0000037808 srt:MaximumMember us-gaap:FederalHomeLoanBankAdvancesMember 2019-06-30
Table of Contents
    


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, 20182019
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from to
Commission file number 001-31940
 
F.N.B. CORPORATION
(Exact name of registrant as specified in its charter)
 
Pennsylvania25-1255406
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One North Shore Center,12 Federal Street,Pittsburgh,PA15212
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: 800-555-5455800-555-5455


(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 FilerAccelerated Filer
    
Non-accelerated FilerSmaller 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 ClassTrading Symbol(s)Name of Exchange on which Registered
Common Stock, par value $0.01 per shareFNBNew York Stock Exchange
Depositary Shares each representing 1/40th interest in a
share of Fixed-to-Floating Rate Non-Cumulative Perpetual
Preferred Stock, Series E
FNBPrENew York Stock Exchange
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
ClassOutstanding at

July 31, 20182019
Common Stock, $0.01 Par Value324,258,342324,873,312

Shares





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F.N.B. CORPORATION
FORM 10-Q
June 30, 20182019
INDEX
 
 PAGE
PART I – FINANCIAL INFORMATION 
   
 
   
Item 1.Financial Statements 
   
 
 
 
 
 
 
   
Item 2.
   
Item 3.
   
Item 4.
  
PART II – OTHER INFORMATION 
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 3.
   
Item 4.
   
Item 5.
   
Item 6.
   
 


Table of Contents
    


Glossary of Acronyms and Terms
AFSAvailable for sale
ALCOAsset/Liability Committee
AOCIAccumulated other comprehensive income
ASCAccounting Standards Codification
ASUAccounting Standards Update
BOLIBank owned life insurance
Basel IIIBasel III Capital Rules
CFPBConsumer Financial Protection Bureau
EVEEconomic value of equity
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
FHLBFederal Home Loan Bank
FNBF.N.B. Corporation
FNBPAFirst National Bank of Pennsylvania
FOMCFederal Open Market Committee
FRBBoard of Governors of the Federal Reserve System
FTEFully taxable equivalent
FVOFair value option
GAAPU.S. generally accepted accounting principles
HTMHeld to maturity
IRLCInterest rate lock commitments
LCRLiquidity Coverage Ratio
LIBORLondon Inter-bank Offered Rate
MCHMonths of Cash on Hand
MD&AManagement's Discussion and Analysis
MSRMortgage servicing rights
OCCOffice of the Comptroller of the Currency
OREOOther real estate owned
OTTIOther-than-temporary impairment
RegencyRegency Finance Company
SBASmall Business Administration
SECSecurities and Exchange Commission
TCJATax Cuts and Jobs Act of 2017
TDRTroubled debt restructuring
TPSTrust preferred securities
USTU.S. Department of the Treasury
YDKNYadkin 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 banks35,058
 70,725
72
 37
Cash and Cash Equivalents433,699
 479,443
499
 488
Securities available for sale3,002,787
 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 sale3,279
 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 Leases21,483,008
 20,823,386
22,355
 21,973
Premises and equipment, net324,659
 336,540
328
 330
Goodwill2,251,349
 2,249,188
2,262
 2,255
Core deposit and other intangible assets, net84,096
 92,075
74
 79
Bank owned life insurance532,135
 526,818
539
 537
Other assets806,637
 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 demand9,134,954
 9,571,038
9,593
 9,660
Savings2,607,372
 2,488,178
2,515
 2,526
Certificates and other time deposits4,870,988
 4,620,479
5,484
 5,269
Total Deposits22,539,787
 22,399,725
23,731
 23,455
Short-term borrowings4,334,146
 3,678,337
3,711
 4,129
Long-term borrowings628,938
 668,173
1,338
 627
Other liabilities281,450
 262,206
370
 283
Total Liabilities27,784,321
 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 capital4,043,124
 4,033,567
4,057
 4,049
Retained earnings457,326
 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’ Equity4,473,242
 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)
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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 20172019 2018 2019 2018
Interest Income              
Loans and leases, including fees$257,895
 $221,091
 $496,989
 $389,720
$276
 $258
 $545
 $497
Securities:              
Taxable28,995
 25,029
 55,874
 47,495
32
 29
 65
 56
Tax-exempt6,960
 4,677
 13,554
 8,078
8
 6
 16
 13
Dividends
 76
 
 85
Other267
 161
 627
 349
1
 1
 1
 1
Total Interest Income294,117
 251,034
 567,044
 445,727
317
 294
 627
 567
Interest Expense              
Deposits31,049
 16,753
 57,518
 28,493
55
 30
 105
 57
Short-term borrowings18,409
 10,959
 33,616
 17,633
22
 19
 48
 34
Long-term borrowings5,304
 4,907
 10,450
 8,434
10
 5
 13
 10
Total Interest Expense54,762
 32,619
 101,584
 54,560
87
 54
 166
 101
Net Interest Income239,355
 218,415
 465,460
 391,167
230
 240
 461
 466
Provision for credit losses15,554
 16,756
 30,049
 27,606
11
 16
 25
 30
Net Interest Income After Provision for Credit Losses223,801
 201,659
 435,411
 363,561
219
 224
 436
 436
Non-Interest Income              
Service charges31,114
 32,090
 61,191
 56,671
32
 31
 62
 61
Trust services6,469
 5,715
 12,917
 11,462
7
 6
 14
 13
Insurance commissions and fees4,567
 4,347
 9,702
 9,488
4
 5
 9
 10
Securities commissions and fees4,526
 3,887
 8,845
 7,510
5
 5
 9
 9
Capital markets income5,854
 5,004
 11,068
 8,851
10
 6
 16
 11
Mortgage banking operations5,940
 5,173
 11,469
 8,963
8
 5
 12
 11
Dividends on non-marketable equity securities4
 4
 9
 8
Bank owned life insurance3,077
 3,092
 6,362
 5,245
3
 3
 6
 6
Net securities gains31
 493
 31
 3,118
Other3,311
 6,277
 10,807
 9,886
2
 
 3
 3
Total Non-Interest Income64,889
 66,078
 132,392
 121,194
75
 65
 140
 132
Non-Interest Expense              
Salaries and employee benefits98,671
 84,899
 187,997
 158,477
95
 99
 186
 188
Net occupancy16,149
 14,060
 31,717
 25,409
16
 16
 31
 32
Equipment13,183
 12,420
 27,648
 22,050
15
 13
 30
 27
Amortization of intangibles3,811
 4,813
 8,029
 7,911
3
 4
 7
 8
Outside services17,045
 13,483
 31,770
 26,526
16
 17
 31
 32
FDIC insurance9,167
 9,376
 18,001
 14,763
6
 9
 12
 18
Bank shares and franchise taxes3,240
 2,742
 6,692
 5,722
3
 4
 6
 7
Merger-related
 1,354
 
 54,078
Other21,747
 20,567
 42,242
 36,333
21
 21
 38
 42
Total Non-Interest Expense183,013
 163,714
 354,096
 351,269
175
 183
 341
 354
Income Before Income Taxes105,677
 104,023
 213,707
 133,486
119
 106
 235
 214
Income taxes20,471
 29,617
 41,739
 36,101
24
 21
 46
 42
Net Income85,206
 74,406
 171,968
 97,385
95
 85
 189
 172
Preferred stock dividends2,010
 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 thousandsmillions
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 thousandsmillions
Unaudited
 
Six Months Ended
June 30,
Six Months Ended
June 30,
2018 20172019 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 accretion57,388
 36,392
20
 57
Provision for credit losses30,049
 27,606
25
 30
Deferred tax expense15,541
 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 sold589,823
 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 receivable1,044
 (462)(12) 1
Interest payable2,658
 58
6
 3
Bank owned life insurance(5,367) (5,063)(3) (6)
Other, net27,613
 (114,988)(298) 27
Net cash flows provided by (used in) operating activities349,285
 (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
Maturities288,337
 247,930
302
 288
Debt securities held to maturity:      
Purchases(224,229) (782,281)(36) (224)
Sales
 1,574
Maturities168,333
 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 sale110
 
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 deposits252,901
 (143,154)217
 253
Short-term borrowings655,809
 1,126,769
(418) 656
Proceeds from issuance of long-term borrowings17,490
 77,223
940
 18
Repayment of long-term borrowings(56,343) (133,162)(227) (56)
Net proceeds from issuance of common stock7,213
 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 activities684,323
 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 period479,443
 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, 20182019
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 yearsseven states and the District of serving the financial and banking needs of our customers. We hold a significant retail depositColumbia. Our market share in attractive marketscoverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, Raleigh-DurhamRaleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. As of June 30, 2018,2019, we had 404378 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 theConsolidated 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 Sheet2019 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 2017our 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 2017our 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 Statementsfinancial 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 assetsassets.
Derivative Instruments and litigation.Hedging Activities
TableFrom 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 guidanceinterest 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 basedcertain 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 securitiesfuture 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 gainsrisk 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 deemedreporting of hedge ineffectiveness and generally requiring the entire effect of the hedging instrument and the hedged item to be temporarypresented 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 separatelyqualifies as a component ofcash 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.
TableAt 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 evaluatedetermine 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 positionother 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 OTTIthese leases on a quarterlystraight-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 onpresent 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 intentincremental borrowing rate which is derived by reference to sell. If we intendFNB's secured borrowing rate. Our leases may include options to sellextend or terminate the debt security orlease. 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 sellrecoverable. For operating leases, if deemed impaired, the security before recovery of its amortized cost basis, OTTI must be separated into the amount representing credit lossright-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 inhave 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 periodsingle lease component.
As a lessor, when a lease meets certain criteria indicating that we effectively have transferred control of the impairment, recent events specificunderlying asset to the issuercustomer, 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 investdirect financing leases are recognized as a net investment in various affordable housing projects that qualify for LIHTCs. The net investments are recorded in other assetsthe lease on the Consolidated Balance Sheets. These investments generateThe 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 requirementsevaluate 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 millionunderlying 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 BoardFASB that we recently adopted or will be adopting in the future.
TABLE 2.1
Standard DescriptionRequired 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 arewere applied prospectively. We are currently assessing the potential impact toThe adoption of this Update did not have a material effect on our Consolidated Financial Statements.
This Update was effective as of January 1, 2019.



StandardDescriptionFinancial Statements Impact
Securities    
ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
 This Update shortens the amortization period for the premium on certain purchased callable securities to the earliest call date. The accounting for purchased callable debt securities held at a discount does not change. 
January 1, 2019
Early adoption is permitted.
This Update is to be applied using a modified retrospective transition method. The adoption of this Update is not expected to have a material effect on our Consolidated Financial Statements.


