0000037808 srt:MaximumMember us-gaap:FederalHomeLoanBankAdvancesMember 2019-06-30

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 June 30, ~~2018~~2019



☐	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~~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 ☒

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Exchange on which Registered
Common Stock, par value $0.01 per share	FNB	New York Stock Exchange

Depositary Shares each representing 1/40th interest in a share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series E	FNBPrE	New York Stock Exchange

APPLICABLE ONLY TO CORPORATE ISSUERS:

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



Class	Outstanding at	July 31, ~~2018~~2019
Common Stock, $0.01 Par Value	~~324,258,342~~324,873,312	Shares

~~Table of Contents~~

F.N.B. CORPORATION

FORM 10-Q

June 30, ~~2018~~2019

INDEX



		PAGE
PART I – FINANCIAL INFORMATION

	Glossary of Acronyms and Terms	3

Item 1.	Financial Statements

	Consolidated Balance Sheets	4
	Consolidated Statements of Income	5
	Consolidated Statements of Comprehensive Income	6
	Consolidated Statements of Stockholders’ Equity	7
	Consolidated Statements of Cash Flows	89
	Notes to Consolidated Financial Statements	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5657

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8789

Item 4.	Controls and Procedures	8890

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	8890

Item 1A.	Risk Factors	8890

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8890

Item 3.	Defaults Upon Senior Securities	8890

Item 4.	Mine Safety Disclosures	8890

Item 5.	Other Information	8991

Item 6.	Exhibits	8991

Signatures		8991

~~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


CFPB	Consumer Financial Protection Bureau


EVE	Economic value of equity


FASB	Financial Accounting Standards Board


FDIC	Federal Deposit Insurance Corporation


FHLB	Federal Home Loan Bank


FNB	F.N.B. Corporation


FNBPA	First National Bank of Pennsylvania


FOMC	Federal Open Market Committee


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


MD&A	Management's Discussion and Analysis


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,~~millions, except share and per share data


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	398,641		$	408,718		$	427		$	451
Interest bearing deposits with banks	35,058			70,725			72			37
Cash and Cash Equivalents	433,699			479,443			499			488
Securities available for sale	3,002,787			2,764,562
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
Debt securities available for sale							3,279			3,341
Debt securities held to maturity (fair value of $3,093 and $3,155)							3,079			3,254
Loans held for sale (includes $39 and $14 measured at fair value) ⁽¹⁾							332			22
Loans and leases, net of unearned income of $0 and $3							22,543			22,153
Allowance for credit losses	(176,574		)	(175,380		)	(188		)	(180		)
Net Loans and Leases	21,483,008			20,823,386			22,355			21,973
Premises and equipment, net	324,659			336,540			328			330
Goodwill	2,251,349			2,249,188			2,262			2,255
Core deposit and other intangible assets, net	84,096			92,075			74			79
Bank owned life insurance	532,135			526,818			539			537
Other assets	806,637			810,464			1,156			823
Total Assets	$	32,257,563		$	31,417,635		$	33,903		$	33,102
Liabilities
Deposits:
Non-interest-bearing demand	$	5,926,473		$	5,720,030		$	6,139		$	6,000
Interest-bearing demand	9,134,954			9,571,038			9,593			9,660
Savings	2,607,372			2,488,178			2,515			2,526
Certificates and other time deposits	4,870,988			4,620,479			5,484			5,269
Total Deposits	22,539,787			22,399,725			23,731			23,455
Short-term borrowings	4,334,146			3,678,337			3,711			4,129
Long-term borrowings	628,938			668,173			1,338			627
Other liabilities	281,450			262,206			370			283
Total Liabilities	27,784,321			27,008,441			29,150			28,494
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			107			107
Common stock - $0.01 par value
Authorized – 500,000,000 shares
Issued – 326,064,004 and 325,095,055 shares	3,262			3,253
Issued – 326,862,352 and 326,120,832 shares							3			3
Additional paid-in capital	4,043,124			4,033,567			4,057			4,049
Retained earnings	457,326			367,658			683			576
Accumulated other comprehensive loss	(115,885		)	(83,052		)	(72		)	(106		)
Treasury stock – 1,805,662 and 1,629,915 shares at cost	(21,467		)	(19,114		)
Treasury stock – 2,055,221 and 1,806,303 shares at cost							(25		)	(21		)
Total Stockholders’ Equity	4,473,242			4,409,194			4,753			4,608
Total Liabilities and Stockholders’ Equity	$	32,257,563		$	31,417,635		$	33,903		$	33,102


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

See accompanying Notes to Consolidated Financial Statements (unaudited)

~~Table of Contents~~

F.N.B. CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Dollars in ~~thousands,~~millions, except per share data

Unaudited


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Interest Income
Loans and leases, including fees	$	257,895	$	221,091	$	496,989	$	389,720	$	276	$	258	$	545	$	497
Securities:
Taxable	28,995		25,029		55,874		47,495		32		29		65		56
Tax-exempt	6,960		4,677		13,554		8,078		8		6		16		13
Dividends	—		76		—		85
Other	267		161		627		349		1		1		1		1
Total Interest Income	294,117		251,034		567,044		445,727		317		294		627		567
Interest Expense
Deposits	31,049		16,753		57,518		28,493		55		30		105		57
Short-term borrowings	18,409		10,959		33,616		17,633		22		19		48		34
Long-term borrowings	5,304		4,907		10,450		8,434		10		5		13		10
Total Interest Expense	54,762		32,619		101,584		54,560		87		54		166		101
Net Interest Income	239,355		218,415		465,460		391,167		230		240		461		466
Provision for credit losses	15,554		16,756		30,049		27,606		11		16		25		30
Net Interest Income After Provision for Credit Losses	223,801		201,659		435,411		363,561		219		224		436		436
Non-Interest Income
Service charges	31,114		32,090		61,191		56,671		32		31		62		61
Trust services	6,469		5,715		12,917		11,462		7		6		14		13
Insurance commissions and fees	4,567		4,347		9,702		9,488		4		5		9		10
Securities commissions and fees	4,526		3,887		8,845		7,510		5		5		9		9
Capital markets income	5,854		5,004		11,068		8,851		10		6		16		11
Mortgage banking operations	5,940		5,173		11,469		8,963		8		5		12		11
Dividends on non-marketable equity securities									4		4		9		8
Bank owned life insurance	3,077		3,092		6,362		5,245		3		3		6		6
Net securities gains	31		493		31		3,118
Other	3,311		6,277		10,807		9,886		2		—		3		3
Total Non-Interest Income	64,889		66,078		132,392		121,194		75		65		140		132
Non-Interest Expense
Salaries and employee benefits	98,671		84,899		187,997		158,477		95		99		186		188
Net occupancy	16,149		14,060		31,717		25,409		16		16		31		32
Equipment	13,183		12,420		27,648		22,050		15		13		30		27
Amortization of intangibles	3,811		4,813		8,029		7,911		3		4		7		8
Outside services	17,045		13,483		31,770		26,526		16		17		31		32
FDIC insurance	9,167		9,376		18,001		14,763		6		9		12		18
Bank shares and franchise taxes	3,240		2,742		6,692		5,722		3		4		6		7
Merger-related	—		1,354		—		54,078
Other	21,747		20,567		42,242		36,333		21		21		38		42
Total Non-Interest Expense	183,013		163,714		354,096		351,269		175		183		341		354
Income Before Income Taxes	105,677		104,023		213,707		133,486		119		106		235		214
Income taxes	20,471		29,617		41,739		36,101		24		21		46		42
Net Income	85,206		74,406		171,968		97,385		95		85		189		172
Preferred stock dividends	2,010		2,010		4,020		4,020		2		2		4		4
Net Income Available to Common Stockholders	$	83,196	$	72,396	$	167,948	$	93,365	$	93	$	83	$	185	$	168
Earnings per Common Share
Basic	$	0.26	$	0.22	$	0.52	$	0.33	$	0.29	$	0.26	$	0.57	$	0.52
Diluted	$	0.26	$	0.22	$	0.52	$	0.33	$	0.29	$	0.26	$	0.57	$	0.52
Cash Dividends per Common Share	$	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~~millions

Unaudited

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



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	95		$	85		$	189		$	172
Other comprehensive income (loss):
Securities available for sale:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $9 and $(3), $16 and $(11)	30			(9		)	54			(39		)
Derivative instruments:
Unrealized (losses) gains arising during the period, net of tax (benefit) expense of $(4) and $1, $(6) and $2	(14		)	2			(20		)	6
Reclassification adjustment for (gains) losses included in net income, net of tax expense (benefit) of $0, $0, $0 and $0	—			(1		)	(1		)	(1		)
Pension and postretirement benefit obligations:
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $0, $0, $0 and $0	—			1			1			1
Other Comprehensive Income (Loss)	16			(7		)	34			(33		)
Comprehensive Income	$	111		$	78		$	223		$	139

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,~~millions, except per share data

Unaudited

Preferred
Stock

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock
Total
Balance at January 1, 2017 $ 106,882
$ 2,125
$ 2,234,366
$ 304,397
$ (61,369 ) $ (14,784 ) $ 2,571,617
Comprehensive income 97,385
4,986
102,371
Dividends declared:
Preferred stock (4,020 ) (4,020 )
Common stock: $0.24/share (64,561 ) (64,561 )
Issuance of common stock 9
4,039
(4,304 ) (256 )
Issuance of common stock - acquisitions 1,116
1,780,819
1,781,935
Assumption of warrant due to acquisition 1,394
1,394
Restricted stock compensation 3,958
3,958
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



	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Three Months Ended June 30, 2018
Balance at beginning of period	$	107	$	3	$	4,037	$	414		$	(109	)	$	(19	)	$	4,433
Comprehensive income (loss)							85			(7		)				78
Dividends declared:
Preferred stock: $18.13/share							(2		)							(2		)
Common stock: $0.12/share							(40		)							(40		)
Issuance of common stock			—		3								(2		)	1
Restricted stock compensation					3											3
Balance at end of period	$	107	$	3	$	4,043	$	457		$	(116	)	$	(21	)	$	4,473
Three Months Ended June 30, 2019
Balance at beginning of period	$	107	$	3	$	4,052	$	629		$	(88	)	$	(23	)	$	4,680
Comprehensive income							95			16						111
Dividends declared:
Preferred stock: $18.13/share							(2		)							(2		)
Common stock: $0.12/share							(39		)							(39		)
Issuance of common stock			—		1								(2		)	(1		)
Restricted stock compensation					4											4
Balance at end of period	$	107	$	3	$	4,057	$	683		$	(72	)	$	(25	)	$	4,753



	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Six Months Ended June 30, 2018
Balance at beginning of period	$	107	$	3	$	4,033	$	368		$	(83	)	$	(19	)	$	4,409
Comprehensive income (loss)							172			(33		)				139
Dividends declared:
Preferred stock: $36.26/share							(4		)							(4		)
Common stock: $0.24/share							(79		)							(79		)
Issuance of common stock			—		5								(2		)	3
Restricted stock compensation					5											5
Balance at end of period	$	107	$	3	$	4,043	$	457		$	(116	)	$	(21	)	$	4,473
Six Months Ended June 30, 2019
Balance at beginning of period	$	107	$	3	$	4,049	$	576		$	(106	)	$	(21	)	$	4,608
Comprehensive income							189			34						223
Dividends declared:
Preferred stock: $36.26/share							(4		)							(4		)
Common stock: $0.24/share							(78		)							(78		)
Issuance of common stock			—		2								(4		)	(2		)
Restricted stock compensation					6											6
Balance at end of period	$	107	$	3	$	4,057	$	683		$	(72	)	$	(25	)	$	4,753

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~~millions

Unaudited


	Six Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2019			2018
Operating Activities
Net income	$	171,968		$	97,385		$	189		$	172
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion	57,388			36,392			20			57
Provision for credit losses	30,049			27,606			25			30
Deferred tax expense	15,541			21,226			16			16
Net securities gains	(31		)	(3,118		)
Tax benefit of stock-based compensation	(357		)	(724		)	1			—
Loans originated for sale	(529,376		)	(519,973		)	(577		)	(529		)
Loans sold	589,823			380,522			556			590
Gain on sale of loans	(11,668		)	(4,716		)
Net gain on sale of loans							(10		)	(12		)
Net change in:
Interest receivable	1,044			(462		)	(12		)	1
Interest payable	2,658			58			6			3
Bank owned life insurance	(5,367		)	(5,063		)	(3		)	(6		)
Other, net	27,613			(114,988		)	(298		)	27
Net cash flows provided by (used in) operating activities	349,285			(85,855		)
Net cash flows provided by operating activities							(87		)	349
Investing Activities
Net change in loans and leases	(719,659		)	(582,236		)	(782		)	(720		)
Securities available for sale:
Debt securities available for sale:
Purchases	(581,769		)	(592,601		)	(175		)	(581		)
Sales	—			755,866
Maturities	288,337			247,930			302			288
Debt securities held to maturity:
Purchases	(224,229		)	(782,281		)	(36		)	(224		)
Sales	—			1,574
Maturities	168,333			214,739			209			168
Increase in premises and equipment	(10,333		)	(34,832		)	(21		)	(10		)
Net cash received in business combinations	—			196,964
Loans sold, not originated for sale							110			—
Other, net	(32		)	(5,805		)	(4		)	—
Net cash flows used in investing activities	(1,079,352		)	(580,682		)	(397		)	(1,079		)
Financing Activities
Net change in:
Demand (non-interest bearing and interest bearing) and savings accounts	(110,447		)	(45,049		)	61			(110		)
Time deposits	252,901			(143,154		)	217			253
Short-term borrowings	655,809			1,126,769			(418		)	656
Proceeds from issuance of long-term borrowings	17,490			77,223			940			18
Repayment of long-term borrowings	(56,343		)	(133,162		)	(227		)	(56		)
Net proceeds from issuance of common stock	7,213			3,702			4			7
Cash dividends paid:
Preferred stock	(4,020		)	(4,020		)	(4		)	(4		)
Common stock	(78,280		)	(64,561		)	(78		)	(79		)
Net cash flows provided by financing activities	684,323			817,748			495			685
Net Increase (Decrease) in Cash and Cash Equivalents	(45,744		)	151,211			11			(45		)
Cash and cash equivalents at beginning of period	479,443			371,407			488			479
Cash and Cash Equivalents at End of Period	$	433,699		$	522,618		$	499		$	434

See accompanying Notes to Consolidated Financial Statements (unaudited)

~~Table of Contents~~

F.N.B. CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, ~~2018~~2019

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, headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in ~~eight states. Through FNBPA, we have over 150 years~~seven states and the District of ~~serving the financial and banking needs of our customers. We hold a significant retail deposit~~Columbia. Our market ~~share in attractive markets~~coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, ~~Raleigh-Durham~~Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. As of June 30, ~~2018,~~2019, we had ~~404~~378 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, ~~FNBPA.~~FNBPA, founded in 1864. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, government banking, business credit, capital markets and lease financing. Consumer banking provides a full line of consumer banking products and services including deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services. Wealth management services include ~~fiduciary and brokerage services,~~ asset management, private banking and insurance. ~~We also operate Regency Finance Company, which had 77 consumer finance offices in Pennsylvania, Ohio, Kentucky and Tennessee as of June 30, 2018.~~

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Our accompanying Consolidated Financial Statements and these Notes to ~~the~~Consolidated Financial Statements (unaudited) include subsidiaries in which we have a controlling financial interest. We own and operate FNBPA, First National Trust Company, First National Investment Services Company, LLC, F.N.B. Investment Advisors, Inc., First National Insurance Agency, LLC, ~~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.

Companies in which we hold more than a 50% voting equity interest, or a controlling financial interest, or are a variable interest entity (VIE) in which we have the power to direct the activities of an entity that most significantly impact the entity’s economic performance and has an obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE are consolidated. VIEs in which we do not hold the power to direct the activities of the entity that most significantly impact the entity’s economic performance or does not have an obligation to absorb losses or the right to receive benefits from the VIE which could potentially be significant to the VIE are not consolidated. Investments in companies that are not consolidated are accounted for using the equity method when we have the ability to exert significant influence. Investments in private investment partnerships that are accounted for under the equity method or the cost method are included in other assets and our proportional interest in the equity investments’ earnings are included in other non-interest income. Investment interests accounted for under the cost and equity methods are periodically evaluated for impairment.

The accompanying interim unaudited Consolidated Financial Statements include all adjustments that are necessary, in the opinion of management, to fairly reflect our financial position and results of operations in accordance with ~~U.S. generally accepted accounting principles.~~GAAP. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on our net income and stockholders’ equity. Events occurring subsequent to ~~the date of the~~ June 30, ~~2018 Balance Sheet~~2019 have been evaluated for potential recognition or disclosure in the Consolidated Financial Statements through the date of the filing of the Consolidated Financial Statements with the Securities and Exchange Commission.

Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The interim operating results are not necessarily indicative of operating results FNB expects for the full year. These interim unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in ~~FNB’s 2017~~our 2018 Annual Report on Form 10-K filed with the SEC on February ~~28, 2018.~~26, 2019. For a detailed description of our significant

accounting policies, see Note 1 "Summary of Significant Accounting Policies" in ~~the 2017~~our 2018 Annual Report on Form ~~10-K.~~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 and accompanying ~~Notes.~~Notes to Consolidated Financial Statements (unaudited). Actual results could materially differ from those estimates. Material estimates that are particularly susceptible to significant changes include the allowance for credit losses, accounting for loans acquired ~~loans,~~in a business combination, fair value of financial instruments, goodwill and other intangible assets, litigation, income taxes and deferred tax ~~assets~~assets.

Derivative Instruments and ~~litigation.~~Hedging Activities

~~Table~~From time to time, we may enter into derivative transactions principally to protect against the risk of ~~Contents~~

~~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 those services.

In determining the appropriate revenue recognition for our contracts with customers, we consider whether the contract has commercial substance and 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 invoiceadverse price or ~~charge under contracts with an original expected duration of one year or less. We apply this guidance~~interest rate movements 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.~~

Our services provided under contracts with customers are 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 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 consider the service contract term to be day-to-day, where each day represents the renewal of the contract. The contract does not extend beyond the services performed and revenue is 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 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 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 invoiced as services are rendered. Fees are based on a fixed amount or a scale based on the level of services provided or assets under management. The customer has the right to terminate their services agreement at any time. We determine the value of ~~services performed based~~certain assets and liabilities and on the fee schedule in effect at the time the 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 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 did not hold any trading debt securities.

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

~~Debt securities that are not classified as trading or HTM are classified as AFS. Such securities~~future cash flows. All derivative instruments are carried at fair value on the Consolidated Balance Sheets as either an asset or liability. Accounting for the changes in fair value of a derivative is dependent upon whether it has been designated in a formal, qualifying hedging relationship. For derivatives in qualifying hedging relationships, we formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking each hedge transaction. Cash flows from hedging activities are classified in the same category as the items hedged.

Beginning in the first quarter of 2019, we adopted ASU 2017-12 which provides targeted improvements to the hedge accounting model that more closely aligns the accounting and reporting for hedging relationships with ~~net unrealized gains~~risk management activities. In addition, ASU 2017-12 provides administrative relief by easing documentation requirements, simplifying the application of hedge accounting by expanding the application of the shortcut method, eliminating the separate measurement and ~~losses deemed~~reporting of hedge ineffectiveness and generally requiring the entire effect of the hedging instrument and the hedged item to be ~~temporary~~presented in the same income statement line item. We believe these changes will provide users with more useful information about the effect of our risk management activities on the financial statements.

Changes in fair value of a derivative instrument that has been designated and ~~OTTI attributable to non-credit factors reported separately~~qualifies as a ~~component of~~cash flow hedge, including any ineffectiveness, are recorded in accumulated other comprehensive income, net of tax. Amounts are reclassified from AOCI to the consolidated statements of income in the same line item used to present the earnings effect of the hedged item in the period or periods in which the hedged transaction affects earnings. Prior to 2019, the ineffective portion, if any, was reported in earnings immediately.

~~Table~~At the hedge’s inception a formal assessment is performed to determine whether changes in the fair values or cash flows of ~~Contents~~

the derivative instruments have been highly effective in offsetting changes in fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. At each reporting period thereafter, a statistical regression or qualitative analysis is performed to evaluate hedge effectiveness. If it is determined a derivative instrument has not been or will not continue to be highly effective as a hedge, hedge accounting is discontinued.

In addition, we enter into interest rate swap agreements to meet the interest rate risk management needs of qualifying commercial loan customers. These agreements provide the customer the ability to convert from variable to fixed interest rates. We then enter into positions with a derivative counterparty in order to offset our exposure on the fixed components of the customer agreements. 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. We seek to minimize counterparty credit risk by entering into transactions with only high-quality institutions. These arrangements meet the definition of derivatives, but are not designated as qualifying hedging relationships. The interest rate swap agreement with the loan customer and with the counterparty are reported at fair value in other assets and other liabilities on the Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as other income.

Leases

We ~~evaluate~~determine if an arrangement is, or contains, a lease at inception of the contract. As a lessee, we consider a contract to be, or contain, a lease if the contract conveys the right to control the use of an identified asset in exchange for consideration. We recognize in our ~~debt securities~~ Consolidated Balance Sheets the obligation to make lease payments and a right-of-use asset representing our right to use the underlying asset for the lease term. For an operating lease, the right-of-use asset and lease liability are included

in ~~a loss position~~other assets and other liabilities, respectively. Finance leases are included in premises and equipment, and other liabilities. We do not record leases with an initial term of 12 months or less on the Consolidated Balance Sheets, instead we recognize lease expense for ~~OTTI~~these leases on a ~~quarterly~~straight-line basis over the lease term. For leases that commenced before January 1, 2019, we have applied the modified retrospective transition method which resulted in comparative information not being restated. The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients,’ which permits us to not reassess our prior conclusions about lease identification, lease classification and initial direct costs.

Right-of-use assets and liabilities are initially measured at the ~~individual security level based on~~present value of lease payments over the lease term, discounted using the interest rate implicit in the lease at the commencement date. If the rate implicit in the lease cannot be readily determined, we discount the lease using our ~~intent~~incremental borrowing rate which is derived by reference to ~~sell. If we intend~~FNB's secured borrowing rate. Our leases may include options to ~~sell~~extend or terminate the ~~debt security or~~lease. When 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 its fair value. If we do not intend to sell the debt security and it is not more likely than notreasonably certain that we will exercise such an option, the lease term includes those periods. Lease expense is recognized on a straight-line basis over the lease term. Right-of-use assets are reviewed for impairment when events or circumstances indicate that the carrying amount may not be ~~required to sell~~recoverable. For operating leases, if deemed impaired, the ~~security before recovery of its amortized cost basis, OTTI must be separated into the amount representing credit loss~~right-of-use asset is written down and the amount related to all other market factors. The amount related to credit loss will be recognized in earnings. The amount related to other market factors will be recognized in other comprehensive income, net of applicable taxes.remaining balance is subsequently amortized on a straight-line basis.

We ~~perform our OTTI evaluation process in~~have real estate lease agreements with lease and non-lease components, which are generally accounted for as a ~~consistent and systematic manner and include an evaluation of all available evidence. This process considers factors such as length of time and anticipated recovery period~~single lease component.

As a lessor, when a lease meets certain criteria indicating that we effectively have transferred control of the ~~impairment, recent events specific~~underlying asset to the ~~issuer~~customer, the lease is classified as a sales-type lease. When a lease does not meet the criteria for a sales-type lease but meets the criteria of a direct financing lease, the lease is classified as a direct financing lease. When none of the required criteria for sales-type lease or direct-financing lease are met, the lease is classified as an operating lease.

Both sales-type leases and ~~recent experience regarding principal and interest payments.~~

~~Low Income Housing Tax Credit (LIHTC) Partnerships~~

~~We invest~~direct financing leases are recognized as a net investment in ~~various affordable housing projects that qualify for LIHTCs. The net investments are recorded in other assets~~the lease on the Consolidated Balance Sheets. ~~These investments generate~~The net investment comprises the lease receivable including any residual value of the underlying asset that is guaranteed by the customer or any other third party unrelated to us and the unguaranteed residual value of the underlying asset. Operating lease income is recognized over the lease term on a ~~return through the realization of federal tax credits.~~straight-line basis. We ~~use the proportional amortization method to account for a majority of our investments in these entities. LIHTCs that~~ do not ~~meet the requirements~~evaluate whether sales taxes and similar taxes imposed by a governmental authority on lease transactions and collected by us are our primary obligation as owner of the ~~proportional amortization method are recognized using the equity method. Our net investment in LIHTCs was $27.3 million~~underlying leased asset and ~~$20.9 million at June 30, 2018 and December 31, 2017, respectively. Our unfunded commitments in LIHTCs were $57.0 million and $67.2 million at June 30, 2018 and December 31, 2017, respectively.~~

exclude from lease income all taxes collected.

NOTE 2. NEW ACCOUNTING STANDARDS

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

TABLE 2.1

~~Table of Contents~~



~~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~~	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~~2019 using a modified 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.~~	was effective as of 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.~~ 2019.
Credit Losses
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ASU 2019-05, Financial Instruments-Credit Losses, (Topic 326): Targeted Transition Relief	~~This Update replaces~~These Updates replace 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~~These Updates are 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~~assets and regulatory capital. While these Updates change the measurement of the Allowance for Credit Losses (ACL), it does not change the credit risk of our lending portfolios or the ultimate losses in those portfolios. We have created a cross-functional steering committee to govern ~~implementation as~~implementation. For loans measured at amortized cost we have implemented a new modeling platform and integrated other auxiliary models to support a calculation of expected credit losses under CECL. We have made preliminary decisions on segmentation, a reasonable and supportable forecast period, reversion method and period and are finalizing other inputs necessary to execute parallel runs using the June 30, 2019 portfolio balances to ensure we are ready to calculate, review and report on our CECL ACL for the first quarter of 2020. The estimated ACL will represent Management’s estimate of credit losses over the full expected remaining life of the financial assets and also take into account expected future changes in macroeconomic conditions. We will continue to ~~review~~evaluate and ~~enhance~~refine 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. loss estimates throughout 2019. 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~~ The impact to our AFS and HTM debt securities is expected to be immaterial. Oversight and testing, as well as the development of ~~Liabilities~~
~~ASU 2016-04,~~ ~~Liabilities - Extinguishments~~policies, internal controls and preparation for expanded disclosures requirements will extend through the remainder of ~~Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (a consensus of the Emerging Issues Task Force)~~2019.	This Update ~~requires entities that sell prepaid stored-value products redeemable for goods, services or cash at third-party merchants to recognize breakage.~~	will be effective as of 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.~~2020.

~~Table of Contents~~



Standard	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~~(Topic 842), Targeted Improvements ASU 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors ASU 2019-01, Lease (Topic 842), Codification Improvements	These Updatesrequire lessees to put most leases on ~~their~~the Consolidated Balance Sheets but recognize expenses in the Consolidated Statements of Income ~~Statement~~ similar to current accounting. In addition, the Update changes the guidance for ~~sale-leaseback~~sales-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,~~We adopted these Updates in the first quarter of 2019 ~~Early adoption is permitted.~~	~~These Updates are to be applied using a~~ under the modified retrospective ~~application including~~transition method. In addition, the new standard provides a number of optional practical ~~expedients.~~expedients in transition. We ~~are~~elected the ‘package of practical expedients,’ which permits us to not reassess our prior conclusions about lease identification, lease classification and initial direct costs. Adoption of the new standard resulted in the ~~process~~recording of ~~classifying our existing~~$116 million in right-of-use assets and corresponding lease ~~portfolios, implementing a software solution, and assessing the potential impact to~~liabilities of $126 million for operating leases on our Consolidated ~~Financial Statements. We do~~Balance Sheet. The standard did not ~~believe this update will~~ materially impact our consolidated net ~~income.~~
~~Financial Instruments – Recognition~~earnings and ~~Measurement~~
~~ASU 2016-01,~~ ~~Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement~~had no impact on cash flows. These Updates were effective as 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.~~2019.

~~NOTE 3. MERGERS AND ACQUISITIONS~~

~~Yadkin Financial Corporation~~

On March 11, 2017, we completed our acquisition of YDKN, a bank holding company based in Raleigh, North Carolina. YDKN’s banking affiliate, Yadkin Bank, was merged into FNBPA on March 11, 2017. YDKN’s results of operations have been included in our Consolidated Statements of Income since that date. The acquisition enabled us to enter 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 of 2017.

On the acquisition date, the 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 UST under the Capital Purchase Program. Based on the exchange ratio, this

~~Table of Contents~~

~~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. Any adjustments to fair values and related adjustments to goodwill were recorded within the 12-month period.

NOTE 4.3. SECURITIES

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

TABLE 3.1



(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt Securities Available for Sale:
June 30, 2019
U.S. government agencies	$	172	$	—	$	—		$	172
U.S. government-sponsored entities	301		1		(1		)	301
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,318		3		(6		)	1,315
Agency collateralized mortgage obligations	1,233		14		(5		)	1,242
Commercial mortgage-backed securities	227		5		—			232
States of the U.S. and political subdivisions	15		—		—			15
Other debt securities	2		—		—			2
Total debt securities available for sale	$	3,268	$	23	$	(12	)	$	3,279
December 31, 2018
U.S. government agencies	$	188	$	—	$	(1	)	$	187
U.S. government-sponsored entities	317		—		(4		)	313
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,465		—		(36		)	1,429
Agency collateralized mortgage obligations	1,179		5		(23		)	1,161
Commercial mortgage-backed securities	229		—		(1		)	228
States of the U.S. and political subdivisions	21		—		—			21
Other debt securities	2		—		—			2
Total debt securities available for sale	$	3,401	$	5	$	(65	)	$	3,341

(in thousands)
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
Securities Available for Sale:
June 30, 2018
U.S. government agencies $ 96,085
$ —
$ (559 ) $ 95,526
U.S. government-sponsored entities 312,903
—
(5,969 ) 306,934
Residential mortgage-backed securities:
Agency mortgage-backed securities 1,626,353
390
(49,147 ) 1,577,596
Agency collateralized mortgage obligations 863,976
29
(32,188 ) 831,817
Non-agency collateralized mortgage obligations —
—
—
—
Commercial mortgage-backed securities 168,466
154
(296 ) 168,324
States of the U.S. and political subdivisions 20,795
2
(62 ) 20,735
Other debt securities 1,949
—
(94 ) 1,855
Total debt securities available for sale $ 3,090,527
$ 575
$ (88,315 ) $ 3,002,787
December 31, 2017
U.S. government-sponsored entities $ 347,767
$ 52
$ (3,877 ) $ 343,942
Residential mortgage-backed securities:
Agency mortgage-backed securities 1,615,168
1,225
(17,519 ) 1,598,874
Agency collateralized mortgage obligations 813,034
—
(18,077 ) 794,957
Non-agency collateralized mortgage obligations 1
—
—
1
States of the U.S. and political subdivisions 21,151
6
(64 ) 21,093
Other debt securities 4,913
—
(243 ) 4,670
Total debt securities 2,802,034
1,283
(39,780 ) 2,763,537
Equity securities 587
438
—
1,025
Total securities available for sale $ 2,802,621
$ 1,721
$ (39,780 ) $ 2,764,562

~~Table of Contents~~



(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt Securities Held to Maturity:
June 30, 2019
U.S. Treasury	$	1	$	—	$	—		$	1
U.S. government agencies	2		—		—			2
U.S. government-sponsored entities	190		—		(1		)	189
Residential mortgage-backed securities:
Agency mortgage-backed securities	952		4		(4		)	952
Agency collateralized mortgage obligations	728		6		(8		)	726
Commercial mortgage-backed securities	100		4		—			104
States of the U.S. and political subdivisions	1,106		18		(5		)	1,119
Total debt securities held to maturity	$	3,079	$	32	$	(18	)	$	3,093
December 31, 2018
U.S. Treasury	$	1	$	—	$	—		$	1
U.S. government agencies	2		—		—			2
U.S. government-sponsored entities	215		—		(4		)	211
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,036		—		(26		)	1,010
Agency collateralized mortgage obligations	794		1		(24		)	771
Commercial mortgage-backed securities	126		1		(1		)	126
States of the U.S. and political subdivisions	1,080		3		(49		)	1,034
Total debt securities held to maturity	$	3,254	$	5	$	(104	)	$	3,155

(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~~There were no significant gross gains ~~and~~or gross losses ~~were~~ realized on securities ~~as follows:~~

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
during the six months ended June 30, 2019 or 2018.

