
10
5
4,163
4,729
Direct installment 141
1,037
919
474
4,014
3,580
Residential mortgages 14
946
952
30
1,539
1,446
Indirect installment 3
5
4
12
36
32
Consumer lines of credit 9
77
50
51
1,080
901
Total 168
$ 2,080
$ 1,935
572
$ 10,832
$ 10,688

Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
(dollars in thousands)
Number
of
Contracts

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment

Number
of
Contracts

Pre-
Modification
Outstanding
Recorded
Investment

Post-
Modification
Outstanding
Recorded
Investment
Commercial real estate —
$ —
$ —
4
$ 778
$ 737
Commercial and industrial 3
1,504
1,504
3
1,727
1,504
Total commercial loans 3
1,504
1,504
7
2,505
2,241
Direct installment 123
1,029
1,018
388
5,051
4,749
Residential mortgages 9
508
532
36
1,946
1,893
Indirect installment 9
23
22
14
40
40
Consumer lines of credit 20
395
364
56
878
837
Total 164
$ 3,459
$ 3,440
501
$ 10,420
$ 9,760

Following is a summary of originated TDRs, by class, for which there was a payment default, excluding loans that were either charged-off or cured by period end. Default occurs when a loan is 90 days or more past due and is within 12 months of restructuring.

Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017
(dollars in thousands)
Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment
Commercial real estate 1
$ 463
1
$ 463
Commercial and industrial —
—
3
326
Total commercial loans 1
463
4
789
Direct installment 39
265
91
278
Residential mortgages 1
80
4
264
Indirect installment 4
22
12
22
Consumer lines of credit 3
26
4
89
Total 48
$ 856
115
$ 1,442

~~Table of Contents~~



	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
(dollars in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Direct installment	41	$	202	78	$	304
Residential mortgages	3	146		6	293
Indirect installment	5	10		9	15
Consumer lines of credit	2	56		3	252
Total consumer loans	51	414		96	864
Total	51	$	414	96	$	864


	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016			Three Months Ended June 30, 2017			Six Months Ended June 30, 2017
(dollars in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial real estate	—	$	—	—	$	—
Commercial and industrial	—	—		—	—		2	$	312	3	$	326
Total commercial loans	—	—		—	—		2	312		3	326
Direct installment	26	408		76	377		31	134		55	146
Residential mortgages	5	189		7	282		1	80		4	264
Indirect installment	6	19		12	19		6	19		10	19
Consumer lines of credit	1	25		3	91		1	63		1	63
Total consumer loans							39	296		70	492
Total	38	$	641	98	$	769	41	$	608	73	$	818


6.	~~ALLOWANCE FOR CREDIT LOSSES~~

NOTE 6. ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses addresses credit losses inherent in the existing loan and lease portfolio and is presented as a reserve against loans and leases on the ~~consolidated balance sheets.~~Consolidated Balance Sheets. Loan and lease losses are charged off against the allowance for credit losses, with recoveries of amounts previously charged off credited to the allowance for credit losses. Provisions for credit losses are charged to operations based on management’s periodic evaluation of the ~~adequacy~~appropriate level of the allowance for credit losses.

Table of Contents

Following is a summary of changes in the allowance for credit losses, by loan and lease class:


(in thousands)	Balance at Beginning of Period		Charge- Offs			Recoveries		Net Charge- Offs			Provision for Credit Losses			Balance at End of Period		Balance at Beginning of Period		Charge- Offs			Recoveries		Net Charge- Offs			Provision for Credit Losses			Balance at End of Period
Three Months Ended September 30, 2017
Three Months Ended June 30, 2018																Three Months Ended June 30, 2018
Commercial real estate	$	46,958	$	(610	)	$	93	$	(517	)	$	1,682		$	48,123	$	53,516	$	(4,254	)	$	765	$	(3,489	)	$	560		$	50,587
Commercial and industrial	54,108		(6,592		)	298		(6,294		)	5,889			53,703		53,013		(6,127		)	1,157		(4,970		)	5,646			53,689
Commercial leases	4,122		(112		)	1		(111		)	818			4,829		6,115		(36		)	14		(22		)	946			7,039
Other																1,995		(1,578		)	272		(1,306		)	1,307			1,996
Total commercial loans and leases	105,188		(7,314		)	392		(6,922		)	8,389			106,655		114,639		(11,995		)	2,208		(9,787		)	8,459			113,311
Direct installment	20,736		(3,247		)	402		(2,845		)	2,786			20,677		20,128		(2,922		)	463		(2,459		)	2,610			20,279
Residential mortgages	11,252		(155		)	8		(147		)	1,630			12,735		15,280		(314		)	16		(298		)	181			15,163
Indirect installment	10,574		(2,468		)	861		(1,607		)	2,380			11,347		11,955		(2,218		)	974		(1,244		)	2,690			13,401
Consumer lines of credit	9,504		(522		)	98		(424		)	972			10,052		10,408		(1,105		)	62		(1,043		)	1,096			10,461
Other	1,838		(1,386		)	298		(1,088		)	1,018			1,768
Total consumer loans																57,771		(6,559		)	1,515		(5,044		)	6,577			59,304
Total allowance on originated loans and leases	159,092		(15,092		)	2,059		(13,033		)	17,175			163,234		172,410		(18,554		)	3,723		(14,831		)	15,036			172,615
Purchased credit-impaired loans	640		(21		)	34		13			137			790		622		—			—		—			2			624
Other acquired loans	5,967		(222		)	791		569			(544		)	5,992		6,215		(4,076		)	680		(3,396		)	516			3,335
Total allowance on acquired loans	6,607		(243		)	825		582			(407		)	6,782		6,837		(4,076		)	680		(3,396		)	518			3,959
Total allowance	$	165,699	$	(15,335	)	$	2,884	$	(12,451	)	$	16,768		$	170,016	$	179,247	$	(22,630	)	$	4,403	$	(18,227	)	$	15,554		$	176,574
Nine Months Ended September 30, 2017
Six Months Ended June 30, 2018																Six Months Ended June 30, 2018
Commercial real estate	$	46,635	$	(1,916	)	$	959	$	(957	)	$	2,445		$	48,123	$	50,281	$	(4,479	)	$	1,102	$	(3,377	)	$	3,683		$	50,587
Commercial and industrial	47,991		(16,791		)	955		(15,836		)	21,548			53,703		51,963		(12,047		)	1,526		(10,521		)	12,247			53,689
Commercial leases	3,280		(826		)	5		(821		)	2,370			4,829		5,646		(207		)	24		(183		)	1,576			7,039
Other																1,843		(2,375		)	569		(1,806		)	1,959			1,996
Total commercial loans and leases	97,906		(19,533		)	1,919		(17,614		)	26,363			106,655		109,733		(19,108		)	3,221		(15,887		)	19,465			113,311
Direct installment	21,391		(9,366		)	1,611		(7,755		)	7,041			20,677		20,936		(6,392		)	903		(5,489		)	4,832			20,279
Residential mortgages	10,082		(517		)	179		(338		)	2,991			12,735		15,507		(393		)	107		(286		)	(58		)	15,163
Indirect installment	10,564		(6,804		)	2,256		(4,548		)	5,331			11,347		11,967		(4,627		)	1,869		(2,758		)	4,192			13,401
Consumer lines of credit	9,456		(1,563		)	413		(1,150		)	1,746			10,052		10,539		(1,636		)	183		(1,453		)	1,375			10,461
Other	1,392		(3,180		)	978		(2,202		)	2,578			1,768
Total consumer loans																58,949		(13,048		)	3,062		(9,986		)	10,341			59,304
Total allowance on originated loans and leases	150,791		(40,963		)	7,356		(33,607		)	46,050			163,234		168,682		(32,156		)	6,283		(25,873		)	29,806			172,615
Purchased credit-impaired loans	572		(22		)	34		12			206			790		635		—			—		—			(11		)	624
Other acquired loans	6,696		(778		)	1,956		1,178			(1,882		)	5,992		6,063		(4,385		)	1,403		(2,982		)	254			3,335
Total allowance on acquired loans	7,268		(800		)	1,990		1,190			(1,676		)	6,782		6,698		(4,385		)	1,403		(2,982		)	243			3,959
Total allowance	$	158,059	$	(41,763	)	$	9,346	$	(32,417	)	$	44,374		$	170,016
Total allowance for credit losses																$	175,380	$	(36,541	)	$	7,686	$	(28,855	)	$	30,049		$	176,574

Table of Contents


(in thousands)	Balance at Beginning of Period		Charge- Offs			Recoveries		Net Charge- Offs			Provision for Credit Losses			Balance at End of Period		Balance at Beginning of Period		Charge- Offs			Recoveries		Net Charge- Offs			Provision for Credit Losses			Balance at End of Period
Three Months Ended September 30, 2016
Three Months Ended June 30, 2017																Three Months Ended June 30, 2017
Commercial real estate	$	44,428	$	(3,537	)	$	1,810	$	(1,727	)	$	(334	)	$	42,367	$	46,389	$	(318	)	$	505	$	187		$	382		$	46,958
Commercial and industrial	51,475		(6,753		)	598		(6,155		)	8,388			53,708		53,570		(7,736		)	183		(7,553		)	8,091			54,108
Commercial leases	3,047		(100		)	3		(97		)	257			3,207		3,513		(208		)	3		(205		)	814			4,122
Other																1,809		(821		)	353		(468		)	497			1,838
Total commercial loans and leases	98,950		(10,390		)	2,411		(7,979		)	8,311			99,282		105,281		(9,083		)	1,044		(8,039		)	9,784			107,026
Direct installment	21,543		(2,464		)	545		(1,919		)	1,463			21,087		20,210		(3,245		)	581		(2,664		)	3,190			20,736
Residential mortgages	8,410		(144		)	11		(133		)	969			9,246		10,210		(182		)	10		(172		)	1,214			11,252
Indirect installment	9,543		(1,781		)	617		(1,164		)	1,983			10,362		9,630		(1,966		)	614		(1,352		)	2,296			10,574
Consumer lines of credit	9,149		(459		)	82		(377		)	499			9,271		8,883		(583		)	150		(433		)	1,054			9,504
Other	1,124		(709		)	3		(706		)	847			1,265
Total consumer loans																48,933		(5,976		)	1,355		(4,621		)	7,754			52,066
Total allowance on originated loans and leases	148,719		(15,947		)	3,669		(12,278		)	14,072			150,513		154,214		(15,059		)	2,399		(12,660		)	17,538			159,092
Purchased credit-impaired loans	632		—			42		42			(102		)	572		660		(1		)	—		(1		)	(19		)	640
Other acquired loans	5,018		(240		)	362		122			669			5,809		5,908		(74		)	896		822			(763		)	5,967
Total allowance on acquired loans	5,650		(240		)	404		164			567			6,381		6,568		(75		)	896		821			(782		)	6,607
Total allowance	$	154,369	$	(16,187	)	$	4,073	$	(12,114	)	$	14,639		$	156,894	$	160,782	$	(15,134	)	$	3,295	$	(11,839	)	$	16,756		$	165,699
Nine Months Ended September 30, 2016
Six Months Ended June 30, 2017																Six Months Ended June 30, 2017
Commercial real estate	$	41,741	$	(5,572	)	$	3,516	$	(2,056	)	$	2,682		$	42,367	$	46,635	$	(1,306	)	$	866	$	(440	)	$	763		$	46,958
Commercial and industrial	41,023		(12,722		)	978		(11,744		)	24,429			53,708		47,991		(10,199		)	657		(9,542		)	15,659			54,108
Commercial leases	2,541		(817		)	49		(768		)	1,434			3,207		3,280		(714		)	4		(710		)	1,552			4,122
Other																1,392		(1,794		)	680		(1,114		)	1,560			1,838
Total commercial loans and leases	85,305		(19,111		)	4,543		(14,568		)	28,545			99,282		99,298		(14,013		)	2,207		(11,806		)	19,534			107,026
Direct installment	21,587		(7,552		)	1,453		(6,099		)	5,599			21,087		21,391		(6,119		)	1,209		(4,910		)	4,255			20,736
Residential mortgages	7,909		(301		)	68		(233		)	1,570			9,246		10,082		(362		)	171		(191		)	1,361			11,252
Indirect installment	9,889		(5,486		)	1,545		(3,941		)	4,414			10,362		10,564		(4,336		)	1,395		(2,941		)	2,951			10,574
Consumer lines of credit	9,582		(1,461		)	187		(1,274		)	963			9,271		9,456		(1,041		)	315		(726		)	774			9,504
Other	1,013		(1,988		)	35		(1,953		)	2,205			1,265
Total consumer loans																51,493		(11,858		)	3,090		(8,768		)	9,341			52,066
Total allowance on originated loans and leases	135,285		(35,899		)	7,831		(28,068		)	43,296			150,513		150,791		(25,871		)	5,297		(20,574		)	28,875			159,092
Purchased credit-impaired loans	834		(399		)	42		(357		)	95			572		572		(1		)	—		(1		)	69			640
Other acquired loans	5,893		(687		)	947		260			(344		)	5,809		6,696		(556		)	1,165		609			(1,338		)	5,967
Total allowance on acquired loans	6,727		(1,086		)	989		(97		)	(249		)	6,381		7,268		(557		)	1,165		608			(1,269		)	6,607
Total allowance	$	142,012	$	(36,985	)	$	8,820	$	(28,165	)	$	43,047		$	156,894
Total allowance for credit losses																$	158,059	$	(26,428	)	$	6,462	$	(19,966	)	$	27,606		$	165,699

Table of Contents

Following is a summary of the individual and collective originated allowance for credit losses and corresponding originated loan and lease balances by class:


	Originated Allowance				Originated Loans and Leases Outstanding						Originated Allowance				Originated Loans and Leases Outstanding
(in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Loans and Leases		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Loans and Leases		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
September 30, 2017
June 30, 2018
Commercial real estate	$	416	$	47,707	$	4,903,796	$	14,002	$	4,889,794	$	26	$	50,561	$	5,754,367	$	8,521	$	5,745,846
Commercial and industrial	8,243		45,460		3,159,197		27,935		3,131,262		4,392		49,297		3,797,773		18,482		3,779,291
Commercial leases	—		4,829		238,724		—		238,724		—		7,039		337,397		—		337,397
Other											—		1,996		43,351		—		43,351
Total commercial loans and leases	8,659		97,996		8,301,717		41,937		8,259,780		4,418		108,893		9,932,888		27,003		9,905,885
Direct installment	—		20,677		1,757,830		—		1,757,830		—		20,279		1,772,090		—		1,772,090
Residential mortgages	—		12,735		1,904,620		—		1,904,620		—		15,163		2,297,558		—		2,297,558
Indirect installment	—		11,347		1,431,111		—		1,431,111		—		13,401		1,746,352		—		1,746,352
Consumer lines of credit	—		10,052		1,134,620		—		1,134,620		—		10,461		1,136,293		—		1,136,293
Other	—		1,768		39,798		—		39,798
Total consumer loans											—		59,304		6,952,293		—		6,952,293
Total	$	8,659	$	154,575	$	14,569,696	$	41,937	$	14,527,759	$	4,418	$	168,197	$	16,885,181	$	27,003	$	16,858,178
December 31, 2016
December 31, 2017
Commercial real estate	$	13	$	46,622	$	4,095,817	$	12,973	$	4,082,844	$	439	$	49,842	$	5,174,783	$	11,114	$	5,163,669
Commercial and industrial	3,190		44,801		2,711,886		21,746		2,690,140		3,215		48,748		3,495,247		9,872		3,485,375
Commercial leases	—		3,280		196,636		—		196,636		—		5,646		266,720		—		266,720
Other											—		1,843		17,063		—		17,063
Total commercial loans and leases	3,203		94,703		7,004,339		34,719		6,969,620		3,654		106,079		8,953,813		20,986		8,932,827
Direct installment	—		21,391		1,765,257		—		1,765,257		—		20,936		1,755,713		—		1,755,713
Residential mortgages	—		10,082		1,446,776		—		1,446,776		—		15,507		2,036,226		—		2,036,226
Indirect installment	—		10,564		1,196,110		—		1,196,110		—		11,967		1,448,268		—		1,448,268
Consumer lines of credit	—		9,456		1,099,627		—		1,099,627		—		10,539		1,151,470		—		1,151,470
Other	—		1,392		35,878		—		35,878
Total consumer loans											—		58,949		6,391,677		—		6,391,677
Total	$	3,203	$	147,588	$	12,547,987	$	34,719	$	12,513,268	$	3,654	$	165,028	$	15,345,490	$	20,986	$	15,324,504

The above table excludes acquired loans that were pooled into groups of loans for evaluating impairment.


7.	~~LOAN SERVICING~~

NOTE 7. 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, as of June 30, 2018 and December 31, 2017, is listed below:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Mortgage loans sold with servicing retained	$	3,029,000	$	1,800,000	$	3,605,603	$	3,256,548

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The following table summarizes activity relating to ~~residential~~ mortgage loans sold with servicing retained:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2017		2016		2017		2016		2018		2017		2018		2017
Residential mortgage loans sold with servicing retained	$	305,752	$	201,496	$	1,469,352	$	444,507
Mortgage loans sold with servicing retained									$	282,756	$	226,600	$	519,649	$	356,443
Pretax gains resulting from above loan sales ⁽¹⁾									5,024		5,633		8,822		9,271
Mortgage servicing fees ⁽¹⁾	1,902		982		5,512		2,746		2,223		2,007		4,397		3,610

(1) Recorded in mortgage banking operations.

~~Table of Contents~~

Following is a summary of the MSR activity:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Balance at beginning of period	$	24,444		$	10,303		$	13,521		$	8,921		$	30,791		$	22,866		$	29,053		$	13,521
Fair value of MSRs acquired	—			—			8,553			—			—			—			—			8,553
Additions	3,500			2,144			7,530			4,739			3,315			2,576			6,025			4,030
Payoffs and curtailments	(432		)	(247		)	(1,012		)	(544		)	(504		)	(441		)	(909		)	(580		)
Amortization	(626		)	(424		)	(1,706		)	(1,340		)	(632		)	(557		)	(1,199		)	(1,080		)
Balance at end of period	$	26,886		$	11,776		$	26,886		$	11,776		$	32,970		$	24,444		$	32,970		$	24,444
Fair value, beginning of period	$	27,173		$	11,504		$	17,546		$	11,503		$	36,445		$	26,962		$	32,419		$	17,546
Fair value, end of period	29,004			12,717			29,004			12,717			38,603			27,173			38,603			27,173

We did not have a valuation allowance for MSRs for ~~either period~~any of the periods presented in the table above.

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 appraisals. 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 the MSR and as interest rates increase, mortgage loan prepayments decline, which results in an increase in the fair value of the MSR. 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.

Following is a summary of the sensitivity of the fair value of MSRs to changes in key assumptions:


(dollars in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Weighted average life (months)	77.7			79.0			84.8			80.4
Constant prepayment rate (annualized)	10.4		%	9.9		%	9.1		%	9.9		%
Discount rate	9.8		%	9.8		%	9.9		%	9.9		%
Effect on fair value due to change in interest rates:
+0.25%	$	1,638		$	692		$	1,286		$	1,737
+0.50%	3,080			1,288			2,319			3,220
-0.25%	(1,826		)	(789		)	(1,584		)	(1,937		)
-0.50%	(3,724		)	(1,680		)	(3,498		)	(4,007		)

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 the 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.

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SBA-Guaranteed Loan Servicing

~~Beginning in March 2017, as a result of the YDKN acquisition, we~~We retain the servicing rights on SBA-guaranteed loans sold to investors. The standard sale structure under the SBA Secondary Participation Guaranty Agreement provides for us to retain a portion of the cash flow from the interest payment received on the loan, which is commonly known as a servicing spread. The unpaid principal balance of SBA-guaranteed loans serviced for investors, as of June 30, 2018 and December 31, 2017, was as follows:


(in thousands)	September 30, 2017		June 30, 2018		December 31, 2017
SBA loans sold to investors with servicing retained	$	310,000	$	305,632	$	305,977

The following table summarizes activity relating to SBA loans sold with servicing retained:


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2017		2017		2018		2017		2018		2017
SBA loans sold with servicing retained	$	16,443	$	42,172	$	11,225	$	15,142	$	23,513	$	24,518
Pretax gains resulting from above loan sales⁽¹⁾	964		1,780		1,171		816		2,272		816
SBA servicing fees ⁽¹⁾	702		1,444		699		627		1,449		742

(1) Recorded in non-interest income.

Following is a summary of the activity in SBA servicing ~~assets:~~

rights:


	Three Months Ended September 30,			Nine Months Ended September 30,			Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2017			2018			2017			2018			2017
Balance at beginning of period	$	5,284		$	—		$	5,062		$	5,339		$	5,058		$	—
Fair value of servicing rights acquired	—			5,399			—			—			—			5,399
Additions	391			655			258			264			646			264
Impairment (charge) / recovery	(50		)	(50		)	(139		)	—			(229		)	—
Amortization	(342		)	(721		)	(287		)	(319		)	(581		)	(379		)
Balance at end of period	$	5,283		$	5,283		$	4,894		$	5,284		$	4,894		$	5,284
Fair value, beginning of period	$	5,299		$	—		$	5,062		$	5,339		$	5,058		$	—
Fair value, end of period	5,283			$	5,283		4,894			5,299			4,894			5,299

Following is a summary of key assumptions and the sensitivity of the SBA loan servicing rights to changes in these ~~assumptions at September 30, 2017:~~

assumptions:


	September 30, 2017														June 30, 2018														December 31, 2017
			Decline in fair value due to														Decline in fair value due to														Decline in fair value due to
(dollars in thousands)	Actual		10% adverse change			20% adverse change			1% adverse change			2% adverse change			Actual		10% adverse change			20% adverse change			1% adverse change			2% adverse change			Actual		10% adverse change			20% adverse change			1% adverse change			2% adverse change
Weighted-average life (months)	67.3														58.2														63.5
Constant prepayment rate (annualized)	8.06	%	$	(138	)	$	(270	)	$	—		$	—		10.51	%	$	(161	)	$	(312	)	$	—		$	—		9.29	%	$	(145	)	$	(284	)	$	—		$	—
Discount rate	13.99		—			—			(162		)	(315		)	15.08		—			—			(138		)	(269		)	14.87		—			—			(147		)	(286		)

The fair value of the SBA servicing ~~assets~~rights is compared to the amortized ~~basis when certain triggering events occur.~~basis. If the amortized basis exceeds the fair value, the asset is considered impaired and is written down to fair value through a valuation

~~Table of Contents~~

allowance on the asset and a charge against SBA income. We had a ~~$50,000~~$0.5 million valuation allowance for SBA servicing ~~assets~~rights as of ~~September~~June 30, ~~2017.~~2018.

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NOTE 8. BORROWINGS


8.	~~BORROWINGS~~

Following is a summary of short-term borrowings:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Securities sold under repurchase agreements	$	309,779	$	313,062	$	239,804	$	256,017
Federal Home Loan Bank advances	2,065,000		1,025,000		2,800,000		2,285,000
Federal funds purchased	1,362,000		1,037,000		1,165,000		1,000,000
Subordinated notes	135,522		127,948		129,342		137,320
Total short-term borrowings	$	3,872,301	$	2,503,010	$	4,334,146	$	3,678,337

Borrowings with original maturities of one year or less are classified as short-term. Securities sold under repurchase agreements isare 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 equal to the outstanding balance. Of the total short-term FHLB advances, 73.0% and 84.5% had overnight maturities as of June 30, 2018 and December 31, 2017, respectively.

Following is a summary of long-term borrowings:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Federal Home Loan Bank advances	$	300,074	$	305,110	$	270,045	$	310,061
Subordinated notes	88,029		87,147		88,762		87,614
Junior subordinated debt	110,226		48,600		110,587		110,347
Other subordinated debt	160,454		98,637		159,544		160,151
Total long-term borrowings	$	658,783	$	539,494	$	628,938	$	668,173

Our banking affiliate has available credit with the FHLB of ~~$7.9~~$7.7 billion, of which ~~$2.4~~$3.1 billion was utilized as of ~~September~~June 30, ~~2017.~~2018. These advances are secured by loans collateralized by residential mortgages, ~~HELOCs,~~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 ~~1.11%~~1.39% to 4.19% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and 0.95% to 4.19% for the year ended December 31, ~~2016.~~

~~On May 1, 2017, we repaid $7.5 million in other subordinated debt that we acquired from YDKN.~~2017.

The junior subordinated debt is comprised of the debt securities issued by FNB in relation to our ~~six~~ unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated variable interest ~~entities. One hundred percent of~~entities, and is included on the common equity of each Trust is owned by FNB. The Trusts were formed for the purpose of issuing FNB-obligated mandatorily redeemable capital securities, or trust preferred securities (TPS) to third-party investors. The proceeds from the sale of TPS and the issuance of common equity by the Trusts were investedBalance Sheet in ~~junior subordinated debt securities issued by FNB, which are the sole assets of each Trust.~~long-term borrowings. Since third-party investors are the primary beneficiaries, the Trusts are not consolidated in our financial statements. The Trusts pay dividends on the TPS at the same rate as the distributions paid by us on the junior subordinated debt held by the Trusts. F.N.B. Statutory Trust II was formed by us, and the other five statutory trusts were assumed through acquisitions. The acquired statutory trusts were adjusted to fair value in conjunction with the various acquisitions. During 2016, we redeemed $10.0 million of the TPS issued by Omega Financial ~~Capital Trust I.~~

Statements. We record the distributions on the junior subordinated debt issued to the Trusts as interest expense. The TPS are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debt. The TPS are eligible for redemption at any time at our discretion. Under capital guidelines effective January 1, 2016, the junior subordinated debt, net of our investments in the Trusts, is included in tier 2 capital. We have entered into agreements which, when taken collectively, fully and unconditionally guarantee the obligations under the TPS subject to the terms of each of the guarantees.

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The following table provides information relating to the Trusts as of ~~September~~June 30, ~~2017:~~2018:


(dollars in thousands)	Trust Preferred Securities		Common Securities		Junior Subordinated Debt		Stated Maturity Date			Interest Rate and Rate Reset Factor	Trust Preferred Securities		Common Securities		Junior Subordinated Debt		Stated Maturity Date	Interest Rate		Rate Reset Factor
F.N.B. Statutory Trust II	$	21,500	$	665	$	22,165	6/15/2036	2.97	%	LIBOR + 165 basis points (bps)	$	21,500	$	665	$	22,165	6/15/2036	3.99	%	LIBOR + 165 basis points (bps)
Omega Financial Capital Trust I	26,000		1,114		26,464		10/18/2034	3.49	%	LIBOR + 219 bps	26,000		1,114		26,493		10/18/2034	4.55	%	LIBOR + 219 bps
Yadkin Valley Statutory Trust I	25,000		774		20,801		12/15/2037	2.64	%	LIBOR + 132 bps	25,000		774		20,987		12/15/2037	3.66	%	LIBOR + 132 bps
FNB Financial Services Capital Trust I	25,000		774		21,747		9/30/2035	2.76	%	LIBOR + 146 bps	25,000		774		21,916		9/30/2035	3.80	%	LIBOR + 146 bps
American Community Capital Trust II	10,000		310		10,450		12/15/2033	4.10	%	LIBOR + 280 bps	10,000		310		10,444		12/15/2033	5.11	%	LIBOR + 280 bps
Crescent Financial Capital Trust I	8,000		248		8,599		10/7/2033	4.40	%	LIBOR + 310 bps	8,000		248		8,582		10/7/2033	5.45	%	LIBOR + 310 bps
Total	$	115,500	$	3,885	$	110,226					$	115,500	$	3,885	$	110,587


9.	~~DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES~~

NOTE 9. 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~~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~~Consolidated Balance Sheets in other assets and derivative liabilities are reported in the ~~consolidated balance sheets~~Consolidated Balance Sheets 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.

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The following table presents notional amounts and gross fair values of our derivative assets and derivative ~~liabilities:~~

liabilities which are not offset in the Balance Sheet.