StandardDescriptionRequired Date of AdoptionFinancial 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 by2019 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 replacesThese 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 isThese 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 instrumentsassets 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 asimplementation. 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 reviewevaluate and enhancerefine 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 - Extinguishmentspolicies, 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, 2018We 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 DescriptionRequired 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 theirthe 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-leasebacksales-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 includingtransition method. In addition, the new standard provides a number of optional practical expedients.expedients in transition. We areelected 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 processrecording of classifying our existing$116 million in right-of-use assets and corresponding lease portfolios, implementing a software solution, and assessing the potential impact toliabilities of $126 million for operating leases on our Consolidated Financial Statements. We doBalance Sheet. The standard did not believe this update will materially impact our consolidated net income.
Financial Instruments – Recognitionearnings and Measurement
ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurementhad 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, 2018We 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, 2018We 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

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 entities301
 1
 (1) 301
Residential mortgage-backed securities:       
Agency mortgage-backed securities1,318
 3
 (6) 1,315
Agency collateralized mortgage obligations1,233
 14
 (5) 1,242
Commercial mortgage-backed securities227
 5
 
 232
States of the U.S. and political subdivisions15
 
 
 15
Other debt securities2
 
 
 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 entities317
 
 (4) 313
Residential mortgage-backed securities:       
Agency mortgage-backed securities1,465
 
 (36) 1,429
Agency collateralized mortgage obligations1,179
 5
 (23) 1,161
Commercial mortgage-backed securities229
 
 (1) 228
States of the U.S. and political subdivisions21
 
 
 21
Other debt securities2
 
 
 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 entities312,903
 
 (5,969) 306,934
Residential mortgage-backed securities:       
Agency mortgage-backed securities1,626,353
 390
 (49,147) 1,577,596
Agency collateralized mortgage obligations863,976
 29
 (32,188) 831,817
Non-agency collateralized mortgage obligations
 
 
 
Commercial mortgage-backed securities168,466
 154
 (296) 168,324
States of the U.S. and political subdivisions20,795
 2
 (62) 20,735
Other debt securities1,949
 
 (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 securities1,615,168
 1,225
 (17,519) 1,598,874
Agency collateralized mortgage obligations813,034
 
 (18,077) 794,957
Non-agency collateralized mortgage obligations1
 
 
 1
States of the U.S. and political subdivisions21,151
 6
 (64) 21,093
Other debt securities4,913
 
 (243) 4,670
Total debt securities2,802,034
 1,283
 (39,780) 2,763,537
Equity securities587
 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 agencies2
 
 
 2
U.S. government-sponsored entities190
 
 (1) 189
Residential mortgage-backed securities:       
Agency mortgage-backed securities952
 4
 (4) 952
Agency collateralized mortgage obligations728
 6
 (8) 726
Commercial mortgage-backed securities100
 4
 
 104
States of the U.S. and political subdivisions1,106
 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 agencies2
 
 
 2
U.S. government-sponsored entities215
 
 (4) 211
Residential mortgage-backed securities:       
Agency mortgage-backed securities1,036
 
 (26) 1,010
Agency collateralized mortgage obligations794
 1
 (24) 771
Commercial mortgage-backed securities126
 1
 (1) 126
States of the U.S. and political subdivisions1,080
 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 agencies2,056
 60
 
 2,116
U.S. government-sponsored entities245,017
 
 (6,030) 238,987
Residential mortgage-backed securities:       
Agency mortgage-backed securities1,125,947
 295
 (33,439) 1,092,803
Agency collateralized mortgage obligations840,073
 768
 (34,063) 806,778
Commercial mortgage-backed securities79,124
 7
 (1,555) 77,576
States of the U.S. and political subdivisions1,002,364
 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 entities247,310
 93
 (4,388) 243,015
Residential mortgage-backed securities:       
Agency mortgage-backed securities1,219,802
 3,475
 (9,058) 1,214,219
Agency collateralized mortgage obligations777,146
 32
 (20,095) 757,083
Commercial mortgage-backed securities80,786
 414
 (575) 80,625
States of the U.S. and political subdivisions916,724
 13,209
 (7,130) 922,803
Total debt securities held to maturity$3,242,268
 $17,357
 $(41,246) $3,218,379

GrossThere were no significant gross gains andor 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 years194
 195
 181
 179
Due after five years but within ten years73
 72
 97
 99
Due after ten years100
 100
 988
 1,000
 490
 490
 1,299
 1,311
Residential mortgage-backed securities:       
Agency mortgage-backed securities1,318
 1,315
 952
 952
Agency collateralized mortgage obligations1,233
 1,242
 728
 726
Commercial mortgage-backed securities227
 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 years262,288
 256,488
 201,924
 196,157
Due from five to ten years19,860
 19,709
 95,166
 94,334
Due after ten years84,099
 83,582
 897,390
 858,391
 431,732
 425,050
 1,249,937
 1,204,118
Residential mortgage-backed securities:       
Agency mortgage-backed securities1,626,353
 1,577,596
 1,125,947
 1,092,803
Agency collateralized mortgage obligations863,976
 831,817
 840,073
 806,778
Commercial mortgage-backed securities168,466
 168,324
 79,124
 77,576
Total debt securities$3,090,527
 $3,002,787
 $3,295,081
 $3,181,275


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 borrowings246
 279
Securities pledged as a percent of total securities61.1% 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 borrowings261,140
 263,756
Securities pledged as a percent of total securities57.7% 62.5%


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


TABLE 3.4
Less than 12 Months 12 Months or More TotalLess 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 agencies13
 $95,526
 $(559) 
 $
 $
 13
 $95,526
 $(559)5
 $19
 $
 12
 $74
 $
 17
 $93
 $
U.S. government-sponsored entities5
 106,668
 (1,236) 10
 200,266
 (4,733) 15
 306,934
 (5,969)
Residential mortgage-backed securities:                 
Agency mortgage-backed securities59
 1,145,743
 (30,600) 28
 418,672
 (18,547) 87
 1,564,415
 (49,147)
Agency collateralized mortgage obligations17
 491,313
 (16,023) 33
 292,579
 (16,165) 50
 783,892
 (32,188)
Commercial mortgage-backed securities2
 74,167
 (296) 
 
 
 2
 74,167
 (296)
States of the U.S. and political subdivisions7
 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 AFS103
 $1,924,893
 $(48,769) 75
 $914,249
 $(39,546) 178
 $2,839,142
 $(88,315)
December 31, 2017                 
U.S. government-sponsored entities7
 $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 securities43
 976,738
 (7,723) 28
 473,625
 (9,796) 71
 1,450,363
 (17,519)
 
 
 53
 849
 (6) 53
 849
 (6)
Agency collateralized mortgage obligations14
 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 subdivisions7
 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 AFS71
 $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 agencies20
 $145
 $(1) 
 $
 $
 20
 $145
 $(1)
U.S. government-sponsored entities1
 36
 
 11
 227
 (4) 12
 263
 (4)
Residential mortgage-backed securities:                 
Agency mortgage-backed securities16
 259
 (4) 71
 1,159
 (32) 87
 1,418
 (36)
Agency collateralized mortgage obligations2
 82
 (1) 47
 590
 (22) 49
 672
 (23)
Non-agency collateralized mortgage obligations1
 
 
 
 
 
 1
 
 
Commercial mortgage-backed securities4
 155
 (1) 
 
 
 4
 155
 (1)
States of the U.S. and political subdivisions2
 2
 
 6
 10
 
 8
 12
 
Other debt securities
 
 
 1
 2
 
 1
 2
 
Total temporarily impaired debt securities AFS46
 $679
 $(7) 136
 $1,988
 $(58) 182
 $2,667
 $(65)
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 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 subdivisions1
 4
 
 43
 171
 (5) 44
 175
 (5)
Total temporarily impaired debt securities HTM1
 $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 securities43
 294
 (4) 47
 694
 (22) 90
 988
 (26)
Agency collateralized mortgage obligations3
 42
 
 49
 611
 (24) 52
 653
 (24)
Commercial mortgage-backed securities5
 26
 
 4
 43
 (1) 9
 69
 (1)
States of the U.S. and political subdivisions159
 590
 (27) 51
 161
 (22) 210
 751
 (49)
Total temporarily impaired debt securities HTM210
 $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 entities4
 $54,509
 $(508) 10
 $184,478
 $(5,522) 14
 $238,987
 $(6,030)
Residential mortgage-backed securities:                 
Agency mortgage-backed securities80
 909,762
 (25,390) 11
 164,501
 (8,049) 91
 1,074,263
 (33,439)
Agency collateralized mortgage obligations17
 299,575
 (8,104) 35
 420,914
 (25,959) 52
 720,489
 (34,063)
Commercial mortgage-backed securities8
 54,920
 (884) 4
 21,531
 (671) 12
 76,451
 (1,555)
States of the U.S. and political subdivisions174
 616,117
 (24,296) 37
 110,429
 (17,286) 211
 726,546
 (41,582)
Total temporarily impaired debt securities HTM283
 $1,934,883
 $(59,182) 97
 $901,853
 $(57,487) 380
 $2,836,736
 $(116,669)
December 31, 2017                 
U.S. government-sponsored entities4
 $54,790
 $(239) 10
 $185,851
 $(4,149) 14
 $240,641
 $(4,388)
Residential mortgage-backed securities:                 
Agency mortgage-backed securities36
 648,485
 (4,855) 11
 183,989
 (4,203) 47
 832,474
 (9,058)
Agency collateralized mortgage obligations14
 275,290
 (1,701) 35
 473,257
 (18,394) 49
 748,547
 (20,095)
Commercial mortgage-backed securities3
 26,399
 (123) 2
 19,443
 (452) 5
 45,842
 (575)
States of the U.S. and political subdivisions16
 56,739
 (933) 37
 121,536
 (6,197) 53
 178,275
 (7,130)
Total temporarily impaired debt securities HTM73
 $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, 20182019 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, 20182019 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 industrial4,708
 320
 5,028
Commercial leases385
 
 385
Other37
 
 37
Total commercial loans and leases11,731
 2,551
 14,282
Direct installment1,679
 79
 1,758
Residential mortgages2,573
 449
 3,022
Indirect installment1,968
 
 1,968
Consumer lines of credit1,099
 414
 1,513
Total consumer loans7,319
 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 industrial4,140
 416
 4,556
Commercial leases373
 
 373
Other46
 
 46
Total commercial loans and leases10,730
 3,031
 13,761
Direct installment1,668
 96
 1,764
Residential mortgages2,612
 501
 3,113
Indirect installment1,933
 
 1,933
Consumer lines of credit1,119
 463
 1,582
Total consumer loans7,332
 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 industrial3,797,773
 503,614
 4,301,387
Commercial leases337,397
 
 337,397
Other43,351
 
 43,351
Total commercial loans and leases9,932,888
 3,583,569
 13,516,457
Direct installment1,772,090
 119,990
 1,892,080
Residential mortgages2,297,558
 553,412
 2,850,970
Indirect installment1,746,352
 157
 1,746,509
Consumer lines of credit1,136,293
 517,273
 1,653,566
Total consumer loans6,952,293
 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 industrial3,495,247
 675,420
 4,170,667
Commercial leases266,720
 
 266,720
Other17,063
 
 17,063
Total commercial loans and leases8,953,813
 4,242,501
 13,196,314
Direct installment1,755,713
 149,822
 1,905,535
Residential mortgages2,036,226
 666,465
 2,702,691
Indirect installment1,448,268
 165
 1,448,433
Consumer lines of credit1,151,470
 594,323
 1,745,793
Total consumer loans6,391,677
 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 leases5.3% 5.2%
Commercial real estate:   
Percent owner-occupied31.7% 35.1%
Percent non-owner-occupied68.3% 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 leases5.4% 5.6%
Commercial real estate:   
Percent owner-occupied35.0% 35.3%
Percent non-owner-occupied65.0% 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 Loansin a Business Combination
All loans acquired loansin a business combination were initially recorded at fair value at the acquisition date. Refer to the Loans Acquired Loansin a Business Combination section in Note 1 of our 20172018 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 loansin 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 amount2,998
 3,570
Accounted for under ASC 310-20:   
Outstanding balance504
 602
Carrying amount491
 513
Total loans acquired in a business combination:   
Outstanding balance3,751
 4,370
Carrying amount3,489
 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 amount4,101,583
 4,834,256
Accounted for under ASC 310-20:   
Outstanding balance688,541
 835,130
Carrying amount668,859
 812,322
Total acquired loans:   
Outstanding balance5,075,919
 6,011,145
Carrying amount4,770,442
 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, 20182019 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 loansin a business combination as of each date.
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The following table provides changes in accretable yield for all loans acquired loansin 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 yield58
 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 difference128,955
 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 loansin 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.