As of June 30, ~~2018,~~2019, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:

TABLE 3.2



	Available for Sale				Held to Maturity
(in millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	123	$	123	$	33	$	33
Due after one year but within five years	194		195		181		179
Due after five years but within ten years	73		72		97		99
Due after ten years	100		100		988		1,000
	490		490		1,299		1,311
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,318		1,315		952		952
Agency collateralized mortgage obligations	1,233		1,242		728		726
Commercial mortgage-backed securities	227		232		100		104
Total debt securities	$	3,268	$	3,279	$	3,079	$	3,093

Available for Sale Held to Maturity
(in thousands)
Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value
Due in one year or less $ 65,485
$ 65,271
$ 55,457
$ 55,236
Due from one to five years 262,288
256,488
201,924
196,157
Due from five to ten years 19,860
19,709
95,166
94,334
Due after ten years 84,099
83,582
897,390
858,391
431,732
425,050
1,249,937
1,204,118
Residential mortgage-backed securities:
Agency mortgage-backed securities 1,626,353
1,577,596
1,125,947
1,092,803
Agency collateralized mortgage obligations 863,976
831,817
840,073
806,778
Commercial mortgage-backed securities 168,466
168,324
79,124
77,576
Total debt securities $ 3,090,527
$ 3,002,787
$ 3,295,081
$ 3,181,275

~~Table of Contents~~

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:

TABLE 3.3



(dollars in millions)	June 30, 2019			December 31, 2018
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law	$	3,640		$	3,874
As collateral for short-term borrowings	246			279
Securities pledged as a percent of total securities	61.1		%	63.0		%

(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~~temporarily-impaired debt securities, segregated by length of ~~impairment:~~impairment.

TABLE 3.4


	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
(dollars in millions)																			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses
Debt Securities Available for Sale																			Debt Securities Available for Sale
June 30, 2018
June 30, 2019
U.S. government agencies	13	$	95,526	$	(559	)	—	$	—	$	—		13	$	95,526	$	(559	)	5	$	19	$	—		12	$	74	$	—		17	$	93	$	—
U.S. government-sponsored entities	5	106,668		(1,236		)	10	200,266		(4,733		)	15	306,934		(5,969		)
Residential mortgage-backed securities:
Agency mortgage-backed securities	59	1,145,743		(30,600		)	28	418,672		(18,547		)	87	1,564,415		(49,147		)
Agency collateralized mortgage obligations	17	491,313		(16,023		)	33	292,579		(16,165		)	50	783,892		(32,188		)
Commercial mortgage-backed securities	2	74,167		(296		)	—	—		—			2	74,167		(296		)
States of the U.S. and political subdivisions	7	11,476		(55		)	1	877		(7		)	8	12,353		(62		)
Other debt securities	—	—		—			3	1,855		(94		)	3	1,855		(94		)
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	)	—	—		—			9	205		(1		)	9	205		(1		)
Residential mortgage-backed securities:
Agency mortgage-backed securities	43	976,738		(7,723		)	28	473,625		(9,796		)	71	1,450,363		(17,519		)	—	—		—			53	849		(6		)	53	849		(6		)
Agency collateralized mortgage obligations	14	409,005		(6,231		)	33	335,452		(11,846		)	47	744,457		(18,077		)	—	—		—			38	370		(5		)	38	370		(5		)
States of the U.S. and political subdivisions	7	11,254		(55		)	1	879		(9		)	8	12,133		(64		)	—	—		—			3	5		—			3	5		—
Other debt securities	—	—		—			3	4,670		(243		)	3	4,670		(243		)	—	—		—			1	2		—			1	2		—
Total temporarily impaired debt securities AFS	71	$	1,503,806	$	(14,372	)	75	$	1,016,111	$	(25,408	)	146	$	2,519,917	$	(39,780	)	5	$	19	$	—		116	$	1,505	$	(12	)	121	$	1,524	$	(12	)
December 31, 2018
U.S. government agencies																			20	$	145	$	(1	)	—	$	—	$	—		20	$	145	$	(1	)
U.S. government-sponsored entities																			1	36		—			11	227		(4		)	12	263		(4		)
Residential mortgage-backed securities:
Agency mortgage-backed securities																			16	259		(4		)	71	1,159		(32		)	87	1,418		(36		)
Agency collateralized mortgage obligations																			2	82		(1		)	47	590		(22		)	49	672		(23		)
Non-agency collateralized mortgage obligations																			1	—		—			—	—		—			1	—		—
Commercial mortgage-backed securities																			4	155		(1		)	—	—		—			4	155		(1		)
States of the U.S. and political subdivisions																			2	2		—			6	10		—			8	12		—
Other debt securities																			—	—		—			1	2		—			1	2		—
Total temporarily impaired debt securities AFS																			46	$	679	$	(7	)	136	$	1,988	$	(58	)	182	$	2,667	$	(65	)

~~Table of Contents~~



	Less than 12 Months						12 Months or More						Total
(dollars in millions)	#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses
Debt Securities Held to Maturity
June 30, 2019
U.S. government-sponsored entities	—	$	—	$	—		10	$	189	$	(1	)	10	$	189	$	(1	)
Residential mortgage-backed securities:
Agency mortgage-backed securities	—	—		—			36	506		(4		)	36	506		(4		)
Agency collateralized mortgage obligations	—	—		—			38	381		(8		)	38	381		(8		)
Commercial mortgage-backed securities	—	—		—			2	9		—			2	9		—
States of the U.S. and political subdivisions	1	4		—			43	171		(5		)	44	175		(5		)
Total temporarily impaired debt securities HTM	1	$	4	$	—		129	$	1,256	$	(18	)	130	$	1,260	$	(18	)
December 31, 2018
U.S. government-sponsored entities	—	$	—	$	—		12	$	211	$	(4	)	12	$	211	$	(4	)
Residential mortgage-backed securities:
Agency mortgage-backed securities	43	294		(4		)	47	694		(22		)	90	988		(26		)
Agency collateralized mortgage obligations	3	42		—			49	611		(24		)	52	653		(24		)
Commercial mortgage-backed securities	5	26		—			4	43		(1		)	9	69		(1		)
States of the U.S. and political subdivisions	159	590		(27		)	51	161		(22		)	210	751		(49		)
Total temporarily impaired debt securities HTM	210	$	952	$	(31	)	163	$	1,720	$	(73	)	373	$	2,672	$	(104	)

Less than 12 Months 12 Months or More Total
(dollars in thousands) #
Fair
Value

Unrealized
Losses
#
Fair
Value

Unrealized
Losses
#
Fair
Value

Unrealized
Losses
Debt Securities Held to Maturity
June 30, 2018
U.S. government-sponsored entities 4
$ 54,509
$ (508 ) 10
$ 184,478
$ (5,522 ) 14
$ 238,987
$ (6,030 )
Residential mortgage-backed securities:
Agency mortgage-backed securities 80
909,762
(25,390 ) 11
164,501
(8,049 ) 91
1,074,263
(33,439 )
Agency collateralized mortgage obligations 17
299,575
(8,104 ) 35
420,914
(25,959 ) 52
720,489
(34,063 )
Commercial mortgage-backed securities 8
54,920
(884 ) 4
21,531
(671 ) 12
76,451
(1,555 )
States of the U.S. and political subdivisions 174
616,117
(24,296 ) 37
110,429
(17,286 ) 211
726,546
(41,582 )
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 4
$ 54,790
$ (239 ) 10
$ 185,851
$ (4,149 ) 14
$ 240,641
$ (4,388 )
Residential mortgage-backed securities:
Agency mortgage-backed securities 36
648,485
(4,855 ) 11
183,989
(4,203 ) 47
832,474
(9,058 )
Agency collateralized mortgage obligations 14
275,290
(1,701 ) 35
473,257
(18,394 ) 49
748,547
(20,095 )
Commercial mortgage-backed securities 3
26,399
(123 ) 2
19,443
(452 ) 5
45,842
(575 )
States of the U.S. and political subdivisions 16
56,739
(933 ) 37
121,536
(6,197 ) 53
178,275
(7,130 )
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 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 six months ended June 30, ~~2018~~2019 or ~~2017.~~2018.

States of the U.S. and Political Subdivisions

Our municipal bond portfolio with a carrying amount of ~~$1.0~~$1.1 billion as of June 30, ~~2018~~2019 is highly rated with an average ~~entity-specific~~ rating of AA and 100% of the portfolio rated A or better, while 99% have stand-alone ratings of 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 ~~65%~~66% of the securities are from municipalities located ~~throughout Pennsylvania, Ohio, Maryland, North Carolina and South Carolina.~~in the primary states within which we conduct business. The average holding size of the securities in the municipal bond portfolio is ~~$3.1~~$3.2 million. In addition to the strong stand-alone ratings, ~~62%~~64% 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.

~~Table of Contents~~

NOTE 5.4. LOANS AND LEASES

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

TABLE 4.1



(in millions)	Originated Loans and Leases		Loans Acquired in a Business Combination		Total Loans and Leases
June 30, 2019
Commercial real estate	$	6,601	$	2,231	$	8,832
Commercial and industrial	4,708		320		5,028
Commercial leases	385		—		385
Other	37		—		37
Total commercial loans and leases	11,731		2,551		14,282
Direct installment	1,679		79		1,758
Residential mortgages	2,573		449		3,022
Indirect installment	1,968		—		1,968
Consumer lines of credit	1,099		414		1,513
Total consumer loans	7,319		942		8,261
Total loans and leases, net of unearned income	$	19,050	$	3,493	$	22,543
December 31, 2018
Commercial real estate	$	6,171	$	2,615	$	8,786
Commercial and industrial	4,140		416		4,556
Commercial leases	373		—		373
Other	46		—		46
Total commercial loans and leases	10,730		3,031		13,761
Direct installment	1,668		96		1,764
Residential mortgages	2,612		501		3,113
Indirect installment	1,933		—		1,933
Consumer lines of credit	1,119		463		1,582
Total consumer loans	7,332		1,060		8,392
Total loans and leases, net of unearned income	$	18,062	$	4,091	$	22,153

(in thousands)
Originated
Loans and
Leases

Acquired
Loans

Total
Loans and
Leases
June 30, 2018
Commercial real estate $ 5,754,367
$ 3,079,955
$ 8,834,322
Commercial and industrial 3,797,773
503,614
4,301,387
Commercial leases 337,397
—
337,397
Other 43,351
—
43,351
Total commercial loans and leases 9,932,888
3,583,569
13,516,457
Direct installment 1,772,090
119,990
1,892,080
Residential mortgages 2,297,558
553,412
2,850,970
Indirect installment 1,746,352
157
1,746,509
Consumer lines of credit 1,136,293
517,273
1,653,566
Total consumer loans 6,952,293
1,190,832
8,143,125
Total loans and leases, net of unearned income $ 16,885,181
$ 4,774,401
$ 21,659,582
December 31, 2017
Commercial real estate $ 5,174,783
$ 3,567,081
$ 8,741,864
Commercial and industrial 3,495,247
675,420
4,170,667
Commercial leases 266,720
—
266,720
Other 17,063
—
17,063
Total commercial loans and leases 8,953,813
4,242,501
13,196,314
Direct installment 1,755,713
149,822
1,905,535
Residential mortgages 2,036,226
666,465
2,702,691
Indirect installment 1,448,268
165
1,448,433
Consumer lines of credit 1,151,470
594,323
1,745,793
Total consumer loans 6,391,677
1,410,775
7,802,452
Total loans and leases, net of unearned income $ 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 and consumer lines of credit that are either unsecured or secured by collateral other than home equity.

~~Table of Contents~~

The loans and leases portfolio consists principally of loans to individuals and small- and medium-sized businesses within our primary market in seven states and the District of Columbia. Our primary market coverage spans several major metropolitan areas ~~of Pennsylvania, eastern Ohio, Maryland,~~including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North ~~Carolina, South Carolina and northern West Virginia.~~Carolina.

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

TABLE 4.2



(dollars in millions)	June 30, 2019			December 31, 2018
Commercial construction, acquisition and development loans	$	1,196		$	1,152
Percent of total loans and leases	5.3		%	5.2		%
Commercial real estate:
Percent owner-occupied	31.7		%	35.1		%
Percent non-owner-occupied	68.3		%	64.9		%

(dollars in thousands) June 30,
2018 December 31,
2017
Commercial construction, acquisition and development loans $ 1,176,326
$ 1,170,175
Percent of total loans and leases 5.4 % 5.6 %
Commercial real estate:
Percent owner-occupied 35.0 % 35.3 %
Percent non-owner-occupied 65.0 % 64.7 %
Additionally, as of June 30, 2019 and December 31, 2018, we had residential construction loans of $352.4 million and $273.4 million, representing 1.6% and 1.2% of total loans and leases, respectively.

Loans Acquired ~~Loans~~in a Business Combination

All loans acquired ~~loans~~in a business combination were initially recorded at fair value at the acquisition date. Refer to the Loans Acquired ~~Loans~~in a Business Combination section in Note 1 of our ~~2017~~2018 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 loans acquired ~~loans~~in a business combination included in the Consolidated Balance Sheets are as follows:

TABLE 4.3



(in millions)	June 30, 2019		December 31, 2018
Accounted for under ASC 310-30:
Outstanding balance	$	3,247	$	3,768
Carrying amount	2,998		3,570
Accounted for under ASC 310-20:
Outstanding balance	504		602
Carrying amount	491		513
Total loans acquired in a business combination:
Outstanding balance	3,751		4,370
Carrying amount	3,489		4,083

(in thousands) June 30,
2018 December 31,
2017
Accounted for under ASC 310-30:
Outstanding balance $ 4,387,378
$ 5,176,015
Carrying amount 4,101,583
4,834,256
Accounted for under ASC 310-20:
Outstanding balance 688,541
835,130
Carrying amount 668,859
812,322
Total acquired loans:
Outstanding balance 5,075,919
6,011,145
Carrying amount 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 $1.7 million at both June 30, ~~2018~~2019 and ~~$1.9 million at~~ December 31, ~~2017,~~2018, representing ~~0.04%~~0.05% and ~~0.03%~~0.04%, respectively, of the carrying amount of total loans acquired ~~loans~~in a business combination as of each date.

~~Table of Contents~~

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

TABLE 4.4



	Six Months Ended June 30,
(in millions)	2019			2018
Balance at beginning of period	$	605		$	708
Reduction due to unexpected early payoffs	(39		)	(94		)
Reclass from non-accretable difference to accretable yield	58			129
Other	—			(2		)
Accretion	(96		)	(116		)
Balance at end of period	$	528		$	625

Six Months Ended
June 30,
(in thousands) 2018 2017
Balance at beginning of period $ 708,481
$ 467,070
Acquisitions —
444,715
Reduction due to unexpected early payoffs (94,456 ) (61,093 )
Reclass from non-accretable difference 128,955
40,304
Disposals/transfers (408 ) (324 )
Other (1,619 ) —
Accretion (116,006 ) (100,628 )
Balance at end of period $ 624,947
$ 790,044

Cash flows expected to be collected on loans acquired ~~loans~~in business combinations 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.~~income. 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.

The excess of cash flows expected to be collected at acquisition over recorded fair value is referred to as the accretable yield.

The accretable yield is recognized into income over the remaining life of the loan, or pool of loans, using an effective yield

method, since the timing and/or amount of cash flows expected to be collected can be reasonably estimated (the accretion model). The difference between the loan’s total scheduled principal and interest payments over all cash flows expected at acquisition is referred to as the non-accretable difference. The non-accretable difference represents contractually required principal and interest payments which we do not expect to collect.

During the six months ended June 30, ~~2018,~~2019, there was an overall improvement in cash flow expectations which resulted in a net reclassification of ~~$129.0~~$58.1 million from the non-accretable difference to accretable ~~yield.~~yield primarily driven by overall improvement in the primary credit quality indicators of the majority of the acquired loan pools. This reclassification was ~~$40.3~~$129.0 million for the six months ended June 30, ~~2017.~~2018. The reclassification from the non-accretable difference to the accretable yield results in prospective yield adjustments on the loan ~~pools and was also positively impacted by the sale of $56.5 million of acquired residential mortgage loans in the second quarter of 2018.~~pools.

Credit Quality

Management monitors the credit quality of our loan 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 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 due and has remained unpaid for a certain number of days, unless the loan is both well secured and in 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.

~~Table of Contents~~

Following is a summary of non-performing assets:

TABLE 4.5



(dollars in millions)	June 30, 2019			December 31, 2018
Non-accrual loans	$	74		$	79
Troubled debt restructurings	19			21
Total non-performing loans	93			100
Other real estate owned	32			35
Total non-performing assets	$	125		$	135
Asset quality ratios:
Non-performing loans / total loans and leases	0.41		%	0.45		%
Non-performing loans + OREO / total loans and leases + OREO	0.55		%	0.61		%
Non-performing assets / total assets	0.37		%	0.41		%

(dollars in thousands) June 30,
2018 December 31,
2017
Non-accrual loans $ 68,696
$ 74,635
Troubled debt restructurings 24,820
23,481
Total non-performing loans 93,516
98,116
Other real estate owned 39,240
40,606
Total non-performing assets $ 132,756
$ 138,722
Asset quality ratios:
Non-performing loans / total loans and leases 0.43 % 0.47 %
Non-performing loans + OREO / total loans and leases + OREO 0.61 % 0.66 %
Non-performing assets / total assets 0.41 % 0.44 %

The carrying value of residential 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 amounted to ~~$6.0~~$3.2 million at June 30, ~~2018~~2019 and ~~$3.6~~$6.3 million at December 31, ~~2017.~~2018. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 totaled ~~$12.5~~$9.9 million and ~~$15.2~~$8.9 million, respectively.

~~Table of Contents~~

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 (4)
Current
Total
Loans and
Leases
Originated Loans and Leases
June 30, 2018
Commercial real estate $ 10,476
$ 2
$ 14,652
$ 25,130
$ 5,729,237
$ 5,754,367
Commercial and industrial 5,663
3
23,367
29,033
3,768,740
3,797,773
Commercial leases 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 17,163
209
40,237
57,609
9,875,279
9,932,888
Direct installment 9,317
4,028
7,402
20,747
1,751,343
1,772,090
Residential mortgages 10,046
1,596
6,882
18,524
2,279,034
2,297,558
Indirect installment 7,592
355
2,152
10,099
1,736,253
1,746,352
Consumer lines of credit 4,187
1,039
3,280
8,506
1,127,787
1,136,293
Total consumer loans 31,142
7,018
19,716
57,876
6,894,417
6,952,293
Total originated loans and leases $ 48,305
$ 7,227
$ 59,953
$ 115,485
$ 16,769,696
$ 16,885,181
December 31, 2017
Commercial real estate $ 8,273
$ 1
$ 24,773
$ 33,047
$ 5,141,736
$ 5,174,783
Commercial and industrial 8,948
3
17,077
26,028
3,469,219
3,495,247
Commercial leases 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 18,686
198
44,424
63,308
8,890,505
8,953,813
Direct installment 13,192
4,466
8,896
26,554
1,729,159
1,755,713
Residential mortgages 14,096
2,832
5,771
22,699
2,013,527
2,036,226
Indirect installment 10,313
611
2,240
13,164
1,435,104
1,448,268
Consumer lines of credit 5,859
1,014
2,313
9,186
1,142,284
1,151,470
Total consumer loans 43,460
8,923
19,220
71,603
6,320,074
6,391,677
Total originated loans and leases $ 62,146
$ 9,121
$ 63,644
$ 134,911
$ 15,210,579
$ 15,345,490

~~Table of Contents~~

TABLE 4.6


(in thousands)	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
June 30, 2018
(in millions)																30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due		Current		Total Loans and Leases
Originated Loans and Leases																Originated Loans and Leases
June 30, 2019
Commercial real estate	$	20,622	$	53,440	$	3,231	$	77,293	$	3,181,557	$	(178,895	)	$	3,079,955	$	7	$	—	$	27	$	34	$	6,567	$	6,601
Commercial and industrial	1,620		3,498		4,347		9,465		526,830		(32,681		)	503,614		7		—		17		24		4,684		4,708
Total commercial loans	22,242		56,938		7,578		86,758		3,708,387		(211,576		)	3,583,569
Commercial leases																4		—		2		6		379		385
Other																—		—		1		1		36		37
Total commercial loans and leases																18		—		47		65		11,666		11,731
Direct installment	3,766		1,131		—		4,897		115,496		(403		)	119,990		6		1		7		14		1,665		1,679
Residential mortgages	10,424		7,697		—		18,121		552,387		(17,096		)	553,412		16		2		8		26		2,547		2,573
Indirect installment	—		1		—		1		1		155			157		10		—		2		12		1,956		1,968
Consumer lines of credit	7,042		2,122		1,165		10,329		518,027		(11,083		)	517,273		4		1		4		9		1,090		1,099
Total consumer loans	21,232		10,951		1,165		33,348		1,185,911		(28,427		)	1,190,832		36		4		21		61		7,258		7,319
Total acquired loans	$	43,474	$	67,889	$	8,743	$	120,106	$	4,894,298	$	(240,003	)	$	4,774,401
December 31, 2017
Total originated loans and leases																$	54	$	4	$	68	$	126	$	18,924	$	19,050
December 31, 2018
Commercial real estate	$	34,928	$	63,092	$	3,975	$	101,995	$	3,657,152	$	(192,066	)	$	3,567,081	$	7	$	—	$	17	$	24	$	6,147	$	6,171
Commercial and industrial	3,187		6,452		5,663		15,302		698,265		(38,147		)	675,420		5		—		19		24		4,116		4,140
Total commercial loans	38,115		69,544		9,638		117,297		4,355,417		(230,213		)	4,242,501
Commercial leases																1		—		2		3		370		373
Other																—		—		1		1		45		46
Total commercial loans and leases																13		—		39		52		10,678		10,730
Direct installment	5,267		2,013		—		7,280		141,386		1,156			149,822		8		—		8		16		1,652		1,668
Residential mortgages	17,191		15,139		—		32,330		675,499		(41,364		)	666,465		16		3		6		25		2,587		2,612
Indirect installment	—		1		—		1		10		154			165		11		1		2		14		1,919		1,933
Consumer lines of credit	6,353		3,253		1,353		10,959		596,298		(12,934		)	594,323		5		1		3		9		1,110		1,119
Total consumer loans	28,811		20,406		1,353		50,570		1,413,193		(52,988		)	1,410,775		40		5		19		64		7,268		7,332
Total acquired loans	$	66,926	$	89,950	$	10,991	$	167,867	$	5,768,610	$	(283,201	)	$	5,653,276
Total originated loans and leases																$	53	$	5	$	58	$	116	$	17,946	$	18,062



(in millions)	30-89 Days Past Due		> 90 Days Past Due and Still Accruing		Non- Accrual		Total Past Due (1) (2)		Current		(Discount) Premium			Total Loans
Loans Acquired in a Business Combination
June 30, 2019
Commercial real estate	$	19	$	31	$	3	$	53	$	2,332	$	(154	)	$	2,231
Commercial and industrial	1		4		2		7		336		(23		)	320
Total commercial loans	20		35		5		60		2,668		(177		)	2,551
Direct installment	1		1		—		2		77		—			79
Residential mortgages	12		4		—		16		449		(16		)	449
Consumer lines of credit	7		3		—		10		413		(9		)	414
Total consumer loans	20		8		—		28		939		(25		)	942
Total loans acquired in a business combination	$	40	$	43	$	5	$	88	$	3,607	$	(202	)	$	3,493
December 31, 2018
Commercial real estate	$	19	$	38	$	3	$	60	$	2,723	$	(168	)	$	2,615
Commercial and industrial	3		4		17		24		420		(28		)	416
Total commercial loans	22		42		20		84		3,143		(196		)	3,031
Direct installment	3		2		—		5		91		—			96
Residential mortgages	13		6		—		19		498		(16		)	501
Consumer lines of credit	8		3		1		12		461		(10		)	463
Total consumer loans	24		11		1		36		1,050		(26		)	1,060
Total loans acquired in a business combination	$	46	$	53	$	21	$	120	$	4,193	$	(222	)	$	4,091


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

~~(2)~~

~~Acquired loans~~in a business combination are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, 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~~Loans acquired in a business combination 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 loans acquired ~~loans~~in a business combination considered non-accrual or non-performing.


~~(3)~~(2)	~~Approximately $28.5 million of~~Past due information for loans acquired ~~past-due or non-accrual loans were sold during~~in a business combination is based on the ~~second quarter of~~contractual balance outstanding at June 30, 2019 and December 31, 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:

TABLE 4.7



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

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

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

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

~~Table of Contents~~

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 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:

TABLE 4.8



	Commercial Loan and Lease Credit Quality Categories
(in millions)	Pass		Special Mention		Substandard		Doubtful		Total
Originated Loans and Leases
June 30, 2019
Commercial real estate	$	6,309	$	146	$	145	$	1	$	6,601
Commercial and industrial	4,419		162		126		1		4,708
Commercial leases	375		4		6		—		385
Other	36		—		1		—		37
Total originated commercial loans and leases	$	11,139	$	312	$	278	$	2	$	11,731
December 31, 2018
Commercial real estate	$	5,883	$	163	$	125	$	—	$	6,171
Commercial and industrial	3,879		180		81		—		4,140
Commercial leases	366		1		6		—		373
Other	45		—		1		—		46
Total originated commercial loans and leases	$	10,173	$	344	$	213	$	—	$	10,730
Loans Acquired in a Business Combination
June 30, 2019
Commercial real estate	$	1,926	$	147	$	158	$	—	$	2,231
Commercial and industrial	274		17		29		—		320
Total commercial loans acquired in a business combination	$	2,200	$	164	$	187	$	—	$	2,551
December 31, 2018
Commercial real estate	$	2,256	$	168	$	191	$	—	$	2,615
Commercial and industrial	355		18		43		—		416
Total commercial loans acquired in a business combination	$	2,611	$	186	$	234	$	—	$	3,031

Commercial Loan and Lease Credit Quality Categories
(in thousands) Pass
Special
Mention
Substandard Doubtful Total
Originated Loans and Leases
June 30, 2018
Commercial real estate $ 5,499,238
$ 131,806
$ 123,297
$ 26
$ 5,754,367
Commercial and industrial 3,537,536
176,599
79,246
4,392
3,797,773
Commercial leases 326,574
2,274
8,549
—
337,397
Other 42,037
110
1,204
—
43,351
Total originated commercial loans and leases $ 9,405,385
$ 310,789
$ 212,296
$ 4,418
$ 9,932,888
December 31, 2017
Commercial real estate $ 4,922,872
$ 152,744
$ 98,728
$ 439
$ 5,174,783
Commercial and industrial 3,266,966
132,975
92,091
3,215
3,495,247
Commercial leases 260,235
4,425
2,060
—
266,720
Other 15,866
43
1,154
—
17,063
Total originated commercial loans and leases $ 8,465,939
$ 290,187
$ 194,033
$ 3,654
$ 8,953,813
Acquired Loans
June 30, 2018
Commercial real estate $ 2,661,433
$ 200,723
$ 217,626
$ 173
$ 3,079,955
Commercial and industrial 434,731
26,981
41,902
—
503,614
Total acquired commercial loans $ 3,096,164
$ 227,704
$ 259,528
$ 173
$ 3,583,569
December 31, 2017
Commercial real estate $ 3,102,788
$ 250,987
$ 213,089
$ 217
$ 3,567,081
Commercial and industrial 603,611
26,059
45,661
89
675,420
Total acquired commercial loans $ 3,706,399
$ 277,046
$ 258,750
$ 306
$ 4,242,501

Credit quality information for loans acquired ~~loans~~in a business combination is based on the contractual balance outstanding at June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

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, Fair Isaac Corporation (FICO) scores and other external factors such as unemployment, to determine how consumer loans are performing.

~~Table of Contents~~

Following is a table showing consumer loans by payment status:

TABLE 4.9



	Consumer Loan Credit Quality by Payment Status
(in millions)	Performing		Non- Performing		Total
Originated Loans
June 30, 2019
Direct installment	$	1,665	$	14	$	1,679
Residential mortgages	2,557		16		2,573
Indirect installment	1,966		2		1,968
Consumer lines of credit	1,095		4		1,099
Total originated consumer loans	$	7,283	$	36	$	7,319
December 31, 2018
Direct installment	$	1,654	$	14	$	1,668
Residential mortgages	2,598		14		2,612
Indirect installment	1,931		2		1,933
Consumer lines of credit	1,114		5		1,119
Total originated consumer loans	$	7,297	$	35	$	7,332
Loans Acquired in a Business Combination
June 30, 2019
Direct installment	$	79	$	—	$	79
Residential mortgages	449		��		449
Consumer lines of credit	413		1		414
Total consumer loans acquired in a business combination	$	941	$	1	$	942
December 31, 2018
Direct installment	$	96	$	—	$	96
Residential mortgages	501		—		501
Consumer lines of credit	462		1		463
Total consumer loans acquired in a business combination	$	1,059	$	1	$	1,060

Consumer Loan Credit Quality
by Payment Status
(in thousands) Performing
Non-
Performing
Total
Originated loans
June 30, 2018
Direct installment $ 1,756,297
$ 15,793
$ 1,772,090
Residential mortgages 2,279,790
17,768
2,297,558
Indirect installment 1,744,007
2,345
1,746,352
Consumer lines of credit 1,131,322
4,971
1,136,293
Total originated consumer loans $ 6,911,416
$ 40,877
$ 6,952,293
December 31, 2017
Direct installment $ 1,739,060
$ 16,653
$ 1,755,713
Residential mortgages 2,019,816
16,410
2,036,226
Indirect installment 1,445,833
2,435
1,448,268
Consumer lines of credit 1,147,576
3,894
1,151,470
Total originated consumer loans $ 6,352,285
$ 39,392
$ 6,391,677
Acquired loans
June 30, 2018
Direct installment $ 119,921
$ 69
$ 119,990
Residential mortgages 553,412
—
553,412
Indirect installment 157
—
157
Consumer lines of credit 515,659
1,614
517,273
Total acquired consumer loans $ 1,189,149
$ 1,683
$ 1,190,832
December 31, 2017
Direct installment $ 149,751
$ 71
$ 149,822
Residential mortgages 666,465
—
666,465
Indirect installment 165
—
165
Consumer lines of credit 592,384
1,939
594,323
Total acquired consumer loans $ 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.). Effective July 1, 2018, we changed our threshold for measuring impairment on a collective basis. Impairment is evaluated in the aggregate for consumer installment loans, residential mortgages, consumer lines of credit and commercial loan ~~and lease~~ relationships less than ~~$0.5~~$1.0 million based on loan ~~and lease~~ segment loss given default. For commercial loan ~~and lease~~ relationships greater than or equal to ~~$0.5~~$1.0 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 sale of the collateral. Consistent with our existing method of income recognition for loans, ~~and leases,~~ interest income on impaired loans, except those classified as non-accrual, is recognized using the accrual method. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

~~Table of Contents~~

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

TABLE 4.10



(in millions)	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 Six Months Ended June 30, 2019
Commercial real estate	$	31	$	21	$	6	$	27	$	2	$	24
Commercial and industrial	22		15		—		15		1		17
Commercial leases	2		2		—		2		—		2
Total commercial loans and leases	55		38		6		44		3		43
Direct installment	17		14		—		14		—		14
Residential mortgages	18		16		—		16		—		15
Indirect installment	5		2		—		2		—		2
Consumer lines of credit	7		5		—		5		—		5
Total consumer loans	47		37		—		37		—		36
Total	$	102	$	75	$	6	$	81	$	3	$	79
At or for the Year Ended December 31, 2018
Commercial real estate	$	20	$	16	$	1	$	17	$	—	$	18
Commercial and industrial	46		20		13		33		4		32
Commercial leases	2		2		—		2		—		4
Total commercial loans and leases	68		38		14		52		4		54
Direct installment	17		14		—		14		—		14
Residential mortgages	16		14		—		14		—		15
Indirect installment	5		2		—		2		—		2
Consumer lines of credit	7		5		—		5		—		5
Total consumer loans	45		35		—		35		—		36
Total	$	113	$	73	$	14	$	87	$	4	$	90

(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
At or for the Six Months Ended June 30, 2018
Commercial real estate $ 16,428
$ 14,308
$ 201
$ 14,509
$ 26
$ 20,912
Commercial and industrial 28,738
13,020
10,787
23,807
4,392
23,688
Commercial leases 1,218
1,218
—
1,218
—
1,309
Other —
—
—
—
—
—
Total commercial loans and leases 46,384
28,546
10,988
39,534
4,418
45,909
Direct installment 18,603
15,793
—
15,793
—
15,693
Residential mortgages 19,180
17,768
—
17,768
—
16,973
Indirect installment 4,579
2,345
—
2,345
—
2,387
Consumer lines of credit 6,735
4,971
—
4,971
—
4,741
Total consumer loans 49,097
40,877
—
40,877
—
39,794
Total $ 95,481
$ 69,423
$ 10,988
$ 80,411
$ 4,418
$ 85,703
At or for the Year Ended
December 31, 2017
Commercial real estate $ 27,718
$ 21,748
$ 2,906
$ 24,654
$ 439
$ 24,413
Commercial and industrial 29,307
11,595
4,457
16,052
3,215
23,907
Commercial leases 1,574
1,574
—
1,574
—
1,386
Other —
—
—
—
—
—
Total commercial loans and leases 58,599
34,917
7,363
42,280
3,654
49,706
Direct installment 19,375
16,653
—
16,653
—
16,852
Residential mortgages 17,754
16,410
—
16,410
—
15,984
Indirect installment 5,709
2,435
—
2,435
—
2,279
Consumer lines of credit 5,039
3,894
—
3,894
—
3,815
Total consumer loans 47,877
39,392
—
39,392
—
38,930
Total $ 106,476
$ 74,309
$ 7,363
$ 81,672
$ 3,654
$ 88,636

~~Table of Contents~~

Interest income continued to accrue on certain impaired loans and totaled approximately ~~$3.1~~$3.0 million and ~~$2.6~~$3.1 million for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The above tables ~~do not reflect the additional allowance for credit losses relating to~~include one loan acquired ~~loans.~~ in a business combination with a specific reserve at December 31, 2018.

