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Fulton Financial
FULT
#3469
Rank
HK$32.53 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
HK$169.07
Share price
0.21%
Change (1 day)
40.56%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Fulton Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q3

Fulton Financial - 10-Q quarterly report FY2022 Q3


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022, or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission File No. 001-39680
FULTON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter) 
Pennsylvania23-2195389
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
One Penn SquareP. O. Box 4887Lancaster,Pennsylvania 17604
(Address of principal executive offices) (Zip Code)
(717) 291-2411
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $2.50FULTThe Nasdaq Stock Market, LLC
Depositary Shares, Each Representing 1/40th Interest in a Share of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A
FULTPThe Nasdaq Stock Market, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒  Accelerated filer ☐
Non-accelerated filer ☐  Smaller reporting company ☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common Stock, $2.50 Par Value –167,494,361 shares outstanding as of October 28, 2022.
1

FULTON FINANCIAL CORPORATION
FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
INDEX
 
DescriptionPage
Glossary of Terms
3
PART I. FINANCIAL INFORMATION
(a)
5
(b)
6
(c)
7
(d)
8
(e)
9
(f)
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
45
71
73
73
73
74
Item 3. Defaults Upon Senior Securities - (not applicable)
Item 4. Mine Safety Disclosures - (not applicable)
Item 5. Other Information - (none to be reported)
75
76
Note: Some numbers contained in the document may not sum due to rounding
2

FULTON FINANCIAL CORPORATION
GLOSSARY OF DEFINED ACRONYMS AND TERMS
ACLAllowance for credit losses
AFSAvailable for sale
ALCOAsset/Liability Management Committee
Annual MeetingThe annual meeting of the Corporation's shareholders held on May 17, 2022
AOCIAccumulated other comprehensive (loss) income
ARCAuction rate security
ASCAccounting Standards Codification
ASUAccounting Standards Update
BHCABank Holding Company Act of 1956, as amended
bp or bpsBasis point(s)
CARES ActCoronavirus Aid, Relief, and Economic Security Act
CDICore deposit intangible
CECL Day 1 ProvisionInitial provision for credit losses required on non-purchased credit deteriorated loans acquired in the Merger
Corporation or CompanyFulton Financial Corporation
COVID-19Coronavirus
Directors' PlanAmended and Restated Directors’ Equity Participation Plan
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection Act
Employee Equity Plan2022 Amended and Restated Equity and Cash Incentive Compensation Plan
ESGEnvironmental, social and governance
ETREffective tax rate
Exchange ActSecurities Exchange Act of 1934
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
Fed Funds RateTarget federal funds rate
Federal Reserve BoardBoard of Governors of the Federal Reserve System
FHLBFederal Home Loan Bank
FOMCFederal Open Market Committee
Foreign Currency Nostro AccountsForeign currency with international correspondent banks
FRBFederal Reserve Bank
FTEFully taxable-equivalent
Fulton Bank or the BankFulton Bank, N.A.
GAAPU.S. generally accepted accounting principles
HTMHeld to maturity
LIBORLondon Interbank Offered Rate
Management DiscussionManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Merger
The acquisition by the Corporation of Prudential Bancorp that was completed effective as of July 1, 2022
Merger AgreementAgreement and Plan of Merger, dated as of March 1, 2022, between the Corporation and Prudential Bancorp
Merger ConsiderationFor each share of Prudential Bancorp common stock, $3.65 in cash and 0.7974 of a share of the Corporation's common stock, with cash paid in lieu of each fractional share of the Corporation's common stock that would otherwise be issued, determined by multiplying such fractional share amount by $18.25
MSRsMortgage servicing rights
Net loansLoans and lease receivables (net of unearned income)
3

NIMNet interest margin
N/MNot meaningful
OBSOff-balance-sheet
OCIOther comprehensive income
OREOOther real estate owned
Pension PlanDefined Benefit Pension Plan
Postretirement PlanPostretirement Benefits Plan
PPPPaycheck Protection Program
Prudential BancorpPrudential Bancorp, Inc.
PSUPerformance-based restricted stock unit
RSURestricted stock unit
SBASmall Business Administration
SECUnited States Securities and Exchange Commission
TCITax credit investment
TDRTroubled debt restructuring
TruPSTrust Preferred Securities
Visa Shares
Visa, Inc. Class B restricted shares

4


Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS 
(in thousands, except per-share data)
September 30, 2022December 31,
2021
(unaudited)
ASSETS
Cash and due from banks$143,465 $172,276 
Interest-bearing deposits with other banks385,250 1,466,338 
        Cash and cash equivalents 528,715 1,638,614 
FRB and FHLB stock81,914 57,635 
Loans held for sale14,411 35,768 
Investment securities
AFS, at estimated fair value2,597,384 3,187,390 
HTM, at amortized cost1,339,310 980,384 
Net loans19,695,199 18,325,350 
Less: ACL - loans(266,838)(249,001)
Loans, net19,428,361 18,076,349 
Net premises and equipment221,496 220,357 
Accrued interest receivable72,821 57,451 
Goodwill and net intangible assets561,495 538,053 
Other assets1,300,135 1,004,397 
Total Assets$26,146,042 $25,796,398 
LIABILITIES
Deposits:
Noninterest-bearing$7,372,896 $7,370,963 
Interest-bearing14,003,658 14,202,536 
Total Deposits21,376,554 21,573,499 
Borrowings:
Federal funds purchased136,000 — 
Federal Home Loan Bank advances265,500 — 
Senior debt and subordinated debt539,461 620,406 
Other borrowings483,720 417,703 
Total borrowings1,424,681 1,038,109 
Accrued interest payable5,739 7,000 
Other liabilities867,909 465,110 
Total Liabilities23,674,883 23,083,718 
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 10.0 million shares authorized; Series A, 0.2 million shares authorized and issued as of September 30, 2022 and December 31, 2021, liquidation preference of $1,000 per share
192,878 192,878 
Common stock, $2.50 par value, 600.0 million shares authorized, 224.5 million shares issued as of September 30, 2022 and 223.9 million issued as of December 31, 2021
561,272 559,766 
Additional paid-in capital1,536,584 1,519,873 
Retained earnings1,406,544 1,282,383 
Accumulated other comprehensive (loss) income(442,947)27,411 
Treasury stock, at cost, 57.1 million as of September 30, 2022 and 63.4 million shares as of December 31, 2021
(783,172)(869,631)
Total Shareholders' Equity2,471,159 2,712,680 
Total Liabilities and Shareholders' Equity$26,146,042 $25,796,398 
See Notes to Consolidated Financial Statements
 
5

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per-share data)Three months ended September 30Nine months ended September 30
 2022202120222021
Interest Income
Loans, including fees$205,468 $161,889 $519,375 $480,955 
Investment securities25,927 20,003 72,424 59,165 
Loans held for sale194 299 694 969 
Other interest income2,102 1,888 4,498 4,599 
Total Interest Income233,691 184,079 596,991 545,688 
Interest Expense
Deposits10,049 6,525 21,451 24,108 
Federal funds purchased550 — 540 — 
Federal Home Loan Bank advances1,404 — 1,404 2,286 
Senior debt and subordinated debt5,494 6144 16,921 20,704 
Other borrowings612 140 952 472 
Total Interest Expense18,109 12,809 41,268 47,570 
Net Interest Income215,582 171,270 555,723 498,118 
Provision for credit losses18,958 (600)13,508 (9,600)
Net Interest Income After Provision for Credit Losses196,624 171,870 542,215 507,718 
Non-Interest Income
Commercial banking20,808 16,738 57,175 50,209 
Consumer banking13,275 11,801 37,421 33,415 
Wealth management17,610 18,532 55,312 53,513 
Mortgage banking3,720 9,535 12,064 26,333 
Other3,802 5,971 10,863 12,883 
Non-Interest Income Before Investment Securities Gains59,215 62,577 172,835 176,353 
Investment securities gains (losses), net(53)— (26)33,511 
Total Non-Interest Income59,162 62,577 172,809 209,864 
Non-Interest Expense
Salaries and employee benefits94,283 82,679 264,151 243,632 
Data processing and software15,807 14,335 44,807 41,828 
Net occupancy14,025 12,957 42,134 39,433 
Other outside services9,361 7,889 26,292 24,557 
State taxes3,583 4,994 10,188 13,883 
Equipment 3,548 3,416 10,393 10,268 
FDIC insurance3,158 2,727 9,328 7,633 
Professional fees2,373 2,271 6,178 7,701 
Marketing1,859 1,448 4,505 3,798 
Intangible amortization690 150 1,043 443 
Debt extinguishment— — — 32,575 
Merger-related expenses7,006 — 8,434 — 
Other13,865 11,730 37,813 38,060 
Total Non-Interest Expense169,558 144,596 465,266 463,811 
Income Before Income Taxes86,228 89,851 249,758 253,771 
Income taxes15,357 14,268 44,610 40,160 
Net Income70,871 75,583 205,148 213,611 
Preferred stock dividends(2,562)(2,562)(7,686)(7,715)
Net Income Available to Common Shareholders$68,309 $73,021 $197,462 $205,896 
PER SHARE:
Net income available to common shareholders (basic)$0.41 $0.45 $1.21 $1.27 
Net income available to common shareholders (diluted)0.40 0.45 1.20 1.26 
Cash dividends0.15 0.14 0.45 0.42 
See Notes to Consolidated Financial Statements

6

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
 Three months ended September 30Nine months ended September 30
 2022202120222021
 
Net Income$70,871 $75,583 $205,148 $213,611 
Other Comprehensive (Loss)/Income, net of tax:
Unrealized gains (losses) on AFS investment securities
Unrealized (loss)/gain on securities(120,385)(21,622)(362,596)(16,073)
Reclassification adjustment for securities gains included in net income(41)— (20)(25,901)
Amortization of net unrealized losses on AFS securities transferred to HTM1,653 637 (46,024)2,154 
         Net unrealized gains (losses) on AFS investment securities(118,773)(20,985)(408,640)(39,820)
Unrealized (losses) gains on interest rate swaps used in cash flow hedges
         Net unrealized holding (losses) gains arising during the period(22,472)(216)(62,434)938 
Reclassification adjustment for net (losses) gains realized in net income2,483 (675)641 (1,462)
 Net unrealized (losses) gains on interest rate swaps used in cash flow hedges(19,989)(891)(61,793)(524)
Defined benefit pension plan and postretirement benefits
Amortization of net unrecognized pension and postretirement items25 290 75 868 
Other Comprehensive (Loss)/Income(138,737)(21,586)(470,358)(39,476)
Total Comprehensive (Loss) Income$(67,866)$53,997 $(265,210)$174,135 
See Notes to Consolidated Financial Statements

7

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except per-share data)
 Preferred StockCommon StockAdditionalRetained
Earnings		Accumulated Other Comprehensive
Income (Loss)		Treasury
Stock		Total
 SharesAmountSharesAmountPaid-in
Capital
Three months ended September 30, 2022
Balance at June 30, 2022200 $192,878 161,057 $561,181 $1,527,756 $1,363,344 $(304,210)$(869,856)$2,471,093 
Net income70,871 70,871 
Other comprehensive loss(138,737)(138,737)
Common stock issued132 91 490 1,518 2,099 
Reissuance of treasury stock pursuant to acquisition6,209 4,547 85,166 89,713 
Stock-based compensation awards3,791 3,791 
Preferred stock dividend(2,562)(2,562)
Common stock cash dividends - $0.15 per share
(25,109)(25,109)
Balance at September 30, 2022200 $192,878 167,398 $561,272 $1,536,584 $1,406,544 $(442,947)$(783,172)$2,471,159 
Three months ended September 30, 2021
Balance at June 30, 2021200 $192,878 162,988 $559,485 $1,513,645 $1,208,086 $47,201 $(828,337)$2,692,958 
Net income75,583 75,583 
Other comprehensive income(21,586)(21,586)
Common stock issued132 137 781 1,049 1,967 
Stock-based compensation awards2,192 2,192 
Acquisition of treasury stock(1,691)(26,126)(26,126)
Preferred stock dividend(2,562)(2,562)
Common stock cash dividends - $0.14 per share
(22,608)(22,608)
Balance at September 30, 2021200 $192,878 161,429 $559,622 $1,516,618 $1,258,499 $25,615 $(853,414)$2,699,818 
Nine months ended September 30, 2022
Balance at December 31, 2021200 $192,878 160,490 $559,766 $1,519,873 $1,282,383 $27,411 $(869,631)$2,712,680 
Net income205,148 205,148 
Other comprehensive loss(470,358)(470,358)
Common stock issued699 1,506 1,998 1,293 4,797 
Reissuance of treasury stock pursuant to acquisition6,209 4,547 85,166 $89,713 
Stock-based compensation awards10,166 10,166 
Preferred stock dividend(7,686)(7,686)
Common stock cash dividends - $0.45 per share
(73,301)(73,301)
Balance at September 30, 2022200 $192,878 167,398 $561,272 $1,536,584 $1,406,544 $(442,947)$(783,172)$2,471,159 
Nine months ended September 30, 2021
Balance at December 31, 2020200 $192,878 162,350 $557,917 $1,508,117 $1,120,781 $65,091 $(827,956)$2,616,828 
Net income213,611 213,611 
Other comprehensive loss(39,476)(39,476)
Common stock issued770 1,705 2,309 668 4,682 
Stock-based compensation awards6,192 6,192 
Acquisition of treasury stock(1,691)(26,126)(26,126)
Preferred stock dividend(7,715)(7,715)
Common stock cash dividends - $0.42 per share
(68,178)(68,178)
Balance at September 30, 2021200 $192,878 161,429 $559,622 $1,516,618 $1,258,499 $25,615 $(853,414)$2,699,818 
See Notes to Consolidated Financial Statements

8

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)Nine months ended September 30
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income$205,148 $213,611 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses13,508 (9,600)
Depreciation and amortization of premises and equipment22,627 20,647 
Net amortization of investment securities premiums9,823 11,816 
Investment securities (gains) losses, net26 (33,511)
Gain on sales of mortgage loans held for sale(7,974)(20,038)
Proceeds from sales of mortgage loans held for sale400,797 818,432 
Originations of mortgage loans held for sale(371,466)(757,631)
Intangible amortization1,043 443 
Amortization of issuance costs and discounts on long-term borrowings551 1,608 
Debt extinguishment costs— 32,575 
Stock-based compensation10,166 6,192 
Change in deferred federal income tax(148,952)(11,079)
Change in life insurance cash surrender value(90,234)(12,802)
Other changes, net474,156 61,509 
Total adjustments314,071 108,561 
Net cash (used in) provided by operating activities519,219 322,172 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of AFS securities 196,407 125,811 
Proceeds from principal repayments and maturities of AFS securities 546,770 366,788 
Proceeds from principal repayments and maturities of HTM securities90,044 89,349 
Purchase of AFS securities(822,216)(901,400)
Purchase of HTM securities (30,959)(310,699)
Sale of Visa Shares— 33,962 
(Increase) decrease of FRB and FHLB stock (24,279)30,836 
Net (increase) decrease in loans(819,164)620,583 
Net purchases of premises and equipment(10,023)(17,346)
Net cash paid for acquisition(21,796)292 
Net change in tax credit investments(33,178)(12,439)
Net cash (used in) provided by investing activities(928,394)25,737 
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand and savings deposits(420,622)1,743,512 
Net (decrease) increase in time deposits(308,503)(508,678)
Net (decrease) increase from other borrowings183,518 (160,479)
Repayments of senior debt and subordinated debt(81,496)(703,681)
Net proceeds from issuance of common stock4,792 4,682 
Dividends paid(78,413)(73,962)
Acquisition of treasury stock— (26,126)
Net cash (used in) provided by financing activities(700,724)275,268 
Net (decrease) increase in Cash and Cash Equivalents (1,109,899)623,177 
Cash and Cash Equivalents at Beginning of Period1,638,614 1,847,832 
Cash and Cash Equivalents at End of Period$528,715 $2,471,009 
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest$42,529 $52,733 
Income taxes22,416 8,329 
Supplemental Schedule of Certain Noncash Activities:
Transfer of AFS securities to HTM securities$479,008 $376,165 
See Notes to Consolidated Financial Statements
9

FULTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 – Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of the Corporation have been prepared in conformity with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements as well as revenues and expenses during the period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The Corporation evaluates subsequent events through the date of filing of this Form 10-Q with the SEC.

Significant Accounting Policies:

The significant accounting policies used in preparation of the Consolidated Financial Statements are disclosed in the Corporation's 2021 Annual Report on Form 10-K. Those significant accounting policies are unchanged at September 30, 2022.

CARES Act and Consolidated Appropriations Act - 2021

On March 27, 2020 the CARES Act was signed into law. The CARES Act includes an option for financial institutions to suspend the requirements of GAAP for certain loan modifications that would otherwise be categorized as a TDR. Certain conditions must be met with respect to the loan modification including that the modification is related to COVID-19 and the modified loan was not more than 30 days past due on December 31, 2019. On December 27, 2020, the 2021 Consolidated Appropriations Act was signed into law and this Act extended the relief for TDR treatment that was set to expire on December 31, 2020 to the earlier of 60 days after the national emergency termination date or January 1, 2022. The Corporation applied the option under the CARES act for all loan modifications that qualified.

Recently Adopted Accounting Standards

On January 1, 2022, the Corporation adopted ASC Update 2021-06 Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants (SEC Update). The Corporation adopted this standards update effective with its March 31, 2022 quarterly report on Form 10-Q and it did not have a material impact on the consolidated financial statements.

Recently Issued Accounting Standards

In March 2022, FASB issued ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method ("ASU 2022-01"). This update addresses questions regarding the last-of-layer method arising from the issuance of ASU 2017-12 and permits more flexibility in hedging interest rate risk for both variable-rate and fixed-rate financial instruments and introduces the ability to hedge risk components for non-financial hedges. The Corporation will adopt ASU 2022-01 on January 1, 2023. The Corporation does not expect the adoption of ASU 2022-01 to have a material impact on its consolidated financial statements.

