DOCUMENTS INCORPORATED BY REFERENCE

Portions of F.N.B. Corporation’s definitive proxy statement to be filed pursuant to Regulation 14A for the Annual Meeting of Stockholders to be held on May 13, 2020 are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14, of this Annual Report on Form 10-K. F.N.B. Corporation will file its definitive proxy statement with the Securities and Exchange Commission on or before April 15, 2020.

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ITEM 1.	BUSINESS

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•	Prohibiting federal banking regulators from imposing higher capital standards on HVCRE exposures unless they are for ADC loans, and clarifying ADC status;

•	Requiring the federal banking agencies to amend the LCR Rule such that all qualifying investment-grade, liquid and readily-marketable municipal securities are treated as level 2B liquid assets, making them more attractive investment alternatives;

•	Exempting from appraisal requirements certain transactions involving real property in rural areas and valued at less than $400,000; and

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Directing the CFPB to provide guidance on the applicability of the TILA-RESPA Integrated Disclosure rule to mortgage assumption transactions and construction-to-permanent home loans, as well the extent to which lenders can rely on model disclosures that do not reflect recent regulatory changes. (See discussion under Risk Factors - caption “We could be adversely affected by changes in the law, especially changes in the regulation of the banking industry”).

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•	enhanced authority over troubled and failing banks and their holding companies;

•	increased capital and liquidity requirements;

•	increased regulatory examination fees;

•	increased assessments banks must pay the FDIC for federal deposit insurance; and

•	specific provisions designed to improve supervision and oversight of bank safety and soundness and consumer practices, by imposing restrictions and limitations on the scope and type of banking and financial activities.

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•	require banks to disclose credit terms in meaningful and consistent ways;

•	prohibit discrimination against an applicant in any consumer or business credit transaction;

•	prohibit discrimination in housing-related lending activities;

•	require banks to collect and report applicant and borrower data regarding loans for home purchases or improvement projects;

•	require lenders to provide borrowers with more detailed information regarding the nature and cost of real estate settlements;

•	prohibit certain lending practices and limit escrow account amounts with respect to real estate transactions;

•	prescribe possible penalties for violations of the requirements of consumer protection statutes and regulations;

•	require prescribed consumer disclosures and the adoption of error resolution procedures and other consumer protection protocols with respect to electronic fund transfers; and

•	prohibit unfair, deceptive or abusive acts and practices in connection with consumer loans, the collection of debt, and the provision of other consumer financial products and services.

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•	the company may acquire direct or indirect ownership or control of any voting shares of any bank or savings and loan association, if after such acquisition the bank holding company will directly or indirectly own or control more than five percent of any class of voting securities of the institution;

•	any of the company’s subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank or savings and loan association; or

•	the company may merge or consolidate with any other bank or financial holding company.

•	a bank to merge with an out-of-state bank and convert any offices into branches of the resulting bank;

•	a bank to acquire branches from an out-of-state bank; and

•	a bank to establish and operate de novo interstate branches whenever the host state permits de novo branching of its own state-chartered banks.

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•	credit risks of a particular borrower;

•	changes in economic conditions that impact certain geographic markets or industries;

•	fluctuations in interest rates on adjustable rate loans;

•	the duration of the loan; and

•	in the case of a collateralized loan, uncertainties as to the future value of the collateral.

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Mortgage loan production levels are sensitive to changes in economic conditions and activity, strengths or weaknesses in the housing market and interest rate fluctuations. Generally, any sustained period of decreased economic activity or higher interest rates could reduce demand for mortgage loans and refinancings. In addition, our results of operations are affected by the amount of non-interest expense associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations.

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Our ability to originate and resell mortgage loans readily is dependent upon the availability of an active secondary market. GSEs - FHLB, Fannie Mae, Freddie Mac and Ginnie Mae -- account for a substantial portion of the secondary market in residential mortgage loans. Any future changes in laws that significantly affect the activity of these GSEs could, in turn, adversely affect our mortgage banking business. In September 2008, the GSEs were placed into conservatorship by the U.S. government. We cannot predict if, when or how the conservatorship will end, or any associated changes to the business structure and operations of the GSEs that could result. Additionally, there are various proposals to reform the role of the GSEs in the U.S. housing finance market. The extent and timing of any such regulatory reform regarding the housing finance market and the GSEs are uncertain.

•	Future changes to our eligibility to participate in the programs offered by the GSEs and other secondary purchasers, or the loan criteria of the GSEs and other secondary purchasers could also result in a lower volume of corresponding loan originations.

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•	a regular review of the quality, mix and size of the overall loan portfolio;

•	historical loan loss experience;

•	evaluation of non-performing loans;

•	geographic or industry concentrations;

•	assessment of economic conditions and their effects on FNB’s existing portfolio;

•	the amount and quality of collateral, including guarantees, securing loans; and

•	geographic or industry economic market conditions.

•	changes in interest rates or interest rate spreads can affect the difference between the interest that FNBPA can earn on assets and the interest that FNBPA may pay on liabilities, which impacts FNBPA’s overall net interest income and profitability;

•	such changes can affect the ability of borrowers to meet obligations under variable or adjustable rate loans and other debt instruments and can, in turn, affect our loss rates on those assets;

•	such changes may decrease the demand for interest rate-based products or services, including bank loans and deposit products and the subordinated notes offered by our subsidiary, FNB Financial Services, LP;

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•	such changes can also affect our ability to hedge various forms of market and interest rate risks and may decrease the profitability or increase the risk associated with such hedges; and

•	movements in interest rates also affect mortgage repayment speeds and could result in impairments of mortgage servicing assets or otherwise affect the profitability of such assets.

•	adversely affect the interest rates paid or received on, and the revenue and expenses associate with, our floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR’s role in determining market interest rates globally;

•	adversely affect the value of our floating rate obligations, loans, deposits, derivatives, and other financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR’s role in determining market interest rates globally;

•	prompt inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with an alternative reference rate;

•	result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based securities; and

•	require the transition to, or development of, appropriate systems and analytics to effectively transition our risk management processes from LIBOR-based products to those based on the applicable alternative pricing benchmark, such as SOFR.

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•	demand for our loans, deposits and services may decline;

•	loan delinquencies, problem assets, foreclosures and charge-offs may increase;

•	weak economic conditions could limit the demand for loans by creditworthy borrowers, limiting our capacity to leverage our retail deposits and maintain our net interest income;

•	collateral for our loans may decline in value; and

•	the amount of our low-cost or non-interest-bearing deposits may decrease.

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•	the payment of dividends and stock repurchases;

•	balance sheet growth;

•	investments;

•	loans and interest rates;

•	assessments of fees, such as overdraft and electronic transfer interchange fees;

•	the provision of securities, insurance, brokerage or trust services;

•	mergers with or acquisitions of other institutions or branches;

•	the types of non-deposit activities in which our subsidiaries may engage; and

•	offering of new products and services.

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•	require shareholders to give us advance notice to nominate candidates for election to our Board of Directors or to make shareholder proposals at a shareholders’ meeting;

•	permit our Board of Directors to issue, without approval of our common shareholders unless otherwise required by law, preferred stock with such terms as our Board of Directors may determine;

•	require the vote of the holders of at least 75% of our voting shares for shareholder amendments to our By-laws;

•	in the case of a proposed business combination with a shareholder owning 10% or more of the voting shares of FNB, the vote of the holders of at least two-thirds of the voting shares not owned by such shareholder is required to approve the business combination, unless it is approved by a majority of FNB’s disinterested directors.

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(1)	On August 31, 2018, we completed the sale of Regency.

(2)	On March 11, 2017, we completed our acquisition of YDKN.

(3)	On April 22, 2016 and February 13, 2016, we completed our purchase of 17 branch-banking locations and related consumer loans from Fifth Third Bank and completed the acquisition of Metro Bancorp, Inc., respectively.

(4)	On September 18, 2015, we completed our purchase of five branch-banking locations from Bank of America. On June 22 and July 18, 2015, we, through our wholly owned subsidiary, FNIA, acquired certain insurance-related assets from Pittsburgh-area insurance companies.

(5)	Refer to the Reconciliations of Non-GAAP Financial Measures and Key Performance Indicators to GAAP section in Item 7, “MD&A,” of this Report.

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Our business, financial results and balance sheet values are affected by business and economic circumstances, including, but not limited to: (i) developments with respect to the U.S. and global financial markets; (ii) actions by the FRB, UST, OCC and other governmental agencies, especially those that impact money supply, market interest rates or otherwise affect business activities of the financial services industry; (iii) a slowing or reversal of current U.S. economic environment; and (iv) the impacts of tariffs or other trade policies of the U.S. or its global trading partners.

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

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

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

•	Legal, regulatory and accounting developments could have an impact on our ability to operate and grow our businesses, financial condition, results of operations, competitive position, and reputation. Reputational impacts could affect matters such as business generation and retention, liquidity, funding, and the ability to attract and retain management. These developments could include:

◦	Changes resulting from a change in the U.S. presidential administration or 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 FNB.

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

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

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•	Net income available to common stockholders was $379.2 million, compared to $364.8 million, up 3.9%.

•	Operating net income available to common stockholders (non-GAAP) was $386.1 million, compared to $366.7 million, up 5.3%.

•	Earnings per diluted common share was $1.16, compared to $1.12, an increase of 3.6%.

•	Operating earnings per diluted common share (non-GAAP) was $1.18, compared to $1.13, an increase of 4.4%.

•	Net interest income was $917.2 million, compared to $932.5 million.

•	Net interest margin (FTE) (non-GAAP) declined 22 basis points to 3.17% from 3.39%, primarily due to the sale of Regency, a lower level of cash recoveries on acquired loans and the impact from the lower interest rate environment. Regency contributed 8 basis points to net interest margin (FTE) in 2018.

•	Non-interest income was $294.3 million, compared to $275.7 million.

•	Non-interest expense was $696.1 million, compared to $694.5 million.

•	The provision for credit losses of $44.6 million supported strong loan growth and exceeded net charge-offs of $28.3 million. The low level of net charge-offs reflects favorable credit quality.

•	The net charge-offs to total average loans ratio decreased to 0.12%, compared to 0.26%, indicative of continued favorable credit quality trends and the sale of Regency in 2018. Included in 2018 was 3 basis points of net charge-offs from the mark to fair value on the Regency loans prior to the sale, with no associated provision expense.

•	Income tax expense increased $4.0 million, or 5.1%, primarily due to higher pretax earnings; both years were impacted by renewable energy tax credits.

•	The effective tax rate was 17.7%, compared to 17.6%.

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•	The efficiency ratio (non-GAAP) was 54.5%, compared to 54.8%.

•	Return on average tangible common equity ratio (non-GAAP) of 16.84%, compared to 18.41%.

•	Total assets were $34.6 billion, compared to $33.1 billion, an increase of $1.5 billion, or 4.6%.

•	Growth in total average loans was $1.2 billion, or 5.5%, with average commercial loan growth of $0.8 billion, or 6.0%, and average consumer loan growth of $0.4 billion, or 4.7%.

•	Total average deposits grew $1.2 billion, or 5.4%, including an increase in average non-interest-bearing deposits of $0.3 billion, or 4.9%, an increase in average interest-bearing demand deposits of $0.7 billion, or 7.7%, and an increase in average time deposits of $0.2 billion, or 4.9%.

•	We issued $120 million of 4.95% fixed-to-floating rate subordinated notes due 2029.

•	The ratio of loans to deposits was 94.0%, compared to 94.4%.

•	Total stockholders’ equity was $4.9 billion, compared to $4.6 billion, an increase of $0.3 billion, or 6.0%, since December 31, 2018, primarily driven by an increase in earnings and in AOCI. Additionally, the dividend payout ratio for 2019 was 41.45% compared to 42.96%.

•	The delinquency ratio for the originated portfolio was 0.71%, compared to 0.64%.

•	The ratio of the allowance for loan losses to total loans and leases was 0.84%, compared to 0.81%.

•	Tangible book value per share (non-GAAP) of $7.53 increased 13% from year-end 2018.

•	Tangible common equity to tangible assets (non-GAAP) of 7.58%, increased 53 basis points from year-end 2018.

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(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 2019 and 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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(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 2019 and 2018 and 35.0% 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.

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•	establishing a cross-functional committee to address transition strategies and activities;

•	identifying the financial instruments indexed to LIBOR;

•	reviewing contractual language in existing contracts; and

•	assessing the finance risk associated with a transition to another index.

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•	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.

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•	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.

•	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.

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•	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.

•	Our Fraud Risk Department monitors for internal and external fraud risk across all of our business and operational units.

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•	Our 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.

•	Our Community Reinvestment Department monitors for compliance with the CRA requirements.

•	Our 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 develops policies and procedures and monitors compliance with applicable laws and regulations which govern our business operations.

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Our Information and Cyber Security Department maintains a risk assessment of our information and cybersecurity risks and ensures appropriate controls are in place to manage and control such risks, through the use of the National Institute of Standards and Technology framework for improving critical infrastructure by measuring and evaluating the effectiveness of information and cybersecurity controls.

•	Our Internal Audit Department performs an independent assessment of our internal controls environment and plays an integral role in testing the operation of the internal controls systems and reporting findings to management and our Audit Committee.

•	assess the quality of the information we receive;

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

•	oversee and assess how senior management evaluates risk; and

•	assess appropriately the quality of our enterprise-wide risk management process.

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NATURE OF OPERATIONS

F.N.B. Corporation, headquartered in Pittsburgh, Pennsylvania, is a diversified financial services company operating in seven states and the District of Columbia. Our market coverage spans several major metropolitan areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina. As of December 31, 2019, we had 369 banking offices throughout Pennsylvania, Ohio, Maryland, West Virginia, North Carolina and South Carolina.

Basis of Presentation

Our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements include subsidiaries in which we have a controlling financial interest. We own and operate FNBPA, FNTC, First National Investment Services Company, LLC, FNBIA, FNIA, 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 Consolidated Financial Statements include all adjustments that are necessary, in the opinion of management, to fairly reflect our financial position and results of operations in accordance with GAAP. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on our net income and stockholders’ equity. Events occurring subsequent to December 31, 2019 have been evaluated for potential recognition or disclosure in the Consolidated Financial Statements through the date of the filing of the Consolidated Financial Statements with the Securities and Exchange Commission.

Use of Estimates

Our accounting and reporting policies conform with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements. 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 in a business combination, fair value of financial instruments, goodwill and other intangible assets, litigation, income taxes and deferred tax assets.

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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 invoice or charge under contracts with an original expected duration of one year or less. We apply this guidance on a portfolio basis to contracts with similar characteristics and for which we believe the results would not differ materially from applying this guidance to individual contracts.

Our services provided under contracts with customers are transferred at the point in time when the services are rendered. Generally, we do not defer incremental direct costs to obtain contracts with customers that would be amortized in one year or less under the practical expedient. These costs are recognized as expense, primarily salary and benefit expense, in the period incurred.

Deposit Services. We recognize revenue on deposit services based on published fees for services provided. Demand and savings deposit customers have the right to cancel their depository arrangements and withdraw their deposited funds at any time without prior notice. When services involve deposited funds that can be retrieved by customers without penalties, we consider the service contract term to be day-to-day, where each day represents the renewal of the contract. The contract does not extend beyond the services performed and revenue is recognized at the end of the contract term (daily) as the performance obligation is satisfied.

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

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

Wealth Management Services. Wealth advisory and trust services are provided on a month-to-month basis and invoiced as services are rendered. Fees are based on a fixed amount or a scale based on the level of services provided or assets under management. The customer has the right to terminate their services agreement at any time. We determine the value of services performed based 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.

Business Combinations

Business combinations are accounted for by applying the acquisition method. Under the acquisition method, identifiable assets acquired and liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date, and are recognized separately from goodwill. Results of operations of the acquired entities are included in the Consolidated Statements of Income from the date of acquisition.

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Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash items in transit and amounts due from the Federal Reserve Bank and other depository institutions (including interest-bearing deposits).