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 restructurings19
 21
Total non-performing loans93
 100
Other real estate owned32
 35
Total non-performing assets$125
 $135
Asset quality ratios:   
Non-performing loans / total loans and leases0.41% 0.45%
Non-performing loans + OREO / total loans and leases + OREO0.55% 0.61%
Non-performing assets / total assets0.37% 0.41%
(dollars in thousands)June 30,
2018
 December 31,
2017
Non-accrual loans$68,696
 $74,635
Troubled debt restructurings24,820
 23,481
Total non-performing loans93,516
 98,116
Other real estate owned39,240
 40,606
Total non-performing assets$132,756
 $138,722
Asset quality ratios:   
Non-performing loans / total loans and leases0.43% 0.47%
Non-performing loans + OREO / total loans and leases + OREO0.61% 0.66%
Non-performing assets / total assets0.41% 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, 20182019 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, 20182019 and December 31, 20172018 totaled $12.5$9.9 million and $15.2$8.9 million, respectively.
    


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 industrial5,663
 3
 23,367
 29,033
 3,768,740
 3,797,773
Commercial leases861
 
 1,218
 2,079
 335,318
 337,397
Other163
 204
 1,000
 1,367
 41,984
 43,351
Total commercial loans and leases17,163
 209
 40,237
 57,609
 9,875,279
 9,932,888
Direct installment9,317
 4,028
 7,402
 20,747
 1,751,343
 1,772,090
Residential mortgages10,046
 1,596
 6,882
 18,524
 2,279,034
 2,297,558
Indirect installment7,592
 355
 2,152
 10,099
 1,736,253
 1,746,352
Consumer lines of credit4,187
 1,039
 3,280
 8,506
 1,127,787
 1,136,293
Total consumer loans31,142
 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 industrial8,948
 3
 17,077
 26,028
 3,469,219
 3,495,247
Commercial leases1,382
 41
 1,574
 2,997
 263,723
 266,720
Other83
 153
 1,000
 1,236
 15,827
 17,063
Total commercial loans and leases18,686
 198
 44,424
 63,308
 8,890,505
 8,953,813
Direct installment13,192
 4,466
 8,896
 26,554
 1,729,159
 1,755,713
Residential mortgages14,096
 2,832
 5,771
 22,699
 2,013,527
 2,036,226
Indirect installment10,313
 611
 2,240
 13,164
 1,435,104
 1,448,268
Consumer lines of credit5,859
 1,014
 2,313
 9,186
 1,142,284
 1,151,470
Total consumer loans43,460
 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 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 LeasesOriginated 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 industrial1,620
 3,498
 4,347
 9,465
 526,830
 (32,681) 503,614
7
 
 17
 24
 4,684
 4,708
Total commercial loans22,242
 56,938
 7,578
 86,758
 3,708,387
 (211,576) 3,583,569
Commercial leases4
 
 2
 6
 379
 385
Other
 
 1
 1
 36
 37
Total commercial loans and leases18
 
 47
 65
 11,666
 11,731
Direct installment3,766
 1,131
 
 4,897
 115,496
 (403) 119,990
6
 1
 7
 14
 1,665
 1,679
Residential mortgages10,424
 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 credit7,042
 2,122
 1,165
 10,329
 518,027
 (11,083) 517,273
4
 1
 4
 9
 1,090
 1,099
Total consumer loans21,232
 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 industrial3,187
 6,452
 5,663
 15,302
 698,265
 (38,147) 675,420
5
 
 19
 24
 4,116
 4,140
Total commercial loans38,115
 69,544
 9,638
 117,297
 4,355,417
 (230,213) 4,242,501
Commercial leases1
 
 2
 3
 370
 373
Other
 
 1
 1
 45
 46
Total commercial loans and leases13
 
 39
 52
 10,678
 10,730
Direct installment5,267
 2,013
 
 7,280
 141,386
 1,156
 149,822
8
 
 8
 16
 1,652
 1,668
Residential mortgages17,191
 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 credit6,353
 3,253
 1,353
 10,959
 596,298
 (12,934) 594,323
5
 1
 3
 9
 1,110
 1,119
Total consumer loans28,811
 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 industrial1
 4
 2
 7
 336
 (23) 320
Total commercial loans20
 35
 5
 60
 2,668
 (177) 2,551
Direct installment1
 1
 
 2
 77
 
 79
Residential mortgages12
 4
 
 16
 449
 (16) 449
Consumer lines of credit7
 3
 
 10
 413
 (9) 414
Total consumer loans20
 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 industrial3
 4
 17
 24
 420
 (28) 416
Total commercial loans22
 42
 20
 84
 3,143
 (196) 3,031
Direct installment3
 2
 
 5
 91
 
 96
Residential mortgages13
 6
 
 19
 498
 (16) 501
Consumer lines of credit8
 3
 1
 12
 461
 (10) 463
Total consumer loans24
 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 forLoans acquired loans is based on the contractual balance outstanding at June 30, 2018 and December 31, 2017.
(2)Acquired loansin 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 loansLoans 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 loansin a business combination considered non-accrual or non-performing.
(3)(2)Approximately $28.5 million ofPast due information for loans acquired past-due or non-accrual loans were sold duringin a business combination is based on the second quarter ofcontractual 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
Passin general, the condition of the borrower and the performance of the loan is satisfactory or better
  
Special Mentionin general, the condition of the borrower has deteriorated, requiring an increased level of monitoring
  
Substandardin general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected
  
Doubtfulin general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable
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 industrial4,419
 162
 126
 1
 4,708
Commercial leases375
 4
 6
 
 385
Other36
 
 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 industrial3,879
 180
 81
 
 4,140
Commercial leases366
 1
 6
 
 373
Other45
 
 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 industrial274
 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 industrial355
 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 industrial3,537,536
 176,599
 79,246
 4,392
 3,797,773
Commercial leases326,574
 2,274
 8,549
 
 337,397
Other42,037
 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 industrial3,266,966
 132,975
 92,091
 3,215
 3,495,247
Commercial leases260,235
 4,425
 2,060
 
 266,720
Other15,866
 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 industrial434,731
 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 industrial603,611
 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 loansin a business combination is based on the contractual balance outstanding at June 30, 20182019 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 mortgages2,557
 16
 2,573
Indirect installment1,966
 2
 1,968
Consumer lines of credit1,095
 4
 1,099
Total originated consumer loans$7,283
 $36
 $7,319
December 31, 2018     
Direct installment$1,654
 $14
 $1,668
Residential mortgages2,598
 14
 2,612
Indirect installment1,931
 2
 1,933
Consumer lines of credit1,114
 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 mortgages449
 ���
 449
Consumer lines of credit413
 1
 414
Total consumer loans acquired in a business combination$941
 $1
 $942
December 31, 2018     
Direct installment$96
 $
 $96
Residential mortgages501
 
 501
Consumer lines of credit462
 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 mortgages2,279,790
 17,768
 2,297,558
Indirect installment1,744,007
 2,345
 1,746,352
Consumer lines of credit1,131,322
 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 mortgages2,019,816
 16,410
 2,036,226
Indirect installment1,445,833
 2,435
 1,448,268
Consumer lines of credit1,147,576
 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 mortgages553,412
 
 553,412
Indirect installment157
 
 157
Consumer lines of credit515,659
 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 mortgages666,465
 
 666,465
Indirect installment165
 
 165
Consumer lines of credit592,384
 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 industrial22
 15
 
 15
 1
 17
Commercial leases2
 2
 
 2
 
 2
Total commercial loans and leases55
 38
 6
 44
 3
 43
Direct installment17
 14
 
 14
 
 14
Residential mortgages18
 16
 
 16
 
 15
Indirect installment5
 2
 
 2
 
 2
Consumer lines of credit7
 5
 
 5
 
 5
Total consumer loans47
 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 industrial46
 20
 13
 33
 4
 32
Commercial leases2
 2
 
 2
 
 4
Total commercial loans and leases68
 38
 14
 52
 4
 54
Direct installment17
 14
 
 14
 
 14
Residential mortgages16
 14
 
 14
 
 15
Indirect installment5
 2
 
 2
 
 2
Consumer lines of credit7
 5
 
 5
 
 5
Total consumer loans45
 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 industrial28,738
 13,020
 10,787
 23,807
 4,392
 23,688
Commercial leases1,218
 1,218
 
 1,218
 
 1,309
Other
 
 
 
 
 
Total commercial loans and leases46,384
 28,546
 10,988
 39,534
 4,418
 45,909
Direct installment18,603
 15,793
 
 15,793
 
 15,693
Residential mortgages19,180
 17,768
 
 17,768
 
 16,973
Indirect installment4,579
 2,345
 
 2,345
 
 2,387
Consumer lines of credit6,735
 4,971
 
 4,971
 
 4,741
Total consumer loans49,097
 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 industrial29,307
 11,595
 4,457
 16,052
 3,215
 23,907
Commercial leases1,574
 1,574
 
 1,574
 
 1,386
Other
 
 
 
 
 
Total commercial loans and leases58,599
 34,917
 7,363
 42,280
 3,654
 49,706
Direct installment19,375
 16,653
 
 16,653
 
 16,852
Residential mortgages17,754
 16,410
 
 16,410
 
 15,984
Indirect installment5,709
 2,435
 
 2,435
 
 2,279
Consumer lines of credit5,039
 3,894
 
 3,894
 
 3,815
Total consumer loans47,877
 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, 20182019 and 2017,2018, respectively. The above tables do not reflect the additional allowance for credit losses relating toinclude 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 loansin 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 industrial78
 (415)1
 4
Total commercial loans2,970
 4,561
3
 6
Direct installment562
 1,553
1
 1
Residential mortgages191
 484
1
 
Indirect installment250
 177
Consumer lines of credit(14) (77)
Total consumer loans989
 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-performing16
 3
 19
Non-accrual16
 
 16
Total TDRs$51
 $3
 $54
December 31, 2018     
Accruing:     
Performing$18
 $
 $18
Non-performing17
 4
 21
Non-accrual9
 
 9
Total TDRs$44
 $4
 $48
(in thousands)Originated Acquired Total
June 30, 2018     
Accruing:     
Performing$19,352
 $168
 $19,520
Non-performing21,689
 3,131
 24,820
Non-accrual9,323
 51
 9,374
Total TDRs$50,364
 $3,350
 $53,714
December 31, 2017     
Accruing:     
Performing$19,538
 $266
 $19,804
Non-performing20,173
 3,308
 23,481
Non-accrual10,472
 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 loans529
 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, 20182019 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, 2018Three 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 estate1
 $125
 $122
 1
 $125
 $122
11
 $3
 $4
 12
 $4
 $4
Commercial and industrial13
 862
 780
 13
 2,524
 1,384
2
 4
 3
 13
 5
 4
Total commercial loans14
 987
 902
 14
 2,649
 1,506
13
 7
 7
 25
 9
 8
Direct installment178
 2,372
 2,276
 357
 3,404
 3,209
14
 1
 1
 32
 1
 1
Residential mortgages8
 304
 298
 19
 807
 799
7
 
 
 10
 1
 1
Indirect installment7
 11
 11
 16
 24
 23
Consumer lines of credit22
 382
 298
 41
 709
 513
7
 
 
 14
 
 
Total consumer loans215
 3,069
 2,883
 433
 4,944
 4,544
28
 1
 1
 56
 2
 2
Total229
 $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 estate1
 $
 $
 1
 $
 $
Commercial and industrial13
 1
 1
 13
 3
 2
Total commercial loans14
 1
 1
 14
 3
 2
Direct installment178
 2
 2
 357
 3
 3
Residential mortgages8
 
 
 19
 1
 1
Indirect installment7
 
 
 16
 
 
Consumer lines of credit22
 1
 1
 41
 1
 
Total consumer loans215
 3
 3
 433
 5
 4
Total229
 $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 estate1
 $463
 $463
 2
 $595
 $566
Commercial and industrial2
 4,038
 4,204
 2
 3,542
 4,204
Total commercial loans3
 4,501
 4,667
 4
 4,137
 4,770
Direct installment162
 1,448
 1,301
 333
 2,951
 2,688
Residential mortgages9
 405
 345
 16
 570
 497
Indirect installment4
 15
 14
 9
 31
 27
Consumer lines of credit21
 311
 208
 43
 1,054
 905
Total consumer loans196
 2,179
 1,868
 401
 4,606
 4,117
Total199
 $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 installment41
 $202
 78
 $304
Residential mortgages3
 146
 6
 293
Indirect installment5
 10
 9
 15
Consumer lines of credit2
 56
 3
 252
Total consumer loans51
 414
 96
 864
Total51
 $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 installment41
 $
 78
 $1
Residential mortgages3
 