Following is a summary of the allowance for credit losses required for loans acquired ~~loans~~in a business combination due to changes in credit quality subsequent to the acquisition date:

TABLE 4.11


(in thousands)	June 30, 2018			December 31, 2017
(in millions)							June 30, 2019		December 31, 2018
Commercial real estate	$	2,892		$	4,976		$	2	$	2
Commercial and industrial	78			(415		)	1		4
Total commercial loans	2,970			4,561			3		6
Direct installment	562			1,553			1		1
Residential mortgages	191			484			1		—
Indirect installment	250			177
Consumer lines of credit	(14		)	(77		)
Total consumer loans	989			2,137			2		1
Total allowance on acquired loans	$	3,959		$	6,698
Total allowance on loans acquired in a business combination							$	5	$	7

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 composition of total TDRs:

TABLE 4.12



(in millions)	Originated		Acquired		Total
June 30, 2019
Accruing:
Performing	$	19	$	—	$	19
Non-performing	16		3		19
Non-accrual	16		—		16
Total TDRs	$	51	$	3	$	54
December 31, 2018
Accruing:
Performing	$	18	$	—	$	18
Non-performing	17		4		21
Non-accrual	9		—		9
Total TDRs	$	44	$	4	$	48

(in thousands) Originated Acquired Total
June 30, 2018
Accruing:
Performing $ 19,352
$ 168
$ 19,520
Non-performing 21,689
3,131
24,820
Non-accrual 9,323
51
9,374
Total TDRs $ 50,364
$ 3,350
$ 53,714
December 31, 2017
Accruing:
Performing $ 19,538
$ 266
$ 19,804
Non-performing 20,173
3,308
23,481
Non-accrual 10,472
234
10,706
Total TDRs $ 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 six months ended June 30, ~~2018,~~2019, we returned to performing status ~~$2.2~~$3.1 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 credit impaired loans, commercial loans over ~~$0.5~~$1.0 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 individually impaired loans under $1.0 million based on loan segment loss given default. Our allowance for loan losses includes specific reserves for commercial TDRs of less than $0.5 million at June 30, 2019 and 2018, respectively, and pooled reserves for individual loans of $0.9 million and $0.5 million for those same respective periods, 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) June 30,
2018 December 31,
2017
Specific reserves for commercial TDRs $ 14
$ 95
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 ~~$4.2~~$3.8 million for June 30, ~~2018~~2019 and $4.0 million for December 31, ~~2017.~~2018. 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:

TABLE 4.13


	Three Months Ended June 30, 2018					Six Months Ended June 30, 2018					Three Months Ended June 30, 2019					Six Months Ended June 30, 2019
(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
(dollars in millions)											Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate	1	$	125	$	122	1	$	125	$	122	11	$	3	$	4	12	$	4	$	4
Commercial and industrial	13	862		780		13	2,524		1,384		2	4		3		13	5		4
Total commercial loans	14	987		902		14	2,649		1,506		13	7		7		25	9		8
Direct installment	178	2,372		2,276		357	3,404		3,209		14	1		1		32	1		1
Residential mortgages	8	304		298		19	807		799		7	—		—		10	1		1
Indirect installment	7	11		11		16	24		23
Consumer lines of credit	22	382		298		41	709		513		7	—		—		14	—		—
Total consumer loans	215	3,069		2,883		433	4,944		4,544		28	1		1		56	2		2
Total	229	$	4,056	$	3,785	447	$	7,593	$	6,050	41	$	8	$	8	81	$	11	$	10



	Three Months Ended June 30, 2018					Six Months Ended June 30, 2018
(dollars in millions)	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate	1	$	—	$	—	1	$	—	$	—
Commercial and industrial	13	1		1		13	3		2
Total commercial loans	14	1		1		14	3		2
Direct installment	178	2		2		357	3		3
Residential mortgages	8	—		—		19	1		1
Indirect installment	7	—		—		16	—		—
Consumer lines of credit	22	1		1		41	1		—
Total consumer loans	215	3		3		433	5		4
Total	229	$	4	$	4	447	$	8	$	6

The year-to-date items in the above tables have been adjusted for loans that have been paid off and/or sold.

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~~

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

TABLE 4.14

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 June 30, 2019			Six Months Ended June 30, 2019
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial real estate	—	$	—	1	$	—
Commercial and industrial	—	—		—	—
Total commercial loans	—	—		1	—
Direct installment	—	$	—	3	$	—
Residential mortgages	—	—		1	—
Consumer lines of credit	—	—		1	—
Total consumer loans	—	—		5	—
Total	—	$	—	6	$	—



	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
(dollars in millions)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Direct installment	41	$	—	78	$	1
Residential mortgages	3	—		6	—
Indirect installment	5	—		9	—
Consumer lines of credit	2	—		3	—
Total consumer loans	51	—		96	1
Total	51	$	—	96	$	1

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
Commercial and industrial 2
$ 312
3
$ 326
Total commercial loans 2
312
3
326
Direct installment 31
134
55
146
Residential mortgages 1
80
4
264
Indirect installment 6
19
10
19
Consumer lines of credit 1
63
1
63
Total consumer loans 39
296
70
492
Total 41
$ 608
73
$ 818

NOTE 6.5. 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. 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 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:

TABLE 5.1


(in thousands)	Balance at Beginning of Period		Charge- Offs			Recoveries		Net Charge- Offs			Provision for Credit Losses			Balance at End of Period
Three Months Ended June 30, 2018
Commercial real estate	$	53,516	$	(4,254	)	$	765	$	(3,489	)	$	560		$	50,587
Commercial and industrial	53,013		(6,127		)	1,157		(4,970		)	5,646			53,689
Commercial leases	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	114,639		(11,995		)	2,208		(9,787		)	8,459			113,311
Direct installment	20,128		(2,922		)	463		(2,459		)	2,610			20,279
Residential mortgages	15,280		(314		)	16		(298		)	181			15,163
Indirect installment	11,955		(2,218		)	974		(1,244		)	2,690			13,401
Consumer lines of credit	10,408		(1,105		)	62		(1,043		)	1,096			10,461
Total consumer loans	57,771		(6,559		)	1,515		(5,044		)	6,577			59,304
Total allowance on originated loans and leases	172,410		(18,554		)	3,723		(14,831		)	15,036			172,615
Purchased credit-impaired loans	622		—			—		—			2			624
Other acquired loans	6,215		(4,076		)	680		(3,396		)	516			3,335
Total allowance on acquired loans	6,837		(4,076		)	680		(3,396		)	518			3,959
Total allowance	$	179,247	$	(22,630	)	$	4,403	$	(18,227	)	$	15,554		$	176,574
Six Months Ended June 30, 2018
(in millions)																Balance at Beginning of Period		Charge- Offs			Recoveries		Net Charge- Offs			Provision for Credit Losses			Balance at End of Period
Three Months Ended June 30, 2019																Three Months Ended June 30, 2019
Commercial real estate	$	50,281	$	(4,479	)	$	1,102	$	(3,377	)	$	3,683		$	50,587	$	57	$	(1	)	$	1	$	—		$	4		$	61
Commercial and industrial	51,963		(12,047		)	1,526		(10,521		)	12,247			53,689		52		(3		)	1		(2		)	2			52
Commercial leases	5,646		(207		)	24		(183		)	1,576			7,039		8		—			—		—			1			9
Other	1,843		(2,375		)	569		(1,806		)	1,959			1,996		2		(1		)	—		(1		)	—			1
Total commercial loans and leases	109,733		(19,108		)	3,221		(15,887		)	19,465			113,311		119		(5		)	2		(3		)	7			123
Direct installment	20,936		(6,392		)	903		(5,489		)	4,832			20,279		12		—			—		—			1			13
Residential mortgages	15,507		(393		)	107		(286		)	(58		)	15,163		19		(1		)	—		(1		)	2			20
Indirect installment	11,967		(4,627		)	1,869		(2,758		)	4,192			13,401		17		(2		)	1		(1		)	2			18
Consumer lines of credit	10,539		(1,636		)	183		(1,453		)	1,375			10,461		10		(1		)	—		(1		)	—			9
Total consumer loans	58,949		(13,048		)	3,062		(9,986		)	10,341			59,304		58		(4		)	1		(3		)	5			60
Total allowance on originated loans and leases	168,682		(32,156		)	6,283		(25,873		)	29,806			172,615		177		(9		)	3		(6		)	12			183
Purchased credit-impaired loans	635		—			—		—			(11		)	624		1		—			—		—			—			1
Other acquired loans	6,063		(4,385		)	1,403		(2,982		)	254			3,335		8		(4		)	1		(3		)	(1		)	4
Total allowance on acquired loans	6,698		(4,385		)	1,403		(2,982		)	243			3,959		9		(4		)	1		(3		)	(1		)	5
Total allowance for credit losses	$	175,380	$	(36,541	)	$	7,686	$	(28,855	)	$	30,049		$	176,574	$	186	$	(13	)	$	4	$	(9	)	$	11		$	188
Six Months Ended June 30, 2019
Commercial real estate																$	55	$	(2	)	$	1	$	(1	)	$	7		$	61
Commercial and industrial																49		(4		)	2		(2		)	5			52
Commercial leases																8		—			—		—			1			9
Other																2		(2		)	—		(2		)	1			1
Total commercial loans and leases																114		(8		)	3		(5		)	14			123
Direct installment																14		(1		)	—		(1		)	—			13
Residential mortgages																20		(1		)	—		(1		)	1			20
Indirect installment																15		(5		)	2		(3		)	6			18
Consumer lines of credit																10		(1		)	—		(1		)	—			9
Total consumer loans																59		(8		)	2		(6		)	7			60
Total allowance on originated loans and leases																173		(16		)	5		(11		)	21			183
Purchased credit-impaired loans																1		—			—		—			—			1
Other loans acquired in a business combination																6		(7		)	1		(6		)	4			4
Total allowance on loans acquired in a business combination																7		(7		)	1		(6		)	4			5
Total allowance for credit losses																$	180	$	(23	)	$	6	$	(17	)	$	25		$	188

~~Table of Contents~~



(in millions)	Balance at Beginning of Period		Charge- Offs			Recoveries		Net Charge- Offs			Provision for Credit Losses		Balance at End of Period
Three Months Ended June 30, 2018
Commercial real estate	$	54	$	(5	)	$	1	$	(4	)	$	—	$	50
Commercial and industrial	53		(6		)	1		(5		)	6		54
Commercial leases	6		—			—		—			1		7
Other	2		(2		)	—		(2		)	2		2
Total commercial loans and leases	115		(13		)	2		(11		)	9		113
Direct installment	20		(3		)	1		(2		)	3		21
Residential mortgages	15		—			—		—			—		15
Indirect installment	12		(2		)	1		(1		)	3		14
Consumer lines of credit	10		(1		)	—		(1		)	1		10
Total consumer loans	57		(6		)	2		(4		)	7		60
Total allowance on originated loans and leases	172		(19		)	4		(15		)	16		173
Purchased credit-impaired loans	1		—			—		—			—		1
Other acquired loans	6		(4		)	1		(3		)	—		3
Total allowance on acquired loans	7		(4		)	1		(3		)	—		4
Total allowance for credit losses	$	179	$	(23	)	$	5	$	(18	)	$	16	$	177
Six Months Ended June 30, 2018
Commercial real estate	$	50	$	(4	)	$	1	$	(3	)	$	3	$	50
Commercial and industrial	52		(12		)	1		(11		)	13		54
Commercial leases	5		—			—		—			2		7
Other	2		(3		)	1		(2		)	2		2
Total commercial loans and leases	109		(19		)	3		(16		)	20		113
Direct installment	21		(6		)	1		(5		)	5		21
Residential mortgages	16		(1		)	—		(1		)	—		15
Indirect installment	12		(4		)	2		(2		)	4		14
Consumer lines of credit	10		(1		)	—		(1		)	1		10
Total consumer loans	59		(12		)	3		(9		)	10		60
Total allowance on originated loans and leases	168		(31		)	6		(25		)	30		173
Purchased credit-impaired loans	1		—			—		—			—		1
Other loans acquired in a business combination	6		(5		)	2		(3		)	—		3
Total allowance on loans acquired in a business combination	7		(5		)	2		(3		)	—		4
Total allowance for credit losses	$	175	$	(36	)	$	8	$	(28	)	$	30	$	177

(in thousands)
Balance at
Beginning of
Period

Charge-
Offs
Recoveries
Net
Charge-
Offs

Provision
for Credit
Losses

Balance at
End of
Period
Three Months Ended June 30, 2017
Commercial real estate $ 46,389
$ (318 ) $ 505
$ 187
$ 382
$ 46,958
Commercial and industrial 53,570
(7,736 ) 183
(7,553 ) 8,091
54,108
Commercial leases 3,513
(208 ) 3
(205 ) 814
4,122
Other 1,809
(821 ) 353
(468 ) 497
1,838
Total commercial loans and leases 105,281
(9,083 ) 1,044
(8,039 ) 9,784
107,026
Direct installment 20,210
(3,245 ) 581
(2,664 ) 3,190
20,736
Residential mortgages 10,210
(182 ) 10
(172 ) 1,214
11,252
Indirect installment 9,630
(1,966 ) 614
(1,352 ) 2,296
10,574
Consumer lines of credit 8,883
(583 ) 150
(433 ) 1,054
9,504
Total consumer loans 48,933
(5,976 ) 1,355
(4,621 ) 7,754
52,066
Total allowance on originated loans
and leases
154,214
(15,059 ) 2,399
(12,660 ) 17,538
159,092
Purchased credit-impaired loans 660
(1 ) —
(1 ) (19 ) 640
Other acquired loans 5,908
(74 ) 896
822
(763 ) 5,967
Total allowance on acquired loans 6,568
(75 ) 896
821
(782 ) 6,607
Total allowance $ 160,782
$ (15,134 ) $ 3,295
$ (11,839 ) $ 16,756
$ 165,699
Six Months Ended June 30, 2017
Commercial real estate $ 46,635
$ (1,306 ) $ 866
$ (440 ) $ 763
$ 46,958
Commercial and industrial 47,991
(10,199 ) 657
(9,542 ) 15,659
54,108
Commercial leases 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 99,298
(14,013 ) 2,207
(11,806 ) 19,534
107,026
Direct installment 21,391
(6,119 ) 1,209
(4,910 ) 4,255
20,736
Residential mortgages 10,082
(362 ) 171
(191 ) 1,361
11,252
Indirect installment 10,564
(4,336 ) 1,395
(2,941 ) 2,951
10,574
Consumer lines of credit 9,456
(1,041 ) 315
(726 ) 774
9,504
Total consumer loans 51,493
(11,858 ) 3,090
(8,768 ) 9,341
52,066
Total allowance on originated loans and leases 150,791
(25,871 ) 5,297
(20,574 ) 28,875
159,092
Purchased credit-impaired loans 572
(1 ) —
(1 ) 69
640
Other acquired loans 6,696
(556 ) 1,165
609
(1,338 ) 5,967
Total allowance on acquired loans 7,268
(557 ) 1,165
608
(1,269 ) 6,607
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:

TABLE 5.2



	Allowance				Loans and Leases Outstanding
(in millions)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Loans and Leases		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
June 30, 2019
Commercial real estate	$	2	$	59	$	6,601	$	14	$	6,587
Commercial and industrial	1		51		4,708		7		4,701
Commercial leases	—		9		385		—		385
Other	—		1		37		—		37
Total commercial loans and leases	3		120		11,731		21		11,710
Direct installment	—		13		1,679		—		1,679
Residential mortgages	—		20		2,573		—		2,573
Indirect installment	—		18		1,968		—		1,968
Consumer lines of credit	—		9		1,099		—		1,099
Total consumer loans	—		60		7,319		—		7,319
Total	$	3	$	180	$	19,050	$	21	$	19,029
December 31, 2018
Commercial real estate	$	—	$	55	$	6,171	$	7	$	6,164
Commercial and industrial	4		49		4,140		11		4,129
Commercial leases	—		9		373		—		373
Other	—		2		46		—		46
Total commercial loans and leases	4		115		10,730		18		10,712
Direct installment	—		14		1,668		—		1,668
Residential mortgages	—		19		2,612		—		2,612
Indirect installment	—		15		1,933		—		1,933
Consumer lines of credit	—		10		1,119		—		1,119
Total consumer loans	—		58		7,332		—		7,332
Total	$	4	$	173	$	18,062	$	18	$	18,044

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
June 30, 2018
Commercial real estate $ 26
$ 50,561
$ 5,754,367
$ 8,521
$ 5,745,846
Commercial and industrial 4,392
49,297
3,797,773
18,482
3,779,291
Commercial leases —
7,039
337,397
—
337,397
Other —
1,996
43,351
—
43,351
Total commercial loans and leases 4,418
108,893
9,932,888
27,003
9,905,885
Direct installment —
20,279
1,772,090
—
1,772,090
Residential mortgages —
15,163
2,297,558
—
2,297,558
Indirect installment —
13,401
1,746,352
—
1,746,352
Consumer lines of credit —
10,461
1,136,293
—
1,136,293
Total consumer loans —
59,304
6,952,293
—
6,952,293
Total $ 4,418
$ 168,197
$ 16,885,181
$ 27,003
$ 16,858,178
December 31, 2017
Commercial real estate $ 439
$ 49,842
$ 5,174,783
$ 11,114
$ 5,163,669
Commercial and industrial 3,215
48,748
3,495,247
9,872
3,485,375
Commercial leases —
5,646
266,720
—
266,720
Other —
1,843
17,063
—
17,063
Total commercial loans and leases 3,654
106,079
8,953,813
20,986
8,932,827
Direct installment —
20,936
1,755,713
—
1,755,713
Residential mortgages —
15,507
2,036,226
—
2,036,226
Indirect installment —
11,967
1,448,268
—
1,448,268
Consumer lines of credit —
10,539
1,151,470
—
1,151,470
Total consumer loans —
58,949
6,391,677
—
6,391,677
Total $ 3,654
$ 165,028
$ 15,345,490
$ 20,986
$ 15,324,504

The above table excludes loans acquired ~~loans~~in a business combination that were pooled into groups of loans for evaluating impairment.

NOTE 7.6. LOAN SERVICING

Mortgage Loan Servicing

We retain the servicing rights on certain mortgage loans sold. The unpaid principal balance of mortgage loans serviced for others ~~as of June 30, 2018 and December 31, 2017,~~ is listed below:

TABLE 6.1


(in thousands)	June 30, 2018		December 31, 2017
(in millions)					June 30, 2019		December 31, 2018
Mortgage loans sold with servicing retained	$	3,605,603	$	3,256,548	$	4,333	$	3,968

~~Table of Contents~~

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

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands) 2018 2017 2018 2017
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⁾
2,223
2,007
4,397
3,610
TABLE 6.2



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2019		2018		2019		2018
Mortgage loans sold with servicing retained	$	406	$	283	$	583	$	520
Pretax gains resulting from above loan sales ⁽¹⁾	9		5		13		9
Mortgage servicing fees ⁽¹⁾	3		2		5		4

(1) Recorded in mortgage banking ~~operations.~~operations on the Consolidated Statements of Income.

Following is a summary of the MSR activity:

TABLE 6.3


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2018			2017			2018			2017
(in millions)													2019			2018			2019			2018
Balance at beginning of period	$	30,791		$	22,866		$	29,053		$	13,521		$	36.4		$	30.8		$	36.8		$	29.1
Fair value of MSRs acquired	—			—			—			8,553
Additions	3,315			2,576			6,025			4,030			4.3			3.3			6.3			6.0
Payoffs and curtailments	(504		)	(441		)	(909		)	(580		)	(0.8		)	(0.5		)	(1.3		)	(0.9		)
Impairment charge													(1.3		)	—			(2.6		)	—
Amortization	(632		)	(557		)	(1,199		)	(1,080		)	(0.6		)	(0.6		)	(1.2		)	(1.2		)
Balance at end of period	$	32,970		$	24,444		$	32,970		$	24,444		$	38.0		$	33.0		$	38.0		$	33.0
Fair value, beginning of period	$	36,445		$	26,962		$	32,419		$	17,546		$	40.3		$	36.4		$	41.1		$	32.4
Fair value, end of period	38,603			27,173			38,603			27,173			39.8			38.6			39.8			38.6

~~We did not have a valuation allowance for MSRs for 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.~~third-party valuations. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of 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:

TABLE 6.4


(dollars in thousands)	June 30, 2018			December 31, 2017
(dollars in millions)							June 30, 2019			December 31, 2018
Weighted average life (months)	84.8			80.4			77.9			82.2
Constant prepayment rate (annualized)	9.1		%	9.9		%	10.6		%	10.1		%
Discount rate	9.9		%	9.9		%	9.7		%	9.7		%
Effect on fair value due to change in interest rates:
+0.25%	$	1,286		$	1,737		$	2		$	3
+0.50%	2,319			3,220			5			5
-0.25%	(1,584		)	(1,937		)	(2		)	(3		)
-0.50%	(3,498		)	(4,007		)	(4		)	(6		)

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.

~~Table~~ We had a $3.1 million valuation allowance for MSRs as of ~~Contents~~

June 30, 2019, with $2.6 million added during the first six months of 2019.

SBA-Guaranteed Loan Servicing

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:

TABLE 6.5


(in thousands)	June 30, 2018		December 31, 2017
(in millions)					June 30, 2019		December 31, 2018
SBA loans sold to investors with servicing retained	$	305,632	$	305,977	$	258	$	283

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

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands) 2018 2017 2018 2017
SBA loans sold with servicing retained $ 11,225
$ 15,142
$ 23,513
$ 24,518
Pretax gains resulting from above loan sales⁽¹⁾
1,171
816
2,272
816
SBA servicing fees ⁽¹⁾
699
627
1,449
742
TABLE 6.6



	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2019		2018		2019		2018
SBA loans sold with servicing retained	$	7	$	11	$	13	$	24
Pretax gains resulting from above loan sales⁽¹⁾	1		1		1		2
SBA servicing fees ⁽¹⁾	—		—		1		1

(1) Recorded in non-interest income.

Following is a summary of the activity in SBA servicing rights:

TABLE 6.7


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2018			2017			2018			2017
(in millions)													2019		2018			2019		2018
Balance at beginning of period	$	5,062		$	5,339		$	5,058		$	—		$	4	$	5		$	4	$	5
Fair value of servicing rights acquired	—			—			—			5,399
Additions	258			264			646			264			—		1			—		1
Impairment (charge) / recovery	(139		)	—			(229		)	—
Amortization	(287		)	(319		)	(581		)	(379		)	—		(1		)	—		(1		)
Balance at end of period	$	4,894		$	5,284		$	4,894		$	5,284		$	4	$	5		$	4	$	5
Fair value, beginning of period	$	5,062		$	5,339		$	5,058		$	—		$	4	$	5		$	4	$	5
Fair value, end of period	4,894			5,299			4,894			5,299			4		5			4		5

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

assumptions. The declines in fair values were immaterial in the scenarios presented.

June 30, 2018 December 31, 2017
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
Weighted-average life (months) 58.2
63.5

Constant prepayment rate (annualized) 10.51 % $ (161 ) $ (312 ) $ —
$ —
9.29 % $ (145 ) $ (284 ) $ —
$ —
Discount rate 15.08
—
—
(138 ) (269 ) 14.87
—
—
(147 ) (286 )
TABLE 6.8



	June 30, 2019										December 31, 2018
			Decline in fair value due to										Decline in fair value due to
(dollars in millions)	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)	48.0										52.2
Constant prepayment rate (annualized)	14.4	%	$	—	$	—	$	—	$	—	12.5	%	$	—	$	—	$	—	$	—
Discount rate	15.1		—		—		—		—		19.4		—		—		—		—

The fair value of the SBA servicing rights is compared to the amortized basis. If the amortized basis exceeds the fair value, the asset is considered impaired and is written down to fair value through a valuation allowance on the asset and a charge against SBA income. We had a ~~$0.5~~$0.7 million valuation allowance for SBA servicing rights as of June 30, ~~2018.~~2019.

NOTE 7. OPERATING LEASES

We have operating leases for certain branches, office space, land, and office equipment. Our operating leases expire at various dates through the year 2046 and generally include one or more options to renew. The exercise of a lease renewal options is at our sole discretion. As of June 30, 2019, we had operating lease right-of-use assets and operating leases liabilities of $109.6 million and $118.1 million, respectively.

Certain of our lease agreements include rental payments based on a percentage of transactions and others include rental payments that periodically adjust to rates and charges stated in the agreements. Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As of June 30, 2019, we have certain operating lease agreements, primarily for administrative office space, that have not yet commenced. At commencement, it is expected that these leases will add approximately $45 million in right-of-use assets and other liabilities. These operating leases will commence between 2019 and 2020 with lease terms of 12 years to 16 years.

~~Table of Contents~~

The components of lease expense were as follows:

TABLE 7.1



	Three Months Ended June 30,		Six Months Ended June 30,
(dollars in millions)	2019		2019
Operating lease cost	$	7	$	14
Short-term lease cost	—		—
Variable lease cost	1		2
Sublease income	—		—
Total lease cost	$	8	$	16

Other information related to leases is as follows:

TABLE 7.2



	Six Months Ended June 30,
(dollars in millions)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	13
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	4
Weighted average remaining lease term (years):
Operating leases	8.73
Weighted average discount rate:
Operating leases	3.1		%

Maturities of operating lease liabilities were as follows:

TABLE 7.3



(in millions)	June 30, 2019
2019	$	13
2020	23
2021	20
2022	15
2023	11
Later years	53
Total lease payments	135
Less: Interest	(17		)
Present value of lease liabilities	$	118

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

NOTE 8. BORROWINGS

Following is a summary of short-term borrowings:

TABLE 8.1



(in millions)	June 30, 2019		December 31, 2018
Securities sold under repurchase agreements	$	231	$	251
Federal Home Loan Bank advances	1,620		2,230
Federal funds purchased	1,752		1,535
Subordinated notes	108		113
Total short-term borrowings	$	3,711	$	4,129

(in thousands) June 30,
2018 December 31,
2017
Securities sold under repurchase agreements $ 239,804
$ 256,017
Federal Home Loan Bank advances 2,800,000
2,285,000
Federal funds purchased 1,165,000
1,000,000
Subordinated notes 129,342
137,320
Total short-term borrowings $ 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 are comprised of customer repurchase agreements, which are sweep accounts with next day maturities utilized by larger commercial customers to earn interest on their funds. Securities are pledged to these customers in an amount equal to the outstanding balance. Of the total short-term FHLB advances, ~~73.0%~~28.7% and ~~84.5%~~57.2% had overnight maturities as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. At June 30, 2019, 71.3% of the short-term FHLB advances were swapped to a fixed rate with maturities ranging from 2020 through 2024. This compares to 42.8% as of December 31, 2018.

Following is a summary of long-term borrowings:

TABLE 8.2



(in millions)	June 30, 2019		December 31, 2018
Federal Home Loan Bank advances	$	935	$	270
Subordinated notes	88		87
Junior subordinated debt	66		111
Other subordinated debt	249		159
Total long-term borrowings	$	1,338	$	627

(in thousands) June 30,
2018 December 31,
2017
Federal Home Loan Bank advances $ 270,045
$ 310,061
Subordinated notes 88,762
87,614
Junior subordinated debt 110,587
110,347
Other subordinated debt 159,544
160,151
Total long-term borrowings $ 628,938
$ 668,173

Our banking affiliate has available credit with the FHLB of ~~$7.7~~$8.0 billion, of which ~~$3.1~~$2.6 billion was utilized as of June 30, ~~2018.~~2019. These advances are secured by loans collateralized by residential mortgages, home equity lines of credit, commercial real estate and FHLB stock and are scheduled to mature in various amounts periodically through the year ~~2021.~~2022. Effective interest rates paid on the long-term advances ranged from ~~1.39%~~1.62% to ~~4.19%~~2.71% for the six months ended June 30, ~~2018~~2019 and ~~0.95%~~1.39% to 4.19% for the year ended December 31, ~~2017.~~2018.

During the first quarter of 2019, we completed a debt offering in which we issued $120.0 million aggregate principal amount of fixed-to-floating rate subordinated notes due in 2029. The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering costs were $118.2 million. This subordinated debt is eligible for treatment as tier 2 capital for regulatory capital purposes.

During the first half of 2019, we repurchased and retired $9.5 million and redeemed $15.5 million in higher interest rate other subordinated debt assumed in the 2017 YDKN acquisition. We also redeemed $44.0 million of TPS that we previously assumed through various acquisitions.

The junior subordinated debt is comprised of the debt securities issued by FNB in relation to our unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated variable interest entities, and isare included on the Consolidated Balance ~~Sheet~~Sheets in long-term borrowings. Since third-party investors are the primary beneficiaries, the Trusts are not

consolidated in our Financial Statements. We record the distributions on the junior subordinated debt issued to the Trusts as interest expense.

~~Table of Contents~~

The following table provides information relating to the Trusts as of June 30, ~~2018:~~2019:

TABLE 8.3



(dollars in millions)	Trust Preferred Securities		Common Securities		Junior Subordinated Debt		Stated Maturity Date	Interest Rate		Rate Reset Factor
F.N.B. Statutory Trust II	$	22	$	1	$	22	6/15/2036	4.06	%	LIBOR + 165 basis points (bps)
Yadkin Valley Statutory Trust I	25		1		22		12/15/2037	3.73	%	LIBOR + 132 bps
FNB Financial Services Capital Trust I	25		1		22		9/30/2035	3.78	%	LIBOR + 146 bps
Total	$	72	$	3	$	66

(dollars in thousands)
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 3.99 % LIBOR + 165 basis points (bps)
Omega Financial Capital Trust I 26,000
1,114
26,493
10/18/2034 4.55 % LIBOR + 219 bps
Yadkin Valley Statutory Trust I 25,000
774
20,987
12/15/2037 3.66 % LIBOR + 132 bps
FNB Financial Services Capital Trust I 25,000
774
21,916
9/30/2035 3.80 % LIBOR + 146 bps
American Community Capital Trust II 10,000
310
10,444
12/15/2033 5.11 % LIBOR + 280 bps
Crescent Financial Capital Trust I 8,000
248
8,582
10/7/2033 5.45 % LIBOR + 310 bps
Total $ 115,500
$ 3,885
$ 110,587

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 at fair value and do not take into account the effects of master netting arrangements we have with other financial institutions. Credit risk is included in the determination of the estimated fair value of derivatives. Derivative assets are reported in the Consolidated Balance Sheets in other assets and derivative liabilities are reported in the 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.