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 December 31, 2019 and 2018, we did not hold any trading debt securities.

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

Debt securities that are not classified as trading or HTM are classified as AFS. Such securities are carried at fair value with net unrealized gains and losses deemed to be temporary and OTTI attributable to non-credit factors reported separately as a component of OCI, net of tax.

We evaluate our debt securities in a loss position for OTTI on a quarterly basis at the individual security level based on our intent to sell.

If we intend to sell the debt security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, OTTI must be recognized in earnings equal to the entire difference between the investments’ amortized cost basis and its fair value. If we do not intend to sell the debt security and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis, OTTI must be separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss will be recognized in earnings. The amount related to other market factors will be recognized in OCI, net of tax.

We perform our OTTI evaluation process in a consistent and systematic manner and include an evaluation of all available evidence. This process considers factors such as length of time and anticipated recovery period of the impairment, recent events specific to the issuer and recent experience regarding principal and interest payments.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold plus accrued interest. Securities, generally U.S. government and federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party. The fair value of collateral either received from or provided to a third party is continually monitored and additional collateral is obtained or is requested to be returned to us as deemed appropriate.

Derivative Instruments and Hedging Activities

From time to time, we may enter into derivative transactions principally to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. Foreign exchange derivatives are entered into to accommodate the needs of customers. 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 risk management activities. In addition, ASU 2017-12 provides administrative relief by easing documentation requirements, simplifying the application of hedge accounting by expanding the application of the shortcut method, eliminating the separate measurement and reporting of hedge ineffectiveness and generally requiring the entire effect of the hedging instrument and the hedged item to be presented in the same income statement line item. We believe these changes will provide users with more useful information about the effect of our risk management activities on the financial statements.

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

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

We also 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 and using collateral agreements and other contract provisions. 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.

Loans Held for Sale and Loan Commitments

Certain of our residential mortgage loans are originated or purchased for sale in the secondary mortgage loan market. We make an automatic election to account for all originated or purchased residential mortgage loans held for sale under the FVO. The FVO election is intended to better reflect the underlying economics and better facilitate the economic hedging of the loans. The FVO is applied on an instrument by instrument basis and is an irrevocable election. Additionally, with the election of the FVO, fees and costs associated with the origination and acquisition of residential mortgage loans held for sale are expensed as incurred, rather than deferred. Changes in fair value under the FVO are recorded in mortgage banking operations non-interest income on the consolidated statements of income. Fair value is determined on the basis of rates obtained in the respective secondary market for the type of loan held for sale. Gain or loss on the sale of loans is recorded in mortgage banking operations non-interest income. Interest income on loans held for sale is recorded in interest income.

We routinely issue interest rate lock commitments for residential mortgage loans that we intend to sell. These interest rate lock commitments are considered derivatives. We also enter into loan sale commitments to sell these loans when funded to mitigate the risk that the market value of residential mortgage loans may decline between the time the rate commitment is issued to the customer and the time we sell the loan. These loan sale commitments are also derivatives. Both types of derivatives are recorded at fair value on the Consolidated Balance Sheets with changes in fair value recorded in mortgage banking operations non-interest income.

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

Loans (Excluding Loans Acquired in a Business Combination)

Loans we intend to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances, net of any unearned income, deferred origination fees or costs, or premium or discounts on purchased loans. Interest income on loans is computed over the term of the loans using the effective interest method. Loan origination fees or costs and premiums or discounts are deferred and amortized over the term of the loan or loan commitment period as an adjustment to the related loan yield.

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Non-performing Loans

Interest is not accrued on loans where collectability is uncertain. We discontinue interest accruals on loans generally when principal or 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 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. Past due status is based on the contractual terms of the loan.

When a loan is placed on non-accrual status, all unpaid interest is reversed against interest income and the amortization of deferred fees and costs is suspended. Payments subsequently received are generally applied to either principal or interest or both, depending on management’s evaluation of collectability. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable. This generally requires a sustained period of timely principal and interest payments.

Loans are generally charged-off when deemed uncollectible or when they reach a predetermined number of days past due depending upon loan product, terms, and other factors. Recoveries of amounts previously charged-off are credited to the allowance for credit losses.

We consider a loan impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. The impairment loss is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral, less estimated selling costs, if the loan is collateral dependent. Purchased credit impaired loans are not classified as non-performing assets as the loans are considered to be performing.

Restructured loans are those in which concessions of terms have been made as a result of deterioration in a borrower’s financial condition. In general, the modification or restructuring of a debt constitutes a TDR if we for economic or legal reasons related to the borrower’s financial difficulties grant a concession to the borrower that we would not otherwise consider under current market conditions. Debt restructurings or loan modifications for a borrower occur in the normal course of business and do not necessarily constitute TDRs. To designate a loan as a TDR, the presence of both borrower financial distress and a concession of terms must exist. Additionally, a loan designated as a TDR does not necessarily result in the automatic placement of the loan on non-accrual status. When the full collection of principal and interest is reasonably assured on a loan designated as a TDR and the borrower does not otherwise meet the criteria for non-accrual status, we will continue to accrue interest on the loan. A restructured acquired loan that is accounted for as a component of a pool is not considered a TDR.

Allowance for Credit Losses

The allowance for credit losses is established as losses are estimated to have occurred through a provision charged to earnings. Loan losses are charged-off against the allowance for credit losses when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for credit losses. Allowances for impaired commercial loans over $1.0 million are generally determined based on collateral values or the present value of estimated cash flows. All other impaired loans are evaluated in the aggregate based on loan segment loss given default. Changes in the allowance for credit losses related to impaired loans are charged or credited to the provision for credit losses.

The allowance for credit losses is maintained at a level that, in management’s judgment, is believed appropriate to absorb probable losses associated with specifically identified loans, as well as estimated probable credit losses inherent in the remainder of the loan portfolio. The appropriateness of the allowance for credit losses is based on management’s evaluation of potential loan losses in the loan portfolio, which includes an assessment of past experience, current economic conditions in specific industries and geographic areas, general economic conditions, known and inherent risks in the loan portfolio, the estimated value of underlying collateral and residuals and changes in the composition of the loan portfolio. Determination of the allowance for credit losses is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on transition matrices with predefined loss emergence and lookback periods, and consideration of qualitative factors, all of which are susceptible to significant change.

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Loans Acquired in a Business Combination

Loans acquired in a business combination (impaired and non-impaired) are initially recorded at their acquisition-date fair values. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, default rates, loss severity, collateral values, discount rates, payment speeds, prepayment risk, and liquidity risk.

The carryover of allowance for credit losses related to loans acquired in a business combination is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. The allowance for credit losses on loans acquired in a business combination reflects only those losses incurred after acquisition and represents the present value of cash flows expected at acquisition that is no longer expected to be collected.

At acquisition, we consider the following factors as indicators that an acquired loan has evidence of deterioration in credit quality and is therefore impaired and in the scope of ASC 310-30:

•	loans that were 90 days or more past due;

•	loans that had an internal risk rating of substandard or worse. Substandard is consistent with regulatory definitions and is defined as having a well-defined weakness that jeopardizes liquidation of the loan;

•	loans that were classified as non-accrual by the acquired bank at the time of acquisition; or

•	loans that had been previously modified in a TDR.

Any loans acquired in a business combination that were not individually in the scope of ASC 310-30 because they didn’t meet the criteria above were pooled into groups of similar loans based on various factors including borrower type, loan purpose, and collateral type. For these pools, we used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average margin, and weighted average interest rate along with estimated prepayment rates, probability of default and loss given default to estimate the expected cash flow for each loan pool. We believe analogizing to ASC 310-30 is the more appropriate option to follow in accounting for discount accretion on non-impaired loans acquired in a business combination other than revolving loans and therefore account for such loans in accordance with ASC 310-30. ASC 310-30 guidance does not apply to revolving loans. Consequently, discount accretion on revolving loans acquired is accounted for using the ASC 310-20 approach.

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, if 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.

Over the life of the acquired loan, we continue to estimate cash flows expected to be collected. Decreases in expected cash flows, other than from prepayments or rate adjustments, are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for credit losses. Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized subsequent to acquisition, if any, and next, an increase in the amount of accretable yield to be subsequently recognized on a prospective basis over the loan’s remaining life.

Loans acquired in a business combination that met the criteria for non-accrual of interest prior to acquisition 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. Accordingly, we do not consider contractually delinquent purchased credit impaired loans to be non-accrual or non-performing and continue to recognize interest income on these loans using the accretion model.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the asset’s estimated useful life. Leasehold improvements are expensed over the lesser of the asset’s estimated useful life or the term of the lease including renewal periods when reasonably assured. Useful lives are dependent upon the nature and condition of the asset and range from 3 to 39 years. Maintenance and repairs are charged to expense as incurred, while major improvements are capitalized and amortized to expense over the identified useful life.

Premises and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

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Cloud Computing Arrangements

We evaluate fees paid for cloud computing arrangements to determine if those arrangements include the purchase of or license to use software that should be accounted for separately as internal-use software. If a contract includes the purchase or license to use software that should be accounted for separately as internal-use software, the contract is amortized over the software’s identified useful life in amortization of intangibles. For contracts that do not include a software license, the contract is accounted for as a service contract with fees paid recorded in other non-interest expense.

In the third quarter of 2018, we early adopted, on a prospective basis, ASU 2018-15 which allows for implementation costs for activities performed in cloud computing arrangements that are a service contract to be accounted for under the internal-use software guidance which allows for certain implementation costs to be capitalized depending on the nature of the costs and the project stage. Prior to the adoption of ASU 2018-15 all implementation costs for cloud computing arrangements that were a service contract were expensed as incurred.

Other Real Estate Owned

OREO is comprised principally of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations. OREO acquired in settlement of indebtedness is included in other assets initially at the lower of estimated fair value of the asset less estimated selling costs or the carrying amount of the loan. Changes to the value subsequent to transfer are recorded in non-interest expense along with direct operating expenses. Gains or losses not previously recognized resulting from sales of OREO are recognized in non-interest income on the date of sale.

Goodwill and Other Intangible Assets

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

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

Determining the fair value of a reporting unit under the goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions. Similarly, estimates and assumptions are used in determining the fair value of other intangible assets. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation of appropriate market comparables. However, future events could cause us to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

Loan Servicing Rights

We have two primary classes of servicing rights, residential mortgage loan servicing and SBA-guaranteed loan servicing. We recognize the right to service residential mortgage loans and SBA-guaranteed loans for others as an asset whether we purchase the servicing rights or as a result from a sale of loans that we originated or purchased when the servicing is contractually separated from the underlying loan and retained by us.

We initially record servicing rights at fair value in other assets on the Consolidated Balance Sheets. Subsequently, servicing rights are measured at the lower of cost or fair value. Servicing rights are amortized in proportion to, and over the period of, estimated net servicing income in mortgage banking operations non-interest income for residential mortgage loans and other non-interest income for SBA-guaranteed loans. The amount and timing of estimated future net cash flows are updated based on actual results and updated projections.

MSRs are separated into pools based on common risk characteristics of the underlying loans and evaluated for impairment at least quarterly. SBA-guaranteed servicing rights are evaluated for impairment at least quarterly on an aggregate basis.

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Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. If impairment exists at the pool level for residential mortgage loans or on an aggregate basis for SBA-guaranteed loans, the servicing right is written down through a valuation allowance and is charged against mortgage banking operations non-interest income or other non-interest income, respectively.

Bank Owned Life Insurance

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

Low Income Housing Tax Credit Partnerships

We invest in various affordable housing projects that qualify for LIHTCs. The net investments are recorded in other assets on the Consolidated Balance Sheets. These investments generate a return through the realization of federal tax credits. We use the proportional amortization method to account for a majority of our investments in these entities. LIHTCs that do not meet the requirements of the proportional amortization method are recognized using the equity method. Our net investment in LIHTCs was $59.6 million and $43.7 million at December 31, 2019 and 2018, respectively. Our unfunded commitments in LIHTCs were $60.1 million and $57.0 million at December 31, 2019 and 2018, respectively.

Leases

We determine if an arrangement is, or contains, a lease at inception of the contract. As a lessee, we consider a contract to be, or contain, a lease if the contract conveys the right to control the use of an identified asset in exchange for consideration. We recognize in our 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 other assets and other liabilities, respectively. Finance leases are included in premises and equipment, and other liabilities. We do not record leases with an initial term of 12 months or less on the Consolidated Balance Sheets, instead we recognize lease expense for these leases on a straight-line basis over the lease term. For leases that commenced before January 1, 2019, we have applied the modified retrospective transition method which resulted in comparative information not being restated. The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, which permits us to not reassess our prior conclusions about lease identification, lease classification and initial direct costs.

Right-of-use assets and liabilities are initially measured at the present value of lease payments over the lease term, discounted using the interest rate implicit in the lease at the commencement date. Right-of-use assets are adjusted for any lease payments made prior to lease commencement, lease incentives, and accrued rent. If the rate implicit in the lease cannot be readily determined, we discount the lease using our incremental borrowing rate which is derived by reference to FNB's secured borrowing rate. Our leases may include options to extend or terminate the lease. When it is reasonably certain that we will exercise such an option, the lease term includes those periods. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for finance leases is recognized using the effective interest method. Certain of our lease agreements include variable rental payments based on a percentage of transactions and others include variable rental payments that periodically adjust to rates and charges stated in the agreements. Variable costs, such as maintenance expenses, property taxes, property insurance, transaction-based lease payments and index-based rate increases, are expensed as incurred. Right-of-use assets are reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. For operating leases, if deemed impaired, the right-of-use asset is written down and the remaining balance is subsequently amortized on a straight-line basis.

We have real estate lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.

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

Both sales-type leases and direct financing leases are recognized as a net investment in the lease on the Consolidated Balance Sheets. The net investment comprises the lease receivable including any residual value of the underlying asset that is

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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 straight-line basis. We do not evaluate whether sales taxes and similar taxes imposed by a governmental authority on lease transactions and collected by us are our primary obligation as owner of the underlying leased asset and exclude from lease income all taxes collected.

Income Taxes

We file a consolidated federal income tax return. The provision for federal and state income taxes is based on income reported on the Consolidated Financial Statements, rather than the amounts reported on the respective income tax returns. DTAs and DTLs are computed using tax rates expected to apply to taxable income in the years in which those assets and liabilities are expected to be realized. The effect on DTAs and DTLs resulting from a change in tax rates is recognized as income or expense in the period that the change in tax rates is enacted. Beginning in the fourth quarter of 2017, we made an accounting policy election to reclassify the stranded tax effects that relate to a change in the federal tax rate from AOCI to retained earnings in accordance with newly adopted accounting guidance. We believe this change in accounting policy reduces the cost and complexity of accounting for stranded tax effects due to a change in federal tax rates.

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments are applied in the calculation of certain tax credits and in the calculation of the deferred income tax expense or benefit associated with certain deferred tax assets and liabilities. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period. We recognize interest and/or penalties related to income tax matters in income tax expense.

We assess the likelihood that we will be able to recover our DTAs. If recovery is not likely, we will increase our valuation allowance against the DTAs that are unlikely to be recovered by recording a provision for income taxes. We believe that we will ultimately recover the DTAs recorded on our Consolidated Balance Sheets.

We periodically review the tax positions we take on our tax return and apply a more likely than not recognition threshold for all tax positions that are uncertain. The amount recognized in the Consolidated Financial Statements is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded.

Marketing Costs

Marketing costs are generally expensed as incurred. Marketing expense totaled $13.1 million, $12.8 million and $11.5 million for 2019, 2018 and 2017, respectively.

Per Share Amounts

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

Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding, net of unvested shares of restricted stock.

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 net income available to common stockholders and the weighted average number of shares of common stock outstanding are made only when such adjustments dilute earnings per common share.

The assumed proceeds from applying the treasury stock method when computing diluted earnings per share excludes the amount of excess tax benefits that would have been recognized in accumulated paid-in capital.