 6
 
Indirect installment5
 
 9
 
Consumer lines of credit2
 
 3
 
Total consumer loans51
 
 96
 1
Total51
 $
 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 industrial2
 $312
 3
 $326
Total commercial loans2
 312
 3
 326
Direct installment31
 134
 55
 146
Residential mortgages1
 80
 4
 264
Indirect installment6
 19
 10
 19
Consumer lines of credit1
 63
 1
 63
Total consumer loans39
 296
 70
 492
Total41
 $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 industrial53,013
 (6,127) 1,157
 (4,970) 5,646
 53,689
Commercial leases6,115
 (36) 14
 (22) 946
 7,039
Other1,995
 (1,578) 272
 (1,306) 1,307
 1,996
Total commercial loans and leases114,639
 (11,995) 2,208
 (9,787) 8,459
 113,311
Direct installment20,128
 (2,922) 463
 (2,459) 2,610
 20,279
Residential mortgages15,280
 (314) 16
 (298) 181
 15,163
Indirect installment11,955
 (2,218) 974
 (1,244) 2,690
 13,401
Consumer lines of credit10,408
 (1,105) 62
 (1,043) 1,096
 10,461
Total consumer loans57,771
 (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 loans622
 
 
 
 2
 624
Other acquired loans6,215
 (4,076) 680
 (3,396) 516
 3,335
Total allowance on acquired loans6,837
 (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, 2019Three 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 industrial51,963
 (12,047) 1,526
 (10,521) 12,247
 53,689
52
 (3) 1
 (2) 2
 52
Commercial leases5,646
 (207) 24
 (183) 1,576
 7,039
8
 
 
 
 1
 9
Other1,843
 (2,375) 569
 (1,806) 1,959
 1,996
2
 (1) 
 (1) 
 1
Total commercial loans and leases109,733
 (19,108) 3,221
 (15,887) 19,465
 113,311
119
 (5) 2
 (3) 7
 123
Direct installment20,936
 (6,392) 903
 (5,489) 4,832
 20,279
12
 
 
 
 1
 13
Residential mortgages15,507
 (393) 107
 (286) (58) 15,163
19
 (1) 
 (1) 2
 20
Indirect installment11,967
 (4,627) 1,869
 (2,758) 4,192
 13,401
17
 (2) 1
 (1) 2
 18
Consumer lines of credit10,539
 (1,636) 183
 (1,453) 1,375
 10,461
10
 (1) 
 (1) 
 9
Total consumer loans58,949
 (13,048) 3,062
 (9,986) 10,341
 59,304
58
 (4) 1
 (3) 5
 60
Total allowance on originated loans and leases168,682
 (32,156) 6,283
 (25,873) 29,806
 172,615
177
 (9) 3
 (6) 12
 183
Purchased credit-impaired loans635
 
 
 
 (11) 624
1
 
 
 
 
 1
Other acquired loans6,063
 (4,385) 1,403
 (2,982) 254
 3,335
8
 (4) 1
 (3) (1) 4
Total allowance on acquired loans6,698
 (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 industrial49
 (4) 2
 (2) 5
 52
Commercial leases8
 
 
 
 1
 9
Other2
 (2) 
 (2) 1
 1
Total commercial loans and leases114
 (8) 3
 (5) 14
 123
Direct installment14
 (1) 
 (1) 
 13
Residential mortgages20
 (1) 
 (1) 1
 20
Indirect installment15
 (5) 2
 (3) 6
 18
Consumer lines of credit10
 (1) 
 (1) 
 9
Total consumer loans59
 (8) 2
 (6) 7
 60
Total allowance on originated loans and leases173
 (16) 5
 (11) 21
 183
Purchased credit-impaired loans1
 
 
 
 
 1
Other loans acquired in a business combination6
 (7) 1
 (6) 4
 4
Total allowance on loans acquired in a business combination7
 (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 industrial53
 (6) 1
 (5) 6
 54
Commercial leases6
 
 
 
 1
 7
Other2
 (2) 
 (2) 2
 2
Total commercial loans and leases115
 (13) 2
 (11) 9
 113
Direct installment20
 (3) 1
 (2) 3
 21
Residential mortgages15
 
 
 
 
 15
Indirect installment12
 (2) 1
 (1) 3
 14
Consumer lines of credit10
 (1) 
 (1) 1
 10
Total consumer loans57
 (6) 2
 (4) 7
 60
Total allowance on originated loans
and leases
172
 (19) 4
 (15) 16
 173
Purchased credit-impaired loans1
 
 
 
 
 1
Other acquired loans6
 (4) 1
 (3) 
 3
Total allowance on acquired loans7
 (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 industrial52
 (12) 1
 (11) 13
 54
Commercial leases5
 
 
 
 2
 7
Other2
 (3) 1
 (2) 2
 2
Total commercial loans and leases109
 (19) 3
 (16) 20
 113
Direct installment21
 (6) 1
 (5) 5
 21
Residential mortgages16
 (1) 
 (1) 
 15
Indirect installment12
 (4) 2
 (2) 4
 14
Consumer lines of credit10
 (1) 
 (1) 1
 10
Total consumer loans59
 (12) 3
 (9) 10
 60
Total allowance on originated loans and leases168
 (31) 6
 (25) 30
 173
Purchased credit-impaired loans1
 
 
 
 
 1
Other loans acquired in a business combination6
 (5) 2
 (3) 
 3
Total allowance on loans acquired in a business combination7
 (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 industrial53,570
 (7,736) 183
 (7,553) 8,091
 54,108
Commercial leases3,513
 (208) 3
 (205) 814
 4,122
Other1,809
 (821) 353
 (468) 497
 1,838
Total commercial loans and leases105,281
 (9,083) 1,044
 (8,039) 9,784
 107,026
Direct installment20,210
 (3,245) 581
 (2,664) 3,190
 20,736
Residential mortgages10,210
 (182) 10
 (172) 1,214
 11,252
Indirect installment9,630
 (1,966) 614
 (1,352) 2,296
 10,574
Consumer lines of credit8,883
 (583) 150
 (433) 1,054
 9,504
Total consumer loans48,933
 (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 loans660
 (1) 
 (1) (19) 640
Other acquired loans5,908
 (74) 896
 822
 (763) 5,967
Total allowance on acquired loans6,568
 (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 industrial47,991
 (10,199) 657
 (9,542) 15,659
 54,108
Commercial leases3,280
 (714) 4
 (710) 1,552
 4,122
Other1,392
 (1,794) 680
 (1,114) 1,560
 1,838
Total commercial loans and leases99,298
 (14,013) 2,207
 (11,806) 19,534
 107,026
Direct installment21,391
 (6,119) 1,209
 (4,910) 4,255
 20,736
Residential mortgages10,082
 (362) 171
 (191) 1,361
 11,252
Indirect installment10,564
 (4,336) 1,395
 (2,941) 2,951
 10,574
Consumer lines of credit9,456
 (1,041) 315
 (726) 774
 9,504
Total consumer loans51,493
 (11,858) 3,090
 (8,768) 9,341
 52,066
Total allowance on originated loans and leases150,791
 (25,871) 5,297
 (20,574) 28,875
 159,092
Purchased credit-impaired loans572
 (1) 
 (1) 69
 640
Other acquired loans6,696
 (556) 1,165
 609
 (1,338) 5,967
Total allowance on acquired loans7,268
 (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 industrial1
 51
 4,708
 7
 4,701
Commercial leases
 9
 385
 
 385
Other
 1
 37
 
 37
Total commercial loans and leases3
 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 industrial4
 49
 4,140
 11
 4,129
Commercial leases
 9
 373
 
 373
Other
 2
 46
 
 46
Total commercial loans and leases4
 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 industrial4,392
 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 leases4,418
 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 industrial3,215
 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 leases3,654
 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 loansin 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
Additions3,315
 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 period38,603
 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 rate9.9% 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
Additions258
 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 period4,894
 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 rate15.08
 
 
 (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 rate15.1
 
 
 
 
 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 cost1
 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 leases4
Weighted average remaining lease term (years): 
Operating leases8.73
Weighted average discount rate: 
Operating leases3.1%

Maturities of operating lease liabilities were as follows:
TABLE 7.3
(in millions)June 30,
2019
2019$13
202023
202120
202215
202311
Later years53
Total lease payments135
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 advances1,620
 2,230
Federal funds purchased1,752
 1,535
Subordinated notes108
 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 advances2,800,000
 2,285,000
Federal funds purchased1,165,000
 1,000,000
Subordinated notes129,342
 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, 20182019 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 notes88
 87
Junior subordinated debt66
 111
Other subordinated debt249
 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 notes88,762
 87,614
Junior subordinated debt110,587
 110,347
Other subordinated debt159,544
 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, 20182019 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 SheetSheets 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 I25
 1
 22
 12/15/2037 3.73% LIBOR + 132 bps
FNB Financial Services Capital Trust I25
 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 I26,000
 1,114
 26,493
 10/18/2034 4.55% LIBOR + 219 bps
Yadkin Valley Statutory Trust I25,000
 774
 20,987
 12/15/2037 3.66% LIBOR + 132 bps
FNB Financial Services Capital Trust I25,000
 774
 21,916
 9/30/2035 3.80% LIBOR + 146 bps
American Community Capital Trust II10,000
 310
 10,444
 12/15/2033 5.11% LIBOR + 280 bps
Crescent Financial Capital Trust I8,000
 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 designated3,151
 
 24
 2,740
 2
 10
Equity contracts – not designated
 
 
 1
 
 
Total subject to master netting arrangements4,506
 1
 25
 3,896
 2
 13
Not subject to master netting arrangements:           
Interest rate swaps – not designated3,151
 145
 1
 2,740
 40
 26
Interest rate lock commitments – not designated130
 3
 
 47
 1
 
Forward delivery commitments – not designated185
 
 1
 55
 
 
Credit risk contracts – not designated230
 
 
 203
 
 
Equity contracts – not designated
 
 
 1
 
 
Total not subject to master netting arrangements3,696
 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 designated2,542,255
 4,755
 7,974
 2,245,442
 1,169
 11,599
Equity contracts – not designated1,180
 30
 
 1,180
 51
 
Total subject to master netting arrangements3,398,435
 4,785
 12,346
 2,951,622
 1,448
 13,581
Not subject to master netting arrangements:           
Interest rate swaps – not designated2,542,255
 14,219
 53,724
 2,245,442
 27,233
 15,303
Interest rate lock commitments – not designated91,659
 1,662
 7
 88,107
 1,594
 5
Forward delivery commitments – not designated107,830
 221
 336
 106,572
 233
 148
Credit risk contracts – not designated243,297
 
 
 235,196
 39
 109
Equity contracts – not designated1,180
 
 30
 1,180
 
 51
Total not subject to master netting arrangements2,986,221
 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, certainCertain 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 sevencertain 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. AnyPrior 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
 $705,000
Fair value included in other assets
 228
Fair value included in other liabilities4,372
 1,982
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The following table shows amounts reclassified from accumulated other comprehensive income forincome:
TABLE 9.2
 Amount of Gain (Loss) Recognized in OCI on Derivatives Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income
 Six Months Ended
June 30,
   Six Months Ended
June 30,
(in millions)2019 2018   2019 2018
Derivatives in cash flow hedging relationships:         
   Interest rate contracts$(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 ($2.72.2 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, 20182019 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 intoA 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 associatedcontracts 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 exposureSEC 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 assets18,974
 28,402
Fair value included in other liabilities61,698
 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, 20182019 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, 20182019 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, 2018June 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 swapsNon-interest income - other $
 $1
Interest rate lock commitmentsMortgage banking operations 
 
Forward delivery contractsMortgage banking operations (1) 1
Credit risk contractsNon-interest income - other 
 

Counterparty Credit Risk
We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash to our clearing agency. Collateral positions are settled or valued daily, and adjustments to amounts received and pledged by us are made as appropriate to maintain proper collateralization for these transactions.
Certain master netting agreements contain provisions that, if violated, could cause the counterparties to request immediate settlement or demand full collateralization under the derivative instrument. If we had breached our agreements with our derivative counterparties we would be required to settle our obligations under the agreements at the termination value and would be required to pay an additional $0.4$0.5 million and $0.9$0.7 million as of June 30, 20182019 and December 31, 2017,2018, respectively, in excess of amounts previously posted as collateral with the respective counterparty.