In March 2022, FASB issued ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). This update reduces the complexity of accounting for TDRs by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures. The Corporation will adopt ASU 2022-02 on January 1, 2023. The Corporation does not expect the adoption of ASU 2022-02 to have a material impact on its consolidated financial statements.

In June 2022, FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03"). This update clarifies how the fair value of equity securities subject
10

to contractual sale restrictions is determined and requires additional qualitative and quantitative disclosures for equity securities with contractual sale restrictions. The Corporation will adopt ASU 2022-03 on January 1, 2024. The Corporation does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

In September 2022, FASB issued ASU 2022-04 Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations ("ASU 2022-04"). This update enhances transparency in the disclosure of supplier finance programs, which previously had no explicit requirements under GAAP. The Corporation will adopt ASU 2022-04 in its entirety on January 1, 2023. The Corporation does not expect the adoption of ASU 2022-04 to have a material impact on its consolidated financial statements.

Reclassifications

Certain amounts in the 2021 consolidated financial statements and notes have been reclassified to conform to the 2022 presentation.

NOTE 2 – Business Combinations

On July 1, 2022, the Corporation completed its acquisition of Prudential Bancorp, a Pennsylvania chartered bank holding company headquartered in Philadelphia, Pennsylvania that primarily served the Greater Philadelphia region. On that date, the Corporation acquired 100% of the outstanding common stock of Prudential Bancorp and Prudential Bancorp was merged with and into the Corporation. Prudential Bancorp's wholly owned subsidiary, Prudential Bank, became a wholly owned subsidiary of the Corporation. The Corporation merged Prudential Bank with and into Fulton Bank on November 5, 2022. The Corporation expects to enhance its presence in Philadelphia, expand its customer base, leverage operating costs through economies of scale and positively affect the Corporation's operating results.

In accordance with the terms of the Merger Agreement, each share of Prudential Bancorp's common stock issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive the Merger Consideration. In the aggregate, approximately eighty percent (80%) of the Merger Consideration consisted of the Corporation's common stock with the remaining approximately twenty percent (20%) payable in cash. The receipt of the Corporation’s common stock in the Merger is expected to qualify as a tax-free exchange for Prudential Bancorp shareholders.

The acquisition of Prudential Bancorp was accounted for as a business combination using the acquisition method of accounting, and accordingly, the assets acquired, the liabilities assumed, and consideration transferred were recorded at their estimated fair values as of the Merger. The $16.3 million excess of the Merger Consideration over the fair value of assets acquired was recorded as goodwill and is not amortizable or deductible for tax purposes.






















11

The following table summarizes the consideration transferred and the fair values of identifiable assets acquired and liabilities assumed:
Fair Value
(in thousands, except per share data)
Consideration transferred:
 Common stock shares issued (6,208,516)
$89,713 
Cash paid to Prudential Bancorp shareholders29,343 
     Value of consideration119,056 
Assets acquired:
     Cash and due from banks7,532 
     Investment securities287,126 
     Loans554,288 
     Premises and equipment13,743 
     Other assets70,874 
          Total assets933,563 
Liabilities assumed:
     Deposits532,180 
Borrowings(1)
284,000 
     Other liabilities14,583 
          Total liabilities830,763 
Net assets acquired:102,800 
Goodwill resulting from acquisition of Prudential Bancorp$16,256 
(1) Includes a $30.5 million intercompany borrowing between Prudential Bank and Fulton Bank.

While the valuation of the acquired assets and liabilities is substantially completed, fair value estimates related to the assets and liabilities from Prudential Bancorp are subject to adjustment for up to one year after the closing date of the Merger as additional information becomes available. Valuations subject to adjustment include, but are not limited to, investments, loans and deposits as management continues to review the estimated fair values and evaluate the assumed tax position. When the valuation is final, any changes to the preliminary valuation of acquired assets and liabilities could result in adjustments to goodwill.

The amount of goodwill recorded reflects the increased market share and related synergies that are expected to result from the Merger, and represents the excess purchase price over the estimated fair value of the net assets acquired from Prudential Bancorp.

The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed.

Cash and due from banks: The estimated fair values of cash and due from banks approximate their stated value.

Investment securities: The acquired investment portfolio had a fair value of $287.1 million, primarily consisting of mortgage-backed securities, U.S. Government securities and municipal securities. The fair value of the investment portfolio was based on quoted market prices, dealer quotes and pricing obtained from independent pricing services.

Loans: The Company recorded $554.3 million of acquired loans that were initially recorded at their fair values as of the date of the Merger. Fair value for the loans was based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated on an individual loan basis. The PD, LGD, exposure at default and prepayment assumptions are the key factors driving credit losses that are embedded into the estimated cash flows.




12

The following table presents information with respect to the fair value and unpaid principal balance of acquired loans and leases at the date of the Merger:

July 1, 2022
Unpaid Principal BalanceFair Value
(in thousands)
Real estate - commercial mortgage$224,904 $216,613 
Commercial and industrial63,560 62,050 
Real-estate - residential mortgage177,327 169,098 
Real-estate - home equity6,034 5,812 
Real-estate - construction98,963 98,546 
Consumer2,306 2,286 
     Total acquired loans$573,094 $554,405 

The following table presents the carrying amount of loans for which, at the date of Merger, there was evidence of more than insignificant deterioration of credit quality since origination:

July 1, 2022
(in thousands)
Book balance of loans with deteriorated credit quality at acquisition$27,057 
Allowance for credit losses at acquisition(1,135)
Non-credit related discount(130)
     Total purchased credit deteriorated loans$25,792 

The Merger resulted in the addition of $9.1 million in allowance for credit losses, including the $1.1 million identified in the table above for purchased credit deteriorated loans recorded through the provision for credit losses at the date of Merger.

Premises and equipment: The fair value of land and buildings reflected in premises and equipment was determined by obtaining recent market sales for comparable properties. The difference between the fair market value and the net book value for these properties resulted in an increase of $7.1 million to the premises and equipment acquired from Prudential Bancorp.

Intangible assets: The Corporation recorded $8.2 million of CDI reflected in Other assets that is being amortized over seven years using the sum-of-the-years digits method. The fair value of the CDI was determined using the cost savings approach. The cost savings approach is defined as the difference between the cost of funds of core deposits and an alternative cost of funds for those deposits. The CDI fair value was determined by projected discounted net cash flows that included assumptions related to customer attrition rates, discount rates, deposit interest rates, deposit account maintenance costs and alternative cost of funding rates.

Time deposits: Time deposits were valued at the account level based on their remaining maturity dates and comparing the contractual cost of the portfolio to brokered deposit costs having a similar tenor. The valuation adjustment of $1.9 million will be accreted to interest expense over the remaining maturities of the individual customer deposits.

Borrowings: The estimated fair values for borrowings approximated their stated value given these were short-term advances.









13

The following table presents the change in goodwill during the period:

Nine Months Ended September 30
2022
(in thousands)
Goodwill at December 31, 2021$534,266 
Goodwill from Prudential Bancorp acquisition16,256 
Goodwill at September 30, 2022$550,522 

Merger-related expenses

The Company developed a comprehensive integration plan under which it has incurred direct costs that are expensed as incurred. These direct costs include costs primarily related to terminated contracts, consolidated facilities (including lease termination expenses), severance, marketing and professional and legal fees. Costs related to the acquisition and restructuring are included in Merger-related expenses on the unaudited Consolidated Statements of Income.

The following table details the costs identified and classified as Merger-related expenses:

Three Months Ended September 30Nine Months Ended September 30
20222022
(in thousands)
Salaries and employee benefits$487$487
Data processing and software1,1131,114
Net occupancy1,5521,554
Other outside services216221
Professional fees1,2502,444
Marketing8888
Charitable donation2,0002,000
Other300526
     Total Merger-related expenses$7,006$8,434

As part of the Merger, the Corporation made a $2.0 million contribution to the Fulton Forward Foundation in July 2022, designated to be used to provide impact gifts in support of nonprofit community organizations in Philadelphia that are focused on advancing economic empowerment, particularly in underserved communities.















14

Income Statement

The following table summarizes the results of operations contributed by Prudential Bancorp for the three-month period ended September 30, 2022 presented in the unaudited Consolidated Statements of Income:

Three Months Ended September 30
2022
(in thousands)
Total interest income$10,871 
Total interest expense2,733
 Net interest income8,138
Provisions for credit losses7,571
     Net Interest Income After Provision for Credit Losses567
Total noninterest income197
Total noninterest expense3,583
     Income Before Income Taxes(2,819)
Income taxes(753)
     Net Loss$(2,066)

Pro Forma Income Statement (unaudited)

The below table presents the pro forma results of the operations of the combined institutions (Prudential Bancorp and the Corporation) as if the Merger occurred on January 1, 2021. The pro forma income statement adjustments are limited to the effects of fair value mark amortization and accretion and intangible asset amortization and do not consider future cost savings the Corporation expects to achieve with the merging Prudential Bank with and into the Bank. No additional Merger-related expenses have been included in the pro forma results of operations.

Three Months Ended September 30Nine Months Ended September 30
2022202120222021
(in thousands)
Net interest income$215,582 $177,328 $575,996 $515,674 
Provision for credit losses18,958 (400)19,528 (9,400)
     Net Interest Income After Provision for Credit Losses196,624 177,728 556,468 525,074 
Total noninterest income59,162 63,709 177,733 212,966 
Total noninterest expenses169,558 149,234 494,671 477,342 
     Income Before Income Taxes86,228 92,203 239,530 260,698 
Income tax expense15,357 14,629 41,825 41,143 
     Net Income$70,871 $77,574 $197,705 $219,555 

NOTE 3 – Restrictions on Cash and Cash Equivalents
Cash collateral is posted by the Corporation with counterparties to secure derivatives and other contracts, which is included in "interest-bearing deposits with other banks" on the consolidated balance sheets. The amounts of such collateral as of September 30, 2022 and December 31, 2021 were $16.5 million and $202.8 million, respectively.






15

NOTE 4 – Investment Securities

The following table presents the amortized cost and estimated fair values of investment securities for the periods presented:
September 30, 2022
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
Available for Sale(in thousands)
U.S. Government securities$226,439 $— $(8,255)$218,184 
U.S. Government-sponsored agency securities1,053 — (47)1,006 
State and municipal securities1,287,140 12 (248,967)1,038,185 
Corporate debt securities436,443 — (36,828)399,615 
Collateralized mortgage obligations155,010 — (12,609)142,401 
Residential mortgage-backed securities246,854 6 (32,608)214,252 
Commercial mortgage-backed securities655,384 — (71,643)583,741 
   Total $3,008,323 $18 $(410,957)$2,597,384 
Held to Maturity
Residential mortgage-backed securities$470,879 $— $(60,881)$409,998 
Commercial mortgage-backed securities868,431 — (136,719)731,712 
Total $1,339,310 $— $(197,600)$1,141,710 

December 31, 2021
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated
Fair
Value
Available for Sale(in thousands)
U.S. Government securities$127,831 $— $(213)$127,618 
State and municipal securities1,139,187 50,161 (678)1,188,670 
Corporate debt securities373,482 13,009 (358)386,133 
Collateralized mortgage obligations206,532 3,581 (754)209,359 
Residential mortgage-backed securities231,607 1,224 (3,036)229,795 
Commercial mortgage-backed securities974,541 6,141 (9,534)971,148 
Auction rate securities76,350 — (1,683)74,667 
   Total $3,129,530 $74,116 $(16,256)$3,187,390 
Held to Maturity
Residential mortgage-backed securities$404,958 $11,022 $(7,067)$408,913 
Commercial mortgage-backed securities575,426 — (18,472)556,954 
Total $980,384 $11,022 $(25,539)$965,867 

During the first quarter of 2022, all ARCs were sold.

On May 1, 2022, the Corporation transferred certain residential mortgage-backed securities and commercial mortgage-backed securities from AFS to HTM classification as permitted by ASU 2019-04. The estimated fair value of the securities transferred was $415.2 million, and the amortized cost of the securities was $479.0 million.

Securities carried at $1.3 billion at September 30, 2022 and $2.5 billion at December 31, 2021 were pledged as collateral to secure public and trust deposits.

16

The amortized cost and estimated fair values of debt securities as of September 30, 2022, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay with or without call or prepayment penalties.
September 30, 2022
Available for SaleHeld to Maturity
 Amortized
Cost		Estimated
Fair Value		Amortized
Cost		Estimated
Fair Value
 (in thousands)
Due in one year or less$9,524 $9,516 $— $— 
Due from one year to five years287,824 277,609 — — 
Due from five years to ten years506,946 463,474 — — 
Due after ten years1,146,781 906,391 — — 
1,951,075 1,656,990 — — 
Residential mortgage-backed securities(1)
246,854 214,252 470,879 409,998 
Commercial mortgage-backed securities(1)
655,384 583,741 868,431 731,712 
Collateralized mortgage obligations(1)
155,010 142,401 — — 
  Total$3,008,323 $2,597,384 $1,339,310 $1,141,710 
(1) Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the underlying loans.

The following table presents information related to gross realized gains and losses on the sales of securities for the periods presented:
Gross Realized GainsGross Realized LossesNet  (Losses) Gains
Three months ended(in thousands)
September 30, 2022$33 $(86)$(53)
September 30, 2021— — — 
Nine months ended
September 30, 2022$1,587 $(1,613)$(26)
September 30, 202134,481 (970)33,511 

During the first quarter of 2021, the Corporation completed a balance sheet restructuring that included a $34.0 million gain on the sale of Visa Shares, offset by losses on other securities of $0.4 million, primarily in connection with the sale of $24.6 million of ARCs.
















17

The following tables present the gross unrealized losses and estimated fair values of investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for the periods presented:
September 30, 2022
Less than 12 months12 months or longerTotal
Number of SecuritiesEstimated
Fair Value		Unrealized
Losses		Number of SecuritiesEstimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses
Available for Sale(dollars in thousands)
U.S. Government securities3$218,184 $(8,255)— $— $— $218,184 $(8,255)
U.S. Government-sponsored agency securities1 1,006 (47)— — — 1,006 (47)
State and municipal securities395 982,919 (228,508)22 45,759 (20,459)1,028,678 (248,967)
Corporate debt securities68 386,141 (35,547)2 10,718 (1,281)396,859 (36,828)
Collateralized mortgage obligations100 121,120 (7,182)1 21,281 (5,427)142,401 (12,609)
Residential mortgage-backed securities101 157,808 (19,901)4 55,110 (12,707)212,918 (32,608)
Commercial mortgage-backed securities122 462,988 (47,022)12 120,753 (24,621)583,741 (71,643)
Total available for sale790 $2,330,166 $(346,462)41 $253,621 $(64,495)$2,583,787 $(410,957)
Held to Maturity
Residential mortgage-backed securities108 $270,986 $(20,485)12 $139,012 $(40,396)$409,998 $(60,881)
Commercial mortgage-backed securities33 376,207 (46,035)27 355,505 (90,684)731,712 (136,719)
Total 141 $647,193 $(66,520)39 $494,517 $(131,080)$1,141,710 $(197,600)

December 31, 2021
Less than 12 months12 months or longerTotal
Number of SecuritiesEstimated
Fair Value		Unrealized
Losses		Number of SecuritiesEstimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses
Available for Sale(dollars in thousands)
U.S Government Securities2 $127,618 $(213)— $— $— $127,618 $(213)
State and municipal securities29 82,731 (678)— — — 82,731 (678)
Corporate debt securities6 43,068 (358)— — — 43,068 (358)
Collateralized mortgage obligations4 28,517 (754)— — — 28,517 (754)
Residential mortgage-backed securities7 123,687 (2,388)1 16,669 (648)140,356 (3,036)
Commercial mortgage-backed securities41 512,312 (9,534)— — — 512,312 (9,534)
Auction rate securities— — — 118 74,667 (1,683)74,667 (1,683)
Total available for sale89 $917,933 $(13,925)119 $91,336 $(2,331)$1,009,269 $(16,256)
Held to Maturity
Residential mortgage-backed securities14 $205,969 $(7,067)— $— $— $205,969 $(7,067)
Commercial mortgage-backed securities36 556,954 (18,472)— — — 556,954 (18,472)
    Total50 $762,923 $(25,539)— $— $— $762,923 $(25,539)

The Corporation's collateralized mortgage obligations and mortgage-backed securities have contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The change in fair value of these securities is attributable to changes in interest rates and not credit quality. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. Therefore, the Corporation does not have an ACL for these investments as of September 30, 2022 and December 31, 2021.

18

Based on management’s evaluations, no ACL was required for state and municipal securities as of September 30, 2022 or December 31, 2021. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.

As of September 30, 2022 and December 31, 2021, all corporate debt securities were rated above investment grade. Based on the payment status, rating and management's evaluation of these securities, no ACL was required for corporate debt securities as of September 30, 2022 or December 31, 2021.

As of December 31, 2021, all ARCs were rated above investment grade. All of the loans underlying the ARCs had principal payments that were guaranteed by the federal government. Based on the payment status, rating and management's evaluation of these securities, no ACL was required for ARCs as of December 31, 2021.


NOTE 5 - Loans and Allowance for Credit Losses
Loans and leases, net of unearned income

Loans and leases, net of unearned income are summarized as follows:
September 30,
2022		December 31, 2021
 (in thousands)
Real estate - commercial mortgage$7,554,509 $7,279,080 
Commercial and industrial (1)
4,243,392 4,208,327 
Real-estate - residential mortgage4,574,228 3,846,750 
Real-estate - home equity1,110,103 1,118,248 
Real-estate - construction1,273,097 1,139,779 
Consumer633,666 464,657 
Equipment lease financing and other328,057 283,557 
Overdrafts2,162 1,988 
Gross loans19,719,214 18,342,386 
Unearned income(24,015)(17,036)
Net loans$19,695,199 $18,325,350 
(1) Includes PPP loans totaling $32.1 million and $301.3 million as of September 30, 2022 and December 31, 2021, respectively.

The Corporation segments its loan portfolio by "portfolio segments," as presented in the table above. Certain portfolio segments are further disaggregated by "class segment" for the purpose of estimating credit losses.