	September 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
	Notional		Fair Value				Notional		Fair Value				Notional		Fair Value				Notional		Fair Value
(in thousands)	Amount		Asset		Liability		Amount		Asset		Liability		Amount		Asset		Liability		Amount		Asset		Liability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated	$	705,000	$	807	$	1,248	$	450,000	$	9,256	$	1,171	$	855,000	$	—	$	4,372	$	705,000	$	228	$	1,982
Interest rate swaps – not designated	2,061,003		491		13,864		1,689,157		12,720		34,046		2,542,255		4,755		7,974		2,245,442		1,169		11,599
Equity contracts – not designated	1,180		49		—		1,180		61		—		1,180		30		—		1,180		51		—
Total subject to master netting arrangements	2,767,183		1,347		15,112		2,140,337		22,037		35,217		3,398,435		4,785		12,346		2,951,622		1,448		13,581
Not subject to master netting arrangements:
Interest rate swaps – not designated	2,061,003		36,814		9,859		1,689,157		32,170		11,866		2,542,255		14,219		53,724		2,245,442		27,233		15,303
Interest rate lock commitments – not designated	159,437		4,569		56		—		—		—		91,659		1,662		7		88,107		1,594		5
Forward delivery commitments – not designated	202,040		705		199		—		—		—		107,830		221		336		106,572		233		148
Credit risk contracts – not designated	234,562		42		153		174,538		13		123		243,297		—		—		235,196		39		109
Equity contracts – not designated	1,180		—		49		1,180		—		61		1,180		—		30		1,180		—		51
Total not subject to master netting arrangements	2,658,222		42,130		10,316		1,864,875		32,183		12,050		2,986,221		16,102		54,097		2,676,497		29,099		15,616
Total	$	5,425,405	$	43,477	$	25,428	$	4,005,212	$	54,220	$	47,267	$	6,384,656	$	20,887	$	66,443	$	5,628,119	$	30,547	$	29,197

~~On January 3,~~Beginning in the first quarter of 2017, ~~the Chicago Mercantile Exchange (CME)~~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. This rule change became effective for us in the first quarter of 2017. Accordingly, we have changed our reporting of certain derivatives to record variation margin on trades cleared through ~~CME~~exchanges that have adopted the rule change as settled where we had previously recorded cash collateral. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.

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 ~~five~~seven 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 (i.e., hedging the exposure to variability in expected future cash flows). The effective portion of the derivative’s gain or loss 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~~Any ineffective portion of the gain or loss is reported in earnings immediately.

Following is a summary of key data related to interest rate contracts:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Notional amount	$	705,000	$	450,000	$	855,000	$	705,000
Fair value included in other assets	807		9,256		—		228
Fair value included in other liabilities	1,248		1,171		4,372		1,982

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The following table shows amounts reclassified from accumulated other comprehensive income ~~(AOCI)~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:


(in thousands)	Total		Net of Tax		Total			Net of Tax
Reclassified from AOCI to interest income	$	1,185	$	770	$	25		$	20
Reclassified from AOCI to interest expense	1,059		688		(902		)	(713		)

As of ~~September~~June 30, ~~2017,~~2018, the maximum length of time over which forecasted interest cash flows are hedged is 65 years. In the twelve months that follow ~~September~~June 30, ~~2017,~~2018, we expect to reclassify from the amount currently reported in AOCI net derivative gains of ~~$385,000~~$3.4 million ($~~250,000~~2.7 million net of tax), in association with interest on the hedged loans and FHLB advances. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to ~~September~~June 30, ~~2017.~~2018.

There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to these cash flow hedges. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, there was no hedge ineffectiveness. Also, during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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

Interest Rate Swaps. We enter into interest rate swap agreements to meet the financing, interest rate and equity risk management needs of qualifying commercial loan customers. These agreements provide the customer the ability to convert from variable to fixed interest rates. The credit risk associated with derivatives executed with customers is essentially the same as that involved in extending loans and is subject to normal credit policies and monitoring. Swap derivative transactions with customers are not subject to enforceable master netting arrangements and are generally secured by rights to non-financial collateral, such as real and personal property.

We enter into positions with a derivative counterparty in order to offset our exposure on the fixed components of the customer interest rate swap agreements. We seek to minimize counterparty credit risk by entering into transactions only with high-quality financial dealer institutions. These arrangements meet the definition of derivatives, but are not designated as hedging instruments under ASC 815, Derivatives and Hedging. ~~Substantially all contracts with dealers that require central clearing (generally, transactions since June 10, 2014) are novated to a SEC registered clearing agency who becomes our counterparty.~~

Following is a summary of key data related to interest rate swaps:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Notional amount	$	4,122,006	$	3,378,314	$	5,084,510	$	4,490,884
Fair value included in other assets	37,305		44,890		18,974		28,402
Fair value included in other liabilities	23,723		45,912		61,698		26,902

The interest rate swap agreement with the loan customer and with the counterparty is reported at fair value in other assets and other liabilities on the ~~consolidated balance sheets~~Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as other income or other expense.

Interest Rate Lock Commitments. Interest rate lock commitments ~~(IRLCs)~~ represent an agreement to extend credit to a mortgage loan borrower, or an agreement to purchase a loan from a third-party originator, whereby the interest rate on the loan is set prior to funding. We are bound to fund the loan at a specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date, subject to the loan approval process. The borrower is not obligated to perform under the commitment. As such, outstanding IRLCs subject us to interest rate risk and related price risk during the period from the commitment to the borrower through the loan funding date, or commitment expiration. The IRLCs generally range between 30 to 90270 days. The IRLCs are reported at fair value in other assets and other liabilities on the ~~consolidated balance sheets~~Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as mortgage banking operations income.

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Forward Delivery Commitments. Forward delivery commitments on mortgage-backed securities are used to manage the interest rate and price risk of our IRLCs and mortgage loan held for sale inventory by fixing the forward sale price that will be realized upon sale of the mortgage loans into the secondary market. Historical commitment-to-closing ratios are considered to estimate the quantity of mortgage loans that will fund within the terms of the IRLCs. The forward delivery contracts are reported at fair

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value in other assets and other liabilities on the ~~consolidated balance sheets~~Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as mortgage banking operations income.

Credit Risk Contracts. We purchase and sell credit protection under risk participation agreements to share with other counterparties some of the credit exposure related to interest rate derivative contracts or to take on credit exposure to generate revenue. We will make/receive payments under these agreements if a customer defaults on ~~our~~their obligation to perform under certain derivative swap contracts.

Risk participation agreements sold with notional amounts totaling ~~$159.7~~$157.2 million as of ~~September~~June 30, ~~2017~~2018 have remaining terms ranging from 2three months to 9nine 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 ~~$153,000~~zero at June 30, 2018 and ~~$123,000~~$0.1 million at ~~September 30, 2017 and~~ December 31, ~~2016, respectively.~~2017. The fair values of risk participation agreements purchased and sold were ~~not material~~$0.2 million and $(0.3) million, respectively, at ~~September 30, 2017 and~~ December 31, ~~2016.~~2018 and $0.04 million and $(0.1) million, respectively at December 31, 2017.

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 ~~$0.9~~$0.4 million and ~~$1.1~~$0.9 million as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, in excess of amounts previously posted as collateral with the respective counterparty.

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The following table presents information about derivative assets and derivative liabilities that are subject to enforceable master netting arrangements as well as those not subject to enforceable master netting arrangements:

(in thousands) Gross Amount
Gross
Amounts
Offset in the
Balance
Sheet

Net Amount
Presented in
the Balance
Sheet
September 30, 2017
Derivative Assets
Subject to master netting arrangements:
Interest rate contracts
Designated $ 807
$ —
$ 807
Not designated 491
—
491
Equity contracts – not designated 49
—
49
Not subject to master netting arrangements:
Interest rate contracts – not designated 36,814
—
36,814
Interest rate lock commitments – not designated 4,569
—
4,569
Forward delivery commitments – not designated 705
—
705
Credit risk contracts – not designated 42
—
42
Total derivative assets $ 43,477
$ —
$ 43,477

Derivative Liabilities
Subject to master netting arrangements:
Interest rate contracts
Designated $ 1,248
$ —
$ 1,248
Not designated 13,864
—
13,864
Not subject to master netting arrangements:
Interest rate contracts – not designated 9,859
—
9,859
Interest rate lock commitments – not designated 56
—
56
Forward delivery commitments – not designated 199
—
199
Credit risk contracts – not designated 153
—
153
Equity contracts – not designated 49
—
49
Total derivative liabilities $ 25,428
$ —
$ 25,428

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(in thousands)
Gross
Amount

Gross
Amounts
Offset in the
Balance
Sheet

Net Amount
Presented in
the Balance
Sheet
December 31, 2016
Derivative Assets
Subject to master netting arrangements:
Interest rate contracts
Designated $ 9,256
$ —
$ 9,256
Not designated 12,720
—
12,720
Equity contracts – not designated 61
—
61
Not subject to master netting arrangements:
Interest rate contracts – not designated 32,170
—
32,170
Credit risk contracts – not designated 13
—
13
Total derivative assets $ 54,220
$ —
$ 54,220

Derivative Liabilities
Subject to master netting arrangements:
Interest rate contracts
Designated $ 1,171
$ —
$ 1,171
Not designated 34,046
—
34,046
Not subject to master netting arrangements:
Interest rate contracts – not designated 11,866
—
11,866
Credit risk contracts – not designated 123
—
123
Equity contracts – not designated 61
—
61
Total derivative liabilities $ 47,267
$ —
$ 47,267

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The following table presents a reconciliation of the net amounts of derivative assets and derivative liabilities presented in the ~~balance sheets~~Balance Sheets to the net amounts that would result in the event of offset:


			Amount Not Offset in the Balance Sheet								Amount Not Offset in the Balance Sheet
(in thousands)	Net Amount Presented in the Balance Sheet		Financial Instruments		Cash Collateral		Net Amount		Net Amount Presented in the Balance Sheet		Financial Instruments		Cash Collateral		Net Amount
September 30, 2017
June 30, 2018
Derivative Assets
Interest rate contracts:
Designated	$	807	$	807	$	—	$	—	$	—	$	—	$	—	$	—
Not designated	491		491		—		—		4,755		4,704		—		51
Equity contracts – not designated	49		49		—		—		30		30		—		—
Total	$	1,347	$	1,347	$	—	$	—	$	4,785	$	4,734	$	—	$	51


Derivative Liabilities
Interest rate contracts:
Designated	$	1,248	$	1,248	$	—	$	—	$	4,372	$	4,372	$	—	$	—
Not designated	13,864		12,973		—		891		7,974		7,579		—		395
Total	$	15,112	$	14,221	$	—	$	891	$	12,346	$	11,951	$	—	$	395


December 31, 2016
December 31, 2017
Derivative Assets
Interest rate contracts:
Designated	$	9,256	$	843	$	8,413	$	—	$	228	$	228	$	—	$	—
Not designated	12,720		474		12,132		114		1,169		1,169		—		—
Equity contracts – not designated	61		61		—		—		51		51		—		—
Total	$	22,037	$	1,378	$	20,545	$	114	$	1,448	$	1,448	$	—	$	—


Derivative Liabilities
Interest rate contracts:
Designated	$	1,171	$	1,171	$	—	$	—	$	1,982	$	1,982	$	—	$	—
Not designated	34,046		15,490		17,651		905		11,599		10,940		—		659
Total	$	35,217	$	16,661	$	17,651	$	905	$	13,581	$	12,922	$	—	$	659

The following table presents the effect of certain derivative financial instruments on the ~~income statement:~~Income Statement:


		Nine Months Ended September 30,							Six Months Ended June 30,
(in thousands)	Income Statement Location	2017			2016			Income Statement Location	2018			2017
Interest Rate Contracts	Interest income - loans and leases	$	1,185		$	2,030		Interest income - loans and leases	$	25		$	900
Interest Rate Contracts	Interest expense – short-term borrowings	1,059			554			Interest expense – short-term borrowings	(902		)	652
Interest Rate Swaps	Other income	(592		)	(467		)	Other income	1,259			(465		)
Credit Risk Contracts	Other income	(1		)	(172		)	Other income	70			21

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~~10.~~	~~COMMITMENTS, CREDIT RISK AND CONTINGENCIES~~

NOTE 10. 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.~~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:


(in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Commitments to extend credit	$	7,013,577	$	4,486,164	$	7,223,071	$	6,957,822
Standby letters of credit	136,139		117,732		137,054		132,904

At ~~September~~June 30, ~~2017,~~2018, funding of ~~75.9%~~76.9% of the commitments to extend credit was dependent on the financial condition of the customer. We have the ability to withdraw such commitments at our discretion. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Based on management’s credit evaluation of the customer, collateral may be deemed necessary. Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by us that may require payment at a future date. The credit risk involved in issuing letters of credit is actively monitored through review of the historical performance of our portfolios.

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 8.

Other Legal Proceedings

In the ordinary course of business, 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 our Company 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

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are appropriate and, in the aggregate, are not material to ~~the~~our consolidated financial position, although future accruals could have a material effect on net income in a given period.


~~11.~~	~~STOCK INCENTIVE PLANS~~

NOTE 11. STOCK INCENTIVE PLANS

Restricted Stock

We issue restricted stock awards ~~consisting of both restricted stock and restricted stock units,~~ to key employees under our Incentive Compensation Plan (Plan). ~~Beginning in 2014, we~~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~~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 ~~251,379~~283,037 and ~~277,174~~251,379 performance-based restricted stock units during the first ~~nine~~six months of ~~2017~~2018 and ~~2016, respectively.~~2017. For performance-based restricted stock awards granted in 2018, we incorporated a new metric in which recipients will earn shares totaling between 0% and 175% of the number of units issued, based on our return on average tangible assets (ROATA) relative to a specified peer group of financial institutions over the three-year period. The result calculated using ROATA will then be adjusted by 75% to 125%, based on our total shareholder return (TSR) relative to the specified peer group of financial institutions. For performance-based restricted stock awards granted from 2014 through 2017, the recipients will earn shares, totaling between 0% and 175% of the number of units issued, based on our ~~total stockholder return~~TSR relative to a specified peer group of financial institutions over the three-year period. These market-based restricted stock award units are included in the table below ~~as if the recipients earned shares equal~~based on where we expect them to ~~100%~~vest, regardless of the ~~units issued.~~actual vesting percentages.

~~Prior~~As of June 30, 2018, we had available up to ~~2014, more than half~~2,333,089 shares of ~~the restricted~~common stock ~~awards granted~~ to management were earned if we met or exceeded certain financial performance results when compared to our peers. These performance-related awards were expensed ratably from the date that the likelihood of meeting the performance measure was probable through the end of a four-year vesting period. The service-based awards were expensed ratably over a three-year vesting period. We also issued discretionary service-based awards to certain employees that vested over five years.issue under this Plan.

The following table details our issuance of restricted stock ~~awards~~units and the aggregate weighted average grant date fair values under these plans for the years indicated. ~~As of September 30, 2017, we had available up to 2,654,901 shares of common stock to issue under this Plan.~~


	Nine Months Ended September 30,				Six Months Ended June 30,
(dollars in thousands)	2017		2016		2018		2017
Restricted stock awards	713,998		574,125
Restricted stock units					937,155		707,851
Weighted average grant date fair values	$	10,474	$	7,383	$	12,370	$	10,398

The unvested restricted stock 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.

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The following table summarizes the activity relating to restricted stock ~~awards~~units during the periods indicated:


	Nine Months Ended September 30,								Six Months Ended June 30,
	2017				2016				2018				2017
	Awards		Weighted Average Grant Price per Share		Awards		Weighted Average Grant Price per Share		Units		Weighted Average Grant Price per Share		Units		Weighted Average Grant Price per Share
Unvested awards outstanding at beginning of period	1,836,363		$	12.97	1,548,444		$	12.85
Unvested units outstanding at beginning of period									1,975,862		$	13.64	1,836,363		$	12.97
Granted	713,998		14.67		574,125		12.86		937,155		13.20		707,851		14.69
Vested	(594,560	)	12.84		(374,579	)	12.11		(257,712	)	13.18		(592,202	)	12.84
Forfeited/expired	(27,109	)	13.94		(21,486	)	12.98		(180,723	)	13.30		(14,679	)	13.23
Dividend reinvestment	46,969		13.79		44,534		12.25		38,129		14.02		28,454		14.49
Unvested awards outstanding at end of period	1,975,661		13.63		1,771,038		13.00
Unvested units outstanding at end of period									2,512,711		13.56		1,965,787		13.65

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The following table provides certain information related to restricted stock ~~awards:~~units:


(in thousands)	Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2018		2017
Stock-based compensation expense	$	6,088	$	4,644	$	4,699	$	3,958
Tax benefit related to stock-based compensation expense	2,131		1,625		987		1,385
Fair value of awards vested	8,046		4,563
Fair value of units vested					3,472		8,013

As of ~~September~~June 30, ~~2017,~~2018, there was ~~$14.3~~$19.1 million of unrecognized compensation cost related to unvested restricted stock ~~awards,~~units, including ~~$0.8~~$1.3 million that is subject to accelerated vesting under the Plan’s immediate vesting upon ~~retirement provision for awards granted prior to the adoption of ASC 718,~~ ~~Compensation – Stock Compensation~~.retirement. The components of the restricted stock ~~awards~~units as of ~~September~~June 30, ~~2017~~2018 are as follows:


(dollars in thousands)	Service- Based Awards		Performance- Based Awards		Total		Service- Based Units		Performance- Based Units		Total
Unvested restricted stock awards	1,070,545		905,116		1,975,661
Unvested restricted stock units							1,449,400		1,063,311		2,512,711
Unrecognized compensation expense	$	8,258	$	6,009	$	14,267	$	12,405	$	6,646	$	19,051
Intrinsic value	$	15,020	$	12,699	$	27,719	$	19,451	$	14,270	$	33,721
Weighted average remaining life (in years)	2.21		1.96		2.10		2.29		2.05		2.19

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.

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The following table summarizes the activity relating to stock options during the periods indicated:


	Nine Months Ended September 30,								Six Months Ended June 30,
	2017				2016				2018				2017
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price per Share		Shares		Weighted Average Exercise Price per Share
Options outstanding at beginning of period	892,532		$	8.95	435,340		$	8.86	722,650		$	7.96	892,532		$	8.95
Assumed from acquisitions	207,645		8.92		1,707,036		7.83		—		—		207,645		8.92
Exercised	(163,455	)	9.41		(352,094	)	6.89		(197,390	)	7.93		(155,597	)	9.43
Forfeited/expired	(56,687	)	11.16		(93,628	)	6.74		(4,598	)	11.65		(56,510	)	11.17
Options outstanding and exercisable at end of period	880,035		8.72		1,696,654		8.35		520,662		7.96		888,070		8.72

The intrinsic value of outstanding and exercisable stock options at ~~September~~June 30, ~~2017~~2018 was ~~$3.8~~$2.8 million.

~~Warrants~~

~~In conjunction with our participation in~~ The aggregate intrinsic value represents the ~~UST’s CPP, we issued to~~amount by which the UST a warrant to purchase up to 1,302,083 shares of our common stock. Pursuant to Section 13(H) of the Warrant to Purchase Common Stock, the number of shares of common stock issuable upon exercise of the warrant was reduced in half to 651,042 shares on June 16, 2009, the date we completed a public offering. The warrant, which expires in 2019, was sold at auction by the UST and has an exercise price of $11.52 per share.

In conjunction with the Annapolis Bancorp, Inc. (ANNB) acquisition on April 6, 2013, the warrant issued by ANNB to the UST under the CPP has been converted into a warrant to purchase up to 342,564 shares of our common stock at an exercise price of $3.57 per share. Subsequent adjustments related to actual dividends paid by us have increased the share amount of these warrants to 399,136, with a resulting lower exercise price of $3.06 per share as of September 30, 2017. The warrant, which was recorded at its fair value ~~on April 6, 2013, was sold at auction by~~of underlying stock exceeds the ~~UST and expires in 2019.~~option exercise price.

~~In conjunction with the YDKN acquisition on March 11, 2017, the warrant issued by YDKN to the UST under the CPP has been converted into a warrant to purchase up to 207,320 shares~~

Table of our common stock at an exercise price of $9.63 per share. Subsequent adjustments related to actual dividends paid by us have increased the share amount of these warrants to 209,232, with a resulting lower exercise price of $9.54 per share as of September 30, 2017. The warrant, which was recorded at its fair value on March 11, 2017, was sold at auction by the UST and expires in 2019.Contents

NOTE 12. RETIREMENT PLANS


~~12.~~	~~RETIREMENT PLANS~~

Our subsidiaries participate in a qualified 401(k) defined contribution plan under which employees may contribute a percentage of their salary. Employees are eligible to participate upon their first day of employment. Under this plan, we match 100% of the first ~~six percent~~6% that the employee defers. During the second quarter of 2018, we made a one-time discretionary contribution of $0.9 million to the vast majority of our employees following the tax reform that was enacted in December 2017. Additionally, we may provide a performance-based company contribution of up to ~~three percent~~3% if we exceed annual financial goals. Our contribution expense is presented in the following table:


	Nine Months Ended September 30,				Six Months Ended June 30,
(in thousands)	2017		2016		2018		2017
401(k) contribution expense	$	9,081	$	6,941	$	8,146	$	6,150

~~FNB~~We also ~~sponsors~~sponsor an ~~ERISA~~Employee Retirement Income Security Act of 1974 (ERISA) Excess Lost Match Plan for certain officers. This plan provides retirement benefits equal to the difference, if any, between the maximum benefit allowable under the Internal Revenue Code and the amount that would have been provided under the qualified 401(k) defined contribution plan, if no limits were applied.

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Additionally, we sponsor a qualified non-contributory defined benefit pension plan and two supplemental non-qualified retirement plans that have been frozen. The net periodic benefit credit for these plans includes the following components:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Service cost	$	(3	)	$	(4	)	$	(11	)	$	(12	)	$	(4	)	$	(4	)	$	(8	)	$	(8	)
Interest cost	1,463			1,521			4,417			4,609			1,560			1,477			3,120			2,954
Expected return on plan assets	(2,427		)	(2,354		)	(7,281		)	(7,060		)	(2,895		)	(2,427		)	(5,790		)	(4,854		)
Amortization:
Unrecognized prior service cost	2			2			6			6			—			2			—			4
Unrecognized loss	603			584			1,859			1,800			623			628			1,246			1,256
Net periodic pension credit	$	(362	)	$	(251	)	$	(1,010	)	$	(657	)	$	(716	)	$	(324	)	$	(1,432	)	$	(648	)

NOTE 13. INCOME TAXES

~~13.~~The TCJA includes several changes to existing U.S. tax laws that impact us, most notably a reduction of the U.S. corporate income tax rate from 35% to 21%, which became effective January 1, 2018. We recognized the initial income tax effects of the TCJA in our 2017 financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC 740, Income Taxes, in the reporting period in which the TCJA was signed into law. As such, our financial results reflect the income tax effects of the TCJA for which the accounting under ASC 740 is complete, as well as for provisional amounts for those specific income tax effects under ASC 740 that are incomplete, but a reasonable estimate could be determined. We did not identify any items for which the income tax effects of the TCJA have not been completed and a reasonable estimate could not be determined as of December 31, 2017, which was our first reporting date after the TCJA enactment. Examples of unavailable or unanalyzed information for which we have provisional estimates include deferred taxes related to depreciation (including lease financing), partnership earnings, and realized built-in losses from a prior acquisition. These estimates are subject to change as additional data is gathered, as interpretations and guidance are received, and as the final analyses are completed. The measurement period ends when we have analyzed the information necessary to finalize our accounting, but cannot extend beyond one year from the TCJA enactment date.

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Income Tax Expense

Federal and state income tax expense and the statutory tax rate and the actual effective tax rate consist of the following:



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2018			2017			2018			2017
Current income taxes:
Federal taxes	$	5,749		$	6,602		$	23,449		$	13,290
State taxes	1,045			1,086			2,749			1,585
Total current income taxes	6,794			7,688			26,198			14,875
Deferred income taxes:
Federal taxes	13,256			22,460			15,158			24,150
State taxes	421			(531		)	383			(2,924		)
Total deferred income taxes	13,677			21,929			15,541			21,226
Total income taxes	$	20,471		$	29,617		$	41,739		$	36,101
Statutory tax rate	21.0		%	35.0		%	21.0		%	35.0		%
Effective tax rate	19.4		%	28.5		%	19.5		%	27.0		%

The effective tax rate for the six months ended June 30, 2018 under the 21% TCJA statutory federal tax rate was 19.5%. The effective tax rate for the six months ended June 30, 2017 under the former 35% statutory federal tax rate was 27.0%. The effective tax rate for the six months ended June 30, 2018 was lower than the statutory tax rate of 21% due to tax benefits resulting from tax-exempt income on investments, loans, tax credits and income from BOLI. The lower effective tax rate for the six months ended June 30, 2017 primarily related to merger expenses and an increase in the level of tax credits.

In the fourth quarter of 2017, we elected to change our accounting policy under ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) to reclassify the income tax effects related to the TCJA from AOCI to retained earnings.

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. As such, during December 2017, we remeasured our deferred tax assets and liabilities as a result of the passage of the TCJA. The primary impact of this remeasurement was a reduction in deferred tax assets and liabilities in connection with the reduction of the U.S. corporate income tax rate from 35% to 21%.

NOTE 14. OTHER COMPREHENSIVE INCOME

The following table presents changes in AOCI, net of tax, by component:


(in thousands)	Unrealized Net Gains (Losses) on Securities Available for Sale			Unrealized Net Gains (Losses) on Derivative Instruments			Unrecognized Pension and Postretirement Obligations			Total			Unrealized Net Losses on Debt Securities Available for Sale			Unrealized Net Gains (Losses) on Derivative Instruments			Unrecognized Pension and Postretirement Obligations			Total
Nine Months Ended September 30, 2017
Six Months Ended June 30, 2018
Balance at beginning of period	$	(18,222	)	$	5,254		$	(48,401	)	$	(61,369	)	$	(29,626	)	$	5,407		$	(58,833	)	$	(83,052	)
Other comprehensive income before reclassifications	8,027			(2,254		)	1,765			7,538
Other comprehensive (loss) income before reclassifications													(38,660		)	5,600			972			(32,088		)
Amounts reclassified from AOCI	(398		)	(81		)	—			(479		)	(24		)	(721		)	—			(745		)
Net current period other comprehensive income	7,629			(2,335		)	1,765			7,059
Net current period other comprehensive (loss) income													(38,684		)	4,879			972			(32,833		)
Balance at end of period	$	(10,593	)	$	2,919		$	(46,636	)	$	(54,310	)	$	(68,310	)	$	10,286		$	(57,861	)	$	(115,885	)

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The amounts reclassified from AOCI related to debt securities available for sale are included in net securities gains on the ~~consolidated income statements,~~Consolidated Income Statements, while the amounts reclassified from AOCI related to derivative instruments are included in interest income on loans and leases on the ~~consolidated income statements.~~Consolidated Income Statements.

The tax (benefit) expense amounts reclassified from AOCI in connection with the debt securities available for sale and derivative instruments reclassifications are included in income taxes on the ~~consolidated statements~~Consolidated Statements of ~~income.~~Income.


~~14.~~	~~EARNINGS PER COMMON SHARE~~

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, warrants 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.

~~Table of Contents~~

The following table sets forth the computation of basic and diluted earnings per common share:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share data)	2017		2016		2017		2016		2018		2017		2018		2017
Net income	$	77,693	$	52,168	$	175,078	$	119,600	$	85,206	$	74,406	$	171,968	$	97,385
Less: Preferred stock dividends	2,010		2,010		6,030		6,030		2,010		2,010		4,020		4,020
Net income available to common stockholders	$	75,683	$	50,158	$	169,048	$	113,570	$	83,196	$	72,396	$	167,948	$	93,365
Basic weighted average common shares outstanding	323,410,932		210,306,834		295,012,986		204,687,092		324,170,177		323,303,460		323,956,752		280,578,720
Net effect of dilutive stock options, warrants and restricted stock	1,493,836		1,483,896		1,639,810		1,446,648		1,559,872		1,564,299		1,772,440		1,706,762
Diluted weighted average common shares outstanding	324,904,768		211,790,730		296,652,796		206,133,740		325,730,049		324,867,759		325,729,192		282,285,482
Earnings per common share:
Basic	$	0.23	$	0.24	$	0.57	$	0.55	$	0.26	$	0.22	$	0.52	$	0.33
Diluted	$	0.23	$	0.24	$	0.57	$	0.55	$	0.26	$	0.22	$	0.52	$	0.33

The following table shows the average shares excluded from the above calculation as their effect would have been anti-dilutive:

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Average shares excluded from the diluted earnings per common share calculation 1,842
14,859
1,059
14,041



	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
Average shares excluded from the diluted earnings per common share calculation	72	1,266	46	8,107


~~15.~~	~~CASH FLOW INFORMATION~~

NOTE 16. CASH FLOW INFORMATION

Following is a summary of supplemental cash flow information:


	Nine Months Ended September 30,				Six Months Ended June 30,
	2017		2016		2018		2017
(in thousands)
Interest paid on deposits and other borrowings	$	89,014	$	48,315	$	98,926	$	51,611
Income taxes paid	52,500		47,500		6,000		43,500
Transfers of loans to other real estate owned	24,025		13,055		7,967		22,451
Financing of other real estate owned sold	19		441

~~Supplemental non-cash information relating to our acquisitions is included in Note 3, “Mergers and Acquisitions.”~~

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NOTE 17. BUSINESS SEGMENTS


~~16.~~	~~BUSINESS SEGMENTS~~

We operate in four reportable segments: Community Banking, Wealth Management, Insurance and Consumer Finance.