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

TABLE 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 designated24
 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 designated4,755
 4,704
 
 51
Equity contracts – not designated30
 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 designated7,974
 7,579
 
 395
Total$12,346
 $11,951
 $
 $395

Derivative Liabilities       
Interest rate contracts:       
Designated$3
 $3
 $
 $
Not designated10
 9
 
 1
Total$13
 $12
 $
 $1

December 31, 2017       
Derivative Assets       
Interest rate contracts:       
Designated$228
 $228
 $
 $
Not designated1,169
 1,169
 
 
Equity contracts – not designated51
 51
 
 
Total$1,448
 $1,448
 $
 $

Derivative Liabilities       
Interest rate contracts:       
Designated$1,982
 $1,982
 $
 $
Not designated11,599
 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 ContractsInterest income - loans and leases $25
 $900
Interest Rate ContractsInterest expense – short-term borrowings (902) 652
Interest Rate SwapsOther income 1,259
 (465)
Credit Risk ContractsOther income 70
 21


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 credit137
 126


(in thousands)June 30,
2018
 December 31,
2017
Commitments to extend credit$7,223,071
 $6,957,822
Standby letters of credit137,054
 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

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 2,333,0891,625,682 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 units1,128,701
 937,155
Weighted average grant date fair values$12
 $12

 Six Months Ended
June 30,
(dollars in thousands)2018 2017
Restricted stock units937,155
 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 period2,556,174
 $13.51
 1,975,862
 $13.64
Granted1,128,701
 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 reinvestment51,679
 11.63
 38,129
 14.02
Unvested units outstanding at end of period2,781,415
 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 period1,975,862
 $13.64
 1,836,363
 $12.97
Granted937,155
 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 reinvestment38,129
 14.02
 28,454
 14.49
Unvested units outstanding at end of period2,512,711
 13.56
 1,965,787
 13.65


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 expense1
 1
Fair value of units vested7
 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 expense987
 1,385
Fair value of units vested3,472
 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, 20182019 are as follows:

TABLE 11.4
(dollars in millions)
Service-
Based
Units
 
Performance-
Based
Units
 Total
Unvested restricted stock units1,863,588
 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 units1,449,400
 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 period458,354
 $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 period411,880
 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 period722,650
 $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 period520,662
 7.96
 888,070
 8.72

The intrinsic value of outstanding and exercisable stock options at June 30, 20182019 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.


    


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 cost1,560
 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 loss623
 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.




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 taxes1,045
 1,086
 2,749
 1,585
1
 1
 3
 3
Total current income taxes6,794
 7,688
 26,198
 14,875
10
 7
 30
 26
Deferred income taxes:              
Federal taxes13,256
 22,460
 15,158
 24,150
13
 13
 15
 15
State taxes421
 (531) 383
 (2,924)1
 1
 1
 1
Total deferred income taxes13,677
 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 rate21.0% 35.0% 21.0% 35.0%21.0% 21.0% 21.0% 21.0%
Effective tax rate19.4% 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 lowerhigher effective tax rate forin 2019 is partially due to the six months ended June 30, 2017 primarily related to merger expenses and an increaseimpact from non-vesting stock compensation awards in the level of tax credits.
In the fourthsecond 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 ourNet 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 reclassifications54
 (20) 1
 35
Amounts reclassified from AOCI
 (1) 
 (1)
Net current period other comprehensive (loss) income54
 (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)
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The amounts reclassified from AOCI related to debt securities available for saleAFS 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 saleAFS 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 dividends2
 2
 4
 4
Net income available to common stockholders$93
 $83
 $185
 $168
Basic weighted average common shares outstanding324,950,162
 324,170,177
 324,796,294
 323,956,752
Net effect of dilutive stock options, warrants and restricted stock999,191
 1,559,872
 900,927
 1,772,440
Diluted weighted average common shares outstanding325,949,353
 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 dividends2,010
 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 outstanding324,170,177
 323,303,460
 323,956,752
 280,578,720
Net effect of dilutive stock options, warrants and restricted stock1,559,872
 1,564,299
 1,772,440
 1,706,762
Diluted weighted average common shares outstanding325,730,049
 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 calculation72
 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 paid25
 6
Transfers of loans to other real estate owned3
 8
Loans transferred to held for sale from portfolio389
 

 Six Months Ended
June 30,
 2018 2017
(in thousands)   
Interest paid on deposits and other borrowings$98,926
 $51,611
Income taxes paid6,000
 43,500
Transfers of loans to other real estate owned7,967
 22,451


NOTE 17.16.    BUSINESS SEGMENTS
We operate in fourthree 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.
TheWe also previously operated a Consumer Finance segment, which is no longer a reportable segment. This segment primarily makesmade installment loans to individuals and purchasespurchased 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 subsidiaryOn 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 selloperations, 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 thisThis 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 fitno longer fits with our core business. Regency's financial information is included in the Consumer Finance segment in the 2018 tables that follows.
    


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 expense81
 
 
 
 6
 87
Net interest income235
 
 
 
 (5) 230
Provision for credit losses11
 
 
 
 
 11
Non-interest income61
 12
 4
 
 (2) 75
Non-interest expense (1)
157
 9
 4
 
 2
 172
Amortization of intangibles3
 
 
 
 
 3
Income tax expense (benefit)24
 1
 
 
 (1) 24
Net income (loss)101
 2
 
 
 (8) 95
Total assets33,785
 27
 35
 
 56
 33,903
Total intangibles2,297
 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 expense50,118
 
 
 885
 3,759
 54,762
50
 
 
 1
 3
 54
Net interest income234,650
 
 19
 8,464
 (3,778) 239,355
235
 
 
 8
 (3) 240
Provision for credit losses13,277
 
 
 2,277
 
 15,554
14
 
 
 2
 
 16
Non-interest income51,137
 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 intangibles3,699
 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 assets32,034,457
 25,152
 22,114
 167,678
 8,162
 32,257,563
32,035
 25
 22
 168
 8
 32,258
Total intangibles2,311,429
 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 expense28,414
 
 
 888
 3,317
 32,619
Net interest income213,503
 
 19
 9,226
 (4,333) 218,415
Provision for credit losses14,738
 
 
 2,018
 
 16,756
Non-interest income53,031
 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 intangibles4,694
 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 assets30,487,402
 22,028
 22,311
 183,859
 38,126
 30,753,726
Total intangibles2,322,326
 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 expense157
 
 
 
 9
 166
Net interest income469
 
 
 
 (8) 461
Provision for credit losses25
 
 
 
 
 25
Non-interest income112
 23
 9
 
 (4) 140
Non-interest expense (1)
304
 18
 8
 
 4
 334
Amortization of intangibles7
 
 
 
 
 7
Income tax expense (benefit)47
 1
 
 
 (2) 46
Net income (loss)198
 4
 1
 
 (14) 189
Total assets33,785
 27
 35
 
 56
 33,903
Total intangibles2,297
 10
 29
 
 
 2,336
At or for the Six Months Ended June 30, 2018           
Interest income$548
 $
 $
 $19
 $
 $567
Interest expense92
 
 
 2
 7
 101
Net interest income456
 
 
 17
 (7) 466
Provision for credit losses26
 
 
 4
 
 30
Non-interest income104
 22
 8
 1
 (3) 132
Non-interest expense (1)
308
 17
 8
 10
 3
 346
Amortization of intangibles8
 
 
 
 
 8
Income tax expense (benefit)43
 1
 
 1
 (3) 42
Net income (loss)175
 4
 
 3
 (10) 172
Total assets32,035
 25
 22
 168
 8
 32,258
Total intangibles2,311
 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 expense92,478
 
 
 1,795
 7,311
 101,584
Net interest income455,877
 
 39
 16,848
 (7,304) 465,460
Provision for credit losses25,689
 
 
 4,360
 
 30,049
Non-interest income104,449
 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 intangibles7,804
 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 assets32,034,457
 25,152
 22,114
 167,678
 8,162
 32,257,563
Total intangibles2,311,429
 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 expense47,279
 
 
 1,810
 5,471
 54,560
Net interest income380,019
 
 39
 18,206
 (7,097) 391,167
Provision for credit losses23,802
 
 
 3,804
 
 27,606
Non-interest income93,748
 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 intangibles7,676
 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 assets30,487,402
 22,028
 22,311
 183,859
 38,126
 30,753,726
Total intangibles2,322,326
 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 theour 2018 Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 28, 201826, 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 fund177
 
 
 177
Financial services industry
 995
 
 995
Total marketable equity securities177
 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 fund161
 
 
 161
Financial services industry
 864
 
 864
Total equity securities available for sale161
 864
 
 1,025
Total securities available for sale161
 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:         
Purchases12,048
 
 
 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 20172018 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, 20182019 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, 20182019 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 usedRefer 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 theour 2018 Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 28, 201826, 2019 for a description of valuation methodologies for derivative assetsmethods 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’ abilityassumptions 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 ofestimate 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.
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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 sale3,279
 3,279
 
 3,279
 
Debt securities held to maturity3,079
 3,093
 
 3,093
 
Net loans and leases, including loans held for sale22,687
 22,576
 
 39
 22,537
Loan servicing rights42
 44
 
 
 44
Derivative assets149
 149
 
 146
 3
Accrued interest receivable113
 113
 113
 
 
Financial Liabilities         
Deposits23,731
 23,735
 18,247
 5,488
 
Short-term borrowings3,711
 3,714
 3,714
 
 
Long-term borrowings1,338
 1,341
 
 
 1,341
Derivative liabilities27
 27
 
 27
 
Accrued interest payable26
 26
 26
 
 
December 31, 2018         
Financial Assets         
Cash and cash equivalents$488
 $488
 $488
 $
 $
Debt securities available for sale3,341
 3,341
 
 3,341
 
Debt securities held to maturity3,254
 3,155
 
 3,155
 
Net loans and leases, including loans held for sale21,995
 21,742
 
 14
 21,728
Loan servicing rights41
 45
 
 
 45
Derivative assets43
 43
 
 42
 1
Accrued interest receivable101
 101
 101
 
 
Financial Liabilities         
Deposits23,455
 23,411
 18,142
 5,269
 
Short-term borrowings4,129
 4,130
 4,130
 
 
Long-term borrowings627
 618
 
 
 618
Derivative liabilities39
 39
 
 39
 
Accrued interest payable20
 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 sale3,002,787
 3,002,787
 
 3,002,787
 
Debt securities held to maturity3,295,081
 3,181,275
 
 3,181,275
 
Net loans and leases, including loans held for sale21,527,120
 21,163,711
 
 28,213
 21,135,498
Loan servicing rights37,864
 43,497
 
 
 43,497
Marketable equity securities1,172
 1,172
 177
 995
 
Derivative assets20,887
 20,887
 
 19,225
 1,662
Accrued interest receivable93,210
 93,210
 93,210
 
 
Financial Liabilities         
Deposits22,539,787
 22,481,472
 17,668,799
 4,812,673
 
Short-term borrowings4,334,146
 4,334,835
 4,334,835
 
 
Long-term borrowings628,938
 624,104
 
 
 624,104
Derivative liabilities66,443
 66,443
 
 66,436
 7
Accrued interest payable15,138
 15,138
 15,138
 
 
December 31, 2017         
Financial Assets         
Cash and cash equivalents$479,443
 $479,443
 $479,443
 $
 $
Securities available for sale2,764,562
 2,764,562
 161
 2,764,401
 
Debt securities held to maturity3,242,268
 3,218,379
 
 3,218,379
 
Net loans and leases, including loans held for sale20,916,277
 20,661,196
 
 56,458
 20,604,738
Loan servicing rights34,111
 37,758
 
 
 37,758
Derivative assets30,547
 30,547
 
 28,953
 1,594
Accrued interest receivable94,254
 94,254
 94,254
 
 
Financial Liabilities         
Deposits22,399,725
 22,359,182
 17,779,246
 4,579,936
 
Short-term borrowings3,678,337
 3,678,723
 3,678,723
 
 
Long-term borrowings668,173
 675,489
 
 
 675,489
Derivative liabilities29,197
 29,197
 
 29,192
 5
Accrued interest payable12,480
 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 AnalysisMD&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, 20182019 and 2017.2018. This Discussion and AnalysisMD&A should be read in conjunction with the Consolidated Financial Statements and notesNotes thereto contained herein and our 20172018 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, 20182019 are not necessarily indicative of results expected for the full year.