Allowance for Credit Losses

The ACL related to loans consists of loans evaluated collectively and individually for expected credit losses. The ACL related to loans represents an estimate of expected credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to net loans. The ACL for OBS credit exposure includes estimated losses on unfunded loan commitments, letters of credit and other OBS credit exposures and is recorded in other liabilities. The total ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.

The following table presents the components of the ACL:
September 30, 2022December 31, 2021
(in thousands)
ACL - loans $266,838 $249,001 
ACL - OBS credit exposure(1)
15,690 14,533 
        Total ACL$282,528 $263,534 
(1) Included in other liabilities on the Consolidated Balance Sheets.


19


The following table presents the activity in the ACL:
Three months ended September 30Nine months ended September 30
 2022202120222021
(in thousands)
Balance at beginning of period$262,887 $269,805 $263,534 $291,940 
CECL Day 1 Provision expense7,954 — 7,954 — 
Purchased credit deteriorated loans1,135 — 1,135 — 
Loans charged off(3,724)(2,234)(7,242)(19,958)
Recoveries of loans previously charged off3,272 4,539 11,593 9,128 
Net loans (charged-off) recovered(452)2,305 4,351 (10,830)
Provision for credit losses (1)
11,004 (600)5,554 (9,600)
Balance at end of period$282,528 $271,510 $282,528 $271,510 
(1) Includes $1.4 million and $10 thousand for the three months ended September 30, 2022 and 2021, respectively, and includes $1.2 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively, related to OBS credit exposure.








































20

The following table presents the activity in the ACL by portfolio segment:
Real Estate 
Commercial
Mortgage		Commercial and
Industrial		Consumer and Home
Equity		Real Estate Residential
Mortgage		Real Estate
Construction		Equipment lease financing, other
and overdrafts		Total
 (in thousands)
Three months ended September 30, 2022
Balance at June 30, 2022$72,605 $72,119 $23,080 $61,635 $10,628 $8,497 $248,564 
CECL Day 1 Provision expense4,107 — 131 3,716 — — 7,954 
Purchased credit deteriorated loans1,051 — 7 77 — — 1,135 
Loans charged off(86)(1,783)(1,172)— — (683)(3,724)
Recoveries of loans previously charged off29 2,213 682 101 — 247 3,272 
Net loans recovered (charged off) (57)430 (490)101 — (436)(452)
Provision for loan losses (1)
11,144 (6,424)1,812 1,880 1,045 180 9,637 
Balance at September 30, 2022$88,850 $66,125 $24,540 $67,409 $11,673 $8,241 $266,838 
Three months ended September 30, 2021
Balance at June 30, 2021$95,381 $65,404 $21,994 $54,188 $12,654 $5,411 $255,032 
Loans charged off(14)(647)(504)(602)— (467)(2,234)
Recoveries of loans previously charged off564 2,330 504 86 697 358 4,539 
Net loans recovered (charged off)550 1,683 — (516)697 (109)2,305 
Provision for loan and lease losses (1)
234 (4,196)(526)2,557 (930)2,251 (610)
Balance at September 30, 2021$96,165 $62,891 $21,468 $56,229 $12,421 $7,553 $256,727 
Nine months ended September 30, 2022
Balance at December 31, 2021$87,970 $67,056 $19,749 $54,236 $12,941 $7,049 $249,001 
CECL Day 1 Provision expense4,107 — 131 3,716 — — 7,954 
Purchased credit deteriorated loans1,051 — 7 77 — — 1,135 
Loans charged off(238)(2,211)(3,101)(66)— (1,626)(7,242)
Recoveries of loans previously charged off3,677 4,932 1,898 415 44 627 11,593 
Net loans recovered (charged off)3,439 2,721 (1,203)349 44 (999)4,351 
Provision for loan losses (1)
(7,717)(3,652)5,856 9,031 (1,312)2,191 4,397 
Balance at September 30, 2022$88,850 $66,125 $24,540 $67,409 $11,673 $8,241 $266,838 
Nine months ended September 30, 2021
Balance at December 31, 2020$103,425 $74,771 $25,137 $51,995 $15,608 $6,631 $277,567 
Loans charged off(8,357)(5,920)(2,481)(1,290)(39)(1,871)(19,958)
Recoveries of loans previously charged off1,467 3,792 1,578 286 1,335 670 9,128 
Net loans recovered (charged off)(6,890)(2,128)(903)(1,004)1,296 (1,201)(10,830)
Provision for loan losses (1)
(370)(9,752)(2,766)5,238 (4,483)2,123 (10,010)
Balance at September 30, 2021$96,165 $62,891 $21,468 $56,229 $12,421 $7,553 $256,727 
(1) Provision included in the table only includes the portion related to net loans.

Included in the third quarter of 2022 provision for credit losses was a CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio. The ACL also included $1.1 million for purchased credit deteriorated loans for the acquired Prudential Bancorp loan portfolio.

The ACL includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative models. Qualitative adjustments include and consider changes in national, regional and local economic and business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality.

The provision for credit losses for the third quarter of 2022 was recorded to increase the allowance for credit losses as a result of an increase in non-performing loans, as well as increases for the office building portfolio, reflected in the commercial real estate loan portfolio, and the consumer loan, real estate construction and residential mortgage loan portfolios.


21

Non-accrual Loans

All loans individually evaluated for impairment are measured for losses on a quarterly basis. As of September 30, 2022 and December 31, 2021, substantially all of the Corporation's individually evaluated loans with total commitments greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral, if any. Collateral could be in the form of real estate, in the case of commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

As of September 30, 2022 and December 31, 2021, approximately 89% and 98%, respectively, of loans evaluated individually for impairment with principal balances greater than or equal to $1.0 million, whose primary collateral consisted of real estate, were measured at estimated fair value using appraisals performed by state certified third-party appraisers that had been updated in the preceding 12 months.

The following table presents total non-accrual loans, by class segment:
September 30, 2022December 31, 2021
With a Related AllowanceWithout a Related AllowanceTotalWith a Related AllowanceWithout a Related AllowanceTotal
(in thousands)
Real estate - commercial mortgage$58,518 $36,186 $94,704 $20,564 $32,251 $52,815 
Commercial and industrial11,171 18,633 29,804 12,571 17,570 30,141 
Real estate - residential mortgage31,464 — 31,464 35,269 — 35,269 
Real estate - home equity6,960 133 7,093 8,671 — 8,671 
Real estate - construction185 1,271 1,456 173 728 901 
Consumer101 — 101 229 — 229 
Equipment lease financing and other4,327 9,255 13,582 6,247 9,393 15,640 
$112,726 $65,478 $178,204 $83,724 $59,942 $143,666 

As of September 30, 2022 and December 31, 2021, there were $65.5 million and $59.9 million, respectively, of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

Asset Quality

Maintaining an appropriate ACL is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal risk rating process is used. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component of the ACL methodology for these loans, which bases the probability of default on this migration. Assigning risk ratings involves judgment. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Risk ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff or if specific loan review assessments identify a deterioration or an improvement in the loans.











22

The following table summarizes designated internal risk rating categories by portfolio segment and loan class, by origination year, in the current period:
September 30, 2022
Term Loans Amortized Cost Basis by Origination YearRevolving LoansRevolving Loans converted to Term Loans
(in thousands)AmortizedAmortized
20222021202020192018PriorCost BasisCost BasisTotal
 Real estate - construction(1)
Pass$102,525 $355,433 $299,312 $48,953 $49,473 $113,662 $37,564 $— $1,006,922 
Special Mention— — 2,789 — — 5,463 — — 8,252 
Substandard or Lower— — — 2,310 — 4,633 208 — 7,151 
Total real estate - construction102,525 355,433 302,101 51,263 49,473 123,758 37,772 — 1,022,325 
Real estate - construction(1)
Current period gross charge-offs— — — — — — — — — 
Current period recoveries— — — — — — — 44 44 
Total net (charge-offs) recoveries— — — — — — — 44 44 
Commercial and industrial(2)
Pass635,272 497,464 419,171 337,009 191,715 641,262 1,306,921 962 4,029,776 
Special Mention7,762 10,941 8,550 8,819 4,957 21,754 41,119 — 103,902 
Substandard or Lower791 4,887 3,893 14,400 6,316 23,992 55,435 — 109,714 
Total commercial and industrial643,825 513,292 431,614 360,228 202,988 687,008 1,403,475 962 4,243,392 
Commercial and industrial
Current period gross charge-offs— — (36)— (21)(365)(1,192)(597)(2,211)
Current period recoveries— — 30 95 379 1,618 747 2,063 4,932 
Total net (charge-offs) recoveries— — (6)95 358 1,253 (445)1,466 2,721 
Real estate - commercial mortgage
Pass730,581 1,147,950 955,537 808,474 613,888 2,680,340 65,607 — 7,002,377 
Special Mention96 29,528 38,858 35,957 18,060 155,437 1,200 — 279,136 
Substandard or Lower94 1,496 7,563 68,248 28,686 166,666 243 — 272,996 
Total real estate - commercial mortgage730,771 1,178,974 1,001,958 912,679 660,634 3,002,443 67,050 — 7,554,509 
Real estate - commercial mortgage
Current period gross charge-offs— — — — — — — (238)(238)
Current period recoveries— — — — — 4 — 3,673 3,677 
Total net (charge-offs) recoveries— — — — — 4 — 3,435 3,439 
Total
Pass$1,468,378 $2,000,847 $1,674,020 $1,194,436 $855,076 $3,435,264 $1,410,092 $962 $12,039,075 
Special Mention7,858 40,469 50,197 44,776 23,017 182,654 42,319 — 391,290 
Substandard or Lower885 6,383 11,456 84,958 35,002 195,291 55,886 — 389,861 
Total$1,477,121 $2,047,699 $1,735,673 $1,324,170 $913,095 $3,813,209 $1,508,297 $962 $12,820,226 
(1) Excludes real estate - construction - other.
(2) Loans originated in 2021 and 2020 include $32.1 million of PPP loans that were assigned a rating of Pass based on the existence of a federal government guaranty through the SBA.






23

The following table summarizes designated internal risk rating categories by portfolio segment and loan class, by origination year, in the prior period:
December 31, 2021
Term Loans Amortized Cost Basis by Origination YearRevolving LoansRevolving Loans converted to Term Loans
( in thousands)AmortizedAmortized
20212020201920182017PriorCost BasisCost BasisTotal
 Real estate - construction(1)
Pass$190,030 $315,811 $113,245 $83,886 $17,545 $117,157 $46,409 $— $884,083 
Special Mention5,843 775 9,984 20,200 15,724 6,315 — — 58,841 
Substandard or Lower— — — — 1,912 4,185 227 — 6,324 
Total real estate - construction195,873 316,586 123,229 104,086 35,181 127,657 46,636 — 949,248 
Real estate - construction(1)
Current period gross charge-offs— — (39)— — — — — (39)
Current period recoveries— — 39 — — 1,373 — — 1,412 
Total net (charge-offs) recoveries— — — — — 1,373 — — 1,373 
Commercial and industrial(2)
Pass855,924 520,802 396,575 232,805 147,675 581,762 1,177,857 339 3,913,739 
Special Mention5,386 8,538 33,937 8,301 10,346 23,380 52,386 95 142,369 
Substandard or Lower1,225 9,775 19,393 24,327 11,912 34,825 49,562 1,200 152,219 
Total commercial and industrial862,535 539,115 449,905 265,433 169,933 639,967 1,279,805 1,634 4,208,327 
Commercial and industrial
Current period gross charge-offs(2,977)(406)(4,966)(208)(286)(800)(5,694)— (15,337)
Current period recoveries6 39 4,691 841 457 2,342 1,211 — 9,587 
Total net (charge-offs) recoveries(2,971)(367)(275)633 171 1,542 (4,483)— (5,750)
Real estate - commercial mortgage
Pass1,086,113 899,172 826,866 624,653 712,223 2,356,308 55,370 — 6,560,705 
Special Mention1,317 60,732 96,508 25,280 33,595 169,732 115 — 387,279 
Substandard or Lower1,537 8,516 28,810 68,818 69,793 151,450 684 1,488 331,096 
Total real estate - commercial mortgage1,088,967 968,420 952,184 718,751 815,611 2,677,490 56,169 1,488 7,279,080 
Real estate - commercial mortgage
Current period gross charge-offs— — (14)(25)(6,972)(1,517)(198)— (8,726)
Current period recoveries— — — — 983 1,491 — — 2,474 
Total net (charge-offs) recoveries— — (14)(25)(5,989)(26)(198)— (6,252)
Total
Pass$2,132,067 $1,735,785 $1,336,686 $941,344 $877,443 $3,055,227 $1,279,636 $339 $11,358,527 
Special Mention12,546 70,045 140,429 53,781 59,665 199,427 52,501 95 588,489 
Substandard or Lower2,762 18,291 48,203 93,145 83,617 190,460 50,473 2,688 489,639 
Total$2,147,375 $1,824,121 $1,525,318 $1,088,270 $1,020,725 $3,445,114 $1,382,610 $3,122 $12,436,655 
(1) Excludes real estate - construction - other.
(2) Loans originated in 2021 and 2020 include $301.3 million of PPP loans that were assigned a rating of Pass based on the existence of a federal government guaranty through the SBA.

24

The Corporation considers the performance of the loan portfolio and its impact on the ACL. The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, construction loans to individuals secured by residential real estate, consumer and equipment lease financing. For these loans, the most relevant credit quality indicator is delinquency status and the Corporation evaluates credit quality based on the aging status of the loan. The following tables present the amortized cost of these loans based on payment activity, by origination year, for the periods shown:
September 30, 2022
Term Loans Amortized Cost Basis by Origination YearRevolving LoansRevolving Loans converted to Term Loans
(in thousands)AmortizedAmortized
20222021202020192018PriorCost BasisCost BasisTotal
Consumer and real estate - home equity
Performing$323,238 $121,500 $89,432 $59,199 $51,895 $98,043 $847,612 $142,704 $1,733,623 
Nonperforming152 209 32 167 112 2,071 1,739 5,664 10,146 
Total consumer and real estate - home equity323,390 121,709 89,464 59,366 52,007 100,114 849,351 148,368 1,743,769 
Consumer and real estate - home equity
Current period gross charge-offs— (587)(70)(108)(16)(355)(178)(1,787)(3,101)
Current period recoveries— 44 88 29 16 516 248 957 1,898 
Total net (charge-offs) recoveries— (543)18 (79)— 161 70 (830)(1,203)
Real estate - residential mortgage
Performing763,300 1,672,528 1,077,559 296,437 87,861 634,295 — — 4,531,980 
Nonperforming— 2,610 5,222 4,696 3,983 25,737 — — 42,248 
    Total real estate - residential mortgage763,300 1,675,138 1,082,781 301,133 91,844 660,032 — — 4,574,228 
Real estate - residential mortgage
Current period gross charge-offs— — — — — — — (66)(66)
Current period recoveries— — 4 — 27 261 — 123 415 
Total net (charge-offs) recoveries— — 4 — 27 261 — 57 349 
Equipment lease financing and other
Performing134,364 45,541 44,928 33,309 17,173 17,307 — — 292,622 
Nonperforming— — — — — 13,582 — — 13,582 
Total leasing and other134,364 45,541 44,928 33,309 17,173 30,889 — — 306,204 
Equipment lease financing and other
Current period gross charge-offs(304)(108)(72)(50)(21)(1,071)— — (1,626)
Current period recoveries33 12 74 20 6 253 — 229 627 
Total net (charge-offs) recoveries(271)(96)2 (30)(15)(818)— 229 (999)
Construction - other
Performing113,328 118,987 13,429 — 4,568 — — 460 250,772 
Nonperforming— — — — — — — — — 
Total construction - other113,328 118,987 13,429 — 4,568 — — 460 250,772 
Construction - other
Current period gross charge-offs— — — — — — — — — 
Current period recoveries— — — — — — — — — 
Total net (charge-offs) recoveries— — — — — — — — — 
Total
Performing$1,334,230 $1,958,556 $1,225,348 $388,945 $161,497 $749,645 $847,612 $143,164 $6,808,997 
Nonperforming152 2,819 5,254 4,863 4,095 41,390 1,739 5,664 65,976 
Total$1,334,382 $1,961,375 $1,230,602 $393,808 $165,592 $791,035 $849,351 $148,828 $6,874,973 



25

December 31, 2021
Term Loans Amortized Cost Basis by Origination YearRevolving LoansRevolving Loans converted to Term Loans
(in thousands)AmortizedAmortized
20212020201920182017PriorCost BasisCost BasisTotal
Consumer and Real estate - home equity
Performing$162,441 $102,918 $73,769 $68,564 $33,254 $135,412 $990,842 $3,999 $1,571,199 
Nonperforming122 101 60 51 314 2,348 8,512 198 11,706 
Total consumer and real estate - home equity162,563 103,019 73,829 68,615 33,568 137,760 999,354 4,197 1,582,905 
Consumer and Real estate - home equity
Current period gross charge-offs(175)(491)(496)(238)(224)(411)(1,274)— (3,309)
Current period recoveries— 223 131 131 167 1,048 645 — 2,345 
Total net (charge-offs) recoveries(175)(268)(365)(107)(57)637 (629)— (964)
Real estate - residential mortgage
Performing1,548,174 1,133,602 344,625 113,801 198,164 468,842 — — 3,807,208 
Nonperforming— 6,753 2,189 3,424 2,844 24,332 — — 39,542 
    Total real estate - residential mortgage1,548,174 1,140,355 346,814 117,225 201,008 493,174 — — 3,846,750 
Real estate - residential mortgage
Current period gross charge-offs— (626)(148)(125)(4)(387)— — (1,290)
Current period recoveries— — 1 18 — 264 92 — 375 
Total net (charge-offs) recoveries— (626)(147)(107)(4)(123)92 — (915)
Equipment lease financing and other
Performing97,077 65,316 49,591 34,107 22,444 1,369 — — 269,904 
Nonperforming— — — — 15,503 138 — — 15,641 
Total leasing and other97,077 65,316 49,591 34,107 37,947 1,507 — — 285,545 
Equipment lease financing and other
Current period gross charge-offs(975)(1,276)— — — — — — (2,251)
Current period recoveries255 539 88 10 18 43 — — 953 
Total net (charge-offs) recoveries(720)(737)88 10 18 43 — — (1,298)
Construction - other
Performing144,652 40,040 638 5,028 — — — — 190,358 
Nonperforming— — — — 173 — — — 173 
Total construction - other144,652 40,040 638 5,028 173 — — — 190,531 
Construction - other
Current period gross charge-offs— — — — — — — — — 
Current period recoveries— — — — — — — — — 
Total net (charge-offs) recoveries— — — — — — — — — 
Total
Performing$1,952,344 $1,341,876 $468,623 $221,500 $253,862 $605,623 $990,842 $3,999 $5,838,669 
Nonperforming122 6,854 2,249 3,475 18,834 26,818 8,512 198 67,062 
Total$1,952,466 $1,348,730 $470,872 $224,975 $272,696 $632,441 $999,354 $4,197 $5,905,731 














26

The following table presents non-performing assets:
September 30,
2022		December 31,
2021
 (in thousands)
Non-accrual loans$178,204 $143,666 
Loans 90 days or more past due and still accruing(1)
14,559 8,453 
Total non-performing loans192,763 152,119 
OREO (2)
5,877 1,817 
Total non-performing assets$198,640 $153,936 
(1) Excludes PPP loans which are fully guaranteed by the federal government of $10.4 million as of September 30, 2022.
(2) Excludes $3.4 million and $6.4 million of residential mortgage properties for which formal foreclosure proceedings were in process as of September 30, 2022 and December 31, 2021, respectively.