The Community Banking segment provides commercial and consumer banking services. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, ~~international banking,~~ 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.

~~Table of Contents~~

The Insurance segment includes a full-service insurance agency offering all lines of commercial and personal insurance through major carriers. The Insurance segment also includes a reinsurer.

The Consumer Finance segment primarily makes installment loans to individuals and purchases installment sales finance contracts from retail merchants. The Consumer Finance segment activity is funded through the sale of subordinated notes, which are issued by a wholly-owned subsidiary and guaranteed by us.

In June, we announced plans to divest our Consumer Finance subsidiary as part of our strategy to enhance the overall positioning of our consumer banking operations. We entered a definitive stock purchase agreement to sell 100 percent of the issued and outstanding capital stock of Regency to Mariner Finance, LLC. The sale of Regency is expected to close during the second half of 2018, subject to receipt of regulatory approvals and other customary closing conditions. We expect this transaction to accomplish several strategic objectives, including enhancing the credit risk profile of the consumer loan portfolio, offering additional liquidity and selling a non-strategic business segment that does not fit with our core business.

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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.~~

Consolidated Financial Statements.


(in thousands)	Community Banking		Wealth Management		Insurance		Consumer Finance		Parent and Other			Consolidated		Community Banking		Wealth Management		Insurance			Consumer Finance		Parent and Other			Consolidated
At or for the Three Months Ended September 30, 2017
At or for the Three Months Ended June 30, 2018
Interest income	$	249,923	$	—	$	20	$	9,981	$	3,590		$	263,514	$	284,768	$	—	$	19		$	9,349	$	(19	)	$	294,117
Interest expense	29,463		—		—		938		7,882			38,283		50,118		—		—			885		3,759			54,762
Net interest income	220,460		—		20		9,043		(4,292		)	225,231		234,650		—		19			8,464		(3,778		)	239,355
Provision for credit losses	14,847		—		—		1,921		—			16,768		13,277		—		—			2,277		—			15,554
Non-interest income	52,020		10,006		4,209		741		(825		)	66,151		51,137		11,239		3,695			653		(1,835		)	64,889
Non-interest expense⁽¹⁾	142,015		7,451		3,907		5,261		304			158,938		159,675		8,694		3,895			5,293		1,645			179,202
Amortization of intangibles	4,689		64		52		—		—			4,805		3,699		60		52			—		—			3,811
Income tax expense (benefit)	33,238		904		105		1,038		(2,107		)	33,178		21,291		581		(43		)	444		(1,802		)	20,471
Net income (loss)	77,691		1,587		165		1,564		(3,314		)	77,693		87,845		1,904		(190		)	1,103		(5,456		)	85,206
Total assets	30,889,485		23,573		21,242		185,209		3,786			31,123,295		32,034,457		25,152		22,114			167,678		8,162			32,257,563
Total intangibles	2,359,661		10,224		12,179		1,809		—			2,383,873		2,311,429		10,067		12,140			1,809		—			2,335,445
At or for the Three Months Ended September 30, 2016
At or for the Three Months Ended June 30, 2017
Interest income	$	162,714	$	—	$	21	$	10,260	$	2,115		$	175,110	$	241,917	$	—	$	19		$	10,114	$	(1,016	)	$	251,034
Interest expense	14,791		—		—		949		1,864			17,604		28,414		—		—			888		3,317			32,619
Net interest income	147,923		—		21		9,311		251			157,506		213,503		—		19			9,226		(4,333		)	218,415
Provision for credit losses	12,766		—		—		1,517		356			14,639		14,738		—		—			2,018		—			16,756
Non-interest income	40,760		8,835		3,847		728		(930		)	53,240		53,031		9,821		3,496			770		(1,040		)	66,078
Non-interest expense ⁽¹⁾	101,744		6,619		3,249		5,328		539			117,479		141,441		7,987		3,456			5,288		729			158,901
Amortization of intangibles	3,422		65		84		—		—			3,571		4,694		65		54			—		—			4,813
Income tax expense (benefit)	21,449		781		196		1,238		(775		)	22,889		30,200		651		10			1,073		(2,317		)	29,617
Net income	49,302		1,370		339		1,956		(799		)	52,168
Net income (loss)														75,461		1,118		(5		)	1,617		(3,785		)	74,406
Total assets	21,383,500		19,490		21,464		191,524		(32,064		)	21,583,914		30,487,402		22,028		22,311			183,859		38,126			30,753,726
Total intangibles	1,079,196		10,253		12,394		1,809		—			1,103,652		2,322,326		10,288		12,231			1,809		—			2,346,654

(1) Excludes amortization of intangibles, which is presented separately.

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(in thousands)	Community Banking		Wealth Management		Insurance		Consumer Finance		Parent and Other			Consolidated		Community Banking		Wealth Management		Insurance		Consumer Finance		Parent and Other			Consolidated
At or for the Nine Months Ended September 30, 2017
At or for the Six Months Ended June 30, 2018
Interest income	$	677,221	$	—	$	59	$	29,997	$	1,964		$	709,241	$	548,355	$	—	$	39	$	18,643	$	7		$	567,044
Interest expense	76,742		—		—		2,748		13,353			92,843		92,478		—		—		1,795		7,311			101,584
Net interest income	600,479		—		59		27,249		(11,389		)	616,398		455,877		—		39		16,848		(7,304		)	465,460
Provision for credit losses	38,649		—		—		5,725		—			44,374		25,689		—		—		4,360		—			30,049
Non-interest income	145,768		29,376		12,030		2,221		(2,050		)	187,345		104,449		22,241		7,998		1,291		(3,587		)	132,392
Non-interest expense ⁽¹⁾	451,740		22,978		10,678		15,780		1,120			502,296		308,342		16,972		7,606		10,523		2,624			346,067
Amortization of intangibles	12,365		190		161		—		—			12,716		7,804		121		104		—		—			8,029
Income tax expense (benefit)	69,749		2,266		462		3,178		(6,376		)	69,279		43,011		1,170		81		918		(3,441		)	41,739
Net income (loss)	173,744		3,942		788		4,787		(8,183		)	175,078		175,480		3,978		246		2,338		(10,074		)	171,968
Total assets	30,889,485		23,573		21,242		185,209		3,786			31,123,295		32,034,457		25,152		22,114		167,678		8,162			32,257,563
Total intangibles	2,359,661		10,224		12,179		1,809		—			2,383,873		2,311,429		10,067		12,140		1,809		—			2,335,445
At or for the Nine Months Ended September 30, 2016
At or for the Six Months Ended June 30, 2017
Interest income	$	465,592	$	—	$	64	$	30,171	$	5,968		$	501,795	$	427,298	$	—	$	39	$	20,016	$	(1,626	)	$	445,727
Interest expense	41,153		—		—		2,820		5,593			49,566		47,279		—		—		1,810		5,471			54,560
Net interest income	424,439		—		64		27,351		375			452,229		380,019		—		39		18,206		(7,097		)	391,167
Provision for credit losses	37,081		—		—		4,515		1,451			43,047		23,802		—		—		3,804		—			27,606
Non-interest income	111,507		26,834		11,309		2,198		(1,153		)	150,695		93,748		19,370		7,821		1,480		(1,225		)	121,194
Non-interest expense ⁽¹⁾	329,578		20,668		9,826		15,904		1,743			377,719		309,725		15,527		6,771		10,519		816			343,358
Amortization of intangibles	9,043		194		371		—		—			9,608		7,676		126		109		—		—			7,911
Income tax expense (benefit)	48,850		2,168		430		3,558		(2,056		)	52,950		36,511		1,362		357		2,140		(4,269		)	36,101
Net income	111,394		3,804		746		5,572		(1,916		)	119,600
Net income (loss)														96,053		2,355		623		3,223		(4,869		)	97,385
Total assets	21,383,500		19,490		21,464		191,524		(32,064		)	21,583,914		30,487,402		22,028		22,311		183,859		38,126			30,753,726
Total intangibles	1,079,196		10,253		12,394		1,809		—			1,103,652		2,322,326		10,288		12,231		1,809		—			2,346,654

(1) Excludes amortization of intangibles, which is presented separately.


~~17.~~	~~FAIR VALUE MEASUREMENTS~~

~~We use fair value measurements~~NOTE 18. FAIR VALUE MEASUREMENTS

Refer to ~~record fair value adjustments~~Note 24 "Fair Value Measurements" to ~~certain financial~~the Consolidated Financial Statements of the Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 28, 2018 for a description of additional valuation methodologies for assets and liabilities ~~and to determine fair value disclosures. Securities available for sale and derivatives are recorded~~measured at fair value on a recurring and non-recurring basis. ~~Additionally, from time to time, we may be required to record~~Assets and liabilities measured at fair value ~~other assets on a non-recurring basis, such as mortgage loans held for sale, certain impaired loans, OREO and certain other assets.~~

~~Fair value is defined as an exit price, representing the price that would be received to sell an asset or paid to~~rarely transfer ~~a liability in an orderly transaction~~ between market participants at the measurement date. Fair value measurements are not adjusted for transaction costs. Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure.

~~In determining fair value, we use various valuation approaches, including market, income and cost approaches. ASC 820,~~ ~~Fair Value Measurements and Disclosures~~, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, which are developed based on market data obtained from sources independent of FNB. Unobservable inputs reflect our assumptions about the assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

~~Table of Contents~~

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:



~~Measurement~~ ~~Category~~	~~Definition~~
~~Level 1~~	~~valuation is based upon unadjusted quoted market prices for identical instruments traded in active~~ ~~markets.~~

~~Level 2~~	valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.

~~Level 3~~	valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

~~A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.~~

~~Following is a description of the valuation methodologies we use for financial instruments recorded at fair value on either a recurring or non-recurring basis:~~

~~Securities Available For Sale~~

Securities available for sale consist of both debt and equity securities. These securities are recorded at fair value on a recurring basis. At September 30, 2017, 100.0% of these securities used valuation methodologies involving market-based or market-derived information, collectively Level 1 and Level 2 ~~measurements, to measure fair value.~~

~~We closely monitor market conditions involving assets that have become less actively traded. If~~measurements. There were no such transfers during the ~~fair value measurement is based upon recent observable market activity of such assets or comparable assets (other than forced or distressed transactions) that occur in sufficient volume,~~six-month periods ended June 30, 2018 and do not require significant adjustment using unobservable inputs, those assets are classified as Level 1 or Level 2; if not, they are classified as Level 3. Making this assessment requires significant judgment.

We use prices from independent pricing services and, to a lesser extent, indicative (non-binding) quotes from independent brokers, to measure the fair value of investment securities. We validate prices received from pricing services or brokers using a variety of methods, including, but not limited to, comparison to secondary pricing services, corroboration of pricing by reference to other independent market data such as secondary broker quotes and relevant benchmark indices, and review of pricing information by corporate personnel familiar with market liquidity and other market-related conditions.

~~Derivative Financial Instruments~~

We determine fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects contractual terms of the derivative, including the period to maturity and uses observable market based inputs, including interest rate curves and implied volatilities.

We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of non-performance risk, we consider the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives and IRLCs utilize Level 3 inputs. Credit valuation estimates of current credit spreads are used to evaluate the likelihood of our default and the default of our counterparties. However, as of September 30, 2017 and December 31, 2016, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The fair value of IRLCs is based upon the

~~Table of Contents~~

~~estimated fair value of the underlying mortgage loan, including the expected cash flows related to the MSRs and the estimated percentage of IRLCs that will result in a closed mortgage loan.~~

~~Loans Held For Sale~~

Beginning in 2017, residential mortgage loans held for sale are carried at fair value under the FVO. Prior to 2017, residential mortgage loans held for sale were carried at the lower of cost or fair value accounting, under which, periodically, it may have been necessary to record non-recurring fair value adjustments. Fair value for residential mortgage loans held for sale, when recorded, is based on independent quoted market prices and is classified as Level 2.

SBA loans held for sale are carried under lower of cost or fair value accounting, for which, periodically, it may be necessary to record non-recurring fair value adjustments. Fair value for SBA loans held for sale, when recorded, is based on independent quoted market prices and is classified as Level 2.

~~Impaired Loans~~

We reserve for commercial loan relationships greater than or equal to $500,000 that we consider impaired as defined in ASC 310 at the time we identify the loan as impaired based upon the present value of expected future cash flows available to pay the loan, or based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent. Collateral may be real estate and/or business assets including equipment, inventory and accounts receivable.

We determine the fair value of real estate based on appraisals by licensed or certified appraisers. The value of business assets is generally based on amounts reported on the business’ financial statements. Management must rely on the financial statements prepared and certified by the borrower or their accountants in determining the value of these business assets on an ongoing basis, which may be subject to significant change over time. Based on the quality of information or statements provided, management may require the use of business asset appraisals and site-inspections to better value these assets. We may discount appraised and reported values based on management’s historical knowledge, changes in market conditions from the time of valuation or management’s knowledge of the borrower and the borrower’s business. Since not all valuation inputs are observable, we classify these non-recurring fair value determinations as Level 2 or Level 3 based on the lowest level of input that is significant to the fair value measurement.

~~We review and evaluate impaired loans no less frequently than quarterly for additional impairment based on the same factors identified above.~~

~~Other Real Estate Owned~~

OREO is comprised principally of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations. OREO acquired in settlement of indebtedness is recorded at the lower of carrying amount of the loan or fair value less costs to sell. Subsequently, these assets are carried at the lower of carrying value or fair value less costs to sell. Accordingly, it may be necessary to record non-recurring fair value adjustments. Fair value is generally based upon appraisals by licensed or certified appraisers and other market information and is classified as Level 2 or Level 3.2017.

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The following table presents the balances of assets and liabilities measured at fair value on a recurring basis:


(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
September 30, 2017
June 30, 2018
Assets Measured at Fair Value
Debt securities available for sale:
U.S. Treasury	$	—	$	19,980	$	—	$	19,980
Debt securities available for sale
U.S. government agencies									$	—	$	95,526	$	—	$	95,526
U.S. government-sponsored entities	—		355,612		—		355,612		—		306,934		—		306,934
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,641,775		—		1,641,775		—		1,577,596		—		1,577,596
Agency collateralized mortgage obligations	—		797,330		—		797,330		—		831,817		—		831,817
Non-agency collateralized mortgage obligations	—		1		—		1		—		—		—		—
Commercial mortgage-backed securities	—		—		—		—		—		168,324		—		168,324
States of the U.S. and political subdivisions	—		30,005		—		30,005		—		20,735		—		20,735
Other debt securities	—		9,706		—		9,706		—		1,855		—		1,855
Total debt securities available for sale	—		2,854,409		—		2,854,409		—		3,002,787		—		3,002,787
Equity securities available for sale:
Loans held for sale									—		28,213		—		28,213
Marketable equity securities
Fixed income mutual fund	166		—		—		166		177		—		—		177
Financial services industry	—		775		—		775		—		995		—		995
Insurance services industry	—		—		—		—
Total equity securities available for sale	166		775		—		941
Total securities available for sale	166		2,855,184		—		2,855,350
Loans held for sale	—		72,585		—		72,585
Derivative financial instruments:
Total marketable equity securities									177		995		—		1,172
Derivative financial instruments
Trading	—		37,354		—		37,354		—		19,004		—		19,004
Not for trading	—		1,554		4,569		6,123		—		221		1,662		1,883
Total derivative financial instruments	—		38,908		4,569		43,477		—		19,225		1,662		20,887
Total assets measured at fair value on a recurring basis	$	166	$	2,966,677	$	4,569	$	2,971,412	$	177	$	3,051,220	$	1,662	$	3,053,059
Liabilities Measured at Fair Value
Derivative financial instruments:
Derivative financial instruments
Trading	$	—	$	23,772	$	—	$	23,772	$	—	$	61,728	$	—	$	61,728
Not for trading	—		1,600		56		1,656		—		4,708		7		4,715
Total derivative financial instruments	—		25,372		56		25,428		—		66,436		7		66,443
Total liabilities measured at fair value on a recurring basis	$	—	$	25,372	$	56	$	25,428	$	—	$	66,436	$	7	$	66,443

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(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
December 31, 2016
December 31, 2017
Assets Measured at Fair Value
Debt securities available for sale:
U.S. Treasury	$	—	$	29,953	$	—	$	29,953
Debt securities available for sale
U.S. government-sponsored entities	—		365,098		—		365,098		$	—	$	343,942	$	—	$	343,942
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,252,798		—		1,252,798		—		1,598,874		—		1,598,874
Agency collateralized mortgage obligations	—		535,974		—		535,974		—		794,957		—		794,957
Non-agency collateralized mortgage obligations	—		3		894		897		—		1		—		1
Commercial mortgage-backed securities	—		1,291		—		1,291
States of the U.S. and political subdivisions	—		35,849		—		35,849		—		21,093		—		21,093
Other debt securities	—		9,487		—		9,487		—		4,670		—		4,670
Total debt securities available for sale	—		2,230,453		894		2,231,347		—		2,763,537		—		2,763,537
Equity securities available for sale:
Equity securities available for sale
Fixed income mutual fund									161		—		—		161
Financial services industry	—		—		492		492		—		864		—		864
Insurance services industry	148		—		—		148
Total equity securities available for sale	148		—		492		640		161		864		—		1,025
Total securities available for sale	148		2,230,453		1,386		2,231,987		161		2,764,401		—		2,764,562
Derivative financial instruments:
Loans held for sale									—		56,458		—		56,458
Derivative financial instruments
Trading	—		44,951		—		44,951		—		28,453		—		28,453
Not for trading	—		9,269		—		9,269		—		500		1,594		2,094
Total derivative financial instruments	—		54,220		—		54,220		—		28,953		1,594		30,547
Total assets measured at fair value on a recurring basis	$	148	$	2,284,673	$	1,386	$	2,286,207	$	161	$	2,849,812	$	1,594	$	2,851,567
Liabilities Measured at Fair Value
Derivative financial instruments:
Derivative financial instruments
Trading	$	—	$	45,973	$	—	$	45,973	$	—	$	26,953	$	—	$	26,953
Not for trading	—		1,294		—		1,294		—		2,239		5		2,244
Total derivative financial instruments	—		47,267		—		47,267		—		29,192		5		29,197
Total liabilities measured at fair value on a recurring basis	$	—	$	47,267	$	—	$	47,267	$	—	$	29,192	$	5	$	29,197

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The following table presents additional information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:


(in thousands)	Other Debt Securities			Equity Securities			Residential Non-Agency Collateralized Mortgage Obligations			Interest Rate Lock Commitments			Total			Other Debt Securities			Equity Securities			Residential Non-Agency Collateralized Mortgage Obligations			Interest Rate Lock Commitments			Total
Nine Months Ended September 30, 2017
Six Months Ended June 30, 2018
Balance at beginning of period																$	—		$	—		$	—		$	1,594		$	1,594
Purchases, issuances, sales and settlements:
Purchases																—			—			—			1,662			1,662
Settlements																—			—			—			(1,594		)	(1,594		)
Balance at end of period																$	—		$	—		$	—		$	1,662		$	1,662
Year Ended December 31, 2017
Balance at beginning of period	$	—		$	492		$	894		$	—		$	1,386		$	—		$	492		$	894		$	—		$	1,386
Total gains (losses) – realized/unrealized:
Included in earnings	—			—			4			—			4			—			—			4			—			4
Included in other comprehensive income	—			86			(6		)	—			80			—			86			(6		)	—			80
Accretion included in earnings	(1		)	—			1			—			—			(1		)	—			1			—			—
Purchases, issuances, sales and settlements:
Purchases	12,048			—			—			4,569			16,617			12,048			—			—			1,594			13,642
Issuances	—			—			—			—			—
Sales/redemptions	(12,047		)	—			(874		)	—			(12,921		)	(12,047		)	—			(874		)	—			(12,921		)
Settlements	—			—			(19		)	(5,437		)	(5,456		)	—			—			(19		)	(4,569		)	(4,588		)
Transfers from Level 3	—			(578		)	—			—			(578		)	—			(578		)	—			—			(578		)
Transfers into Level 3	—			—			—			5,437			5,437			—			—			—			4,569			4,569
Balance at end of period	$	—		$	—		$	—		$	4,569		$	4,569		$	—		$	—		$	—		$	1,594		$	1,594
Year Ended December 31, 2016
Balance at beginning of period	$	—		$	439		$	1,184		$	—		$	1,623
Total gains (losses) – realized/unrealized:
Included in earnings	—			—			—			—			—
Included in other comprehensive income	—			53			(7		)	—			46
Accretion included in earnings	—			—			6			—			6
Purchases, issuances, sales and settlements:
Purchases	—			—			—			—			—
Issuances	—			—			—			—			—
Sales/redemptions	—			—			—			—			—
Settlements	—			—			(289		)	—			(289		)
Transfers from Level 3	—			—			—			—			—
Transfers into Level 3	—			—			—			—			—
Balance at end of period	$	—		$	492		$	894		$	—		$	1,386

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. ~~See~~There were no transfers of assets or liabilities between the ~~“Securities Available for Sale” discussion within this footnote for information relating to determining Level 3 fair values.~~hierarchy levels during the first six months of 2018. During the first quarter of 2017, we acquired $12.0 million in other debt securities from YDKN that are measured at Level 3. These securities were sold during the second quarter of 2017. During the first ~~nine~~six months of 2017, we transferred equity securities totaling $0.6 million from Level 3 to Level 2, as a result of increased trading activity relating to these securities. ~~There were no transfers of assets or liabilities between the hierarchy levels during the first nine months of 2016.~~

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, we recorded in earnings $0.6 million of unrealized gains relating to the adoption of ASU 2016-01 and ~~2016,~~market value adjustments on marketable equity securities. These unrealized gains included in earnings are in the other non-interest income line item in the consolidated statement of income. For the six months ended June 30, 2017, there were no gains or losses included in earnings attributable to the change in unrealized gains or losses relating to assets still held as of those dates. The total ~~(losses)~~realized net securities gains included in earnings are in the net securities ~~(losses)~~ gains line item in the ~~consolidated statements~~Consolidated Statements of ~~income.~~Income.

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In accordance with GAAP, 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 ~~previously described.~~described in Note 24 "Fair Value Measurements" in our 2017 Form 10-K. For assets measured at fair value on a non-recurring basis still held at the ~~balance sheet~~Balance Sheet date, the following table provides the hierarchy level and the fair value of the related assets or portfolios:


(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
September 30, 2017
June 30, 2018
Impaired loans	$	—	$	2,118	$	8,188	$	10,306	$	—	$	1,460	$	6,135	$	7,595
Other real estate owned	—		1,652		11,769		13,421		—		—		5,500		5,500
December 31, 2016
Other assets - SBA servicing asset									—		—		4,894		4,894
December 31, 2017
Impaired loans	$	—	$	500	$	5,883	$	6,383	$	—	$	2,813	$	1,297	$	4,110
Other real estate owned	—		11,017		3,181		14,198		—		10,513		10,823		21,336
Loans held for sale - SBA									—		—		36,432		36,432
Other assets - SBA servicing asset									—		—		5,058		5,058

Substantially all of the fair value amounts in the table above were estimated at a date during the ~~nine~~six months or twelve months ended ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end.

Impaired loans measured or re-measured at fair value on a non-recurring basis during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 had a carrying amount of ~~$18.7~~$7.6 million, ~~and~~which includes an allocated allowance for credit losses of ~~$8.7 million. The allocated allowance is based on fair value of $10.3 million less estimated costs to sell of $0.3~~$4.4 million. The allowance for credit losses includes a provision applicable to the current period fair value measurements of ~~$8.5~~$4.7 million, which was included in the provision for credit losses for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

OREO with a carrying amount of ~~$13.4~~$7.6 million was written down to ~~$11.8~~$5.5 million, ~~(fair value of $13.4 million less estimated costs to sell of $1.6 million),~~ resulting in a loss of ~~$1.6~~$2.1 million, which was included in earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each financial instrument:

Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable. For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities. For both securities ~~available for sale~~AFS and securities ~~held to maturity,~~HTM, fair value equals the quoted market price from an active market, if available, and is classified within Level 1. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities or pricing models, and is classified as Level 2. Where there is limited market activity or significant valuation inputs are unobservable, securities are classified within Level 3. Under current market conditions, assumptions used to determine the fair value of Level 3 securities have greater subjectivity due to the lack of observable market transactions.

Loans and Leases. The fair value of fixed rate loans and leases is estimated by discounting the future cash flows using the current rates at which similar loans and leases would be made to borrowers with similar credit ratings and for the same remaining maturities less an illiquidity ~~discount.~~discount, as the fair value measurement represents an exit price from a market participants' viewpoint. The fair value of variable and adjustable rate loans and leases approximates the carrying amount. Due to the significant judgment involved in evaluating credit quality, loans and leases are classified within Level 3 of the fair value hierarchy.

Loan Servicing Rights. For both MSRs and ~~SBA-servicing~~SBA servicing rights, both classified as Level 3 assets, fair value is determined using a discounted cash flow valuation method. These models use significant unobservable inputs including discount rates, prepayment rates and cost to service which have greater subjectivity due to the lack of observable market transactions.

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Derivative Assets and Liabilities. See Note 24 "Fair Value Measurements" to the ~~“Derivative~~Consolidated Financial ~~Instruments” discussion included within this footnote.~~Statements of the Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 28, 2018 for a description of valuation methodologies for derivative assets and liabilities measured at fair value.

Deposits. The estimated fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date because of the customers’ ability to withdraw funds immediately. The fair value of

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fixed-maturity deposits is estimated by discounting future cash flows using rates currently offered for deposits of similar remaining maturities.

Short-Term Borrowings. The carrying amounts for short-term borrowings approximate fair value for amounts that mature in 90 days or less. The fair value of subordinated notes is estimated by discounting future cash flows using rates currently offered.

Long-Term Borrowings. The fair value of long-term borrowings is estimated by discounting future cash flows based on the market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities.

Loan Commitments and Standby Letters of Credit. Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties. Also, unfunded loan commitments relate principally to variable rate commercial loans, typically are non-binding, and fees are not normally assessed on these balances.

Nature of Estimates. Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable to other financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Further, because the disclosed fair value amounts were estimated as of the ~~balance sheet~~Balance Sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.

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The fair values of our financial instruments are as follows:


					Fair Value Measurements										Fair Value Measurements
(in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
September 30, 2017
June 30, 2018
Financial Assets
Cash and cash equivalents											$	433,699	$	433,699	$	433,699	$	—	$	—
Debt securities available for sale											3,002,787		3,002,787		—		3,002,787		—
Debt securities held to maturity											3,295,081		3,181,275		—		3,181,275		—
Net loans and leases, including loans held for sale											21,527,120		21,163,711		—		28,213		21,135,498
Loan servicing rights											37,864		43,497		—		—		43,497
Marketable equity securities											1,172		1,172		177		995		—
Derivative assets											20,887		20,887		—		19,225		1,662
Accrued interest receivable											93,210		93,210		93,210		—		—
Financial Liabilities
Deposits											22,539,787		22,481,472		17,668,799		4,812,673		—
Short-term borrowings											4,334,146		4,334,835		4,334,835		—		—
Long-term borrowings											628,938		624,104		—		—		624,104
Derivative liabilities											66,443		66,443		—		66,436		7
Accrued interest payable											15,138		15,138		15,138		—		—
December 31, 2017
Financial Assets
Cash and cash equivalents	$	515,340	$	515,340	$	515,340	$	—	$	—	$	479,443	$	479,443	$	479,443	$	—	$	—
Securities available for sale	2,855,350		2,855,350		166		2,855,184		—		2,764,562		2,764,562		161		2,764,401		—
Securities held to maturity	2,985,921		2,970,701		—		2,970,701		—
Debt securities held to maturity											3,242,268		3,218,379		—		3,218,379		—
Net loans and leases, including loans held for sale	20,761,198		20,520,170		—		72,585		20,447,585		20,916,277		20,661,196		—		56,458		20,604,738
Loan servicing rights	32,166		34,337		—		—		34,337		34,111		37,758		—		—		37,758
Derivative assets	43,477		43,477		—		38,908		4,569		30,547		30,547		—		28,953		1,594
Accrued interest receivable	86,214		86,214		86,214		—		—		94,254		94,254		94,254		—		—
Financial Liabilities
Deposits	21,929,171		21,907,131		17,757,573		4,149,558		—		22,399,725		22,359,182		17,779,246		4,579,936		—
Short-term borrowings	3,872,301		3,872,812		3,872,812		—		—		3,678,337		3,678,723		3,678,723		—		—
Long-term borrowings	658,783		665,236		—		—		665,236		668,173		675,489		—		—		675,489
Derivative liabilities	25,428		25,428		—		25,372		56		29,197		29,197		—		29,192		5
Accrued interest payable	11,441		11,441		11,441		—		—		12,480		12,480		12,480		—		—
December 31, 2016
Financial Assets
Cash and cash equivalents	$	371,407	$	371,407	$	371,407	$	—	$	—
Securities available for sale	2,231,987		2,231,987		148		2,230,453		1,386
Securities held to maturity	2,337,342		2,294,777		—		2,293,091		1,686
Net loans and leases, including loans held for sale	14,750,792		14,464,274		—		—		14,464,274
Loan servicing rights	13,521		17,546		—		—		17,546
Derivative assets	54,220		54,220		—		54,220		—
Accrued interest receivable	58,712		58,712		58,712		—		—
Financial Liabilities
Deposits	16,065,647		16,045,323		13,489,152		2,556,171		—
Short-term borrowings	2,503,010		2,503,277		2,503,277		—		—
Long-term borrowings	539,494		536,088		—		—		536,088
Derivative liabilities	47,267		47,267		—		47,267		—
Accrued interest payable	7,612		7,612		7,612		—		—

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis represents an overview of and highlights material changes to our financial condition and results of operations at and for the three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017. This Discussion and Analysis should be read in conjunction with the ~~consolidated financial statements~~Consolidated Financial Statements and notes thereto contained herein and our ~~2016~~2017 Annual Report on Form 10-K filed with the SEC on February ~~23, 2017.~~28, 2018. Our results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are not necessarily indicative of results expected for the full year.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

A number of statements in this Report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including our expectations relative to business and financial metrics, ~~post-YDKN merger integration and conversion activities,~~ our outlook regarding revenues, expenses, earnings. liquidity, asset quality and statements regarding the impact of technology enhancements and customer and business process improvements.

Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are based on current expectations and assumptions that are subject to risk, uncertainties and unforeseen events which may cause actual results to differ materially from future results expressed, projected or implied by these forward-looking statements. All forward-looking statements speak only as of the date they are made and are based on information available at that time. We assume no obligation to update forward-looking statements to reflect circumstances ofor events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. Further, it is not possible to assess the effect of all risk factors on our business of the extent to which any one risk factor or compilation thereof may cause actual results to differ materially from those contained in any forward-looking statements. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

Such forward-looking statements may be expressed in a variety of ways, including the use of future and present tense language expressing expectations or predictions of future financial or business performance or conditions based on current performance and trends. Forward-looking statements are typically identified by words such as, ~~“believe,” “plan,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “will,” “should,” “project,” “goal,”~~"believe," "plan," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "will," "should," "project," "goal," and other similar words and expressions. These forward-looking statements involve certain risks and uncertainties. In addition to factors previously disclosed in our reports filed with the SEC, the following factors among others, could cause actual results to differ materially from forward-looking statements or historical performance: changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; changes or errors in the methodologies, models, assumptions and estimates we use to prepare our financial statements, make business decisions and manage risks; inflation; inability to effectively grow and expand our customer bases; potential difficulties encountered in expanding into a new and remote geographic market; customer borrowing, repayment, investment and deposit practices; customer disintermediation; the introduction, withdrawal, success and timing of business and technology initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with ~~YDKN merger,~~ acquisitions and divestitures; inability to originate and re-sell mortgage loans in accordance with business plans; our inability to effectively manage our economic exposure and GAAP earnings exposure to interest rate volatility, including availability of appropriate derivative financial investments needed for interest rate risk management purposes; economic conditions; interruption in or breach of security of our information systems; integrity and functioning of products, information systems and services provided by third party external vendors; changes in tax rules and regulations or interpretations including, but not limited to, the recently enacted Tax Cuts and Jobs Act or tariffs implemented by the U.S. President;changes in or anticipated impact of, accounting policies, standards and interpretations; ability to maintain adequate liquidity to fund our operations; changes in asset valuations;the initiation of legal or regulatory proceedings against us and the outcome of any legal or regulatory proceeding including, but not limited to, actions by federal or state authorities and class action cases, new decisions that result in changes to previously settled law or regulation, and any unexpected court or regulatory rulings; and the impact, extent and timing of technological changes, capital management activities, and other actions of the ~~Office of~~OCC, the ~~Comptroller of~~FRB, the ~~Currency (OCC),~~Consumer Financial Protection Bureau, the ~~Board of Governors of the Federal Reserve System (FRB)~~FDIC and legislative and regulatory actions and reforms.

The risks identified here are not exclusive. 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 in our Annual Report on Form 10-K (including MD&A section) for the year ended December 31, ~~2016,~~2017, our subsequent ~~2017~~2018 Quarterly Reports on Form 10-Q's (including the risk factors and risk management ~~discussion)~~discussions) and our other subsequent filings with the SEC, which are available on our corporate website at https://www.fnb-online.com/about-us/~~investor-relations-shareholder-services.~~investor-relations-shareholder-

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services. We have included our web address as an inactive textual reference only. Information on our website is not part of this Report.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

A description of our critical accounting policies is included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our ~~2016~~2017 Annual Report on Form 10-K filed with the SEC on February ~~23, 2017~~28, 2018 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, ~~2016.~~2017.

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USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS

To supplement our ~~consolidated financial statements~~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, 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. ~~In the event of such a disclosure,~~When non-GAAP financial measures are disclosed, the SEC's Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included later in this report under the heading “Reconciliation of Non-GAAP Financial Measures and Key Performance Indicators to ~~GAAP.”~~GAAP”.

Management believes charges such as merger expenses, branch consolidation costs and special one-time employee 401(k) contributions related to tax reform are not organic costs to run our operations and facilities. ~~These~~The merger expenses and branch consolidations charges principally represent expenses to satisfy contractual obligations of the acquired entity or closed branch without any useful ongoing benefit to ~~us to convert and consolidate the entity’s records, systems and data onto our platforms and professional fees related to the transaction.~~us. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction.

~~For~~The second quarter 2018 results continued to reflect the ~~calculation~~change in the statutory federal income tax rate from 35% to 21% effective as of January 1, 2018 as a result of the enactment of the TCJA. The fourth quarter 2017 results were unfavorably impacted by income tax expense from the new federal tax legislation primarily attributed to revaluation of net deferred tax assets at the lower statutory tax rate. Our business segment results for the fourth quarter of 2017 reflect the allocation of the impact of the new tax legislation to our business segments, primarily the revaluation of the net deferred tax positions allocated to these segments where certain income tax effects could be reasonably estimated. These were included as provisional amounts as of December 31, 2017. As a result, these provisional amounts could be adjusted during the measurement period, which will end on December 22, 2018, one year after the TCJA enactment date. No changes have been made to these provisional amounts in the first half of 2018 as we continue to finalize our analysis.

To provide more meaningful comparisons of net interest margin and efficiency ratio, we use net interest income ~~amounts are reflected~~ 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 ~~(FTE) basis which adjusts~~amounts for the 2018 period were calculated using a federal income tax ~~benefit~~rate of ~~income on certain tax-exempt loans and investments~~21% provided under the TCJA (effective January 1, 2018). Amounts for the 2017 periods were calculated using the previously applicable statutory federal ~~statutory~~income tax rate of 35% for each period presented. We use these non-GAAP measures to provide an economic view believed to be the preferred industry measurement for these items and to provide relevant comparison between taxable and non-taxable amounts..

FINANCIAL SUMMARY

We continue to grow organically and through our successful acquisition of YDKN, which closed on March 11, 2017. On the acquisition date, the estimated fair values of the acquired assets and assumed liabilities included $6.8 billion in assets, $5.1 billion in loans, and $5.2 billion in deposits. The acquisition was valued at $1.8 billion based on the acquisition date FNB common stock closing price of $15.97. Under the terms of the merger agreement, shareholders of YDKN received 2.16 shares of FNB common stock for each share of YDKN common stock.

Net income available to common stockholders for the ~~third~~second quarter of ~~2017~~2018 was ~~$75.7~~$83.2 million or ~~$0.23~~$0.26 per diluted common share. ~~Excluding the impact~~On an operating basis, second quarter of ~~merger-related expenses, operating~~2018 earnings per diluted common share ~~would have been $0.24. Revenue (net interest income plus~~(non-GAAP) was $89.1 million, or $0.27 per diluted common share, excluding the impact of significant items influencing earnings of $6.6 million of costs related

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to branch consolidations as well as the impact of a $0.9 million discretionary 401(k) contribution made following tax reform. Of the branch consolidation costs, $2.9 million were included in non-interest ~~income)~~expense and $3.7 million were reflected as a loss on fixed assets reducing non-interest income.

Growth in total average loans compared to the prior year quarter was $1.1 billion, or 5.3%, with average commercial loan growth of ~~$291.4~~$570 million, ~~for~~or 4.4%, and average consumer loan growth of $514 million, or 6.9%. Total average deposits increased $1.3 billion, or 6.3%, from the ~~third~~prior year quarter which included an increase in average non-interest bearing deposits of ~~2017 reflects continued loan~~$298 million, or 5.4%, and ~~deposit~~an increase in average time deposits of $1.0 billion, or 26.7%.

We are well-positioned across our footprint to build on these trends and continue to improve our key operating metrics, as we maintain our focus on delivering earnings per share growth and ~~stable non-interest income.~~

~~Commercial loan growth during~~improved profitability. On June 7, 2018, we announced that we have entered into a definitive agreement to sell Regency, with a closing expected prior to the ~~third quarter~~end of 2017 was largely driven by activity in the Pittsburgh, Baltimore and Cleveland metro markets. Potential commercial lending opportunities were strong, commensurate with the expanded geographic footprint, including new opportunities provided by the aforementioned YDKN acquisition. We also experienced strong growth in the indirect auto and residential mortgage portfolios.2018.

Income Statement Highlights ~~(Third~~(Second quarter of ~~2017~~2018 compared to ~~third~~second quarter of ~~2016)~~2017)

Net income available to common stockholders was ~~$75.7~~$83.2 million, compared to ~~$50.2~~$72.4 million.

Operating net income available to common stockholders (non-GAAP) was ~~$76.6~~$89.1 million, compared to ~~$50.4~~$73.3 million.

Earnings per diluted common share ~~was $0.23,~~were $0.26, compared to ~~$0.24.~~$0.22.

Operating earnings per diluted common share (non-GAAP) ~~was $0.24,~~were $0.27, compared to ~~$0.24.~~$0.23.

Non-interest income decreased $1.2 million or 1.8%. Excluding the loss on fixed assets related to branch consolidations, non-interest income increased $2.5 million or 3.8%, with continued growth in wealth management, capital markets, and mortgage banking.

Total revenue increased 6.9% to $304 million, reflecting a 9.6% increase in net interest income, partially offset by a 1.8% decrease in non-interest income.

Net interest margin (FTE) (non-GAAP) ~~was 3.44%, compared~~expanded 9 basis points to ~~3.36%~~3.51% from 3.42%.

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Non-interest ~~income~~expense was ~~$66.2~~$183.0 million, compared to ~~$53.2~~$163.7 million.

Non-interest expense, excluding ~~merger expenses,~~significant items influencing earnings, was ~~$162.4~~$179.2 million, compared to ~~$120.8~~$162.4 million.

Income tax expense increased $5.6 million, or 15.6%, primarily due to higher 2018 pre-tax income, partially offset by the lower tax rate in 2018.

The efficiency ratio (non-GAAP) ~~was 53.1%~~totaled 55.6%, compared to ~~54.4%~~54.3%.

The annualized net charge-offs to total average loans ratio increased to 0.34%, compared to 0.23%, with the increase primarily related to the sale of certain underperforming commercial loans.

Balance Sheet Highlights ~~(September~~(period-end balances, June 30, ~~2017~~2018 compared to December 31, ~~2016,~~2017, unless otherwise indicated)

Total assets were ~~$31.1~~$32.3 billion, compared to ~~$21.8~~$31.4 billion.

Growth in total average loans was $1.1 billion, or 5.3%, with average commercial loan growth of $570.2 million, or 4.4%, and average consumer loan growth of $513.8 million, or 6.9%, from the same period last year.

Total ~~stockholders’ equity was $4.4~~average deposits increased $1.3 billion, ~~compared to $2.6 billion.~~

~~Average quarterly loans grew 41.1%~~or 6.3%, which included an increase in average non-interest bearing deposits of $297.9 million, or 5.4%, and an increase in average time deposits of $1.0 billion, or 26.7%, from ~~September 30, 2016 to September 30, 2017 through continued organic growth and~~ the ~~loans added through the YDKN acquisition.~~same period last year.

~~Average deposits grew 35.3% from September 30, 2016 to September 30, 2017 through continued organic growth and the deposits added through the YDKN acquisition.~~

The ratio of loans to deposits was ~~94.9%~~96.1%, compared to ~~92.7%~~93.7%.

~~Asset quality~~Total stockholders’ equity was ~~satisfactory with~~$4.5 billion, compared to $4.4 billion, a slight increase of less than 1% since December 31, 2017, primarily driven by an increase in earnings partially offset by a decline in AOCI.

There was significant improvement in the delinquency ratio ~~of 0.91% on~~in the originated portfolio ~~compared~~from 0.88% to ~~1.04%~~0.68%.

The ratio of the allowance for loan losses to total loans and leases decreased 2 basis points to 0.82%

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RESULTS OF OPERATIONS

Three Months Ended ~~September~~June 30, ~~2017~~2018 Compared to the Three Months Ended ~~September~~June 30, ~~2016~~2017

Net income available to common stockholders for the three months ended ~~September~~June 30, ~~2017~~2018 was ~~$75.7~~$83.2 million or ~~$0.23~~$0.26 per diluted common share, compared to net income available to common stockholders for the three months ended ~~September~~June 30, ~~2016~~2017 of ~~$50.2~~$72.4 million or ~~$0.24~~$0.22 per diluted common share. The ~~third~~second quarter of ~~2017~~2018 included significant items influencing earnings of $7.5 million, comprised of $6.6 million of costs related to branch consolidations and ~~2016~~a $0.9 million discretionary 401(k) contribution made following tax reform. Of those costs, $3.8 million was included in non-interest expense and $3.7 million was recorded as a loss on fixed assets reducing non-interest income. The second quarter of 2017 included merger-related expenses of $1.4 ~~million and $0.3 million, respectively.~~ million.

Net interest income totaled ~~$225.2~~$239.4 million, increasing ~~$67.7~~$20.9 million or ~~43.0%~~9.6%. Non-interest income ~~increased $12.9~~decreased $1.2 million and non-interest expense increased ~~$42.7~~$19.3 million. ~~Quarterly average diluted common shares outstanding increased 113.1 million shares, or 53.4%,~~The ratio of non-performing loans and OREO to 324.9 million shares for the third quarter of 2017, primarily as a result of the YDKN acquisition, for which we issued 111.6 million shares. The common shares outstanding at September 30, 2017 were 323.3 million shares.

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total loans and OREO decreased 17 basis points to 0.61%. Financial highlights are summarized below:

TABLE 1


	Three Months Ended September 30,				$			%		Three Months Ended June 30,				$			%
(in thousands, except per share data)	2017		2016		Change			Change		2018		2017		Change			Change
Net interest income	$	225,231	$	157,506	$	67,725		43.0	%	$	239,355	$	218,415	$	20,940		9.6	%
Provision for credit losses	16,768		14,639		2,129			14.5		15,554		16,756		(1,202		)	(7.2	)
Non-interest income	66,151		53,240		12,911			24.3		64,889		66,078		(1,189		)	(1.8	)
Non-interest expense	163,743		121,050		42,693			35.3		183,013		163,714		19,299			11.8
Income taxes	33,178		22,889		10,289			45.0		20,471		29,617		(9,146		)	(30.9	)
Net income	77,693		52,168		25,525			48.9		85,206		74,406		10,800			14.5
Less: Preferred stock dividends	2,010		2,010		—			—		2,010		2,010		—			—
Net income available to common stockholders	$	75,683	$	50,158	$	25,525		50.9	%	$	83,196	$	72,396	$	10,800		14.9	%
Earnings per common share – Basic	$	0.23	$	0.24	$	(0.01	)	(4.2	)%	$	0.26	$	0.22	$	0.04		18.2	%
Earnings per common share – Diluted	0.23		0.24		(0.01		)	(4.2	)	0.26		0.22		0.04			18.2
Cash dividends per common share	0.12		0.12		—			—		0.12		0.12		—			—

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

TABLE 2


	Three Months Ended September 30,						Three Months Ended June 30,
	2017			2016			2018			2017
Return on average equity	6.96		%	8.10		%	7.66		%	6.80		%
Return on average tangible common equity ⁽²⁾	15.82		%	15.32		%	17.14		%	15.69		%
Return on average assets	1.00		%	0.97		%	1.07		%	0.98		%
Return on average tangible assets ⁽²⁾	1.12		%	1.07		%	1.19		%	1.11		%
Book value per common share ⁽¹⁾	$	13.39		$	11.72		$	13.47		$	13.26
Tangible book value per common share ^{(1) (2)}	$	6.12		$	6.53		$	6.26		$	6.00
Equity to assets ⁽¹⁾	14.25		%	11.91		%	13.87		%	14.28		%
Tangible equity to tangible assets ^{(1) (2)}	7.24		%	7.22		%	7.14		%	7.20		%
Common equity to assets ⁽¹⁾	13.91		%	11.41		%	13.54		%	13.94		%
Tangible common equity to tangible assets ^{(1) (2)}	6.87		%	6.69		%	6.79		%	6.83		%
Dividend payout ratio							47.13		%	53.89		%
Average equity to average assets							13.97		%	14.45		%

⁽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 3


	Three Months Ended September 30,																Three Months Ended June 30,
	2017								2016								2018								2017
(dollars in thousands)	Average Balance			Interest Income/ Expense			Yield/ Rate		Average Balance			Interest Income/ Expense			Yield/ Rate		Average Balance			Interest Income/ Expense			Yield/ Rate		Average Balance			Interest Income/ Expense			Yield/ Rate
Assets
Interest-earning assets:
Interest-bearing deposits with banks	$	117,602		$	320		1.08	%	$	140,713		$	143		0.40	%	$	47,783		$	267		2.24	%	$	87,750		$	161		0.74	%
Taxable investment securities ⁽¹⁾	4,913,122			24,763			2.02		3,919,203			18,432			1.88		5,218,200			28,995			2.22		4,923,492			25,130			2.04
Tax-exempt investment securities ⁽¹⁾⁽²⁾	812,305			8,515			4.19		321,360			3,456			4.30		995,704			8,727			3.51		683,465			7,128			4.17
Loans held for sale	139,693			2,091			5.97		22,476			235			4.19		46,667			767			6.58		93,312			1,702			8.70
Loans and leases ⁽²⁾⁽³⁾	20,654,316			232,998			4.48		14,641,729			155,739			4.23		21,445,030			258,680			4.84		20,361,047			221,387			4.37
Total interest-earning assets ⁽²⁾	26,637,038			268,687			4.01		19,045,481			178,005			3.72		27,753,384			297,436			4.30		26,149,066			255,508			3.92
Cash and due from banks	374,542								287,208								359,714								338,752
Allowance for credit losses	(169,283		)						(158,901		)						(182,598		)						(165,888		)
Premises and equipment	334,870								229,133								331,739								350,255
Other assets	3,733,497								1,983,235								3,685,512								3,692,460
Total assets	$	30,910,664							$	21,386,156							$	31,947,751							$	30,364,645
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	9,376,003		9,338			0.40		$	6,772,963		4,094			0.24		$	9,287,811		13,691			0.59		$	9,297,726		8,256			0.36
Savings	2,480,626			792			0.13		2,289,836			449			0.08		2,620,084			1,490			0.24		2,592,726			641			0.10
Certificates and other time	3,812,916			8,857			0.92		2,588,035			5,934			0.91		4,811,842			15,868			1.30		3,798,714			7,856			0.83
Short-term borrowings	4,394,106			14,387			1.29		2,303,389			3,607			0.62		4,098,161			18,409			1.79		3,886,410			10,959			1.13
Long-term borrowings	658,495			4,909			2.96		616,141			3,520			2.27		650,562			5,304			3.27		680,414			4,907			2.89
Total interest-bearing liabilities	20,722,146			38,283			0.73		14,570,364			17,604			0.48		21,468,460			54,762			1.02		20,255,990			32,619			0.65
Non-interest-bearing demand	5,527,180								4,021,023								5,764,144								5,466,286
Other liabilities	234,358								232,076								253,637								255,931
Total liabilities	26,483,684								18,823,463								27,486,241								25,978,207
Stockholders’ equity	4,426,980								2,562,693								4,461,510								4,386,438
Total liabilities and stockholders’ equity	$	30,910,664							$	21,386,156							$	31,947,751							$	30,364,645
Excess of interest-earning assets over interest-bearing liabilities	$	5,914,892							$	4,475,117							$	6,284,924							$	5,893,076
Net interest income (FTE) ⁽²⁾				230,404								160,401								242,674								222,889
Tax-equivalent adjustment				(5,173		)						(2,895		)						(3,319		)						(4,474		)
Net interest income				$	225,231							$	157,506							$	239,355							$	218,415
Net interest spread							3.28	%							3.24	%							3.28	%							3.27	%
Net interest margin ⁽²⁾							3.44	%							3.36	%							3.51	%							3.42	%


(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% in 2018 and 35% ~~for each period presented.~~in 2017. 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, which is our principal source of revenue, is the difference between interest income from interest-earning assets and interest expense paid on interest-bearing liabilities.~~ For the three months ended ~~September~~June 30, ~~2017,~~2018, net interest income, which comprised ~~77.3%~~78.7% of revenue ~~(net interest income plus non-interest income)~~ compared to ~~74.7%~~76.8% for the same period in ~~2016,~~2017, was affected by the general level of interest rates, changes in interest rates, the timing of repricing of assets and liabilities, the shape of the yield curve, the level of non-accrual loans and changes in the amount and mix of interest-earning assets and interest-bearing liabilities.

Net interest income on an FTE basis (non-GAAP) increased ~~$70.0~~$19.8 million or ~~43.6%~~8.9% from ~~$160.4~~$222.9 million for the ~~third~~second quarter of ~~2016~~2017 to ~~$230.4~~$242.7 million for the ~~third~~second quarter of ~~2017.~~2018. Average interest-earning assets of ~~$26.6~~$27.8 billion increased ~~$7.6~~$1.6 billion or ~~39.9%~~6.1% and average interest-bearing liabilities of ~~$20.7~~$21.5 billion increased ~~$6.2~~$1.2 billion or ~~42.2%~~6.0% from ~~2016~~2017, due to ~~the YDKN acquisition, combined with~~ organic growth in loans and deposits. Our net interest margin FTE (non-GAAP) was ~~3.44%~~3.51% for the ~~third~~second quarter of ~~2017,~~2018, compared to ~~3.36%~~3.42% for the same period of ~~2016, reflecting three~~2017, due to a higher interest rate ~~increases resulting from the FRB's Federal Open Market Committee meetings in 2017 and late 2016 and by larger incremental~~environment, as well as higher purchase accounting ~~impacts.~~accretion. The tax-equivalent adjustments (non-GAAP) to net interest income from amounts reported on our financial statements are shown in the preceding table.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the three months ended ~~September~~June 30, ~~2017,~~2018, compared to the three months ended ~~September~~June 30, ~~2016:~~2017:

TABLE 4


(in thousands)	Volume			Rate		Net		Volume			Rate			Net
Interest Income
Interest-bearing deposits with banks	$	(24	)	$	202	$	178	$	(73	)	$	179		$	106
Securities ⁽²⁾	10,521			869		11,390		4,293			1,171			5,464
Loans held for sale	1,375			481		1,856		(763		)	(172		)	(935		)
Loans and leases⁽²⁾	68,402			8,856		77,258		10,778			26,514			37,292
Total interest income⁽²⁾	80,274			10,408		90,682		14,235			27,692			41,927
Interest Expense
Deposits:
Interest-bearing demand	2,031			3,213		5,244		222			5,213			5,435
Savings	59			284		343		185			664			849
Certificates and other time	2,750			173		2,923		2,519			5,492			8,011
Short-term borrowings	6,524			4,256		10,780		645			6,805			7,450
Long-term borrowings	438			951		1,389		(203		)	600			397
Total interest expense	11,802			8,877		20,679		3,368			18,774			22,142
Net change ⁽²⁾	$	68,472		$	1,531	$	70,003	$	10,867		$	8,918		$	19,785


(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% in 2018 and 35% ~~for each period presented.~~in 2017. 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 ~~$268.7~~$297.4 million for the ~~third~~second quarter of ~~2017,~~2018, increased ~~$90.7~~$41.9 million or ~~50.9%~~16.4% from the same quarter of ~~2016,~~2017, primarily due to increased interest-earning assets. During the ~~third~~second quarter of ~~2017 and 2016,~~2018, we recognized ~~$6.5~~$5.8 million ~~and $3.1 million, respectively, in~~of incremental purchase accounting accretion and $10.2 million of cash recoveries, ~~on acquired loans.~~compared to $0.5 million and $1.1 million, respectively, in the second quarter of 2017. The increase in interest-earning assets was primarily driven by a ~~$6.0~~$1.1 billion or ~~41.1%~~5.3% increase in average loans and leases, which reflects ~~the benefit of our expanded banking footprint resulting from the YDKN acquisition and successful sales management, and includes $970.7 million or 6.6% of organic loan~~strong growth ~~resulting from strong origination volume~~ in the commercial ~~residential mortgage~~ and ~~indirect installment~~consumer loan portfolios. ~~Loans added at closing of~~Average commercial loan growth totaled $570.2 million, or 4.4%, led by strong commercial origination activity in the ~~YDKN acquisition~~Cleveland and Mid-Atlantic (Greater Baltimore-Washington D.C. markets) regions and continued growth in the equipment finance and asset-based lending businesses. Average consumer loan growth was $513.8 million, or

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~~were $5.1 billion.~~ 6.9%, as growth in residential mortgage loans of $401 million, or 16.6%, and indirect auto loans of $314.6 million, or 24.0%, was partially offset by declines in direct installment and consumer line of credit average balances.Additionally, average securities increased ~~$1.5 billion~~$606.9 million or ~~35.0%, primarily~~10.8% as ~~a result~~we took advantage of interest rates that were higher in the ~~securities portfolio acquired from YDKN~~first quarter of 2018 and significantly higher than the ~~subsequent repositioning~~second quarter of ~~that portfolio.~~2017. The yield on average interest-earning assets (non-GAAP) increased 2938 basis points from the ~~third~~second quarter of ~~2016~~2017 to ~~4.01%~~4.30% for the ~~third~~second quarter of ~~2017.~~2018.

Interest expense of ~~$38.3~~$54.8 million for the ~~third~~second quarter of ~~2017~~2018 increased ~~$20.7~~$22.1 million, or ~~117.5%~~67.9%, from the same quarter of ~~2016~~2017, due to an increase in rates paid and growth in average interest-bearing ~~liabilities, as interest-bearing~~ deposits and an increase in short-term borrowings ~~increased~~ over the same quarter of ~~2016.~~2017. Average interest-bearing deposits increased ~~$4.0~~$1.0 billion or ~~34.5%, which reflects the benefit of our expanded banking footprint resulting from the YDKN acquisition that added $3.8 billion at closing.~~6.6%. Organic growth in average time deposits, non-interest-bearing deposits, savings and money market balances was ~~mostly~~partially offset by ~~planned declines~~a slight decline in ~~higher-cost time deposits.~~interest checking accounts. Average short-term borrowings increased ~~$2.1 billion~~$211.8 million, or ~~90.8%~~5.4%, primarily as a result of ~~increases~~an increase of ~~$1.8 billion in short-term FHLB borrowings and $341.0~~$267.8 million in federal funds ~~purchased.~~purchased, partially offset by a decrease of $40.7 million in short-term FHLB advances. Average long-term borrowings ~~increased $42.4~~decreased $29.9 million, or ~~6.9%~~4.4%, primarily as a result of ~~increases of $62.0 million and $60.3 million in subordinated debt and junior subordinated debt, respectively, assumed in the YDKN transaction, partially offset by~~ a decrease of ~~$83.9~~$29.3 million resulting from the maturity of certain long-term FHLB advances. The rate paid on interest-bearing liabilities increased 2537 basis points to ~~0.73%~~1.02% for the ~~third~~second quarter of ~~2017,~~2018, due to changes in the funding mix and the ~~FOMC~~Federal Open Market Committee interest rate increases. Given the relatively low level of interest rates and the current rates paid on the various deposit products, we believe there is limited opportunity for reductions in the overall rate paid on interest-bearing liabilities.