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
A number ofWe make statements in this Report and may contain forward-lookingfrom time-to-time make other statements within the meaning of the Private Securities Litigation Reform Act of 1995 includingregarding our expectations relative tooutlook 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 expectationoperations 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 expressedmay 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 certainvarious assumptions, risks and uncertainties. In additionuncertainties 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 actualprincipal 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 CutsU.S. and Jobs Act or tariffs implementedglobal financial markets; (ii) actions by the Federal Reserve Board, U.S. President;changes inTreasury Department, Office of the Comptroller of the Currency and other governmental agencies, especially those that impact money supply, market interest rates or anticipated impactotherwise affect business activities of accountingthe financial services industry; (iii) a slowing or reversal of current U.S. economic expansion; and (iv) the impacts of tariffs or other trade policies standardsof the U.S. or its global trading partners.
Business and interpretations;operating results are affected by our ability to maintain adequateidentify 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 fundanticipate 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 initiationeconomy 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 usoperations, 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 limitedability to actions by federal or state authoritiesattract 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 20182019 Quarterly Reports on Form 10-Q's10-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 OperationsMD&A section of our 20172018 Annual Report on Form 10-K filed with the SEC on February 28, 201826, 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 consolidationsconsolidation charges principally represent expenses to satisfy contractual obligations of the acquired entity or closed branchbranches 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 equivalentTaxable-equivalent amounts for the 2019 and 2018 periodperiods 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 wasof $83.2 million or $0.26 per diluted common share. On an operating basis, second quarter of 2018 earnings2019 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 20182019 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 interestnon-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 9declined 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 expenseincome increased $5.6$10.0 million, or 15.6%15.3%. Capital markets income grew 68.6%, primarilyreflecting 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-taxa $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%, comparedprovision 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 increaseddecreased to 0.16%, compared to 0.34%, compared to 0.23%, with the increase primarily related toindicative 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, 20182019 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 $1.3grew $1.4 billion, or 6.3%6.1%, which includedcompared to the second quarter of 2018 including an increase in average non-interest bearingnon-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 pointsremained 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.


RESULTS OF OPERATIONS


Three Months Ended June 30, 20182019 Compared to the Three Months Ended June 30, 20172018
Net income available to common stockholders for the three months ended June 30, 20182019 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, 20172018 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 influencingimpacting 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 Change2019 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 losses15,554
 16,756
 (1,202) (7.2)11,478
 15,554
 (4,076) (26.2)
Non-interest income64,889
 66,078
 (1,189) (1.8)74,840
 64,889
 9,951
 15.3
Non-interest expense183,013
 163,714
 19,299
 11.8
175,237
 183,013
 (7,776) (4.2)
Income taxes20,471
 29,617
 (9,146) (30.9)23,345
 20,471
 2,874
 14.0
Net income85,206
 74,406
 10,800
 14.5
95,187
 85,206
 9,981
 11.7
Less: Preferred stock dividends2,010
 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 – Diluted0.26
 0.22
 0.04
 18.2
0.29
 0.26
 0.03
 11.5
Cash dividends per common share0.12
 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 20172019 2018
Return on average equity7.66% 6.80%8.09% 7.66%
Return on average tangible common equity (2)
17.14% 15.69%16.84% 17.14%
Return on average assets1.07% 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 assets14.00% 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 ratio47.13% 53.89%42.19% 47.13%
Average equity to average assets13.97% 14.45%
(1) Period-end
(2) Non-GAAP
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The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities:
TABLE 3
Three Months Ended June 30,Three Months Ended June 30,
2018 20172019 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 sale46,667
 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 banks359,714
     338,752
    365,824
     359,714
    
Allowance for credit losses(182,598)     (165,888)    (190,182)     (182,598)    
Premises and equipment331,739
     350,255
    329,381
     331,739
    
Other assets3,685,512
     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
Savings2,620,084
 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 time4,811,842
 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 borrowings4,098,161
 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 borrowings650,562
 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 liabilities21,468,460
 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 demand5,764,144
     5,466,286
    6,069,106
     5,764,144
    
Other liabilities253,637
     255,931
    354,885
     253,637
    
Total liabilities27,486,241
     25,978,207
    29,010,391
     27,486,241
    
Stockholders’ equity4,461,510
     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.
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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 $19.8decreased $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, due2018, 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 shownmargin 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 NetVolume 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 demand222
 5,213
 5,435
1,550
 9,891
 11,441
Savings185
 664
 849
60
 613
 673
Certificates and other time2,519
 5,492
 8,011
2,433
 8,821
 11,254
Short-term borrowings645
 6,805
 7,450
(1,733) 5,464
 3,731
Long-term borrowings(203) 600
 397
3,269
 697
 3,966
Total interest expense3,368
 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 strongsolid 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
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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 linelines 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 higherprevalent in the first quartersecond 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 20172018 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 20182019 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 $211.8decreased $381.5 million, or 5.4%9.3%, primarily as a result of an increasedecreases 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 $29.9increased $431.8 million, or 4.4%66.4%, primarily as a resultresulting 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 resultingin 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 andcombined 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 Change2019 2018 Change Change
Provision for credit losses:              
Originated$15,036
 $17,538
 $(2,502) (14.3)%$12,256
 $15,036
 $(2,780) (18.5)%
Acquired518
 (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)%
Acquired3,396
 (821) 4,217
 (513.6)
Loans acquired in a business combination3,611
 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 leases0.34% 0.23%    0.16% 0.34%    
Net originated loan charge-offs (annualized) / total average originated loans and leases0.36% 0.38%    0.11% 0.36%    

The provision for credit losses of $15.6$11.5 million during the second quarter of 20182019 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 increasea decrease of $6.4 million,$9.2 million. These declines were primarily relateddue 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.


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Non-Interest Income
The breakdown of non-interest income for the three months ended June 30, 20182019 and 20172018 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 services6,469
 5,715
 754
 13.2
7,018
 6,469
 549
 8.5
Insurance commissions and fees4,567
 4,347
 220
 5.1
4,411
 4,567
 (156) (3.4)
Securities commissions and fees4,526
 3,887
 639
 16.4
4,671
 4,526
 145
 3.2
Capital markets income5,854
 5,004
 850
 17.0
9,867
 5,854
 4,013
 68.6
Mortgage banking operations5,940
 5,173
 767
 14.8
7,613
 5,940
 1,673
 28.2
Dividends on non-marketable equity securities4,135
 3,811
 324
 8.5
Bank owned life insurance3,077
 3,092
 (15) (0.5)3,103
 3,077
 26
 0.8
Net securities gains31
 493
 (462) (93.7)
 31
 (31) (100.0)
Other3,311
 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 $1.2increased $10.0 million, to $64.9$74.8 million for the second quarter of 2018,2019, a 1.8% decrease15.3% 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 loss2018. Excluding branch consolidation-related losses on fixed assets related to branch consolidations, offset by continued growth in trust services, securities commissionsof $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 decreased2019 increased $1.0 million, or 3.0%3.1%, from the same period of 2017. The decrease is2018, primarily due to a reductionorganic 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 20182019 increased $0.8$0.5 million, or 13.2%8.5%, from the same period of 20172018, 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, 20179.2%, 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 feesCapital markets income of $4.5$9.9 million for the second quarter of 20182019 increased 16.4%$4.0 million, or 68.6%, from the same period of 2017. This2018. The significant increase reflects the benefit of increased brokerage activity partiallywas 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 marketsMortgage banking operations income of $5.9$7.6 million for the second quarter of 20182019 increased $0.9$1.7 million, or 17.0%28.2%, from the same period of 2017, reflecting increased syndication fees2018 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 activitycorrespondent, 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 $304.72019 included a $0.5 million loss on the sale of originated residential mortgage loans, a 26.7% increasefixed 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 $3.72018. Additionally, we recognized $0.5 million lossless in gain on fixed assets related to branch consolidationsthe sale of SBA loans during the second quarter of 2019, compared to the same period of 2018.






The breakdown offollowing table presents non-interest income excluding the significant item for the three months ended June 30, 20182019 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 consolidations3,677
 
 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, 20182019 and 20172018 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 occupancy16,149
 14,060
 2,089
 14.9
15,593
 16,149
 (556) (3.4)
Equipment13,183
 12,420
 763
 6.1
15,473
 13,183
 2,290
 17.4
Amortization of intangibles3,811
 4,813
 (1,002) (20.8)3,479
 3,811
 (332) (8.7)
Outside services17,045
 13,483
 3,562
 26.4
16,110
 17,045
 (935) (5.5)
FDIC insurance9,167
 9,376
 (209) (2.2)6,013
 9,167
 (3,154) (34.4)
Bank shares and franchise taxes3,240
 2,742
 498
 18.2
3,130
 3,240
 (110) (3.4)
Merger-related
 1,354
 (1,354) (100.0)
Other21,747
 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 $19.32019 decreased $7.8 million, an 11.8% increasea 4.2% decrease from the same period of 2017.2018. Excluding significant items influencing earningsbranch 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 $16.8totaled $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 $13.82019 decreased $4.4 million, or 16.2%4.4%, from the same period of 2017,2018, primarily due toas a large medical insurance claim of $2.6 million, normal employee merit raises and restricted stock awards at the startresult 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 plusof 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 20182019 increased $2.9$1.7 million, or 10.8%5.9%, from $29.3 million from the same period of 2017, primarily due2018. The second quarter of 2019 included $2.2 million relating to branch consolidation costs.
Amortization of intangibles expense of $3.8costs, 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 $3.62019 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 milliondecreases 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.
Tableconsulting 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 increaseexpense 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 offollowing table presents non-interest expense excluding significant items for the three months ended June 30, 20182019 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 20172019 2018
Income tax expense$20,471
 $29,617
$23,345
 $20,471
Effective tax rate19.4% 28.5%19.7% 19.4%
Statutory tax rate21.0% 35.0%
Statutory federal tax rate21.0% 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 forin 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, 20182019 Compared to the Six Months Ended June 30, 20172018
Net income available to common stockholders for the six months ended June 30, 20182019 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 consolidationsconsolidation 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 20182019, 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
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2018 was impacted by the TCJA, including a change to a 21% statutory rate, while the first six months of 2017 was impacted by merger-related expenses. Average diluted common shares outstanding increased 43.4 million shares, or 15.4%, to 325.7 million shares for the first six months of 2018, primarily as a result of the YDKN acquisition, for which we issued 111.6 million shares on March 11, 2017.. The major categories of the 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 Change2019 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 losses30,049
 27,606
 2,443
 8.8
25,107
 30,049
 (4,942) (16.4)
Non-interest income132,392
 121,194
 11,198
 9.2
140,225
 132,392
 7,833
 5.9
Non-interest expense354,096
 351,269
 2,827
 0.8
340,979
 354,096
 (13,117) (3.7)
Income taxes41,739
 36,101
 5,638
 15.6
45,825
 41,739
 4,086
 9.8
Net income171,968
 97,385
 74,583
 76.6
189,314
 171,968
 17,346
 10.1
Less: Preferred stock dividends4,020
 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 – Diluted0.52
 0.33
 0.19
 57.6
0.57
 0.52
 0.05
 9.6
Cash dividends per common share0.24
 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 20172019 2018
Return on average equity7.80% 5.31%8.15% 7.80%
Return on average tangible common equity (2)
17.57% 11.51%17.11% 17.57%
Return on average assets1.09% 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 assets13.96% 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 ratio46.61% 69.15%42.37% 46.61%
Average equity to average assets14.02% 13.59%
(1) Period-end
(2) Non-GAAP
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The following table provides information regarding the average balances and yields earned on interest-earning assets (non-GAAP) and the average balances and rates paid on interest-bearing liabilities:
TABLE 13          
Six Months Ended June 30,Six Months Ended June 30,
2018 20172019 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 sale56,229
 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 banks359,218
     316,867
    371,703
     359,218
    