Retirement Plans

We sponsor retirement plans for our employees. The calculation of the obligations and related expenses under these plans requires use of actuarial valuation methods and assumptions. The plans utilize assumptions and methods including reflecting trust assets at their fair value for the qualified pension plans and recognizing the overfunded and underfunded status of the

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plans on our Consolidated Balance Sheets. Gains and losses, prior service costs and credits are recognized in AOCI, net of tax, until they are amortized, or immediately upon curtailment.

Stock-Based Compensation

Our stock-based compensation awards require the measurement and recognition of compensation expense, based on estimated fair values, for all stock-based awards, including stock options and restricted stock units, made to employees and stock awards made to directors. Generally, these restricted stock unit awards to employees vest over a three-year service period and the stock awards made to directors vest immediately.

We are required to estimate the fair value of stock-based awards on the date of grant. For time-based awards, the value of the award is recognized as expense in our Consolidated Statements of Income over the shorter of requisite service periods or the period through the date that the employee first becomes eligible to retire.

Prior to 2018, we granted restricted stock unit awards that had market conditions.  Compensation cost for awards with market-based performance targets is recognized based on the award’s grant date fair value.

Beginning in 2018, we granted restricted stock unit awards with multiple-conditions, both performance and market conditions. These awards were accounted for by considering the market condition in the grant date fair value and recognizing compensation expense over the service period based on the grant date fair value and the probability that the performance condition will be met.

We account for forfeitures as they occur.

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

TABLE 2.1

Standard		Description		Financial Statements Impact
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.		We adopted this Update in the first quarter of 2019 using a modified retrospective transition method. The presentation and disclosure guidance were applied prospectively. The adoption of this Update did not have a material effect on our Consolidated Financial Statements. This Update was effective as of January 1, 2019.
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.		We adopted this Update in the first quarter of 2019 using a modified retrospective transition method. The adoption of this Update did not have a material effect on our Consolidated Financial Statements. This Update was effective as of January 1, 2019.
Leases
ASU 2016-02, Leases (Topic 842) ASU 2018-10, Codification Improvements to Topic 842, Leases ASU 2018-11, Leases (Topic 842), Targeted Improvements ASU 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors ASU 2019-01, Lease (Topic 842), Codification Improvements		These Updates require lessees to put most leases on the Consolidated Balance Sheets but recognize expenses in the Consolidated Statements of Income similar to current accounting. In addition, the Update changes the guidance for sales-leaseback transactions, initial direct costs and lease executory costs for most entities. All entities will classify leases to determine how to recognize lease related revenue and expense.		We adopted these Updates in the first quarter of 2019 under the modified retrospective transition method. In addition, 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. Adoption of the new standard resulted in the recording of $116 million in right-of-use assets and corresponding lease liabilities of $126 million for operating leases on our Consolidated Balance Sheet. The standard did not materially impact our consolidated net earnings and had no impact on cash flows. These Updates were effective as of January 1, 2019.

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Standard		Description		Financial Statements Impact
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 ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses		These Updates replace the current long-standing 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 except for unconditionally cancellable commitments. 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 PCI loans and debt securities.		These Updates are to be applied using a cumulative-effect adjustment to retained earnings. 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. However, the CECL ACL methodology will produce higher volatility in the quarterly provision for credit losses than our current reserve process. We created a cross-functional management steering group to govern implementation and the Audit and Risk Committees and the Board of Directors received regular updates. 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 decisions on segmentation, a reasonable and supportable forecast period, a reversion method and period and a historical loss forecast covering the remaining contractual life, adjusted for prepayments as well as other criteria necessary. Based on our portfolio composition and forecasts of relatively stable macroeconomic conditions over the next two years, we currently estimate that our CECL ACL on the originated portfolio will increase approximately 30%, primarily driven by our consumer portfolios. The overall ACL including the "gross-up" for PCI loans of approximately $50 million is approximately $300-$310 million. There is no capital impact related to the PCI loans at adoption. The impact for the adoption of CECL is a reduction to retained earnings of approximately $52 million. The impact of this Update is dependent on the portfolio composition and credit quality, as well as historical experience, current conditions and forecasts of economic conditions and interest rates at the time of adoption. The impact to our AFS and HTM debt securities is immaterial. Model development, as well as the development of policies and procedures and, internal controls are complete. This Update is effective as of January 1, 2020.

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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:
December 31, 2019
U.S. government agencies	$	152			$	—			$	(1	)		$	151
U.S. government-sponsored entities	225				1				—				226
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,310				7				(3		)		1,314
Agency collateralized mortgage obligations	1,234				10				(4		)		1,240
Commercial mortgage-backed securities	341				6				(2		)		345
States of the U.S. and political subdivisions	11				—				—				11
Other debt securities	2				—				—				2
Total debt securities available for sale	$	3,275			$	24			$	(10	)		$	3,289
December 31, 2018
U.S. government agencies	$	188			$	—			$	(1	)		$	187
U.S. government-sponsored entities	317				—				(4		)		313
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,465				—				(36		)		1,429
Agency collateralized mortgage obligations	1,179				5				(23		)		1,161
Commercial mortgage-backed securities	229				—				(1		)		228
States of the U.S. and political subdivisions	21				—				—				21
Other debt securities	2				—				—				2
Total debt securities available for sale	3,401				5				(65		)		3,341

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(in millions)	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Debt Securities Held to Maturity:
December 31, 2019
U.S. Treasury	$	1			$	—			$	—			$	1
U.S. government agencies	1				—				—				1
U.S. government-sponsored entities	175				—				—				175
Residential mortgage-backed securities:
Agency mortgage-backed securities	949				8				(2		)		955
Agency collateralized mortgage obligations	721				5				(6		)		720
Commercial mortgage-backed securities	308				3				(2		)		309
States of the U.S. and political subdivisions	1,120				26				(2		)		1,144
Total debt securities held to maturity	$	3,275			$	42			$	(12	)		$	3,305
December 31, 2018
U.S. Treasury	$	1			$	—			$	—			$	1
U.S. government agencies	2				—				—				2
U.S. government-sponsored entities	215				—				(4		)		211
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,036				—				(26		)		1,010
Agency collateralized mortgage obligations	794				1				(24		)		771
Commercial mortgage-backed securities	126				1				(1		)		126
States of the U.S. and political subdivisions	1,080				3				(49		)		1,034
Total debt securities held to maturity	$	3,254			$	5			$	(104	)		$	3,155

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

TABLE 3.2

Year Ended December 31	2019				2018				2017
(in millions)
Gross gains	$	—			$	—			$	7
Gross losses	—				—				(1		)
Net gains	$	—			$	—			$	6

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As of December 31, 2019, the amortized cost and fair value of debt securities, by contractual maturities, were as follows:

TABLE 3.3

	Available for Sale								Held to Maturity
(in millions)	Amortized Cost				Fair Value				Amortized Cost				Fair Value
Due in one year or less	$	93			$	93			$	58			$	58
Due after one year but within five years	147				148				131				131
Due after five years but within ten years	62				62				117				119
Due after ten years	88				87				991				1,013
	390				390				1,297				1,321
Residential mortgage-backed securities:
Agency mortgage-backed securities	1,310				1,314				949				955
Agency collateralized mortgage obligations	1,234				1,240				721				720
Commercial mortgage-backed securities	341				345				308				309
Total debt securities	$	3,275			$	3,289			$	3,275			$	3,305

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 3.4

December 31	2019				2018
(dollars in millions)
Securities pledged (carrying value):
To secure public deposits, trust deposits and for other purposes as required by law	$	4,494			$	3,874
As collateral for short-term borrowings	285				279
Securities pledged as a percent of total securities	72.8		%		63.0		%

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

TABLE 3.5

	Less than 12 Months											12 Months or More											Total
(dollars in millions)	#			Fair Value				Unrealized Losses				#			Fair Value				Unrealized Losses				#			Fair Value				Unrealized Losses
Debt Securities Available for Sale:
December 31, 2019
U.S. government agencies	5			$	48			$	—			15			$	61			$	(1	)		20			$	109			$	(1	)
U.S. government-sponsored entities	—			—				—				6			130				—				6			130				—
Residential mortgage-backed securities:
Agency mortgage-backed securities	13			200				(1		)		24			314				(2		)		37			514				(3		)
Agency collateralized mortgage obligations	11			323				(1		)		32			205				(3		)		43			528				(4		)
Commercial mortgage-backed securities	3			114				(2		)		—			—				—				3			114				(2		)
States of the U.S. and political subdivisions	—			—				—				—			—				—				—			—				—
Other debt securities	—			—				—				1			2				—				1			2				—
Total temporarily impaired debt securities AFS	32			$	685			$	(4	)		78			$	712			$	(6	)		110			$	1,397			$	(10	)
December 31, 2018
U.S. government agencies	20			$	145			$	(1	)		—			$	—			$	—			20			$	145			$	(1	)
U.S. government-sponsored entities	1			36				—				11			227				(4		)		12			263				(4		)
Residential mortgage-backed securities:
Agency mortgage-backed securities	16			259				(4		)		71			1,159				(32		)		87			1,418				(36		)
Agency collateralized mortgage obligations	2			82				(1		)		47			590				(22		)		49			672				(23		)
Non-agency collateralized mortgage obligations	1			—				—				—			—				—				1			—				—
Commercial mortgage-backed securities	4			155				(1		)		—			—				—				4			155				(1		)
States of the U.S. and political subdivisions	2			2				—				6			10				—				8			12				—
Other debt securities	—			—				—				1			2				—				1			2				—
Total temporarily impaired debt securities AFS	46			$	679			$	(7	)		136			$	1,988			$	(58	)		182			$	2,667			$	(65	)

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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:
December 31, 2019
U.S. government-sponsored entities	—			$	—			$	—			8			$	160			$	—			8			$	160			$	—
Residential mortgage-backed securities:
Agency mortgage-backed securities	5			134				(1		)		11			135				(1		)		16			269				(2		)
Agency collateralized mortgage obligations	2			50				—				33			317				(6		)		35			367				(6		)
Commercial mortgage-backed securities	5			184				(2		)		1			7				—				6			191				(2		)
States of the U.S. and political subdivisions	18			63				(1		)		7			29				(1		)		25			92				(2		)
Total temporarily impaired debt securities HTM	30			$	431			$	(4	)		60			$	648			$	(8	)		90			$	1,079			$	(12	)

December 31, 2018
U.S. government-sponsored entities	—			$	—			$	—			12			$	211			$	(4	)		12			$	211			$	(4	)
Residential mortgage-backed securities:
Agency mortgage-backed securities	43			294				(4		)		47			694				(22		)		90			988				(26		)
Agency collateralized mortgage obligations	3			42				—				49			611				(24		)		52			653				(24		)
Commercial mortgage-backed securities	5			26				—				4			43				(1		)		9			69				(1		)
States of the U.S. and political subdivisions	159			590				(27		)		51			161				(22		)		210			751				(49		)
Total temporarily impaired debt securities HTM	210			$	952			$	(31	)		163			$	1,720			$	(73	)		373			$	2,672			$	(104	)

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 years ended December 31, 2019, 2018 and 2017.

States of the U.S. and Political Subdivisions

Our municipal bond portfolio with a carrying amount of $1.1 billion as of December 31, 2019 is highly rated with an average 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 are general obligation bonds. Geographically, municipal bonds support our primary footprint as 66% of the securities are from municipalities located in the primary states within which we conduct business. The average holding size of the securities in the municipal bond portfolio is $3.4 million. In addition to the strong stand-alone ratings, 63% of the municipalities have some formal credit enhancement insurance that strengthens the creditworthiness of their issue. Management reviews the credit profile of each issuer on a quarterly basis.

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Following is a summary of non-marketable equity securities:

TABLE 4.1

December 31	2019				2018
(in millions)
Federal Home Loan Bank stock	$	256			$	209
Federal Reserve Bank stock	123				122
Other non-marketable equity securities	1				1
Total non-marketable equity securities	$	380			$	332

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

TABLE 5.1

(in millions)	Originated Loans and Leases				Loans Acquired in a Business Combination				Total Loans and Leases
December 31, 2019
Commercial real estate	$	7,114			$	1,846			$	8,960
Commercial and industrial	5,063				245				5,308
Commercial leases	432				—				432
Other	21				—				21
Total commercial loans and leases	12,630				2,091				14,721
Direct installment	1,758				63				1,821
Residential mortgages	2,995				379				3,374
Indirect installment	1,922				—				1,922
Consumer lines of credit	1,092				359				1,451
Total consumer loans	7,767				801				8,568
Total loans and leases, net of unearned income	$	20,397			$	2,892			$	23,289
December 31, 2018
Commercial real estate	$	6,171			$	2,615			$	8,786
Commercial and industrial	4,140				416				4,556
Commercial leases	373				—				373
Other	46				—				46
Total commercial loans and leases	10,730				3,031				13,761
Direct installment	1,668				96				1,764
Residential mortgages	2,612				501				3,113
Indirect installment	1,933				—				1,933
Consumer lines of credit	1,119				463				1,582
Total consumer loans	7,332				1,060				8,392
Total loans and leases, net of unearned income	$	18,062			$	4,091			$	22,153

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.

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

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areas including: Pittsburgh, Pennsylvania; Baltimore, Maryland; Cleveland, Ohio; Washington, D.C.; and Charlotte, Raleigh, Durham and the Piedmont Triad (Winston-Salem, Greensboro and High Point) in North Carolina.

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

TABLE 5.2

December 31	2019				2018
(dollars in millions)
Commercial construction, acquisition and development loans	$	1,275			$	1,152
Percent of total loans and leases	5.5		%		5.2		%
Commercial real estate:
Percent owner-occupied	30.6		%		35.1		%
Percent non-owner-occupied	69.4		%		64.9		%

Additionally, as of December 31, 2019 and 2018, we had residential construction loans of $297.3 million and $273.4 million, representing 1.3% and 1.2% of total loans and leases, respectively.

We have extended credit to certain directors and executive officers and their related interests. These related-party loans were made in the ordinary course of business under normal credit terms and do not involve more than a normal risk of collection. Following is a summary of the activity for these loans to related parties during 2019:

TABLE 5.3

(in millions)
Balance at beginning of period	$	16
New loans	1
Repayments	(10		)
Balance at end of period	$	7

Loans Acquired in a Business Combination

All loans acquired in a business combination were initially recorded at fair value at the acquisition date. Refer to the Loans Acquired in a Business Combination section in Note 1, “Summary of Significant Accounting Policies,” for a discussion of ASC 310-20 and ASC 310-30 loans. The outstanding balance and the carrying amount of loans acquired in a business combination included in the Consolidated Balance Sheets are as follows:

TABLE 5.4

December 31	2019				2018
(in millions)
Accounted for under ASC 310-30:
Outstanding balance	$	2,684			$	3,768
Carrying amount	2,461				3,570
Accounted for under ASC 310-20:
Outstanding balance	436				602
Carrying amount	425				513
Total loans acquired in a business combination:
Outstanding balance	3,120				4,370
Carrying amount	2,886				4,083

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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 charged-off.

The carrying amount of PCI loans included in the table above totaled $1.5 million at December 31, 2019 and $1.7 million at December 31, 2018, representing 0.05% and 0.04%, respectively, of the carrying amount of total loans acquired in a business combination as of each date.

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

TABLE 5.5

Year Ended December 31	2019				2018
(in millions)
Balance at beginning of period	$	605			$	708
Reduction due to unexpected early payoffs	(102		)		(146		)
Reclass from non-accretable difference to accretable yield	97				267
Disposals/transfers	(1		)		(1		)
Other	(1		)		(1		)
Accretion	(179		)		(222		)
Balance at end of period	$	419			$	605

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

During 2019, there was an overall improvement in cash flow expectations which resulted in a net reclassification of $97.0 million from the non-accretable difference to accretable yield primarily driven by overall improvement in the primary credit quality indicators of the majority of the acquired loan pools. This reclassification was $266.5 million for 2018. The reclassification from the non-accretable difference to the accretable yield results in prospective yield adjustments on the loan pools.