~~Table of Contents~~

The following table presents notional amounts and gross fair values of our derivative assets and derivative liabilities which are not offset in the Consolidated Balance ~~Sheet.~~Sheets.

TABLE 9.1



	June 30, 2019						December 31, 2018
	Notional		Fair Value				Notional		Fair Value
(in millions)	Amount		Asset		Liability		Amount		Asset		Liability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated	$	1,355	$	1	$	1	$	1,155	$	—	$	3
Interest rate swaps – not designated	3,151		—		24		2,740		2		10
Equity contracts – not designated	—		—		—		1		—		—
Total subject to master netting arrangements	4,506		1		25		3,896		2		13
Not subject to master netting arrangements:
Interest rate swaps – not designated	3,151		145		1		2,740		40		26
Interest rate lock commitments – not designated	130		3		—		47		1		—
Forward delivery commitments – not designated	185		—		1		55		—		—
Credit risk contracts – not designated	230		—		—		203		—		—
Equity contracts – not designated	—		—		—		1		—		—
Total not subject to master netting arrangements	3,696		148		2		3,046		41		26
Total	$	8,202	$	149	$	27	$	6,942	$	43	$	39

June 30, 2018 December 31, 2017
Notional Fair Value Notional Fair Value
(in thousands) Amount Asset Liability Amount Asset Liability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated $ 855,000
$ —
$ 4,372
$ 705,000
$ 228
$ 1,982
Interest rate swaps – not designated 2,542,255
4,755
7,974
2,245,442
1,169
11,599
Equity contracts – not designated 1,180
30
—
1,180
51
—
Total subject to master netting arrangements 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 2,542,255
14,219
53,724
2,245,442
27,233
15,303
Interest rate lock commitments – not designated 91,659
1,662
7
88,107
1,594
5
Forward delivery commitments – not designated 107,830
221
336
106,572
233
148
Credit risk contracts – not designated 243,297
—
—
235,196
39
109
Equity contracts – not designated 1,180
—
30
1,180
—
51
Total not subject to master netting arrangements 2,986,221
16,102
54,097
2,676,497
29,099
15,616
Total $ 6,384,656
$ 20,887
$ 66,443
$ 5,628,119
$ 30,547
$ 29,197

~~Beginning in the first quarter of 2017, certain~~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 these exchanges ~~that have adopted the rule change~~ as ~~settled where we had previously recorded cash collateral.~~settled. 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 ~~seven~~certain of our FHLB advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges, ~~(i.e.,~~ hedging the exposure to variability in expected future cash ~~flows).~~flows. The ~~effective portion of the~~ derivative’s gain or loss, including any ineffectiveness, is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same line item associated with the forecasted transaction when the forecasted transaction affects earnings. ~~Any~~Prior to 2019, any ineffective portion of the gain or loss iswas reported in earnings immediately.

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

(in thousands) June 30,
2018 December 31,
2017
Notional amount $ 855,000
$ 705,000
Fair value included in other assets —
228
Fair value included in other liabilities 4,372
1,982

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The following table shows amounts reclassified from accumulated other comprehensive ~~income for~~income:

TABLE 9.2



	Amount of Gain (Loss) Recognized in OCI on Derivatives					Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income
	Six Months Ended June 30,						Six Months Ended June 30,
(in millions)	2019			2018			2019		2018
Derivatives in cash flow hedging relationships:
Interest rate contracts	$	(26	)	$	7	Interest income (expense)	$	2	$	1

The following table represents gains (losses) recognized in the ~~six months ended June 30, 2018:~~Consolidated Statements of Income on cash flow hedging relationships:

TABLE 9.3



	Six Months Ended June 30, 2019					Six Months Ended June 30, 2018
(in millions)	Interest Income - Loans and Leases			Interest Expense - Short-Term Borrowings		Interest Income - Loans and Leases		Interest Expense - Short-Term Borrowings
Total amounts of income and expense line items presented in the Consolidated Statements of Income in which the effects of cash flow hedges are recorded	$	545		$	48	$	497	$	34
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships
Interest rate contracts
Amount of gain (loss) reclassified from AOCI into net income	(1		)	3		—		1
Amount of gain (loss) reclassified from AOCI into income as a result of that a forecasted transaction is no longer probable of occurring	—			—		—		—

(in thousands) Total Net of Tax
Reclassified from AOCI to interest income $ 25
$ 20
Reclassified from AOCI to interest expense (902 ) (713 )

As of June 30, ~~2018,~~2019, the maximum length of time over which forecasted interest cash flows are hedged is 55.4 years. In the twelve months that follow June 30, ~~2018,~~2019, we expect to reclassify from the amount currently reported in AOCI net derivative gains of ~~$3.4~~$2.8 million ($~~2.7~~2.2 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 June 30, ~~2018.~~2019.

There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to these cash flow hedges. ~~For the six months ended June 30, 2018 and 2017, there was no hedge ineffectiveness.~~ Also, during the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, 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~~A description of interest rate ~~swap agreements to meet the financing,~~swaps, interest rate lock commitments, forward delivery commitments 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~~contracts can be found in Note 14 "Derivative Instruments and Hedging Activities" in the Consolidated Financial Statements of our 2018 Annual Report on Form 10-K filed 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~~SEC 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.~~

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

(in thousands) June 30,
2018 December 31,
2017
Notional amount $ 5,084,510
$ 4,490,884
Fair value included in other assets 18,974
28,402
Fair value included in other liabilities 61,698
26,902
February 26, 2019.

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 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 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 270 days. The IRLCs are reported at fair value in other assets and other liabilities on the Consolidated Balance Sheets with any resulting gain or loss recorded in current period earnings as mortgage banking operations income.

~~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 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 their obligation to perform under certain derivative swap contracts.

Risk participation agreements sold with notional amounts totaling ~~$157.2~~$165.2 million as of June 30, ~~2018~~2019 have remaining terms ranging from three months to nine 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 ~~zero~~$0.3 million at June 30, ~~2018~~2019 and $0.1 million at December 31, ~~2017.~~2018. The fair values of risk participation agreements purchased and sold were ~~$0.2~~$0.1 million and ~~$(0.3)~~$0.3 million, respectively, at ~~December 31, 2018~~June 30, 2019 and ~~$0.04~~$0.05 million and $(0.1) million, respectively at December 31, ~~2017.~~2018.

The following table presents the effect of certain derivative financial instruments on the Consolidated Statements of Income:

TABLE 9.4



		Six Months Ended June 30,
(in millions)	Consolidated Statements of Income Location	2019			2018
Interest rate swaps	Non-interest income - other	$	—		$	1
Interest rate lock commitments	Mortgage banking operations	—			—
Forward delivery contracts	Mortgage banking operations	(1		)	1
Credit risk contracts	Non-interest income - other	—			—

Counterparty Credit Risk

We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash 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 ~~$0.4~~$0.5 million and ~~$0.9~~$0.7 million as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, in excess of amounts previously posted as collateral with the respective counterparty.

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

TABLE 9.5



			Amount Not Offset in the Consolidated Balance Sheets
(in millions)	Net Amount Presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral		Net Amount
June 30, 2019
Derivative Assets
Interest rate contracts:
Designated	$	1	$	1	$	—	$	—
Total	$	1	$	1	$	—	$	—



Derivative Liabilities
Interest rate contracts:
Designated	$	1	$	1	$	—	$	—
Not designated	24		23		—		1
Total	$	25	$	24	$	—	$	1

Amount Not Offset in the
Balance Sheet

(in thousands)
Net Amount
Presented in
the Balance
Sheet

Financial
Instruments

Cash
Collateral

Net
Amount
June 30, 2018
Derivative Assets
Interest rate contracts:
Designated $ —
$ —
$ —
$ —
Not designated 4,755
4,704
—
51
Equity contracts – not designated 30
30
—
—
Total $ 4,785
$ 4,734
$ —
$ 51



December 31, 2018
Derivative Assets
Interest rate contracts:
Not designated	$	2	$	2	$	—	$	—
Total	$	2	$	2	$	—	$	—

Derivative Liabilities
Interest rate contracts:
Designated $ 4,372
$ 4,372
$ —
$ —
Not designated 7,974
7,579
—
395
Total $ 12,346
$ 11,951
$ —
$ 395



Derivative Liabilities
Interest rate contracts:
Designated	$	3	$	3	$	—	$	—
Not designated	10		9		—		1
Total	$	13	$	12	$	—	$	1

December 31, 2017
Derivative Assets
Interest rate contracts:
Designated $ 228
$ 228
$ —
$ —
Not designated 1,169
1,169
—
—
Equity contracts – not designated 51
51
—
—
Total $ 1,448
$ 1,448
$ —
$ —

Derivative Liabilities
Interest rate contracts:
Designated $ 1,982
$ 1,982
$ —
$ —
Not designated 11,599
10,940
—
659
Total $ 13,581
$ 12,922
$ —
$ 659

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

Six Months Ended
June 30,
(in thousands) Income Statement Location 2018 2017
Interest Rate Contracts Interest income - loans and leases $ 25
$ 900
Interest Rate Contracts Interest expense – short-term borrowings (902 ) 652
Interest Rate Swaps Other income 1,259
(465 )
Credit Risk Contracts Other income 70
21

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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. Our exposure to credit loss in the event of non-performance by the customer is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby letters of credit is essentially the same as that involved in extending loans and leases to customers and is subject to normal credit policies. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

Following is a summary of off-balance sheet credit risk information:

TABLE 10.1



(in millions)	June 30, 2019		December 31, 2018
Commitments to extend credit	$	8,203	$	7,378
Standby letters of credit	137		126

(in thousands) June 30,
2018 December 31,
2017
Commitments to extend credit $ 7,223,071
$ 6,957,822
Standby letters of credit 137,054
132,904

At June 30, ~~2018,~~2019, funding of ~~76.9%~~73.5% of the commitments to extend credit was dependent on the financial condition of the customer. We have the ability to withdraw such commitments at our discretion. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Based on management’s credit evaluation of the customer, collateral may be deemed necessary. Collateral requirements vary and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

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

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 our consolidated financial position, although future accruals could have a material effect on net income in a given period.

NOTE 11. STOCK INCENTIVE PLANS

Restricted Stock

We issue restricted stock awards to key employees under our Incentive Compensation Plan (Plan). We issue time-based awards and performance-based awards under this Plan, both of which are based on a three-year vesting period. The grant date fair value of the time-based awards is equal to the price of our common stock on the grant date. The fair value of the performance-based awards is based on a Monte-Carlo simulation valuation of our common stock as of the grant date. The assumptions used for this valuation include stock price volatility, risk-free interest rate and dividend yield.

We issued 283,037 and 251,379 performance-based restricted stock units during the first six months of 2018 and 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 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 based on where we expect them to vest, regardless of the actual vesting percentages.

As of June 30, ~~2018,~~2019, we had available up to ~~2,333,089~~1,625,682 shares of common stock to issue under this Plan.

TABLE 11.1

The following table details our issuance of restricted stock units and the aggregate weighted average grant date fair values under these plans for the years indicated.



	Six Months Ended June 30,
(dollars in millions)	2019		2018
Restricted stock units	1,128,701		937,155
Weighted average grant date fair values	$	12	$	12

Six Months Ended
June 30,
(dollars in thousands) 2018 2017
Restricted stock units 937,155
707,851
Weighted average grant date fair values $ 12,370
$ 10,398

The unvested restricted stock unit awards are eligible to receive cash dividends or dividend equivalents which are ultimately used to purchase additional shares of stock and are subject to forfeiture if the requisite service period is not completed or the specified performance criteria are not met. These awards are subject to certain accelerated vesting provisions upon retirement, death, disability or in the event of a change of control as defined in the award agreements.

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

TABLE 11.2



	Six Months Ended June 30,
	2019				2018
	Units		Weighted Average Grant Price per Share		Units		Weighted Average Grant Price per Share
Unvested units outstanding at beginning of period	2,556,174		$	13.51	1,975,862		$	13.64
Granted	1,128,701		10.95		937,155		13.20
Vested	(649,248	)	13.15		(257,712	)	13.18
Forfeited/expired	(305,891	)	12.74		(180,723	)	13.30
Dividend reinvestment	51,679		11.63		38,129		14.02
Unvested units outstanding at end of period	2,781,415		12.60		2,512,711		13.56

Six Months Ended June 30,
2018 2017
Units
Weighted
Average
Grant
Price per
Share
Units
Weighted
Average
Grant
Price per
Share
Unvested units outstanding at beginning of period 1,975,862
$ 13.64
1,836,363
$ 12.97
Granted 937,155
13.20
707,851
14.69
Vested (257,712 ) 13.18
(592,202 ) 12.84
Forfeited/expired (180,723 ) 13.30
(14,679 ) 13.23
Dividend reinvestment 38,129
14.02
28,454
14.49
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 units:

TABLE 11.3



(in millions)	Six Months Ended June 30,
	2019		2018
Stock-based compensation expense	$	6	$	5
Tax benefit related to stock-based compensation expense	1		1
Fair value of units vested	7		3

(in thousands) Six Months Ended
June 30,
2018 2017
Stock-based compensation expense $ 4,699
$ 3,958
Tax benefit related to stock-based compensation expense 987
1,385
Fair value of units vested 3,472
8,013

As of June 30, ~~2018,~~2019, there was ~~$19.1~~$19.9 million of unrecognized compensation cost related to unvested restricted stock units, including $1.3 million that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement. The components of the restricted stock units as of June 30, ~~2018~~2019 are as follows:

TABLE 11.4



(dollars in millions)	Service- Based Units		Performance- Based Units		Total
Unvested restricted stock units	1,863,588		917,827		2,781,415
Unrecognized compensation expense	$	13	$	7	$	20
Intrinsic value	$	22	$	11	$	33
Weighted average remaining life (in years)	2.19		2.17		2.18

(dollars in thousands)
Service-
Based
Units

Performance-
Based
Units
Total
Unvested restricted stock units 1,449,400
1,063,311
2,512,711
Unrecognized compensation expense $ 12,405
$ 6,646
$ 19,051
Intrinsic value $ 19,451
$ 14,270
$ 33,721
Weighted average remaining life (in years) 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.

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

TABLE 11.5



	Six Months Ended June 30,
	2019				2018
	Shares		Weighted Average Exercise Price per Share		Shares		Weighted Average Exercise Price per Share
Options outstanding at beginning of period	458,354		$	7.99	722,650		$	7.96
Exercised	(34,432	)	7.86		(197,390	)	7.93
Forfeited/expired	(12,042	)	6.52		(4,598	)	11.65
Options outstanding and exercisable at end of period	411,880		8.05		520,662		7.96

Six Months Ended June 30,
2018 2017
Shares
Weighted
Average
Exercise
Price per
Share
Shares
Weighted
Average
Exercise
Price per
Share
Options outstanding at beginning of period 722,650
$ 7.96
892,532
$ 8.95
Assumed from acquisitions —
—
207,645
8.92
Exercised (197,390 ) 7.93
(155,597 ) 9.43
Forfeited/expired (4,598 ) 11.65
(56,510 ) 11.17
Options outstanding and exercisable at end of period 520,662
7.96
888,070
8.72

The intrinsic value of outstanding and exercisable stock options at June 30, ~~2018~~2019 was ~~$2.8~~$1.5 million. The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price.

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NOTE 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 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 3% if we exceed annual financial goals. Our contribution expense is presented in the following table:

Six Months Ended
June 30,
(in thousands) 2018 2017
401(k) contribution expense $ 8,146
$ 6,150

We also sponsor an 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.

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
June 30, Six Months Ended
June 30,
(in thousands) 2018 2017 2018 2017
Service cost $ (4 ) $ (4 ) $ (8 ) $ (8 )
Interest cost 1,560
1,477
3,120
2,954
Expected return on plan assets (2,895 ) (2,427 ) (5,790 ) (4,854 )
Amortization:
Unrecognized prior service cost —
2
—
4
Unrecognized loss 623
628
1,246
1,256
Net periodic pension credit $ (716 ) $ (324 ) $ (1,432 ) $ (648 )

~~NOTE 13.~~ INCOME TAXES

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:

TABLE 12.1


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2018			2017			2018			2017
(in millions)													2019			2018			2019			2018
Current income taxes:
Federal taxes	$	5,749		$	6,602		$	23,449		$	13,290		$	9		$	6		$	27		$	23
State taxes	1,045			1,086			2,749			1,585			1			1			3			3
Total current income taxes	6,794			7,688			26,198			14,875			10			7			30			26
Deferred income taxes:
Federal taxes	13,256			22,460			15,158			24,150			13			13			15			15
State taxes	421			(531		)	383			(2,924		)	1			1			1			1
Total deferred income taxes	13,677			21,929			15,541			21,226			14			14			16			16
Total income taxes	$	20,471		$	29,617		$	41,739		$	36,101		$	24		$	21		$	46		$	42
Statutory tax rate	21.0		%	35.0		%	21.0		%	35.0		%	21.0		%	21.0		%	21.0		%	21.0		%
Effective tax rate	19.4		%	28.5		%	19.5		%	27.0		%	19.7		%	19.4		%	19.5		%	19.5		%

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 ended2019 and 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~~higher effective tax rate ~~for~~in 2019 is partially due to the ~~six months ended June 30, 2017 primarily related to merger expenses and an increase~~impact from non-vesting stock compensation awards in the ~~level of tax credits.~~

~~In the fourth~~second 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.2019.

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~~Net deferred tax assets were $41.9 million and ~~liabilities as a result of the passage of the TCJA. The primary impact of this remeasurement was a reduction in deferred tax assets~~$67.5 million at June 30, 2019 and ~~liabilities in connection with the reduction of the U.S. corporate income tax rate from 35% to 21%.~~December 31, 2018, respectively.

NOTE ~~14.~~13. OTHER COMPREHENSIVE INCOME

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

TABLE 13.1



(in millions)	Unrealized Net Losses on Debt Securities Available for Sale			Unrealized Net Gains (Losses) on Derivative Instruments			Unrecognized Pension and Postretirement Obligations			Total
Six Months Ended June 30, 2019
Balance at beginning of period	$	(46	)	$	1		$	(61	)	$	(106	)
Other comprehensive (loss) income before reclassifications	54			(20		)	1			35
Amounts reclassified from AOCI	—			(1		)	—			(1		)
Net current period other comprehensive (loss) income	54			(21		)	1			34
Balance at end of period	$	8		$	(20	)	$	(60	)	$	(72	)

(in thousands)
Unrealized
Net Losses on
Debt Securities
Available
for Sale

Unrealized
Net Gains
(Losses) on
Derivative
Instruments

Unrecognized
Pension and
Postretirement
Obligations
Total
Six Months Ended June 30, 2018
Balance at beginning of period $ (29,626 ) $ 5,407
$ (58,833 ) $ (83,052 )
Other comprehensive (loss) income before reclassifications (38,660 ) 5,600
972
(32,088 )
Amounts reclassified from AOCI (24 ) (721 ) —
(745 )
Net current period other comprehensive (loss) income (38,684 ) 4,879
972
(32,833 )
Balance at end of period $ (68,310 ) $ 10,286
$ (57,861 ) $ (115,885 )

~~Table of Contents~~

The amounts reclassified from AOCI related to debt securities ~~available for sale~~AFS are included in net securities gains on the Consolidated Statements of 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.~~Statements of Income.

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

NOTE ~~15.~~14. 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.

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

TABLE 14.1



	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in millions, except per share data)	2019		2018		2019		2018
Net income	$	95	$	85	$	189	$	172
Less: Preferred stock dividends	2		2		4		4
Net income available to common stockholders	$	93	$	83	$	185	$	168
Basic weighted average common shares outstanding	324,950,162		324,170,177		324,796,294		323,956,752
Net effect of dilutive stock options, warrants and restricted stock	999,191		1,559,872		900,927		1,772,440
Diluted weighted average common shares outstanding	325,949,353		325,730,049		325,697,221		325,729,192
Earnings per common share:
Basic	$	0.29	$	0.26	$	0.57	$	0.52
Diluted	$	0.29	$	0.26	$	0.57	$	0.52

Three Months Ended
June 30, Six Months Ended
June 30,
(dollars in thousands, except per share data)
2018 2017 2018 2017
Net income $ 85,206
$ 74,406
$ 171,968
$ 97,385
Less: Preferred stock dividends 2,010
2,010
4,020
4,020
Net income available to common stockholders $ 83,196
$ 72,396
$ 167,948
$ 93,365
Basic weighted average common shares outstanding 324,170,177
323,303,460
323,956,752
280,578,720
Net effect of dilutive stock options, warrants and restricted stock 1,559,872
1,564,299
1,772,440
1,706,762
Diluted weighted average common shares outstanding 325,730,049
324,867,759
325,729,192
282,285,482
Earnings per common share:
Basic $ 0.26
$ 0.22
$ 0.52
$ 0.33
Diluted $ 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:

TABLE 14.2



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Average shares excluded from the diluted earnings per common share calculation	—	72	6	46

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

NOTE ~~16.~~15. CASH FLOW INFORMATION

Following is a summary of supplemental cash flow information:

TABLE 15.1



	Six Months Ended June 30,
	2019		2018
(in millions)
Interest paid on deposits and other borrowings	$	160	$	99
Income taxes paid	25		6
Transfers of loans to other real estate owned	3		8
Loans transferred to held for sale from portfolio	389		—

Six Months Ended
June 30,
2018 2017
(in thousands)
Interest paid on deposits and other borrowings $ 98,926
$ 51,611
Income taxes paid 6,000
43,500
Transfers of loans to other real estate owned 7,967
22,451

~~Table of Contents~~

NOTE ~~17.~~16. BUSINESS SEGMENTS

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

The Community Banking segment provides commercial and consumer banking services. Commercial banking solutions include corporate banking, small business banking, investment real estate financing, business credit, capital markets and lease financing. Consumer banking products and services include deposit products, mortgage lending, consumer lending and a complete suite of mobile and online banking services.

The Wealth Management segment provides a broad range of personal and corporate fiduciary services including the administration of decedent and trust estates. In addition, it offers various alternative products, including securities brokerage and investment advisory services, mutual funds and annuities.

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

~~The~~We also previously operated a Consumer Finance segment, which is no longer a reportable segment. This segment primarily ~~makes~~made installment loans to individuals and ~~purchases~~purchased 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~~On August 31, 2018, as part of our strategy to enhance the overall positioning of our consumer banking ~~operations. We entered a definitive stock purchase agreement to sell~~operations, we sold 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~~This transaction was completed 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~~no longer fits with our core business. Regency's financial information is included in the Consumer Finance segment in the 2018 tables that follows.

~~Table of Contents~~

The following tables provide financial information for these segments of FNB. The information provided under the caption “Parent and Other” represents operations not considered to be reportable segments and/or general operating expenses of FNB, and includes the parent company, other non-bank subsidiaries and eliminations and adjustments to reconcile to the Consolidated Financial Statements.

TABLE 16.1


(in thousands)	Community Banking		Wealth Management		Insurance			Consumer Finance		Parent and Other			Consolidated

(in millions)															Community Banking		Wealth Management		Insurance		Consumer Finance		Parent and Other			Consolidated
At or for the Three Months Ended June 30, 2019
Interest income															$	316	$	—	$	—	$	—	$	1		$	317
Interest expense															81		—		—		—		6			87
Net interest income															235		—		—		—		(5		)	230
Provision for credit losses															11		—		—		—		—			11
Non-interest income															61		12		4		—		(2		)	75
Non-interest expense ⁽¹⁾															157		9		4		—		2			172
Amortization of intangibles															3		—		—		—		—			3
Income tax expense (benefit)															24		1		—		—		(1		)	24
Net income (loss)															101		2		—		—		(8		)	95
Total assets															33,785		27		35		—		56			33,903
Total intangibles															2,297		10		29		—		—			2,336
At or for the Three Months Ended June 30, 2018
Interest income	$	284,768	$	—	$	19		$	9,349	$	(19	)	$	294,117	$	285	$	—	$	—	$	9	$	—		$	294
Interest expense	50,118		—		—			885		3,759			54,762		50		—		—		1		3			54
Net interest income	234,650		—		19			8,464		(3,778		)	239,355		235		—		—		8		(3		)	240
Provision for credit losses	13,277		—		—			2,277		—			15,554		14		—		—		2		—			16
Non-interest income	51,137		11,239		3,695			653		(1,835		)	64,889		51		11		4		1		(2		)	65
Non-interest expense ⁽¹⁾	159,675		8,694		3,895			5,293		1,645			179,202		159		9		4		5		2			179
Amortization of intangibles	3,699		60		52			—		—			3,811		4		—		—		—		—			4
Income tax expense (benefit)	21,291		581		(43		)	444		(1,802		)	20,471		21		—		—		1		(1		)	21
Net income (loss)	87,845		1,904		(190		)	1,103		(5,456		)	85,206		88		2		—		1		(6		)	85
Total assets	32,034,457		25,152		22,114			167,678		8,162			32,257,563		32,035		25		22		168		8			32,258
Total intangibles	2,311,429		10,067		12,140			1,809		—			2,335,445		2,311		10		12		2		—			2,335
At or for the Three Months Ended June 30, 2017
Interest income	$	241,917	$	—	$	19		$	10,114	$	(1,016	)	$	251,034
Interest expense	28,414		—		—			888		3,317			32,619
Net interest income	213,503		—		19			9,226		(4,333		)	218,415
Provision for credit losses	14,738		—		—			2,018		—			16,756
Non-interest income	53,031		9,821		3,496			770		(1,040		)	66,078
Non-interest expense ⁽¹⁾	141,441		7,987		3,456			5,288		729			158,901
Amortization of intangibles	4,694		65		54			—		—			4,813
Income tax expense (benefit)	30,200		651		10			1,073		(2,317		)	29,617
Net income (loss)	75,461		1,118		(5		)	1,617		(3,785		)	74,406
Total assets	30,487,402		22,028		22,311			183,859		38,126			30,753,726
Total intangibles	2,322,326		10,288		12,231			1,809		—			2,346,654
(1) Excludes amortization of intangibles, which is presented separately.															(1) Excludes amortization of intangibles, which is presented separately.



(in millions)	Community Banking		Wealth Management		Insurance		Consumer Finance		Parent and Other			Consolidated
At or for the Six Months Ended June 30, 2019
Interest income	$	626	$	—	$	—	$	—	$	1		$	627
Interest expense	157		—		—		—		9			166
Net interest income	469		—		—		—		(8		)	461
Provision for credit losses	25		—		—		—		—			25
Non-interest income	112		23		9		—		(4		)	140
Non-interest expense ⁽¹⁾	304		18		8		—		4			334
Amortization of intangibles	7		—		—		—		—			7
Income tax expense (benefit)	47		1		—		—		(2		)	46
Net income (loss)	198		4		1		—		(14		)	189
Total assets	33,785		27		35		—		56			33,903
Total intangibles	2,297		10		29		—		—			2,336
At or for the Six Months Ended June 30, 2018
Interest income	$	548	$	—	$	—	$	19	$	—		$	567
Interest expense	92		—		—		2		7			101
Net interest income	456		—		—		17		(7		)	466
Provision for credit losses	26		—		—		4		—			30
Non-interest income	104		22		8		1		(3		)	132
Non-interest expense ⁽¹⁾	308		17		8		10		3			346
Amortization of intangibles	8		—		—		—		—			8
Income tax expense (benefit)	43		1		—		1		(3		)	42
Net income (loss)	175		4		—		3		(10		)	172
Total assets	32,035		25		22		168		8			32,258
Total intangibles	2,311		10		12		2		—			2,335

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

~~Table of Contents~~

(in thousands)
Community
Banking

Wealth
Management
Insurance
Consumer
Finance

Parent and
Other
Consolidated
At or for the Six Months Ended June 30, 2018
Interest income $ 548,355
$ —
$ 39
$ 18,643
$ 7
$ 567,044
Interest expense 92,478
—
—
1,795
7,311
101,584
Net interest income 455,877
—
39
16,848
(7,304 ) 465,460
Provision for credit losses 25,689
—
—
4,360
—
30,049
Non-interest income 104,449
22,241
7,998
1,291
(3,587 ) 132,392
Non-interest expense ⁽¹⁾
308,342
16,972
7,606
10,523
2,624
346,067
Amortization of intangibles 7,804
121
104
—
—
8,029
Income tax expense (benefit) 43,011
1,170
81
918
(3,441 ) 41,739
Net income (loss) 175,480
3,978
246
2,338
(10,074 ) 171,968
Total assets 32,034,457
25,152
22,114
167,678
8,162
32,257,563
Total intangibles 2,311,429
10,067
12,140
1,809
—
2,335,445
At or for the Six Months Ended June 30, 2017
Interest income $ 427,298
$ —
$ 39
$ 20,016
$ (1,626 ) $ 445,727
Interest expense 47,279
—
—
1,810
5,471
54,560
Net interest income 380,019
—
39
18,206
(7,097 ) 391,167
Provision for credit losses 23,802
—
—
3,804
—
27,606
Non-interest income 93,748
19,370
7,821
1,480
(1,225 ) 121,194
Non-interest expense ⁽¹⁾
309,725
15,527
6,771
10,519
816
343,358
Amortization of intangibles 7,676
126
109
—
—
7,911
Income tax expense (benefit) 36,511
1,362
357
2,140
(4,269 ) 36,101
Net income (loss) 96,053
2,355
623
3,223
(4,869 ) 97,385
Total assets 30,487,402
22,028
22,311
183,859
38,126
30,753,726
Total intangibles 2,322,326
10,288
12,231
1,809
—
2,346,654

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

NOTE ~~18.~~17. FAIR VALUE MEASUREMENTS

Refer to Note 24 "Fair Value Measurements" to the Consolidated Financial Statements of ~~the~~our 2018 Annual Report on Form 10-K ~~for the year ended December 31, 2017~~ filed with the SEC on February ~~28, 2018~~26, 2019 for a description of additional valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis. ~~Assets and liabilities measured at fair value rarely transfer between Level 1 and Level 2 measurements. There were no such transfers during the six-month periods ended June 30, 2018 and 2017.~~

~~Table of Contents~~

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

TABLE 17.1


(in thousands)	Level 1		Level 2		Level 3		Total
June 30, 2018
(in millions)									Level 1		Level 2		Level 3		Total
June 30, 2019
Assets Measured at Fair Value
Debt securities available for sale
U.S. government agencies	$	—	$	95,526	$	—	$	95,526	$	—	$	172	$	—	$	172
U.S. government-sponsored entities	—		306,934		—		306,934		—		301		—		301
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,577,596		—		1,577,596		—		1,315		—		1,315
Agency collateralized mortgage obligations	—		831,817		—		831,817		—		1,242		—		1,242
Non-agency collateralized mortgage obligations	—		—		—		—
Commercial mortgage-backed securities	—		168,324		—		168,324		—		232		—		232
States of the U.S. and political subdivisions	—		20,735		—		20,735		—		15		—		15
Other debt securities	—		1,855		—		1,855		—		2		—		2
Total debt securities available for sale	—		3,002,787		—		3,002,787		—		3,279		—		3,279
Loans held for sale	—		28,213		—		28,213		—		39		—		39
Marketable equity securities
Fixed income mutual fund	177		—		—		177
Financial services industry	—		995		—		995
Total marketable equity securities	177		995		—		1,172
Derivative financial instruments
Trading	—		19,004		—		19,004		—		145		—		145
Not for trading	—		221		1,662		1,883		—		1		3		4
Total derivative financial instruments	—		19,225		1,662		20,887		—		146		3		149
Total assets measured at fair value on a recurring basis	$	177	$	3,051,220	$	1,662	$	3,053,059	$	—	$	3,464	$	3	$	3,467
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	61,728	$	—	$	61,728	$	—	$	25	$	—	$	25
Not for trading	—		4,708		7		4,715		—		2		—		2
Total derivative financial instruments	—		66,436		7		66,443		—		27		—		27
Total liabilities measured at fair value on a recurring basis	$	—	$	66,436	$	7	$	66,443	$	—	$	27	$	—	$	27

~~Table of Contents~~



(in millions)	Level 1		Level 2		Level 3		Total
December 31, 2018
Assets Measured at Fair Value
Debt securities available for sale
U.S. government agencies	$	—	$	187	$	—	$	187
U.S. government-sponsored entities	—		313		—		313
Residential mortgage-backed securities:
Agency mortgage-backed securities	—		1,429		—		1,429
Agency collateralized mortgage obligations	—		1,161		—		1,161
Commercial mortgage-backed securities	—		228		—		228
States of the U.S. and political subdivisions	—		21		—		21
Other debt securities	—		2		—		2
Total debt securities available for sale	—		3,341		—		3,341
Loans held for sale	—		14		—		14
Derivative financial instruments
Trading	—		42		1		43
Total derivative financial instruments	—		42		1		43
Total assets measured at fair value on a recurring basis	$	—	$	3,397	$	1	$	3,398
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—	$	36	$	—	$	36
Not for trading	—		3		—		3
Total derivative financial instruments	—		39		—		39
Total liabilities measured at fair value on a recurring basis	$	—	$	39	$	—	$	39

(in thousands) Level 1 Level 2 Level 3 Total
December 31, 2017
Assets Measured at Fair Value
Debt securities available for sale
U.S. government-sponsored entities $ —
$ 343,942
$ —
$ 343,942
Residential mortgage-backed securities:
Agency mortgage-backed securities —
1,598,874
—
1,598,874
Agency collateralized mortgage obligations —
794,957
—
794,957
Non-agency collateralized mortgage obligations —
1
—
1
States of the U.S. and political subdivisions —
21,093
—
21,093
Other debt securities —
4,670
—
4,670
Total debt securities available for sale —
2,763,537
—
2,763,537
Equity securities available for sale
Fixed income mutual fund 161
—
—
161
Financial services industry —
864
—
864
Total equity securities available for sale 161
864
—
1,025
Total securities available for sale 161
2,764,401
—
2,764,562
Loans held for sale —
56,458
—
56,458
Derivative financial instruments
Trading —
28,453
—
28,453
Not for trading —
500
1,594
2,094
Total derivative financial instruments —
28,953
1,594
30,547
Total assets measured at fair value on a recurring basis $ 161
$ 2,849,812
$ 1,594
$ 2,851,567
Liabilities Measured at Fair Value
Derivative financial instruments
Trading $ —
$ 26,953
$ —
$ 26,953
Not for trading —
2,239
5
2,244
Total derivative financial instruments —
29,192
5
29,197
Total liabilities measured at fair value on a recurring basis $ —
$ 29,192
$ 5
$ 29,197

~~Table of Contents~~

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

TABLE 17.2



(in millions)	Interest Rate Lock Commitments			Total
Six Months Ended June 30, 2019
Balance at beginning of period	$	1		$	1
Purchases, issuances, sales and settlements:
Purchases	3			3
Settlements	(1		)	(1		)
Balance at end of period	$	3		$	3
Year Ended December 31, 2018
Balance at beginning of period	$	2		$	2
Purchases, issuances, sales and settlements:
Purchases	5			5
Settlements	(6		)	(6		)
Balance at end of period	$	1		$	1

(in thousands)
Other
Debt
Securities

Equity
Securities

Residential
Non-Agency
Collateralized
Mortgage
Obligations

Interest
Rate
Lock
Commitments
Total
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
Total gains (losses) – realized/unrealized:
Included in earnings —
—
4
—
4
Included in other comprehensive income —
86
(6 ) —
80
Accretion included in earnings (1 ) —
1
—
—
Purchases, issuances, sales and settlements:
Purchases 12,048
—
—
1,594
13,642
Sales/redemptions (12,047 ) —
(874 ) —
(12,921 )
Settlements —
—
(19 ) (4,569 ) (4,588 )
Transfers from Level 3 —
(578 ) —
—
(578 )
Transfers into Level 3 —
—
—
4,569
4,569
Balance at end of period $ —
$ —
$ —
$ 1,594
$ 1,594

We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. There were no transfers of assets or liabilities between the hierarchy levels during the first six months of 2019 or 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 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.