Provision for Credit Losses

The provision for credit losses is determined based on management’s estimates of the appropriate level of allowance for credit losses needed to absorb probable losses inherent in the loan and lease portfolio, after giving consideration to charge-offs and recoveries for the period. The following table presents information regarding the provision for credit losses and net charge-offs:

TABLE 5


	Three Months Ended September 30,						$			%		Three Months Ended June 30,						$			%
(dollars in thousands)	2017			2016			Change			Change		2018			2017			Change			Change
Provision for credit losses:
Originated	$	17,175		$	14,072		$	3,103		22.1	%	$	15,036		$	17,538		$	(2,502	)	(14.3	)%
Acquired	(407		)	567			(974		)	(171.8	)	518			(782		)	1,300			(166.2	)
Total provision for credit losses	$	16,768		$	14,639		$	2,129		14.5	%	$	15,554		$	16,756		$	(1,202	)	(7.2	)%
Net loan charge-offs:
Originated	$	13,033		$	12,278		$	755		6.1	%	$	14,831		$	12,660		$	2,171		17.1	%
Acquired	(582		)	(164		)	(418		)	254.9		3,396			(821		)	4,217			(513.6	)
Total net loan charge-offs	$	12,451		$	12,114		$	337		2.8	%	$	18,227		$	11,839		$	6,388		54.0	%
Net loan charge-offs (annualized) / total average loans and leases	0.24		%	0.33		%						0.34		%	0.23		%
Net originated loan charge-offs (annualized) / total average originated loans and leases	0.37		%	0.41		%						0.36		%	0.38		%

The provision for credit losses of ~~$16.8~~$15.6 million during the ~~third~~second quarter of ~~2017~~2018 was ~~up 14.5%~~down 7.2% from the same period of ~~2016,~~2017, primarily due to the decrease in non-performing loans, partially offset by higher organic loan growth ~~and slightly higher net charge-offs~~ during the current quarter as compared to the year-ago ~~period, partially offset by~~period. Net loan charge-offs were $18.2 million, an increase of $6.4 million, primarily related to the sale of a ~~decrease~~small portfolio of non-performing loans in ~~non-performing loans.~~the second quarter of 2018. For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses section of this Management’s Discussion and Analysis.

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Non-Interest Income

The breakdown of non-interest income for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 is presented in the following table:

TABLE 6


	Three Months Ended September 30,				$			%		Three Months Ended June 30,				$			%
(in thousands)	2017		2016		Change			Change		2018		2017		Change			Change
Service charges	$	33,610	$	25,411	$	8,199		32.3	%	$	31,114	$	32,090	$	(976	)	(3.0	)%
Trust services	5,748		5,268		480			9.1		6,469		5,715		754			13.2
Insurance commissions and fees	5,029		4,866		163			3.3		4,567		4,347		220			5.1
Securities commissions and fees	4,038		3,404		634			18.6		4,526		3,887		639			16.4
Capital markets income	2,822		4,497		(1,675		)	(37.2	)	5,854		5,004		850			17.0
Mortgage banking operations	5,437		3,564		1,873			52.6		5,940		5,173		767			14.8
Bank owned life insurance	3,123		3,348		(225		)	(6.7	)	3,077		3,092		(15		)	(0.5	)
Net securities gains	2,777		299		2,478			828.8		31		493		(462		)	(93.7	)
Other	3,567		2,583		984			38.1		3,311		6,277		(2,966		)	(47.3	)
Total non-interest income	$	66,151	$	53,240	$	12,911		24.3	%	$	64,889	$	66,078	$	(1,189	)	(1.8	)%

Total non-interest income ~~increased $12.9~~decreased $1.2 million, to ~~$66.2~~$64.9 million for the ~~third~~second quarter of ~~2017,~~2018, a ~~24.3% increase~~1.8% decrease from the same period of ~~2016.~~2017. The variances in significant individual non-interest income items are further explained in the following ~~paragraphs, with an overriding theme of the increases relating~~paragraphs. The decrease was primarily due to ~~broad-based improvements~~a $3.7 million loss on fixed assets related to branch consolidations, offset by continued growth in ~~fee-related~~trust services, securities commissions and ~~expanded opportunities from the YDKN acquisition.~~fees, capital markets and mortgage banking. Excluding significant items influencing earnings, non-interest income increased $2.5 million.

Service charges on loans and deposits of ~~$33.6~~$31.1 million for the ~~third~~second quarter of ~~2017 increased $8.2~~2018 decreased $1.0 million or ~~32.3%~~3.0% from the same period of ~~2016.~~2017. The ~~impact of the expanded customer base~~decrease is primarily due to ~~acquisitions, combined with organic growth~~a reduction in ~~loans and deposit accounts, resulted~~NSF fees, partially offset by an increase in ~~increases of $4.0 million or 26.9% in deposit-related service charges and $4.2 million or 32.3% in other service charges and fees over this same period.~~debit card interchange income.

Trust services of ~~$5.7~~$6.5 million for the ~~third~~second quarter of ~~2017~~2018 increased ~~$0.5~~$0.8 million or ~~9.1%~~13.2% from the same period of ~~2016,~~2017 primarily driven by strong organic ~~growth activity and improved market conditions.~~revenue production. The market value of assets under management increased ~~$575.4~~$637.5 million or ~~16.9%~~14.2% from ~~September~~June 30, ~~2016,~~2017 to ~~$4.6~~$5.1 billion at ~~September~~June 30, 2018.

Securities commissions and fees of $4.5 million for the second quarter of 2018 increased 16.4% from the same period of 2017. This increase reflects the benefit of increased brokerage activity partially due to the added North Carolina market with the remaining growth driven by existing regions.

Capital markets income of ~~$2.8~~$5.9 million for the ~~third~~second quarter of ~~2017 decreased $1.7~~2018 increased $0.9 million or ~~37.2%~~17.0% from the same period of ~~2016, primarily as a result of a decrease in interest rate~~2017, reflecting increased syndication fees and international banking activity and continued solid contributions from swap activity with commercial loan customers. Our interest rate swap program allows commercial loan customers to swap floating-rate interest payments for fixed-rate interest payments enabling those customers to better manage their interest rate risk. The interest rate swap program adds short-term, adjustable rate loans to our consolidated balance sheet and is a key strategy in the management of our interest rate risk position.fees.

Mortgage banking operations income of ~~$5.4~~$5.9 million for the ~~third~~second quarter of ~~2017~~2018 increased ~~$1.9~~$0.8 million or ~~52.6%~~14.8% from the same period of ~~2016. This~~2017. The increase in mortgage banking income was largely due to increased contributions from the ~~$1.4 billion or 82.4% growth in the servicing portfolio~~Mid-Atlantic (Baltimore-Washington D.C.) and ~~higher sold volume due to acquisitions and expansion into new~~Carolina markets. During the ~~third~~second quarter of ~~2017,~~2018, we sold ~~$324.7~~$304.7 million of originated residential mortgage loans, a ~~53.3%~~26.7% increase compared to ~~$211.9~~$240.4 million for the same period of ~~2016,~~2017, however, sold loan margins have been lower in both retail and correspondent loans due to competitive pressure and the mix of loans sold.

~~Net securities gains were $2.8~~Other non-interest income was $3.3 million and $6.3 million for the ~~third~~second quarter of 2018 and 2017, ~~compared~~respectively. The decline was due to ~~$0.3~~a $3.7 million ~~for~~loss on fixed assets related to branch consolidations during the ~~third~~second quarter of 2016. The net securities gains recorded in the third quarter of 2017 were primarily resulting from sales of 121 securities worth $86 million and the proceeds were used to purchase five securities. A portion of the securities sold were from the HTM portfolio with a net carrying value of $54.9 million. The HTM securities that were sold represented amortizing securities that had already returned more than 85% of their principal outstanding at the time we acquired the securities and could be sold without tainting the remaining HTM portfolio. These securities were sold to improve operational efficiencies.2018.

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~~Other~~The breakdown of non-interest income ~~was $3.6 million and $2.6 million~~excluding the significant item for the ~~third quarter of~~three months ended June 30, 2018 and 2017 ~~and 2016, respectively. During~~is presented in the ~~third quarter of 2017, we recorded $1.6 million more in dividends on non-marketable equity securities, partially offset by $0.7 million less in gains from an equity investment.~~following table:

TABLE 7



	Three Months Ended June 30,				$			%
(in thousands)	2018		2017		Change			Change
Total non-interest income, as reported	$	64,889	$	66,078	$	(1,189	)	(1.8	)%
Significant item:
Loss on fixed assets related to branch consolidations	3,677		—		3,677
Total non-interest income, excluding significant item⁽¹⁾	$	68,566	$	66,078	$	2,488		3.8	%

⁽¹⁾ Non-GAAP

~~Non-Interest Expense~~

~~The breakdown of non-interest expense for the three months ended September 30, 2017 and 2016 is presented in the following table:~~

~~TABLE 7~~

Three Months Ended
September 30, $ %
(in thousands) 2017 2016 Change Change
Salaries and employee benefits $ 82,383
$ 60,927
$ 21,456
35.2 %
Net occupancy 13,723
10,333
3,390
32.8
Equipment 13,711
10,034
3,677
36.6
Amortization of intangibles 4,805
3,571
1,234
34.6
Outside services 15,439
11,756
3,683
31.3
FDIC insurance 9,183
5,274
3,909
74.1
Supplies 1,925
2,787
(862 ) (30.9 )
Bank shares and franchise taxes 2,814
2,404
410
17.1
Merger-related 1,381
299
1,082
361.9
Other 18,379
13,665
4,714
34.5
Total non-interest expense $ 163,743
$ 121,050
$ 42,693
35.3 %

Total non-interest expense of $163.7 million for the third quarter of 2017 increased $42.7 million, a 35.3% increase from the same period of 2016. The variances in the individual non-interest expense items are further explained in the following paragraphs, with an overriding theme of the increases relating to merger expenses and expanded operations due to the acquisition of YDKN in the first quarter of 2017.

Salaries and employee benefits of $82.4 million for the third quarter of 2017 increased $21.5 million or 35.2% from the same period of 2016, primarily due to employees added in conjunction with the aforementioned acquisition, combined with merit increases and higher medical insurance costs in 2017.

~~Net occupancy and equipment expense of $27.4 million for the third quarter of 2017 increased $7.1 million or 34.7% from the same period of 2016, primarily due to the YDKN acquisition.~~

Amortization of intangibles expense of $4.8 million for the third quarter of 2017 increased $1.2 million or 34.6% from the third quarter of 2016, due to the additional core deposit intangibles added as a result of the YDKN acquisition.

Outside services expense of $15.4 million for the third quarter of 2017 increased $3.7 million or 31.3% from the same period of 2016, primarily due to increases of $2.0 million in data processing services, $0.8 million in legal expense, and $0.8 million in other outsourced services, such as reporting, monitoring, shredding, printing, filing and security. These increases were driven primarily by the aforementioned acquisition.

FDIC insurance of $9.2 million for the third quarter of 2017 increased $3.9 million or 74.1% from the same period of 2016, primarily due to a higher assessment base resulting from merger and acquisition activity combined with an increased rate due to YDKN's construction loan portfolio.

During the third quarter of 2017, we recorded $1.4 million in merger-related expense, primarily associated with the YDKN acquisition. During the same period of 2016, we recorded $0.3 million in merger-related expense, primarily associated with the acquisitions of METR and Fifth Third branches. These expenses are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction.

~~Table of Contents~~

~~The following table summarizes the composition of the merger-related expense for the three months ended September 30, 2017 and 2016:~~

~~TABLE 8~~

Three Months Ended
September 30,
(in thousands) 2017 2016
Professional services $ 1,174
$ 777
Severance and other employee benefit costs 158
(605 )
Charitable contributions —
—
Data processing conversion costs 27
15
Marketing costs 20
49
Other expenses 2
63
Total merger-related expense $ 1,381
$ 299

Other non-interest expense was $18.4 million and $13.7 million for the third quarter of 2017 and 2016, respectively, driven by an increase of $2.6 million in historic and other tax credit investments expense. We also experienced an increase of $1.0 million in telephone expense, $0.8 million in business development expense, $0.5 million in marketing expense, primarily resulting from the YDKN acquisition. These increases in expense were partially offset by a $0.7 million decrease in loan-related expenses.

~~Income Taxes~~

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

~~TABLE 9~~

Three Months Ended
September 30,
(dollars in thousands) 2017 2016
Income tax expense $ 33,178
$ 22,889
Effective tax rate 29.9 % 30.5 %
Statutory tax rate 35.0 % 35.0 %

Both periods’ effective tax rates are lower than the 35% federal statutory tax rate due to the tax benefits primarily resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. The variance in effective tax rates between the third quarter of 2017 compared to the third quarter of 2016 primarily relates to the increase in the level of historic and low income housing tax credits recognized in the third quarter of 2017.

~~Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016~~

Net income available to common stockholders for the nine months ended September 30, 2017 was $169.0 million or $0.57 per diluted common share, compared to net income available to common stockholders for the nine months ended September 30, 2016 of $113.6 million or $0.55 per diluted common share. The first nine months of 2017 and 2016 included merger-related expense of $55.5 million and $35.8 million, respectively. Operating earnings per diluted common share (non-GAAP) was $0.69 for the first nine months of 2017 compared to $0.67 for the nine months ended September 30, 2016. The merger expenses in the first nine months of 2017 were primarily due to the YDKN acquisition that closed on March 11, 2017, while the merger expenses in the first nine months of 2016 related to the METR acquisition that closed on February 13, 2016 and the Fifth Third branch purchase that closed on April 22, 2016. Average diluted common shares outstanding increased 29.8 million shares, or 16.9%, to 296.7 million shares for the first nine months of 2017, primarily as a result of the YDKN acquisition, for which we issued 111.6 million shares.

~~Table of Contents~~

~~Financial highlights are summarized below:~~

~~TABLE 10~~

Nine Months Ended
September 30, $ %
(in thousands, except per share data) 2017 2016 Change Change
Net interest income $ 616,398
$ 452,229
$ 164,169
36.3 %
Provision for credit losses 44,374
43,047
1,327
3.1
Non-interest income 187,345
150,695
36,650
24.3
Non-interest expense 515,012
387,327
127,685
33.0
Income taxes 69,279
52,950
16,329
30.8
Net income 175,078
119,600
55,478
46.4
Less: Preferred stock dividends 6,030
6,030
—
—
Net income available to common stockholders $ 169,048
$ 113,570
$ 55,478
48.8 %
Earnings per common share – Basic $ 0.57
$ 0.55
$ 0.02
3.6 %
Earnings per common share – Diluted 0.57
0.55
0.02
3.6
Cash dividends per common share 0.36
0.36
—
—

~~The following table presents selected financial ratios:~~

~~TABLE 11~~

Nine Months Ended
September 30,
2017 2016
Return on average equity 5.93 % 6.45 %
Return on average tangible common equity (non-GAAP) 13.10 % 12.14 %
Return on average assets 0.82 % 0.78 %
Return on average tangible assets (non-GAAP) 0.93 % 0.87 %

~~Table of Contents~~

~~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 12~~

Nine Months Ended September 30,
2017 2016
(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 $ 97,122
$ 660
0.91 % $ 124,589
$ 357
0.38 %
Federal funds sold 1,509
9
0.72
—
—
—
Taxable investment securities ⁽¹⁾
4,773,606
72,373
2.02
3,635,224
52,901
1.94
Tax-exempt investment securities ⁽¹⁾⁽²⁾
666,469
20,833
4.17
296,860
9,815
4.41
Loans held for sale 82,254
3,960
6.43
14,807
504
4.54
Loans and leases ^{(2) (3)}
19,084,962
624,575
4.37
14,078,612
446,366
4.23
Total interest-earning assets ⁽²⁾
24,705,922
722,410
3.91
18,150,092
509,943
3.75
Cash and due from banks 336,303
273,457

Allowance for credit losses (165,543 ) (150,807 )
Premises and equipment 319,901
213,957

Other assets 3,274,305
1,878,111

Total assets $ 28,470,888
$ 20,364,810

Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $ 8,703,870
22,426
0.34
$ 6,545,529
11,600
0.24
Savings 2,495,632
1,954
0.10
2,212,213
1,278
0.08
Certificates and other time 3,503,637
23,100
0.88
2,613,664
17,509
0.89
Short-term borrowings 3,831,883
32,020
1.11
1,861,438
8,527
0.61
Long-term borrowings 625,010
13,343
2.85
640,474
10,652
2.22
Total interest-bearing liabilities 19,160,032
92,843
0.65
13,873,318
49,566
0.48
Non-interest-bearing demand 5,140,016
3,804,828

Other liabilities 225,219
211,466

Total liabilities 24,525,267
17,889,612

Stockholders’ equity 3,945,621
2,475,198

Total liabilities and stockholders’ equity $ 28,470,888
$ 20,364,810

Excess of interest-earning assets over interest-bearing liabilities $ 5,545,890
$ 4,276,774

Net interest income (FTE) ⁽²⁾
629,567
460,377

Tax-equivalent adjustment (13,169 ) (8,148 )
Net interest income $ 616,398
$ 452,229

Net interest spread 3.26 % 3.27 %
Net interest margin ⁽²⁾
3.41 % 3.39 %


~~(1)~~	~~The average balances and yields earned on securities are based on historical cost.~~

~~(2)~~

The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35% for each period presented. 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.~~

~~Table of Contents~~

~~Net Interest Income~~

Net interest income, which is our principal source of revenue, is the difference between interest income from interest-earning assets and interest expense paid on interest-bearing liabilities. For the nine months ended September 30, 2017, net interest income, which comprised 76.7% of revenue compared to 75.0% for the same period in 2016, was affected by the general level of interest rates, changes in interest rates, the shape of the yield curve, the level of non-accrual loans and changes in the amount and mix of interest-earning assets and interest-bearing liabilities.

Net interest income on an FTE basis (non-GAAP) increased $169.2 million or 36.8% from $460.4 million for the first nine months of 2016 to $629.6 million for the first nine months of 2017. Average interest-earning assets of $24.7 billion increased $6.6 billion or 36.1% and average interest-bearing liabilities of $19.2 billion increased $5.3 billion or 38.1% from 2016 due to our acquisitions and organic growth in loans and deposits. Our net interest margin FTE (non-GAAP) was 3.41% for the first nine months of 2017, compared to 3.39% for the same period of 2016, due to an extended low interest rate environment and competitive landscape for earning assets, as well as higher purchase accounting accretion. The tax-equivalent adjustments (non-GAAP) to net interest income from amounts reported on our financial statements are shown in the preceding table.

The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016:

~~TABLE 13~~

(in thousands) Volume Rate Net
Interest Income
Interest-bearing deposits with banks $ (79 ) $ 382
$ 303
Federal funds sold 5
4
9
Securities ⁽²⁾
29,775
715
30,490
Loans held for sale 2,362
1,094
3,456
Loans and leases ⁽²⁾
163,622
14,587
178,209
Total interest income ⁽²⁾
195,685
16,782
212,467
Interest Expense
Deposits:
Interest-bearing demand 4,534
6,292
10,826
Savings 321
355
676
Certificates and other time 5,714
(123 ) 5,591
Short-term borrowings 16,587
6,906
23,493
Long-term borrowings 114
2,577
2,691
Total interest expense 27,270
16,007
43,277
Net change ⁽²⁾
$ 168,415
$ 775
$ 169,190


~~(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 35% for each period presented. 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 $722.4 million for the first nine months of 2017, increased $212.5 million or 41.7% from the same quarter of 2016, primarily due to increased interest-earning assets, which was slightly offset by lower yields. During the first nine months of 2017 and 2016, we recognized $11.5 million and $8.9 million, respectively, in incremental purchase accounting accretion and cash recoveries on acquired loans; of which included $2.0 million of higher incremental purchase accounting accretion and $0.7 million of higher cash recoveries. The increase in interest-earning assets was primarily driven by a $5.0 billion or 35.6% increase in average loans and leases, which reflects the benefit of our expanded banking footprint resulting from the YDKN and METR acquisitions and successful sales management, and includes

~~Table of Contents~~

$907.1 million or 6.3% of organic growth. Loans added at closing of the YDKN acquisition were $5.1 billion. Additionally, average securities increased $1.5 billion or 38.4%, primarily as a result of the securities portfolio acquired from YDKN and the subsequent repositioning of that portfolio. The yield on average interest-earning assets (non-GAAP) increased 16 basis points from the first nine months of 2016 to 3.91% for the first nine months of 2017. The earning asset yield 16 basis points increase was driven by an increase in yields in both investments and loans. The timing of acquisitions, related investment purchases, and market rate moves reduced the impact to yield on earning assets from 2016 to 2017 on a YTD perspective.

Interest expense of $92.8 million for the first nine months of 2017 increased $43.3 million or 87.3% from the same quarter of 2016 due to an increase in rates paid and growth in average interest-bearing liabilities, as interest-bearing deposits and short-term borrowings increased over the same quarter of 2016. Average interest-bearing deposits increased $3.3 billion or 29.3%, which reflects the benefit of our expanded banking footprint resulting from the YDKN and METR acquisitions including $2.9 billion added at closing of the YDKN acquisition in addition to organic growth in transaction deposits. Average short-term borrowings increased $2.0 billion or 105.9%, primarily as a result of increases of $1.5 billion in short-term FHLB borrowings and $421.7 million in federal funds purchased. Average long-term borrowings decreased $15.5 million or 2.4%, primarily as a result of a decrease of $110.6 million in long-term FHLB advances, partially offset by increases of $46.5 million and $44.7 million in subordinated debt and junior subordinated debt, respectively, assumed in the YDKN transaction. Subsequent to the close of the acquisition, we remixed the long–term position based on our funding needs. The rate paid on interest-bearing liabilities increased 17 basis points to 0.65% for the first nine months of 2017, due to the FOMC interest rate increases and changes in the funding mix. Given the relatively low level of interest rates and the current rates paid on the various deposit products, we believe there is limited opportunity for reductions in the overall rate paid on interest-bearing liabilities.

~~Provision for Credit Losses~~

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

~~TABLE 14~~

Nine Months Ended
September 30, Dollar Percent
(dollars in thousands) 2017 2016 Change Change
Provision for credit losses:
Originated $ 46,050
$ 43,296
$ 2,754
6.4 %
Acquired (1,676 ) (249 ) (1,427 ) 573.1
Total provision for credit losses $ 44,374
$ 43,047
$ 1,327
3.1 %
Net loan charge-offs:
Originated $ 33,607
$ 28,068
$ 5,539
19.7 %
Acquired (1,190 ) 97
(1,287 ) (1,326.8 )
Total net loan charge-offs $ 32,417
$ 28,165
$ 4,252
15.1 %
Net loan charge-offs (annualized) / total average loans and leases 0.23 % 0.27 %
Net originated loan charge-offs (annualized) / total average originated loans and leases 0.33 % 0.32 %

The provision for credit losses of $44.4 million during the first nine months of 2017 increased $1.3 million from the same period of 2016, primarily due to a increase of $2.8 million in the provision for the originated portfolio, which was attributable to a higher organic loan growth and higher net charge-offs during the current year-to-date period as compared to the same period last year. For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses section of this Management’s Discussion and Analysis.

~~Table of Contents~~

~~Non-Interest Income~~

~~The breakdown of non-interest income for the nine months ended September 30, 2017 and 2016 is presented in the following table:~~

~~TABLE 15~~

Nine Months Ended
September 30, $ %
(in thousands) 2017 2016 Change Change
Service charges $ 91,806
$ 72,349
$ 19,457
26.9 %
Trust services 17,210
15,955
1,255
7.9
Insurance commissions and fees 14,517
13,892
625
4.5
Securities commissions and fees 11,548
10,400
1,148
11.0
Capital markets income 11,673
11,493
180
1.6
Mortgage banking operations 14,400
7,912
6,488
82.0
Bank owned life insurance 8,368
8,035
333
4.1
Net securities gains 5,895
596
5,299
889.1
Other 11,928
10,063
1,865
18.5
Total non-interest income $ 187,345
$ 150,695
$ 36,650
24.3 %

Total non-interest income increased $36.7 million, to $187.3 million for the first nine months of 2017, a 24.3% increase from the same period of 2016. The variances in significant individual non-interest income items are further explained in the following paragraphs, with an overriding theme of the increases relating to expanded operations from the acquisition of YDKN in the first quarter of 2017 and the acquisition of METR and Fifth Third branches in the first half of 2016.

Service charges on loans and deposits of $91.8 million for the first nine months of 2017 increased $19.5 million or 26.9% from the same period of 2016. The impact of the expanded customer base due to acquisitions, combined with organic growth in loans and deposit accounts, resulted in increases of $9.7 million or 22.6% in deposit-related service charges and $9.8 million or 26.9% in other service charges and fees over this same period.

Trust services of $17.2 million for the first nine months of 2017 increased $1.3 million or 7.9% from the same period of 2016, primarily driven by strong organic growth activity and improved market conditions. The market value of assets under management increased $575.4 million or 16.9% to $4.6 billion from September 30, 2016 to September 30, 2017.

Mortgage banking operations income of $14.4 million for the first nine months of 2017 increased $6.5 million or 82.0% from the same period of 2016. This increase was primarily due to the $1.2 billion or 78.0% growth in the servicing portfolio and higher sold volume due to acquisitions and expansion into new markets. Sold loan margins have been lower in both retail and correspondent loans due to competitive pressure in addition to the change in loan mix. During the first nine months of 2017, we sold $700.5 million of residential mortgage loans, a 48.7% increase compared to $471.2 million for the same period of 2016.

Net securities gains were $5.9 million for the first nine months of 2017, compared to $0.6 million for the first nine months of 2016. These gains in 2017 relate to the sale of certain acquired YDKN securities after the closing of the acquisition to align their portfolio with our investment profile and the sale of certain amortizing HTM securities which were sold to improve operational efficiencies. The HTM securities had already returned more than 85% of their principal outstanding at the time we acquired the securities and could be sold without tainting the remaining HTM portfolio.

Other non-interest income was $11.9 million and $10.1 million for the first nine months of 2017 and 2016, respectively. During the first nine months of 2017, we recorded $4.1 million more in dividends on non-marketable equity securities, $1.0 million more in net gains on sale of fixed assets, $0.8 million less in losses on repossessed assets inventory and $0.3 million less in losses on lease inventory. During the first nine months of 2016, we recognized a gain of $2.4 million relating to the redemption of $10.0 million of TPS originally issued by a company we previously acquired.

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Non-Interest Expense

The breakdown of non-interest expense for the ~~nine~~three months ended ~~September~~June 30, 2018 and 2017 is presented in the following table:

TABLE 8



	Three Months Ended June 30,				$			%
(in thousands)	2018		2017		Change			Change
Salaries and employee benefits	$	98,671	$	84,899	$	13,772		16.2	%
Net occupancy	16,149		14,060		2,089			14.9
Equipment	13,183		12,420		763			6.1
Amortization of intangibles	3,811		4,813		(1,002		)	(20.8	)
Outside services	17,045		13,483		3,562			26.4
FDIC insurance	9,167		9,376		(209		)	(2.2	)
Bank shares and franchise taxes	3,240		2,742		498			18.2
Merger-related	—		1,354		(1,354		)	(100.0	)
Other	21,747		20,567		1,180			5.7
Total non-interest expense	$	183,013	$	163,714	$	19,299		11.8	%

Total non-interest expense of $183.0 million for the second quarter of 2018 increased $19.3 million, an 11.8% increase from the same period of 2017. Excluding significant items influencing earnings of $3.8 million, non-interest expense increased $16.8 million or 10.4%. The variances in the individual non-interest expense items are further explained in the following paragraphs.

Salaries and ~~2016~~employee benefits of $98.7 million for the second quarter of 2018 increased $13.8 million or 16.2% from the same period of 2017, primarily due to a large medical insurance claim of $2.6 million, normal employee merit raises and restricted stock awards at the start of the quarter, a $1.0 million payroll tax rate adjustment, $1.3 million in additional wage increases for hourly employees plus a discretionary 401(k) contribution of $0.9 million instituted following tax reform in 2018.

Net occupancy and equipment expense of $29.3 million for the second quarter of 2018 increased $2.9 million or 10.8% from the same period of 2017, primarily due to branch consolidation costs.

Amortization of intangibles expense of $3.8 million for the second quarter of 2018 decreased $1.0 million or 20.8% from the second quarter of 2017, due to the completion of amortization for a core deposit intangible from a prior acquisition.

Outside services expense of $17.0 million for the second quarter of 2018 increased $3.6 million or 26.4% from the same period of 2017, primarily due to increases of $0.9 million in debit card processing expense, $0.6 million in legal expense, $0.6 million in security services and $0.6 million in data processing and information technology services, combined with other various miscellaneous increases.

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Other non-interest expense was $21.7 million and $20.6 million for the second quarter of 2018 and 2017, respectively, driven by an increase of $0.8 million in historic and other tax credit investments expense. We also experienced an increase of $1.9 million in loan-related expense and $0.6 million in marketing expense, primarily resulting from increased loan volumes and expanded marketing campaigns which include our southeastern markets. These increases in expense were partially offset by a $0.7 million decrease in office supply expenses.