Credit Quality

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

Non-performing loans include non-accrual loans and non-performing TDRs. We place loans on non-accrual status and discontinue interest accruals on 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 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 original repayment terms due to the borrower’s financial distress.

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Following is a summary of non-performing assets:

TABLE 5.6

December 31	2019				2018
(dollars in millions)
Non-accrual loans	$	81			$	79
Troubled debt restructurings	22				21
Total non-performing loans	103				100
Other real estate owned	26				35
Total non-performing assets	$	129			$	135
Asset quality ratios:
Non-performing loans / total loans and leases	0.44		%		0.45		%
Non-performing loans + OREO / total loans and leases + OREO	0.55		%		0.61		%
Non-performing assets / total assets	0.37		%		0.41		%

The carrying value of residential-secured consumer OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure amounted to $3.3 million at December 31, 2019 and $6.3 million at December 31, 2018. The recorded investment of residential-secured consumer OREO for which formal foreclosure proceedings are in process at December 31, 2019 and December 31, 2018 totaled $9.2 million and $8.9 million, respectively.

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

TABLE 5.7

(in millions)	30-89 Days Past Due				≥ 90 Days Past Due and Still Accruing				Non- Accrual				Total Past Due				Current				Total Loans and Leases
Originated Loans and Leases
December 31, 2019
Commercial real estate	$	10			$	—			$	26			$	36			$	7,078			$	7,114
Commercial and industrial	9				—				28				37				5,026				5,063
Commercial leases	5				—				1				6				426				432
Other	—				—				1				1				20				21
Total commercial loans and leases	24				—				56				80				12,550				12,630
Direct installment	7				1				7				15				1,743				1,758
Residential mortgages	12				2				8				22				2,973				2,995
Indirect installment	15				1				3				19				1,903				1,922
Consumer lines of credit	5				1				3				9				1,083				1,092
Total consumer loans	39				5				21				65				7,702				7,767
Total originated loans and leases	$	63			$	5			$	77			$	145			$	20,252			$	20,397
December 31, 2018
Commercial real estate	$	7			$	—			$	17			$	24			$	6,147			$	6,171
Commercial and industrial	5				—				19				24				4,116				4,140
Commercial leases	1				—				2				3				370				373
Other	—				—				1				1				45				46
Total commercial loans and leases	13				—				39				52				10,678				10,730
Direct installment	8				—				8				16				1,652				1,668
Residential mortgages	16				3				6				25				2,587				2,612
Indirect installment	11				1				2				14				1,919				1,933
Consumer lines of credit	5				1				3				9				1,110				1,119
Total consumer loans	40				5				19				64				7,268				7,332
Total originated loans and leases	$	53			$	5			$	58			$	116			$	17,946			$	18,062

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(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
December 31, 2019
Commercial real estate	$	12			$	28			$	3			$	43			$	1,942			$	(139	)		$	1,846
Commercial and industrial	2				3				—				5				259				(19		)		245
Total commercial loans	14				31				3				48				2,201				(158		)		2,091
Direct installment	3				—				—				3				60				—				63
Residential mortgages	8				4				—				12				382				(15		)		379
Consumer lines of credit	7				2				1				10				357				(8		)		359
Total consumer loans	18				6				1				25				799				(23		)		801
Total loans acquired in a business combination	$	32			$	37			$	4			$	73			$	3,000			$	(181	)		$	2,892
December 31, 2018
Commercial real estate	$	19			$	38			$	3			$	60			$	2,723			$	(168	)		$	2,615
Commercial and industrial	3				4				17				24				420				(28		)		416
Total commercial loans	22				42				20				84				3,143				(196		)		3,031
Direct installment	3				2				—				5				91				—				96
Residential mortgages	13				6				—				19				498				(16		)		501
Consumer lines of credit	8				3				1				12				461				(10		)		463
Total consumer loans	24				11				1				36				1,050				(26		)		1,060
Total loans acquired in a business combination	$	46			$	53			$	21			$	120			$	4,193			$	(222	)		$	4,091

(1)	Past due information for loans acquired in a business combination is based on the contractual balance outstanding at December 31, 2019 and 2018.

(2)

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

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

TABLE 5.8

Rating Category		Definition
Pass		in general, the condition of the borrower and the performance of the loan is satisfactory or better
Special Mention		in general, the condition of the borrower has deteriorated, requiring an increased level of monitoring
Substandard		in general, the condition of the borrower has significantly deteriorated and the performance of the loan could further deteriorate if deficiencies are not corrected
Doubtful		in general, the condition of the borrower has significantly deteriorated and the collection in full of both principal and interest is highly questionable or improbable

The use of these internally assigned credit quality categories within the commercial loan and lease portfolio permits 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.

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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 5.9

	Commercial Loan and Lease Credit Quality Categories
(in millions)	Pass				Special Mention				Substandard				Doubtful				Total
Originated Loans and Leases
December 31, 2019
Commercial real estate	$	6,821			$	171			$	121			$	1			$	7,114
Commercial and industrial	4,768				149				144				2				5,063
Commercial leases	423				3				6				—				432
Other	20				—				1				—				21
Total originated commercial loans and leases	$	12,032			$	323			$	272			$	3			$	12,630
December 31, 2018
Commercial real estate	$	5,883			$	163			$	125			$	—			$	6,171
Commercial and industrial	3,879				180				81				—				4,140
Commercial leases	366				1				6				—				373
Other	45				—				1				—				46
Total originated commercial loans and leases	$	10,173			$	344			$	213			$	—			$	10,730
Loans Acquired in a Business Combination
December 31, 2019
Commercial real estate	$	1,603			$	116			$	127			$	—			$	1,846
Commercial and industrial	201				19				25				—				245
Total commercial loans acquired in a business combination	$	1,804			$	135			$	152			$	—			$	2,091
December 31, 2018
Commercial real estate	$	2,256			$	168			$	191			$	—			$	2,615
Commercial and industrial	355				18				43				—				416
Total commercial loans acquired in a business combination	$	2,611			$	186			$	234			$	—			$	3,031

Credit quality information for loans acquired in a business combination is based on the contractual balance outstanding at December 31, 2019 and 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, FICO scores and other external factors such as unemployment, to determine how consumer loans are performing.

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Following is a table showing consumer loans by payment status:

TABLE 5.10

	Consumer Loan Credit Quality by Payment Status
(in millions)	Performing				Non-Performing				Total
Originated Loans
December 31, 2019
Direct installment	$	1,745			$	13			$	1,758
Residential mortgages	2,978				17				2,995
Indirect installment	1,919				3				1,922
Consumer lines of credit	1,086				6				1,092
Total originated consumer loans	$	7,728			$	39			$	7,767
December 31, 2018
Direct installment	$	1,654			$	14			$	1,668
Residential mortgages	2,598				14				2,612
Indirect installment	1,931				2				1,933
Consumer lines of credit	1,114				5				1,119
Total originated consumer loans	$	7,297			$	35			$	7,332
Loans Acquired in a Business Combination
December 31, 2019
Direct installment	$	63			$	—			$	63
Residential mortgages	379				—				379
Consumer lines of credit	358				1				359
Total consumer loans acquired in a business combination	$	800			$	1			$	801
December 31, 2018
Direct installment	$	96			$	—			$	96
Residential mortgages	501				—				501
Consumer lines of credit	462				1				463
Total consumer loans acquired in a business combination	$	1,059			$	1			$	1,060

Loans 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 for impairment unless a sustained period of delinquency (i.e., 90-plus days) is noted or there are subsequent events that impact repayment probability (i.e., negative financial trends, bankruptcy filings, imminent foreclosure proceedings, etc.). Impairment is evaluated in the aggregate for consumer installment loans, residential mortgages, consumer lines of credit and commercial loan relationships less than $1.0 million based on loan segment loss given default. For commercial loan relationships greater than or equal to $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, 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.

---

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

TABLE 5.11

(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 Year Ended December 31, 2019
Commercial real estate	$	30			$	25			$	2			$	27			$	2			$	26
Commercial and industrial	35				21				—				21				2				22
Commercial leases	1				1				—				1				—				1
Total commercial loans and leases	66				47				2				49				4				49
Direct installment	16				13				—				13				—				13
Residential mortgages	20				18				—				18				—				17
Indirect installment	5				3				—				3				—				3
Consumer lines of credit	7				5				—				5				—				5
Total consumer loans	48				39				—				39				—				38
Total	$	114			$	86			$	2			$	88			$	4			$	87
At or for the Year Ended December 31, 2018
Commercial real estate	$	20			$	16			$	1			$	17			$	—			$	18
Commercial and industrial	46				20				13				33				4				32
Commercial leases	2				2				—				2				—				4
Total commercial loans and leases	68				38				14				52				4				54
Direct installment	17				14				—				14				—				14
Residential mortgages	16				14				—				14				—				15
Indirect installment	5				2				—				2				—				2
Consumer lines of credit	7				5				—				5				—				5
Total consumer loans	45				35				—				35				—				36
Total	$	113			$	73			$	14			$	87			$	4			$	90

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Interest income continued to accrue on certain impaired loans and totaled approximately $5.9 million, $5.9 million and $6.1 million during 2019, 2018 and 2017, respectively. The above tables include one loan acquired 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 in a business combination due to changes in credit quality subsequent to the acquisition date:

TABLE 5.12

December 31	2019				2018
(in millions)
Commercial real estate	$	4			$	2
Commercial and industrial	—				4
Total commercial loans	4				6
Direct installment	1				1
Residential mortgages	2				—
Total consumer loans	3				1
Total allowance on loans acquired in a business combination	$	7			$	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 5.13

(in millions)	Originated				Acquired				Total
December 31, 2019
Accruing:
Performing	$	19			$	—			$	19
Non-performing	18				4				22
Non-accrual	14				1				15
Total TDRs	$	51			$	5			$	56
December 31, 2018
Accruing:
Performing	$	18			$	—			$	18
Non-performing	17				4				21
Non-accrual	9				—				9
Total TDRs	$	44			$	4			$	48

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 2019, we returned to performing status $4.4 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.

Excluding purchased credit impaired loans, commercial loans over $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 December 31, 2019 and 2018, respectively, and pooled reserves for individual loans of $0.8 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.

All other classes of loans 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 $4.1 million and $4.0 million at December 31, 2019 and 2018, respectively. Upon default of an individual loan, our charge-off policy is followed for that class of loan.

Following is a summary of TDR loans, by class:

TABLE 5.14

Year Ended December 31	2019											2018
(dollars in millions)	Number of Contracts			Pre-Modification Outstanding Recorded Investment				Post- Modification Outstanding Recorded Investment				Number of Contracts			Pre-Modification Outstanding Recorded Investment				Post- Modification Outstanding Recorded Investment
Commercial real estate	20			$	5			$	5			4			$	1			$	1
Commercial and industrial	23			5				3				10			—				—
Total commercial loans	43			10				8				14			1				1
Direct installment	65			3				3				80			4				4
Residential mortgages	18			3				3				15			1				1
Consumer lines of credit	27			2				1				26			1				1
Total consumer loans	110			8				7				121			6				6
Total	153			$	18			$	15			135			$	7			$	7

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

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

TABLE 5.15

Year Ended December 31	2019							2018
(dollars in millions)	Number of Contracts			Recorded Investment				Number of Contracts			Recorded Investment
Commercial real estate	5			$	1			3			$	1
Commercial and industrial	1			—				1			—
Total commercial loans	6			1				4			1
Direct installment	5			—				7			1
Residential mortgages	2			—				4			—
Consumer lines of credit	1			—				3			—
Total consumer loans	8			—				14			1
Total	14			$	1			18			$	2

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

TABLE 6.1

(in millions)	Balance at Beginning of Year				Charge- Offs				Recoveries				Net Charge- Offs				Provision for Credit Losses				Balance at End of Year
Year Ended December 31, 2019
Commercial real estate	$	55			$	(4	)		$	4			$	—			$	5			$	60
Commercial and industrial	49				(10		)		4				(6		)		10				53
Commercial leases	8				—				—				—				3				11
Other	2				(3		)		—				(3		)		3				2
Total commercial loans and leases	114				(17		)		8				(9		)		21				126
Direct installment	14				(1		)		—				(1		)		—				13
Residential mortgages	20				(2		)		—				(2		)		4				22
Indirect installment	15				(11		)		4				(7		)		11				19
Consumer lines of credit	10				(2		)		—				(2		)		1				9
Total consumer loans	59				(16		)		4				(12		)		16				63
Total allowance on originated loans and leases	173				(33		)		12				(21		)		37				189
Purchased credit-impaired loans	1				—				—				—				—				1
Other loans acquired in a business combination	6				(9		)		2				(7		)		7				6
Total allowance on loans acquired in a business combination	7				(9		)		2				(7		)		7				7
Total allowance for credit losses	$	180			$	(42	)		$	14			$	(28	)		$	44			$	196

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(in millions)	Balance at Beginning of Year				Charge- Offs				Recoveries				Net Charge- Offs				Provision for Credit Losses				Balance at End of Year
Year Ended December 31, 2018
Commercial real estate	$	50			$	(7	)		$	3			$	(4	)		$	9			$	55
Commercial and industrial	52				(20		)		2				(18		)		15				49
Commercial leases	5				(3		)		—				(3		)		6				8
Other	2				(4		)		—				(4		)		4				2
Total commercial loans and leases	109				(34		)		5				(29		)		34				114
Direct installment	21				(17		)		2				(15		)		8				14
Residential mortgages	16				—				—				—				4				20
Indirect installment	12				(9		)		4				(5		)		8				15
Consumer lines of credit	10				(3		)		—				(3		)		3				10
Total consumer loans	59				(29		)		6				(23		)		23				59
Total allowance on originated loans and leases	168				(63		)		11				(52		)		57				173
Purchased credit-impaired loans	1				—				—				—				—				1
Other loans acquired in a business combination	6				(7		)		3				(4		)		4				6
Total allowance on loans acquired in a business combination	7				(7		)		3				(4		)		4				7
Total allowance for credit losses	$	175			$	(70	)		$	14			$	(56	)		$	61			$	180
Year Ended December 31, 2017
Commercial real estate	$	47			$	(2	)		$	2			$	—			$	3			$	50
Commercial and industrial	48				(27		)		2				(25		)		29				52
Commercial leases	3				(1		)		—				(1		)		3				5
Other	1				(4		)		1				(3		)		4				2
Total commercial loans and leases	99				(34		)		5				(29		)		39				109
Direct installment	21				(12		)		2				(10		)		10				21
Residential mortgages	10				—				—				—				6				16
Indirect installment	11				(10		)		4				(6		)		7				12
Consumer lines of credit	10				(2		)		—				(2		)		2				10
Total consumer loans	52				(24		)		6				(18		)		25				59
Total allowance on originated loans and leases	151				(58		)		11				(47		)		64				168
Purchased credit-impaired loans	1				(1		)		—				(1		)		1				1
Other loans acquired in a business combination	6				(1		)		5				4				(4		)		6
Total allowance on loans acquired in a business combination	7				(2		)		5				3				(3		)		7
Total allowance for credit losses	$	158			$	(60	)		$	16			$	(44	)		$	61			$	175

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

TABLE 6.2

	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
December 31, 2019
Commercial real estate	$	2			$	58			$	7,114			$	13			$	7,101
Commercial and industrial	2				51				5,063				17				5,046
Commercial leases	—				11				432				—				432
Other	—				2				21				—				21
Total commercial loans and leases	4				122				12,630				30				12,600
Direct installment	—				13				1,758				—				1,758
Residential mortgages	—				22				2,995				—				2,995
Indirect installment	—				19				1,922				—				1,922
Consumer lines of credit	—				9				1,092				—				1,092
Total consumer loans	—				63				7,767				—				7,767
Total	$	4			$	185			$	20,397			$	30			$	20,367
December 31, 2018
Commercial real estate	$	—			$	55			$	6,171			$	7			$	6,164
Commercial and industrial	4				49				4,140				11				4,129
Commercial leases	—				9				373				—				373
Other	—				2				46				—				46
Total commercial loans and leases	4				115				10,730				18				10,712
Direct installment	—				14				1,668				—				1,668
Residential mortgages	—				19				2,612				—				2,612
Indirect installment	—				15				1,933				—				1,933
Consumer lines of credit	—				10				1,119				—				1,119
Total consumer loans	—				58				7,332				—				7,332
Total	$	4			$	173			$	18,062			$	18			$	18,044

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

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 December 31, 2019 and 2018, is listed below:

TABLE 7.1

December 31	2019				2018
(in millions)
Mortgage loans sold with servicing retained	$	4,686			$	3,968

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

TABLE 7.2

Year Ended December 31	2019				2018				2017
(in millions)
Mortgage loans sold with servicing retained	$	1,381			$	1,060			$	1,769
Pretax gains resulting from above loan sales (1)	32				19				22
Mortgage servicing fees (1)	11				9				8

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

Following is a summary activity relating to MSRs:

TABLE 7.3

Year Ended December 31	2019				2018				2017
(in millions)
Balance at beginning of period	$	37			$	29			$	14
Fair value of MSRs acquired	—				—				8
Additions	14				13				11
Payoffs and curtailments	(5		)		(2		)		(2		)
Impairment charge	(1		)		(1		)		—
Amortization	(2		)		(2		)		(2		)
Balance at end of period	$	43			$	37			$	29
Fair value, beginning of period	$	41			$	32			$	18
Fair value, end of period	45				41				32

The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third-party valuations. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of MSRs and as interest rates increase, mortgage loan prepayments decline, which results in an increase in the fair value of MSRs. Measurement of fair value is limited to the conditions existing and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time.