The following tables present the aging of the amortized cost basis of loans, by class segment:
30-5960-89≥ 90 Days
Days PastDays PastPast DueNon-
DueDueand AccruingAccrualCurrentTotal
(in thousands)
September 30, 2022
Real estate – commercial mortgage$9,428 $1,884 $1,577 $94,704 $7,446,916 $7,554,509 
Commercial and industrial(1)
4,705 228 27 29,804 4,208,628 4,243,392 
Real estate – residential mortgage45,625 9,825 10,133 31,464 4,477,181 4,574,228 
Real estate – home equity4,976 815 2,087 7,093 1,095,132 1,110,103 
Real estate – construction17,181 2,106 — 1,456 1,252,354 1,273,097 
Consumer6,308 1,384 735 101 625,138 633,666 
Equipment lease financing and other70 — — 13,582 292,552 306,204 
Total$88,293 $16,242 $14,559 $178,204 $19,397,901 $19,695,199 
(1) Delinquent PPP loans 30-59 days past due and 60-89 days past due of $2.2 million and $3.4 million, respectively, which are fully guaranteed by the federal government, are classified as current.

30-59 Days Past
Due		60-89
Days Past
Due		≥ 90 Days
Past Due
and
Accruing		Non-
accrual		CurrentTotal
(in thousands)
December 31, 2021
Real estate – commercial mortgage$1,089 $1,750 $1,229 $52,815 $7,222,197 $7,279,080 
Commercial and industrial5,457 1,932 488 30,141 4,170,309 4,208,327 
Real estate – residential mortgage22,957 2,920 4,130 35,269 3,781,474 3,846,750 
Real estate – home equity4,369 1,154 2,253 8,671 1,101,801 1,118,248 
Real estate – construction1,318 — — 901 1,137,560 1,139,779 
Consumer3,561 876 353 229 459,638 464,657 
Equipment lease financing and other226 27 — 15,640 252,616 268,509 
Total$38,977 $8,659 $8,453 $143,666 $18,125,595 $18,325,350 







27

Collateral-Dependent Loans

A loan is considered to be collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the Corporation elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, the Corporation records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral supporting collateral-dependent financial assets consists of various types of real estate, including residential properties, commercial properties, such as retail centers, office buildings, and lodging, agriculture land, and vacant land.

Troubled Debt Restructurings

Restructured loan modifications may include payment schedule modifications, interest rate concessions, bankruptcies, principal reduction or some combination of these concessions. The restructured loan modifications primarily included maturity date extensions, rate modifications and payment schedule modifications.

The following table presents TDRs, by class segment:
September 30,
2022		December 31,
2021
 (in thousands)
Real estate - commercial mortgage$3,448 $3,464 
Commercial and industrial1,837 1,857 
Real estate - residential mortgage12,101 11,948 
Real estate - home equity11,719 12,218 
Consumer2 5 
Total accruing TDRs29,107 29,492 
Non-accrual TDRs (1)
40,401 55,945 
Total TDRs$69,508 $85,437 
(1) Included in non-accrual loans in the preceding table detailing non-performing assets.

The following table presents TDRs, by class segment, for loans that were modified during the three and nine months ended September 30, 2022 and 2021:
Three months ended September 30Nine months ended September 30
2022202120222021
Number of LoansPost-Modification Recorded InvestmentNumber of LoansPost-Modification Recorded InvestmentNumber of LoansPost-Modification Recorded InvestmentNumber of LoansPost-Modification Recorded Investment
(dollars in thousands)
Commercial and industrial— $— 5 $852 1 $82 9 $2,745 
Real estate - commercial mortgage— — 4 9,129 1 150 9 16,020 
Real estate - residential mortgage— — 5 1,703 5 293 42 12,431 
Real estate - home equity— — 6 123 5 329 22 870 
Real estate - construction— — — — — — 1 154 
Consumer4 155 — — 6 354 — — 
Total
4 $155 20 $11,807 18 $1,208 83 $32,220 

28

In accordance with regulatory guidance, payment schedule modifications granted after March 13, 2020 to borrowers impacted by the effects of the COVID-19 pandemic and who were not delinquent at the time of the payment schedule modifications have been excluded from TDRs. As of September 30, 2022, $9.0 million in recorded investment remains in active COVID-19 deferral programs.


NOTE 6 – Mortgage Servicing Rights

The following table summarizes the changes in MSRs, which are included in other assets on the consolidated balance sheets, with adjustments to the carrying value included in mortgage banking income on the consolidated statements of income:
Three months ended September 30Nine months ended September 30
 2022202120222021
 (in thousands)
Amortized cost:
Balance at beginning of period$35,249 $36,062 $35,993 $38,745 
Originations of MSRs1,051 2,637 3,459 6,905 
Amortization(1,360)(2,661)(4,512)(9,612)
Balance at end of period$34,940 $36,038 $34,940 $36,038 
Valuation allowance:
Balance at beginning of period$— $(6,600)$(600)$(10,500)
Reduction (addition) to valuation allowance— 3,500 600 7,400 
Balance at end of period$— $(3,100)$— $(3,100)
Net MSRs at end of period$34,940 $32,938 $34,940 $32,938 
Estimated fair value of MSRs at end of period$51,072 $32,938 $51,072 $32,938 

MSRs represent the economic value of contractual rights to service mortgage loans that have been sold. The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $4.2 billion and $4.3 billion as of September 30, 2022 and December 31, 2021, respectively. Actual and expected prepayments of the underlying mortgage loans can impact the fair values of the MSRs. The Corporation accounts for MSRs at the lower of amortized cost or fair value.

The fair value of MSRs is estimated by discounting the estimated cash flows from servicing income, net of expense, over the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The fair values of MSRs were $51.1 million and $35.4 million at September 30, 2022 and December 30, 2021, respectively. Based on its fair value analysis as of September 30, 2022, the Corporation determined that no valuation allowance was required as of September 30, 2022.

NOTE 7 – Derivative Financial Instruments

The Corporation manages its exposure to certain interest rate and foreign currency risks through the use of derivatives. Certain of the Corporation's outstanding derivative contracts are designated as hedges, and none are entered into for speculative purposes. The Corporation does enter into derivative contracts that are intended to economically hedge certain of its risks, even if hedge accounting does not apply or the Corporation elects not to apply hedge accounting.

Mortgage Banking Derivatives

In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured.
29

Interest Rate Swaps - Non-Designated Hedges

The Corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

The Corporation's existing credit derivatives result from participation in interest rate swaps provided by external lenders as part of loan participation arrangements and, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain lenders which participate in loans.

The Corporation is required to clear all eligible interest rate swap contracts with a clearing agent and is subject to the regulations of the Commodity Futures Trading Commission.

Cash Flow Hedges of Interest Rate Risk

The Corporation's objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate swaps as part of its interest rate risk management strategy. During 2021, the Corporation entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Corporation making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the Corporation's variable-rate liabilities. During the next twelve months, the Corporation estimates that an additional $33.2 million will be reclassified as a decrease to interest income.

Foreign Exchange Contracts

The Corporation enters into foreign exchange contracts to accommodate the needs of its customers. Foreign exchange contracts are commitments to buy or sell foreign currency on a specific date at a contractual price. The Corporation limits its foreign exchange exposure with customers by entering into contracts with institutional counterparties to mitigate its foreign exchange risk. The Corporation also holds certain amounts of foreign currency in Foreign Currency Nostro Accounts. The Corporation limits the total overnight net foreign currency open positions, which is defined as an aggregate of all outstanding contracts and Foreign Currency Nostro Account balances, to $500,000.



















30

The following table presents a summary of the notional amounts and fair values of derivative financial instruments:
 September 30, 2022December 31, 2021
 Notional
Amount		Asset
(Liability)
Fair Value		Notional
Amount		Asset
(Liability)
Fair Value
 (in thousands)
Interest Rate Locks with Customers
Positive fair values$73,375 $127 $261,428 $2,326 
Negative fair values32,398 (736)2,549 (23)
Forward Commitments
Positive fair values75,000 2,646 51,000 41 
Negative fair values— — — — 
Interest Rate Swaps with Customers
Positive fair values— — 3,213,924 153,752 
Negative fair values3,980,850 (303,249)752,462 (4,766)
Interest Rate Swaps with Dealer Counterparties
Positive fair values 3,980,850 176,276 752,462 4,766 
Negative fair values— — 3,213,924 (79,889)
Interest Rate Swaps used in Cash Flow Hedges
Positive fair values— — 500,000 60 
Negative fair values1,000,000 (10,453)500,000 (1,432)
Foreign Exchange Contracts with Customers
Positive fair values12,965 941 7,629 229 
Negative fair values2,810 (75)3,388 (51)
Foreign Exchange Contracts with Correspondent Banks
Positive fair values3,212 86 3,656 69 
Negative fair values13,372 (931)9,364 (240)
.

The following table presents the effect of fair value and cash flow hedge accounting on AOCI:

Amount of Gain (Loss) Recognized in OCI on Derivative Amount of Gain (Loss) Recognized in OCI Included ComponentAmount of Gain (Loss) Recognized in OCI Excluded ComponentLocation of Gain (Loss) Recognized from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income Included ComponentAmount of Gain (Loss) Reclassified from AOCI into Income Excluded Component
(in thousands)
Derivatives in Cash Flow Hedging Relationships: 
Three months ended September 30, 2022
Interest Rate Products$(29,053)$(29,053)$— Interest income$(3,210)$(3,210)$— 
Three months ended September 30, 2021
Interest Rate Products(280)(280)— Interest income873 873 — 
Nine months ended September 30, 2022
Interest Rate Products(80,716)(80,716)— Interest income(828)(828)— 
Nine months ended September 30, 2021
Interest Rate Products1,215 1,215 — Interest Income1,894 1,894 — 



31


The following table presents the effect of fair value and cash flow hedge accounting on the income statement:
Consolidated Statements of Income Classification
Interest Income
Three months ended September 30Nine months ended September 30
2022202120222021
(in thousands)
Total amounts of income line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded$(3,210)$873 $(828)$1,894 
Interest contracts:
Amount of gain reclassified from AOCI into income(3,210)873 (828)1,894 
Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring— — — — 
Amount of Gain Reclassified from AOCI into Income - Included Component(3,210)873 (828)1,894 
Amount of Gain or (Loss) Reclassified from AOCI into Income - Excluded Component— — — — 

The following table presents a summary of the net fair value gains (losses) on derivative financial instruments:
Consolidated Statements of Income ClassificationThree months ended September 30Nine months ended September 30
 2022202120222021
        (in thousands)
Mortgage banking derivatives (1)
Mortgage banking income$1,403 $228 $(307)$(2,134)
Interest rate swapsOther expense— 1,069 — 861 
Foreign exchange contractsOther income(27)(17)14 (21)
Net fair value gains/(losses) on derivative financial instruments$1,376 $1,280 $(293)$(1,294)
(1) Includes interest rate locks with customers and forward commitments.

Fair Value Option

The Corporation has elected to measure mortgage loans held for sale at fair value. The following table presents a summary of mortgage loans held for sale and the impact of the fair value election on the consolidated financial statements as of the periods shown:
September 30,
2022		December 31,
2021
 (in thousands)
Amortized cost (1)
$14,813 $35,050 
Fair value14,411 35,768 
(1) Cost basis of mortgage loans held for sale represents the unpaid principal balance.

Losses related to changes in fair values of mortgage loans held for sale were $0.5 million for the three months ended September 30, 2022 compared to losses of $0.2 million for the three months ended September 30, 2021. Losses related to changes in fair values of mortgage loans held for sale were $1.1 million and $2.5 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Balance Sheet Offsetting

The fair values of interest rate swap agreements and foreign exchange contracts the Corporation enters into with customers and dealer counterparties may be eligible for offset on the consolidated balance sheets if they are subject to master netting arrangements or similar agreements. The Corporation has elected to net its financial assets and liabilities designated as cash
32

flow hedges when offsetting is permitted. The following table presents the Corporation's financial instruments that are eligible for offset, and the effects of offsetting, on the consolidated balance sheets:
Gross AmountsGross Amounts Not Offset
Recognized on the Consolidated
on the Balance Sheets
ConsolidatedFinancialCashNet
Balance Sheets
Instruments(1)
Collateral (2)
Amount
(in thousands)
September 30, 2022
Interest rate swap derivative assets$176,276 $(10,453)$— $165,823 
Foreign exchange derivative assets with correspondent banks86 (86)— — 
Total $176,362 $(10,539)$— $165,823 
Interest rate swap derivative liabilities$313,702 $— $(144,847)$168,855 
Foreign exchange derivative liabilities with correspondent banks931 (86)— 845 
Total$314,633 $(86)$(144,847)$169,700 
December 31, 2021
Interest rate swap derivative assets$158,578 $(8,028)$— $150,550 
Foreign exchange derivative assets with correspondent banks69 (69)— — 
Total$158,647 $(8,097)$— $150,550 
Interest rate swap derivative liabilities$86,087 $(6,656)$(74,359)$5,072 
Foreign exchange derivative liabilities with correspondent banks240 (69)— 171 
Total$86,327 $(6,725)$(74,359)$5,243 

(1) For interest rate swap assets, amounts represent any derivative liability fair values that could be offset in the event of counterparty or customer default. For interest rate swap liabilities, amounts represent any derivative asset fair values that could be offset in the event of counterparty or customer default.
(2) Amounts represent cash collateral received from the counterparty or posted by the Corporation on interest rate swap transactions and foreign exchange contracts with financial institution counterparties. Interest rate swaps with customers are collateralized by the same collateral securing the underlying loans to those borrowers. Cash and securities collateral amounts are included in the table only to the extent of the net derivative fair values.



























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NOTE 8 – Accumulated Other Comprehensive (Loss) Income

The following table presents the components of other comprehensive (loss) income:
Before-Tax AmountTax EffectNet of Tax Amount
Three months ended September 30, 2022(in thousands)
Unrealized loss on securities$(155,758)$35,373 $(120,385)
Reclassification adjustment for securities gains included in net income (1)
(53)12 (41)
Amortization of net unrealized losses on AFS securities transferred to HTM (2)
2,139 (486)1,653 
Net unrealized holding loss arising during the period on interest rate swaps used in cash flow hedges(29,053)6,581 (22,472)
Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges 3,210 (727)2,483 
Amortization of net unrecognized pension and postretirement items (3)
33 (8)25 
Total Other Comprehensive Loss$(179,482)$40,745 $(138,737)
Three months ended September 30, 2021
Unrealized loss on securities$(27,975)$6,353 $(21,622)
Amortization of net unrealized gains on AFS securities transferred to HTM (2)
824 (187)637 
Net unrealized holding gain arising during the period on interest rate swaps used in cash flow hedges(280)64 (216)
Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges(873)198 (675)
Amortization of net unrecognized pension and postretirement items (3)
370 (80)290 
Total Other Comprehensive Loss$(27,934)$6,348 $(21,586)
Nine months ended September 30, 2022
Unrealized loss on securities$(469,137)$106,541 $(362,596)
Reclassification adjustment for securities loss included in net income (1)
(26)6 (20)
Amortization of net unrealized losses on AFS securities transferred to HTM (2)
(59,547)13,523 (46,024)
Net unrealized loss on interest rate swaps used in cash flow hedges (80,716)18,282 (62,434)
Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges828 (187)641 
Amortization of net unrecognized pension and postretirement items (3)
96 (21)75 
Total Other Comprehensive Loss$(608,502)$138,144 $(470,358)
Nine months ended September 30, 2021
Unrealized loss on securities $(20,796)$4,723 $(16,073)
Reclassification adjustment for securities gains included in net income (1)
(33,511)7,610 (25,901)
Amortization of net unrealized losses on AFS securities transferred to HTM (2)
2,787 (633)2,154 
Net unrealized gain on interest rate swaps used in cash flow hedges 1,215 (277)938 
Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges(1,894)432 (1,462)
Amortization of net unrecognized pension and postretirement items (3)
1,111 (243)868 
Total Other Comprehensive Loss$(51,088)$11,612 $(39,476)

(1) Amounts reclassified out of AOCI. Before-tax amounts included in "Investment securities gains, net" on the Consolidated Statements of Income. See Note 4, "Investment Securities," for additional details.
(2) Amounts reclassified out of AOCI. Before-tax amounts included as a reduction to "Interest Income" on the Consolidated Statements of Income.
(3) Amounts reclassified out of AOCI. Before-tax amounts included in "Salaries and employee benefits" on the Consolidated Statements of Income. See Note 12, "Employee Benefit Plans," for additional details.