For the six months ended June 30, 2018, we recorded in earnings $0.6 million of unrealized gains relating to the adoption of ASU 2016-01 and 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 realized net securities gains included in earnings are in the net securities gains line item in the Consolidated Statements of 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 described in Note 24 "Fair Value Measurements" in our ~~2017~~2018 Annual Report on Form ~~10-K.~~10-K. For assets measured at fair value on a non-recurring basis still held at the Balance Sheet date, the following table provides the hierarchy level and the fair value of the related assets or portfolios:

TABLE 17.3



(in millions)	Level 1		Level 2		Level 3		Total
June 30, 2019
Impaired loans	$	—	$	—	$	5	$	5
Other real estate owned	—		—		2		2
Other assets - SBA servicing asset	—		—		4		4
Other assets - MSR	—		—		25		25
December 31, 2018
Impaired loans	$	—	$	—	$	15	$	15
Other real estate owned	—		—		5		5
Other assets - SBA servicing asset	—		—		4		4

(in thousands) Level 1 Level 2 Level 3 Total
June 30, 2018
Impaired loans $ —
$ 1,460
$ 6,135
$ 7,595
Other real estate owned —
—
5,500
5,500
Other assets - SBA servicing asset —
—
4,894
4,894
December 31, 2017
Impaired loans $ —
$ 2,813
$ 1,297
$ 4,110
Other real estate owned —
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 six months or twelve months ended June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Consequently, the fair value information presented is not necessarily as of the period’s end. MSRs measured at fair value on a non-recurring basis of $27.6 million had a valuation allowance of $2.6 million included in earnings, bringing the June 30, 2019 carrying value to $24.6 million.

Impaired loans measured or re-measured at fair value on a non-recurring basis during the six months ended June 30, ~~2018~~2019 had a carrying amount of ~~$7.6~~$5.2 million, which includes an allocated allowance for credit losses of ~~$4.4~~$2.7 million. The allowance for credit losses includes a provision applicable to the current period fair value measurements of ~~$4.7~~$5.1 million, which was included in the provision for credit losses for the six months ended June 30, ~~2018.~~2019.

OREO with a carrying amount of ~~$7.6~~$2.5 million was written down to ~~$5.5~~$1.6 million, resulting in a loss of ~~$2.1~~$0.5 million, which was included in earnings for the six months ended June 30, ~~2018.~~2019.

Fair Value of Financial Instruments

~~The following methods and assumptions were used~~Refer 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 AFS and securities 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, 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 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 Consolidated Financial Statements of ~~the~~our 2018 Annual Report on Form 10-K ~~for the year ended December 31, 2017~~ filed with the SEC on February ~~28, 2018~~26, 2019 for a description of ~~valuation methodologies for derivative assets~~methods 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~~assumptions that were used to ~~withdraw funds immediately. The fair value of 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~~estimate 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 othereach 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 date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.instrument.

~~Table of Contents~~

The fair values of our financial instruments are as follows:

TABLE 17.4



					Fair Value Measurements
(in millions)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
June 30, 2019
Financial Assets
Cash and cash equivalents	$	499	$	499	$	499	$	—	$	—
Debt securities available for sale	3,279		3,279		—		3,279		—
Debt securities held to maturity	3,079		3,093		—		3,093		—
Net loans and leases, including loans held for sale	22,687		22,576		—		39		22,537
Loan servicing rights	42		44		—		—		44
Derivative assets	149		149		—		146		3
Accrued interest receivable	113		113		113		—		—
Financial Liabilities
Deposits	23,731		23,735		18,247		5,488		—
Short-term borrowings	3,711		3,714		3,714		—		—
Long-term borrowings	1,338		1,341		—		—		1,341
Derivative liabilities	27		27		—		27		—
Accrued interest payable	26		26		26		—		—
December 31, 2018
Financial Assets
Cash and cash equivalents	$	488	$	488	$	488	$	—	$	—
Debt securities available for sale	3,341		3,341		—		3,341		—
Debt securities held to maturity	3,254		3,155		—		3,155		—
Net loans and leases, including loans held for sale	21,995		21,742		—		14		21,728
Loan servicing rights	41		45		—		—		45
Derivative assets	43		43		—		42		1
Accrued interest receivable	101		101		101		—		—
Financial Liabilities
Deposits	23,455		23,411		18,142		5,269		—
Short-term borrowings	4,129		4,130		4,130		—		—
Long-term borrowings	627		618		—		—		618
Derivative liabilities	39		39		—		39		—
Accrued interest payable	20		20		20		—		—

Fair Value Measurements
(in thousands)
Carrying
Amount

Fair
Value
Level 1 Level 2 Level 3
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 $ 479,443
$ 479,443
$ 479,443
$ —
$ —
Securities available for sale 2,764,562
2,764,562
161
2,764,401
—
Debt securities held to maturity 3,242,268
3,218,379
—
3,218,379
—
Net loans and leases, including loans held for sale 20,916,277
20,661,196
—
56,458
20,604,738
Loan servicing rights 34,111
37,758
—
—
37,758
Derivative assets 30,547
30,547
—
28,953
1,594
Accrued interest receivable 94,254
94,254
94,254
—
—
Financial Liabilities
Deposits 22,399,725
22,359,182
17,779,246
4,579,936
—
Short-term borrowings 3,678,337
3,678,723
3,678,723
—
—
Long-term borrowings 668,173
675,489
—
—
675,489
Derivative liabilities 29,197
29,197
—
29,192
5
Accrued interest payable 12,480
12,480
12,480
—
—

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

~~Management’s Discussion and Analysis~~MD&A represents an overview of and highlights material changes to our financial condition and consolidated results of operations at and for the three- and six-month periods ended June 30, ~~2018~~2019 and ~~2017.~~2018. This ~~Discussion and Analysis~~MD&A should be read in conjunction with the Consolidated Financial Statements and ~~notes~~Notes thereto contained herein and our ~~2017~~2018 Annual Report on Form 10-K filed with the SEC on February ~~28, 2018.~~26, 2019. Our results of operations for the six months ended June 30, ~~2018~~2019 are not necessarily indicative of results expected for the full year.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

~~A number of~~We make statements in this Report and may ~~contain forward-looking~~from time-to-time make other statements ~~within the meaning of the Private Securities Litigation Reform Act of 1995 including~~regarding our ~~expectations relative to~~outlook for earnings, revenues, expenses, tax rates, capital and liquidity levels and ratios, asset quality levels, financial position and other matters regarding or affecting our current or future business and financial metrics, 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~~operations that change over time. We do not assume any duty to update forward-looking statements. Actual results or ~~belief as to~~ future events ~~or results, such expectation or belief is expressed~~may be different from those anticipated 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 or 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 currentalign with historical performance and ~~trends.~~events, possibly materially different, as well as from a historical perspective. Forward-looking statements are typically identified by words such as "believe," "plan," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "will," "should," "project," "goal," and other similar words and expressions. These forward-looking statements involve ~~certain~~various assumptions, risks and ~~uncertainties. In addition~~uncertainties which change over time.

Our forward-looking statements are subject to ~~factors previously disclosed in our reports filed with the SEC,~~ the following ~~factors among others, could cause actual~~principal risks and uncertainties:

Our business, financial 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 ofbalance sheet values are affected by business and technology initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with 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 interpretationscircumstances, including, but not limited to: (i) developments with respect to the ~~recently enacted Tax Cuts~~U.S. and ~~Jobs Act or tariffs implemented~~global financial markets; (ii) actions by the Federal Reserve Board, U.S. ~~President;changes in~~Treasury Department, Office of the Comptroller of the Currency and other governmental agencies, especially those that impact money supply, market interest rates or ~~anticipated impact~~otherwise affect business activities of ~~accounting~~the financial services industry; (iii) a slowing or reversal of current U.S. economic expansion; and (iv) the impacts of tariffs or other trade policies ~~standards~~of the U.S. or its global trading partners.

Business and ~~interpretations;~~operating results are affected by our ability to ~~maintain adequate~~identify and effectively manage risks inherent in our businesses, including, where appropriate, through effective use of systems and controls, third-party insurance, derivatives, and capital management techniques, and to meet evolving regulatory capital and liquidity standards.

Competition can have an impact on customer acquisition, growth and retention, and on credit spreads, deposit gathering and product pricing, which can affect market share, deposits and revenues. Our ability to ~~fund~~anticipate and continue to respond to technological changes can also impact our ~~operations; changes in asset valuations;~~ability to respond to customer needs and meet competitive demands.

Business and operating results can also be affected by widespread natural and other disasters, pandemics, dislocations, terrorist activities, system failures, security breaches, cyberattacks or international hostilities through impacts on the ~~initiation~~economy and financial markets generally, or on us or our counterparties specifically.

Legal, regulatory and accounting developments could have an impact on our ability to operate and grow our businesses, financial condition, results of ~~legal or regulatory proceedings against us~~operations, competitive position, and reputation. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and the ~~outcome of any legal or regulatory proceeding including, but not limited~~ability to ~~actions by federal or state authorities~~attract 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 OCC, the FRB, the Consumer Financial Protection Bureau, the FDIC and legislative and regulatory actions and reforms.retain management. These developments could include:


◦	Changes resulting from legislative and regulatory reforms, including changes affecting oversight of the financial services industry, consumer protection, pension, bankruptcy and other industry aspects, and changes in accounting policies and principles.


◦	Changes to regulations governing bank capital and liquidity standards.


◦	Unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or other inquiries. These matters may result in monetary judgments or settlements or other remedies, including fines, penalties, restitution or alterations in our business practices, and in additional expenses and collateral costs, and may cause reputational harm to F.N.B.


◦	Results of the regulatory examination and supervision process, including our failure to satisfy requirements imposed by the federal bank regulatory agencies or other governmental agencies.


◦	The impact on our financial condition, results of operations, financial disclosures and future business strategies related to the upcoming implementation of the new FASB Accounting Standards Update 2016-13 Financial Instruments - Credit Losses commonly referred to as the “current expected credit loss” standard, or CECL.

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 inunder Item 1A. Risk Factors and Risk Management sections of our2018 Annual Report on Form 10-K ~~(including MD&A section) for the year ended December 31, 2017,~~, our subsequent ~~2018~~2019 Quarterly Reports on Form ~~10-Q's~~10-Q (including the risk factors and risk management 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-~~

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~~services.~~investor-relations-shareholder-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~~MD&A section of our ~~2017~~2018 Annual Report on Form 10-K filed with the SEC on February ~~28, 2018~~26, 2019 under the heading “Application of Critical Accounting ~~Policies.”~~Policies”. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, ~~2017.~~2018.

USE OF NON-GAAP FINANCIAL MEASURES AND KEY PERFORMANCE INDICATORS

To supplement our Consolidated Financial Statements presented in accordance with GAAP, we use certain non-GAAP financial measures, such as operating net income available to common stockholders, operating earnings per diluted common share, return on average tangible common equity, return on average tangible assets, tangible book value per common share, the ratio of tangible equity to tangible assets, the ratio of tangible common equity to tangible assets, efficiency ratio and net interest margin (FTE) to provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers. Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities. The non-GAAP financial measures and key performance indicators we use may differ from the non-GAAP financial measures and key performance indicators other financial institutions use to assess their performance and trends.

These non-GAAP financial measures should be viewed as supplemental in nature, and not as a substitute for or superior to, our reported results prepared in accordance with GAAP. When non-GAAP financial measures are disclosed, the SEC's Regulation G requires: (i) the presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and (ii) a reconciliation of the differences between the non-GAAP financial measure presented and the most directly comparable financial measure calculated and presented in accordance with GAAP. Reconciliations of non-GAAP operating measures to the most directly comparable GAAP financial measures are included later in this report under the heading ~~“Reconciliation~~“Reconciliations of Non-GAAP Financial Measures and Key Performance Indicators to 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 charges are considered significant items impacting earnings as they are deemed to be outside of ordinary banking activities. The ~~merger expenses and~~ branch ~~consolidations~~consolidation charges principally represent expenses to satisfy contractual obligations of the ~~acquired entity or~~ closed ~~branch~~branches without any useful ongoing benefit to us. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction.

The second quarter 2018 results continued to reflect the 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 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~~Taxable-equivalent amounts for the 2019 and 2018 ~~period~~periods were calculated using a federal statutory income tax rate of 21% ~~provided under the TCJA (effective January 1, 2018)~~. ~~Amounts for the 2017 periods were calculated using the previously applicable statutory federal income tax rate of 35%.~~

FINANCIAL SUMMARY

Net income available to common stockholders for the second quarter of 2019 was $93.2 million or $0.29 per diluted common share, compared to net income available to common stockholders for the second quarter of 2018 ~~was~~of $83.2 million or $0.26 per diluted common share. On an operating basis, second quarter of ~~2018 earnings~~2019 net income available to common stockholders was $95.4 million (non-GAAP) or $0.29 per diluted common share (non-GAAP) ~~was~~, excluding $2.9 million in branch consolidation costs, compared to the second quarter of 2018 net income available to common stockholders of $89.1 million (non-GAAP) or $0.27 per diluted common share (non-GAAP), excluding ~~the impact of significant items influencing earnings of~~ $6.6 million ofin branch consolidation 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 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 $570 million, 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 prior year quarter which included an increase in average non-interest bearing deposits of $298 million, or 5.4%, and 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 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 end of 2018.

Income Statement Highlights (Second quarter of ~~2018~~2019 compared to second quarter of ~~2017)~~2018, except as noted)

Net income ~~available to common stockholders~~ was ~~$83.2~~$95.2 million, compared to ~~$72.4 million.~~$85.2 million, up 11.7%.

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

Earnings per diluted common share were ~~$0.26,~~$0.29, compared to ~~$0.22.~~$0.26, up 11.5%.

Operating earnings per diluted common share (non-GAAP) were ~~$0.27,~~$0.29, compared to ~~$0.23.~~

~~Non-interest income decreased $1.2 million or 1.8%~~$0.27, up 7.4%. 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%~~0.3% to ~~$304~~$305.2 million, reflecting a ~~9.6%~~15.3% increase in ~~net interest~~non-interest income, partially offset by a ~~1.8%~~3.7% decrease in ~~non-interest income.~~net interest income, largely attributable to the sale of Regency and lower acquired loan cash recoveries.

Net interest margin (FTE) (non-GAAP) ~~expanded 9~~declined 31 basis points to ~~3.51%~~3.20% from ~~3.42%.~~3.51%, primarily reflecting the sale of Regency in the third quarter of 2018 and a smaller contribution from cash recoveries on acquired loans. Regency contributed 12 basis points to net interest margin in the second quarter of 2018, while the contribution from cash recoveries declined 14 basis points.

Non-interest ~~expense was $183.0 million, compared to $163.7 million. Non-interest expense, excluding significant items influencing earnings, was $179.2 million, compared to $162.4 million.~~

~~Income tax expense~~income increased ~~$5.6~~$10.0 million, or ~~15.6%~~15.3%. Capital markets income grew 68.6%, ~~primarily~~reflecting strong interest rate derivative and syndications activity, while trust income grew 8.5%. Mortgage banking operations income increased $1.7 million due to ~~higher 2018 pre-tax~~a $3.5 million increase in gain on sale income, partially offset by ~~the lower tax rate in 2018.~~a $1.3 million interest rate-related valuation adjustment of mortgage servicing rights.

The ~~efficiency ratio (non-GAAP) totaled 55.6%, compared~~provision for credit losses of $11.5 million supported strong loan growth and exceeded net charge-offs of $9.0 million. The low level of net charge-offs reflects previous actions taken to ~~54.3%.~~reduce credit risk and favorable credit quality.

The annualized net charge-offs to total average loans ratio ~~increased~~decreased to 0.16%, compared to 0.34%, ~~compared to 0.23%, with the increase primarily related to~~indicative of continued favorable credit quality trends and the sale of ~~certain underperforming commercial loans.~~Regency.

The efficiency ratio (non-GAAP) equaled 54.5%, compared to 55.6%.

Balance Sheet Highlights (period-end balances, June 30, ~~2018~~2019 compared to December 31, ~~2017,~~2018, unless otherwise indicated)

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

Growth in total average loans compared to the second quarter of 2018 was ~~$1.1~~$1.3 billion, or ~~5.3%~~6.1%, with average commercial loan growth of ~~$570.2~~$790.3 million, or ~~4.4%~~5.9%, and average consumer loan growth of ~~$513.8~~$524.5 million, or ~~6.9%, from the same period last year.~~6.6%.

Total average deposits ~~increased $1.3~~grew $1.4 billion, or ~~6.3%~~6.1%, ~~which included~~compared to the second quarter of 2018 including an increase in average ~~non-interest bearing~~non-interest-bearing deposits of ~~$297.9~~$305.0 million, or ~~5.4%~~5.3%, an increase in interest-bearing demand deposits of $507.0 million, or 5.5%, and an increase in average time deposits of ~~$1.0 billion,~~$661.1 million, or ~~26.7%, from the same period last year.~~

13.7%.

The ratio of loans to deposits was ~~96.1%~~95.0%, compared to ~~93.7%~~94.4%.

Total stockholders’ equity was $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 in the originated portfolio from 0.88% to 0.68%.~~

The ratio of the allowance for loan losses to total loans and leases ~~decreased 2 basis points~~remained stable at 0.83%, compared to ~~0.82%~~

0.81%.

Return on average tangible common equity ratio (non-GAAP) of 16.84%, compared to 17.14% for the prior-year quarter.


•	Tangible book value per share (non-GAAP) of $7.11, a 14% increase from June 30, 2018.


•	Tangible common equity to tangible assets of 7.32%, a 53 basis point increase from June 30, 2018.

~~Table of Contents~~

RESULTS OF OPERATIONS

Three Months Ended June 30, ~~2018~~2019 Compared to the Three Months Ended June 30, ~~2017~~2018

Net income available to common stockholders for the three months ended June 30, ~~2018~~2019 was ~~$83.2~~$93.2 million or ~~$0.26~~$0.29 per diluted common share, compared to net income available to common stockholders for the three months ended June 30, ~~2017~~2018 of ~~$72.4~~$83.2 million or ~~$0.22~~$0.26 per diluted common share. The second quarter of 2019 included $2.9 million in branch consolidation costs. The second quarter of 2018 included significant items ~~influencing~~impacting earnings of $7.5 million, comprised of $6.6 million ofin branch consolidation costs ~~related to branch consolidations~~ and a $0.9 million discretionary 401(k) contribution made following tax reform. Of ~~those costs,~~this $7.5 million, $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.~~

Net interest income totaled $239.4 million, increasing $20.9 million or 9.6%. Non-interest income decreased $1.2 million and non-interest expense increased $19.3 million. The ratio of non-performing loans and OREO to total loans and OREO decreased 17 basis points to 0.61%.

Financial highlights are summarized below:

TABLE 1


	Three Months Ended June 30,				$			%		Three Months Ended June 30,				$			%
(in thousands, except per share data)	2018		2017		Change			Change		2019		2018		Change			Change
Net interest income	$	239,355	$	218,415	$	20,940		9.6	%	$	230,407	$	239,355	$	(8,948	)	(3.7	)%
Provision for credit losses	15,554		16,756		(1,202		)	(7.2	)	11,478		15,554		(4,076		)	(26.2	)
Non-interest income	64,889		66,078		(1,189		)	(1.8	)	74,840		64,889		9,951			15.3
Non-interest expense	183,013		163,714		19,299			11.8		175,237		183,013		(7,776		)	(4.2	)
Income taxes	20,471		29,617		(9,146		)	(30.9	)	23,345		20,471		2,874			14.0
Net income	85,206		74,406		10,800			14.5		95,187		85,206		9,981			11.7
Less: Preferred stock dividends	2,010		2,010		—			—		2,010		2,010		—			—
Net income available to common stockholders	$	83,196	$	72,396	$	10,800		14.9	%	$	93,177	$	83,196	$	9,981		12.0	%
Earnings per common share – Basic	$	0.26	$	0.22	$	0.04		18.2	%	$	0.29	$	0.26	$	0.03		11.5	%
Earnings per common share – Diluted	0.26		0.22		0.04			18.2		0.29		0.26		0.03			11.5
Cash dividends per common share	0.12		0.12		—			—		0.12		0.12		—			—

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

TABLE 2


	Three Months Ended June 30,						Three Months Ended June 30,
	2018			2017			2019			2018
Return on average equity	7.66		%	6.80		%	8.09		%	7.66		%
Return on average tangible common equity ⁽²⁾	17.14		%	15.69		%	16.84		%	17.14		%
Return on average assets	1.07		%	0.98		%	1.13		%	1.07		%
Return on average tangible assets ⁽²⁾	1.19		%	1.11		%	1.25		%	1.19		%
Book value per common share ⁽¹⁾	$	13.47		$	13.26		$	14.30		$	13.47
Tangible book value per common share ^{(1) (2)}	$	6.26		$	6.00		$	7.11		$	6.26
Equity to assets ⁽¹⁾	13.87		%	14.28		%	14.02		%	13.87		%
Average equity to average assets							14.00		%	13.97		%
Common equity to assets ⁽¹⁾							13.70		%	13.54		%
Tangible equity to tangible assets ^{(1) (2)}	7.14		%	7.20		%	7.66		%	7.14		%
Common equity to assets ⁽¹⁾	13.54		%	13.94		%
Tangible common equity to tangible assets ^{(1) (2)}	6.79		%	6.83		%	7.32		%	6.79		%
Dividend payout ratio	47.13		%	53.89		%	42.19		%	47.13		%
Average equity to average assets	13.97		%	14.45		%

⁽¹⁾ Period-end

(2) Non-GAAP

~~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 3


	Three Months Ended June 30,																Three Months Ended June 30,
	2018								2017								2019								2018
(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	$	47,783		$	267		2.24	%	$	87,750		$	161		0.74	%	$	66,324		$	988		5.97	%	$	47,783		$	267		2.24	%
Taxable investment securities ⁽¹⁾	5,218,200			28,995			2.22		4,923,492			25,130			2.04		5,296,831			31,740			2.40		5,218,200			28,995			2.22
Tax-exempt investment securities ⁽¹⁾⁽²⁾	995,704			8,727			3.51		683,465			7,128			4.17		1,121,655			10,062			3.59		995,704			8,727			3.51
Loans held for sale	46,667			767			6.58		93,312			1,702			8.70		89,671			1,063			4.75		46,667			767			6.58
Loans and leases ⁽²⁾⁽³⁾	21,445,030			258,680			4.84		20,361,047			221,387			4.37		22,759,878			275,921			4.86		21,445,030			258,680			4.84
Total interest-earning assets ⁽²⁾	27,753,384			297,436			4.30		26,149,066			255,508			3.92		29,334,359			319,774			4.37		27,753,384			297,436			4.30
Cash and due from banks	359,714								338,752								365,824								359,714
Allowance for credit losses	(182,598		)						(165,888		)						(190,182		)						(182,598		)
Premises and equipment	331,739								350,255								329,381								331,739
Other assets	3,685,512								3,692,460								3,891,734								3,685,512
Total assets	$	31,947,751							$	30,364,645							$	33,731,116							$	31,947,751
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	9,287,811		13,691			0.59		$	9,297,726		8,256			0.36		$	9,794,796		25,132			1.03		$	9,287,811		13,691			0.59
Savings	2,620,084			1,490			0.24		2,592,726			641			0.10		2,519,657			2,163			0.34		2,620,084			1,490			0.24
Certificates and other time	4,811,842			15,868			1.30		3,798,714			7,856			0.83		5,472,936			27,122			1.99		4,811,842			15,868			1.30
Short-term borrowings	4,098,161			18,409			1.79		3,886,410			10,959			1.13		3,716,627			22,140			2.37		4,098,161			18,409			1.79
Long-term borrowings	650,562			5,304			3.27		680,414			4,907			2.89		1,082,384			9,270			3.44		650,562			5,304			3.27
Total interest-bearing liabilities	21,468,460			54,762			1.02		20,255,990			32,619			0.65		22,586,400			85,827			1.52		21,468,460			54,762			1.02
Non-interest-bearing demand	5,764,144								5,466,286								6,069,106								5,764,144
Other liabilities	253,637								255,931								354,885								253,637
Total liabilities	27,486,241								25,978,207								29,010,391								27,486,241
Stockholders’ equity	4,461,510								4,386,438								4,720,725								4,461,510
Total liabilities and stockholders’ equity	$	31,947,751							$	30,364,645							$	33,731,116							$	31,947,751
Excess of interest-earning assets over interest-bearing liabilities	$	6,284,924							$	5,893,076							$	6,747,959							$	6,284,924
Net interest income (FTE) ⁽²⁾				242,674								222,889								233,947								242,674
Tax-equivalent adjustment				(3,319		)						(4,474		)						(3,540		)						(3,319		)
Net interest income				$	239,355							$	218,415							$	230,407							$	239,355
Net interest spread							3.28	%							3.27	%							2.85	%							3.28	%
Net interest margin ⁽²⁾							3.51	%							3.42	%							3.20	%							3.51	%


(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.

~~Table of Contents~~

Net Interest Income

For the three months ended June 30, 2018, net interest income, which comprised 78.7% of revenue compared to 76.8% 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 $19.8~~decreased $8.7 million, or ~~8.9%~~3.6%, from ~~$222.9 million for the second quarter of 2017 to~~ $242.7 million for the second quarter of ~~2018.~~2018 to $233.9 million for the second quarter of 2019. Average interest-earning assets of ~~$27.8~~$29.3 billion increased $1.6 billion, or ~~6.1%~~5.7%, and average interest-bearing liabilities of ~~$21.5~~$22.6 billion increased ~~$1.2~~$1.1 billion, or ~~6.0%~~5.2%, from ~~2017,~~2018, due to organic growth in loans and deposits. Our net interest margin FTE (non-GAAP) was ~~3.51%~~3.20% for the second quarter of ~~2018,~~2019, compared to ~~3.42%~~3.51% for the same period of ~~2017, due~~2018, reflecting a 31 basis point decrease primarily related to the sale of Regency in the third quarter of 2018 and a ~~higher interest rate environment, as well as higher purchase accounting accretion. The tax-equivalent adjustments (non-GAAP)~~lower level of acquired loan cash recoveries. Regency contributed $8.5 million, or 12 basis points to the net interest ~~income from amounts reported on our financial statements are shown~~margin in the ~~preceding table.~~second quarter of 2018. The FOMC has increased the target Fed Funds rate by 75 basis points between March 31, 2018 and June 30, 2019.

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 June 30, ~~2018,~~2019, compared to the three months ended June 30, ~~2017:~~2018:

TABLE 4


(in thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest Income(1)
Interest-bearing deposits with banks	$	(73	)	$	179		$	106		$	137		$	584		$	721
Securities ⁽²⁾	4,293			1,171			5,464			2,188			1,892			4,080
Loans held for sale	(763		)	(172		)	(935		)	429			(133		)	296
Loans and leases⁽²⁾	10,778			26,514			37,292			14,045			3,196			17,241
Total interest income⁽²⁾	14,235			27,692			41,927			16,799			5,539			22,338
Interest Expense(1)
Deposits:
Interest-bearing demand	222			5,213			5,435			1,550			9,891			11,441
Savings	185			664			849			60			613			673
Certificates and other time	2,519			5,492			8,011			2,433			8,821			11,254
Short-term borrowings	645			6,805			7,450			(1,733		)	5,464			3,731
Long-term borrowings	(203		)	600			397			3,269			697			3,966
Total interest expense	3,368			18,774			22,142			5,579			25,486			31,065
Net change ⁽²⁾	$	10,867		$	8,918		$	19,785		$	11,220		$	(19,947	)	$	(8,727	)


(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 ~~$297.4~~$319.8 million for the second quarter of ~~2018,~~2019, increased ~~$41.9~~$22.3 million or ~~16.4%~~7.5% from the same quarter of ~~2017,~~2018, primarily due to increased interest-earning ~~assets.~~assets of $1.6 billion. During the second quarter of ~~2018,~~2019, we recognized ~~$5.8~~$7.5 million of incremental purchase accounting accretion and ~~$10.2~~$0.6 million of cash recoveries, compared to ~~$0.5~~$5.8 million and ~~$1.1~~$10.2 million, respectively, in the second quarter of ~~2017.~~2018. The increase in interest-earning assets was primarily driven by a ~~$1.1~~$1.3 billion, or ~~5.3%~~6.1%, increase in average loans and leases, which reflects ~~strong~~solid growth in the commercial and consumer loan portfolios. Average commercial loan growth totaled ~~$570.2~~$790.3 million, or ~~4.4%~~5.9%, led by strong commercial ~~origination~~ activity in the Pittsburgh, Cleveland, Charlotte 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~~$524.5 million, or

~~Table of Contents~~

~~6.9%~~ 6.6%, as growth in indirect auto loans of $338.6 million, or 20.8%, and residential mortgage loans of ~~$401~~$456.4 million, or ~~16.6%, and indirect auto loans of $314.6 million, or 24.0%~~16.2%, was partially offset by declines in average direct installment loans of $130.9 million, or 7.0% and consumer ~~line~~lines of credit ~~average balances.~~of $139.7 million, or 8.4%.Additionally, average securities increased ~~$606.9~~$204.6 million, or ~~10.8%~~3.3%, as we

took advantage of higher interest rates ~~that were higher~~prevalent in the ~~first quarter~~second half of ~~2018 and significantly higher than the second quarter of 2017.~~2018. The yield on average interest-earning assets (non-GAAP) increased 387 basis points from the second quarter of ~~2017~~2018 to ~~4.30%~~4.37% for the second quarter of ~~2018.~~2019.