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

TABLE 7.4

December 31	2019				2018
(dollars in millions)
Weighted average life (months)	78.9				82.2
Constant prepayment rate (annualized)	10.6		%		10.1		%
Discount rate	9.7		%		9.7		%
Effect on fair value due to change in interest rates:
+0.25%	$	3			$	3
+0.50%	5				5
-0.25%	(3		)		(3		)
-0.50%	(5		)		(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 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. We had a $1.5 million valuation allowance for MSRs as of December 31, 2019, compared to $0.5 million at December 31, 2018.

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 SBA guaranteed portion of the loan, which is commonly known as a servicing spread. The unpaid principal balance of SBA-guaranteed loans serviced for investors, as of December 31, 2019 and December 31, 2018, was as follows:

TABLE 7.5

December 31	2019				2018
(in millions)
SBA loans sold to investors with servicing retained	$	225			$	283

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

TABLE 7.6

Year Ended December 31	2019				2018				2017
(in millions)
SBA loans sold with servicing retained	$	23			$	41			$	54
Pretax gains resulting from above loan sales (1)	2				4				2
SBA servicing fees (1)	2				3				2

(1) Recorded in non-interest income.

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

TABLE 7.7

Year Ended December 31	2019				2018				2017
(in millions)
Balance at beginning of period	$	4			$	5			$	—
Fair value of servicing rights acquired	—				—				5
Additions	—				1				1
Payoffs, curtailments and amortization	(1		)		(1		)		(1		)
Impairment (charge) / recovery	—				(1		)		—
Balance at end of period	$	3			$	4			$	5
Fair value, beginning of period	$	4			$	5			$	—
Fair value, end of period	3				4				5

Following is a summary of key assumptions and the sensitivity of the SBA servicing rights to changes in these assumptions. The declines in fair values were immaterial in the scenarios presented.

TABLE 7.8

December 31	2019				2018
(dollars in millions)
Weighted average life (months)	42.0				52.2
Constant prepayment rate	16.8		%		12.5		%
Discount rate	16.2		%		19.4		%
Decline in fair value due to change in interest rates:
1% adverse change	$	(0.1	)		$	(0.1	)
2% adverse change	(0.1		)		(0.2		)
Decline in fair value due to change in constant prepayment rates:
10% adverse change	(0.1		)		(0.2		)
20% adverse change	(0.3		)		(0.3		)

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 other non-interest income. We had a $1.2 million valuation allowance for SBA servicing rights as of December 31, 2019, compared to $0.8 million at December 31, 2018.

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Following is a summary of premises and equipment:

TABLE 8.1

December 31	2019				2018
(in millions)
Land	$	62			$	64
Premises	233				238
Equipment	276				236
	571				538
Accumulated depreciation	(238		)		(208		)
Total premises and equipment, net	$	333			$	330

Depreciation expense for premises and equipment is presented in the following table:

TABLE 8.2

December 31	2019				2018				2017
(in millions)
Depreciation expense for premises and equipment	$	42			$	39			$	34

The following table shows a rollforward of goodwill by line of business:

TABLE 9.1

(in millions)	Community Banking				Wealth Manage- ment				Insurance				Other (1)				Total
Balance at January 1, 2018	$	2,228			$	8			$	11			$	2			$	2,249
Goodwill (deductions) additions	3				—				5				(2		)		6
Balance at December 31, 2018	2,231				8				16				—				2,255
Goodwill (deductions) additions	—				—				7				—				7
Balance at December 31, 2019	$	2,231			$	8			$	23			$	—			$	2,262

⁽¹⁾ Other represents Consumer Finance which was a reportable segment prior to December 31, 2018. The deduction of goodwill for the Consumer Finance segment in 2018 was the result of the sale of Regency to Mariner Finance, LLC on August 31, 2018, as part of our strategy to enhance the overall positioning of our consumer banking operations.

The addition of goodwill for the Insurance segment in 2018 and 2019 was the result of the FNIA acquisitions of a Maryland-based insurance agency on December 17, 2018 and a North Carolina-based insurance agency on June 17, 2019. We recorded goodwill in the Community Banking segment during 2018 as a result of the purchase accounting adjustments relating to the YDKN acquisition described in Note 27, “Mergers and Acquisitions.”

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The following table shows a summary of core deposit intangibles and customer renewal lists:

TABLE 9.2

(in millions)	Core Deposit Intangibles				Customer Renewal Lists				Total
December 31, 2019
Gross carrying amount	$	196			$	18			$	214
Accumulated amortization	(136		)		(11		)		(147		)
Net carrying amount	$	60			$	7			$	67
December 31, 2018
Gross carrying amount	$	196			$	15			$	211
Accumulated amortization	(122		)		(10		)		(132		)
Net carrying amount	$	74			$	5			$	79

Core deposit intangibles are being amortized primarily over 10 years using accelerated methods. Customer renewal lists are being amortized over their estimated useful lives, which range from eight to thirteen years.

The following table summarizes amortization expense recognized:

TABLE 9.3

December 31	2019				2018				2017
(in millions)
Amortization expense	$	14			$	16			$	18

Following is a summary of the expected amortization expense on finite-lived intangible assets, assuming no new additions, for each of the five years following December 31, 2019:

TABLE 9.4

(in millions)
2020	$	13
2021	12
2022	10
2023	10
2024	8
Total	$	53

Goodwill and other intangible assets are tested annually for impairment, and more frequently if events or changes in circumstances indicate the carrying value may not be recoverable. We completed this test in 2019 and 2018 and determined that our intangible assets are not impaired.

We have operating leases primarily for certain branches, office space, land, and office equipment. Our operating leases expire at various dates through the year 2046 and generally include one or more options to renew. The exercise of lease renewal options is at our sole discretion. As of December 31, 2019, we had operating lease right-of-use assets and operating lease liabilities of $121.4 million and $128.2 million, respectively.

Our operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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As of December 31, 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 $29.0 million in right-of-use assets and other liabilities. These operating leases will commence in 2020 with lease terms of 6 years to 15 years.

The components of lease expense were as follows:

TABLE 10.1

	Twelve Months Ended December 31,
(dollars in millions)	2019
Operating lease cost	$	27
Short-term lease cost	1
Variable lease cost	4
Sublease income	—
Total lease cost	$	32

Rental expense totaled $33.2 million and $29.1 million for 2018 and 2017, respectively.

Other information related to leases is as follows:

TABLE 10.2

	Twelve Months Ended December 31,
(dollars in millions)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	26
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	25
Weighted average remaining lease term (years):
Operating leases	9.61
Weighted average discount rate:
Operating leases	3.0		%

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Maturities of operating lease liabilities were as follows:

TABLE 10.3

(in millions)	December 31, 2019
2020	$	24
2021	22
2022	17
2023	13
2024	12
Later years	62
Total lease payments	150
Less: imputed interest	(22		)
Present value of lease liabilities	$	128

Following is a summary of deposits:

TABLE 11.1

December 31	2019				2018
(in millions)
Non-interest-bearing demand	$	6,384			$	6,000
Interest-bearing demand	11,049				9,660
Savings	2,625				2,526
Certificates and other time deposits:
Less than $100,000	2,262				2,816
$100,000 through $250,000	1,494				1,478
Greater than $250,000	972				975
Total certificates and other time deposits	4,728				5,269
Total deposits	$	24,786			$	23,455

Following is a summary of the scheduled maturities of certificates and other time deposits for the years following December 31, 2019:

TABLE 11.2

(in millions)
2020	$	3,035
2021	1,041
2022	236
2023	214
2024	115
Later years	87
Total	$	4,728

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Following is a summary of short-term borrowings:

TABLE 12.1

December 31	2019				2018
(in millions)
Securities sold under repurchase agreements	$	278			$	251
Federal Home Loan Bank advances	2,255				2,230
Federal funds purchased	575				1,535
Subordinated notes	108				113
Total short-term borrowings	$	3,216			$	4,129

Borrowings with original maturities of one year or less are classified as short-term. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are sweep accounts with next-day maturities utilized by larger commercial customers to earn interest on their funds. Securities are pledged to these customers in an amount at least equal to the outstanding balance. Of the total short-term FHLB advances, there were no overnight maturities as of December 31, 2019. Of the total short-term FHLB advances as of December 31, 2018, 57.2% had overnight maturities. At December 31, 2019, $1.5 billion, or 64.5%, of the short-term FHLB advances were swapped to a fixed rate with maturities in 2020. This compares to $1.0 billion, or 42.8%, as of December 31, 2018.

The following represents weighted average interest rates on short-term borrowings:

TABLE 12.2

December 31	2019			2018			2017
Year-to-date average	2.24	%		1.89	%		1.16	%
Period-end	1.76	%		2.49	%		1.44	%

Following is a summary of long-term borrowings:

TABLE 13.1

December 31	2019				2018
(in millions)
Federal Home Loan Bank advances	$	935			$	270
Subordinated notes	90				87
Junior subordinated debt	66				111
Other subordinated debt	249				159
Total long-term borrowings	$	1,340			$	627

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Scheduled annual maturities for the long-term borrowings for the years following December 31, 2019 are as follows:

TABLE 13.2

(in millions)
2020	$	122
2021	563
2022	311
2023	30
2024	1
Later years	313
Total	$	1,340

Federal Home Loan Bank advances

Our banking affiliate has available credit with the FHLB of $7.9 billion, of which $3.2 billion was utilized as of December 31, 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 2022. Effective interest rates paid on the long-term advances ranged from 1.62% to 2.71% for the year ended December 31, 2019 and 1.39% to 4.19% for the year ended December 31, 2018.

Subordinated notes

Subordinated notes are unsecured and subordinated to our other indebtedness. The subordinated notes mature in various amounts periodically through the year 2029. At December 31, 2019, all of the subordinated notes are redeemable by the holders prior to maturity at a discount equal to three to 12 months of interest, depending on the term of the note. We may require the holder to give 30 days prior written notice. No sinking fund is required and none has been established to retire the notes. The weighted average interest rate on the subordinated notes are presented in the following table:

TABLE 13.3

December 31	2019			2018			2017
Subordinated notes weighted average interest rate	3.33	%		3.08	%		2.85	%

Junior subordinated debt

The junior subordinated debt is comprised of the debt securities issued by FNB in relation to our three unconsolidated subsidiary trusts (collectively, the Trusts), which are unconsolidated variable interest entities and are included on the Consolidated Balance Sheets in long-term borrowings. One hundred percent of the common equity of each Trust is owned by FNB. The Trusts were formed for the purpose of issuing FNB-obligated mandatorily redeemable capital securities, or TPS to third-party investors. The proceeds from the sale of TPS and the issuance of common equity by the Trusts were invested in junior subordinated debt securities issued by FNB, which are the sole assets of each Trust. Since third-party investors are the primary beneficiaries, the Trusts are not consolidated in our Financial Statements. The Trusts pay dividends on the TPS at the same rate as the distributions paid by us on the junior subordinated debt held by the Trusts. F.N.B. Statutory Trust II was formed by us, and the other two statutory trusts were assumed through acquisitions. The acquired statutory trusts were adjusted to fair value in conjunction with the various acquisitions.

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

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The following table provides information relating to the Trusts as of December 31, 2019:

TABLE 13.4

(dollars in millions)	Trust Preferred Securities				Common Securities				Junior Subordinated Debt				Stated Maturity Date		Interest Rate			Rate Reset Factor
F.N.B. Statutory Trust II	$	22			$	1			$	22			6/15/2036		3.54	%		LIBOR + 165 basis points (bps)
Yadkin Valley Statutory Trust I	25				1				22				12/15/2037		3.21	%		LIBOR + 132 bps
FNB Financial Services Capital Trust I	25				1				22				9/30/2035		3.42	%		LIBOR + 146 bps
Total	$	72			$	3			$	66

During the first half of 2019, we redeemed $44.0 million of TPS that we previously assumed through various acquisitions.

Other subordinated debt

The following table provides information relating to our other subordinated debt as of December 31, 2019. These debt issuances are fixed-rate, with the exception of the debt offering in 2019, which is fixed-to-floating rate after February 14, 2024, at which time the floating rate will be LIBOR plus 240 basis points. These subordinated notes are eligible for treatment as tier 2 capital for regulatory capital purposes.

TABLE 13.5

(dollars in millions)	Aggregate Principal Amount Issued				Net Proceeds (2)				Carrying Value				Stated Maturity Date		Interest Rate
4.95% Fixed-To-Floating Rate Subordinated Notes due 2029	$	120			$	118			$	118			2/14/2029		4.95	%
4.875% Subordinated Notes due 2025	100				98				99				10/2/2025		4.88	%
7.625% Subordinated Notes due August 12, 2023 (1)	38				46				32				8/12/2023		7.63	%
Total	$	258			$	262			$	249

⁽¹⁾ Assumed from YDKN and adjusted to fair value at the time of acquisition.

⁽²⁾ After deducting underwriting discounts and commissions and offering costs. For the debt assumed from YDKN, this is the fair value of the debt at the time of the acquisition.

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.

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

TABLE 14.1

December 31	2019												2018
	Notional Amount				Fair Value								Notional Amount				Fair Value
(in millions)					Asset				Liability								Asset				Liability
Gross Derivatives
Subject to master netting arrangements:
Interest rate contracts – designated	$	1,655			$	1			$	—			$	1,155			$	—			$	3
Interest rate swaps – not designated	3,640				—				23				2,740				2				10
Equity contracts – not designated	—				—				—				1				—				—
Total subject to master netting arrangements	5,295				1				23				3,896				2				13
Not subject to master netting arrangements:
Interest rate swaps – not designated	3,640				149				1				2,740				40				26
Interest rate lock commitments – not designated	163				3				—				47				1				—
Forward delivery commitments – not designated	195				1				1				55				—				—
Credit risk contracts – not designated	265				—				—				203				—				—
Equity contracts – not designated	—				—				—				1				—				—
Total not subject to master netting arrangements	4,263				153				2				3,046				41				26
Total	$	9,558			$	154			$	25			$	6,942			$	43			$	39

Certain derivative exchanges have enacted a rule change which in effect results in the legal characterization of variation margin payments for certain derivative contracts as settlement of the derivatives mark-to-market exposure and not collateral. Accordingly, we have changed our reporting of certain derivatives to record variation margin on trades cleared through these exchanges as settled. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.