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The following table presents changes in each component of accumulated other comprehensive income (loss), net of tax:
Unrealized Gains (Losses) on Investment SecuritiesNet Unrealized (Loss) Gain on Interest Rate Swaps used in Cash Flow HedgesUnrecognized Pension and Postretirement Plan Income (Costs)Total
(in thousands)
Three months ended September 30, 2022
Balance at June 30, 2022$(249,427)$(46,620)$(8,163)$(304,210)
OCI before reclassifications(120,385)— — (120,385)
Amounts reclassified from AOCI(41)(19,989)25 (20,005)
Amortization of net unrealized losses on AFS securities transferred to HTM1,653 — — 1,653 
Balance at September 30, 2022$(368,200)$(66,609)$(8,138)$(442,947)
Three months ended September 30, 2021
Balance at June 30, 2021$62,769 $367 $(15,935)$47,201 
OCI before reclassifications(21,622)— — (21,622)
Amounts reclassified from AOCI— (891)290 (601)
Amortization of net unrealized losses on AFS securities transferred to HTM637 — — 637 
Balance at September 30, 2021$41,784 $(524)$(15,645)$25,615 
Nine months ended September 30, 2022
Balance at December 31, 2021$40,440 $(4,816)$(8,213)$27,411 
OCI before reclassifications(362,596)— — (362,596)
Amounts reclassified from AOCI(20)(61,793)75 (61,738)
Amortization of net unrealized losses on AFS securities transferred to HTM(46,024)— — (46,024)
Balance at September 30, 2022$(368,200)$(66,609)$(8,138)$(442,947)
Nine months ended September 30, 2021
Balance at December 31, 2020$81,604 $— $(16,513)$65,091 
OCI before reclassifications(16,073)— — (16,073)
Amounts reclassified from AOCI(25,901)(524)868 (25,557)
Amortization of net unrealized losses on AFS securities transferred to HTM2,154 — — 2,154 
Balance at September 30, 2021$41,784 $(524)$(15,645)$25,615 


NOTE 9 – Fair Value Measurements

FASB ASC Topic 820 establishes a fair value hierarchy for the inputs to valuation techniques used to measure assets and liabilities at fair value using the following three categories (from highest to lowest priority):

•Level 1 – Inputs that represent quoted prices for identical instruments in active markets.
•Level 2 – Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical instruments in non-active markets. Also includes valuation techniques whose inputs are derived principally from observable market data other than quoted prices, such as interest rates or other market-corroborated means.
•Level 3 – Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.







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All assets and liabilities measured at fair value on both a recurring and nonrecurring basis have been categorized into the above three levels. The following tables present assets and liabilities measured at fair value on a recurring basis and reported on the consolidated balance sheets:
 September 30, 2022
 Level 1Level 2Level 3Total
 (in thousands)
Loans held for sale$— $14,411 $— $14,411 
Available for sale investment securities:
Equity securities— — — — 
U.S. Government securities218,184 — — 218,184 
U.S. Government-sponsored agency securities— 1,006 — 1,006 
State and municipal securities— 1,038,185 — 1,038,185 
Corporate debt securities— 399,615 — 399,615 
Collateralized mortgage obligations— 142,401 — 142,401 
Residential mortgage-backed securities— 214,252 — 214,252 
Commercial mortgage-backed securities— 583,741 — 583,741 
Total available for sale investment securities218,184 2,379,200 — 2,597,384 
Other assets:
Investments held in Rabbi Trust22,933 — — 22,933 
Derivative assets1,027 179,049 — 180,076 
Total assets$242,144 $2,572,660 $— $2,814,804 
Other liabilities:
Deferred compensation liabilities$22,933 $— $— $22,933 
Derivative liabilities1,006 314,438 — 315,444 
Total liabilities$23,939 $314,438 $— $338,377 

 December 31, 2021
 Level 1Level 2Level 3Total
 (in thousands)
Loans held for sale$— $35,768 $— $35,768 
Available for sale investment securities:
U.S. Government securities127,618 — — 127,618 
State and municipal securities— 1,188,670 — 1,188,670 
Corporate debt securities— 386,133 — 386,133 
Collateralized mortgage obligations— 209,359 — 209,359 
Residential mortgage-backed securities— 229,795 — 229,795 
Commercial mortgage-backed securities— 971,148 — 971,148 
Auction rate securities— — 74,667 74,667 
Total available for sale investment securities127,618 2,985,105 74,667 3,187,390 
Other assets:
Investments held in Rabbi Trust28,619 — — 28,619 
Derivative assets298 160,945 — 161,243 
Total assets$156,535 $3,181,818 $74,667 $3,413,020 
Other liabilities:
Deferred compensation liabilities$28,619 $— $— $28,619 
Derivative liabilities291 86,110 — 86,401 
Total liabilities$28,910 $86,110 $— $115,020 
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The valuation techniques used to measure fair value for the items in the preceding tables are as follows:
Loans held for sale – This category includes mortgage loans held for sale that are measured at fair value. Fair values as of September 30, 2022 and December 31, 2021 were based on the price that secondary market investors were offering for loans with similar characteristics.

Available for sale investment securities – Included in this asset category are debt securities. Level 2 investment securities are valued by a third-party pricing service. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings and matrix pricing.

Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security types, additional inputs may be used, or some of the standard market inputs may not be applicable.

•U.S. Government securities – These securities are classified as Level 1. Fair values are based on quoted prices with active markets.

•State and municipal securities/Collateralized mortgage obligations/Residential mortgage-backed securities/Commercial mortgage-backed securities – These debt securities are classified as Level 2. Fair values are determined by a third-party pricing service, as detailed above.

•Corporate debt securities – This category consists of subordinated debt and senior debt issued by financial institutions ($396.9 million at September 30, 2022 and $383.4 million at December 31, 2021) and other corporate debt issued by non-financial institutions ($2.8 million at September 30, 2022 and December 31, 2021).

•Level 2 investments include subordinated debt and senior debt, and other corporate debt issued by non-financial institutions at September 30, 2022 and December 31, 2021. The fair values for these corporate debt securities are determined by a third-party pricing service, as detailed above.

•Auction rate securities – Due to their illiquidity, ARCs are classified as Level 3 investment securities and are valued through the use of an expected cash flows model prepared by a third-party valuation expert. The assumptions used in preparing the expected cash flows model include estimates for coupon rates, time to maturity and market rates of return. In the first quarter of 2022, the Corporation sold all of its investment in ARCs.

Investments held in Rabbi Trust – This category consists of mutual funds that are held in trust for employee deferred compensation plans that the Corporation has elected to measure at fair value. Shares of mutual funds are valued based on net asset value, which represent quoted market prices for the underlying shares held in the mutual funds, and as such, are classified as Level 1.

Derivative assets – Fair value of foreign currency exchange contracts are classified as Level 1 assets ($1.0 million at September 30, 2022 and $0.3 million at December 31, 2021). The mutual funds and foreign exchange prices used to measure these items at fair value are based on quoted prices for identical instruments in active markets.

Level 2 assets, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($2.8 million at September 30, 2022 and $2.4 million at December 31, 2021) and the fair value of interest rate swaps ($176.3 million at September 30, 2022 and $158.6 million at December 31, 2021). The fair values of the interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. See "Note 7 - Derivative Financial Instruments," for additional information.

Deferred compensation liabilities – Fair value of amounts due to employees under deferred compensation plans, classified as Level 1 liabilities and are included in other liabilities on the consolidated balance sheets. The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Investments held in Rabbi Trust" above.

Derivative liabilities – Level 1 liabilities, representing the fair value of foreign currency exchange contracts ($1.0 million at September 30, 2022 and $0.3 million at December 31, 2021).

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Level 2 liabilities, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($0.7 million at September 30, 2022 and $0.0 million at December 31, 2021) and the fair value of interest rate swaps ($313.7 million at September 30, 2022 and $86.1 million at December 31, 2021).

The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Derivative assets" above.

The following table presents the changes in the Corporation's available for sale investment securities measured at fair value on a recurring basis using unobservable inputs (Level 3):
ARCs
Three months ended September 30, 2022(in thousands)
Balance at June 30, 2022$— 
Sales — 
Unrealized adjustment to fair value (1)
— 
Balance at September 30, 2022$— 
Three months ended September 30, 2021
Balance at June 30, 2021$74,834 
Unrealized adjustment to fair value (1)
299 
Balance at September 30, 2021$75,133 
Nine months ended September 30, 2022
Balance at December 31, 2021$74,667 
Sales(74,823)
Unrealized adjustment to fair value (1)
156 
Balance at September 30, 2022$— 
Nine months ended September 30, 2021
Balance at December 31, 2020$98,206 
Sales(24,619)
Unrealized adjustment to fair value (1)
1,546 
Balance at September 30, 2021$75,133 
(1) ARCs are classified as available for sale investment securities. As such, the unrealized adjustment to fair value was recorded as an unrealized holding gain (loss) and included as a component of "AFS at estimated fair value" on the consolidated balance sheets.

Certain financial instruments are not measured at fair value on an ongoing basis, but are subject to fair value measurement in certain circumstances, such as upon their acquisition or when there is evidence of impairment. The following table presents Level 3 financial assets measured at fair value on a nonrecurring basis:
 September 30, 2022December 31, 2021
 (in thousands)
Loans, net$140,763 $118,458 
OREO5,877 1,817 
MSRs (1)
51,072 35,393 
Total assets$197,712 $155,668 
(1) Amounts shown are estimated fair value. MSRs are recorded on the Corporation's consolidated balance sheets at the lower of amortized cost or fair value. See "Note 6 - Mortgage Servicing Rights" for additional information.

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The valuation techniques used to measure fair value for the items in the table above are as follows:

•Loans, net – This category consists of loans that were individually evaluated for impairment and have been classified as Level 3 assets. The amount shown is the balance of non-accrual loans, net of related ACL. See "Note 5 - Loans and Allowance for Credit Losses," for additional details.

•OREO – This category consists of OREO classified as Level 3 assets, for which the fair values were based on estimated selling prices less estimated selling costs for similar assets in active markets.

•MSRs - This category consists of MSRs, which were initially recorded at fair value upon the sale of residential mortgage loans to secondary market investors, and subsequently carried at the lower of amortized cost or fair value. MSRs are amortized as a reduction to servicing income over the estimated lives of the underlying loans. MSRs are stratified by product type and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair values are determined at the end of each quarter through a discounted cash flows valuation performed by a third-party valuation expert. Significant inputs to the valuation included expected net servicing income, the discount rate and the expected life of the underlying loans. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The weighted average annual constant prepayment rate and the weighted average discount rate used in the September 30, 2022 valuation were 7.8% and 9.0%, respectively. Management reviews the reasonableness of the significant inputs to the third-party valuation in comparison to market data. See "Note 6 - Mortgage Servicing Rights," for additional information.

The following tables detail the book values and the estimated fair values of the Corporation's financial instruments as of September 30, 2022 and December 31, 2021.
 September 30, 2022
Estimated Fair Value
Carrying AmountLevel 1Level 2Level 3Total
(in thousands)
FINANCIAL ASSETS
Cash and cash equivalents$528,715 $528,715 $— $— $528,715 
FRB and FHLB stock81,914 — 81,914 — 81,914 
Loans held for sale 14,411 — 14,411 — 14,411 
AFS securities 2,597,384 218,184 2,379,200 — 2,597,384 
HTM securities1,339,310 — 1,141,710 — 1,141,710 
Loans, net19,428,361 — — 18,817,452 18,817,452 
Accrued interest receivable72,821 72,821 — — 72,821 
Other assets 653,358 417,360 179,049 56,949 653,358 
FINANCIAL LIABILITIES  
Demand and savings deposits$19,612,499 $19,612,499 $— $— $19,612,499 
Brokered deposits226,883 206,883 26,216 — 233,099 
Time deposits1,537,172 — 1,521,484 — 1,521,484 
Accrued interest payable5,739 5,739 — — 5,739 
Federal funds purchased136,000 136,000 — — 136,000 
Federal Home Loan Bank advances265,500 265,500 — — 265,500 
Senior debt and subordinated debt539,461 — 455,833 — 455,833 
Other borrowings483,720 482,449 1,263 — 483,712 
Other liabilities 500,827 170,315 314,438 16,074 500,827 

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December 31, 2021
Estimated Fair Value
Carrying AmountLevel 1Level 2Level 3Total
(in thousands)
FINANCIAL ASSETS
Cash and cash equivalents$1,638,614 $1,638,614 $— $— $1,638,614 
FRB and FHLB stock57,635 — 57,635 — 57,635 
Loans held for sale35,768 — 35,768 — 35,768 
AFS securities3,187,390 127,618 2,985,105 74,667 3,187,390 
HTM securities980,384 — 965,867 — 965,867 
Loans, net18,076,349 — — 17,519,497 17,519,497 
Accrued interest receivable57,451 57,451 — — 57,451 
Other assets565,491 367,336 160,945 37,210 565,491 
FINANCIAL LIABILITIES
Demand and savings deposits$19,594,497 $19,594,497 $— $— $19,594,497 
Brokered deposits251,526 231,526 20,603 — 252,129 
Time deposits1,727,476 — 1,730,673 — 1,730,673 
Accrued interest payable7,000 7,000 — — 7,000 
Senior debt and subordinated debt620,406 — 604,780 — 604,780 
Other borrowings417,703 416,764 939 — 417,703 
Other liabilities288,862 188,219 86,110 14,533 288,862 

Fair values of financial instruments are significantly affected by the assumptions used, principally the timing of future cash flows and discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of the Corporation.

For short-term financial instruments, defined as those with remaining maturities of 90 days or less, and excluding those recorded at fair value on the Corporation's consolidated balance sheets, book value was considered to be a reasonable estimate of fair value.

The following instruments are predominantly short-term:
Assets  Liabilities
Cash and cash equivalents  Demand and savings deposits
Accrued interest receivable  Other borrowings
  Accrued interest payable

FRB and FHLB stock represent restricted investments and are carried at cost on the consolidated balance sheets, which is a reasonable estimate of fair value.

As of September 30, 2022, fair values for loans and time deposits were estimated by discounting future cash flows using the current rates, as adjusted for liquidity considerations, at which similar loans would be made to borrowers and similar deposits would be issued to customers for the same remaining maturities. Fair values of loans also include estimated credit losses that would be assumed in a market transaction, which represents estimated exit prices.

Brokered deposits consist of demand and saving deposits, which are classified as Level 1, and time deposits, which are classified as Level 2. The fair value of these deposits are determined in a manner consistent with the respective type of deposits discussed above.





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NOTE 10 – Net Income Per Share

Basic net income per share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding.

Diluted net income per share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock method. The Corporation's common stock equivalents consist of outstanding stock options, restricted stock, RSUs, and PSUs. PSUs are required to be included in weighted average diluted shares outstanding if performance measures, as defined in each PSU award agreement, are met as of the end of the period.

A reconciliation of weighted average shares outstanding used to calculate basic and diluted net income per share follows (in thousands, except per share data):
Three months ended September 30Nine months ended September 30
 2022202120222021
Weighted average shares outstanding (basic)167,353 162,506 162,979 162,577 
Impact of common stock equivalents1,428 950 1,275 1,057 
Weighted average shares outstanding (diluted)168,781 163,456 164,254 163,634 
Per share:
Basic$0.41 $0.45 $1.21 $1.27 
Diluted0.40 0.45 1.20 1.26 

NOTE 11 – Stock-Based Compensation

The Corporation grants equity awards to employees in the form of stock options, restricted stock, RSUs or PSUs under its Employee Equity Plan. In addition, employees may purchase stock under the Corporation's Employee Stock Purchase Plan. The fair value of equity awards granted to employees is recognized as compensation expense over the period during which employees are required to provide service in exchange for such awards. Compensation expense for PSUs is also recognized over the period during which employees are required to provide service in exchange for such awards, however, compensation expense may vary based on the expectations for actual performance relative to defined performance measures.

The Corporation also grants equity awards to non-employee members of its board of directors and the subsidiary bank board of directors under the Directors’ Plan. Under the Directors’ Plan, the Corporation can grant equity awards to non-employee holding company and subsidiary bank directors in the form of stock options, restricted stock, RSUs or common stock. Recent grants of equity awards under the Directors’ Plan have been limited to RSUs.

Equity awards under the Employee Equity Plan are generally granted annually and become fully vested over or after a three-year vesting period. The vesting period for non-performance-based awards represents the period during which employees are required to provide service in exchange for such awards. Equity awards under the Directors' Plan are generally granted annually and become fully vested after a one-year vesting period. Certain events, as defined in the Employee Equity Plan and the Directors' Plan, result in the acceleration of the vesting of equity awards.

Fair values for RSUs and a majority of PSUs are based on the trading price of the Corporation's stock on the date of grant and earn dividend equivalents during the vesting period, which are forfeitable if the awards do not vest. The fair value of certain PSUs are estimated through the use of the Monte Carlo valuation methodology as of the date of grant.

Upon approval at the Annual Meeting, the Employee Equity Plan was amended and restated. Subject to adjustments provided for in the Employee Equity Plan, the total number of equity awards that may be awarded under the Employee Equity Plan was reduced to 5,806,000 shares as of the date of the Annual Meeting.

As of September 30, 2022, the Employee Equity Plan had approximately 5.0 million shares reserved for future grants through 2032, and the Directors’ Plan had approximately 49,000 shares reserved for future grants through 2029.


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The following table presents compensation expense and the related tax benefits for equity awards recognized in the consolidated statements of income:
Three months ended September 30Nine months ended September 30
 2022202120222021
         (in thousands)
Compensation expense$3,791 $2,192 $10,377 $6,192 
Tax benefit(840)(481)(2,201)(1,352)
Total stock-based compensation, net of tax $2,951 $1,711 $8,176 $4,840 


NOTE 12 – Employee Benefit Plans

The net periodic pension cost for the Corporation's Pension Plan consisted of the following components:
Three months ended September 30Nine months ended September 30
 2022202120222021
         (in thousands)
Interest cost$599 $561 $1,795 $1,683 
Expected return on plan assets(1,098)(1,011)(3,295)(3,033)
Net amortization and deferral163 504 490 1,513 
Net periodic pension cost$(336)$54 $(1,010)$163 

The components of the net benefit for the Corporation's Postretirement Plan consisted of the following components:
Three months ended September 30Nine months ended September 30
 2022202120222021
         (in thousands)
Interest cost$8 $8 $25 $24 
Net accretion and deferral(132)(134)(394)(402)
Net periodic benefit$(124)$(126)$(369)$(378)

In connection with the Merger, the Corporation assumed the obligations of Prudential Bancorp under a multiemployer defined benefit pension plan that had previously been closed to new Prudential Bancorp participants.