Allowance for credit losses(181,544)     (163,642)    (186,850)     (181,544)    
Premises and equipment334,264
     312,292
    330,711
     334,264
    
Other assets3,671,193
     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
Savings2,578,492
 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 time4,724,920
 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 borrowings4,042,020
 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 borrowings655,737
 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 liabilities21,339,183
 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 demand5,686,324
     4,943,226
    5,981,427
     5,686,324
    
Other liabilities250,898
     220,574
    368,152
     250,898
    
Total liabilities27,276,405
     23,529,829
    28,884,577
     27,276,405
    
Stockholders’ equity4,445,976
     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)The interest income amounts are reflected on an FTE basis (non-GAAP), which adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 21% in 2018 and 35% in 2017.. The yield on earning assets and the net interest margin are presented on an FTE basis. We believe this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.
(3)Average balances include non-accrual loans. Loans and leases consist of average total loans less average unearned income.
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Net Interest Income
For the six months ended June 30, 2018, net interest income, which comprised 77.9% of revenue compared to 76.3% for the same period in 2017, was affected by the general level of interest rates, changes in interest rates, the timing of repricing of assets and liabilities, the shape of the yield curve, the level of non-accrual loans and changes in the amount and mix of interest-earning assets and interest-bearing liabilities.
Net interest income on an FTE basis (non-GAAP) increased $72.7decreased $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$1.2 billion, or 16.2%5.6%, from the first six months of 20172018 due to the YDKN acquisition and organic growth in loans and deposits. Our net interest margin FTE (non-GAAP) was 3.45%contracted 22 basis points to 3.23% for the first six months of 2018,2019, compared to 3.39%3.45% for the same period of 2017, due2018, primarily reflecting the sale of Regency in the third quarter of 2018 and a lower level of purchase accounting benefit. Regency contributed 12 basis points to the net interest margin in the first half of 2018. The decline also reflected higher funding costs as the FOMC increased the target Fed Funds rate 75 basis points between March 31, 2018 and June 30, 2019, increased deposit price competition and a higher interest rate environment, as well as higher24 basis point decrease in the contribution from incremental purchase accounting accretion. The tax-equivalent adjustments (non-GAAP)Incremental purchase accounting accretion refers to netthe difference between total accretion and the estimated coupon interest income from amounts reported on our financial statements are shownloans acquired in the preceding table.a business combination.
The following table provides certain information regarding changes in net interest income on an FTE basis (non-GAAP) attributable to changes in the average volumes and yields earned on interest-earning assets and the average volume and rates paid for interest-bearing liabilities for the six months ended June 30, 2018,2019, compared to the six months ended June 30, 2017:2018:
TABLE 14
(in thousands)Volume Rate NetVolume Rate Net
Interest Income(1)          
Interest-bearing deposits with banks$(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 sale66
 (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 demand2,144
 9,915
 12,059
2,130
 21,419
 23,549
Savings164
 1,197
 1,361
270
 1,440
 1,710
Certificates and other time7,181
 8,424
 15,605
4,836
 17,181
 22,017
Short-term borrowings2,896
 13,087
 15,983
(35) 14,369
 14,334
Long-term borrowings790
 1,226
 2,016
2,676
 (326) 2,350
Total interest expense13,175
 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, primarily2018, 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 reflectsdue 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 benefitCleveland, 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 YDKNof $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 20172018 to 4.19%4.37% for the first six months of 2018. The 34 basis points increase in earning asset yield
Table2019, reflecting repricing of Contents

was driven by an increase in yields in both investmentsvariable and adjustable loans, including higher incremental purchase accounting accretion, andlower 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 20182019 increased $47.0$64.0 million, or 86.2%63.0%, from the same quarter of 20172018 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-termlong-term borrowings increased $495.9$217.4 million, or 14.0%33.2%, primarily as a result ofwhich reflects increases of $152.1$167.1 million in short-termlong-term FHLB borrowings and $358.2$71.3 million in federal funds purchased. Average long-term borrowings increased $47.7subordinated debt, partially offset by a decrease of $19.7 million or 7.9%, primarily as a resultin junior subordinated debt. During the first quarter of increases2019, we issued $120.0 million of $23.9 million and $22.64.950% 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, assumeddebt. 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 CommitteeFOMC 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 Change2019 2018 Change Change
Provision for credit losses:              
Originated$29,806
 $28,875
 $931
 3.2 %$21,493
 $29,806
 $(8,313) (27.9)%
Acquired243
 (1,269) 1,512
 (119.1)
Loans acquired in a business combination3,614
 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)%
Acquired2,982
 (608) 3,590
 (590.5)
Loans acquired in a business combination6,438
 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 leases0.27% 0.22%    0.15% 0.27%    
Net originated loan charge-offs (annualized) / total average originated loans and leases0.33% 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 $2.42019 decreased $4.9 million from the same period of 2017, primarily due to an increase2018, supporting strong loan growth and exceeding net charge-offs of $0.9$16.6 million, in theor 0.15% annualized of total average loans. The provision for the originated portfolio which was primarily attributable to higher organic loan growthdecreased $8.3 million, while the provision for loans acquired in a business combination increased $3.4 million during the first six months of 20182019 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 $8.92019 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.

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Non-Interest Income
The breakdown of non-interest income for the six months ended June 30, 20182019 and 20172018 is presented in the following table:
TABLE 16
Six Months Ended
June 30,
 $ %Six Months Ended
June 30,
 $ %
(dollars in thousands)2018 2017 Change Change2019 2018 Change Change
Service charges$61,191
 $56,671
 $4,520
 8.0 %$62,285
 $61,191
 $1,094
 1.8 %
Trust services12,917
 11,462
 1,455
 12.7
13,802
 12,917
 885
 6.9
Insurance commissions and fees9,702
 9,488
 214
 2.3
9,308
 9,702
 (394) (4.1)
Securities commissions and fees8,845
 7,510
 1,335
 17.8
9,016
 8,845
 171
 1.9
Capital markets income11,068
 8,851
 2,217
 25.0
15,903
 11,068
 4,835
 43.7
Mortgage banking operations11,469
 8,963
 2,506
 28.0
11,518
 11,469
 49
 0.4
Dividends on non-marketable equity securities9,158
 7,786
 1,372
 17.6
Bank owned life insurance6,362
 5,245
 1,117
 21.3
5,944
 6,362
 (418) (6.6)
Net securities gains31
 3,118
 (3,087) (99.0)
 31
 (31) (100.0)
Other10,807
 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 20182019 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 20182019 increased $1.5$0.9 million, or 12.7%6.9%, from the same period of 20172018, 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 fromat June 30, 20172019, with the increase almost entirely attributable to June 30, 2018.organic growth in accounts and services.
Securities commissions and feesCapital markets income of $8.8$15.9 million for the first six months of 20182019 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 fees2018. 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 20182019 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, sold2018. 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.
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Other non-interest income was $10.8 million and $9.9 million for the first six months of 2018 and 2017, respectively. During the first six months of 2018, dividendsDividends 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 $1.5or 17.6%, from $7.8 million comparedfor 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 offollowing table presents non-interest income excluding significant items for the first six months ended June 30, 20182019 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 consolidations3,677
 
 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, 20182019 and 20172018 is presented in the following table:
TABLE 18
Six Months Ended
June 30,
 $ %Six Months Ended
June 30,
 $ %
(dollars in thousands)2018 2017 Change Change2019 2018 Change Change
Salaries and employee benefits$187,997
 $158,477
 $29,520
 18.6 %$185,573
 $187,997
 $(2,424) (1.3)%
Net occupancy31,717
 25,409
 6,308
 24.8
30,658
 31,717
 (1,059) (3.3)
Equipment27,648
 22,050
 5,598
 25.4
30,298
 27,648
 2,650
 9.6
Amortization of intangibles8,029
 7,911
 118
 1.5
6,958
 8,029
 (1,071) (13.3)
Outside services31,770
 26,526
 5,244
 19.8
30,855
 31,770
 (915) (2.9)
FDIC insurance18,001
 14,763
 3,238
 21.9
11,963
 18,001
 (6,038) (33.5)
Bank shares and franchise taxes6,692
 5,722
 970
 17.0
6,597
 6,692
 (95) (1.4)
Merger-related
 54,078
 (54,078) (100.0)
Other42,242
 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 $2.82019 decreased $13.1 million, an 0.8% increasea 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 significantthese items, influencing earnings of $3.8 million, non-interest expense increased $53.1decreased $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 $29.52019 decreased $2.4 million or 18.6%1.3% from the same period of 2017.2018. The increasedecrease was primarily due to employees addedthe 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 claimfirst 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 20182019 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.
TableAmortization 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 servicesintangibles expense of $31.8$7.0 million for the first six months of 2018 increased $5.22019 decreased $1.1 million, or 19.8%13.3%, from the same periodfirst six months of 2017, primarily2018, due to increasesthe 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 $3.22019 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 mergerthe 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 millionrespectively. 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 offollowing table presents non-interest expense excluding significant items for the six months ended June 30, 20182019 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 20172019 2018
Income tax expense$41,739
 $36,101
$45,825
 $41,739
Effective tax rate19.5% 27.0%19.5% 19.5%
Statutory tax rate21.0% 35.0%
Statutory federal tax rate21.0% 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 2018in 2019 was 19.5%, compared to 27.0%also impacted from non-vesting stock compensation awards in the year-ago quarter. The first six monthssecond quarter of 2018 was2019.
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impacted by the TCJA, including a change to a 21% federal statutory rate, while the year-ago quarter was impacted by merger-related expenses. The lower statutory corporate tax rate is partially offset by changes to the deductibility of certain items such as FDIC insurance premiums.