Derivatives Designated as Hedging Instruments under GAAP

Interest Rate Contracts. We entered into interest rate derivative agreements to modify the interest rate characteristics of certain commercial loans and certain of our FHLB advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges, hedging the exposure to variability in expected future cash flows. The derivative’s gain or loss, including any ineffectiveness, is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same line item associated with the forecasted transaction when the forecasted transaction affects earnings. Prior to 2019, any ineffective portion of the gain or loss was reported in earnings immediately.

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The following table shows amounts reclassified from AOCI:

TABLE 14.2

	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
	Year Ended December 31,														Year Ended December 31,
(in millions)	2019				2018				2017						2019				2018				2017
Derivatives in cash flow hedging relationships:
Interest rate contracts	$	(22	)		$	(3	)		$	1			Interest income (expense)		$	2			$	2			$	—

The following table represents gains (losses) recognized in the Consolidated Statements of Income on cash flow hedging relationships:

TABLE 14.3

	Year Ended December 31,
	2019								2018								2017
(in millions)	Interest Income - Loans and Leases				Interest Expense - Short-Term Borrowings				Interest Income - Loans and Leases				Interest Expense - Short-Term Borrowings				Interest Income - Loans and Leases				Interest Expense - Short-Term Borrowings
Total amounts of income and expense line items presented in the Consolidated Statements of Income (the effects of cash flow hedges are included in these line items)	$	1,085			$	80			$	1,022			$	75			$	862			$	44
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		)		3				1				(1		)
Amount of gain (loss) reclassified         from AOCI into income as a result of         that a forecasted transaction is no         longer probable of occurring	—				—				—				—				—				—

As of December 31, 2019, the maximum length of time over which forecasted interest cash flows are hedged is 4.9 years. In the twelve months that follow December 31, 2019, we expect to reclassify from the amount currently reported in AOCI net derivative gains of $4.5 million ($3.5 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 December 31, 2019.

There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness related to these cash flow hedges. Also, during the years ended December 31, 2019 and 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.

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Derivatives Not Designated as Hedging Instruments under GAAP

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

We enter into positions with a derivative counterparty in order to offset our exposure on the fixed components of the customer interest rate swap agreements. We seek to minimize counterparty credit risk by entering into transactions only with high-quality financial dealer institutions.

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 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 $201.5 million as of December 31, 2019 have remaining terms ranging from two 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 $0.3 million and $0.1 million at December 31, 2019 and 2018, respectively. The fair values of risk participation agreements purchased and sold were $0.1 million and $0.3 million, respectively, at December 31, 2019 and $0.05 million and $0.11 million, respectively, at December 31, 2018.

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

TABLE 14.4

			Year Ended December 31,
(in millions)	Consolidated Statements of Income Location		2019				2018				2017
Interest rate swaps	Non-interest income - other		$	—			$	1			$	(1	)
Interest rate lock commitments	Mortgage banking operations		—				—				—
Forward delivery contracts	Mortgage banking operations		(1		)		1				—
Credit risk contracts	Non-interest income - other		—				—				—

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Counterparty Credit Risk

We are party to master netting arrangements with most of our swap derivative dealer counterparties. Collateral, usually marketable securities and/or cash, is exchanged between FNB and our counterparties, and is generally subject to thresholds and transfer minimums. For swap transactions that require central clearing, we post cash to our clearing agency. Collateral positions are settled or valued daily, and adjustments to amounts received and pledged by us are made as appropriate to maintain proper collateralization for these transactions.

Certain master netting agreements contain provisions that, if violated, could cause the counterparties to request immediate settlement or demand full collateralization under the derivative instrument. If we had breached our agreements with our derivative counterparties we would be required to settle our obligations under the agreements at the termination value and would be required to pay an additional $0.1 million and $0.7 million as of December 31, 2019 and 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 14.5

					Amount Not Offset in the Consolidated Balance Sheets
(in millions)	Net Amount Presented in the Consolidated Balance Sheets				Financial Instruments				Cash Collateral				Net Amount
December 31, 2019
Derivative Assets
Interest rate contracts:
Designated	$	1			$	1			$	—			$	—
Total	$	1			$	1			$	—			$	—

Derivative Liabilities
Interest rate contracts:
Not designated	$	23			$	23			$	—			$	—
Total	$	23			$	23			$	—			$	—

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

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

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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 15.1

December 31	2019				2018
(in millions)
Commitments to extend credit	$	8,089			$	7,378
Standby letters of credit	150				126

At December 31, 2019, funding of 74.2% 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 Notes 12 and 13.

Other Legal Proceedings

In the ordinary course of business, we may assert claims in legal proceedings against another party or parties, and we are routinely named as defendants in, or made parties to, pending and potential legal actions. Also, as regulated entities, we are subject to governmental and regulatory examinations, information-gathering requests, and may be subject to investigations and proceedings (both formal and informal). Such threatened claims, litigation, investigations, regulatory and administrative proceedings typically entail matters that are considered incidental to the normal conduct of business. Claims for significant monetary damages may be asserted in many of these types of legal actions, while claims for disgorgement, restitution, penalties and/or other remedial actions or sanctions may be sought in regulatory matters. In these instances, if we determine that we have meritorious defenses, we will engage in an aggressive defense. However, if management determines, in consultation with counsel, that settlement of a matter is in the best interest of 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

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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.

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 353,656 and 283,037 performance-based restricted stock units in 2019 and 2018, respectively. As of December 31, 2019, we had available up to 1,620,243 shares of common stock to issue under this Plan.

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:

TABLE 16.1

(dollars in millions)	2019				2018				2017
Restricted stock units	1,182,197				962,799				713,998
Weighted average grant date fair values	$	13			$	13			$	10

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 16.2

	2019							2018							2017
	Units			Weighted Average Grant Price per Share				Units			Weighted Average Grant Price per Share				Units			Weighted Average Grant Price per Share
Unvested units outstanding at beginning of year	2,556,174			$	13.51			1,975,862			$	13.64			1,836,363			$	12.97
Granted	1,182,197			10.94				962,799			13.21				713,998			14.67
Net adjustment due to performance	—			—				—			—				(64,861	)		13.85
Vested	(655,208	)		13.15				(258,031	)		13.19				(542,580	)		12.71
Forfeited/expired	(332,814	)		12.72				(214,743	)		13.39				(31,018	)		14.03
Dividend reinvestment	108,008			11.84				90,287			12.61				63,960			13.80
Unvested units outstanding at end of year	2,858,357			12.56				2,556,174			13.51				1,975,862			13.64

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

TABLE 16.3

Year Ended December 31	2019				2018				2017
(in millions)
Stock-based compensation expense	$	12			$	10			$	8
Tax benefit related to stock-based compensation expense	2				2				3
Fair value of units vested	7				3				8

As of December 31, 2019, there was $14.3 million of unrecognized compensation cost related to unvested restricted stock units including $0.5 million that is subject to accelerated vesting under the Plan’s immediate vesting upon retirement. The components of the restricted stock units as of December 31, 2019 are as follows:

TABLE 16.4

(dollars in millions)	Service- Based Units				Performance- Based Units				Total
Unvested restricted stock units	1,922,120				936,237				2,858,357
Unrecognized compensation expense	$	10			$	4			$	14
Intrinsic value	$	24			$	12			$	36
Weighted average remaining life (in years)	1.83				1.81				1.82

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 16.5

	2019			Weighted Average Exercise Price per Share				2018			Weighted Average Exercise Price per Share				2017			Weighted Average Exercise Price per Share
Options outstanding at beginning of year	458,354			$	7.99			722,650			$	7.96			892,532			$	8.95
Assumed from acquisitions	—			—				—			—				207,645			8.92
Exercised	(183,566	)		7.86				(253,899	)		7.77				(255,503	)		10.21
Forfeited/expired	(28,704	)		7.65				(10,397	)		11.98				(122,024	)		12.12
Options outstanding and exercisable at end of year	246,084			8.14				458,354			7.99				722,650			7.96

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The following table summarizes information about stock options outstanding at December 31, 2019: 

TABLE 16.6

Range of Exercise Prices		Options Outstanding and Exercisable			Weighted Average Remaining Contractual Years		Weighted Average Exercise Price
$3.45 - $5.18		54,148			1.26		$	4.82
$5.19 - $7.78		40,022			3.11		6.90
$7.79 - $11.37		151,914			4.71		9.64
		246,084

The intrinsic value of outstanding and exercisable stock options at December 31, 2019 was $1.1 million. The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the option exercise price.

The following table summarizes certain information relating to stock options exercised:

TABLE 16.7

Year Ended December 31	2019				2018				2017
(in millions)
Proceeds from stock options exercised	$	1			$	2			$	2
Intrinsic value of stock options exercised	1				1				1

The tax benefit recognized from stock options exercised was $0.2 million, $0.3 million and $0.4 million for 2019, 2018 and 2017, respectively.

Warrants

As of December 31, 2019, there were no longer any outstanding warrants. The following paragraphs summarize the warrants that were previously issued that have been exercised or expired in 2018 and 2019.

In conjunction with our participation in the UST’s CPP, we issued to the UST a warrant to purchase up to 1,302,083 shares of our common stock. Pursuant to Section 13(H) of the Warrant to Purchase Common Stock, the number of shares of common stock issuable upon exercise of the warrant was reduced in half to 651,042 shares on June 16, 2009, the date we completed a public offering. The warrant, which expired in January 2019 without being exercised, was sold at auction by the UST and had an exercise price of $11.52 per share.

In conjunction with the ANNB acquisition on April 6, 2013, the warrant issued by ANNB to the UST under the CPP has been converted into a warrant to purchase up to 342,564 shares of our common stock at an exercise price of $3.57 per share. Subsequent adjustments related to actual dividends paid by us have increased the share amount of these warrants to 405,489, with a resulting lower exercise price of $3.02 per share as of March 31, 2018, prior to being exercised in May 2018.

In conjunction with the YDKN acquisition on March 11, 2017, the warrant issued by YDKN to the UST under the CPP has been converted into a warrant to purchase up to 207,320 shares of our common stock at an exercise price of $9.63 per share. Subsequent adjustments related to actual dividends paid by us have increased the share amount of these warrants to 225,439, with a resulting lower exercise price of $8.86 per share as of June 30, 2019. The warrant, which was recorded at its fair value on March 11, 2017, was sold at auction by the UST and was exercised prior to expiring in July 2019.

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We sponsor the Retirement Income Plan (RIP), a qualified noncontributory defined benefit pension plan that has been frozen. The RIP covered employees who satisfied minimum age and length of service requirements. Although not required, during 2019, we made a $5.0 million contribution to the RIP.

We also sponsor two supplemental non-qualified retirement plans that have been frozen. The ERISA Excess Retirement 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 be provided under the RIP, if no limits were applied. The Basic Retirement Plan (BRP) is applicable to certain officers whom the Board of Directors designates. Officers participating in the BRP receive a benefit based on a target benefit percentage based on years of service at retirement and a designated tier as determined by the Board of Directors. When a participant retires, the benefit under the BRP is a monthly benefit equal to the participant's aggregate target benefit percentage multiplied by the participant’s highest average monthly cash compensation, including bonuses, during five consecutive calendar years within the last ten calendar years of employment before 2009. This monthly benefit is reduced by the monthly benefit the participant receives from the Social Security Administration, the RIP, the ERISA Excess Retirement Plan and the annuity equivalent of the automatic contributions paid to participants under the qualified 401(k) defined contribution plan and the ERISA Excess Lost Match Plan.

The following tables provide information relating to the accumulated benefit obligation, change in benefit obligation, change in plan assets, the plans’ funded status and the amount included in the Consolidated Balance Sheets for the qualified and non-qualified plans described above (collectively, the Plans):

TABLE 17.1

December 31	2019												2018
	Qualified				Non-Qualified				Total				Qualified				Non-Qualified				Total
(in millions)
Accumulated benefit obligation	$	156			$	19			$	175			$	145			$	18			$	163
Projected benefit obligation at beginning of year	$	145			$	18			$	163			$	162			$	20			$	182
Interest cost	6				1				7				6				—				6
Actuarial loss (gain)	15				2				17				(12		)		(1		)		(13		)
Benefits paid	(10		)		(2		)		(12		)		(11		)		(1		)		(12		)
Projected benefit obligation at end of year	$	156			$	19			$	175			$	145			$	18			$	163
Fair value of plan assets at beginning of year	$	150			$	—			$	150			$	164			$	—			$	164
Actual return on plan assets	28				—				28				(7		)		—				(7		)
Corporation contribution	5				2				7				4				1				5
Benefits paid	(10		)		(2		)		(12		)		(11		)		(1		)		(12		)
Fair value of plan assets at end of year	$	173			$	—			$	173			$	150			$	—			$	150
Funded status of plans	$	17			$	(19	)		$	(2	)		$	5			$	(18	)		$	(13	)

The unrecognized actuarial loss, prior service cost and net transition obligation are required to be recognized into earnings over the average remaining participant life due to the freezing of the RIP, which may, on a net basis reduce future earnings.

Actuarial assumptions used in the determination of the projected benefit obligation in the Plans are as follows:

TABLE 17.2

Assumptions at December 31	2019			2018
Weighted average discount rate	3.17	%		4.18	%
Rates of average increase in compensation levels	3.50			3.50

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The discount rate assumption at December 31, 2019 and 2018 was determined using a yield-curve based approach. A yield curve was produced for a universe containing the majority of U.S.-issued Aa-graded corporate bonds, all of which were non-callable (or callable with make-whole provisions), and after excluding the 10% of the bonds with the highest and lowest yields. The discount rate was developed as the level equivalent rate that would produce the same present value as that using spot rates aligned with the projected benefit payments.

The net periodic pension cost and other comprehensive income for the Plans included the following components:

TABLE 17.3

Year Ended December 31	2019				2018				2017
(in millions)
Interest cost	$	7			$	6			$	7
Expected return on plan assets	(11		)		(11		)		(11		)
Actuarial loss amortization	2				2				2
Total pension income	(2		)		(3		)		(2		)
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Current year actuarial loss	1				6				3
Amortization of actuarial loss	(2		)		(2		)		(2		)
Total amount recognized in other comprehensive income	(1		)		4				1
Total amount recognized in net periodic benefit cost and other comprehensive income	$	(3	)		$	1			$	(1	)

The plans have an actuarial measurement date of December 31. Actuarial assumptions used in the determination of the net periodic pension cost in the Plans are as follows:

TABLE 17.4

Assumptions for the Year Ended December 31	2019			2018			2017
Weighted average discount rate	4.16	%		4.19	%		3.96	%
Rates of increase in compensation levels	3.50			3.50			3.50
Expected long-term rate of return on assets	7.25			7.25			7.25

The expected long-term rate of return on plan assets has been established by considering historical and anticipated expected returns on the asset classes invested in by the pension trust and the allocation strategy currently in place among those classes.

The change in plan assets reflects benefits paid from the qualified pension plans of $10.0 million and $10.1 million for 2019 and 2018, respectively. As stated above, we made a $5.0 million contribution to the RIP during 2019. We made a $4.0 million contribution to the RIP during 2018. For the non-qualified pension plans, the change in plan assets reflects benefits paid from and contributions made to the plans in the same amount. This amount represents the actual benefit payments paid from general assets of $1.5 million for 2019 and $1.4 million for 2018.

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The following table provides information regarding estimated future cash flows relating to the Plans at December 31, 2019:

TABLE 17.5

(in millions)
Expected employer contributions:	2020		$	2
Expected benefit payments:	2020		10
	2021		10
	2022		10
	2023		10
	2024		11
	2025 – 2029		53

The qualified pension plan contributions are deposited into a trust and the qualified benefit payments are made from trust assets. For the non-qualified plans, the contributions and the benefit payments are the same and reflect expected benefit amounts, which we pay from general assets.