The Corporation recognizes the funded status of its Pension Plan and Postretirement Plan on the consolidated balance sheets and recognizes the change in that funded status through other comprehensive income.


NOTE 13 – Commitments and Contingencies

Commitments

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer or obligor. Since some of the commitments are expected to expire without being drawn upon, the total commitments to extend credit do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral, if any, obtained upon extension of credit is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, equipment and income-producing commercial properties.
42


Standby letters of credit are conditional commitments issued to guarantee the financial or performance obligation of a customer to a third party. Commercial letters of credit are conditional commitments issued to facilitate foreign and domestic trade transactions for customers. The credit risk involved in issuing letters of credit is similar to that involved in extending loan facilities. These obligations are underwritten consistent with commercial lending standards. The maximum exposure to loss for standby and commercial letters of credit is equal to the contractual (or notional) amount of the instruments.

The Corporation records a reserve for unfunded lending commitments, included in ACL - OBS credit exposures, which represents management’s estimate of credit losses associated with unused commitments to extend credit and letters of credit. As of September 30, 2022 and December 31, 2021, the ACL - OBS credit exposures for unfunded lending commitments was $11.0 million and $9.1 million, respectively. See "Note 5 - Loans and Allowance for Credit Losses," for additional details.

The following table presents the Corporation's commitments to extend credit and letters of credit:
September 30, 2022December 31, 2021
 (in thousands)
Commitments to extend credit$8,552,736 $8,731,168 
Standby letters of credit267,247 298,275 
Commercial letters of credit51,852 54,196 

Residential Lending

The Corporation originates and sells residential mortgages to secondary market investors. The Corporation provides customary representations and warranties to secondary market investors that specify, among other things, that the loans have been underwritten to the standards of the secondary market investor. The Corporation may be required to repurchase specific loans, or reimburse the investor for a credit loss incurred on a sold loan if it is determined that the representations and warranties have not been met. Under some agreements with secondary market investors, the Corporation may have additional credit exposure beyond customary representations and warranties, based on the specific terms of those agreements.

The Corporation maintains a reserve for estimated losses related to loans sold to investors. As of September 30, 2022 and December 31, 2021, the total reserve for losses on residential mortgage loans sold was $1.3 million and $1.1 million, respectively, including reserves for both representation and warranty and credit loss exposures. In addition, a component of ACL - OBS credit exposures of $6.3 million and $3.8 million, as of September 30, 2022 and December 31, 2021, respectively, related to additional credit exposures for potential loan repurchases.

Legal Proceedings

The Corporation is involved in various pending and threatened claims and other legal proceedings in the ordinary course of its business activities. The Corporation evaluates the possible impact of these matters, taking into consideration the most recent information available. A loss reserve is established for those matters for which the Corporation believes a loss is both probable and reasonably estimable. Once established, the reserve is adjusted as appropriate to reflect any subsequent developments. Actual losses with respect to any such matter may be more or less than the amount estimated by the Corporation. For matters where a loss is not probable, or the amount of the loss cannot be reasonably estimated by the Corporation, no loss reserve is established.

In addition, from time to time, the Corporation is involved in investigations or other forms of regulatory or governmental inquiry covering a range of possible issues and, in some cases, these may be part of similar reviews of the specified activities of other companies. These inquiries or investigations could lead to administrative, civil or criminal proceedings involving the Corporation, and could result in fines, penalties, restitution, other types of sanctions, or the need for the Corporation to undertake remedial actions, or to alter its business, financial or accounting practices. The Corporation's practice is to cooperate fully with regulatory and governmental inquiries and investigations.

As of the date of this report, the Corporation believes that any liabilities, individually or in the aggregate, that may result from the final outcomes of pending legal proceedings, or regulatory or governmental inquiries or investigations, will not have a material adverse effect on the financial condition of the Corporation. However, legal proceedings, inquiries and investigations are often unpredictable, and it is possible that the ultimate resolution of any such matters, if unfavorable, may be material to the Corporation's results of operations in any future period, depending, in part, upon the size of the loss or liability imposed and the
43

operating results for the period, and could have a material adverse effect on the Corporation's business. In addition, regardless of the ultimate outcome of any such legal proceeding, inquiry or investigation, any such matter could cause the Corporation to incur additional expenses, which could be significant, and possibly material, to the Corporation's results of operations in any future period.

Kress v. Fulton Bank, N.A.

On October 15, 2019, a former Fulton Bank teller supervisor, D. Kress, filed a putative collective and class action lawsuit on behalf of herself and other teller supervisors, tellers, and other similar non-exempt employees in the U.S. District Court for the District of New Jersey, D. Kress v. Fulton Bank, N.A., Case No. 1:19-cv-18985. Fulton Bank accepted summons without a formal service of process on January 20, 2020. The lawsuit alleges that Fulton Bank did not record or otherwise account for the amount of time D. Kress and putative collective and class members spent conducting branch opening security procedures. The allegation is that, as a result, Fulton Bank did not properly compensate those employees for their regular and overtime wages. The lawsuit alleges that by doing so, Fulton violated: (i) the federal Fair Labor Standards Act and seeks back overtime wages for a period of three years, liquidated damages and attorney fees and costs; (ii) the New Jersey State Wage and Hour Law and seeks back overtime wages for a period of six years, treble damages and attorney fees and costs; and (iii) the New Jersey Wage Payment Law and seeks back wages for a period of six years, treble damages and attorney fees and costs. The lawsuit also asserts New Jersey common law claims seeking compensatory damages and interest. The Corporation and counsel representing plaintiffs ("Plaintiffs' Counsel") reached and executed a formal Settlement Agreement to resolve this lawsuit. Plaintiffs' Counsel filed a Motion for Preliminary Approval of Class and Collective Settlement and Provisional Certification of Settlement Class and Collective ("the Motion") with the U.S. District Court for the District of New Jersey ("the Court"). On June 30, 2022, the Court granted the Motion and scheduled a hearing for final approval of the Settlement Agreement and matters related thereto for November 2, 2022. On November 2, 2022, the Court granted final approval of the Settlement Agreement and matters related thereto and dismissed the lawsuit with prejudice. The financial terms of the Settlement Agreement are not material to the Corporation. The Corporation established an accrued liability during the third quarter of 2020 for the costs expected to be incurred in connection with the Settlement Agreement. The accrued liability is included in "other liabilities" on the consolidated balance sheets.


NOTE 14 – Borrowings

On March 16, 2022, $65.0 million of senior notes with a fixed rate of 3.60% were repaid upon their maturity.

On March 30, 2021, pursuant to a cash tender offer, the Corporation purchased $75.0 million and $60.0 million of its subordinated notes which are scheduled to mature on November 15, 2024 and its senior notes which matured on March 16, 2022, respectively. The Corporation incurred $11.3 million in debt extinguishment costs and expensed $0.8 million of unamortized discount costs. In addition, during the first quarter of 2021, the Corporation prepaid $536.0 million of FHLB advances and incurred $20.9 million in prepayment penalties.

In connection with the Merger, the Corporation assumed $253.5 million of Prudential Bancorp FHLB advances.

The Corporation owned all of the common securities of three unconsolidated subsidiary trusts that issued TruPS in conjunction with the Corporation issuing junior subordinated deferrable interest debentures to the trusts. In September 2022, the Corporation redeemed all of the outstanding junior subordinated deferrable interest debentures issued to the trusts, totaling approximately $17.0 million, and the trusts redeemed all of the outstanding TruPS in a like amount, after which the subsidiary trusts were terminated.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management Discussion relates to the Corporation, a financial holding company registered under the BHCA and incorporated under the laws of the Commonwealth of Pennsylvania, and its wholly owned subsidiaries. Management’s Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report.

FORWARD-LOOKING STATEMENTS

The Corporation has made, and may continue to make, certain forward-looking statements with respect to its financial condition, results of operations and business. Do not unduly rely on forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "will," "could," "estimates," "predicts," "potential," "continue," "anticipates," "believes," "plans," "expects," "future," "intends," "projects," the negative of these terms and other comparable terminology. These forward-looking statements may include projections of, or guidance on, the Corporation's future financial performance, expected levels of future expenses, including future credit losses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in the Corporation's business or financial results.

Forward-looking statements are neither historical facts, nor assurance of future performance. Instead, the statements are based on current beliefs, expectations and assumptions regarding the future of the Corporation's business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Corporation's control, and actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not unduly rely on any of these forward-looking statements. Any forward-looking statement is based only on information currently available and speaks only as of the date when made. The Corporation undertakes no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Many factors could affect future financial results including, without limitation:

◦the impact of adverse conditions in the economy and financial markets on the performance of the Corporation's loan portfolio and demand for the Corporation's products and services;
◦the scope and duration of the COVID-19 pandemic and the direct and indirect impacts of the pandemic on the Corporation, its customers and third parties;
◦the determination of the ACL, which depends significantly upon assumptions and judgments with respect to a variety of factors, including the performance of the loan portfolio, the weighted-average remaining lives of different classifications of loans within the loan portfolio and current and forecasted economic conditions, among other factors;
◦increases in non-performing assets, which may require the Corporation to increase the allowance for credit losses, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets;
◦investment securities gains and losses, including other-than-temporary declines in the value of securities which may result in charges to earnings;
◦the effects of market interest rates, and the relative balances of interest rate-sensitive assets to interest rate-sensitive liabilities, on net interest margin and net interest income;
◦the replacement of LIBOR as a benchmark reference rate;
◦the effects of changes in interest rates on demand for the Corporation's products and services;
◦the effects of changes in interest rates or disruptions in liquidity markets on the Corporation's sources of funding;
◦the effects of the extensive level of regulation and supervision to which the Corporation and Fulton Bank are subject;
◦the effects of the significant amounts of time and expense associated with regulatory compliance and risk management;
◦the potential for negative consequences resulting from regulatory violations, investigations and examinations, including potential supervisory actions, the assessment of fines and penalties, the imposition of sanctions, the need to undertake remedial actions and possible damage to the Corporation's reputation;
◦the continuing impact of the Dodd-Frank Act on the Corporation's business and results of operations;
◦the effects of, and uncertainty surrounding, new legislation, changes in regulation and government policy, which could result in significant changes in banking and financial services regulation;
◦the effects of actions by the federal government, including those of the Federal Reserve Board and other government agencies, that impact money supply and market interest rates;
◦the effects of changes in U.S. federal, state or local tax laws;
◦the effects of negative publicity on the Corporation's reputation;
◦the effects of adverse outcomes in litigation and governmental or administrative proceedings;
45

◦the potential to incur losses in connection with repurchase and indemnification payments related to sold loans;
◦the Corporation's ability to achieve its growth plans;
◦completed and potential acquisitions may affect costs and the Corporation may not be able to successfully integrate the acquired business or realize the anticipated benefits from such acquisitions;
◦the potential effects of climate change on the Corporation's business and results of operations;
◦the effects of concerns relating to the Corporation's ESG posture, including potential adverse impacts on the Corporation's reputation and the market value of its securities;
◦the effects of competition on deposit rates and growth, loan rates and growth and net interest margin;
◦the Corporation's ability to manage the level of non-interest expenses, including salaries and employee benefits expenses, operating risk losses and goodwill impairment;
◦the effects of changes in accounting policies, standards, and interpretations on the Corporation's reporting of its financial condition and results of operations;
◦the impact of operational risks, including the risk of human error, inadequate or failed internal processes and systems, computer and telecommunications systems failures, faulty or incomplete data and an inadequate risk management framework;
◦the impact of failures of third parties upon which the Corporation relies to perform in accordance with contractual arrangements;
◦the failure or circumvention of the Corporation's system of internal controls;
◦the loss of, or failure to safeguard, confidential or proprietary information;
◦the Corporation's failure to identify and adequately and promptly address cybersecurity risks, including data breaches and cyber-attacks;
◦the Corporation's ability to keep pace with technological changes;
◦the Corporation's ability to attract and retain talented personnel;
◦capital and liquidity strategies, including the Corporation's ability to comply with applicable capital and liquidity requirements, and the Corporation's ability to generate capital internally or raise capital on favorable terms;
◦the Corporation's reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or other distributions;
◦the effects of any downgrade in the Corporation or Fulton Bank's credit ratings on each of their borrowing costs or access to capital markets;
◦the possibility that the anticipated benefits of the Merger, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or challenges arising from, the integration of Prudential Bancorp into the Corporation or as a result of the strength of the economy, competitive factors in the areas where the Corporation and Prudential Bancorp do business, or as a result of other unexpected factors or events;
◦potential adverse reactions or changes to business or employee relationships, including those resulting from the Merger;
◦unanticipated challenges or delays in the integration of Prudential Bancorp’s business into the Corporation's business and or the conversion of Prudential Bancorp’s operating systems and customer data onto the Corporation's may significantly increase the expense associated with the Merger; and
◦other factors that may affect future results of the Corporation.

Additional information regarding these as well as other factors that could affect future financial results can be found in the sections entitled "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021, Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and elsewhere in this report, including in Note 13 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements.

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OVERVIEW

The Corporation is a financial holding company, which, through its wholly-owned banking subsidiaries, provides a full range of retail and commercial financial services primarily in Pennsylvania, Delaware, Maryland, New Jersey and Virginia.

The Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin, which is FTE net interest income as a percentage of average interest-earning assets. The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments and properties. Offsetting these revenue sources are provisions for credit losses on loans and OBS credit risks, non-interest expenses and income taxes.

The following table presents a summary of the Corporation's earnings and selected performance ratios:
Three months ended September 30Nine months ended September 30
 2022202120222021
(dollars in thousands, except per share and percentages)
Net income (in thousands)$70,871$75,583$205,148$213,611
Net income available to common shareholders (in thousands)$68,309$73,021$197,462$205,896
Diluted net income available to common shareholders per share$0.40$0.45$1.20$1.26
Diluted operating net income available to common shareholders per share, annualized(1)
$0.48$0.45$1.28$1.26
Return on average assets, annualized1.07 %1.13 %1.06 %1.09 %
Operating return on average assets, annualized(1)
1.25 %1.13 %1.13 %1.09 %
Return on average common shareholders' equity, annualized11.24 %11.45 %10.93 %10.28 %
Return on average common shareholders' equity (tangible), annualized(1)
17.31 %14.56 %15.11 %14.16 %
Net interest margin(2)
3.54 %2.82 %3.13 %2.78 %
Efficiency ratio(1)
57.8 %60.3 %61.4 %62.3 %
Non-performing assets to total assets0.76 %0.58 %0.76 %0.58 %
Net charge-offs (recoveries) to average loans, annualized0.01 %(0.05)%(0.05)%0.08 %
(1) Ratio represents a financial measure derived by methods other than GAAP. See reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure under the heading, "Supplemental Reporting of Non-GAAP Based Financial Measures "
(2) Presented on a FTE basis, using a 21% federal tax rate and statutory interest expense disallowances. See also the "Net Interest Income" section of the Management's Discussion.

Federal Funds Rate

After maintaining the target range for the Fed Funds Rate at 0.00% to 0.25% from March 16, 2020, as the COVID-19 pandemic began to weigh on global economic activity, through March 16, 2022, the FOMC has increased the target range six times to address elevated levels of inflation, placing the target range for the Fed Funds Rate at 3.75% - 4.00% as of November 2, 2022.

Business Combinations

On July 1, 2022, the Corporation completed the acquisition of Prudential Bancorp. Prudential Bancorp was merged with and into the Corporation, and Prudential Bancorp's wholly owned subsidiary, Prudential Bank, became a wholly owned subsidiary of the Corporation. The Corporation merged Prudential Bank with and into Fulton Bank on November 5, 2022.

The total consideration paid of $119.1 million for the fair value of Prudential Bancorp's net assets acquired of $102.8 million resulted in $16.3 million of goodwill recognized as of July 1, 2022.

Merger-related expenses included in non-interest expense for the three months and nine months ended September 30, 2022, were $7.0 million and $8.4 million, respectively.


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Financial Highlights

Following is a summary of the financial highlights for the three and nine months ended September 30, 2022:

•Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was $68.3 million for the three months ended September 30, 2022, a $4.7 million decrease compared to $73.0 million for the same period in 2021. Net income available to common shareholders was $197.5 million for the nine months ended September 30, 2022, a $8.4 million decrease compared to $205.9 million for the same period in 2021. Diluted net income available to common shareholders, per share was $0.40 for the three months ended September 30, 2022, a $0.05 decrease compared to the same period in 2021, and $1.20 for the nine months ended September 30, 2022, a $0.06 decrease compared to the same period in 2021.

•Net Interest Income - FTE net interest income increased $45.2 million, or 25.9%, for the three months ended September 30, 2022 compared to the same period in 2021. The increase was driven by higher interest rates, which resulted in a $44.0 million increase in interest income on average net loans, as well as a $678.9 million increase in average investment securities, which contributed $6.4 million to the increase in interest income. FTE net interest income increased $59.2 million, or 11.7%, for the nine months ended September 30, 2022 compared to the same period in 2021. The increase in net interest income was primarily from an increase in interest income of $38.8 million from average net loans and $14.4 from average investment securities.

•Net Interest Margin - Net interest margin increased 72 bps for the three months ended September 30, 2022 compared to the same period in 2021. Net interest margin increased 35 bps for the nine months ended September 30, 2022 compared to the same period in 2021. The increases in net interest margin were driven primarily by higher yields on average interest-earning assets, and funds moving to higher yielding interest-earning assets.