FINANCIAL CONDITION
The 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 %
Securities6,297,868
 6,006,830
 291,038
 4.8
6,358
 6,595
 (237) (3.6)
Loans held for sale44,112
 92,891
 (48,779) (52.5)332
 22
 310
 1,409.1
Loans and leases, net21,483,008
 20,823,386
 659,622
 3.2
22,355
 21,973
 382
 1.7
Goodwill and other intangibles2,335,445
 2,341,263
 (5,818) (0.2)2,336
 2,334
 2
 0.1
Other assets1,663,431
 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 %
Borrowings4,963,084
 4,346,510
 616,574
 14.2
5,049
 4,756
 293
 6.2
Other liabilities281,450
 262,206
 19,244
 7.3
370
 283
 87
 30.7
Total liabilities27,784,321
 27,008,441
 775,880
 2.9
29,150
 28,494
 656
 2.3
Stockholders’ equity4,473,242
 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 AssetsLending 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 decreasesThe loan and lease portfolio consists principally of $5.9 million in non-accrual loans and $1.4 millionleases to individuals and small- and medium-sized businesses within our primary market in OREO, partially offset by an increaseseven states and the District of $1.3 millionColumbia. 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-accrualNorth 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
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 June 30,
2019
 December 31, 2018 
$
Change
 
%
Change
(in millions)       
Commercial real estate$8,832
 $8,786
 $46
 0.5 %
Commercial and industrial5,028
 4,556
 472
 10.4
Commercial leases385
 373
 12
 3.2
Other37
 46
 (9) (19.6)
Total commercial loans and leases14,282
 13,761
 521
 3.8
Direct installment1,758
 1,764
 (6) (0.3)
Residential mortgages3,022
 3,113
 (91) (2.9)
Indirect installment1,968
 1,933
 35
 1.8
Consumer lines of credit1,513
 1,582
 (69) (4.4)
Total consumer loans8,261
 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 industrial28,242
 22,740
 5,502
 24.2
18
 37
 (19) (51.4)
Commercial leases1,218
 1,574
 (356) (22.6)2
 2
 
 
Other1,000
 1,000
 
 
1
 1
 
 
Total commercial loans and leases50,956
 56,713
 (5,757) (10.2)55
 63
 (8) (12.7)
Direct installment15,862
 16,725
 (863) (5.2)15
 14
 1
 7.1
Residential mortgages12,737
 16,409
 (3,672) (22.4)16
 14
 2
 14.3
Indirect installment7,375
 2,435
 4,940
 202.9
2
 2
 
 
Consumer lines of credit6,586
 5,834
 752
 12.9
5
 7
 (2) (28.6)
Total consumer loans42,560
 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 owned32
 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.

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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 industrial2,580
 528
 891
 3,999

 
 4
 4
Total commercial loans2,580
 528
 3,214
 6,322

 
 9
 9
Direct installment11,111
 8,391
 3,398
 22,900
12
 7
 3
 22
Residential mortgages3,751
 5,855
 1,781
 11,387
5
 8
 3
 16
Indirect installment
 5,223
 10
 5,233

 
 
 
Consumer lines of credit1,910
 1,692
 920
 4,522
2
 1
 1
 4
Total consumer loans16,772
 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 industrial3,085
 
 601
 3,686

 1
 
 1
Total commercial loans3,177
 
 4,471
 7,648

 1
 2
 3
Direct installment10,890
 7,758
 3,197
 21,845
11
 6
 4
 21
Residential mortgages3,659
 10,638
 2,161
 16,458
5
 8
 3
 16
Indirect installment
 195
 14
 209
Consumer lines of credit1,812
 1,582
 629
 4,023
2
 2
 
 4
Total consumer loans16,361
 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 credit168
 449
 13
 630

 
 
 
Total consumer loans168
 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 installment15
 71
 
 86
Residential mortgages
 
 
 
Indirect installment
 
 
 
Consumer lines of credit251
 586
 234
 1,071

 1
 
 1
Total consumer loans266
 657
 234
 1,157

 1
 
 1
Total TDRs$266
 $3,308
 $234
 $3,808
$
 $4
 $
 $4


Allowance for Credit Losses
The allowance for credit losses of $176.6$188.2 million at June 30, 20182019 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, 20182019 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, comparedwith the decrease primarily due to $20.0lower commercial charge-offs and the sale of Regency, which accounted for $4.7 million duringof 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, 20172018 to 189%203% as of June 30, 2018, reflecting a decrease2019, 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 EndedAt 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 leases0.50% 0.57% 0.75%0.46% 0.44% 0.50%
Non-performing loans + OREO / total originated loans and leases + OREO0.71% 0.81% 1.08%0.61
 0.61
 0.71
Allowance for credit losses (originated loans) / total originated loans and leases1.02% 1.10% 1.15%0.96
 0.95
 1.02
Net charge-offs on originated loans and leases (annualized) / total average originated loans and leases0.36% 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 demand9,134,954
 9,571,038
 (436,084) (4.6)9,593
 9,660
 (67) (0.7)
Savings2,607,372
 2,488,178
 119,194
 4.8
2,515
 2,526
 (11) (0.4)
Certificates and other time deposits4,870,988
 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 thesethe relationship-based transaction deposits remains a key focus for us.us and will help us manage to lower levels of short-term borrowings.



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, 20182019 and December 31, 2017,2018, FNB and FNBPA met all “well-capitalized” requirements to which each of them was subject.










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 capital2,269,510
 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 12,162,628
 9.0
 1,566,668
 6.5
 1,536,540
 6.4
2,396
 9.06
 1,720
 6.50
 1,852
 7.00
Leverage2,269,510
 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 assets24,102,585
          26,458
          
FNBPA                      
Total capital2,593,877
 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 capital2,420,350
 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 12,340,350
 9.8
 1,560,875
 6.5
 1,530,858
 6.4
2,632
 9.97
 1,716
 6.50
 1,848
 7.00
Leverage2,420,350
 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 assets24,013,460
          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 capital2,184,571
 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 12,077,689
 8.9
 1,521,235
 6.5
 1,345,708
 5.8
2,289
 9.19
 1,619
 6.50
 1,588
 6.38
Leverage2,184,571
 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 assets23,403,622
          24,900
          
FNBPA                      
Total capital2,504,191
 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 capital2,332,892
 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 12,252,892
 9.7
 1,516,186
 6.5
 1,341,241
 5.8
2,473
 9.94
 1,618
 6.50
 1,587
 6.38
Leverage2,332,892
 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 assets23,325,934
          24,894
          

In accordance with Basel III, the implementation of capital requirements is transitional and phases-inwas 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 20172018 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.




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 PolicyPolicies 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 acquiredare used to help fund normal business operations, as well asand 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. CashManagement 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, 20172018 Internal

limit
Liquidity coverage ratio 1.82.2 times 1.82.1 times > 1 time
Months of cash on hand 9.915.0 months 10.214.4 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-interestnon-interest-bearing demand deposit accounts grew by $206.4$139.3 million, or 7.3%4.7% annualized, and savings accounts grewinterest-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 checkingSavings account balances which decreased $436.1$10.3 million, or 9.2%0.8% annualized.

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 assets23.6% 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 assets8.2% 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, 20182019 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, 20182019 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
 $5,950
Investments101,917
 147,067
 261,900
 446,279
 957,163
158
 231
 296
 578
 1,263
613,701
 1,093,026
 1,448,009
 2,821,355
 5,976,091
1,004
 1,295
 1,755
 3,159
 7,213
Liabilities                  
Non-maturity deposits173,751
 347,503
 521,256
 1,042,513
 2,085,023
178
 357
 535
 1,071
 2,141
Time deposits226,569
 696,133
 1,198,789
 1,082,478
 3,203,969
682
 722
 860
 1,340
 3,604
Borrowings3,019,602
 316,919
 24,688
 196,639
 3,557,848
2,224
 14
 21
 49
 2,308
3,419,922
 1,360,555
 1,744,733
 2,321,630
 8,846,840
3,084
 1,093
 1,416
 2,460
 8,053
Period Gap (Assets - Liabilities)$(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 responsiblethe responsibility for market risk management, which involves devising policy guidelines, risk measures and
Table of Contents

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, 20182019 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
Investments101,917
 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 deposits5,998,778
 
 
 
 5,998,778
6,089
 
 
 
 6,089
Time deposits325,226
 696,962
 1,196,851
 1,077,838
 3,296,877
777
 721
 857
 1,337
 3,692
Borrowings3,469,360
 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, 20182019 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 thenas modeled, net interest income will increase and, conversely, if interest rates decrease thenas modeled, net interest income will decrease. The change in the cumulative repricing gap at June 30, 20182019 compared to December 31, 2017,2018, is primarily related to seasonally lower corporategrowth and public funds depositschanges 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 points2.7 % 3.0 % n/a
8.3 % 3.5 % n/a
+ 200 basis points2.0 % 2.3 % (5.0)%5.8
 2.5
 (5.0)%
+ 100 basis points1.2 % 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, 20182019 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, givenConsistent 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, thehave 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, 20182019 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 moderatelymore 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 riskand limits under which the company seekswe seek to operate in order to optimize returns, while managing risk.returns. As such, the board monitors a hostseries of risk metrics from bothKRIs, or Key Risk Indicators, for various business andlines, operational units, as well as byand risk category, to providecategories, providing insight into how the company’sour performance aligns with our stated risk appetite. The risk appetite dashboard isThese results are reviewed periodically by the Board of Directors and senior management to ensure performance alignment withadherence 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, bothSecurity. All second line of whichdefense departments report to the Chief Risk Officer and ensuresto 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 ensurethrough the integrityuse 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
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independent assessment of our internal controls environment and plays an integral role in testing the operation of the internal controls systems and reporting findings to management and our Audit Committee. Both the Risk Committee and Audit Committee of our Board of Directors regularly report on risk-related matters to the full Board of Directors. In addition, both the Risk Committee of our Board of Directors and our Risk Management Council regularly assess our enterprise-wide risk profile and provide guidance on actions needed to address key and emerging risk issues.
The Board of Directors believes that our enterprise-wide risk management process is effective and enables the Board of Directors to:
 
assess the quality of the information we receive;
understand the businesses, investments and financial, accounting, legal, regulatory and strategic considerations and the risks that we face;
oversee and assess how senior management evaluates risk; and
assess appropriately the quality of our enterprise-wide risk management process.




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) contribution874
 
 874
 

 874
 
 874
Tax benefit of discretionary 401(k) contribution(184) 
 (184) 

 (184) 
 (184)
Branch consolidation costs6,616
 
 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. TheseThe branch consolidation charges principally represent expenses to satisfy contractual obligations of an acquired entitythe 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 20172019 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 costs0.02
 
 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 20172019 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 20172019 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 20172019 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 outstanding324,258,342
 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 20172019 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.
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TABLE 3839
Tangible common equity / tangible assets (period-end)
Three Months Ended
June 30,
Three Months Ended
June 30,
(dollars in thousands)2018 20172019 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 20172019 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 adjustment3,319
 4,474
 6,422
 7,996
3,540
 3,319
 7,119
 6,422
Non-interest income64,889
 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 costs3,677
 
 3,677
 
Add: Branch consolidation costs546
 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 20172018 Annual Report on Form 10-K as filed with the SEC on February 28, 2018.26, 2019.
 
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ITEM 4.CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. FNB’s management, with the participation of our principal executive and financial officers, evaluated our disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective as of such date at the reasonable assurance level as discussed below to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. FNB’s management, including the CEO and the CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within FNB have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.
CHANGES IN INTERNAL CONTROLS. The CEO and the CFO have evaluated the changes to our internal controls over financial reporting that occurred during our fiscal quarter ended 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 20172018 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. 
   
31.2. 
   
32.1. 
   
32.2. 
   
101101.INS The following materials from F.N.B. Corporation’s Quarterly Report on Form 10-Q forXBRL Instance Document - the period ended June 30, 2018, formattedinstance 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.SCHXBRL Taxonomy Extension Schema Document (filed herewith).
101.CALXBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEFXBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LABXBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PREXBRL 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, 20186, 2019 /s/ Vincent J. Delie, Jr.
     Vincent J. Delie, Jr.
     Chairman, President and Chief Executive Officer
     (Principal Executive Officer)
    
 Dated: August 7, 20186, 2019 /s/ Vincent J. Calabrese, Jr.
     Vincent J. Calabrese, Jr.
     Chief Financial Officer
     (Principal Financial Officer)
    
 Dated: August 7, 20186, 2019 /s/ James L. Dutey
     James L. Dutey
     Corporate Controller
     (Principal Accounting Officer)



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