The breakdown of non-interest expense excluding significant items for the three months ended June 30, 2018 and 2017 is presented in the following table:

TABLE 9



	Three Months Ended June 30,						$			%
(in thousands)	2018			2017			Change			Change
Total non-interest expense, as reported	$	183,013		$	163,714		$	19,299		11.8	%
Significant items:
Discretionary 401(k) contribution	(874		)	—			(874		)
Branch consolidations - salaries and benefits	(45		)	—			(45		)
Branch consolidations - occupancy and equipment	(1,609		)	—			(1,609		)
Branch consolidations - other	(1,285		)	—			(1,285		)
Merger-related	—			(1,354		)	1,354
Total non-interest expense, excluding significant items⁽¹⁾	$	179,200		$	162,360		$	16,840		10.4	%

⁽¹⁾ Non-GAAP

Income Taxes

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

TABLE 10



	Three Months Ended June 30,
(dollars in thousands)	2018			2017
Income tax expense	$	20,471		$	29,617
Effective tax rate	19.4		%	28.5		%
Statutory tax rate	21.0		%	35.0		%

Both periods’ tax rates are lower than the federal statutory tax rates of 21% in 2018 and 35% in 2017, due to the tax benefits primarily resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. The effective tax rate for the second quarter of 2018 was 19.4% compared to 28.5% the second quarter of 2017. The current quarter was impacted by the TCJA, including a change to a 21% federal statutory rate while the year-ago quarter was impacted by elevated tax credit recognition. The lower statutory corporate tax rate is partially offset by changes to the deductibility of certain items such as FDIC insurance premiums.

Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017

Net income available to common stockholders for the six months ended June 30, 2018 was $167.9 million or $0.52 per diluted common share, compared to $93.4 million or $0.33 per diluted common share for the six months ended June 30, 2017. The first six months of 2018 included the impact of costs related to branch consolidations of $6.6 million and a $0.9 million discretionary 401(k) contribution made following tax reform. Of those costs, $3.8 million was included in non-interest expense and $3.7 million was reflected as a loss on fixed assets reducing non-interest income. The first six months of 2017 included $2.6 million of merger-related net security gains and merger-related expense of $54.1 million . There were no merger-related security gains or expenses recorded during the first six months of 2018. Operating earnings per diluted common share (non-GAAP) was $0.53 for the first six months of 2018 compared to $0.45 for the six months ended June 30, 2017. The effective tax rate for the first six months of 2018 was 19.5%, compared to 27.0% in the first six months of 2017. The first six months of

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2018 was impacted by the TCJA, including a change to a 21% statutory rate, while the first six months of 2017 was impacted by merger-related expenses. Average diluted common shares outstanding increased 43.4 million shares, or 15.4%, to 325.7 million shares for the first six months of 2018, primarily as a result of the YDKN acquisition, for which we issued 111.6 million shares on March 11, 2017. The major categories of the Income Statement and their respective impact to the increase (decrease) in net income are presented in the following table:

TABLE 11



	Six Months Ended June 30,				$		%
(in thousands, except per share data)	2018		2017		Change		Change
Net interest income	$	465,460	$	391,167	$	74,293	19.0	%
Provision for credit losses	30,049		27,606		2,443		8.8
Non-interest income	132,392		121,194		11,198		9.2
Non-interest expense	354,096		351,269		2,827		0.8
Income taxes	41,739		36,101		5,638		15.6
Net income	171,968		97,385		74,583		76.6
Less: Preferred stock dividends	4,020		4,020		—		—
Net income available to common stockholders	$	167,948	$	93,365	$	74,583	79.9	%
Earnings per common share – Basic	$	0.52	$	0.33	$	0.19	57.6	%
Earnings per common share – Diluted	0.52		0.33		0.19		57.6
Cash dividends per common share	0.24		0.24		—		—

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

TABLE 12



	Six Months Ended June 30,
	2018			2017
Return on average equity	7.80		%	5.31		%
Return on average tangible common equity ⁽²⁾	17.57		%	11.51		%
Return on average assets	1.09		%	0.72		%
Return on average tangible assets ⁽²⁾	1.22		%	0.82		%
Book value per common share ⁽¹⁾	$	13.47		$	13.26
Tangible book value per common share ^{(1) (2)}	$	6.26		$	6.00
Equity to assets ⁽¹⁾	13.87		%	14.28		%
Tangible equity to tangible assets ^{(1) (2)}	7.14		%	7.20		%
Common equity to assets ⁽¹⁾	13.54		%	13.94		%
Tangible common equity to tangible assets ^{(1) (2)}	6.79		%	6.83		%
Dividend payout ratio	46.61		%	69.15		%
Average equity to average assets	14.02		%	13.59		%

⁽¹⁾ Period-end ⁽²⁾ Non-GAAP

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TABLE 13



	Six Months Ended June 30,
	2018								2017
(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	$	75,689		$	627		1.67	%	$	86,712		$	341		0.79	%
Federal funds sold	—			—			—		2,277			8			0.72
Taxable investment securities ⁽¹⁾	5,132,722			55,874			2.18		4,702,692			47,609			2.02
Tax-exempt investment securities ⁽¹⁾⁽²⁾	973,486			17,005			3.49		592,342			12,318			4.16
Loans held for sale	56,229			1,678			5.99		53,059			1,868			7.96
Loans and leases ^{(2) (3)}	21,301,124			498,282			4.71		18,287,280			391,579			4.32
Total interest-earning assets ⁽²⁾	27,539,250			573,466			4.19		23,724,362			453,723			3.85
Cash and due from banks	359,218								316,867
Allowance for credit losses	(181,544		)						(163,642		)
Premises and equipment	334,264								312,292
Other assets	3,671,193								3,040,903
Total assets	$	31,722,381							$	27,230,782
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	9,338,014		25,146			0.54		$	8,362,233		13,087			0.32
Savings	2,578,492			2,523			0.20		2,503,259			1,162			0.09
Certificates and other time	4,724,920			29,849			1.25		3,346,434			14,244			0.86
Short-term borrowings	4,042,020			33,616			1.67		3,546,112			17,633			1.00
Long-term borrowings	655,737			10,450			3.21		607,991			8,434			2.80
Total interest-bearing liabilities	21,339,183			101,584			0.96		18,366,029			54,560			0.60
Non-interest-bearing demand	5,686,324								4,943,226
Other liabilities	250,898								220,574
Total liabilities	27,276,405								23,529,829
Stockholders’ equity	4,445,976								3,700,953
Total liabilities and stockholders’ equity	$	31,722,381							$	27,230,782
Excess of interest-earning assets over interest-bearing liabilities	$	6,200,067							$	5,358,333
Net interest income (FTE) ⁽²⁾				471,882								399,163
Tax-equivalent adjustment				(6,422		)						(7,996		)
Net interest income				$	465,460							$	391,167
Net interest spread							3.23	%							3.25	%
Net interest margin ⁽²⁾							3.45	%							3.39	%


(1)	The average balances and yields earned on securities are based on historical cost.

(2)

The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21% in 2018 and 35% in 2017. 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

For the six months ended June 30, 2018, net interest income, which comprised 77.9% of revenue compared to 76.3% for the same period in 2017, was affected by the general level of interest rates, changes in interest rates, the timing of repricing of assets and liabilities, the shape of the yield curve, the level of non-accrual loans and changes in the amount and mix of interest-earning assets and interest-bearing liabilities.

Net interest income on an FTE basis (non-GAAP) increased $72.7 million or 18.2% from $399.2 million for the first six months of 2017 to $471.9 million for the first six months of 2018. Average interest-earning assets of $27.5 billion increased $3.8 billion or 16.1% and average interest-bearing liabilities of $21.3 billion increased $3.0 billion or 16.2% from the first six months of 2017 due to the YDKN acquisition and organic growth in loans and deposits. Our net interest margin FTE (non-GAAP) was 3.45% for the first six months of 2018, compared to 3.39% for the same period of 2017, due to a higher interest rate environment, as well as higher purchase accounting accretion. The tax-equivalent adjustments (non-GAAP) to net interest income from amounts reported on our financial statements are shown in the preceding table.

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 six months ended June 30, 2018, compared to the six months ended June 30, 2017:

TABLE 14



(in thousands)	Volume			Rate			Net
Interest Income
Interest-bearing deposits with banks	$	(43	)	$	329		$	286
Federal funds sold	(4		)	(4		)	(8		)
Securities ⁽²⁾	11,227			1,725			12,952
Loans held for sale	66			(256		)	(190		)
Loans and leases ⁽²⁾	66,425			40,278			106,703
Total interest income ⁽²⁾	77,671			42,072			119,743
Interest Expense
Deposits:
Interest-bearing demand	2,144			9,915			12,059
Savings	164			1,197			1,361
Certificates and other time	7,181			8,424			15,605
Short-term borrowings	2,896			13,087			15,983
Long-term borrowings	790			1,226			2,016
Total interest expense	13,175			33,849			47,024
Net change ⁽²⁾	$	64,496		$	8,223		$	72,719


(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% in 2018 and 35% in 2017. 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 $573.5 million for the first six months of 2018, increased $119.7 million or 26.4% from the same quarter of 2017, primarily due to increased interest-earning assets. During the first six months of 2018, we recognized $10.6 million of incremental purchase accounting accretion and $11.3 million of cash recoveries, compared to $3.6 million and $1.5 million, respectively, in the the first six months of 2017 . The increase in interest-earning assets was primarily driven by a $3.0 billion or 16.5% increase in average loans and leases, which reflects the benefit of our expanded banking footprint and successful sales management, and includes $1.0 billion or 4.9% of organic growth. Additionally, average securities increased $811.2 million or 15.3%, primarily as a result of the securities portfolio acquired from YDKN and the subsequent repositioning of that portfolio. The yield on average interest-earning assets (non-GAAP) increased 34 basis points from the first six months of 2017 to 4.19% for the first six months of 2018. The 34 basis points increase in earning asset yield

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was driven by an increase in yields in both investments and loans including higher purchase accounting accretion and cash recoveries on acquired loans.

Interest expense of $101.6 million for the first six months of 2018 increased $47.0 million or 86.2% from the same quarter of 2017 due to an increase in rates paid and growth in average interest-bearing liabilities, as interest-bearing deposits and borrowings increased over the same quarter of 2017. Average interest-bearing deposits increased $2.4 billion or 17.1%, which reflects the benefit of our expanded banking footprint in our southeastern markets, including $2.9 billion added at closing of the YDKN acquisition and organic growth in transaction deposits. Average short-term borrowings increased $495.9 million or 14.0%, primarily as a result of increases of $152.1 million in short-term FHLB borrowings and $358.2 million in federal funds purchased. Average long-term borrowings increased $47.7 million or 7.9%, primarily as a result of increases of $23.9 million and $22.6 million in junior subordinated debt and subordinated debt, respectively, assumed in the YDKN transaction. Subsequent to the close of the acquisition, we remixed the long–term position based on our funding needs. The rate paid on interest-bearing liabilities increased 36 basis points to 0.96% for the first six months of 2018, due to the Federal Open Market Committee interest rate increases and changes in the funding mix.

Provision for Credit Losses

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

TABLE 15



	Six Months Ended June 30,						$		%
(dollars in thousands)	2018			2017			Change		Change
Provision for credit losses:
Originated	$	29,806		$	28,875		$	931	3.2	%
Acquired	243			(1,269		)	1,512		(119.1	)
Total provision for credit losses	$	30,049		$	27,606		$	2,443	8.8	%
Net loan charge-offs:
Originated	$	25,873		$	20,574		$	5,299	25.8	%
Acquired	2,982			(608		)	3,590		(590.5	)
Total net loan charge-offs	$	28,855		$	19,966		$	8,889	44.5	%
Net loan charge-offs (annualized) / total average loans and leases	0.27		%	0.22		%
Net originated loan charge-offs (annualized) / total average originated loans and leases	0.33		%	0.31		%

The provision for credit losses of $30.0 million during the first six months of 2018 increased $2.4 million from the same period of 2017, primarily due to an increase of $0.9 million in the provision for the originated portfolio, which was primarily attributable to higher organic loan growth during the first six months of 2018 compared to the year-ago period. Net loan charge-offs of $28.9 million for the first six months of 2018 increased $8.9 million from the year-ago period, primarily due to the sale of a small portfolio of non-performing loans in the second quarter of 2018. For additional information relating to the allowance and provision for credit losses, refer to the Allowance for Credit Losses section of this Management’s Discussion and Analysis.

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Non-Interest Income

The breakdown of non-interest income for the six months ended June 30, 2018 and 2017 is presented in the following table:

TABLE 16

Nine Months Ended
September 30, $ %
(in thousands) 2017 2016 Change Change
Salaries and employee benefits $ 240,860
$ 178,681
$ 62,179
34.8 %
Net occupancy 39,132
29,792
9,340
31.4
Equipment 35,761
28,604
7,157
25.0
Amortization of intangibles 12,716
9,608
3,108
32.3
Outside services 41,965
30,884
11,081
35.9
FDIC insurance 23,946
14,345
9,601
66.9
Supplies 6,595
8,195
(1,600 ) (19.5 )
Bank shares and franchise taxes 8,536
7,934
602
7.6
Merger-related 55,459
35,790
19,669
55.0
Other 50,042
43,494
6,548
15.1
Total non-interest expense $ 515,012
$ 387,327
$ 127,685
33.0 %



	Six Months Ended June 30,				$			%
(dollars in thousands)	2018		2017		Change			Change
Service charges	$	61,191	$	56,671	$	4,520		8.0	%
Trust services	12,917		11,462		1,455			12.7
Insurance commissions and fees	9,702		9,488		214			2.3
Securities commissions and fees	8,845		7,510		1,335			17.8
Capital markets income	11,068		8,851		2,217			25.0
Mortgage banking operations	11,469		8,963		2,506			28.0
Bank owned life insurance	6,362		5,245		1,117			21.3
Net securities gains	31		3,118		(3,087		)	(99.0	)
Other	10,807		9,886		921			9.3
Total non-interest income	$	132,392	$	121,194	$	11,198		9.2	%

Total non-interest ~~expense of $515.0~~income increased $11.2 million, to $132.4 million for the first ~~nine~~six months of ~~2017 increased $127.7 million,~~2018, a ~~33.0%~~9.2% increase from the same period of ~~2016. Following~~2017. The variances in significant individual non-interest income items are further explained in the following paragraphs, with most increases relating at least partially to expanded operations in our southeastern markets, partially offset by a $3.7 million loss on fixed assets related to branch consolidations. Excluding significant items, non-interest income increased $17.5 million to$136.1 million for the first six months of 2018.

Service charges on loans and deposits of $61.2 million for the first six months of 2018 increased $4.5 million or 8.0% from the same period of 2017. The increase was driven by the expanded customer base in our southeastern markets, combined with organic growth in loans and deposit accounts.

Trust services of $12.9 million for the first six months of 2018 increased $1.5 million or 12.7% from the same period of 2017 primarily driven by strong organic revenue production. The market value of assets under management increased $637.5 million or 14.2% to $5.1 billion from June 30, 2017 to June 30, 2018.

Securities commissions and fees of $8.8 million for the first six months of 2018 increased 17.8% from the same period of 2017. This increase reflects the benefit of expanded operations in our southeastern markets and increased brokerage activity.

Capital markets income of $11.1 million for the first six months of 2018 increased $2.2 million or 25.0% from $8.9 million for 2017, reflecting increased syndication fees and international banking activity, and continued solid contributions from swap fees. Our interest rate swap program allows commercial loan customers to swap floating-rate interest payments for fixed-rate interest payments enabling those customers to better manage their interest rate risk. The interest rate swap program adds short-term, adjustable rate loans to our consolidated balance sheet and is a ~~summary~~key strategy in the management of our interest rate risk position.

Mortgage banking operations income of $11.5 million for the first six months of 2018 increased $2.5 million or 28.0% from the same period of 2017. During the first six months of 2018, we sold $569.7 million of residential mortgage loans, a 51.6% increase compared to $375.8 million for the same period of 2017. However, sold loan margins have been lower in both retail and correspondent loans due to competitive pressure and the mix of loans sold.

Income from BOLI of $6.4 million for the first six months of 2018 increased $1.1 million or 21.3% from $5.2 million in the same period of 2017, due to a combination of BOLI policies acquired from YDKN and investing in new policies during the third and fourth quarters of 2017.

Net securities gains were $0.03 million for the first six months of 2018, compared to $3.1 million for the first six months of 2017. The gains in 2017 related to the sale of certain acquired YDKN securities after the closing of the acquisition.

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Other non-interest income was $10.8 million and $9.9 million for the first six months of 2018 and 2017, respectively. During the first six months of 2018, dividends on non-marketable equity securities increased $3.5 million and SBA loan gain on sale and servicing-related income increased $1.5 million compared to the year-ago period, partially offset by a $3.7 million loss on fixed assets related to the branch consolidations.

The breakdown of non-interest income excluding significant items ~~making up~~for the first six months ended June 30, 2018 and 2017 is presented in the following table:

TABLE 17



	Six Months Ended June 30,					$		%
(in thousands)	2018		2017			Change		Change
Total non-interest income, as reported	$	132,392	$	121,194		$	11,198	9.2	%
Significant items:
Loss on fixed assets related to branch consolidations	3,677		—			3,677
Merger-related net securities gains	—		(2,609		)	2,609
Total non-interest income, excluding significant items⁽¹⁾	$	136,069	$	118,585		$	17,484	14.7	%

⁽¹⁾ Non-GAAP

Non-Interest Expense

The breakdown of non-interest ~~expense.~~expense for the six months ended June 30, 2018 and 2017 is presented in the following table:

TABLE 18



	Six Months Ended June 30,				$			%
(dollars in thousands)	2018		2017		Change			Change
Salaries and employee benefits	$	187,997	$	158,477	$	29,520		18.6	%
Net occupancy	31,717		25,409		6,308			24.8
Equipment	27,648		22,050		5,598			25.4
Amortization of intangibles	8,029		7,911		118			1.5
Outside services	31,770		26,526		5,244			19.8
FDIC insurance	18,001		14,763		3,238			21.9
Bank shares and franchise taxes	6,692		5,722		970			17.0
Merger-related	—		54,078		(54,078		)	(100.0	)
Other	42,242		36,333		5,909			16.3
Total non-interest expense	$	354,096	$	351,269	$	2,827		0.8	%

Total non-interest expense of $354.1 million for the first six months of 2018 increased $2.8 million, an 0.8% increase from the same period of 2017. Excluding significant items influencing earnings of $3.8 million, non-interest expense increased $53.1 million or 17.9%. The variances in the individual non-interest expense items are further explained in the following paragraphs, with ~~an overriding theme of the~~most increases relating at least partially to ~~merger expenses and~~costs associated with expanded operations ~~due to~~from the acquisition of YDKN in ~~the first quarter~~March of 2017, ~~and the acquisition~~including $2.9 million of ~~METR and Fifth Third branches~~branch consolidation costs in the first ~~half~~six months of ~~2016.~~2018 compared to merger-related expenses of $54.1 million in the same period of 2017.

Salaries and employee benefits of ~~$240.9~~$188.0 million for the first ~~nine~~six months of ~~2017~~2018 increased ~~$62.2~~$29.5 million or ~~34.8%~~18.6% from the same period of ~~2016,~~2017. The increase was primarily due to employees added in conjunction with the ~~aforementioned acquisitions,~~YDKN acquisition, combined with 2018 merit increases and higher benefit costs including items such as a large medical insurance ~~costs~~claim of $2.6 million, restricted stock awards, a $1.0 million payroll tax rate adjustment, and $1.3 million in ~~2017.~~additional wage increases for hourly employees plus a discretionary 401(k) contribution of $0.9 million following tax reform in 2018.

Net occupancy and equipment expense of ~~$74.9~~$59.4 million for the first ~~nine~~six months of ~~2017~~2018 increased ~~$16.5~~$11.9 million or ~~28.3%~~25.1% from the same period of ~~2016,~~2017, primarily due to ~~acquisitions~~the YDKN acquisition and our presence in that new market, branch consolidation

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costs of $2.9 million and our continued investment in new technology. The increased technology costs include upgrades to meet customer needs via the utilization of electronic delivery channels, such as online and mobile banking, investment in infrastructure to support our larger company and expenditures deemed necessary by management to maintain proficiency and compliance with expanding regulatory requirements.

~~Amortization of intangibles~~Outside services expense of ~~$12.7~~$31.8 million for the first ~~nine~~six months of ~~2017~~2018 increased ~~$3.1~~$5.2 million or ~~32.3% from the first nine months of 2016, due to the additional core deposit intangibles added as a result of the acquisition of YDKN, METR and Fifth Third branches.~~

~~Outside services expense of $42.0 million for the first nine months of 2017 increased $11.1 million or 35.9%~~19.8% from the same period of ~~2016,~~2017, primarily due to increases of ~~$7.0~~$1.3 million in legal expense, $0.8 million in security services, and $0.7 million in data processing and information technology services, ~~$2.2 million in~~combined with various other ~~outsourced services, such as reporting, monitoring, shredding, printing, filing and security, and legal expense.~~miscellaneous increases. These increases were driven primarily by the ~~aforementioned acquisitions.~~expanded operations in our southeastern markets.

FDIC insurance of ~~$23.9~~$18.0 million for the first ~~nine~~six months of ~~2017~~2018 increased ~~$9.6~~$3.2 million or ~~66.9%~~21.9% from the same period of ~~2016,~~2017, primarily due to a higher assessment base resulting from merger and acquisition activity combined with an increased rate due to YDKN's construction loan portfolio. Additionally, effective July 1, 2016, the FDIC assessment rate was increased to include a surcharge equal to 4.5 basis points on assets in excess of $10.0 billion.activity.

Bank shares and franchise taxes expense of ~~$8.5~~$6.7 million for the first ~~nine~~six months of ~~2017~~2018 increased ~~$0.6~~$1.0 million or ~~7.6%~~17.0% from $5.7 million in the ~~same period~~first six months of ~~2016,~~2017, primarily due to an increase in ~~the bank shares tax rate from 0.89% to 0.95% and an increase in the~~our capital base ~~of the Pennsylvania bank shares tax, partially offset by apportionment dilution~~ from ~~increased activity in other states during the same reporting tax period.~~

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~~During the first nine months of 2017, we recorded $55.5 million in merger-related expense, primarily associated with~~ the YDKN acquisition. During the same period of 2016, we recorded $35.8 million in merger-related expense, primarily associated with the acquisitions of METR and Fifth Third branches. These expenses are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction.

~~The following table summarizes the composition of the merger-related expense for the nine months ended September 30, 2017 and 2016:~~

~~TABLE 17~~

Nine Months Ended
September 30,
(in thousands) 2017 2016
Professional services $ 25,204
$ 17,066
Severance and other employee benefit costs 17,726
14,068
Charitable contributions 5,600
1,115
Data processing conversion costs 3,964
1,757
Marketing costs 1,546
1,151
Other expenses 1,419
633
Total merger-related expense $ 55,459
$ 35,790

Other non-interest expense was ~~$50.0~~$42.2 million and ~~$43.5~~$36.3 million for the first ~~nine~~six months of ~~2017~~2018 and ~~2016,~~2017, respectively. During the first ~~nine~~six months of ~~2017, we recorded $4.8~~2018, telephone expense increased by $0.6 million, ~~more in~~OREO increased by $1.5 million, loan-related expense ~~relating to~~increased by $2.4 million, historic and other tax credit investments ~~$2.3 million more in telephone~~ expense ~~$1.9 million more in business development costs,~~increased by $1.5 million ~~more in miscellaneous losses, $1.2 million more in~~and marketing expense ~~$0.7 million more OREO~~increased by $1.5 million. Other non-interest expense also included branch consolidation costs of $2.9 million. These increases were primarily related to the expanded operations in North and ~~$2.2 million less~~South Carolina and branch consolidation activities.

The breakdown of non-interest expense excluding significant items for the six months ended June 30, 2018 and 2017 is presented in ~~loan-related expense.~~the following table:

TABLE 19



	Six Months Ended June 30,						$			%
(in thousands)	2018			2017			Change			Change
Total non-interest expense, as reported	$	354,096		$	351,269		$	2,827		0.8	%
Significant items:
Discretionary 401(k) contribution	(874		)	—			(874		)
Branch consolidations - salaries and benefits	(45		)	—			(45		)
Branch consolidations - occupancy and equipment	(1,609		)	—			(1,609		)
Branch consolidations - other	(1,285		)	—			(1,285		)
Merger-related	—			(54,078		)	54,078
Total non-interest expense, excluding significant items⁽¹⁾	$	350,283		$	297,191		$	53,092		17.9	%

⁽¹⁾ Non-GAAP

Income Taxes

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

TABLE 1820


	Nine Months Ended September 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016			2018			2017
Income tax expense	$	69,279		$	52,950		$	41,739		$	36,101
Effective tax rate	28.4		%	30.7		%	19.5		%	27.0		%
Statutory tax rate	35.0		%	35.0		%	21.0		%	35.0		%

Both periods’ tax rates are lower than the ~~35%~~ federal statutory tax ~~rate~~rates of 21% in 2018 and 35% in 2017, due to the tax benefits primarily resulting from tax-exempt income on investments and loans, tax credits and income from BOLI. The ~~variance between the first nine months of 2017 and the first nine months of 2016 in income tax expense and~~ effective tax rate ~~primarily relates~~for the first six months of 2018 was 19.5%, compared to ~~the increase in merger expenses and an increase~~27.0% in the ~~level of renewable energy, historic, and low income housing tax credits recognized in the~~year-ago quarter. The first ~~nine~~six months of ~~2017.~~2018 was

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impacted by the TCJA, including a change to a 21% federal statutory rate, while the year-ago quarter was impacted by merger-related expenses. The lower statutory corporate tax rate is partially offset by changes to the deductibility of certain items such as FDIC insurance premiums.

FINANCIAL CONDITION

The ~~September 30, 2017 balance sheet includes the YDKN acquisition mentioned previously. See Note 3, Mergers and Acquisitions, of the Notes to Consolidated Financial Statements (Unaudited). The~~ following table presents our condensed ~~consolidated ending balance sheets:~~Consolidated Balance Sheets:

TABLE 1921


(dollars in thousands)	September 30, 2017		December 31, 2016		Dollar Change		Percent Change		June 30, 2018		December 31, 2017		$ Change			% Change
Assets
Cash and cash equivalents	$	515,340	$	371,407	$	143,933	38.8	%	$	433,699	$	479,443	$	(45,744	)	(9.5	)%
Securities	5,841,271		4,569,329		1,271,942		27.8		6,297,868		6,006,830		291,038			4.8
Loans held for sale	113,778		11,908		101,870		855.5		44,112		92,891		(48,779		)	(52.5	)
Loans and leases, net	20,647,420		14,738,884		5,908,536		40.1		21,483,008		20,823,386		659,622			3.2
Goodwill and other intangibles	2,383,873		1,099,456		1,284,417		116.8		2,335,445		2,341,263		(5,818		)	(0.2	)
Other assets	1,621,613		1,053,833		567,780		53.9		1,663,431		1,673,822		(10,391		)	(0.6	)
Total Assets	$	31,123,295	$	21,844,817	$	9,278,478	42.5	%	$	32,257,563	$	31,417,635	$	839,928		2.7	%
Liabilities and Stockholders’ Equity
Deposits	$	21,929,171	$	16,065,647	$	5,863,524	36.5	%	$	22,539,787	$	22,399,725	$	140,062		0.6	%
Borrowings	4,531,084		3,042,504		1,488,580		48.9		4,963,084		4,346,510		616,574			14.2
Other liabilities	227,119		165,049		62,070		37.6		281,450		262,206		19,244			7.3
Total liabilities	26,687,374		19,273,200		7,414,174		38.5		27,784,321		27,008,441		775,880			2.9
Stockholders’ equity	4,435,921		2,571,617		1,864,304		72.5		4,473,242		4,409,194		64,048			1.5
Total Liabilities and Stockholders’ Equity	$	31,123,295	$	21,844,817	$	9,278,478	42.5	%	$	32,257,563	$	31,417,635	$	839,928		2.7	%

Non-Performing Assets

Non-performing assets ~~increased $28.6~~decreased $6.0 million, from ~~$118.4~~$138.7 million at December 31, ~~2016~~2017 to ~~$147.0~~$132.8 million at ~~September~~June 30, ~~2017.~~2018. This reflects ~~an increase~~decreases of ~~$22.9~~$5.9 million in non-accrual loans and ~~$2.9~~$1.4 million in OREO, ~~which was~~ partially offset by ~~a decrease~~an increase of ~~$2.7~~$1.3 million in TDRs. The ~~increase~~decrease in non-accrual loans is attributable to the ~~migration~~exit of ~~a few~~$15.7 million in non-performing commercial ~~borrowers~~credits during the second quarter, primarily in the ~~commercial and industrial~~small business portfolio. The increase in ~~OREO~~TDRs is related to additional modifications of 1-4 family secured properties, as well as the ~~result~~modification of ~~properties acquired from YDKN.~~a commercial and industrial credit during the first six months of 2018. The decrease in ~~TDRs was~~OREO is primarily attributable to ~~a number~~the sale of ~~residential mortgages that have consistently met their modified terms for at least~~two commercial properties totaling $2.1 million during the first six months ~~and were therefore returned to performing status.~~of 2018.