•Loan Growth - Average net loans increased by $1.1 billion, or 6.2%, for the three months ended September 30, 2022 compared to the same period in 2021. The increase was largely driven by increases in average residential mortgage loans, average commercial mortgage loans, average commercial and industrial loans, excluding PPP loans, average real estate construction loans and average consumer loans of $842.8 million, $432.1 million, $322.6 million, $182.7 million and $151.8 million, respectively, partially offset by a $801.4 million decline in PPP loans due to the repayment of these loans upon forgiveness by the SBA. Average net loans increased $100.6 million, or 0.5%, for the nine months ended September 30, 2022 compared to the same period in 2021. The increase was primarily driven by increases in average residential mortgage loans, average commercial mortgage loans, average real estate construction loans, average commercial and industrial loans, excluding PPP loans, and average consumer loans of $734.5 million, $254.1 million, $132.8 million, $132.1 million and $78.0 million, respectively, partially offset by a $1.2 billion decline in PPP loans.

•Deposit Growth - Average deposits decreased $335.4 million, or 1.5%, for the three months ended September 30, 2022 compared to the same period in 2021. The decrease was largely due to decreases in average interest-bearing demand deposits and average time deposits of $460.8 million and $236.8 million, respectively, partially offset by growth in average savings and money market deposits and average noninterest-bearing demand deposits of $289.2 million and $96.1 million, respectively. Average deposits decreased $73.9 million, or 0.3%, for the nine months ended September 30, 2022 compared to the same period in 2021. The decrease was primarily due to decreases in average time deposits and average interest-bearing demand deposits of $368.0 million and $337.7 million, respectively, partially offset by increases in average noninterest-bearing demand deposits and average savings and money market deposits of $430.4 million and $244.5 million, respectively.

•Asset Quality - Non-performing assets increased $44.7 million, or 29.0%, as of September 30, 2022 compared to December 31, 2021, and were 0.76% and 0.60% of total assets as of those dates, respectively. For the nine months ended September 30, 2022 and 2021, annualized net charge-offs to average loans outstanding were (0.05)% and 0.08%, respectively. The provision for credit losses was $13.5 million for the nine months ended September 30, 2022, compared to a negative provision of $9.6 million for the same period of 2021. Included in the third quarter of 2022
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provision for credit losses was a CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio.

•Non-interest Income - For the three months ended September 30, 2022, non-interest income, excluding net investment securities gains, decreased $3.4 million, or 5.4%, compared to the same period in 2021. The decrease in non-interest income was primarily due to decreases of $5.8 million in mortgage banking income, $2.2 million in other income, primarily due to equity method investments, and $0.9 million in wealth management revenues, partially offset by increases of $4.1 million in commercial banking revenues and $1.5 million in consumer banking fees. Non-interest income, excluding net investment securities gains, decreased $3.5 million, or 2.0%, for the nine months ended September 30, 2022 compared to the same period in 2021. The decrease in non-interest income was driven by a decrease of $14.3 million in mortgage banking income, partially offset by increases of $7.0 million in commercial banking revenues and $4.0 million in consumer banking fees.

•Non-interest Expense - Non-interest expense, excluding Merger-related expenses of $7.0 million, increased $18.0 million, or 12.4%, for the three months ended September 30, 2022 compared to the same period in 2021. This increase was primarily due to increases of $11.6 million in salaries and employee benefits, $1.5 million in data processing and software expense, $1.5 million in other outside services and $1.1 million in net occupancy expense. Non-interest expense, excluding Merger-related expenses of $8.4 million, decreased $7.0 million, or 1.5%, for the nine-months ended September 30, 2022, compared to the same period in 2021. The decrease was largely driven by debt extinguishment expenses in 2021 of $32.6 million, partially offset by increases of $20.5 million in salaries and employee benefits expense, $3.0 million in data processing and software expense and $2.7 million in net occupancy expense.

•Income Taxes - Income tax expense for the three months ended September 30, 2022 was $15.4 million, a $1.1 million increase from $14.3 million from the same period in 2021. Income tax expense for the nine months ended September 30, 2022 was $44.6 million, a $4.5 million increase from the same period in 2021. The Corporation's ETR was 17.8% for the three months ended September 30, 2022 compared to 17.6% for the full-year of 2021. The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and investments in community development projects that generate tax credits under various federal programs.

Supplemental Reporting of Non-GAAP Based Financial Measures

This Quarterly Report on Form 10-Q contains supplemental financial information, as detailed below, that has been derived by methods other than GAAP. The Corporation has presented these non-GAAP financial measures because it believes that these measures provide useful and comparative information to assess trends in the Corporation's results of operations. Presentation of these non-GAAP financial measures is consistent with how the Corporation evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Corporation's industry. Management believes that these non-GAAP financial measures, in addition to GAAP measures, are also useful to investors to evaluate the Corporation's results. Investors should recognize that the Corporation's presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures of other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures, and the Corporation strongly encourages a review of its consolidated financial statements in their entirety.















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Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure follow:
Three months ended September 30Nine months ended September 30
2022202120222021
(in thousands, except per share data)
Operating net income available to common shareholders
Net income available to common shareholders$68,309 $73,021 $197,462 $205,896 
Plus: Core deposit intangible amortization, net of tax406 — 406 — 
Plus: Merger-related expenses, net of tax5,535 — 6,663 — 
Plus: CECL Day 1 Provision expense, net of tax6,283 — 6,283 — 
Operating net income available to common shareholders (numerator)$80,533 $73,021 $210,814 $205,896 
Weighted average shares (diluted) (denominator)168,781 163,456 164,254 163,634 
Operating net income available to common shareholders, per share (diluted)$0.48 $0.45 $1.28 $1.26 
Operating return on average assets
Net income$70,871$75,583 $205,148$213,611
Plus: Core deposit intangible amortization, net of tax406—406—
Plus: Merger-related expenses, net of tax5,535—6,663—
Plus: CECL Day 1 Provision expense, net of tax6,283—6,283—
Operating net income (numerator)$83,095$75,583$218,500$213,611
Total average assets (denominator)$26,357,095$26,440,876$25,855,097$26,181,723
Operating return on average assets, annualized1.25 %1.13 %1.13 %1.09 %
Return on average common shareholders' equity (tangible)
Net income available to common shareholders$68,309$73,021$197,462$205,896
Plus: Merger-related expenses, net of tax5,535— 6,663—
Plus: CECL Day 1 Provision expense, net of tax6,283— 6,283—
Plus: Intangible amortization, net of tax545118824350
Operating net income available to common shareholders (numerator)$80,672$73,139$211,232$206,246
Average shareholders' equity$2,604,057$2,722,833$2,607,514$2,676,762
Less: Average goodwill and intangible assets(562,285)(536,772)(545,846)(536,615)
Less: Average preferred stock(192,878)(192,878)(192,878)(192,878)
Average tangible common shareholders' equity (denominator)$1,848,894$1,993,183$1,868,790$1,947,269
Return on average common shareholders' equity (tangible), annualized17.31 %14.56 %15.11 %14.16 %
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Three months ended September 30Nine months ended September 30
2022202120222021
(in thousands)
Efficiency ratio
Non-interest expense$169,558$144,596$465,266$463,811
Less: Amortization of tax credit investments(696)(1,546)(2,088)(4,640)
Less: Merger-related expenses(7,006)—(8,434)—
Less: Intangible amortization(690)(150)(1,043)(443)
Less: Debt extinguishment costs———(32,575)
Non-interest expense (numerator)$161,166$142,900$453,701$426,153
Net interest income$215,582$171,270$555,723$498,118
Tax equivalent adjustment3,9703,11410,6859,111
Plus: Total non-interest income59,16262,577172,809209,864
Less: Investment securities (gains) losses, net53—26(33,511)
Total revenue (denominator)$278,767$236,961$739,243$683,582
Efficiency ratio57.8 %60.3 %61.4 %62.3 %

Presented on a FTE basis, using a 21% federal tax rate.
51

RESULTS OF OPERATIONS

Three months ended September 30, 2022 compared to the three months ended September 30, 2021

Net Interest Income

FTE net interest income increased $45.2 million to $219.6 million for the three months ended September 30, 2022, from $174.4 million for the same period in 2021. NIM increased 72 bps, to 3.54%, compared to 2.82% for the same period in 2021. The following table provides a comparative average balance sheet and net interest income analysis for those periods. Interest income and yields are presented on an FTE basis, using a 21% federal tax rate, and statutory interest expense disallowances. The discussion following this table is based on these taxable-equivalent amounts.
 Three months ended September 30
 20222021
Average
Balance		InterestYield/
Rate		Average
Balance		InterestYield/
Rate
ASSETS(dollars in thousands)
Interest-earning assets:
Net loans (1)
$19,563,825 $207,343 4.21 %$18,414,153 $163,343 3.53 %
   Investment securities (2)
4,500,461 28,022 2.49 3,821,513 21,663 2.27 
Loans held for sale9,098 194 8.51 36,427 299 3.28 
Other interest-earning assets622,673 2,103 1.34 2,301,326 1,888 0.18 
Total interest-earning assets24,696,057 237,662 3.83 24,573,419 187,193 3.03 
Noninterest-earning assets:
Cash and due from banks152,349 200,315 
Premises and equipment223,880 228,861 
Other assets1,545,812 1,695,767 
Less: ACL - loans (3)
(261,003)(257,486)
Total Assets$26,357,095 $26,440,876 
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits$5,708,059 $1,886 0.13 %$6,168,908 $814 0.05 %
Savings and money market deposits6,681,713 3,414 0.20 6,392,537 1,054 0.07 
Brokered deposits247,105 1,346 2.16 270,168 229 0.34 
Time deposits1,615,384 3,404 0.84 1,852,223 4,428 0.95 
Total interest-bearing deposits14,252,261 10,050 0.28 14,683,836 6,525 0.18 
Borrowings1,359,348 8,060 2.35 %1,122,111 6,284 2.22 
Total interest-bearing liabilities15,611,609 18,110 0.47 15,805,947 12,809 0.32 
Noninterest-bearing liabilities:
Demand deposits7,535,791 7,439,644 
Other liabilities605,638 472,452 
Total Liabilities23,753,038 23,718,043 
Total Deposits/Cost of deposits21,788,052 0.18 22,123,480 0.12 
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds23,147,400 0.31 23,245,591 0.22 
Shareholders’ equity2,604,057 2,722,833 
Total Liabilities and Shareholders’ Equity$26,357,095 $26,440,876 
Net interest income/FTE NIM219,552 3.54 %174,384 2.82 %
Tax equivalent adjustment(3,970)(3,114)
Net interest income$215,582 $171,270 
(1) Average balance includes non-performing loans.
(2) Balances include amortized historical cost for AFS. The related unrealized holding gains (losses) are included in other assets.
(3) ACL - loans relates to the ACL specifically for net loans and does not include the ACL for OBS credit exposures, which is included in other liabilities.

52

The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volume) and changes in yields and rates for the three months ended September 30, 2022 in comparison to the same period in 2021:
 2022 vs. 2021
Increase (Decrease) due
to change in
 VolumeYield/RateNet
 (in thousands)
FTE Interest income on:
Net loans (1)
$10,770 $33,230 $44,000 
Investment securities4,115 2,244 6,359 
Loans held for sale(338)233 (105)
Other interest-earning assets(1,332)1,547 215 
Total interest income$13,215 $37,254 $50,469 
Interest expense on:
Demand deposits$(62)$1,134 $1,072 
Savings and money market deposits56 2,304 2,360 
Brokered deposits(21)1,138 1,117 
Time deposits(537)(487)(1,024)
Borrowings1,284 492 1,776 
Total interest expense$720 $4,581 $5,301 
(1) Average balance includes non-performing loans.

Note: Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of direct changes that are attributable to each component.

Compared to the third quarter of 2021, FTE total interest income for the third quarter of 2022 increased $50.5 million, or 27.0%, primarily due to an increase of $37.3 million attributable to changes in yield of which $33.2 million related to net loans. The yield on average interest-earning assets increased 80 bps in the third quarter of 2022 compared to the same period in 2021.

In the third quarter of 2022, interest expense increased $5.3 million compared to the third quarter of 2021, primarily driven by the increase in rate on interest-bearing liabilities resulting in a $4.6 million increase in interest expense. The increase in interest expense attributable to rate was primarily driven by the increases in savings and money market deposits, demand deposits and brokered deposits.

Average loans and average FTE yields, by type, are summarized in the following table:
Three months ended September 30Increase (Decrease)
 20222021 in Balance
 BalanceYieldBalanceYield$%
 (dollars in thousands)
Real estate – commercial mortgage$7,566,259 4.21 %$7,134,177 3.11 %$432,082 6.1 %
Commercial and industrial (1)
4,250,573 4.58 4,729,385 2.79 (478,812)(10.1)
Real estate – residential mortgage4,485,649 3.59 3,642,822 3.39 842,827 23.1 
Real estate – home equity1,099,487 4.87 1,128,076 3.68 (28,589)(2.5)
Real estate – construction1,268,590 4.67 1,085,846 3.13 182,744 16.8 
Consumer604,634 5.14 452,844 4.00 151,790 33.5 
Equipment lease financing252,810 4.45 247,776 3.88 5,034 2.0 
Other (2)
35,823 — (6,773)— 42,596 N/M
Total loans$19,563,825 4.21 %$18,414,153 3.53 %$1,149,672 6.2 %

(1) Includes average PPP loans of $49.2 million and $0.9 billion for the three months ended September 30, 2022 and 2021, respectively.
(2) Consists of overdrafts and net origination fees and costs.

53

During the third quarter of 2022, average loans increased $1.1 billion, or 6.2%, compared to the same period in 2021. The increase was largely driven by increases in average residential mortgage loans, average commercial mortgage loans and average construction loans of $842.8 million, $432.1 million and $182.7 million, respectively, partially offset by decreases in average commercial and industrial loans of $478.8 million primarily due to the repayment of PPP loans upon forgiveness by the SBA.

Average deposits and average interest rates, by type, are summarized in the following table:
Three months ended September 30Increase (Decrease)
 in Balance
 20222021
 BalanceRateBalanceRate$%
 (dollars in thousands)
Noninterest-bearing demand$7,535,791 — %$7,439,644 — %$96,147 1.3 %
Interest-bearing demand5,708,059 0.13 6,168,908 0.05 (460,849)(7.5)
Savings and money market deposits6,681,713 0.20 6,392,537 0.07 289,176 4.5 
Total demand deposits and savings and money market deposits19,925,563 0.11 20,001,089 0.04 (75,526)(0.4)
Brokered deposits247,105 2.16 270,168 0.34 (23,063)(8.5)
Time deposits1,615,384 0.84 1,852,223 0.95 (236,839)(12.8)
Total deposits$21,788,052 0.18 %$22,123,480 0.12 %$(335,428)(1.5)%

The cost of total deposits increased 6 bps, to 0.18%, for the third quarter of 2022, compared to 0.12% for the same period in 2021, due to an increase in rates and the change in mix of deposits. The rate on total demand deposits and savings and money market deposits increased to 0.11% for the third quarter of 2022, compared to 0.04% for the same period in 2021. Average interest-bearing demand deposits and average time deposits decreased $460.8 million and $236.8 million, respectively, during the third quarter of 2022. Average savings and money market deposits and average noninterest-bearing demand deposits increased $289.2 million and $96.1 million, respectively, during the third quarter of 2022 compared to the same period in 2021.

Average borrowings and interest rates, by type, are summarized in the following table:
Three months ended September 30Increase (Decrease)
 20222021in Balance
 BalanceRateBalanceRate$%
Borrowings:(dollars in thousands)
Federal funds purchased$96,965 2.22 %$— — %$96,965 N/M
Federal Home Loan Bank advances206,152 2.70 — — 206,152 N/M
Senior debt and subordinated debt554,735 3.97 626,278 3.92 (71,543)(11.4)
Other borrowings(1)
501,496 0.48 495,833 0.11 5,663 1.1 
Total borrowings$1,359,348 2.35 %$1,122,111 2.22 %$237,237 21.1 %
(1) Includes repurchase agreements, short-term promissory notes and capital leases.

Average total borrowings increased $237.7 million, or 21.1%, in the third quarter of 2022, compared to the same period in 2021 primarily as a result of an increase of $206.2 million in average FHLB advances. See Note 14 "Borrowings" of the Notes to Consolidated Financial Statements for additional details.

Provision for Credit Losses

The provision for credit losses was $19.0 million for the third quarter of 2022, an increase of $19.6 million from the same period in 2021. Included in the third quarter of 2022 provision for credit losses was a CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio. Excluding the CECL Day 1 Provision, the provision for credit losses was $11.0 million and was primarily due to an increase in non-performing loans, as well as increases for the office building portfolio, reflected in the commercial real estate loan portfolio, and the consumer loan, real estate construction and residential mortgage loan portfolios.



54

Non-Interest Income

The following table presents the components of non-interest income:
 Three months ended September 30Increase (Decrease)
 20222021$%
 (in thousands)
Commercial banking:
   Merchant and card$7,601 $6,979 $622 8.9 %
   Cash management6,483 5,285 1,198 22.7 
   Capital markets4,060 2,063 1,997 96.8 
   Other commercial banking2,664 2,411 253 10.5 
Total commercial banking 20,808 16,738 4,070 24.3 
Consumer banking:
  Card6,278 5,941 337 5.7 
  Overdraft4,463 3,474 989 28.5 
  Other consumer banking2,534 2,386 148 6.2 
Total consumer banking13,275 11,801 1,474 12.5 
Wealth management revenues17,610 18,532 (922)(5.0)
Mortgage banking:
Gains on sales of mortgage loans2,410 5,944 (3,534)(59.5)
Mortgage servicing income1,310 3,591 (2,281)(63.5)
Total mortgage banking 3,720 9,535 (5,815)(61.0)
Other3,802 5,971 (2,169)(36.3)
Non-interest income before investment securities gains 59,215 62,577 (3,362)(5.4)
Investment securities gains (losses), net(53)— (53)N/M
Total Non-Interest Income$59,162 $62,577 $(3,415)(5.5)%

Excluding net investment securities gains, non-interest income decreased $3.4 million, or 5.4%, in the third quarter of 2022 compared to the same period in 2021.