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:

TABLE 17.6

Year Ended December 31	2019				2018				2017
(in millions)
401(k) contribution expense	$	15			$	15			$	12

We also sponsor an 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.

Pension Plan Investment Policy and Strategy

Our investment strategy for the RIP is to diversify plan assets between a wide mix of securities within the equity and debt markets to allow the account the opportunity to meet the expected long-term rate of return requirements while minimizing short-term volatility. In this regard, the plan has targeted allocations within the equity securities category for domestic large cap, domestic mid cap, domestic small cap, real estate investment trusts, emerging market and international securities. Within the debt securities category, the plan has targeted allocation levels for U.S. Treasury, U.S. agency, domestic investment-grade bonds, high-yield bonds, inflation-protected securities and international bonds.

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The following table presents asset allocations for our pension plans as of December 31, 2019 and 2018, and the target allocation for 2020, by asset category:

TABLE 17.7

	Target Allocation		Percentage of Plan Assets
December 31	2020		2019			2018
Asset Category
Equity securities	45 - 65		60	%		55	%
Debt securities	30 - 50		37			41
Cash equivalents	0 - 10		3			4

At December 31, 2019 and 2018, equity securities included 469,000 and 585,000 shares, respectively, of our common stock, representing 3.5% and 4.0% of total plan assets at December 31, 2019 and 2018, respectively. Dividends received on our common stock held by the Plan were $0.2 million and $0.3 million for 2019 and 2018, respectively.

The fair values of our pension plan assets by asset category are as follows:

TABLE 17.8

(in millions)	Level 1				Level 2				Level 3				Total
December 31, 2019
Asset Class
Cash	$	5			$	—			$	—			$	5
Equity securities:
F.N.B. Corporation	6				—				—				6
Other large-cap U.S. financial services companies	4				—				—				4
Other large-cap U.S. companies	54				—				—				54
Other equity	1				—				—				1
Mutual fund equity investments:
U.S. equity index funds:
U.S. large-cap equity index funds	1				—				—				1
U.S. small-cap equity index funds	3				—				—				3
U.S. mid-cap equity index funds	5				—				—				5
Non-U.S. equities growth fund	9				—				—				9
U.S. equity funds:
U.S. mid-cap	12				—				—				12
U.S. small-cap	4				—				—				4
Other	5				—				—				5
Fixed income securities:
U.S. government agencies	—				51				—				51
Corporate bonds	—				1				—				1
Fixed income mutual funds:
U.S. investment-grade fixed income securities	12				—				—				12
Total	$	121			$	52			$	—			$	173

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(in millions)	Level 1				Level 2				Level 3				Total
December 31, 2018
Asset Class
Cash	$	6			$	—			$	—			$	6
Equity securities:
F.N.B. Corporation	6				—				—				6
Other large-cap U.S. financial services companies	3				—				—				3
Other large-cap U.S. companies	43				—				—				43
International companies	1				—				—				1
Mutual fund equity investments:
U.S. equity index funds:
U.S. small-cap equity index funds	3				—				—				3
U.S. mid-cap equity index funds	4				—				—				4
Non-U.S. equities growth fund	6				—				—				6
U.S. equity funds:
U.S. mid-cap	9				—				—				9
U.S. small-cap	3				—				—				3
Other	4				—				—				4
Fixed income securities:
U.S. government agencies	—				49				—				49
Corporate bonds	—				2				—				2
Fixed income mutual funds:
U.S. investment-grade fixed income securities	11				—				—				11
Total	$	99			$	51			$	—			$	150

The classifications for Level 1, Level 2 and Level 3 are discussed in Note 24, “Fair Value Measurements.”

The TCJA included 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 Consolidated Financial Statements in accordance with SAB 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. We recorded a provisional amount of $54.0 million at December 31, 2017 related to the remeasurement of deferred tax balances. Upon final analysis of available information and refinement of our calculations during 2018, we decreased our provisional amount by $1.9 million which is included as a component of income tax expense from continuing operations. We consider the TCJA remeasurement of our deferred taxes to be complete.

The effects of changes in tax rates on deferred tax balances are applicable even in situations in which the related income tax effects of such items were originally recognized in other comprehensive income. This results in stranded tax effects for items that were recorded in AOCI rather than in income from continuing operations. In the fourth quarter of 2017, we elected to change our accounting policy to reclassify the income tax effects related to the TCJA of approximately $14.7 million from AOCI to retained earnings. This change in accounting policy results in the appropriate tax rate being recognized in AOCI for debt and equity investments, certain derivative transactions, and pension and other post-retirement benefit plans.

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Income Tax Expense

Federal and state income tax expense consist of the following:

TABLE 18.1

Year Ended December 31	2019				2018				2017
(in millions)
Current income taxes:
Federal taxes	$	47			$	41			$	26
State taxes	4				6				2
Total current income taxes	51				47				28
Deferred income taxes:
Federal taxes	30				32				128
State taxes	3				—				1
Total deferred income taxes	33				32				129
Total income taxes	$	84			$	79			$	157

The following table provides a reconciliation between the statutory tax rate and the actual effective tax rate:

TABLE 18.2

Year Ended December 31	2019			2018			2017
Statutory federal tax rate	21.0	%		21.0	%		35.0	%
State taxes, net of federal benefit	1.1			1.1			0.5
Tax-exempt interest	(2.2	)		(2.1	)		(3.3	)
Cash surrender value on BOLI	(0.5	)		(0.5	)		(1.1	)
Tax credits	(4.2	)		(2.8	)		(2.6	)
Affordable housing cost amortization, net of tax benefits	1.4			0.7			0.2
Tax Cuts and Jobs Act revaluation of net deferred tax assets	—			(0.4	)		15.2
Other items	1.1			0.6			0.2
Effective tax rate	17.7	%		17.6	%		44.1	%

The effective tax rates of 17.7% and 17.6% in 2019 and 2018, respectively, were lower than the 21% TCJA statutory federal tax rate primarily due to the tax benefits resulting from renewable energy investment and historic tax credits, tax-exempt income on investments and loans and income from BOLI. For the years ended December 31, 2019 and 2018, we recognized net investment tax credits of $7.9 million and $6.5 million, respectively.

Income tax expense related to net gains on the sale of securities is presented in the following table:

TABLE 18.3

Year Ended December 31	2019				2018				2017
(in millions)
Income tax expense related to net gains on sale of securities	$	—			$	—			$	2

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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. DTAs and DTLs 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.

The following table presents the tax effects of significant temporary differences that give rise to federal and state DTAs and DTLs:

TABLE 18.4

December 31	2019				2018
(in millions)
Deferred tax assets:
Allowance for credit losses	$	43			$	40
Discounts on loans acquired in a business combination	41				51
Net operating loss/tax credit carryforwards	38				43
Deferred compensation	11				10
Securities impairments	1				1
Pension and other defined benefit plans	3				5
Lease liability	29				—
Net unrealized securities losses	2				12
Other	8				9
Total	176				171
Valuation allowance	(28		)		(26		)
Total deferred tax assets	148				145
Deferred tax liabilities:
Loan costs	(15		)		(14		)
Depreciation	(19		)		(17		)
Prepaid expenses	(1		)		(1		)
Amortizable intangibles	(15		)		(16		)
Lease financing	(35		)		(18		)
Mortgage servicing rights	(9		)		(8		)
Lease ROU asset	(27		)		—
Other	(2		)		(4		)
Total deferred tax liabilities	(123		)		(78		)
Net deferred tax assets	$	25			$	67

We establish a valuation allowance when it is more likely than not that we will not be able to realize the benefit of the DTAs or when future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management’s assessment of realizable DTAs. As of December 31, 2019, the valuation allowance of $28 million primarily relates to unused federal and state net operating loss carryforwards expiring from 2020 to 2039. We anticipate that neither the state net operating loss carryforwards nor the other net DTAs at certain of our subsidiaries will be utilized and, as such, have recorded a valuation allowance against the DTAs related to these items.

As of December 31, 2019, we had approximately $27.4 million of federal net operating loss and built-in loss carryforwards, $2.0 million of federal tax credit carryforwards, and $5.7 million of state tax credit carryforwards to which we succeeded as a result of the YDKN acquisition. The utilization of these tax attributes is subject to annual limitations under Section 382 of the Internal Revenue Code, or a similar state-level statute, which will cause the utilization of these attributes to be deferred over a number of years, not to exceed beyond 2036. We have determined that we will likely have sufficient taxable income in the years during which these tax attributes are available to be utilized and, consequently, have determined that no additional valuation allowance against the recorded DTA is warranted.

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Uncertain Tax Positions

We account for uncertainties in income taxes in accordance with ASC 740, Income Taxes. At December 31, 2019 and 2018, we have approximately $1.6 million and $0.9 million, respectively, of unrecognized tax benefits related to uncertain tax positions. As of December 31, 2019, $1.4 million of these tax benefits would affect the effective tax rate if recognized. We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. To the extent interest is not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

We file numerous income tax returns in the U.S. federal jurisdiction and in several state jurisdictions. We are no longer subject to U.S. federal income tax examinations for years prior to 2016. With limited exception, we are no longer subject to state income tax examinations for years prior to 2016. We anticipate that a reduction in the unrecognized tax benefit of up to $0.06 million may occur in the next twelve months from the expiration of statutes of limitations which would result in a reduction in income taxes.

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

TABLE 19.1

(in millions)	Unrealized Net Gains (Losses) on Debt Securities Available for Sale				Unrealized Net Gains (Losses) on Derivative Instruments				Unrecognized Pension and Postretirement Obligations				Total
Year Ended December 31, 2019
Balance at beginning of period	$	(46	)		$	1			$	(61	)		$	(106	)
Other comprehensive (loss) income before reclassifications	57				(17		)		3				43
Amounts reclassified from AOCI	—				(2		)		—				(2		)
Net current period other comprehensive (loss) income	57				(19		)		3				41
Balance at end of period	$	11			$	(18	)		$	(58	)		$	(65	)

The amounts reclassified from AOCI related to debt securities AFS are included in net securities gains on the Consolidated Statements of Income, while the amounts reclassified from AOCI related to derivative instruments are included in interest income on loans and leases on the Consolidated Statements of Income.

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

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

TABLE 20.1

Year Ended December 31	2019				2018				2017
(dollars in millions, except per share data)
Net income	$	387			$	373			$	199
Less: Preferred stock dividends	8				8				8
Net income available to common stockholders	$	379			$	365			$	191
Basic weighted average common shares outstanding	324,938,720				324,207,198				302,195,295
Net effect of dilutive stock options, warrants and restricted stock	1,122,418				1,416,405				1,662,681
Diluted weighted average common shares outstanding	326,061,138				325,623,603				303,857,976
Earnings per common share:
Basic	$	1.17			$	1.13			$	0.63
Diluted	$	1.16			$	1.12			$	0.63

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

TABLE 20.2

Year Ended December 31	2019			2018			2017
Average shares excluded from the diluted earnings per common share calculation	—			81			910

FNB and FNBPA are subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by regulators to ensure capital adequacy require FNB and FNBPA to maintain minimum amounts and ratios of total, tier 1 and common equity tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of leverage ratio (as defined). Failure to meet minimum capital requirements could lead to initiation of certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our Consolidated Financial Statements, dividends and future business and corporate strategies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, FNB and FNBPA must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. FNB’s and FNBPA’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

As of December 31, 2019, the most recent notification from the federal banking agencies categorized FNB and FNBPA as “well-capitalized” under the respective regulatory frameworks. There are no conditions or events since the notification which management believes have changed this categorization.

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Following are the capital ratios for FNB and FNBPA:

TABLE 21.1

	Actual							Well-Capitalized Requirements (1)							Minimum Capital Requirements plus Capital Conservation Buffer
(dollars in millions)	Amount				Ratio			Amount				Ratio			Amount				Ratio
As of December 31, 2019
F.N.B. Corporation:
Total capital	$	3,174			11.81	%		$	2,687			10.00	%		$	2,821			10.50	%
Tier 1 capital	2,632				9.79			1,612				6.00			2,284				8.50
Common equity tier 1	2,525				9.40			n/a				n/a			1,881				7.00
Leverage	2,632				8.20			n/a				n/a			1,283				4.00
Risk-weighted assets	26,866
FNBPA:
Total capital	3,039				11.34			2,681				10.00			2,815				10.50
Tier 1 capital	2,841				10.60			2,144				8.00			2,279				8.50
Common equity tier 1	2,761				10.30			1,742				6.50			1,876				7.00
Leverage	2,841				8.87			1,601				5.00			1,281				4.00
Risk-weighted assets	26,806
As of December 31, 2018
F.N.B. Corporation:
Total capital	$	2,875			11.54	%		$	2,490			10.00	%		$	2,459			9.88	%
Tier 1 capital	2,395				9.62			1,608				6.00			1,961				7.88
Common equity tier 1	2,289				9.19			n/a				n/a			1,588				6.38
Leverage	2,395				7.87			n/a				n/a			1,218				4.00
Risk-weighted assets	24,900
FNBPA:
Total capital	2,735				10.99			2,489				10.00			2,458				9.88
Tier 1 capital	2,553				10.26			1,992				8.00			1,960				7.88
Common equity tier 1	2,473				9.94			1,618				6.50			1,587				6.38
Leverage	2,553				8.39			1,521				5.00			1,217				4.00
Risk-weighted assets	24,894

⁽¹⁾ Reflects the well-capitalized standard under Regulation Y for F.N.B. Corporation and the prompt corrective action framework for FNBPA.

In accordance with Basel III standards, the implementation of capital requirements is transitional and was phased-in from January 1, 2015 through January 1, 2019. The minimum capital requirements plus capital conservation buffer, which are presented for each period above based on the phase-in schedule, represent the minimum requirements needed to avoid limitations on distributions of dividends and certain discretionary bonus payments.

Due to usable vault cash, the aggregate cash reserves FNBPA was required to maintain with the FRB amounted to less than $1 million at December 31, 2019. We also maintain deposits for various services such as check clearing. Certain limitations exist under applicable law and regulations by regulatory agencies regarding dividend distributions to a parent by our subsidiaries. As of December 31, 2019, our subsidiaries had $527.3 million of retained earnings available for distribution to us without prior regulatory approval.

Under current FRB regulations, FNBPA is limited in the amount it may lend to non-bank affiliates, including FNB. Such loans must be secured by specified collateral. In addition, any such loans to a non-bank affiliate may not exceed 10% of FNBPA’s capital and surplus and the aggregate of loans to all such affiliates may not exceed 20% of FNBPA’s capital and surplus. The maximum amount that may be borrowed by FNB affiliates under these provisions was $598.3 million at December 31, 2019.

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Following is a summary of supplemental cash flow information:

TABLE 22.1

Year Ended December 31	2019				2018				2017
(in millions)
Interest paid on deposits and other borrowings	$	329			$	230			$	129
Income taxes paid	40				19				53
Transfers of loans to other real estate owned	15				12				35
Loans transferred to held for sale from portfolio	389				—				—
Loans transferred to portfolio from held for sale	110				—				—

We operate in three reportable segments: Community Banking, Wealth Management and Insurance.

•

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

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

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

We also previously operated a Consumer Finance segment, which is no longer a reportable segment. This segment primarily made installment loans to individuals and purchased installment sales finance contracts from retail merchants. On August 31, 2018, as part of our strategy to enhance the overall positioning of our consumer banking operations, we sold 100 percent of the issued and outstanding capital stock of Regency to Mariner Finance, LLC. This transaction was completed to accomplish several strategic objectives, including enhancing the credit risk profile of the consumer loan portfolio, offering additional liquidity and selling a non-strategic business segment that no longer fits with our core business. Regency's financial information is included in the Consumer Finance segment in the 2018 and 2017 tables that follow.