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Following is a summary of total non-performing loans and leases, by class:

TABLE 2022


(in thousands)	September 30, 2017		December 31, 2016		$ Change			% Change		June 30, 2018		December 31, 2017		$ Change			% Change
Commercial real estate	$	30,326	$	21,225	$	9,101		42.9	%	$	20,496	$	31,399	$	(10,903	)	(34.7	)%
Commercial and industrial	38,692		26,256		12,436			47.4		28,242		22,740		5,502			24.2
Commercial leases	1,199		3,429		(2,230		)	(65.0	)	1,218		1,574		(356		)	(22.6	)
Other										1,000		1,000		—			—
Total commercial loans and leases	70,217		50,910		19,307			37.9		50,956		56,713		(5,757		)	(10.2	)
Direct installment	17,203		14,952		2,251			15.1		15,862		16,725		(863		)	(5.2	)
Residential mortgages	15,565		13,367		2,198			16.4		12,737		16,409		(3,672		)	(22.4	)
Indirect installment	2,123		2,181		(58		)	(2.7	)	7,375		2,435		4,940			202.9
Consumer lines of credit	5,502		3,497		2,005			57.3		6,586		5,834		752			12.9
Other	928		1,000		(72		)	(7.2	)
Total consumer loans										42,560		41,403		1,157			2.8
Total non-performing loans and leases	$	111,538	$	85,907	$	25,631		29.8	%	$	93,516	$	98,116	$	(4,600	)	(4.7	)%

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

TABLE 21


(in thousands)	Performing		Non- Performing		Non- Accrual		Total		Performing		Non- Performing		Non- Accrual		Total
Originated
September 30, 2017
June 30, 2018
Commercial real estate	$	98	$	2	$	3,729	$	3,829	$	—	$	—	$	2,323	$	2,323
Commercial and industrial	—		—		4,851		4,851		2,580		528		891		3,999
Total commercial loans	98		2		8,580		8,680		2,580		528		3,214		6,322
Direct installment	10,609		8,273		2,943		21,825		11,111		8,391		3,398		22,900
Residential mortgages	4,090		9,878		1,990		15,958		3,751		5,855		1,781		11,387
Indirect installment	—		196		15		211		—		5,223		10		5,233
Consumer lines of credit	1,804		1,280		664		3,748		1,910		1,692		920		4,522
Total consumer loans									16,772		21,161		6,109		44,042
Total TDRs	$	16,601	$	19,629	$	14,192	$	50,422	$	19,352	$	21,689	$	9,323	$	50,364
December 31, 2016
December 31, 2017
Commercial real estate	$	—	$	162	$	3,857	$	4,019	$	92	$	—	$	3,870	$	3,962
Commercial and industrial	—		4		2,113		2,117		3,085		—		601		3,686
Total commercial loans	—		166		5,970		6,136		3,177		—		4,471		7,648
Direct installment	10,414		8,468		1,597		20,479		10,890		7,758		3,197		21,845
Residential mortgages	4,730		10,051		1,128		15,909		3,659		10,638		2,161		16,458
Indirect installment	—		198		2		200		—		195		14		209
Consumer lines of credit	1,961		1,369		338		3,668		1,812		1,582		629		4,023
Total consumer loans									16,361		20,173		6,001		42,535
Total TDRs	$	17,105	$	20,252	$	9,035	$	46,392	$	19,538	$	20,173	$	10,472	$	50,183
Acquired
September 30, 2017
June 30, 2018
Commercial real estate	$	—	$	2,651	$	—	$	2,651	$	—	$	2,613	$	—	$	2,613
Commercial and industrial	—		—		—		—		—		—		38		38
Total commercial loans	—		2,651		—		2,651		—		2,613		38		2,651
Direct installment	—		72		—		72		—		69		—		69
Residential mortgages	—		—		—		—		—		—		—		—
Indirect installment	—		—		—		—		—		—		—		—
Consumer lines of credit	252		795		—		1,047		168		449		13		630
Total consumer loans									168		518		13		699
Total TDRs	$	252	$	3,518	$	—	$	3,770	$	168	$	3,131	$	51	$	3,350
December 31, 2016
December 31, 2017
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	2,651	$	—	$	2,651
Commercial and industrial	—		—		—		—		—		—		—		—
Total commercial loans	—		—		—		—		—		2,651		—		2,651
Direct installment	—		—		—		—		15		71		—		86
Residential mortgages	—		—		—		—		—		—		—		—
Indirect installment	—		—		—		—		—		—		—		—
Consumer lines of credit	365		176		—		541		251		586		234		1,071
Total consumer loans									266		657		234		1,157
Total TDRs	$	365	$	176	$	—	$	541	$	266	$	3,308	$	234	$	3,808

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Allowance for Credit Losses

The allowance for credit losses of ~~$170.0~~$176.6 million at ~~September~~June 30, ~~2017~~2018 increased ~~$12.0~~$1.2 million or ~~7.6%~~0.7% from December 31, ~~2016,~~2017, primarily in support of growth in originated loans and leases ~~higher net charge-offs~~ and ~~additional specific reserves on~~

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~~non-performing credits.~~a small increase in originated criticized commercial loans. The provision for credit losses during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~$44.4~~$30.0 million, ~~primarily supporting strong~~which covered net charge-offs and supported organic loan ~~and lease growth, as well as additional specific reserves on non-performing credits, which~~growth. The amount of provision expense that resulted from the small increase in originated criticized commercial loans was ~~somewhat~~ offset by a ~~decrease~~provision benefit received through a decline in ~~early stage~~overall delinquency levels in ~~both~~ the ~~commercial and consumer portfolios.~~second quarter of 2018. Net charge-offs were ~~$32.4~~$28.9 million during the ~~nine~~six months ended ~~September~~June 30, 2018 compared to $20.0 million during the six months ended June 30, 2017. The allowance for credit losses as a percentage of non-performing loans for ~~our~~the total portfolio ~~decreased~~increased from ~~183.99%~~179% as of December 31, ~~2016~~2017 to ~~152.43%~~189% as of ~~September~~June 30, ~~2017,~~2018, reflecting ~~an increase~~a decrease in the level of non-performing loans relative to the ~~increase~~decrease in the allowance for credit losses during the ~~nine month~~six-month period.

Following is a summary of supplemental statistical ratios pertaining to our originated loans and leases portfolio. The originated loans and leases portfolio excludes loans acquired at fair value and accounted for in accordance with ASC 805, Business Combinations. Also see Note 5, Loans and Leases, of the Notes to Consolidated Financial Statements (Unaudited).

TABLE 2224


	At or For the Three Months Ended						At or For the Three Months Ended
	September 30, 2017		December 31, 2016		September 30, 2016		June 30, 2018		December 31, 2017		June 30, 2017
Non-performing loans / total originated loans and leases	0.69	%	0.66	%	0.76	%	0.50	%	0.57	%	0.75	%
Non-performing loans + OREO / total originated loans and leases + OREO	0.91	%	0.91	%	1.08	%	0.71	%	0.81	%	1.08	%
Allowance for credit losses (originated loans) / total originated loans and leases	1.12	%	1.20	%	1.23	%	1.02	%	1.10	%	1.15	%
Net charge-offs on originated loans and leases (annualized) / total average originated loans and leases	0.37	%	0.38	%	0.41	%	0.36	%	0.35	%	0.38	%

Deposits

As a bank holding company, our primary source of funds is deposits. These deposits are provided by businesses, municipalities and individuals located within the markets served by our Community Banking segment.

Following is a summary of deposits:

TABLE 2325


(in thousands)	September 30, 2017		December 31, 2016		$ Change		% Change		June 30, 2018		December 31, 2017		$ Change			% Change
Non-interest-bearing demand	$	5,569,239	$	4,205,337	$	1,363,902	32.4	%	$	5,926,473	$	5,720,030	$	206,443		3.6	%
Interest-bearing demand	9,675,170		6,931,381		2,743,789		39.6		9,134,954		9,571,038		(436,084		)	(4.6	)
Savings	2,513,163		2,352,434		160,729		6.8		2,607,372		2,488,178		119,194			4.8
Certificates and other time deposits	4,171,599		2,576,495		1,595,104		61.9		4,870,988		4,620,479		250,509			5.4
Total deposits	$	21,929,171	$	16,065,647	$	5,863,524	36.5	%	$	22,539,787	$	22,399,725	$	140,062		0.6	%

Total deposits increased from December 31, ~~2016~~2017, primarily as a result of ~~the YDKN acquisition, combined with~~ organic growth in ~~relationship-based~~non-interest-bearing demand balances and certificates and other time deposits. The growth reflects heightened deposit-gathering efforts focused on attracting new customer relationships through targeted promotional interest rates on 13-month, 19-month and 25-month certificates of deposit, combined with deepening relationships with existing customers through internal lead generation efforts. Relationship-based transaction deposits, which are comprised of demand (non-interest-bearing and interest-bearing) and savings accounts (including money market savings), ~~including an increase~~declined in organic certificates and other time deposits, offset by a planned decline in higher-cost brokered time deposits. The growth reflects heightened deposit gathering efforts during the third quarter focused on attracting new customer relationships and deepening relationships with existing customers through internal lead generation efforts.total over this period due somewhat to seasonal outflows. Generating growth in ~~relationship-based transaction~~these deposits remains a key focus for us.

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Capital Resources and Regulatory Matters

The access to, and cost of, funding for new business initiatives, including acquisitions, 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 ~~balance sheet,~~Balance Sheet, asset quality, liquidity, earnings performance, changing competitive conditions 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.

~~Table~~In accordance with the terms of ~~Contents~~

our merger with Yadkin Financial Corporation, we issued 111,619,622 shares of our common stock on March 11, 2017.

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.

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 continue to grow through acquisitions, which can potentially impact our capital position. We may issue additional preferred or common stock in order to maintain our well-capitalized status. ~~During 2016, we redeemed $10.0 million of the TPS issued by Omega Financial Capital Trust I, as these securities are no longer eligible for inclusion in tier 1 capital.~~

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 common equity tier 1 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,~~Consolidated Financial Statements, dividends and future merger and acquisition activity. 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.

As of ~~September~~June 30, ~~2017,~~2018, the most recent notification from the federal banking agencies categorized FNB and FNBPA as “well-capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since the notification which management believes have changed this categorization. Our management believes that, as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, FNB and FNBPA met all “well-capitalized” requirements to which each of them was subject.

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Following are the capital amounts and related ratios as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 for FNB and FNBPA:

TABLE 2426


	Actual				Well-Capitalized Requirements				Minimum Capital Requirements				Actual				Well-Capitalized Requirements				Minimum Capital Requirements plus Capital Conservation Buffer
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2017
As of June 30, 2018
F.N.B. Corporation
Total capital	$	2,664,533	11.5	%	$	2,312,263	10.0	%	$	2,138,843	9.3	%	$	2,754,636	11.4	%	$	2,410,259	10.0	%	$	2,380,130	9.9	%
Tier 1 capital	2,185,291		9.5		1,849,810		8.0		1,676,391		7.3		2,269,510		9.4		1,928,207		8.0		1,898,079		7.9
Common equity tier 1	2,078,409		9.0		1,502,971		6.5		1,329,551		5.8		2,162,628		9.0		1,566,668		6.5		1,536,540		6.4
Leverage	2,185,291		7.6		1,430,820		5.0		1,144,656		4.0		2,269,510		7.6		1,484,696		5.0		1,187,757		4.0
Risk-weighted assets	23,122,630												24,102,585
FNBPA
Total capital	2,496,751		10.8	%	2,309,119		10.0	%	2,135,935		9.3	%	2,593,877		10.8	%	2,401,346		10.0	%	2,371,329		9.9	%
Tier 1 capital	2,330,417		10.1		1,847,295		8.0		1,674,111		7.3		2,420,350		10.1		1,921,077		8.0		1,891,060		7.9
Common equity tier 1	2,250,417		9.8		1,500,928		6.5		1,327,744		5.8		2,340,350		9.8		1,560,875		6.5		1,530,858		6.4
Leverage	2,330,417		8.2		1,422,130		5.0		1,137,704		4.0		2,420,350		8.2		1,476,411		5.0		1,181,129		4.0
Risk-weighted assets	23,091,193												24,013,460
As of December 31, 2016
As of December 31, 2017
F.N.B. Corporation
Total capital	$	1,917,386	12.0	%	$	1,597,951	10.0	%	$	1,378,232	8.6	%	$	2,666,272	11.4	%	$	2,340,362	10.0	%	$	2,164,835	9.3	%
Tier 1 capital	1,582,251		9.9		1,278,360		8.0		1,058,642		6.6		2,184,571		9.3		1,872,290		8.0		1,696,763		7.3
Common equity tier 1	1,475,369		9.2		1,038,668		6.5		818,950		5.1		2,077,689		8.9		1,521,235		6.5		1,345,708		5.8
Leverage	1,582,251		7.7		1,027,831		5.0		822,265		4.0		2,184,571		7.6		1,440,797		5.0		1,152,638		4.0
Risk-weighted assets	15,979,505												23,403,622
FNBPA
Total capital	1,768,561		11.1	%	1,588,989		10.0	%	1,370,503		8.6	%	2,504,191		10.7	%	2,332,593		10.0	%	2,157,649		9.3	%
Tier 1 capital	1,614,167		10.2		1,271,191		8.0		1,052,705		6.6		2,332,892		10.0		1,866,075		8.0		1,691,130		7.3
Common equity tier 1	1,534,167		9.7		1,032,843		6.5		814,357		5.1		2,252,892		9.7		1,516,186		6.5		1,341,241		5.8
Leverage	1,614,167		7.9		1,019,034		5.0		815,227		4.0		2,332,892		8.1		1,432,604		5.0		1,146,084		4.0
Risk-weighted assets	15,889,893												23,325,934

In accordance with Basel III, ~~standards,~~ the implementation of capital requirements is transitional and phases-in from January 1, 2015 through January 1, 2019. The minimum capital requirements plus capital conservation buffer, which are presented for each period above ~~are~~ based on the phase-in schedule, represent the minimum requirements ~~that were in effect at that time.~~needed to avoid limitations on distributions of dividends and certain discretionary bonus payments. Our management believes that FNB and FNBPA will continue to meet all “well-capitalized” requirements after Basel III is completely phased-in.

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 ~~2016~~2017 Annual Report on Form 10-K as filed with the SEC on February ~~23, 2017.~~28, 2018. Many aspects of the Dodd-Frank Act are subject to further rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact to us or across the financial services industry.

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~~Enhanced Regulatory Capital Standards~~

~~Regulatory capital reform initiatives continue to be updated and released which may impose additional conditions and restrictions on our current business practices and capital strategies.~~

In July 2013, the FRB published the Basel III Capital Rules (Basel III) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. These reforms seek to strengthen the components of regulatory capital by increasing the quantity and quality of capital held by banking organizations, increasing risk-based capital requirements and making selected changes to the calculation of risk-weighted assets.

The final rule, which became effective for us on January 1, 2015, includes a phase-in period through January 1, 2019 for several provisions of the rule, including the new minimum capital ratio requirements and the capital conservation buffer.

As required by the Dodd-Frank Act, the FRB and OCC published final rules regarding DFAST rules. The DFAST rules require institutions, such as FNB and FNBPA, with average total consolidated assets greater than $10 billion, to conduct an annual company-run stress test of capital, consolidated earnings and losses under one base and at least two stress scenarios provided by the federal bank regulators. Implementation of the DFAST rules for covered institutions with total consolidated assets between $10 billion and $50 billion began in 2013. The DFAST rules and guidance require increased involvement by boards of directors in the stress testing process and public disclosure of the results. Public disclosure of summary stress test results under the severely adverse scenario began in June 2015 for stress tests commencing in 2014. We filed the results of this year's stress testing analysis with the FRB by July 31, 2017. The time period covered for this analysis was December 2016 through March 2019. Our capital ratios reflected in these stress test calculations exceeded the well-capitalized levels, even under the severely adverse scenario. This is an important factor considered by the FRB and OCC in evaluating the capital adequacy of FNB and FNBPA and whether the appropriateness of any proposed payments of dividends or stock repurchases may be an unsafe or unsound practice. In reviewing FNB’s and FNBPA’s stress test results, the FRB and OCC will consider both quantitative and qualitative factors.

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 ~~in order~~ 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~~Balance Sheet and adequate levels of liquidity. Our Board of Directors has also established a Contingency Funding Policy to guide management in addressing stressed liquidity conditions. These policies designate our Asset/Liability Committee ~~(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~~Balance Sheet or cash flow positions. Liquidity is centrally managed ~~on a~~ daily ~~basis~~ 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 can be acquired to help fund normal business operations, as well as to serve as contingency funding ~~in the event that~~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, ~~FNB,~~ through one of ~~its~~our subsidiaries, we regularly ~~issues~~issue subordinated notes, which are guaranteed by FNB. Cash on hand at the parent has been managed by various strategies over the last few years. These include strong earnings, increasing earnings retention rate and capital actions. The parent’s cash position ~~increased $7.8~~decreased $5.6 million from ~~$164.6~~$165.7 million at December 31, ~~2016~~2017 to ~~$172.4~~$160.1 million at ~~September~~June 30, ~~2017,~~2018, primarily due to ~~dividends from subsidiaries and cash acquired from YDKN.~~one-time payouts related to the YDKN acquisition in the first quarter of 2018.

Management believes our cash levels are appropriate given the current environment. Two metrics that are used to gauge the adequacy of the parent company’s cash position are the ~~Liquidity Coverage Ratio (LCR)~~LCR and ~~Months of Cash on Hand (MCH).~~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 and was impacted by the YDKN acquisition.

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

TABLE 2527



(dollars in thousands)	~~September~~June 30, ~~2017~~ 2018	December 31, ~~2016~~2017	Internal limit
Liquidity coverage ratio ~~(LCR)~~	~~1.9~~1.8 times	~~2.3~~1.8 times	> 1 time
Months of cash on hand ~~(MCH)~~	~~10.6~~9.9 months	~~14.9~~10.2 months	> 12 months

The MCH ratio fell below our internal limit due to the YDKN acquisition in March 2017. As a result, ~~of YDKN,~~ our twelve-month projected dividend payout is estimated at $155 million, an increase of approximately $54 million pre-merger. YDKN did not manage to a similar ratio and held only a minimal amount of cash on hand at their holding company. ~~Our ALCO~~In June, we announced plans to divest Regency as part of our strategy to enhance the overall positioning of our consumer banking operations. The sale of Regency is ~~evaluating~~expected to close during the second half of 2018, subject to receipt of regulatory approvals and other customary closing conditions. We expect this transaction to accomplish several ~~alternatives, each of which would place the MCH ratio back into policy compliance. Management~~strategic objectives, including offering additional liquidity. As a result, management believes ~~that~~ this policy exception will be cured ~~by December 31, 2017.~~when the sale closes.

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 heightened deposit gathering efforts ~~during the third quarter of 2017~~ focused on attracting new customer relationships and deepening relationships with existing customers through internal lead generation efforts. ~~Organic growth in low-cost transaction~~Total deposits ~~for the first nine months~~were $22.5 billion at June 30, 2018, an increase of ~~2017 was $474.8~~$140.1 million, or ~~3.5%, due to organic growth in non-interest-bearing deposits of $129.7~~1.30% annualized from December 31, 2017. Total non-interest demand deposit accounts grew by $206.4 million, or ~~3.1%,~~7.3% annualized, and ~~growth in~~ savings ~~and NOW of $345.1~~accounts grew by $119.2 million, or ~~3.7%. Year-to-date organic growth~~9.7% annualized. Growth in ~~certificates and other~~ time deposits was ~~$219.9~~$250.5 million, or ~~8.5%. Total deposits~~10.9% annualized. These increases were ~~$21.9 billion at September 30, 2017 an increase of $5.9 billion, or 36.5% from December 31, 2016, due to the acquisition of YDKN, as well as organic growth of $694.7~~offset by seasonally lower business demand deposit and interest checking balances which decreased $436.1 million, or ~~4.3%.~~9.2% annualized.

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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 and multiple other channels. In addition to credit availability, FNBPA also possesses salable unpledged government and agency securities ~~which~~that could be utilized to meet funding needs. The ALCO Policy minimum guideline level for salable unpledged government and agency securities is 3.0%.

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

TABLE 2628


(dollars in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Unused wholesale credit availability	$	7,865,274		$	6,343,433		$	7,563,376		$	8,189,379
Unused wholesale credit availability as a % of FNBPA assets	25.4		%	29.3		%	23.6		%	26.3		%
Salable unpledged government and agency securities	$	1,851,320		$	1,451,157		$	2,632,241		$	2,231,812
Salable unpledged government and agency securities as a % of FNBPA assets	6.0		%	6.7		%	8.2		%	7.2		%

Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis as of ~~September~~June 30, ~~2017~~2018 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 ~~liquidity gap decreased during the nine months as the~~ twelve-month cumulative gap to total assets was ~~(3.2)~~(8.9)% and ~~(3.3)~~(5.8)% as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. ~~These ratios are within our policy limits.~~ Management calculates this ratio at least quarterly and it is reviewed monthly by ALCO.

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TABLE 2729


(dollars in thousands)	Within 1 Month			2-3 Months			4-6 Months			7-12 Months			Total 1 Year			Within 1 Month			2-3 Months			4-6 Months			7-12 Months			Total 1 Year
Assets
Loans	$	533,221		$	1,029,034		$	1,163,171		$	2,364,033		$	5,089,459		$	511,784		$	945,959		$	1,186,109		$	2,375,076		$	5,018,928
Investments	152,588			187,083			254,679			446,421			1,040,771			101,917			147,067			261,900			446,279			957,163
	685,809			1,216,117			1,417,850			2,810,454			6,130,230			613,701			1,093,026			1,448,009			2,821,355			5,976,091
Liabilities
Non-maturity deposits	175,459			350,917			526,381			1,052,759			2,105,516			173,751			347,503			521,256			1,042,513			2,085,023
Time deposits	199,533			415,603			441,312			852,646			1,909,094			226,569			696,133			1,198,789			1,082,478			3,203,969
Borrowings	2,681,909			258,703			87,200			85,353			3,113,165			3,019,602			316,919			24,688			196,639			3,557,848
	3,056,901			1,025,223			1,054,893			1,990,758			7,127,775			3,419,922			1,360,555			1,744,733			2,321,630			8,846,840
Period Gap (Assets - Liabilities)	$	(2,371,092	)	$	190,894		$	362,957		$	819,696		$	(997,545	)	$	(2,806,221	)	$	(267,529	)	$	(296,724	)	$	499,725		$	(2,870,749	)
Cumulative Gap	$	(2,371,092	)	$	(2,180,198	)	$	(1,817,241	)	$	(997,545	)				$	(2,806,221	)	$	(3,073,750	)	$	(3,370,474	)	$	(2,870,749	)
Cumulative Gap to Total Assets	(7.6		)%	(7.0		)%	(5.8		)%	(3.2		)%				(8.7		)%	(9.5		)%	(10.4		)%	(8.9		)%

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.

MARKET RISK

Market risk refers to potential losses arising 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 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. The ALCO is responsible for market risk management which involves devising policy guidelines, risk measures and

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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 indexes, 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 when rates fall, while certain depositors can redeem their certificates of deposit early when rates rise.

We use an asset/liability model to measure our interest rate risk. Interest rate risk measures we utilize include earnings simulation, ~~economic value of equity (EVE)~~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.

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The following repricing gap analysis as of ~~September~~June 30, ~~2017~~2018 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 2830


(dollars in thousands)	Within 1 Month			2-3 Months			4-6 Months			7-12 Months			Total 1 Year		Within 1 Month			2-3 Months			4-6 Months			7-12 Months			Total 1 Year
Assets
Loans	$	8,477,022		$	1,176,963		$	968,677		$	1,648,686		$	12,271,348	$	9,605,938		$	821,004		$	822,581		$	1,530,959		$	12,780,482
Investments	159,156			191,906			264,352			445,157			1,060,571		101,917			157,611			350,631			447,088			1,057,247
	8,636,178			1,368,869			1,233,029			2,093,843			13,331,919		9,707,855			978,615			1,173,212			1,978,047			13,837,729
Liabilities
Non-maturity deposits	6,372,068			—			—			—			6,372,068		5,998,778			—			—			—			5,998,778
Time deposits	297,708			415,566			439,005			847,902			2,000,181		325,226			696,962			1,196,851			1,077,838			3,296,877
Borrowings	3,162,164			732,752			68,524			48,003			4,011,443		3,469,360			943,400			9,659			166,580			4,588,999
	9,831,940			1,148,318			507,529			895,905			12,383,692		9,793,364			1,640,362			1,206,510			1,244,418			13,884,654
Off-balance sheet	(100,000		)	405,000			—			—			305,000		(100,000		)	555,000			—			—			455,000
Period Gap (assets – liabilities + off-balance sheet)	$	(1,295,762	)	$	625,551		$	725,500		$	1,197,938		$	1,253,227	$	(185,509	)	$	(106,747	)	$	(33,298	)	$	733,629		$	408,075
Cumulative Gap	$	(1,295,762	)	$	(670,211	)	$	55,289		$	1,253,227				$	(185,509	)	$	(292,256	)	$	(325,554	)	$	408,075
Cumulative Gap to Assets	(4.8		)%	(2.5		)%	0.2		%	4.7		%			(0.7		)%	(1.0		)%	(1.2		)%	1.5		%

The twelve-month cumulative repricing gap to total ~~earning~~ assets was ~~4.7%~~1.5% and ~~4.9%~~3.0% as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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 then net interest income will increase and, conversely, if interest rates decrease then net interest income will decrease. The change in the cumulative repricing gap at June 30, 2018 compared to December 31, 2017, primarily related to seasonally lower corporate and public funds deposits in the second quarter.

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.

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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 versus the net interest income and EVE that was calculated assuming market rates as of ~~September~~June 30, ~~2017.~~

~~Table~~2018. Using a static Balance Sheet structure, the measures do not reflect all of ~~Contents~~

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:

TABLE 2931


	September 30, 2017		December 31, 2016		ALCO Limits		June 30, 2018		December 31, 2017		ALCO Limits
Net interest income change (12 months):
+ 300 basis points	2.1	%	3.9	%	n/a		2.7	%	3.0	%	n/a
+ 200 basis points	1.7	%	2.8	%	(5.0	)%	2.0	%	2.3	%	(5.0	)%
+ 100 basis points	1.0	%	1.5	%	(5.0	)%	1.2	%	1.3	%	(5.0	)%
- 100 basis points	(3.6	)%	(4.0	)%	(5.0	)%	(3.1	)%	(3.9	)%	(5.0	)%
Economic value of equity:
+ 300 basis points	(5.1	)%	(3.8	)%	(25.0	)%	(7.1	)%	(5.9	)%	(25.0	)%
+ 200 basis points	(2.9	)%	(2.4	)%	(15.0	)%	(46.0	)%	(3.7	)%	(15.0	)%
+ 100 basis points	(0.8	)%	(0.6	)%	(10.0	)%	(1.8	)%	(1.2	)%	(10.0	)%
- 100 basis points	(3.3	)%	(4.3	)%	(10.0	)%	(1.1	)%	(2.6	)%	(10.0	)%

We also model rate scenarios which move all rates gradually over twelve months (Rate Ramps) and ~~also~~ model scenarios that gradually change the shape of the yield curve. AAssuming a static Balance Sheet, a +300 basis point Rate Ramp increases net interest income (12 months) by ~~1.6%~~2.1% at ~~September~~June 30, ~~2017~~2018 and ~~3.3%~~2.0% at December 31, ~~2016.~~2017.

Our strategy is generally to manage to a neutral interest rate risk position. However, given the current interest rate environment, the interest rate risk position has been managed to a modestly asset-sensitive position. Currently, rising rates are expected to have a modest, positive effect on net interest income versus net interest income if rates remained unchanged.