Interest expense of ~~$54.8~~$85.8 million for the second quarter of ~~2018~~2019 increased ~~$22.1~~$31.1 million, or ~~67.9%~~56.7%, from the same quarter of ~~2017,~~2018, due to an increase in rates paid on average interest-bearing liabilities and growth in average interest-bearing deposits ~~and an increase in short-term borrowings~~ over the same quarter of ~~2017.~~2018. Average interest-bearing deposits increased ~~$1.0~~$1.1 billion or ~~6.6%~~6.4%, while average non-interest-bearing deposits increased $305.0 million, or 5.3%. Organic growth in average time deposits, non-interest-bearing deposits ~~savings~~ and money market balances was partially offset by a slight decline in interest checking accounts and savings accounts. The growth in non-interest-bearing deposits reflected successful efforts to attract new households and larger corporate customers across our footprint.Average short-term borrowings ~~increased $211.8~~decreased $381.5 million, or ~~5.4%~~9.3%, primarily as a result of ~~an increase~~decreases of ~~$267.8 million in federal funds purchased, partially offset by a decrease of $40.7~~$376.4 million in short-term FHLB advances. Average long-term borrowings ~~decreased $29.9~~increased $431.8 million, or ~~4.4%~~66.4%, primarily ~~as a result~~resulting from increases of $382.4 million in long-term FHLB advances and $83.8 million in subordinated debt, partially offset by a decrease of ~~$29.3~~$39.5 million ~~resulting~~in junior subordinated debt. During the first quarter of 2019, we issued $120.0 million of 4.950% fixed-to-floating rate subordinated notes due in 2029. We used part of the proceeds from ~~the maturity of certain long-term FHLB advances.~~this issuance to redeem higher-rate debt including $44.0 million in junior subordinated debt and $25.0 million in other subordinated debt. The rate paid on interest-bearing liabilities increased 3750 basis points to ~~1.02%~~1.52% for the second quarter of ~~2018,~~2019, due to changes in the funding mix ~~and~~combined with the ~~Federal Open Market Committee~~ interest rate ~~increases.~~increases made by the FOMC between March 31, 2018 and June 30, 2019.

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 June 30,						$			%		Three Months Ended June 30,						$			%
(dollars in thousands)	2018			2017			Change			Change		2019			2018			Change			Change
Provision for credit losses:
Originated	$	15,036		$	17,538		$	(2,502	)	(14.3	)%	$	12,256		$	15,036		$	(2,780	)	(18.5	)%
Acquired	518			(782		)	1,300			(166.2	)
Loans acquired in a business combination												(778		)	518			(1,296		)	(250.2	)
Total provision for credit losses	$	15,554		$	16,756		$	(1,202	)	(7.2	)%	$	11,478		$	15,554		$	(4,076	)	(26.2	)%
Net loan charge-offs:
Originated	$	14,831		$	12,660		$	2,171		17.1	%	$	5,410		$	14,831		$	(9,421	)	(63.5	)%
Acquired	3,396			(821		)	4,217			(513.6	)
Loans acquired in a business combination												3,611			3,396			215			6.3
Total net loan charge-offs	$	18,227		$	11,839		$	6,388		54.0	%	$	9,021		$	18,227		$	(9,206	)	(50.5	)%
Net loan charge-offs (annualized) / total average loans and leases	0.34		%	0.23		%						0.16		%	0.34		%
Net originated loan charge-offs (annualized) / total average originated loans and leases	0.36		%	0.38		%						0.11		%	0.36		%

The provision for credit losses of ~~$15.6~~$11.5 million during the second quarter of ~~2018~~2019 was down ~~7.2%~~26.2% from the same period of ~~2017, primarily due to the decrease in non-performing loans, partially offset by higher organic loan growth during the current quarter as compared to the year-ago period.~~2018. Net loan charge-offs were ~~$18.2~~$9.0 million, ~~an increase~~a decrease of ~~$6.4 million,~~$9.2 million. These declines were primarily ~~related~~due to lower commercial charge-offs and the previous actions taken to reduce credit risk, including the sale of ~~a small portfolio of non-performing loans in the second quarter of 2018.~~Regency. 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 three months ended June 30, ~~2018~~2019 and ~~2017~~2018 is presented in the following table:

TABLE 6


	Three Months Ended June 30,				$			%		Three Months Ended June 30,					$			%
(in thousands)	2018		2017		Change			Change
(dollars in thousands)										2019		2018			Change			Change
Service charges	$	31,114	$	32,090	$	(976	)	(3.0	)%	$	32,068	$	31,114		$	954		3.1	%
Trust services	6,469		5,715		754			13.2		7,018		6,469			549			8.5
Insurance commissions and fees	4,567		4,347		220			5.1		4,411		4,567			(156		)	(3.4	)
Securities commissions and fees	4,526		3,887		639			16.4		4,671		4,526			145			3.2
Capital markets income	5,854		5,004		850			17.0		9,867		5,854			4,013			68.6
Mortgage banking operations	5,940		5,173		767			14.8		7,613		5,940			1,673			28.2
Dividends on non-marketable equity securities										4,135		3,811			324			8.5
Bank owned life insurance	3,077		3,092		(15		)	(0.5	)	3,103		3,077			26			0.8
Net securities gains	31		493		(462		)	(93.7	)	—		31			(31		)	(100.0	)
Other	3,311		6,277		(2,966		)	(47.3	)	1,954		(500		)	2,454			(490.8	)
Total non-interest income	$	64,889	$	66,078	$	(1,189	)	(1.8	)%	$	74,840	$	64,889		$	9,951		15.3	%

Total non-interest income ~~decreased $1.2~~increased $10.0 million, to ~~$64.9~~$74.8 million for the second quarter of ~~2018,~~2019, a ~~1.8% decrease~~15.3% increase from the same period of ~~2017. The variances in significant individual non-interest income items are further explained in the following paragraphs. The decrease was primarily due to a $3.7 million loss~~2018. Excluding branch consolidation-related losses on fixed assets ~~related to branch consolidations, offset by continued growth in trust services, securities commissions~~of $0.5 million and ~~fees, capital markets~~$3.7 million for the second quarter of 2019 and ~~mortgage banking. Excluding significant items influencing earnings,~~2018, respectfully, non-interest income increased ~~$2.5 million.~~$6.8 million, or 9.9%.

Service charges on loans and deposits of ~~$31.1~~$32.1 million for the second quarter of ~~2018 decreased~~2019 increased $1.0 million, or ~~3.0%~~3.1%, from the same period of ~~2017. The decrease is~~2018, primarily due to ~~a reduction~~organic growth in ~~NSF fees, partially offset by an increase in debit card interchange income.~~loan and deposit accounts.

Trust services of ~~$6.5~~$7.0 million for the second quarter of ~~2018~~2019 increased ~~$0.8~~$0.5 million, or ~~13.2%~~8.5%, from the same period of ~~2017~~2018, primarily driven by strong organic revenue production. The market value of assets under management increased ~~$637.5~~$470.2 million, or ~~14.2% from June 30, 2017~~9.2%, to ~~$5.1~~$5.6 billion at June 30, ~~2018.~~2019, with the increase almost entirely attributable to organic growth in accounts and services.

~~Securities commissions and fees~~Capital markets income of ~~$4.5~~$9.9 million for the second quarter of ~~2018~~2019 increased ~~16.4%~~$4.0 million, or 68.6%, from the same period of ~~2017. This~~2018. The significant increase ~~reflects the benefit of increased brokerage activity partially~~was primarily due to ~~the added North Carolina market with the remaining growth driven by existing regions.~~strong derivatives sales activity to commercial customers across our footprint and several new syndications transactions in our Washington D.C. and southeastern markets.

~~Capital markets~~Mortgage banking operations income of ~~$5.9~~$7.6 million for the second quarter of ~~2018~~2019 increased ~~$0.9~~$1.7 million, or ~~17.0%~~28.2%, from the same period of ~~2017, reflecting increased syndication fees~~2018 due to a $3.5 million increase in gain on sale income, partially offset by a $1.3 million interest rate-related valuation impairment adjustment of mortgage servicing rights. During the second quarter of 2019, we sold $444.7 million of originated residential mortgage loans, compared to $304.7 million for the same period of 2018, an increase of 45.9%. While we continue to see compressed margins due to competitive pressures for both retail and ~~international banking activity~~correspondent, we were able to increase income by improving the mix of retail loans sold versus correspondent loans. Retail loans have a greater gain on sale margin than correspondent loans.

Other non-interest income was $2.0 million and ~~continued solid contributions from swap fees.~~

~~Mortgage banking operations income of $5.9~~$(0.5) million for the second quarter of 2019 and 2018, ~~increased $0.8 million or 14.8% from the same period of 2017.~~respectively. The ~~increase in mortgage banking income was largely due to increased contributions from the Mid-Atlantic (Baltimore-Washington D.C.) and Carolina markets. During the~~ second quarter of ~~2018, we sold $304.7~~2019 included a $0.5 million loss on the sale of ~~originated residential mortgage loans, a 26.7% increase~~fixed assets relating to branch consolidations, compared to ~~$240.4 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.~~

~~Other non-interest income was $3.3 million and $6.3~~$3.7 million for the second quarter of ~~2018 and 2017, respectively. The decline was due to a $3.7~~2018. Additionally, we recognized $0.5 million ~~loss~~less in gain on ~~fixed assets related to branch consolidations~~the sale of SBA loans during the second quarter of 2019, compared to the same period of 2018.

~~Table of Contents~~

The ~~breakdown of~~following table presents non-interest income excluding the significant item for the three months ended June 30, ~~2018~~2019 and ~~2017 is presented in the following table:~~2018:

TABLE 7


	Three Months Ended June 30,				$			%		Three Months Ended June 30,				$			%
(in thousands)	2018		2017		Change			Change
(dollars in thousands)										2019		2018		Change			Change
Total non-interest income, as reported	$	64,889	$	66,078	$	(1,189	)	(1.8	)%	$	74,840	$	64,889	$	9,951		15.3	%
Significant item:
Loss on fixed assets related to branch consolidations	3,677		—		3,677					546		3,677		(3,131		)
Total non-interest income, excluding significant item⁽¹⁾	$	68,566	$	66,078	$	2,488		3.8	%	$	75,386	$	68,566	$	6,820		9.9	%

⁽¹⁾ Non-GAAP

Non-Interest Expense

The breakdown of non-interest expense for the three months ended June 30, ~~2018~~2019 and ~~2017~~2018 is presented in the following table:

TABLE 8


	Three Months Ended June 30,				$			%		Three Months Ended June 30,				$			%
(in thousands)	2018		2017		Change			Change
(dollars in thousands)										2019		2018		Change			Change
Salaries and employee benefits	$	98,671	$	84,899	$	13,772		16.2	%	$	94,289	$	98,671	$	(4,382	)	(4.4	)%
Net occupancy	16,149		14,060		2,089			14.9		15,593		16,149		(556		)	(3.4	)
Equipment	13,183		12,420		763			6.1		15,473		13,183		2,290			17.4
Amortization of intangibles	3,811		4,813		(1,002		)	(20.8	)	3,479		3,811		(332		)	(8.7	)
Outside services	17,045		13,483		3,562			26.4		16,110		17,045		(935		)	(5.5	)
FDIC insurance	9,167		9,376		(209		)	(2.2	)	6,013		9,167		(3,154		)	(34.4	)
Bank shares and franchise taxes	3,240		2,742		498			18.2		3,130		3,240		(110		)	(3.4	)
Merger-related	—		1,354		(1,354		)	(100.0	)
Other	21,747		20,567		1,180			5.7		21,150		21,747		(597		)	(2.7	)
Total non-interest expense	$	183,013	$	163,714	$	19,299		11.8	%	$	175,237	$	183,013	$	(7,776	)	(4.2	)%

Total non-interest expense of ~~$183.0~~$175.2 million for the second quarter of ~~2018 increased $19.3~~2019 decreased $7.8 million, ~~an 11.8% increase~~a 4.2% decrease from the same period of ~~2017.~~2018. Excluding ~~significant items influencing earnings~~branch consolidation costs of ~~$3.8~~$2.3 million in the second quarter of 2019 and $2.9 million of branch consolidation expenses and a $0.9 million discretionary 401(k) contribution made following tax reform in the second quarter of 2018, non-interest expense ~~increased $16.8~~totaled $172.9 million ~~or 10.4%.~~and $179.2 million, respectively. The variances in the individual non-interest expense items are further explained in the following paragraphs.

Salaries and employee benefits of ~~$98.7~~$94.3 million for the second quarter of ~~2018 increased $13.8~~2019 decreased $4.4 million, or ~~16.2%~~4.4%, from the same period of ~~2017,~~2018, primarily ~~due to~~as a ~~large medical insurance claim of $2.6 million, normal employee merit raises and restricted stock awards at the start~~result of the sale of Regency. The second quarter ~~a $1.0 million payroll tax rate adjustment, $1.3 million in additional wage increases for hourly employees plus~~of 2018 also included a discretionary 401(k) contribution of $0.9 million instituted following tax reform in 2018.

Net occupancy and equipment expense of ~~$29.3~~$31.1 million for the second quarter of ~~2018~~2019 increased ~~$2.9~~$1.7 million, or ~~10.8%~~5.9%, from $29.3 million from the same period of ~~2017, primarily due~~2018. The second quarter of 2019 included $2.2 million relating to branch consolidation ~~costs.~~

~~Amortization of intangibles expense of $3.8~~costs, compared to $1.6 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.~~2018.

Outside services expense of ~~$17.0~~$16.1 million for the second quarter of ~~2018 increased $3.6~~2019 decreased $0.9 million, or ~~26.4%~~5.5% from the same period of ~~2017,~~2018, primarily due to ~~increases of $0.9 million in debit card processing expense, $0.6 million~~decreases 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.~~

~~Table~~consulting fees of ~~Contents~~

~~Other non-interest expense was $21.7~~$0.7 million and ~~$20.6~~$0.5 million, respectively.

FDIC insurance of $6.0 million for the second quarter of 2019 decreased $3.2 million, or 34.4%, from the same period of 2018, primarily due to the elimination of the FDIC's large bank surcharge in the fourth quarter of 2018.

Other non-interest expense was $21.2 million and ~~2017,~~$21.7 million for the second quarter of 2019 and 2018, respectively, driven by decreases of $1.3 million in OREO expense and $0.9 million in loan-related expense, partially offset by an increase of ~~$0.8~~$1.4 million in ~~historic and~~ other tax credit ~~investments expense. We also experienced an increase~~expense associated with the recognition 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.~~historic tax credit during the quarter.

The ~~breakdown of~~following table presents non-interest expense excluding significant items for the three months ended June 30, ~~2018~~2019 and ~~2017 is presented in the following table:~~2018:

TABLE 9


	Three Months Ended June 30,						$			%		Three Months Ended June 30,						$			%
(in thousands)	2018			2017			Change			Change
(dollars in thousands)												2019			2018			Change			Change
Total non-interest expense, as reported	$	183,013		$	163,714		$	19,299		11.8	%	$	175,237		$	183,013		$	(7,776	)	(4.2	)%
Significant items:
Discretionary 401(k) contribution	(874		)	—			(874		)			—			(874		)	874
Branch consolidations - salaries and benefits	(45		)	—			(45		)			(101		)	(45		)	(56		)
Branch consolidations - occupancy and equipment	(1,609		)	—			(1,609		)			(2,191		)	(1,609		)	(582		)
Branch consolidations - other	(1,285		)	—			(1,285		)			(33		)	(1,285		)	1,252
Merger-related	—			(1,354		)	1,354
Total non-interest expense, excluding significant items⁽¹⁾	$	179,200		$	162,360		$	16,840		10.4	%	$	172,912		$	179,200		$	(6,288	)	(3.5	)%

⁽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,						Three Months Ended June 30,
(dollars in thousands)	2018			2017			2019			2018
Income tax expense	$	20,471		$	29,617		$	23,345		$	20,471
Effective tax rate	19.4		%	28.5		%	19.7		%	19.4		%
Statutory tax rate	21.0		%	35.0		%
Statutory federal tax rate							21.0		%	21.0		%

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 higher effective tax rate ~~for~~in 2019 is partially due to the impact from non-vesting stock compensation awards in 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.2019.

Six Months Ended June 30, ~~2018~~2019 Compared to the Six Months Ended June 30, ~~2017~~2018

Net income available to common stockholders for the six months ended June 30, ~~2018~~2019 was ~~$167.9~~$185.3 million or ~~$0.52~~$0.57 per diluted common share, compared to ~~$93.4~~$167.9 million or ~~$0.33~~$0.52 per diluted common share for the six months ended June 30, ~~2017.~~2018. The first six months of 2019 included the impact of branch consolidation costs of $4.5 million. Of those costs, $2.8 million was included in non-interest expense and $1.7 million was reflected as a loss on fixed assets reducing non-interest income. The first six months of 2018 included the impact of ~~costs related to~~ branch ~~consolidations~~consolidation costs 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~~$0.58 for the first six months of ~~2018~~2019, compared to ~~$0.45~~$0.53 for the six months ended June 30, ~~2017.~~2018. The effective tax rate for both the first six months of 2019 and in 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~~

~~Table of Contents~~

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 Consolidated Statements of 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,				$		%		Six Months Ended June 30,				$			%
(in thousands, except per share data)	2018		2017		Change		Change		2019		2018		Change			Change
Net interest income	$	465,460	$	391,167	$	74,293	19.0	%	$	461,000	$	465,460	$	(4,460	)	(1.0	)%
Provision for credit losses	30,049		27,606		2,443		8.8		25,107		30,049		(4,942		)	(16.4	)
Non-interest income	132,392		121,194		11,198		9.2		140,225		132,392		7,833			5.9
Non-interest expense	354,096		351,269		2,827		0.8		340,979		354,096		(13,117		)	(3.7	)
Income taxes	41,739		36,101		5,638		15.6		45,825		41,739		4,086			9.8
Net income	171,968		97,385		74,583		76.6		189,314		171,968		17,346			10.1
Less: Preferred stock dividends	4,020		4,020		—		—		4,020		4,020		—			—
Net income available to common stockholders	$	167,948	$	93,365	$	74,583	79.9	%	$	185,294	$	167,948	$	17,346		10.3	%
Earnings per common share – Basic	$	0.52	$	0.33	$	0.19	57.6	%	$	0.57	$	0.52	$	0.05		9.6	%
Earnings per common share – Diluted	0.52		0.33		0.19		57.6		0.57		0.52		0.05			9.6
Cash dividends per common share	0.24		0.24		—		—		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,						Six Months Ended June 30,
	2018			2017			2019			2018
Return on average equity	7.80		%	5.31		%	8.15		%	7.80		%
Return on average tangible common equity ⁽²⁾	17.57		%	11.51		%	17.11		%	17.57		%
Return on average assets	1.09		%	0.72		%	1.14		%	1.09		%
Return on average tangible assets ⁽²⁾	1.22		%	0.82		%	1.26		%	1.22		%
Book value per common share ⁽¹⁾	$	13.47		$	13.26		$	14.30		$	13.47
Tangible book value per common share ^{(1) (2)}	$	6.26		$	6.00		$	7.11		$	6.26
Equity to assets ⁽¹⁾	13.87		%	14.28		%	14.02		%	13.87		%
Average equity to average assets							13.96		%	14.02		%
Common equity to assets ⁽¹⁾							13.70		%	13.54		%
Tangible equity to tangible assets ^{(1) (2)}	7.14		%	7.20		%	7.66		%	7.14		%
Common equity to assets ⁽¹⁾	13.54		%	13.94		%
Tangible common equity to tangible assets ^{(1) (2)}	6.79		%	6.83		%	7.32		%	6.79		%
Dividend payout ratio	46.61		%	69.15		%	42.37		%	46.61		%
Average equity to average assets	14.02		%	13.59		%

⁽¹⁾ Period-end

(2) Non-GAAP

~~Table of Contents~~

TABLE 13


	Six Months Ended June 30,																Six Months Ended June 30,
	2018								2017								2019								2018
(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	$	75,689		$	627		1.67	%	$	86,712		$	341		0.79	%	$	60,279		$	1,450		4.85	%	$	75,689		$	627		1.67	%
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		5,370,269			64,590			2.41		5,132,722			55,874			2.18
Tax-exempt investment securities ⁽¹⁾⁽²⁾	973,486			17,005			3.49		592,342			12,318			4.16		1,115,212			19,981			3.58		973,486			17,005			3.49
Loans held for sale	56,229			1,678			5.99		53,059			1,868			7.96		61,469			1,571			5.13		56,229			1,678			5.99
Loans and leases ^{(2) (3)}	21,301,124			498,282			4.71		18,287,280			391,579			4.32		22,570,742			546,071			4.87		21,301,124			498,282			4.71
Total interest-earning assets ⁽²⁾	27,539,250			573,466			4.19		23,724,362			453,723			3.85		29,177,971			633,663			4.37		27,539,250			573,466			4.19
Cash and due from banks	359,218								316,867								371,703								359,218
Allowance for credit losses	(181,544		)						(163,642		)						(186,850		)						(181,544		)
Premises and equipment	334,264								312,292								330,711								334,264
Other assets	3,671,193								3,040,903								3,877,715								3,671,193
Total assets	$	31,722,381							$	27,230,782							$	33,571,250							$	31,722,381
Liabilities
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	9,338,014		25,146			0.54		$	8,362,233		13,087			0.32		$	9,723,662		48,695			1.01		$	9,338,014		25,146			0.54
Savings	2,578,492			2,523			0.20		2,503,259			1,162			0.09		2,514,929			4,233			0.34		2,578,492			2,523			0.20
Certificates and other time	4,724,920			29,849			1.25		3,346,434			14,244			0.86		5,410,633			51,866			1.93		4,724,920			29,849			1.25
Short-term borrowings	4,042,020			33,616			1.67		3,546,112			17,633			1.00		4,012,589			47,950			2.39		4,042,020			33,616			1.67
Long-term borrowings	655,737			10,450			3.21		607,991			8,434			2.80		873,185			12,800			2.96		655,737			10,450			3.21
Total interest-bearing liabilities	21,339,183			101,584			0.96		18,366,029			54,560			0.60		22,534,998			165,544			1.48		21,339,183			101,584			0.96
Non-interest-bearing demand	5,686,324								4,943,226								5,981,427								5,686,324
Other liabilities	250,898								220,574								368,152								250,898
Total liabilities	27,276,405								23,529,829								28,884,577								27,276,405
Stockholders’ equity	4,445,976								3,700,953								4,686,673								4,445,976
Total liabilities and stockholders’ equity	$	31,722,381							$	27,230,782							$	33,571,250							$	31,722,381
Excess of interest-earning assets over interest-bearing liabilities	$	6,200,067							$	5,358,333							$	6,642,973							$	6,200,067
Net interest income (FTE) ⁽²⁾				471,882								399,163								468,119								471,882
Tax-equivalent adjustment				(6,422		)						(7,996		)						(7,119		)						(6,422		)
Net interest income				$	465,460							$	391,167							$	461,000							$	465,460
Net interest spread							3.23	%							3.25	%							2.89	%							3.23	%
Net interest margin ⁽²⁾							3.45	%							3.39	%							3.23	%							3.45	%


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

(2)


(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

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~~decreased $3.8 million, or ~~18.2%~~0.8%, from ~~$399.2 million for the first six months of 2017 to~~ $471.9 million for the first six months of ~~2018.~~2018 to $468.1 million for the first six months of 2019. Average interest-earning assets of ~~$27.5~~$29.2 billion increased ~~$3.8~~$1.6 billion, or ~~16.1%~~6.0%, and average interest-bearing liabilities of ~~$21.3~~$22.5 billion increased ~~$3.0~~$1.2 billion, or ~~16.2%~~5.6%, from the first six months of ~~2017~~2018 due to ~~the YDKN acquisition and organic~~ growth in loans and deposits. Our net interest margin FTE (non-GAAP) ~~was 3.45%~~contracted 22 basis points to 3.23% for the first six months of ~~2018,~~2019, compared to ~~3.39%~~3.45% for the same period of ~~2017, due~~2018, primarily reflecting the sale of Regency in the third quarter of 2018 and a lower level of purchase accounting benefit. Regency contributed 12 basis points to the net interest margin in the first half of 2018. The decline also reflected higher funding costs as the FOMC increased the target Fed Funds rate 75 basis points between March 31, 2018 and June 30, 2019, increased deposit price competition and a ~~higher interest rate environment, as well as higher~~24 basis point decrease in the contribution from incremental purchase accounting accretion. ~~The tax-equivalent adjustments (non-GAAP)~~Incremental purchase accounting accretion refers to ~~net~~the difference between total accretion and the estimated coupon interest income ~~from amounts reported~~ on ~~our financial statements are shown~~loans acquired in ~~the preceding table.~~a business combination.

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,~~2019, compared to the six months ended June 30, ~~2017:~~2018:

TABLE 14


(in thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest Income(1)
Interest-bearing deposits with banks	$	(43	)	$	329		$	286		$	(128	)	$	951		$	823
Federal funds sold	(4		)	(4		)	(8		)
Securities ⁽²⁾	11,227			1,725			12,952			6,638			5,054			11,692
Loans held for sale	66			(256		)	(190		)	21			(128		)	(107		)
Loans and leases ⁽²⁾	66,425			40,278			106,703			26,190			21,599			47,789
Total interest income ⁽²⁾	77,671			42,072			119,743			32,721			27,476			60,197
Interest Expense
Interest Expense ⁽¹⁾
Deposits:
Interest-bearing demand	2,144			9,915			12,059			2,130			21,419			23,549
Savings	164			1,197			1,361			270			1,440			1,710
Certificates and other time	7,181			8,424			15,605			4,836			17,181			22,017
Short-term borrowings	2,896			13,087			15,983			(35		)	14,369			14,334
Long-term borrowings	790			1,226			2,016			2,676			(326		)	2,350
Total interest expense	13,175			33,849			47,024			9,877			54,083			63,960
Net change ⁽²⁾	$	64,496		$	8,223		$	72,719		$	22,844		$	(26,607	)	$	(3,763	)


(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~~$633.7 million for the first six months of ~~2018,~~2019, increased ~~$119.7~~$60.2 million or ~~26.4%~~10.5% from the same quarter of ~~2017, primarily~~2018, due to increased interest-earning ~~assets.~~assets of $1.6 billion, and higher rates resulting from the increase in the target Fed Funds rate, as discussed above partially offset by Regency and lower cash recoveries. During the first six months of ~~2018,~~2019, we recognized ~~$10.6~~$16.0 million of incremental purchase accounting accretion and ~~$11.3~~$1.6 million of cash recoveries, compared to ~~$3.6~~$10.6 million and ~~$1.5~~$11.3 million, respectively, in ~~the~~ the first six months of ~~2017 .~~2018. The increase in interest-earning assets was primarily driven by a ~~$3.0~~$1.3 billion, or ~~16.5%~~6.0%, increase in average loans and leases ~~which reflects~~due to solid growth in our commercial and consumer portfolios. Average total commercial loan growth totaled $697 million, or 5.2%, including 14.7% growth in commercial and industrial loans and commercial leases. Commercial loan growth was led by strong activity in the ~~benefit~~Cleveland, Pittsburgh, Charlotte 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 $573 million, or 7.3%, as growth in indirect auto loans of ~~our expanded banking footprint~~$403 million, or 26.0%, and ~~successful sales management,~~residential mortgage loans of $451 million, or 16.3%, was partially

offset by declines in direct installment loans and ~~includes $1.0 billion or 4.9%~~consumer lines of ~~organic growth.~~credit. Additionally, average securities increased ~~$811.2~~$379.3 million or ~~15.3%~~6.2%, primarily as a result of increases in collateralized mortgage obligations of $624.9 million, states of the U.S. and political subdivisions of $142.2 million and SBA securities ~~portfolio acquired from YDKN~~of $130.4 million, partially offset by decreases of $460.7 million in mortgage-backed securities and ~~the subsequent repositioning of that portfolio.~~$54.5 million in U.S. government agencies. The yield on average interest-earning assets (non-GAAP) increased 3418 basis points from the first six months of ~~2017~~2018 to ~~4.19%~~4.37% for the first six months of ~~2018. The 34 basis points increase in earning asset yield~~

~~Table~~2019, reflecting repricing of ~~Contents~~

~~was driven by an increase in yields in both investments~~variable and adjustable loans, ~~including~~ higher incremental purchase accounting accretion, ~~and~~lower acquired loan cash recoveries and higher reinvestment rates on ~~acquired loans.~~securities.

Interest expense of ~~$101.6~~$165.5 million for the first six months of ~~2018~~2019 increased ~~$47.0~~$64.0 million, or ~~86.2%~~63.0%, from the same quarter of ~~2017~~2018 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.~~2018. Average interest-bearing deposits increased ~~$2.4~~$1.0 billion, or ~~17.1%~~6.1%, 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~~long-term borrowings increased ~~$495.9~~$217.4 million, or ~~14.0%~~33.2%, ~~primarily as a result of~~which reflects increases of ~~$152.1~~$167.1 million in ~~short-term~~long-term FHLB borrowings and ~~$358.2~~$71.3 million in ~~federal funds purchased. Average long-term borrowings increased $47.7~~subordinated debt, partially offset by a decrease of $19.7 million ~~or 7.9%, primarily as a result~~in junior subordinated debt. During the first quarter of ~~increases~~2019, we issued $120.0 million of ~~$23.9 million and $22.6~~4.950% fixed-to-floating rate subordinated notes due in 2029. We used part of the proceeds from this issuance to redeem higher-rate debt, including $10.0 million in junior subordinated debt and $25.0 million in other subordinated ~~debt, respectively, assumed~~debt. Additionally, in ~~the YDKN transaction. Subsequent to the close of the acquisition,~~April 2019, we ~~remixed the long–term position based on our funding needs.~~redeemed $34.0 million in junior subordinated debt. The rate paid on interest-bearing liabilities increased 3652 basis points to ~~0.96%~~1.48% for the first six months of ~~2018,~~2019, due to the ~~Federal Open Market Committee~~FOMC interest rate increases, competitive deposit pricing 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,						$		%		Six Months Ended June 30,						$			%
(dollars in thousands)	2018			2017			Change		Change		2019			2018			Change			Change
Provision for credit losses:
Originated	$	29,806		$	28,875		$	931	3.2	%	$	21,493		$	29,806		$	(8,313	)	(27.9	)%
Acquired	243			(1,269		)	1,512		(119.1	)
Loans acquired in a business combination											3,614			243			3,371			1,387.2
Total provision for credit losses	$	30,049		$	27,606		$	2,443	8.8	%	$	25,107		$	30,049		$	(4,942	)	(16.4	)%
Net loan charge-offs:
Originated	$	25,873		$	20,574		$	5,299	25.8	%	$	10,162		$	25,873		$	(15,711	)	(60.7	)%
Acquired	2,982			(608		)	3,590		(590.5	)
Loans acquired in a business combination											6,438			2,982			3,456			115.9
Total net loan charge-offs	$	28,855		$	19,966		$	8,889	44.5	%	$	16,600		$	28,855		$	(12,255	)	(42.5	)%
Net loan charge-offs (annualized) / total average loans and leases	0.27		%	0.22		%					0.15		%	0.27		%
Net originated loan charge-offs (annualized) / total average originated loans and leases	0.33		%	0.31		%					0.11		%	0.33		%

The provision for credit losses of ~~$30.0~~$25.1 million during the first six months of ~~2018 increased $2.4~~2019 decreased $4.9 million from the same period of ~~2017, primarily due to an increase~~2018, supporting strong loan growth and exceeding net charge-offs of ~~$0.9~~$16.6 million, ~~in the~~or 0.15% annualized of total average loans. The provision for the originated portfolio ~~which was primarily attributable to higher organic loan growth~~decreased $8.3 million, while the provision for loans acquired in a business combination increased $3.4 million during the first six months of ~~2018~~2019 compared to the year-ago ~~period.~~period, primarily due to a single commercial credit. Net loan charge-offs of ~~$28.9~~$16.6 million for the first six months of ~~2018 increased $8.9~~2019 decreased $12.3 million from the year-ago period, primarily due to lower commercial charge-offs and the previous actions taken to reduce credit risk, including the sale of ~~a small portfolio of non-performing loans in the second quarter of 2018.~~Regency. 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.~~MD&A.