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

TABLE 23.1

(in millions)	Community Banking				Wealth Manage- ment				Insurance				Parent and Other				Consolidated
At or for the Year Ended December 31, 2019
Interest income	$	1,245			$	—			$	—			$	2			$	1,247
Interest expense	310				—				—				20				330
Net interest income	935				—				—				(18		)		917
Provision for credit losses	44				—				—				—				44
Non-interest income	237				46				20				(9		)		294
Non-interest expense (1)	621				34				17				10				682
Amortization of intangibles	13				—				1				—				14
Income tax expense (benefit)	88				3				—				(7		)		84
Net income (loss)	406				9				2				(30		)		387
Total assets	34,491				32				35				57				34,615
Total intangibles	2,291				10				28				—				2,329

(in millions)	Community Banking				Wealth Manage- ment				Insurance				Consumer Finance				Parent and Other				Consolidated
At or for the Year Ended December 31, 2018
Interest income	$	1,145			$	—			$	—			$	25			$	—			$	1,170
Interest expense	219				—				—				2				17				238
Net interest income	926				—				—				23				(17		)		932
Provision for credit losses	54				—				—				6				1				61
Non-interest income	213				44				16				2				1				276
Non-interest expense (1)	609				33				17				15				5				679
Amortization of intangibles	15				1				—				—				—				16
Income tax expense (benefit)	82				2				—				1				(6		)		79
Net income (loss)	379				8				(1		)		3				(16		)		373
Total assets	32,997				26				25				—				54				33,102
Total intangibles	2,304				10				20				—				—				2,334
At or for the Year Ended December 31, 2017
Interest income	$	944			$	—			$	—			$	40			$	(4	)		$	980
Interest expense	118				—				—				4				12				134
Net interest income	826				—				—				36				(16		)		846
Provision for credit losses	53				—				—				8				—				61
Non-interest income	197				39				16				3				(3		)		252
Non-interest expense (1)	597				30				15				21				—				663
Amortization of intangibles	17				1				—				—				—				18
Income tax expense (benefit)	153				3				—				5				(4		)		157
Net income (loss)	203				5				1				5				(15		)		199
Total assets	31,156				24				21				181				36				31,418
Total intangibles	2,317				10				12				2				—				2,341

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

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We use fair value measurements to record fair value adjustments to certain financial assets and liabilities and to determine fair value disclosures. Securities AFS, mortgage loans held for sale accounted for under FVO and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a non-recurring basis, such as certain impaired loans, OREO and certain other assets.

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

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

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

TABLE 24.1

Measurement Category		Definition
Level 1		valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.
Level 2		valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.
Level 3		valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

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

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

Securities Available For Sale

These securities are recorded at fair value on a recurring basis. At December 31, 2019, 100.0% of AFS securities used valuation methodologies involving market-based or market-derived information, collectively Level 1 and Level 2 measurements, to measure fair value.

We closely monitor market conditions involving assets that have become less actively traded. If the fair value measurement is based upon recent observable market activity of such assets or comparable assets (other than forced or distressed transactions) that occur in sufficient volume, and do not require significant adjustment using unobservable inputs, those assets are classified as Level 1 or Level 2; if not, they are classified as Level 3. Making this assessment requires significant judgment.

We use prices from independent pricing services and, to a lesser extent, indicative (non-binding) quotes from independent brokers, to measure the fair value of AFS securities. We validate prices received from pricing services or brokers using a

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variety of methods, including, but not limited to, comparison to secondary pricing services, corroboration of pricing by reference to other independent market data such as secondary broker quotes and relevant benchmark indices, and review of pricing information by corporate personnel familiar with market liquidity and other market-related conditions.

Derivative Financial Instruments

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

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

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives and IRLCs utilize Level 3 inputs. Credit valuation estimates of current credit spreads are used to evaluate the likelihood of our default and the default of our counterparties. However, as of December 31, 2019 and 2018, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our non-IRLC derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The fair value of IRLCs is based upon the estimated fair value of the underlying mortgage loan, including the expected cash flows related to MSRs and the estimated percentage of IRLCs that will result in a closed mortgage loan, and is classified as Level 3.

Loans Held For Sale

Residential mortgage loans held for sale are carried at fair value under the FVO. Fair value for residential mortgage loans held for sale, when recorded, is based on independent quoted market prices and is classified as Level 2.

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

Impaired Loans

We reserve for commercial loan relationships greater than or equal to $1.0 million that we consider impaired as defined in ASC 310 at the time we identify the loan as impaired based upon the present value of expected future cash flows available to pay the loan, or based upon the fair value of the collateral less estimated selling costs where a loan is collateral dependent. Collateral may be real estate and/or business assets including equipment, inventory and accounts receivable.

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

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

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Other Real Estate Owned

OREO is comprised principally of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations. OREO acquired in settlement of indebtedness is recorded at the lower of carrying amount of the loan or fair value less costs to sell. Subsequently, these assets are carried at the lower of carrying value or fair value less costs to sell. Accordingly, it may be necessary to record non-recurring fair value adjustments. Fair value is generally based upon appraisals by licensed or certified appraisers and other market information and is classified as Level 3.

Other Assets - MSRs and SBA Servicing Assets

We carry MSRs at the lower of cost or fair value, and therefore, they are subject to fair value measurements on a non-recurring basis. Since sales of MSRs tend to occur in private transactions and the precise terms and conditions of the sales are typically not readily available, there is a limited market to refer to in determining the fair value of MSRs. As such we rely primarily on a discounted cash flow model, incorporating assumptions about loan prepayment rates, discount rates, servicing costs and other economic factors, to estimate the fair value of our MSRs. We utilize a third-party vendor to perform the modeling to estimate the fair value of our MSRs. Since the valuation model uses significant unobservable inputs, we classify MSRs within Level 3.

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 SBA guaranteed portion of the loan, which is commonly known as a servicing spread. We utilize a third-party vendor to perform the modeling to estimate the fair value of our SBA servicing asset. Since the valuation model uses significant unobservable inputs, we classify SBA servicing assets within Level 3.

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

TABLE 24.2

(in millions)	Level 1				Level 2				Level 3				Total
December 31, 2019
Assets Measured at Fair Value
Debt securities available for sale
U.S. government agencies	$	—			$	151			$	—			$	151
U.S. government-sponsored entities	—				226				—				226
Residential mortgage-backed securities
Agency mortgage-backed securities	—				1,314				—				1,314
Agency collateralized mortgage obligations	—				1,240				—				1,240
Commercial mortgage-backed securities	—				345				—				345
States of the U.S. and political subdivisions	—				11				—				11
Other debt securities	—				2				—				2
Total debt securities available for sale	—				3,289				—				3,289
Loans held for sale	—				41				—				41
Derivative financial instruments
Trading	—				149				—				149
Not for trading	—				2				3				5
Total derivative financial instruments	—				151				3				154
Total assets measured at fair value on a recurring basis	$	—			$	3,481			$	3			$	3,484
Liabilities Measured at Fair Value
Derivative financial instruments
Trading	$	—			$	24			$	—			$	24
Not for trading	—				1				—				1
Total derivative financial instruments	—				25				—				25
Total liabilities measured at fair value on a recurring basis	$	—			$	25			$	—			$	25

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(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

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 24.3

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

We review fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation attributes may result in reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in/out of Level 3 at fair value at the beginning of the period in which the changes occur. See the “Securities Available for Sale” discussion within

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this footnote for information relating to determining Level 3 fair values. There were no transfers of assets or liabilities between the hierarchy levels during 2019 or 2018.

For the year ended December 31, 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.

From time to time, we measure certain assets at fair value on a non-recurring basis. These adjustments to fair value usually result from the application of the lower of cost or fair value accounting or write-downs of individual assets. Valuation methodologies used to measure these fair value adjustments were previously described. 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 24.4

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

Substantially all of the fair value amounts in the table above were estimated at a date during the twelve months ended December 31, 2019 and 2018. 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 $31.4 million had a valuation allowance of $1.5 million, bringing the December 31, 2019 carrying value to $29.9 million. The valuation allowance includes a provision expense included in 2019 earnings of $1.0 million.

Impaired loans measured or re-measured at fair value on a non-recurring basis during 2019 had a carrying amount of $4.8 million which includes an allocated allowance for credit losses of $3.7 million. The allowance for credit losses includes a provision applicable to the current period fair value measurements of $6.2 million, which was included in the provision for credit losses for 2019.

OREO with a carrying amount of $3.6 million was written down to $2.2 million, resulting in a loss of $1.4 million, which was included in earnings for 2019.

Fair Value of Financial Instruments

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

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

Securities.    For both securities 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

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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.

Derivative Assets and Liabilities.    See the “Derivative Financial Instruments” discussion included within this footnote.

Deposits.    The estimated fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date because of the customers’ ability to withdraw funds immediately. The fair value of fixed-maturity deposits is estimated by discounting future cash flows using rates currently offered for deposits of similar remaining maturities.

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

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

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

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

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The fair values of our financial instruments are as follows:

TABLE 24.5

									Fair Value Measurements
(in millions)	Carrying Amount				Fair  Value				Level 1				Level 2				Level 3
December 31, 2019
Financial Assets
Cash and cash equivalents	$	599			$	599			$	599			$	—			$	—
Debt securities available for sale	3,289				3,289				—				3,289				—
Debt securities held to maturity	3,275				3,305				—				3,305				—
Net loans and leases, including loans held for sale	23,144				22,930				—				41				22,889
Loan servicing rights	46				48				—				—				48
Derivative assets	154				154				—				151				3
Accrued interest receivable	109				109				109				—				—
Financial Liabilities
Deposits	24,786				24,797				20,058				4,739				—
Short-term borrowings	3,216				3,219				3,219				—				—
Long-term borrowings	1,340				1,355				—				—				1,355
Derivative liabilities	25				25				—				25				—
Accrued interest payable	21				21				21				—				—
December 31, 2018
Financial Assets
Cash and cash equivalents	$	488			$	488			$	488			$	—			$	—
Debt securities available for sale	3,341				3,341				—				3,341				—
Debt securities held to maturity	3,254				3,155				—				3,155				—
Net loans and leases, including loans held for sale	21,995				21,742				—				14				21,728
Loan servicing rights	41				45				—				—				45
Derivative assets	43				43				—				42				1
Accrued interest receivable	101				101				101				—				—
Financial Liabilities
Deposits	23,455				23,411				18,142				5,269				—
Short-term borrowings	4,129				4,130				4,130				—				—
Long-term borrowings	627				618				—				—				618
Derivative liabilities	39				39				—				39				—
Accrued interest payable	20				20				20				—				—

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The following is condensed financial information of F.N.B. Corporation (parent company only). In this information, the parent company’s investments in subsidiaries are stated at cost plus equity in undistributed earnings of subsidiaries since acquisition. This information should be read in conjunction with the Consolidated Financial Statements.

TABLE 25.1

Balance Sheets (in millions) December 31	2019				2018
Assets
Cash and cash equivalents	$	251			$	254
Other assets	18				19
Investment in bank subsidiary	5,072				4,754
Investments in and advances to non-bank subsidiaries	104				97
Total Assets	$	5,445			$	5,124
Liabilities
Other liabilities	$	34			$	32
Advances from affiliates	197				197
Long-term borrowings	323				279
Subordinated notes:
Short-term	7				7
Long-term	1				1
Total Liabilities	562				516
Stockholders’ Equity	4,883				4,608
Total Liabilities and Stockholders’ Equity	$	5,445			$	5,124

TABLE 25.2

Statements of Income (in millions) Year Ended December 31	2019				2018				2017
Income
Dividend income from subsidiaries:
Bank	$	179			$	162			$	149
Non-bank	2				8				9
	181				170				158
Interest income	—				4				5
Other income	—				5				—
Total Income	181				179				163
Expenses
Interest expense	19				20				18
Other expenses	18				15				10
Total Expenses	37				35				28
Income Before Taxes and Equity in Undistributed Income of Subsidiaries	144				144				135
Income tax benefit	7				6				3
	151				150				138
Equity in undistributed income (loss) of subsidiaries:
Bank	236				225				60
Non-bank	—				(2		)		1
Net Income	$	387			$	373			$	199

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TABLE 25.3

Statements of Cash Flows (in millions) Year Ended December 31	2019				2018				2017
Operating Activities
Net income	$	387			$	373			$	199
Adjustments to reconcile net income to net cash flows from operating activities:
Undistributed earnings from subsidiaries	(236		)		(222		)		(61		)
Other, net	2				(13		)		6
Net cash flows provided by operating activities	153				138				144
Investing Activities
Proceeds from sale of securities available for sale	—				1				—
Net (increase) decrease in advances to subsidiaries	—				20				(10		)
Payment for further investment in subsidiaries	(47		)		(22		)		(4		)
Net cash received in business combinations	—				123				3
Net cash flows (used in) provided by investing activities	(47		)		122				(11		)
Financing Activities
Net decrease in advance from affiliate	—				(19		)		10
Net decrease in short-term borrowings	—				(1		)		—
Decrease in long-term debt	(77		)		(2		)		(2		)
Increase in long-term debt	121				1				1
Net proceeds from issuance of common stock	12				14				11
Cash dividends paid:
Preferred stock	(8		)		(8		)		(8		)
Common stock	(157		)		(157		)		(143		)
Net cash flows (used in) provided by financing activities	(109		)		(172		)		(131		)
Net (Decrease) Increase in Cash and Cash Equivalents	(3		)		88				2
Cash and cash equivalents at beginning of year	254				166				164
Cash and Cash Equivalents at End of Year	$	251			$	254			$	166
Cash paid during the year for:
Interest	$	20			$	17			$	16

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TABLE 26.1

(Dollars in millions, except per share data)
Quarter Ended 2019	Dec. 31				Sept. 30				June 30				Mar. 31
Total interest income	$	306			$	314			$	317			$	310
Total interest expense	80				84				87				79
Net interest income	226				230				230				231
Provision for credit losses	7				12				11				14
Total non-interest income	74				80				75				65
Total non-interest expense	177				178				175				166
Net income	95				103				95				94
Net income available to common stockholders	93				101				93				92
Per Common Share
Basic earnings per share	$	0.29			$	0.31			$	0.29			$	0.28
Diluted earnings per share	0.29				0.31				0.29				0.28
Quarter Ended 2018
Total interest income	$	305			$	298			$	294			$	273
Total interest expense	74				63				54				47
Net interest income	231				235				240				226
Provision for credit losses	15				16				16				14
Other non-interest income	69				75				65				67
Total non-interest expense	170				171				183				171
Net income	100				101				85				87
Net income available to common stockholders	98				99				83				85
Per Common Share
Basic earnings per share	$	0.30			$	0.30			$	0.26			$	0.26
Diluted earnings per share	0.30				0.30				0.26				0.26

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 also 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 southeastern 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 CPP. Based on the exchange ratio, this warrant was converted into a warrant to purchase up to 207,320 shares of FNB common stock with an exercise price of $9.63. The warrant was exercised in 2019.

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

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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. Based on the purchase price allocation, we recorded $1.2 billion in goodwill and $70.0 million in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes.

In connection with the YDKN acquisition, we incurred expenses related to systems conversions and other costs of integrating and conforming acquired operations with and into FNB. These merger-related expenses, that were expensed as incurred, amounted to $56.2 million for the year ended December 31, 2017. Contract terminations and severance costs comprised 30.9% and 24.3%, respectively, of the merger-related expenses, with the remainder consisting of other non-interest expenses, including professional services, marketing and advertising, technology and communications, occupancy and equipment, and charitable contributions. We also incurred issuance costs of $0.6 million which were charged to additional paid-in capital.

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(1)	Restricted common stock awards subject to forfeiture. The shares of restricted stock vest over periods ranging from three to five years from the award date.

(2)	Represents shares of common stock registered with the SEC which are eligible for issuance pursuant to stock option or restricted stock awards granted under various plans.

(3)	Represents the securities to be issued upon exercise of stock options that we assumed in various acquisitions. We do not intend to grant any new awards under these plans.

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(a)	FINANCIAL STATEMENTS

(b)	EXHIBITS

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(c)	SCHEDULES

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