The ALCO utilizes several tactics to manage our interest rate risk position. As mentioned earlier, the growth in transaction deposits provides funding that is less interest rate-sensitive than short-term time deposits and wholesale borrowings. 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. Total variable and adjustable-rate loans were ~~56.7%~~57.2% and ~~60.3%~~56.6% of total loans as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. As of ~~September~~June 30, ~~2017, 79.1%~~2018, 79.5% of these loans, or ~~56.7%~~45.5% of total loans, are tied to the Prime ~~and~~or one-month LIBOR rates. The investment portfolio is used, in part, to manage our interest rate risk position. ~~We have managed the duration of our investment portfolio to be relatively short, resulting in a portfolio duration of 4.1 and 3.9 years for September 30, 2017 and December 31, 2016, respectively.~~ Finally, we have made use of interest rate swaps to commercial borrowers (commercial swaps) to manage our interest rate risk position as the commercial swaps effectively increase adjustable-rate loans. As of ~~September~~June 30, ~~2017,~~2018, the commercial swaps totaled ~~$2.1~~$2.5 billion of notional principal, with ~~$557.7~~$383.9 million in notional swap principal originated during the first ~~nine~~six months of ~~2017.~~2018. The success of the aforementioned tactics has resulted in a moderately asset-sensitive position. For additional information regarding interest rate swaps, see Note 9 in this Report.

We desired to remain modestly asset-sensitive during the first ~~nine~~six months of ~~2017.~~2018. A number of management actions and market occurrences resulted in athe slight decrease in the asset sensitivity of our interest rate risk position during the period. The decrease was primarily due to the seasonal trough in business and government deposits resulting in a higher short-term funding position at the measurement date. This was offset by management's actions with the ~~acquisition of YDKN in conjunction with~~ timing of funding loan and investment growth, as well as efforts to extend maturities in certificate of deposit ~~activity. The primary drivers increasing asset sensitivity involved repositioning the acquired investments~~activity and FHLB advances portfolios, with the biggest driver being an increase in our short-term funding position. These actions were done in conjunction with normal activity which included growth in transaction deposits referred to earlier, an increase in the amount of adjustable loans repricing in twelve months or less, and terming out fixed borrowings.continued strong commercial loan interest rate swap activity.

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 ~~to be~~is reasonable, there can be no assurance that modeled results will be achieved.

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Furthermore, the metrics are based upon the ~~balance sheet~~Balance Sheet structure as of the valuation date and do not reflect the planned growth or management actions that could be taken.

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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 stockholder value, while balancing prudent business and safety and soundness considerations.

The Board of Directors adopted a risk appetite statement that defines acceptable risk levels or risk limits under which the company seeks to operate in order to optimize returns, while managing risk. As such, the board monitors a host of risk metrics from both business and operational units, as well as by risk category, to provide insight into how the company’s performance aligns with our risk appetite. The risk appetite dashboard is reviewed periodically by the Board of Directors and senior management to ensure performance alignment with our risk appetite, and where appropriate, makes adjustments to applicable business strategies and tactics where risks approach our desired risk tolerance limits.

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 environment, with the goal of ensuring that our risk appetite remains consistent with our strategic plans and business operations, regulatory environment and our shareholders' expectations. Reports relating to our risk appetite and strategic plans, and our ongoing monitoring thereof, are regularly presented to our various management level risk oversight and planning committees and periodically reported up through our Board Risk Committee.

As noted above, we have a Risk Management Council comprised of senior management. The purpose of this committee is to provide regular oversight of specific areas of risk with respect to the level of risk and risk management structure. Management has also established an Operational Risk Committee that is responsible for identifying, evaluating and monitoring operational risks across FNB, evaluating and approving appropriate remediation efforts to address identified operational risks and providing periodic reports concerning operational risks to the Risk Management Council. The Risk Management Council reports on a regular basis to the Risk Committee of our Board of Directors regarding our enterprise-wide risk profile and other significant risk management issues. Our Chief Risk Officer is responsible for the design and implementation of our enterprise-wide risk management strategy and framework through the Compliance Department and the Information and Cyber Security Department, both of which report to the Chief Risk Officer, and ensures the coordinated and consistent implementation of risk management initiatives and strategies on a day-to-day basis. Our Compliance Department, which reports to the Chief Risk Officer, is responsible for developing policies and procedures and monitoring compliance with applicable laws and regulations. Our Information and Cyber Security Department ~~which reports to the Chief Risk Officer,~~ is responsible for maintaining a risk assessment of our information and cyber security risks and ensuring appropriate controls are in place to manage and control such risks, including designing appropriate testing plans to ensure the integrity of information and cyber security controls. Further, our audit function performs an

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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. Both the Risk Committee and Audit Committee 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 we receive;

understand the businesses, investments and financial, accounting, legal, regulatory and strategic considerations and the risks that we face;

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 3032

Operating Net Income Available to Common Stockholders


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Net income available to common stockholders	$	75,683		$	50,158		$	169,048		$	113,570		$	83,196		$	72,396		$	167,948		$	93,365
Merger-related expense	1,381			299			55,459			35,790			—			1,354			—			54,078
Tax benefit of merger-related expense	(483		)	(105		)	(18,481		)	(12,209		)	—			(419		)	—			(17,998		)
Merger-related net securities gains	—			—			(2,609		)	—			—			—			—			(2,609		)
Tax expense of merger-related net securities gains	—			—			913			—			—			—			—			913
Discretionary 401(k) contribution													874			—			874			—
Tax benefit of discretionary 401(k) contribution													(184		)	—			(184		)	—
Branch consolidation costs													6,616			—			6,616			—
Tax benefit of branch consolidation costs													(1,389		)	—			(1,389		)	—
Operating net income available to common stockholders (non-GAAP)	$	76,581		$	50,352		$	204,330		$	137,151		$	89,113		$	73,331		$	173,865		$	127,749

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 this measurement helps investors understand the effect of acquisition activity inand recent tax reform on reported results. We use operating net income available to common stockholders to better understand business performance and the underlying trends produced by core business activities. We believe merger-related expenses are not organic costs to run our operations and facilities. These charges represent expenses to satisfy contractual obligations of an acquired entity without any useful benefit to us and to convert and consolidate the entity’s records onto our platforms. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction.

~~TABLE 31~~

~~Operating Earnings per Diluted Common Share~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income per diluted common share $ 0.23
$ 0.24
$ 0.57
$ 0.55
Merger-related expense 0.01
—
0.19
0.18
Tax benefit of merger-related expense —
—
(0.06 ) (0.06 )
Merger-related net securities gains —
—
(0.01 ) —
Tax expense of merger-related net securities gains —
—
—
—
Operating earnings per diluted common share (non-GAAP) $ 0.24
$ 0.24
$ 0.69
$ 0.67

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TABLE 3233

Operating Earnings per Diluted Common Share



	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
Net income per diluted common share	$	0.26		$	0.22	$	0.52		$	0.33
Merger-related expense	—			0.01		—			0.19
Tax benefit of merger-related expense	—			—		—			(0.06		)
Merger-related net securities gains	—			—		—			(0.01		)
Tax expense of merger-related net securities gains	—			—		—			—
Discretionary 401(k) contribution	—			—		—			—
Tax benefit of discretionary 401(k) contribution	—			—		—			—
Branch consolidation costs	0.02			—		0.02			—
Tax benefit of branch consolidation costs	(0.01		)	—		(0.01		)	—
Operating earnings per diluted common share (non-GAAP)	$	0.27		$	0.23	$	0.53		$	0.45

TABLE 34

Return on Average Tangible Common Equity


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Net income available to common stockholders (annualized)	$	300,266		$	199,543		$	226,017		$	151,703		$	333,699		$	290,381		$	338,679		$	188,277
Amortization of intangibles, net of tax (annualized)	12,392			9,234			11,051			8,342			12,077			12,547			12,791			10,369
Tangible net income available to common stockholders (annualized) (non-GAAP)	$	312,658		$	208,777		$	237,068		$	160,045		$	345,776		$	302,928		$	351,470		$	198,646
Average total stockholders’ equity	$	4,426,980		$	2,562,693		$	3,945,621		$	2,475,198		$	4,461,510		$	4,386,438		$	4,445,976		$	3,700,953
Less: Average preferred stockholder equity	(106,882		)	(106,882		)	(106,882		)	(106,882		)
Less: Average preferred stockholders' equity													(106,882		)	(106,882		)	(106,882		)	(106,882		)
Less: Average intangibles ⁽¹⁾	(2,344,077		)	(1,093,378		)	(2,028,377		)	(1,049,998		)	(2,337,249		)	(2,348,767		)	(2,338,509		)	(1,867,911		)
Average tangible common equity (non-GAAP)	$	1,976,021		$	1,362,433		$	1,810,362		$	1,318,318		$	2,017,379		$	1,930,789		$	2,000,585		$	1,726,160
Return on average tangible common equity (non-GAAP)	15.82		%	15.32		%	13.10		%	12.14		%	17.14		%	15.69		%	17.57		%	11.51		%

(1) Excludes loan servicing rights.

~~TABLE 33~~

~~Return on Average Tangible Assets~~

Three Months Ended
September 30, Nine Months Ended
September 30,
(dollars in thousands) 2017 2016 2017 2016
Net income (annualized) $ 308,237
$ 207,540
$ 234,078
$ 159,757
Amortization of intangibles, net of tax (annualized) 12,392
9,234
11,051
8,342
Tangible net income (annualized) (non-GAAP) $ 320,629
$ 216,774
$ 245,129
$ 168,099
Average total assets $ 30,910,664
$ 21,386,156
$ 28,470,888
$ 20,364,810
Less: Average intangibles ⁽¹⁾
(2,344,077 ) (1,093,378 ) (2,028,377 ) (1,049,998 )
Average tangible assets (non-GAAP) $ 28,566,587
$ 20,292,778
$ 26,442,511
$ 19,314,812
Return on average tangible assets (non-GAAP) 1.12 % 1.07 % 0.93 % 0.87 %

~~(1)Excludes loan servicing rights.~~

~~TABLE 34~~

~~Tangible Book Value per Common Share~~

Three Months Ended
September 30,
(in thousands, except per share data) 2017 2016
Total stockholders’ equity $ 4,435,921
$ 2,570,580
Less: Preferred stockholders’ equity (106,882 ) (106,882 )
Less: Intangibles ⁽¹⁾
(2,351,707 ) (1,091,876 )
Tangible common equity (non-GAAP) $ 1,977,332
$ 1,371,822
Ending common shares outstanding 323,301,548
210,224,194
Tangible book value per common share (non-GAAP) $ 6.12
$ 6.53

~~(1)Excludes loan servicing rights.~~

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~~TABLE 35~~

~~Tangible equity to tangible assets (period-end)~~

Three Months Ended
September 30,
(dollars in thousands) 2017 2016
Total stockholders' equity $ 4,435,921
$ 2,570,580
Less: intangibles⁽¹⁾
(2,351,707 ) (1,091,876 )
Tangible equity (non-GAAP) $ 2,084,214
$ 1,478,704
Total assets $ 31,123,295
$ 21,583,914
Less: intangibles⁽¹⁾
(2,351,707 ) (1,091,876 )
Tangible assets (non-GAAP) $ 28,771,588
$ 20,492,038
Tangible equity / tangible assets (period-end) (non-GAAP) 7.24 % 7.22 %

~~(1) Excludes loan servicing rights.~~

~~TABLE 36~~

~~Tangible common equity / tangible assets (period-end)~~

Three Months Ended
September 30,
(dollars in thousands) 2017 2016
Total stockholders' equity $ 4,435,921
$ 2,570,580
Less: preferred stockholders' equity (106,882 ) (106,882 )
Less: intangibles ⁽¹⁾
(2,351,707 ) (1,091,876 )
Tangible common equity (non-GAAP) $ 1,977,332
$ 1,371,822
Total assets $ 31,123,295
$ 21,583,914
Less: intangibles⁽¹⁾
(2,351,707 ) (1,091,876 )
Tangible assets (non-GAAP) $ 28,771,588
$ 20,492,038
Tangible common equity / tangible assets (period-end) (non-GAAP) 6.87 % 6.69 %

~~(1) Excludes loan servicing rights.~~

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TABLE 35

Return on Average Tangible Assets



	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2018			2017			2018			2017
Net income (annualized)	$	341,762		$	298,443		$	346,786		$	196,384
Amortization of intangibles, net of tax (annualized)	12,077			12,547			12,791			10,369
Tangible net income (annualized) (non-GAAP)	$	353,839		$	310,990		$	359,577		$	206,753
Average total assets	$	31,947,751		$	30,364,645		$	31,722,381		$	27,230,782
Less: Average intangibles ⁽¹⁾	(2,337,249		)	(2,348,767		)	(2,338,509		)	(1,867,911		)
Average tangible assets (non-GAAP)	$	29,610,502		$	28,015,878		$	29,383,872		$	25,362,871
Return on average tangible assets (non-GAAP)	1.19		%	1.11		%	1.22		%	0.82		%

(1)Excludes loan servicing rights.

TABLE 36

Tangible Book Value per Common Share



	Three Months Ended June 30,
(in thousands, except per share data)	2018			2017
Total stockholders’ equity	$	4,473,242		$	4,392,438
Less: Preferred stockholders’ equity	(106,882		)	(106,882		)
Less: Intangibles ⁽¹⁾	(2,335,445		)	(2,346,653		)
Tangible common equity (non-GAAP)	$	2,030,915		$	1,938,903
Ending common shares outstanding	324,258,342			323,226,474
Tangible book value per common share (non-GAAP)	$	6.26		$	6.00

(1)Excludes loan servicing rights.

TABLE 37

Tangible equity to tangible assets (period-end)



	Three Months Ended June 30,
(dollars in thousands)	2018			2017
Total stockholders' equity	$	4,473,242		$	4,392,438
Less: Intangibles⁽¹⁾	(2,335,445		)	(2,346,653		)
Tangible equity (non-GAAP)	$	2,137,797		$	2,045,785
Total assets	$	32,257,563		$	30,753,726
Less: Intangibles⁽¹⁾	(2,335,445		)	(2,346,653		)
Tangible assets (non-GAAP)	$	29,922,118		$	28,407,073
Tangible equity / tangible assets (period-end) (non-GAAP)	7.14		%	7.20		%

(1) Excludes loan servicing rights.

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TABLE 38

Tangible common equity / tangible assets (period-end)



	Three Months Ended June 30,
(dollars in thousands)	2018			2017
Total stockholders' equity	$	4,473,242		$	4,392,438
Less: Preferred stockholders' equity	(106,882		)	(106,882		)
Less: Intangibles ⁽¹⁾	(2,335,445		)	(2,346,653		)
Tangible common equity (non-GAAP)	$	2,030,915		$	1,938,903
Total assets	$	32,257,563		$	30,753,726
Less: Intangibles⁽¹⁾	(2,335,445		)	(2,346,653		)
Tangible assets (non-GAAP)	$	29,922,118		$	28,407,073
Tangible common equity / tangible assets (period-end) (non-GAAP)	6.79		%	6.83		%

(1) Excludes loan servicing rights.

TABLE 39

Efficiency Ratio


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Non-interest expense	$	163,743		$	121,050		$	515,012		$	387,327		$	183,013		$	163,714		$	354,096		$	351,269
Less: Amortization of intangibles	(4,805		)	(3,571		)	(12,716		)	(9,608		)	(3,811		)	(4,813		)	(8,029		)	(7,911		)
Less: OREO expense	(1,421		)	(1,172		)	(3,412		)	(2,752		)	(2,233		)	(1,008		)	(3,600		)	(1,991		)
Less: Merger-related expense	(1,381		)	(299		)	(55,459		)	(35,790		)	—			(1,354		)	—			(54,078		)
Less: Impairment charge on other assets	—			—			—			(2,585		)
Less: Discretionary 401(k) contribution													(874		)	—			(874		)	—
Less: Branch consolidation costs													(2,939		)	—			(2,939		)	—
Adjusted non-interest expense	$	156,136		$	116,008		$	443,425		$	336,592		$	173,156		$	156,539		$	338,654		$	287,289
Net interest income	$	225,231		$	157,506		$	616,398		$	452,229		$	239,355		$	218,415		$	465,460		$	391,167
Taxable equivalent adjustment	5,173			2,895			13,169			8,148			3,319			4,474			6,422			7,996
Non-interest income	66,151			53,240			187,345			150,695			64,889			66,078			132,392			121,194
Less: Net securities gains	(2,777		)	(299		)	(5,895		)	(596		)	(31		)	(493		)	(31		)	(3,118		)
Less: Gain on redemption of TPS	—			—			—			(2,422		)
Less: Branch consolidation costs													3,677			—			3,677			—
Adjusted net interest income (FTE) + non-interest income	$	293,778		$	213,342		$	811,017		$	608,054		$	311,209		$	288,474		$	607,920		$	517,239
Efficiency ratio (FTE) (non-GAAP)	53.15		%	54.38		%	54.68		%	55.36		%	55.64		%	54.26		%	55.71		%	55.54		%


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is provided ~~under~~in the ~~caption~~ Market Risk ~~in Part I, Item 2 - Management’s~~ section of "Management’s Discussion and Analysis of Financial Condition and Results of Operations," which is included in Item 2 of this Report, and is incorporated herein by reference. There are no material changes in the information provided under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” included in our ~~2016~~2017 Annual Report on Form 10-K as filed with the SEC on February ~~23, 2017.~~28, 2018.

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ITEM 4.	CONTROLS AND PROCEDURES

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

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

CHANGES IN INTERNAL CONTROLS. The CEO and the CFO have evaluated the changes to our internal controls over financial reporting that occurred during our fiscal quarter ended ~~September~~June 30, ~~2017,~~2018, 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.

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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 9 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 Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. See also Part I, Item 2 (Management’s Discussion and Analysis) of this Report.

~~Additionally, the risk factors below relate to the recently completed acquisition~~There are no material changes from any of ~~YDKN and its wholly-owned subsidiary, Yadkin Bank, and are in addition to~~ the risk factors previously disclosed in our 2017 Annual Report on Form 10-K ~~for the year ended December 31, 2016.~~

~~The SBA lending program is dependent upon the federal government, and we will have specific risks associated with originating SBA loans.~~

~~We are a SBA Preferred Lender, and~~ as a result of the YDKN acquisition, we increased our participation in the SBA lending program, which is dependent upon the federal government. SBA Preferred Lenders enable their clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions or impose enforcement actions, including revocation of the lender’s Preferred Lender status. If we lose our status as a Preferred Lender, we may lose our customers to lenders who are SBA Preferred Lenders, and as a result we could experience a material adverse effect to our financial results. Any changes to the SBA program, including changes to the level of guarantee provided by the federal government on SBA loans, may also have an adverse effect on our business.

We plan to continue YDKN’s practice of selling the guaranteed portion of our SBA 7(a) loans in the secondary market. Those sales may earn premium income and/or create a stream of future servicing income. We have not previously operated a SBA lending program similar to YDKN’s. There can be no assurance that we will be able to continue originating these loans, that a secondary market will exist or that we will continue to realize premiums upon the sale of the guaranteed portion of these loans. When the guaranteed portion of our SBA 7(a) loans is sold, we will incur credit risk on the non-guaranteed portion of the loans. We also will share pro-ratafiled with the ~~SBA in any recoveries. If the SBA establishes that a loss~~SEC on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency from us, which could materially adversely affect our results of operations. In certain situations, we may elect to repurchase previously sold portions of SBA 7(a) loans that are delinquent, which may result in higher levels of nonperforming loans.

Our decisions regarding the credit risk associated with YDKN’s loan portfolio could be incorrect and our credit mark may be inadequate, which may adversely affect our financial condition and results of operations.

Prior to the acquisition, we conducted extensive due diligence on a significant portion of the YDKN loan portfolio; however, our review did not encompass each and every loan in the YDKN loan portfolio. In accordance with customary industry practices, we evaluated the YDKN loan portfolio based on various factors including, among other things, historical loss experience, economic risks associated with each loan category, volume and types of loans, trends in classification, volume and trends in delinquencies and nonaccruals, and general economic conditions, both local and national. In this process, our management made various assumptions and judgments about the collectability of the loan portfolio, including the creditworthiness and financial condition of the borrowers, the value of the real estate, which is obtained from independent appraisers, other assets serving as collateral for the repayment of the loans, the existence of any guarantees and indemnifications and the economic environment in which the borrowers operate. In addition, the effects of probable decreases in expected principal cash flows on the YDKN loans were considered as part of our evaluation. If our assumptions and judgments turn out to be incorrect, including as a result of the fact that our due diligence review did not cover each individual loan, our estimated credit mark against the YDKN loan portfolio in total may be insufficient to cover actual loan losses after the merger is completed, and adjustments may be necessary to allow for different economic conditions or adverse developments in the YDKN loan portfolio. Additionally, deterioration in economic conditions affecting borrowers, new information regarding

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existing loans, identification of additional problem loans and other factors, both within and outside our control, may require an increase in the provision for loan losses. Material additions to the credit mark and/or allowance for loan losses would materially decrease our net income and would result in extra regulatory scrutiny and possibly supervisory action.

~~We may not be able to compete successfully in our new North Carolina and South Carolina markets.~~

We have no prior operating experience in the North Carolina and South Carolina markets, which is a more competitive market environment than our primary markets in Pennsylvania, Maryland and Ohio. Our success in these new markets will depend on a variety of factors, including our ability to successfully integrate the YDKN businesses with ours; our ability to retain and attract experienced personnel, build brand awareness, and retain existing customers as well as acquire new customers; the continued availability of desirable business opportunities and locations; and the competitive responses from other financial institutions in the new market areas. Unlike our previous acquisitions, the North Carolina and South Carolina markets are not geographically contiguous with our current market area, which could increase the difficulty of integrating the YDKN businesses with ours. Failure to compete successfully in these new market areas could have a material adverse effect on our business, financial condition and results of operations.

Hurricanes, excessive rainfall, droughts or other adverse weather events could negatively affect the local economies in the North Carolina and South Carolina markets, or disrupt our operations in those markets, which could have an adverse effect on our business or results of operations.

The economy of the coastal regions of North Carolina and South Carolina are affected, from time to time, by adverse weather events, particularly hurricanes. Upon completion of the YDKN acquisition, our market area will include the Outer Banks and other portions of coastal North Carolina. Agricultural interests are highly sensitive to excessive rainfall or droughts. We cannot predict whether, or to what extent, damage caused by future weather conditions will affect our operations, customers or the economies in our North Carolina and South Carolina markets. Weather events could cause a disruption in our day-to-day business activities in branches located in coastal communities, a decline in loan originations, destruction or decline in the value of properties securing our loans, or an increase in the risks of delinquencies, foreclosures, and loan losses. Even if a hurricane does not cause any physical damage in our North Carolina and South Carolina market areas, a turbulent hurricane season could significantly affect the market value of all coastal property.February 28, 2018.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

NONE


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

NONE


ITEM 4.	MINE SAFETY DISCLOSURES

Not Applicable.

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ITEM 5.	OTHER INFORMATION

NONE

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ITEM 6. EXHIBITS

Exhibit Index



~~31.1~~Exhibit Number		Description
31.1.		Certification of Chief Executive Officer Sarbanes-Oxley Act Section 302. (filed herewith).

~~31.2~~31.2.		Certification of Chief Financial Officer Sarbanes-Oxley Act Section 302. (filed herewith).

~~32.1~~32.1.		Certification of Chief Executive Officer Sarbanes-Oxley Act Section 906. (furnished herewith).

~~32.2~~32.2.		Certification of Chief Financial Officer Sarbanes-Oxley Act Section 906. (furnished herewith).

101		The following materials from F.N.B. Corporation’s Quarterly Report on Form 10-Q for the period ended ~~September~~June 30, ~~2017,~~2018, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements. (filed herewith).

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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:	~~November 6, 2017~~August 7, 2018	/s/ Vincent J. Delie, Jr.
		Vincent J. Delie, Jr.
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

Dated:	~~November 6, 2017~~August 7, 2018	/s/ Vincent J. Calabrese, Jr.
		Vincent J. Calabrese, Jr.
		Chief Financial Officer
		(Principal Financial Officer)

Dated:	~~November 6, 2017~~August 7, 2018	/s/ James L. Dutey
		James L. Dutey
		Corporate Controller
		(Principal Accounting Officer)

9889



(in thousands)
Acquired Asset or Liability	Balance Sheet Line Item	Provisional Estimate		Revised Estimate		Increase (Decrease)
Loans and leases	Loans and leases, net	$	5,116,497	$	5,114,355	$	(2,142	)
Premises and equipment	Premises and equipment, net	95,208		70,370		(24,838		)
Deferred taxes	Other assets	94,307		115,017		20,710
Other liabilities	Other liabilities	70,761		69,863		(898		)



(dollars in thousands, except per share data)	FNB		YDKN		Pro Forma Adjustments			Pro Forma Combined
Nine Months Ended September 30, 2017
Revenue (net interest income and non-interest income)	$	782,844	$	74,574	$	519		$	857,937
Net income	203,352		22,435		(1,832		)	223,955
Net income available to common stockholders	197,322		22,435		(1,832		)	217,925
Earnings per common share – basic	0.79		1.06		—			0.74
Earnings per common share – diluted	0.79		1.06		—			0.73
Nine Months Ended September 30, 2016
Revenue (net interest income and non-interest income)	602,924		219,305		(3,968		)	818,261
Net income	119,600		41,490		(5,897		)	155,193
Net income available to common stockholders	113,570		41,490		(5,897		)	149,163
Earnings per common share – basic	0.55		0.88		—			0.48
Earnings per common share – diluted	0.55		0.88		—			0.48



(in thousands)	YDKN		Fifth Third Branches			METR
Fair value of consideration paid	$	1,784,783	$	—		$	404,242
Fair value of identifiable assets acquired:
Cash and cash equivalents	196,964		198,872			46,890
Securities	940,272		—			722,980
Loans	5,114,355		95,354			1,862,447
Core deposit and other intangible assets	69,555		4,129			24,163
Fixed and other assets	460,124		14,069			127,185
Total identifiable assets acquired	6,781,270		312,424			2,783,665
Fair value of liabilities assumed:
Deposits	5,176,915		302,529			2,328,238
Borrowings	969,385		—			227,539
Other liabilities	72,754		24,041			8,700
Total liabilities assumed	6,219,054		326,570			2,564,477
Fair value of net identifiable assets acquired	562,216		(14,146		)	219,188
Goodwill recognized ⁽¹⁾	$	1,222,567	$	14,146		$	185,054



(in thousands)	Acquired Impaired Loans			Acquired Performing Loans			Total
Contractually required cash flows at acquisition	$	46,053		$	5,085,712		$	5,131,765
Non-accretable difference (expected losses and foregone interest)	(23,924		)	(406,173		)	(430,097		)
Cash flows expected to be collected at acquisition	22,129			4,679,539			4,701,668
Accretable yield	(3,266		)	(441,449		)	(444,715		)
Fair value of acquired loans at acquisition	$	18,863		$	4,238,090		$	4,256,953



	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
(dollars in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial real estate	1	$	463	1	$	463
Commercial and industrial	—	—		3	326
Total commercial loans	1	463		4	789
Direct installment	39	265		91	278
Residential mortgages	1	80		4	264
Indirect installment	4	22		12	22
Consumer lines of credit	3	26		4	89
Total	48	$	856	115	$	1,442



(in thousands)	Gross Amount		Gross Amounts Offset in the Balance Sheet		Net Amount Presented in the Balance Sheet
September 30, 2017
Derivative Assets
Subject to master netting arrangements:
Interest rate contracts
Designated	$	807	$	—	$	807
Not designated	491		—		491
Equity contracts – not designated	49		—		49
Not subject to master netting arrangements:
Interest rate contracts – not designated	36,814		—		36,814
Interest rate lock commitments – not designated	4,569		—		4,569
Forward delivery commitments – not designated	705		—		705
Credit risk contracts – not designated	42		—		42
Total derivative assets	$	43,477	$	—	$	43,477



(in thousands)	Gross Amount		Gross Amounts Offset in the Balance Sheet		Net Amount Presented in the Balance Sheet
December 31, 2016
Derivative Assets
Subject to master netting arrangements:
Interest rate contracts
Designated	$	9,256	$	—	$	9,256
Not designated	12,720		—		12,720
Equity contracts – not designated	61		—		61
Not subject to master netting arrangements:
Interest rate contracts – not designated	32,170		—		32,170
Credit risk contracts – not designated	13		—		13
Total derivative assets	$	54,220	$	—	$	54,220



	Nine Months Ended September 30,						Dollar			Percent
(dollars in thousands)	2017			2016			Change			Change
Provision for credit losses:
Originated	$	46,050		$	43,296		$	2,754		6.4	%
Acquired	(1,676		)	(249		)	(1,427		)	573.1
Total provision for credit losses	$	44,374		$	43,047		$	1,327		3.1	%
Net loan charge-offs:
Originated	$	33,607		$	28,068		$	5,539		19.7	%
Acquired	(1,190		)	97			(1,287		)	(1,326.8	)
Total net loan charge-offs	$	32,417		$	28,165		$	4,252		15.1	%
Net loan charge-offs (annualized) / total average loans and leases	0.23		%	0.27		%
Net originated loan charge-offs (annualized) / total average originated loans and leases	0.33		%	0.32		%