~~Table of Contents~~

Non-Interest Income

The breakdown of non-interest income for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is presented in the following table:

TABLE 16


	Six Months Ended June 30,				$			%		Six Months Ended June 30,				$			%
(dollars in thousands)	2018		2017		Change			Change		2019		2018		Change			Change
Service charges	$	61,191	$	56,671	$	4,520		8.0	%	$	62,285	$	61,191	$	1,094		1.8	%
Trust services	12,917		11,462		1,455			12.7		13,802		12,917		885			6.9
Insurance commissions and fees	9,702		9,488		214			2.3		9,308		9,702		(394		)	(4.1	)
Securities commissions and fees	8,845		7,510		1,335			17.8		9,016		8,845		171			1.9
Capital markets income	11,068		8,851		2,217			25.0		15,903		11,068		4,835			43.7
Mortgage banking operations	11,469		8,963		2,506			28.0		11,518		11,469		49			0.4
Dividends on non-marketable equity securities										9,158		7,786		1,372			17.6
Bank owned life insurance	6,362		5,245		1,117			21.3		5,944		6,362		(418		)	(6.6	)
Net securities gains	31		3,118		(3,087		)	(99.0	)	—		31		(31		)	(100.0	)
Other	10,807		9,886		921			9.3		3,291		3,021		270			8.9
Total non-interest income	$	132,392	$	121,194	$	11,198		9.2	%	$	140,225	$	132,392	$	7,833		5.9	%

Total non-interest income increased ~~$11.2~~$7.8 million, to ~~$132.4~~$140.2 million for the first six months of ~~2018,~~2019, a ~~9.2%~~5.9% increase from the same period of ~~2017.~~2018. Excluding the $1.7 million and $3.7 million loss on fixed assets related to branch consolidations in the first six months of 2019 and 2018, respectively, non-interest income increased $5.9 million, or 4.3%. 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.~~paragraphs.

Service charges on loans and deposits of ~~$61.2~~$62.3 million for the first six months of ~~2018~~2019 increased ~~$4.5~~$1.1 million, or ~~8.0%~~1.8%, from $61.2 million from the same period ~~of 2017.~~in 2018. 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~~$13.8 million for the first six months of ~~2018~~2019 increased ~~$1.5~~$0.9 million, or ~~12.7%~~6.9%, from the same period of ~~2017~~2018, primarily driven by strong organic revenue production. The market value of assets under management increased ~~$637.5~~$470.2 million, or ~~14.2%~~9.2%, to ~~$5.1~~$5.6 billion ~~from~~at June 30, ~~2017~~2019, with the increase almost entirely attributable to ~~June 30, 2018.~~organic growth in accounts and services.

~~Securities commissions and fees~~Capital markets income of ~~$8.8~~$15.9 million for the first six months of ~~2018~~2019 increased ~~17.8%~~$4.8 million or 43.7% 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~~2018. The significant increase was primarily due to strong derivatives sales activity to commercial customers across our footprint and ~~international banking activity,~~several new syndications transactions in our Washington D.C. 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 key strategy in the management of our interest rate risk position.southeastern markets.

Mortgage banking operations income of $11.5 million for the first six months of ~~2018~~2019 increased ~~$2.5 million or 28.0%~~0.4%, from the same period of ~~2017.~~2018, as higher sold volumes were partially offset by lower margins and higher MSRs impairment. During the first six months of ~~2018,~~2019, we sold ~~$569.7~~$638.7 million of residential mortgage loans, a ~~51.6%~~12.1% increase compared to ~~$375.8~~$569.7 million for the same period of ~~2017. However, sold~~2018. 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~~ During the ~~first~~ six months ended June 30, 2019, we recognized interest-rate related valuation adjustments on MSRs 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.$2.6 million.

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.

~~Table of Contents~~

~~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~~Dividends on non-marketable equity securities of $9.2 million for 2019 increased ~~$3.5~~$1.4 million, ~~and SBA loan gain on sale and servicing-related income increased $1.5~~or 17.6%, from $7.8 million ~~compared~~for 2018, primarily due to an increase in the ~~year-ago period, partially offset by a $3.7 million loss on fixed assets related to the branch consolidations.~~FHLB dividend rate.

The ~~breakdown of~~following table presents non-interest income excluding significant items for the ~~first~~ six months ended June 30, ~~2018~~2019 and ~~2017 is presented in the following table:~~2018:

TABLE 17


	Six Months Ended June 30,					$		%		Six Months Ended June 30,				$			%
(in thousands)	2018		2017			Change		Change
(dollars in thousands)										2019		2018		Change			Change
Total non-interest income, as reported	$	132,392	$	121,194		$	11,198	9.2	%	$	140,225	$	132,392	$	7,833		5.9	%
Significant items:
Loss on fixed assets related to branch consolidations	3,677		—			3,677				1,722		3,677		(1,955		)
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	%	$	141,947	$	136,069	$	5,878		4.3	%

⁽¹⁾ Non-GAAP

Non-Interest Expense

The breakdown of non-interest expense for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is presented in the following table:

TABLE 18


	Six Months Ended June 30,				$			%		Six Months Ended June 30,				$			%
(dollars in thousands)	2018		2017		Change			Change		2019		2018		Change			Change
Salaries and employee benefits	$	187,997	$	158,477	$	29,520		18.6	%	$	185,573	$	187,997	$	(2,424	)	(1.3	)%
Net occupancy	31,717		25,409		6,308			24.8		30,658		31,717		(1,059		)	(3.3	)
Equipment	27,648		22,050		5,598			25.4		30,298		27,648		2,650			9.6
Amortization of intangibles	8,029		7,911		118			1.5		6,958		8,029		(1,071		)	(13.3	)
Outside services	31,770		26,526		5,244			19.8		30,855		31,770		(915		)	(2.9	)
FDIC insurance	18,001		14,763		3,238			21.9		11,963		18,001		(6,038		)	(33.5	)
Bank shares and franchise taxes	6,692		5,722		970			17.0		6,597		6,692		(95		)	(1.4	)
Merger-related	—		54,078		(54,078		)	(100.0	)
Other	42,242		36,333		5,909			16.3		38,077		42,242		(4,165		)	(9.9	)
Total non-interest expense	$	354,096	$	351,269	$	2,827		0.8	%	$	340,979	$	354,096	$	(13,117	)	(3.7	)%

Total non-interest expense of ~~$354.1~~$341.0 million for the first six months of ~~2018 increased $2.8~~2019 decreased $13.1 million, ~~an 0.8% increase~~a 3.7% decrease from the same period of ~~2017.~~2018. The first six months of 2019 included $2.8 million of branch consolidation expenses, while 2018 included $2.9 million of branch consolidation expenses and a $0.9 million discretionary 401(k) contribution made following tax reform. Excluding ~~significant~~these items, ~~influencing earnings of $3.8 million,~~ non-interest expense ~~increased $53.1~~decreased $12.1 million, or ~~17.9%.~~3.5%, attributable primarily to the elimination of the FDIC's large bank surcharge in the fourth quarter of 2018 and the sale of Regency in the third quarter of 2018. The variances in the individual non-interest expense items are further explained in the following paragraphs, with most increases relating at least partially to costs associated with expanded operations from the acquisition of YDKN in March of 2017, including $2.9 million of branch consolidation costs in the first six months of 2018 compared to merger-related expenses of $54.1 million in the same period of 2017.paragraphs.

Salaries and employee benefits of ~~$188.0~~$185.6 million for the first six months of ~~2018 increased $29.5~~2019 decreased $2.4 million or ~~18.6%~~1.3% from the same period of ~~2017.~~2018. The ~~increase~~decrease was primarily due to ~~employees added~~the sale of Regency, which was included in ~~conjunction with~~ the ~~YDKN acquisition, combined with 2018 merit increases and higher benefit costs including items such as a large medical insurance claim~~first six months of $2.6 million, restricted stock awards, a $1.0 million payroll tax rate adjustment, and $1.3 million in 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 ~~$59.4~~$61.0 million for the first six months of ~~2018~~2019 increased ~~$11.9~~$1.6 million, or ~~25.1%~~2.7%, from $59.4 million from the same period of ~~2017,~~2018, primarily due to ~~the YDKN acquisition and our presence in that new market,~~$2.2 million of branch consolidation costs.

~~Table~~Amortization of ~~Contents~~

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.

~~Outside services~~intangibles expense of ~~$31.8~~$7.0 million for the first six months of ~~2018 increased $5.2~~2019 decreased $1.1 million, or ~~19.8%~~13.3%, from the ~~same period~~first six months of ~~2017, primarily~~2018, due to ~~increases~~the completion of $1.3 million in legal expense, $0.8 million in security services, and $0.7 million in data processing and information technology services, combined with various other miscellaneous increases. These increases were driven primarily by the expanded operations in our southeastern markets.amortization for a core deposit intangible from a prior acquisition.

FDIC insurance of ~~$18.0~~$12.0 million for the first six months of ~~2018 increased $3.2~~2019 decreased $6.0 million, or ~~21.9%~~33.5%, from the same period of ~~2017,~~2018, primarily due to ~~a higher assessment base resulting from merger~~the elimination of the FDIC's large bank surcharge in the fourth quarter of 2018.

Other non-interest expense was $38.1 million and ~~acquisition activity.~~

~~Bank shares and franchise taxes expense of $6.7~~$42.2 million for the first six months of 2019 and 2018, ~~increased $1.0 million or 17.0% from $5.7 million~~respectively. Decreases in other non-interest expense spanned across various categories such as loan related, OREO and other tax expense compared to the year-ago period, partially due to our focus on efficiency and expense control, combined with the sale of Regency, which was included in the first six months of ~~2017, primarily due to an increase in our capital base from the YDKN acquisition.~~2018.

Other non-interest expense was $42.2 million and $36.3 million for the first six months of 2018 and 2017, respectively. During the first six months of 2018, telephone expense increased by $0.6 million, OREO increased by $1.5 million, loan-related expense increased by $2.4 million, historic and other tax credit investments expense increased by $1.5 million and marketing expense 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 South Carolina and branch consolidation activities.

The ~~breakdown of~~following table presents non-interest expense excluding significant items for the six months ended June 30, ~~2018~~2019 and ~~2017 is presented in the following table:~~2018:

TABLE 19


	Six Months Ended June 30,						$			%		Six Months Ended June 30,						$			%
(in thousands)	2018			2017			Change			Change
(dollars in thousands)												2019			2018			Change			Change
Total non-interest expense, as reported	$	354,096		$	351,269		$	2,827		0.8	%	$	340,979		$	354,096		$	(13,117	)	(3.7	)%
Significant items:
Discretionary 401(k) contribution	(874		)	—			(874		)			—			(874		)	874
Branch consolidations - salaries and benefits	(45		)	—			(45		)			(520		)	(45		)	(475		)
Branch consolidations - occupancy and equipment	(1,609		)	—			(1,609		)			(2,174		)	(1,609		)	(565		)
Branch consolidations - other	(1,285		)	—			(1,285		)			(89		)	(1,285		)	1,196
Merger-related	—			(54,078		)	54,078
Total non-interest expense, excluding significant items⁽¹⁾	$	350,283		$	297,191		$	53,092		17.9	%	$	338,196		$	350,283		$	(12,087	)	(3.5	)%

⁽¹⁾ Non-GAAP

Income Taxes

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

TABLE 20


	Six Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2018			2017			2019			2018
Income tax expense	$	41,739		$	36,101		$	45,825		$	41,739
Effective tax rate	19.5		%	27.0		%	19.5		%	19.5		%
Statutory tax rate	21.0		%	35.0		%
Statutory federal tax rate							21.0		%	21.0		%

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 first six months of 2018~~in 2019 was ~~19.5%, compared to 27.0%~~also impacted from non-vesting stock compensation awards in the ~~year-ago quarter. The first six months~~second quarter of ~~2018 was~~2019.

~~Table of Contents~~

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 following table presents our condensed Consolidated Balance Sheets:

TABLE 21


(dollars in thousands)	June 30, 2018		December 31, 2017		$ Change			% Change
(dollars in millions)										June 30, 2019		December 31, 2018		$ Change			% Change
Assets
Cash and cash equivalents	$	433,699	$	479,443	$	(45,744	)	(9.5	)%	$	499	$	488	$	11		2.3	%
Securities	6,297,868		6,006,830		291,038			4.8		6,358		6,595		(237		)	(3.6	)
Loans held for sale	44,112		92,891		(48,779		)	(52.5	)	332		22		310			1,409.1
Loans and leases, net	21,483,008		20,823,386		659,622			3.2		22,355		21,973		382			1.7
Goodwill and other intangibles	2,335,445		2,341,263		(5,818		)	(0.2	)	2,336		2,334		2			0.1
Other assets	1,663,431		1,673,822		(10,391		)	(0.6	)	2,023		1,690		333			19.7
Total Assets	$	32,257,563	$	31,417,635	$	839,928		2.7	%	$	33,903	$	33,102	$	801		2.4	%
Liabilities and Stockholders’ Equity
Deposits	$	22,539,787	$	22,399,725	$	140,062		0.6	%	$	23,731	$	23,455	$	276		1.2	%
Borrowings	4,963,084		4,346,510		616,574			14.2		5,049		4,756		293			6.2
Other liabilities	281,450		262,206		19,244			7.3		370		283		87			30.7
Total liabilities	27,784,321		27,008,441		775,880			2.9		29,150		28,494		656			2.3
Stockholders’ equity	4,473,242		4,409,194		64,048			1.5		4,753		4,608		145			3.1
Total Liabilities and Stockholders’ Equity	$	32,257,563	$	31,417,635	$	839,928		2.7	%	$	33,903	$	33,102	$	801		2.4	%

~~Non-Performing Assets~~Lending Activity

~~Non-performing assets decreased $6.0 million, from $138.7 million at December 31, 2017 to $132.8 million at June 30, 2018. This reflects decreases~~The loan and lease portfolio consists principally of ~~$5.9 million in non-accrual~~ loans and ~~$1.4 million~~leases to individuals and small- and medium-sized businesses within our primary market in ~~OREO, partially offset by an increase~~seven states and the District of ~~$1.3 million~~Columbia. Our market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in ~~TDRs. The decrease in non-accrual~~North Carolina.

Following is a summary of loans is attributable to the exit of $15.7 million in non-performing commercial credits during the second quarter, primarily in the small business portfolio. The increase in TDRs is related to additional modifications of 1-4 family secured properties, as well as the modification of a commercial and industrial credit during the first six months of 2018. The decrease in OREO is primarily attributable to the sale of two commercial properties totaling $2.1 million during the first six months of 2018.leases:

TABLE 22

~~Table of Contents~~



	June 30, 2019		December 31, 2018		$ Change			% Change
(in millions)
Commercial real estate	$	8,832	$	8,786	$	46		0.5	%
Commercial and industrial	5,028		4,556		472			10.4
Commercial leases	385		373		12			3.2
Other	37		46		(9		)	(19.6	)
Total commercial loans and leases	14,282		13,761		521			3.8
Direct installment	1,758		1,764		(6		)	(0.3	)
Residential mortgages	3,022		3,113		(91		)	(2.9	)
Indirect installment	1,968		1,933		35			1.8
Consumer lines of credit	1,513		1,582		(69		)	(4.4	)
Total consumer loans	8,261		8,392		(131		)	(1.6	)
Total loans and leases	$	22,543	$	22,153	$	390		1.8	%

Non-Performing Assets

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

TABLE 2223


(in thousands)	June 30, 2018		December 31, 2017		$ Change			% Change
(in millions)										June 30, 2019		December 31, 2018		$ Change			% Change
Commercial real estate	$	20,496	$	31,399	$	(10,903	)	(34.7	)%	$	34	$	23	$	11		47.8	%
Commercial and industrial	28,242		22,740		5,502			24.2		18		37		(19		)	(51.4	)
Commercial leases	1,218		1,574		(356		)	(22.6	)	2		2		—			—
Other	1,000		1,000		—			—		1		1		—			—
Total commercial loans and leases	50,956		56,713		(5,757		)	(10.2	)	55		63		(8		)	(12.7	)
Direct installment	15,862		16,725		(863		)	(5.2	)	15		14		1			7.1
Residential mortgages	12,737		16,409		(3,672		)	(22.4	)	16		14		2			14.3
Indirect installment	7,375		2,435		4,940			202.9		2		2		—			—
Consumer lines of credit	6,586		5,834		752			12.9		5		7		(2		)	(28.6	)
Total consumer loans	42,560		41,403		1,157			2.8		38		37		1			2.7
Total non-performing loans and leases	$	93,516	$	98,116	$	(4,600	)	(4.7	)%	93		100		(7		)	(7.0	)
Other real estate owned										32		35		(3		)	(8.6	)
Total non-performing assets										$	125	$	135	$	(10	)	(7.4	)%

Non-performing assets decreased $9.9 million, from $134.7 million at December 31, 2018 to $124.8 million at June 30, 2019. This reflects decreases of $5.8 million in non-accrual loans, $3.1 million in OREO and $1.0 million in TDRs.

~~Table of Contents~~

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

TABLE 2324


(in thousands)	Performing		Non- Performing		Non- Accrual		Total
(in millions)									Performing		Non- Performing		Non- Accrual		Total
Originated
June 30, 2018
June 30, 2019
Commercial real estate	$	—	$	—	$	2,323	$	2,323	$	—	$	—	$	5	$	5
Commercial and industrial	2,580		528		891		3,999		—		—		4		4
Total commercial loans	2,580		528		3,214		6,322		—		—		9		9
Direct installment	11,111		8,391		3,398		22,900		12		7		3		22
Residential mortgages	3,751		5,855		1,781		11,387		5		8		3		16
Indirect installment	—		5,223		10		5,233		—		—		—		—
Consumer lines of credit	1,910		1,692		920		4,522		2		1		1		4
Total consumer loans	16,772		21,161		6,109		44,042		19		16		7		42
Total TDRs	$	19,352	$	21,689	$	9,323	$	50,364	$	19	$	16	$	16	$	51
December 31, 2017
December 31, 2018
Commercial real estate	$	92	$	—	$	3,870	$	3,962	$	—	$	—	$	2	$	2
Commercial and industrial	3,085		—		601		3,686		—		1		—		1
Total commercial loans	3,177		—		4,471		7,648		—		1		2		3
Direct installment	10,890		7,758		3,197		21,845		11		6		4		21
Residential mortgages	3,659		10,638		2,161		16,458		5		8		3		16
Indirect installment	—		195		14		209
Consumer lines of credit	1,812		1,582		629		4,023		2		2		—		4
Total consumer loans	16,361		20,173		6,001		42,535		18		16		7		41
Total TDRs	$	19,538	$	20,173	$	10,472	$	50,183	$	18	$	17	$	9	$	44
Acquired
June 30, 2018
June 30, 2019
Commercial real estate	$	—	$	2,613	$	—	$	2,613	$	—	$	3	$	—	$	3
Commercial and industrial	—		—		38		38
Total commercial loans	—		2,613		38		2,651		—		3		—		3
Direct installment	—		69		—		69
Residential mortgages	—		—		—		—
Indirect installment	—		—		—		—
Consumer lines of credit	168		449		13		630		—		—		—		—
Total consumer loans	168		518		13		699		—		—		—		—
Total TDRs	$	168	$	3,131	$	51	$	3,350	$	—	$	3	$	—	$	3
December 31, 2017
December 31, 2018
Commercial real estate	$	—	$	2,651	$	—	$	2,651	$	—	$	3	$	—	$	3
Commercial and industrial	—		—		—		—
Total commercial loans	—		2,651		—		2,651		—		3		—		3
Direct installment	15		71		—		86
Residential mortgages	—		—		—		—
Indirect installment	—		—		—		—
Consumer lines of credit	251		586		234		1,071		—		1		—		1
Total consumer loans	266		657		234		1,157		—		1		—		1
Total TDRs	$	266	$	3,308	$	234	$	3,808	$	—	$	4	$	—	$	4

~~Table of Contents~~

Allowance for Credit Losses

The allowance for credit losses of ~~$176.6~~$188.2 million at June 30, ~~2018~~2019 increased ~~$1.2~~$8.5 million, or ~~0.7%~~4.7%, from December 31, ~~2017,~~2018, primarily in support of growth in originated loans and ~~leases and a small increase in originated criticized commercial loans.~~leases. The provision for credit losses during the six months ended June 30, ~~2018~~2019 was ~~$30.0~~$25.1 million, which covered net charge-offs and supported organic loan growth. The amount of provision expense that resulted from the small increase in originated criticized commercial loans was offset by a provision benefit received through a decline in overall delinquency levels in the second quarter of 2018. Net charge-offs were $16.6 million during the six months ended June 30, 2019, compared to $28.9 million during the six months ended June 30, 2018, ~~compared~~with the decrease primarily due to ~~$20.0~~lower commercial charge-offs and the sale of Regency, which accounted for $4.7 million ~~during~~of the ~~six months ended June 30, 2017.~~decrease. The allowance for credit losses as a percentage of non-performing loans for the total portfolio increased from ~~179%~~180% as of December 31, ~~2017~~2018 to ~~189%~~203% as of June 30, ~~2018, reflecting a decrease~~2019, as provision exceeded charge-offs in support of loan growth, while the level of non-performing loans ~~relative to the decrease in the allowance for credit losses during the six-month period.~~have decreased slightly.

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 5,4, Loans and Leases, of the Notes to Consolidated Financial Statements (Unaudited).

TABLE 2425


	At or For the Three Months Ended						At or For the Three Months Ended
	June 30, 2018		December 31, 2017		June 30, 2017		June 30, 2019		December 31, 2018		June 30, 2018
Non-performing loans / total originated loans and leases	0.50	%	0.57	%	0.75	%	0.46	%	0.44	%	0.50	%
Non-performing loans + OREO / total originated loans and leases + OREO	0.71	%	0.81	%	1.08	%	0.61		0.61		0.71
Allowance for credit losses (originated loans) / total originated loans and leases	1.02	%	1.10	%	1.15	%	0.96		0.95		1.02
Net charge-offs on originated loans and leases (annualized) / total average originated loans and leases	0.36	%	0.35	%	0.38	%	0.11		0.27		0.36

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.~~subsidiary.

Following is a summary of deposits:

TABLE 2526


(in thousands)	June 30, 2018		December 31, 2017		$ Change			% Change
(in millions)										June 30, 2019		December 31, 2018		$ Change			% Change
Non-interest-bearing demand	$	5,926,473	$	5,720,030	$	206,443		3.6	%	$	6,139	$	6,000	$	139		2.3	%
Interest-bearing demand	9,134,954		9,571,038		(436,084		)	(4.6	)	9,593		9,660		(67		)	(0.7	)
Savings	2,607,372		2,488,178		119,194			4.8		2,515		2,526		(11		)	(0.4	)
Certificates and other time deposits	4,870,988		4,620,479		250,509			5.4		5,484		5,269		215			4.1
Total deposits	$	22,539,787	$	22,399,725	$	140,062		0.6	%	$	23,731	$	23,455	$	276		1.2	%

Total deposits increased from December 31, ~~2017,~~2018, primarily as a result of ~~organic~~ growth in 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), declined in total over this period due somewhat to seasonal outflows. Generating growth in ~~these~~the relationship-based transaction deposits remains a key focus for ~~us.~~us and will help us manage to lower levels of short-term borrowings.

~~Table of Contents~~

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 Consolidated 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.

~~In accordance with the terms of 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. On February 14, 2019, we completed our offering of $120.0 million 4.950% fixed-to-floating rate subordinated notes due in 2029 under this registration statement. The subordinated notes are treated as tier 2 capital for regulatory capital purposes. The net proceeds of the debt offering after deducting underwriting

discounts and commissions and offering expenses were $118.2 million. We intend to use and have used the net proceeds from the sale of the subordinated notes to redeem higher-rate long-term borrowings and for general corporate purposes.

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.

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, 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 June 30, ~~2018,~~2019, 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 June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, FNB and FNBPA met all “well-capitalized” requirements to which each of them was subject.

~~Table of Contents~~

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

TABLE 2627


	Actual				Well-Capitalized Requirements				Minimum Capital Requirements plus Capital Conservation Buffer				Actual				Well-Capitalized Requirements				Minimum Capital Requirements plus Capital Conservation Buffer
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2018
(dollars in millions)													Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2019
F.N.B. Corporation
Total capital	$	2,754,636	11.4	%	$	2,410,259	10.0	%	$	2,380,130	9.9	%	$	3,043	11.50	%	$	2,646	10.00	%	$	2,778	10.50	%
Tier 1 capital	2,269,510		9.4		1,928,207		8.0		1,898,079		7.9		2,503		9.46		2,117		8.00		2,249		8.50
Common equity tier 1	2,162,628		9.0		1,566,668		6.5		1,536,540		6.4		2,396		9.06		1,720		6.50		1,852		7.00
Leverage	2,269,510		7.6		1,484,696		5.0		1,187,757		4.0		2,503		7.96		1,572		5.00		1,258		4.00
Risk-weighted assets	24,102,585												26,458
FNBPA
Total capital	2,593,877		10.8	%	2,401,346		10.0	%	2,371,329		9.9	%	2,902		10.99	%	2,640		10.00	%	2,772		10.50	%
Tier 1 capital	2,420,350		10.1		1,921,077		8.0		1,891,060		7.9		2,712		10.27		2,112		8.00		2,244		8.50
Common equity tier 1	2,340,350		9.8		1,560,875		6.5		1,530,858		6.4		2,632		9.97		1,716		6.50		1,848		7.00
Leverage	2,420,350		8.2		1,476,411		5.0		1,181,129		4.0		2,712		8.64		1,569		5.00		1,256		4.00
Risk-weighted assets	24,013,460												26,398
As of December 31, 2017
As of December 31, 2018
F.N.B. Corporation
Total capital	$	2,666,272	11.4	%	$	2,340,362	10.0	%	$	2,164,835	9.3	%	$	2,875	11.54	%	$	2,490	10.00	%	$	2,459	9.88	%
Tier 1 capital	2,184,571		9.3		1,872,290		8.0		1,696,763		7.3		2,395		9.62		1,992		8.00		1,961		7.88
Common equity tier 1	2,077,689		8.9		1,521,235		6.5		1,345,708		5.8		2,289		9.19		1,619		6.50		1,588		6.38
Leverage	2,184,571		7.6		1,440,797		5.0		1,152,638		4.0		2,395		7.87		1,523		5.00		1,218		4.00
Risk-weighted assets	23,403,622												24,900
FNBPA
Total capital	2,504,191		10.7	%	2,332,593		10.0	%	2,157,649		9.3	%	2,735		10.99	%	2,489		10.00	%	2,458		9.88	%
Tier 1 capital	2,332,892		10.0		1,866,075		8.0		1,691,130		7.3		2,553		10.26		1,992		8.00		1,960		7.88
Common equity tier 1	2,252,892		9.7		1,516,186		6.5		1,341,241		5.8		2,473		9.94		1,618		6.50		1,587		6.38
Leverage	2,332,892		8.1		1,432,604		5.0		1,146,084		4.0		2,553		8.39		1,521		5.00		1,217		4.00
Risk-weighted assets	23,325,934												24,894

In accordance with Basel III, the implementation of capital requirements is transitional and ~~phases-in~~was phased-in from January 1, 2015 through January 1, 2019. The minimum capital requirements plus capital conservation buffer, which are presented for each period above based on the phase-in schedule, represent the minimum requirements 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 ~~2017~~2018 Annual Report on Form 10-K as filed with the SEC on February ~~28, 2018.~~26, 2019. 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.

~~Table of Contents~~

LIQUIDITY

Our goal in liquidity management is to satisfy the cash flow requirements of customers and the operating cash needs of FNB with cost-effective funding. Our Board of Directors has established an Asset/Liability Management Policy to guide management in achieving and maintaining earnings performance consistent with long-term goals, while maintaining acceptable levels of interest rate risk, a “well-capitalized” Balance Sheet and adequate levels of liquidity. Our Board of Directors has also established aLiquidity and Contingency Funding ~~Policy~~Policies to guide management in addressing stressed liquidity conditions. These policies designate our Asset/Liability Committee as the body responsible for meeting these objectives. The ALCO, which is comprised of members of executive management, reviews liquidity on a continuous basis and approves significant changes in strategies that affect Balance Sheet or cash flow positions. Liquidity is centrally managed daily by our Treasury Department.

FNBPA generates liquidity from its normal business operations. Liquidity sources from assets include payments from loans and investments, as well as the ability to securitize, pledge or sell loans, investment securities and other assets. Liquidity sources from liabilities are generated primarily through the banking offices of FNBPA in the form of deposits and customer repurchase agreements. FNB also has access to reliable and cost-effective wholesale sources of liquidity. Short- and long-term funds ~~can be acquired~~are used to help fund normal business operations, ~~as well as~~and unused credit availability can be utilized to serve as contingency funding if we would be faced with a liquidity crisis.

The principal sources of the parent company’s liquidity are its strong existing cash resources plus dividends it receives from its subsidiaries. These dividends may be impacted by the parent’s or its subsidiaries’ capital needs, statutory laws and regulations, corporate policies, contractual restrictions, profitability and other factors. In addition, through one of our subsidiaries, we regularly issue subordinated notes, which are guaranteed by FNB. ~~Cash~~Management has utilized various strategies to ensure sufficient cash on hand atis available to meet 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 decreased $5.6 million from $165.7 million at December 31, 2017 to $160.1 million at June 30, 2018, primarily due to one-time payouts related to the YDKN acquisition inParent's funding needs. During the first quarter of ~~2018.~~2019, we completed a debt offering in which we issued $120.0 million aggregate principal amount of fixed-to-floating rate subordinated notes due in 2029, which is treated as tier 2 capital for regulatory purposes. The net proceeds of the debt offering after deducting underwriting discounts and commissions and offering costs were $118.2 million of which $69 million was used to redeem, retire or call existing debt and TPS as noted below. We repurchased and retired $9.5 million and redeemed $15.5 million in higher interest rate subordinated debt assumed in the 2017 YDKN acquisition. Additionally, we redeemed $10.0 million of TPS issued by American Community Capital Trust I also assumed in the 2017 YDKN acquisition. Additionally, we exercised the call options on $26.0 million of Omega Financial Capital Trust I and $8.0 million of Crescent Financial Capital Trust I with April settlements. Also, from the net debt issuance proceeds, we completed a capital infusion of $40.0 million to FNBPA in March. These transactions accomplished strategic objectives and were the primary factors resulting in an increase in our liquidity metrics as shown below.

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 LCR and MCH. The LCR is defined as the sum of cash on hand plus projected cash inflows over the next 12 months divided by projected cash outflows over the next 12 months. The MCH is defined as the number of months of corporate expenses and dividends that can be covered by the cash on ~~hand and was impacted by the YDKN acquisition.~~hand.

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

TABLE 2728



~~(dollars in thousands)~~	June 30, ~~2018~~ 2019	December 31, ~~2017~~2018	Internal limit
Liquidity coverage ratio	~~1.8~~2.2 times	~~1.8~~2.1 times	> 1 time
Months of cash on hand	~~9.9~~15.0 months	~~10.2~~14.4 months	> 12 months

The MCH ratio fell below our internal limit due to the YDKN acquisition in March 2017. As a result, 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. 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 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 offering additional liquidity. As a result, management believes this policy exception will be cured 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 focused on attracting new customer relationships and deepening relationships with existing customers, in part through internal lead generation ~~efforts.~~efforts leveraging data analytics capabilities. Total deposits were ~~$22.5~~$23.7 billion at June 30, ~~2018,~~2019, an increase of ~~$140.1~~$276.6 million, or ~~1.30%~~2.4% annualized, from December 31, ~~2017.~~2018. Total ~~non-interest~~non-interest-bearing demand deposit accounts grew by ~~$206.4~~$139.3 million, or ~~7.3%~~4.7% annualized, and ~~savings accounts grew~~interest-bearing demand decreased by ~~$119.2~~$67.7 million, or ~~9.7%~~1.4% annualized. Growth in time deposits was ~~$250.5~~$215.3 million, or ~~10.9%~~8.2% annualized. ~~These increases were offset by seasonally lower business demand deposit and interest checking~~Savings account balances ~~which~~ decreased ~~$436.1~~$10.3 million, or ~~9.2%~~0.8% annualized.

~~Table of Contents~~

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 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 2829


(dollars in thousands)	June 30, 2018			December 31, 2017
(dollars in millions)							June 30, 2019			December 31, 2018
Unused wholesale credit availability	$	7,563,376		$	8,189,379		$	10,541		$	9,659
Unused wholesale credit availability as a % of FNBPA assets	23.6		%	26.3		%	31.2		%	29.2		%
Salable unpledged government and agency securities	$	2,632,241		$	2,231,812		$	2,475		$	2,424
Salable unpledged government and agency securities as a % of FNBPA assets	8.2		%	7.2		%	7.3		%	7.3		%

Another metric for measuring liquidity risk is the liquidity gap analysis. The following liquidity gap analysis as of June 30, ~~2018~~2019 compares the difference between our cash flows from existing earning assets and interest-bearing liabilities over future time intervals. Management seeks to limit the size of the liquidity gaps so that sources and uses of funds are reasonably matched in the normal course of business. A reasonably matched position lays a better foundation for dealing with additional funding needs during a potential liquidity crisis. The twelve-month cumulative gap to total assets ratio was ~~(8.9)~~(2.5)% and ~~(5.8)~~(7.1)% as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Management calculates this ratio at least quarterly and it is reviewed monthly by ALCO.

TABLE 2930


(dollars in thousands)	Within 1 Month			2-3 Months			4-6 Months			7-12 Months			Total 1 Year
(dollars in millions)																Within 1 Month			2-3 Months			4-6 Months			7-12 Months			Total 1 Year
Assets
Loans	$	511,784		$	945,959		$	1,186,109		$	2,375,076		$	5,018,928		$	846		$	1,064		$	1,459		$	2,581		$	5,950
Investments	101,917			147,067			261,900			446,279			957,163			158			231			296			578			1,263
	613,701			1,093,026			1,448,009			2,821,355			5,976,091			1,004			1,295			1,755			3,159			7,213
Liabilities
Non-maturity deposits	173,751			347,503			521,256			1,042,513			2,085,023			178			357			535			1,071			2,141
Time deposits	226,569			696,133			1,198,789			1,082,478			3,203,969			682			722			860			1,340			3,604
Borrowings	3,019,602			316,919			24,688			196,639			3,557,848			2,224			14			21			49			2,308
	3,419,922			1,360,555			1,744,733			2,321,630			8,846,840			3,084			1,093			1,416			2,460			8,053
Period Gap (Assets - Liabilities)	$	(2,806,221	)	$	(267,529	)	$	(296,724	)	$	499,725		$	(2,870,749	)	$	(2,080	)	$	202		$	339		$	699		$	(840	)
Cumulative Gap	$	(2,806,221	)	$	(3,073,750	)	$	(3,370,474	)	$	(2,870,749	)				$	(2,080	)	$	(1,878	)	$	(1,539	)	$	(840	)
Cumulative Gap to Total Assets	(8.7		)%	(9.5		)%	(10.4		)%	(8.9		)%				(6.1		)%	(5.5		)%	(4.5		)%	(2.5		)%

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 predominately from changes in interest rates, foreign exchange rates, equity prices and commodity prices. We are primarily exposed to interest rate risk inherent in our lending and deposit-taking activities as a financial intermediary. To succeed in this capacity, we offer an extensive variety of financial products to meet the diverse needs of our customers. These products sometimes contribute to interest rate risk for us when product groups do not complement one another. For example, depositors may want short-term deposits, while borrowers 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 Board of Directors has given ALCO ~~is responsible~~the responsibility 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, 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.~~profile, which provides the basis for balance sheet management strategies.

The following repricing gap analysis as of June 30, ~~2018~~2019 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 3031


(dollars in thousands)	Within 1 Month			2-3 Months			4-6 Months			7-12 Months			Total 1 Year
(dollars in millions)															Within 1 Month			2-3 Months			4-6 Months			7-12 Months			Total 1 Year
Assets
Loans	$	9,605,938		$	821,004		$	822,581		$	1,530,959		$	12,780,482	$	10,814		$	789		$	876		$	1,611		$	14,090
Investments	101,917			157,611			350,631			447,088			1,057,247		158			240			451			581			1,430
	9,707,855			978,615			1,173,212			1,978,047			13,837,729		10,972			1,029			1,327			2,192			15,520
Liabilities
Non-maturity deposits	5,998,778			—			—			—			5,998,778		6,089			—			—			—			6,089
Time deposits	325,226			696,962			1,196,851			1,077,838			3,296,877		777			721			857			1,337			3,692
Borrowings	3,469,360			943,400			9,659			166,580			4,588,999		3,085			1,031			7			21			4,144
	9,793,364			1,640,362			1,206,510			1,244,418			13,884,654		9,951			1,752			864			1,358			13,925
Off-balance sheet	(100,000		)	555,000			—			—			455,000		—			955			—			—			955
Period Gap (assets – liabilities + off-balance sheet)	$	(185,509	)	$	(106,747	)	$	(33,298	)	$	733,629		$	408,075	$	1,021		$	232		$	463		$	834		$	2,550
Cumulative Gap	$	(185,509	)	$	(292,256	)	$	(325,554	)	$	408,075				$	1,021		$	1,253		$	1,716		$	2,550
Cumulative Gap to Assets	(0.7		)%	(1.0		)%	(1.2		)%	1.5		%			3.5		%	4.3		%	5.9		%	8.7		%

The twelve-month cumulative repricing gap to total assets was ~~1.5%~~8.7% and ~~3.0%~~3.2% as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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~~as modeled, net interest income will increase and, conversely, if interest rates decrease ~~then~~as modeled, net interest income will decrease. The change in the cumulative repricing gap at June 30, ~~2018~~2019 compared to December 31, ~~2017,~~2018, is primarily related to ~~seasonally lower corporate~~growth and ~~public funds deposits~~changes in the ~~second quarter.~~mix of loans, deposits and borrowings. The growth in the certificates of deposit portfolio and adjustable rate borrowings were offset by strong commercial and industrial loan growth, a portion of which was swapped to adjustable rates, the sale of long-term fixed rate mortgage loans, the increased cash flow from the loan portfolio, and the funding of long-term FHLB advances. In particular, the funding of longer-term borrowings was opportunistically transacted to take advantage of the lower interest rate environment and add liquidity to support loan growth.

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 June 30, ~~2018.~~2019. Using a static Balance Sheet structure, the measures do not reflect all of management's potential counteractions.

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

TABLE 3132


	June 30, 2018		December 31, 2017		ALCO Limits		June 30, 2019		December 31, 2018		ALCO Limits
Net interest income change (12 months):
+ 300 basis points	2.7	%	3.0	%	n/a		8.3	%	3.5	%	n/a
+ 200 basis points	2.0	%	2.3	%	(5.0	)%	5.8		2.5		(5.0	)%
+ 100 basis points	1.2	%	1.3	%	(5.0	)%	3.1		1.4		(5.0	)
- 100 basis points	(3.1	)%	(3.9	)%	(5.0	)%	(4.8	)	(3.1	)	(5.0	)
Economic value of equity:
+ 300 basis points	(7.1	)%	(5.9	)%	(25.0	)%	(1.5	)	(8.0	)	(25.0	)
+ 200 basis points	(46.0	)%	(3.7	)%	(15.0	)%	(0.1	)	(5.2	)	(15.0	)
+ 100 basis points	(1.8	)%	(1.2	)%	(10.0	)%	0.5		(2.0	)	(10.0	)
- 100 basis points	(1.1	)%	(2.6	)%	(10.0	)%	(3.8	)	(1.0	)	(10.0	)

We also model rate scenarios which move all rates gradually over twelve months (Rate Ramps) and model scenarios that gradually change the shape of the yield curve. Assuming a static Balance Sheet, a ~~+300~~+100 basis point Rate Ramp increases net interest income (12 months) by ~~2.1%~~1.8% at June 30, ~~2018~~2019 and ~~2.0%~~1.0% at December 31, ~~2017.~~2018. The corresponding metrics for a -100 basis point Rate Ramp are (2.4)% and (1.6)% at June 30, 2019 and December 31, 2018, respectively.

Our strategy is generally to manage to a neutral interest rate risk position. ~~However, given~~Consistent with prior years, we desired to remain slightly asset-sensitive during the first six months of 2019. A number of management actions, as noted above, and the current, volatile interest rate environment, ~~the~~have resulted in a more asset-sensitive 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 ~~57.2%~~58.3% and ~~56.6%~~57.4% of total loans as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. As of June 30, ~~2018, 79.5%~~2019, 79.2% of these loans, or ~~45.5%~~46.2% of total loans, are tied to the Prime or one-month LIBOR rates. The investment portfolio is used, in part, to manage our interest rate risk position. 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 June 30, ~~2018,~~2019, the commercial swaps totaled ~~$2.5~~$3.2 billion of notional principal, with ~~$383.9~~$538.1 million in notional swap principal originated during the first six months of ~~2018.~~2019. The success of the aforementioned tactics has resulted in a ~~moderately~~more asset-sensitive ~~position.~~position as compared to December 31, 2018. For additional information regarding interest rate swaps, see Note 9 in this Report.

We desired to remain modestly asset-sensitive during the first six months of 2018. A number of management actions and market occurrences resulted in the 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 timing of funding loan and investment growth, as well as efforts to extend maturities in certificate of deposit activity and 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 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 structure as of the valuation date and do not reflect the planned growth or management actions that could be taken.

RISK MANAGEMENT

As a financial institution, we take on a certain amount of risk in every business decision, transaction and activity. Our Board of Directors and senior management have identified seven major categories of risk: credit risk, market risk, liquidity risk, reputational risk, operational risk, legal and compliance risk and strategic risk. In its oversight role of our risk management function, the Board of Directors focuses on the strategies, analyses and conclusions of management relating to identifying, understanding and managing risks so as to optimize total 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~~and limits under which ~~the company seeks~~we seek to operate in order to optimize ~~returns, while managing risk.~~returns. As such, the board monitors a ~~host~~series of ~~risk metrics from both~~KRIs, or Key Risk Indicators, for various business ~~and~~lines, operational units, ~~as well as by~~and risk ~~category, to provide~~categories, providing insight into how ~~the company’s~~our performance aligns with our stated risk appetite. ~~The risk appetite dashboard is~~These results are reviewed periodically by the Board of Directors and senior management to ensure ~~performance alignment with~~adherence to our risk appetite statement, and where appropriate, ~~makes~~ adjustments are made to applicable business strategies and tactics where risks ~~approach our desired risk tolerance limits.~~are approaching stated tolerances or for emerging risks.

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

identification, measurement, assessment and monitoring of enterprise-wide risk;

development of appropriate and meaningful risk metrics to use in connection with the oversight of our businesses and strategies;

review and assessment of our policies and practices to manage our credit, market, liquidity, legal, regulatory and operating risk (including technology, operational, compliance and fiduciary risks); and

identification and implementation of risk management best practices.

The Risk Committee serves as the primary point of contact between our Board of Directors and the Risk Management Council, which is the senior management level committee responsible for risk management. Risk appetite is an integral element of our business and capital planning processes through our Board Risk Committee and Risk Management Council. We use our risk appetite processes to promote appropriate alignment of risk, capital and performance tactics, while also considering risk capacity and appetite constraints from both financial and non-financial risks. Our top-down risk appetite process serves as a limit for undue risk-taking for bottom-up planning from our various business functions. Our Board Risk Committee, in collaboration with our Risk Management Council, approves our risk appetite on an annual basis, or more frequently, as needed to reflect changes in the risk 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 multiple second line of defense areas, including the following departments: Enterprise-Wide Risk Management, Fraud Risk, Loan Review, Model Risk Management, Third-Party Risk Management, Anti-Money Laundering and Bank Secrecy Act, Appraisal Review, Compliance ~~Department~~ and ~~the~~ Information and Cyber ~~Security Department, both~~Security. All second line of ~~which~~defense departments report to the Chief Risk Officer ~~and ensures~~to ensure the coordinated and consistent implementation of risk management initiatives and strategies on a day-to-day basis. Our Enterprise-Wide Risk Management Department conducts risk and control assessments across all of our business and operational areas to ensure the appropriate risk identification, risk management and reporting of risks enterprise-wide. The Fraud Risk Department monitors for internal and external fraud risk across all of our business and operational units. The Loan Review Department conducts independent testing of our loan risk ratings to ensure their accuracy, which is instrumental to calculating our allowance for credit losses. Our Model Risk Management Department oversees validation and testing of all models used in managing risk across our company. Our Third-Party Risk Management Department ensures effective risk management and oversight of third-party relationships throughout the vendor life cycle. The Anti-Money Laundering and Bank Secrecy Act Department monitors for compliance with money laundering risk and associated regulatory compliance requirements. The Appraisal Review Department facilitates independent ordering and review of real estate appraisals obtained for determining the value of real estate pledged as collateral for loans to customers. Our Compliance Department ~~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 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~~through the ~~integrity~~use of the National Institute of Standards and Technology framework for improving critical infrastructure by measuring and evaluating the effectiveness of information and cyber security controls. Further, our audit function performs an

~~Table of Contents~~

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.

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 3233

Operating Net Income Available to Common Stockholders


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2018			2017			2018			2017
(in thousands)													2019			2018			2019			2018
Net income available to common stockholders	$	83,196		$	72,396		$	167,948		$	93,365		$	93,177		$	83,196		$	185,294		$	167,948
Merger-related expense	—			1,354			—			54,078
Tax benefit of merger-related expense	—			(419		)	—			(17,998		)
Merger-related net securities gains	—			—			—			(2,609		)
Tax expense of merger-related net securities gains	—			—			—			913
Discretionary 401(k) contribution	874			—			874			—			—			874			—			874
Tax benefit of discretionary 401(k) contribution	(184		)	—			(184		)	—			—			(184		)	—			(184		)
Branch consolidation costs	6,616			—			6,616			—			2,871			6,616			4,505			6,616
Tax benefit of branch consolidation costs	(1,389		)	—			(1,389		)	—			(603		)	(1,389		)	(946		)	(1,389		)
Operating net income available to common stockholders (non-GAAP)	$	89,113		$	73,331		$	173,865		$	127,749		$	95,445		$	89,113		$	188,853		$	173,865

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 and 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 expensescertain charges, such as branch consolidation costs, are not organic costs to run our operations and facilities. ~~These~~The branch consolidation charges principally represent expenses to satisfy contractual obligations of ~~an acquired entity~~the closed branches without any useful ongoing benefit to ~~us and to convert and consolidate the entity’s records onto our platforms.~~us. These costs are specific to each individual transaction, and may vary significantly based on the size and complexity of the transaction.

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TABLE 3334

Operating Earnings per Diluted Common Share


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017			2019		2018			2019		2018
Net income per diluted common share	$	0.26		$	0.22	$	0.52		$	0.33		$	0.29	$	0.26		$	0.57	$	0.52
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			—			0.01		0.02			0.01		0.02
Tax benefit of branch consolidation costs	(0.01		)	—		(0.01		)	—			—		(0.01		)	—		(0.01		)
Operating earnings per diluted common share (non-GAAP)	$	0.27		$	0.23	$	0.53		$	0.45		$	0.29	$	0.27		$	0.58	$	0.53

TABLE 3435

Return on Average Tangible Common Equity


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Net income available to common stockholders (annualized)	$	333,699		$	290,381		$	338,679		$	188,277		$	373,733		$	333,699		$	373,660		$	338,679
Amortization of intangibles, net of tax (annualized)	12,077			12,547			12,791			10,369			11,024			12,077			11,085			12,791
Tangible net income available to common stockholders (annualized) (non-GAAP)	$	345,776		$	302,928		$	351,470		$	198,646		$	384,757		$	345,776		$	384,745		$	351,470
Average total stockholders’ equity	$	4,461,510		$	4,386,438		$	4,445,976		$	3,700,953		$	4,720,725		$	4,461,510		$	4,686,673		$	4,445,976
Less: Average preferred stockholders' equity	(106,882		)	(106,882		)	(106,882		)	(106,882		)	(106,882		)	(106,882		)	(106,882		)	(106,882		)
Less: Average intangibles ⁽¹⁾	(2,337,249		)	(2,348,767		)	(2,338,509		)	(1,867,911		)	(2,329,625		)	(2,337,249		)	(2,330,619		)	(2,338,509		)
Average tangible common equity (non-GAAP)	$	2,017,379		$	1,930,789		$	2,000,585		$	1,726,160		$	2,284,218		$	2,017,379		$	2,249,172		$	2,000,585
Return on average tangible common equity (non-GAAP)	17.14		%	15.69		%	17.57		%	11.51		%	16.84		%	17.14		%	17.11		%	17.57		%

(1)Excludes loan servicing rights.

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TABLE 3536

Return on Average Tangible Assets


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Net income (annualized)	$	341,762		$	298,443		$	346,786		$	196,384		$	381,796		$	341,762		$	381,765		$	346,786
Amortization of intangibles, net of tax (annualized)	12,077			12,547			12,791			10,369			11,024			12,077			11,085			12,791
Tangible net income (annualized) (non-GAAP)	$	353,839		$	310,990		$	359,577		$	206,753		$	392,820		$	353,839		$	392,850		$	359,577
Average total assets	$	31,947,751		$	30,364,645		$	31,722,381		$	27,230,782		$	33,731,116		$	31,947,751		$	33,571,250		$	31,722,381
Less: Average intangibles ⁽¹⁾	(2,337,249		)	(2,348,767		)	(2,338,509		)	(1,867,911		)	(2,329,625		)	(2,337,249		)	(2,330,619		)	(2,338,509		)
Average tangible assets (non-GAAP)	$	29,610,502		$	28,015,878		$	29,383,872		$	25,362,871		$	31,401,491		$	29,610,502		$	31,240,631		$	29,383,872
Return on average tangible assets (non-GAAP)	1.19		%	1.11		%	1.22		%	0.82		%	1.25		%	1.19		%	1.26		%	1.22		%

(1)Excludes loan servicing rights.

TABLE 3637

Tangible Book Value per Common Share


	Three Months Ended June 30,						Three Months Ended June 30,
(in thousands, except per share data)	2018			2017			2019			2018
Total stockholders’ equity	$	4,473,242		$	4,392,438		$	4,753,189		$	4,473,242
Less: Preferred stockholders’ equity	(106,882		)	(106,882		)	(106,882		)	(106,882		)
Less: Intangibles ⁽¹⁾	(2,335,445		)	(2,346,653		)	(2,336,071		)	(2,335,445		)
Tangible common equity (non-GAAP)	$	2,030,915		$	1,938,903		$	2,310,236		$	2,030,915
Ending common shares outstanding	324,258,342			323,226,474			324,807,131			324,258,342
Tangible book value per common share (non-GAAP)	$	6.26		$	6.00		$	7.11		$	6.26

(1)Excludes loan servicing rights.

TABLE 3738

Tangible equity to tangible assets (period-end)


	Three Months Ended June 30,						Three Months Ended June 30,
(dollars in thousands)	2018			2017			2019			2018
Total stockholders' equity	$	4,473,242		$	4,392,438		$	4,753,189		$	4,473,242
Less: Intangibles⁽¹⁾	(2,335,445		)	(2,346,653		)	(2,336,071		)	(2,335,445		)
Tangible equity (non-GAAP)	$	2,137,797		$	2,045,785		$	2,417,118		$	2,137,797
Total assets	$	32,257,563		$	30,753,726		$	33,903,440		$	32,257,563
Less: Intangibles⁽¹⁾	(2,335,445		)	(2,346,653		)	(2,336,071		)	(2,335,445		)
Tangible assets (non-GAAP)	$	29,922,118		$	28,407,073		$	31,567,369		$	29,922,118
Tangible equity / tangible assets (period-end) (non-GAAP)	7.14		%	7.20		%	7.66		%	7.14		%

(1) Excludes loan servicing rights.

~~Table of Contents~~

TABLE 3839

Tangible common equity / tangible assets (period-end)


	Three Months Ended June 30,						Three Months Ended June 30,
(dollars in thousands)	2018			2017			2019			2018
Total stockholders' equity	$	4,473,242		$	4,392,438		$	4,753,189		$	4,473,242
Less: Preferred stockholders' equity	(106,882		)	(106,882		)	(106,882		)	(106,882		)
Less: Intangibles ⁽¹⁾	(2,335,445		)	(2,346,653		)	(2,336,071		)	(2,335,445		)
Tangible common equity (non-GAAP)	$	2,030,915		$	1,938,903		$	2,310,236		$	2,030,915
Total assets	$	32,257,563		$	30,753,726		$	33,903,440		$	32,257,563
Less: Intangibles⁽¹⁾	(2,335,445		)	(2,346,653		)	(2,336,071		)	(2,335,445		)
Tangible assets (non-GAAP)	$	29,922,118		$	28,407,073		$	31,567,369		$	29,922,118
Tangible common equity / tangible assets (period-end) (non-GAAP)	6.79		%	6.83		%	7.32		%	6.79		%

(1) Excludes loan servicing rights.

KEY PERFORMANCE INDICATORS

TABLE 3940

Efficiency Ratio


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2018			2017			2018			2017			2019			2018			2019			2018
Non-interest expense	$	183,013		$	163,714		$	354,096		$	351,269		$	175,237		$	183,013		$	340,979		$	354,096
Less: Amortization of intangibles	(3,811		)	(4,813		)	(8,029		)	(7,911		)	(3,479		)	(3,811		)	(6,958		)	(8,029		)
Less: OREO expense	(2,233		)	(1,008		)	(3,600		)	(1,991		)	(954		)	(2,233		)	(2,023		)	(3,600		)
Less: Merger-related expense	—			(1,354		)	—			(54,078		)
Less: Discretionary 401(k) contribution	(874		)	—			(874		)	—			—			(874		)	—			(874		)
Less: Branch consolidation costs	(2,939		)	—			(2,939		)	—			(2,325		)	(2,939		)	(2,783		)	(2,939		)
Adjusted non-interest expense	$	173,156		$	156,539		$	338,654		$	287,289		$	168,479		$	173,156		$	329,215		$	338,654
Net interest income	$	239,355		$	218,415		$	465,460		$	391,167		$	230,407		$	239,355		$	461,000		$	465,460
Taxable equivalent adjustment	3,319			4,474			6,422			7,996			3,540			3,319			7,119			6,422
Non-interest income	64,889			66,078			132,392			121,194			74,840			64,889			140,225			132,392
Less: Net securities gains	(31		)	(493		)	(31		)	(3,118		)	—			(31		)	—			(31		)
Less: Branch consolidation costs	3,677			—			3,677			—
Add: Branch consolidation costs													546			3,677			1,722			3,677
Adjusted net interest income (FTE) + non-interest income	$	311,209		$	288,474		$	607,920		$	517,239		$	309,333		$	311,209		$	610,066		$	607,920
Efficiency ratio (FTE) (non-GAAP)	55.64		%	54.26		%	55.71		%	55.54		%	54.47		%	55.64		%	53.96		%	55.71		%


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is provided in the Market Risk section of ~~"Management’s Discussion and Analysis of Financial Condition and Results of Operations,~~"MD&A," 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 ~~2017~~2018 Annual Report on Form 10-K as filed with the SEC on February ~~28, 2018.~~26, 2019.

~~Table of Contents~~


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 June 30, ~~2018,~~2019, as required by paragraph (d) of Rules 13a–15 and 15d–15 under the Securities Exchange Act of 1934, as amended, and have concluded that there were no such changes that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

The information required by this Item is set forth in the “Other Legal Proceedings” discussion in Note 910 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 2018 Annual Report on Form 10-K ~~for the year ended December 31, 2017.~~. See also Part I, Item 2 ~~(Management’s Discussion and Analysis)~~(MD&A) of this Report.

There are no material changes from any of the risk factors previously disclosed in our ~~2017~~2018 Annual Report on Form 10-K as filed with the SEC on February ~~28, 2018.~~26, 2019.


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.

~~Table of Contents~~


ITEM 5.	OTHER INFORMATION

NONE

ITEM 6. EXHIBITS

Exhibit Index



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

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

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

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

~~101~~101.INS		~~The following materials from F.N.B. Corporation’s Quarterly Report on Form 10-Q for~~XBRL Instance Document - the ~~period ended June 30, 2018, formatted~~instance document does not appear in ~~XBRL: (i)~~ the ~~Consolidated Balance Sheets, (ii)~~Interactive Data File because its XBRL tags are embedded within 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.Inline XBRL document.

101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

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:	August ~~7, 2018~~6, 2019	/s/ Vincent J. Delie, Jr.
		Vincent J. Delie, Jr.
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

Dated:	August ~~7, 2018~~6, 2019	/s/ Vincent J. Calabrese, Jr.
		Vincent J. Calabrese, Jr.
		Chief Financial Officer
		(Principal Financial Officer)

Dated:	August ~~7, 2018~~6, 2019	/s/ James L. Dutey
		James L. Dutey
		Corporate Controller
		(Principal Accounting Officer)

8991



(in thousands)	Originated Loans and Leases		Acquired Loans		Total Loans and Leases
June 30, 2018
Commercial real estate	$	5,754,367	$	3,079,955	$	8,834,322
Commercial and industrial	3,797,773		503,614		4,301,387
Commercial leases	337,397		—		337,397
Other	43,351		—		43,351
Total commercial loans and leases	9,932,888		3,583,569		13,516,457
Direct installment	1,772,090		119,990		1,892,080
Residential mortgages	2,297,558		553,412		2,850,970
Indirect installment	1,746,352		157		1,746,509
Consumer lines of credit	1,136,293		517,273		1,653,566
Total consumer loans	6,952,293		1,190,832		8,143,125
Total loans and leases, net of unearned income	$	16,885,181	$	4,774,401	$	21,659,582
December 31, 2017
Commercial real estate	$	5,174,783	$	3,567,081	$	8,741,864
Commercial and industrial	3,495,247		675,420		4,170,667
Commercial leases	266,720		—		266,720
Other	17,063		—		17,063
Total commercial loans and leases	8,953,813		4,242,501		13,196,314
Direct installment	1,755,713		149,822		1,905,535
Residential mortgages	2,036,226		666,465		2,702,691
Indirect installment	1,448,268		165		1,448,433
Consumer lines of credit	1,151,470		594,323		1,745,793
Total consumer loans	6,391,677		1,410,775		7,802,452
Total loans and leases, net of unearned income	$	15,345,490	$	5,653,276	$	20,998,766



	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



	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
Commercial and industrial	2	$	312	3	$	326
Total commercial loans	2	312		3	326
Direct installment	31	134		55	146
Residential mortgages	1	80		4	264
Indirect installment	6	19		10	19
Consumer lines of credit	1	63		1	63
Total consumer loans	39	296		70	492
Total	41	$	608	73	$	818



	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
June 30, 2018
Commercial real estate	$	26	$	50,561	$	5,754,367	$	8,521	$	5,745,846
Commercial and industrial	4,392		49,297		3,797,773		18,482		3,779,291
Commercial leases	—		7,039		337,397		—		337,397
Other	—		1,996		43,351		—		43,351
Total commercial loans and leases	4,418		108,893		9,932,888		27,003		9,905,885
Direct installment	—		20,279		1,772,090		—		1,772,090
Residential mortgages	—		15,163		2,297,558		—		2,297,558
Indirect installment	—		13,401		1,746,352		—		1,746,352
Consumer lines of credit	—		10,461		1,136,293		—		1,136,293
Total consumer loans	—		59,304		6,952,293		—		6,952,293
Total	$	4,418	$	168,197	$	16,885,181	$	27,003	$	16,858,178
December 31, 2017
Commercial real estate	$	439	$	49,842	$	5,174,783	$	11,114	$	5,163,669
Commercial and industrial	3,215		48,748		3,495,247		9,872		3,485,375
Commercial leases	—		5,646		266,720		—		266,720
Other	—		1,843		17,063		—		17,063
Total commercial loans and leases	3,654		106,079		8,953,813		20,986		8,932,827
Direct installment	—		20,936		1,755,713		—		1,755,713
Residential mortgages	—		15,507		2,036,226		—		2,036,226
Indirect installment	—		11,967		1,448,268		—		1,448,268
Consumer lines of credit	—		10,539		1,151,470		—		1,151,470
Total consumer loans	—		58,949		6,391,677		—		6,391,677
Total	$	3,654	$	165,028	$	15,345,490	$	20,986	$	15,324,504



(in thousands)	Total			Net of Tax
Reclassified from AOCI to interest income	$	25		$	20
Reclassified from AOCI to interest expense	(902		)	(713		)



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



		Six Months Ended June 30,
(in thousands)	Income Statement Location	2018			2017
Interest Rate Contracts	Interest income - loans and leases	$	25		$	900
Interest Rate Contracts	Interest expense – short-term borrowings	(902		)	652
Interest Rate Swaps	Other income	1,259			(465		)
Credit Risk Contracts	Other income	70			21



	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share data)	2018		2017		2018		2017
Net income	$	85,206	$	74,406	$	171,968	$	97,385
Less: Preferred stock dividends	2,010		2,010		4,020		4,020
Net income available to common stockholders	$	83,196	$	72,396	$	167,948	$	93,365
Basic weighted average common shares outstanding	324,170,177		323,303,460		323,956,752		280,578,720
Net effect of dilutive stock options, warrants and restricted stock	1,559,872		1,564,299		1,772,440		1,706,762
Diluted weighted average common shares outstanding	325,730,049		324,867,759		325,729,192		282,285,482
Earnings per common share:
Basic	$	0.26	$	0.22	$	0.52	$	0.33
Diluted	$	0.26	$	0.22	$	0.52	$	0.33



(in thousands)	Other Debt Securities			Equity Securities			Residential Non-Agency Collateralized Mortgage Obligations			Interest Rate Lock Commitments			Total
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
Total gains (losses) – realized/unrealized:
Included in earnings	—			—			4			—			4
Included in other comprehensive income	—			86			(6		)	—			80
Accretion included in earnings	(1		)	—			1			—			—
Purchases, issuances, sales and settlements:
Purchases	12,048			—			—			1,594			13,642
Sales/redemptions	(12,047		)	—			(874		)	—			(12,921		)
Settlements	—			—			(19		)	(4,569		)	(4,588		)
Transfers from Level 3	—			(578		)	—			—			(578		)
Transfers into Level 3	—			—			—			4,569			4,569
Balance at end of period	$	—		$	—		$	—		$	1,594		$	1,594

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,~~We adopted this Update in the first quarter of 2019
~~Early adoption is permitted.~~

~~This Update is to be applied~~ using a modified retrospective transition method. The presentation and disclosure guidance ~~are~~were applied prospectively. ~~We are currently assessing the potential impact to~~The adoption of this Update did not have a material effect on our Consolidated Financial Statements.
This Update was effective as of January 1, 2019.