Compared to the third quarter of 2021, the decrease in non-interest income was primarily due to decreases of $5.8 million in mortgage banking income, $2.2 million in other income, primarily due to equity method investments, and $0.9 million in wealth management revenues, partially offset by increases of $4.1 million in commercial banking revenues and $1.5 million in consumer banking fees.


















55


Non-Interest Expense

The following table presents the components of non-interest expense:
 Three months ended September 30Increase (Decrease)
 20222021$%
 (in thousands)
Salaries and employee benefits$94,283 $82,679 $11,604 14.0 %
Data processing and software15,807 14,335 1,472 10.3 
Net occupancy14,025 12,957 1,068 8.2 
Other outside services9,361 7,889 1,472 18.7 
State taxes3,583 4,994 (1,411)(28.3)
Equipment 3,548 3,416 132 3.9 
FDIC insurance3,158 2,727 431 15.8 
Professional fees2,373 2,271 102 4.5 
Marketing1,859 1,448 411 28.4 
Intangible amortization690 150 540 N/M
Debt extinguishment— — — N/M
Merger-related expenses7,006 — 7,006 N/M
Other13,865 11,730 2,135 18.2 
Total non-interest expense$169,558 $144,596 $24,962 17.3 %

Compared to the third quarter of 2021, non-interest expense, excluding Merger-related expenses of $7.0 million, increased $18.0 million in the third quarter of 2022, primarily due to increases of $11.6 million in salaries and employee benefits expense, $2.1 million in other non-interest expense, $1.5 million in data processing and software expense, $1.5 million in other outside services and $1.1 million in net occupancy expense, partially offset by a decrease in state taxes of $1.4 million.

Income Taxes

Income tax expense for the three months ended September 30, 2022 was $15.4 million, a $1.1 million increase from $14.3 million for the same period in 2021. The Corporation's ETR was 17.8% for the three months ended September 30, 2022, compared to 15.9% for the same period in 2021.



















 
56


Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Net Interest Income

FTE net interest income increased $59.2 million to $566.4 million for the nine months ended September 30, 2022, from $507.2 million for the same period in 2021. NIM increased 35 bps, to 3.13%, compared to 2.78% for the same period in 2021. The following table provides a comparative average balance sheet and net interest income analysis for those periods. Interest income and yields are presented on an FTE basis, using a 21% federal tax rate, and statutory interest expense disallowances. The discussion following this table is based on these taxable-equivalent amounts.
 Nine months ended September 30
 20222021
Average
Balance		Interest Yield/
Rate		Average
Balance		Interest Yield/
Rate
ASSETS(dollars in thousands)
Interest-earning assets:
Net loans(1)
$18,865,672 $524,150 3.71 %$18,765,024 $485,330 3.46 %
   Investment securities (2)
4,376,084 78,334 2.39 3,589,357 63,902 2.37 
Loans held for sale16,898 694 5.48 40,551 969 3.19 
Other interest-earning assets937,369 4,498 0.64 1,986,161 4,599 0.18 
Total interest-earning assets24,196,023 607,676 3.35 24,381,093 554,799 3.04 
Noninterest-earning assets:
Cash and due from banks158,267 150,435 
Premises and equipment220,218 229,513 
Other assets1,534,314 1,689,094 
Less: ACL - loans(3)
(253,725)(268,412)
Total Assets$25,855,097 $26,181,723 
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits$5,657,165 $3,411 0.08 %$5,994,878 $2,905 0.06 %
Savings and money market deposits6,515,529 5,561 0.11 6,271,019 3,944 0.08 
Brokered deposits254,100 2,181 1.14 297,250 876 0.39 
Time deposits1,633,053 10,299 0.84 2,001,043 16,383 1.09 
Total interest-bearing deposits14,059,847 21,452 0.20 14,564,190 24,108 0.22 
Borrowings1,133,524 19,816 2.34 1,365,655 23,462 2.30 
Total interest-bearing liabilities15,193,371 41,268 0.36 15,929,845 47,570 0.40 
Noninterest-bearing liabilities:
Demand deposits7,538,597 7,108,199 
Other liabilities515,615 466,917 
Total Liabilities23,247,583 23,504,961 
Total Deposits/Cost of deposits21,598,444 0.13 21,672,389 0.15 
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds22,731,968 0.24 23,038,044 0.28 
Shareholders’ equity2,607,514 2,676,762 
Total Liabilities and Shareholders’ Equity$25,855,097 $26,181,723 
Net interest income/FTE NIM566,408 3.13 %507,229 2.78 %
Tax equivalent adjustment(10,685)(9,111)
Net interest income$555,723 $498,118 
 
(1) Average balance includes non-performing loans.
(2) Balances include amortized historical cost for AFS. The related unrealized holding gains (losses) are included in other assets.
(3) ACL - loans relates to the ACL specifically for "Net loans" and does not include the ACL for OBS credit exposures, which is included in other liabilities.





57


The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average
balances (volume) and changes in rates for the nine months ended September 30, 2022 in comparison to the same period in 2021:

2022 vs. 2021
Increase (Decrease) due
to change in
VolumeYield/RateNet
(in thousands)
FTE interest income on:
Net loans (1)
$2,683 $36,138 $38,821 
Investment securities13,897 535 14,432 
Loans held for sale(746)471 (275)
Other interest-earning assets(2,358)2,257 (101)
Total interest income$13,476 $39,401 $52,877 
Interest expense on:
Demand deposits$(186)$692 $506 
Savings and money market deposits152 1,465 1,617 
Brokered deposits(142)1,447 1,305 
Time deposits(2,707)(3,377)(6,084)
Borrowings(5,591)1,945 (3,646)
Total interest expense$(8,474)$2,172 $(6,302)
(1) Average balance includes non-performing loans.

Note: Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of direct changes that are attributable to each component.

Compared to the same period in 2021, FTE total interest income for the nine months ended September 30, 2022 increased $52.9 million due to increases of $39.4 million attributable to changes in yield and $13.5 million attributable to changes in volume. The increase due to changes in yield was primarily driven by net loans and other interest-earning assets. The increase due to changes in volume was primarily due to an increase in average investment securities and average net loans, partially offset by decreases in average other interest-earning assets.

The yield on average interest-earning assets increased 31 bps in the nine months ended September 30, 2022 compared to the same period in 2021.

For the nine months ended September 30, 2022, interest expense decreased $6.3 million compared to the same period in 2021, primarily due to the decrease in average interest-bearing liabilities resulting in a $8.5 million decline in interest expense. The decrease in interest expense attributable to volume was primarily driven by a $5.6 million impact from the decrease in average borrowings and a $2.7 million impact from the decrease in average time deposits.














58


Average loans and average FTE yields, by type, are summarized in the following table:
Nine months ended September 30Increase (Decrease) in Balance
 20222021
 BalanceYieldBalanceYield$%
 (dollars in thousands)
Real estate – commercial mortgage$7,401,094 3.53 %$7,146,951 3.14 %$254,143 3.6 %
Commercial and industrial (1)
4,205,236 3.70 5,295,240 2.64 (1,090,004)(20.6)
Real estate – residential mortgage4,143,850 3.27 3,409,381 3.43 734,469 21.5 
Real estate – home equity1,099,310 4.25 1,147,444 3.71 (48,134)(4.2)
Real estate – construction1,197,947 3.53 1,065,125 3.09 132,822 12.5 
Consumer532,396 4.45 454,434 4.00 77,962 17.2 
Equipment lease financing247,674 3.81 256,741 3.92 (9,067)(3.5)
Other (2)
38,165 — (10,292)— 48,457 N/M
Total loans$18,865,672 3.71 %$18,765,024 3.46 %$100,648 0.5 %
(1) Includes average PPP loans of $129.4 million and $1.4 billion for the nine months ended September 30, 2022 and 2021, respectively.
(2) Consists of overdrafts and net origination fees and costs.

During the nine months ended September 30, 2022, average loans increased $100.6 million, or 0.5%, compared to the same period in 2021. The increase was largely driven by increases in average residential mortgage loans, average commercial mortgage loans and average construction loans of $734.5 million, $254.1 million and $132.8 million, respectively, partially offset by a $1.1 billion decline in commercial and industrial loans, due primarily to the decline in PPP loans as a result of the repayment of these loans upon forgiveness by the SBA.

Average deposits and average interest rates, by type, are summarized in the following table:

Nine months ended September 30Increase (Decrease) in
 Balance
20222021
BalanceRateBalanceRate$%
(dollars in thousands)
Noninterest-bearing demand$7,538,597 — %$7,108,199 — %$430,398 6.1 %
Interest-bearing demand5,657,165 0.08 5,994,878 0.06 (337,713)(5.6)
Savings and money market deposits6,515,529 0.11 6,271,019 0.08 244,510 3.9 
Total demand deposits and savings and money market deposits19,711,291 0.06 19,374,096 0.05 337,195 1.7 
Brokered deposits254,100 1.14 297,250 0.39 (43,150)(14.5)
Time deposits1,633,053 0.84 2,001,043 1.09 (367,990)(18.4)
Total deposits$21,598,444 0.13 %$21,672,389 0.15 %$(73,945)(0.3)%

The cost of total deposits decreased 2 bps to 0.13% for the first nine months of 2022 compared to 0.15% for the same period of 2021, primarily due to the change in mix of deposits with increases in average noninterest-bearing demand deposits and average savings and money market deposits of $430.4 million and $244.5 million, respectively, and decreases of $368.0 million in average time deposits and $337.7 million in average interest-bearing demand deposits.








59


Average borrowings and interest rates, by type, are summarized in the following table:
Nine months ended September 30Increase (Decrease) in
Balance
 20222021
 BalanceRateBalanceRate$%
(dollars in thousands)
Federal funds purchased$33,629 2.12 %$— — %$33,629 N/M
Federal Home Loan Bank advances69,473 2.70 169,366 1.80 (99,893)(59.0)
Senior debt and subordinated debt572,690 3.95 669,275 4.14 (96,585)(14.4)
Other borrowings(1)
457,732 0.28 527,014 0.12 (69,282)(13.1)
Total borrowings$1,133,524 2.34 %$1,365,655 2.30 %$(232,131)(17.0)%
(1) Includes repurchase agreements, short-term promissory notes and capital leases.

Average total borrowings decreased $232.1 million, or 17%, during the first nine months of 2022, compared to the same period in 2021 primarily as a result of the reduction of FHLB advances, the $65 million repayment of senior notes on March 16, 2022 and the redemption of $17.0 million of TruPS in September 2022. See Note 14 "Borrowings" of the Notes to Consolidated Financial Statements for additional details.

Provision for Credit Losses

The provision for credit losses was $13.5 million for the first nine months of 2022, compared to a negative provision of $9.6 million for the same period of 2021. Included in the third quarter of 2022 provision for credit losses was a CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio.
































60


Non-Interest Income

The following table presents the components of non-interest income:
 Nine months ended September 30Increase (Decrease)
 20222021$%
 (in thousands)
Commercial banking:
   Merchant and card$21,053 $19,533 $1,520 7.8 %
   Cash management17,973 15,547 2,426 15.6 
   Capital markets9,629 6,399 3,230 50.5 
   Other commercial banking8,520 8,730 (210)(2.4)
     Total commercial banking57,175 50,209 6,966 13.9 
Consumer banking:
  Card18,141 17,552 589 3.4 
  Overdraft12,116 8,948 3,168 35.4 
  Other consumer banking7,164 6,915 249 3.6 
       Total consumer banking37,421 33,415 4,006 12.0 
Wealth management revenues55,312 53,513 1,799 3.4 
Mortgage banking:
Gains on sales of mortgage loans7,978 20,038 (12,060)(60.2)
Mortgage servicing income4,086 6,295 (2,209)(35.1)
       Total mortgage banking 12,064 26,333 (14,269)(54.2)
Other10,863 12,883 (2,020)(15.7)
Non-interest income before investment securities gains172,835 176,353 (3,518)(2.0)
Investment securities gains (losses), net(26)33,511 (33,537)N/M
Total Non-Interest Income$172,809 $209,864 $(37,055)(17.7)%

Excluding net investment securities gains, non-interest income decreased $3.5 million, or 2.0%, during the nine months ended September 30, 2022 as compared to the same period in 2021.

Compared to the first nine months of 2021, excluding net investment securities gains, the decrease in non-interest income was primarily due to a decrease of $14.3 million in mortgage banking income, partially offset by increases of $6.9 million in commercial banking revenues and $4.0 million in consumer banking fees.

Investment securities gains recognized in the first nine months of 2021 were the result of the sale of Visa Shares as part of the balance sheet restructuring completed during the first nine months of 2021.















61


Non-Interest Expense

The following table presents the components of non-interest expense:
Nine months ended September 30Increase (Decrease)
20222021$%
(in thousands)
Salaries and employee benefits$264,151 $243,632 $20,519 8.4 %
Data processing and software44,807 41,828 2,979 7.1 
Net occupancy42,134 39,433 2,701 6.8 
Other outside services26,292 24,557 1,735 7.1 
Equipment10,393 10,268 125 1.2 
State taxes10,188 13,883 (3,695)(26.6)
FDIC insurance9,328 7,633 1,695 22.2 
Professional fees6,178 7,701 (1,523)(19.8)
Marketing4,505 3,798 707 18.6 
Intangible amortization1,043 443 600 135.4 
Debt extinguishment— 32,575 (32,575)(100.0)
Merger-related expenses8,434 — 8,434 N/M
Other37,813 38,060 (247)(0.6)
Total non-interest expense$465,266 $463,811 $1,455 0.3 %

Compared to the first nine months of 2021, non-interest expense in the first nine months of 2022, excluding $8.4 million of Merger-related expenses, decreased $7.0 million, or 1.5%, primarily as a result of debt extinguishment expenses of $32.6 million related to the prepayment of FHLB advances, subordinated debt and senior notes in 2021, partially offset by a $20.5 million increase in salaries and employee benefits expenses and a $3.0 million increase in data processing and software expenses.
Income Taxes

Income tax expense for the nine months ended September 30, 2022 was $44.6 million, a $4.4 million increase from $40.2 million for the same period in 2021. The Corporation's ETR was 17.9% for the nine months ended September 30, 2022, compared to 15.8% in the same period of 2021.




















62


FINANCIAL CONDITION

The table below presents condensed consolidated ending balance sheets.
September 30, 2022December 31, 2021Increase (Decrease)
 $%
Assets(in thousands)
Cash and cash equivalents$528,715 $1,638,614 $(1,109,899)(67.7)%
FRB and FHLB Stock81,914 57,635 24,279 42.1 
Loans held for sale14,411 35,768 (21,357)(59.7)
Investment securities3,936,694 4,167,774 (231,080)(5.5)
Net loans, less ACL - loans19,428,361 18,076,349 1,352,012 7.5 
Net premises and equipment221,496 220,357 1,139 0.5 
Goodwill and intangibles561,495 538,053 23,442 4.4 
Other assets1,372,956 1,061,848 311,108 29.3 
Total Assets$26,146,042 $25,796,398 $349,644 1.4 %
Liabilities and Shareholders' Equity
Deposits$21,376,554 $21,573,499 $(196,945)(0.9)%
Borrowings1,424,681 1,038,109 386,572 37.2 
Other liabilities873,648 472,110 401,538 85.1 
Total Liabilities23,674,883 23,083,718 591,165 2.6 
Total Shareholders' Equity2,471,159 2,712,680 (241,521)(8.9)
Total Liabilities and Shareholders' Equity$26,146,042 $25,796,398 $349,644 1.4 %

Cash and Cash Equivalents

Compared to December 31, 2021, cash and cash equivalents at September 30, 2022 decreased $1.1 billion, or 67.7%, primarily due to a $1.4 billion increase in net loans and a $196.9 million decrease in deposits.

Other Assets

Compared to December 31, 2021, other assets increased $311.1 million at September 30, 2022, primarily due to increases in deferred federal income tax of $149.0 million and the cash surrender value of life insurance policies of $90.2 million.

Other Liabilities

Compared to December 31, 2021, other liabilities increased $401.5 million at September 30, 2022, primarily due to increases in the value of interest rate swaps and interest rate swap collateral of $377.0 million.

Shareholders' Equity

Compared to December 31, 2021, shareholders' equity at September 30, 2022 decreased $241.5 million, primarily due to a $470.4 million increase in the loss for AOCI largely attributable to unrealized losses on investment securities and derivative instruments, partially offset by a $124.2 million increase in retained earnings and the $89.7 million issuance of treasury shares in connection with the Merger. See Note 8 "Accumulated Other Comprehensive (Loss) Income" of the Notes to Consolidated Financial Statements for additional details.







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Investment Securities

The following table presents the carrying amount of investment securities:
September 30, 2022December 31, 2021Increase (Decrease)
 $%
Available for Sale(in thousands)
U.S. Government securities$218,184 $127,618 $90,566 71.0 
U.S. Government-sponsored agency securities1,006 — 1,006 N/M
State and municipal securities
1,038,185 1,188,670 (150,485)(12.7)%
Corporate debt securities399,615 386,133 13,482 3.5 
Collateralized mortgage obligations
142,401 209,359 (66,958)(32.0)
Residential mortgage-backed securities
214,252 229,795 (15,543)(6.8)
Commercial mortgage-backed securities
583,741 971,148 (387,407)(39.9)
Auction rate securities— 74,667 (74,667)(100.0)
   Total available for sale securities$2,597,384 $3,187,390 $(590,006)(18.5)%
Held to Maturity
Residential mortgage-backed securities$470,879 $404,958 $65,921 16.3 %
Commercial mortgage-backed securities868,431 575,426 293,005 50.9 
Total held to maturity securities$1,339,310 $980,384 $358,926 36.6 %
Total Investment Securities
$3,936,694 $4,167,774 $(231,080)(5.5)%

Compared to December 31, 2021, total AFS securities at September 30, 2022 decreased $590.0 million, or 18.5%, primarily due to decreases of $387.4 million in commercial mortgage-backed securities and $150.5 million in state and municipal securities, partially offset by an increase of $90.6 million in U.S government securities.

At September 30, 2022, total HTM securities increased $358.9 million compared to December 31, 2021, primarily driven by an increase of $293.0 million in commercial mortgage-backed securities.

Loans

The following table presents ending loans outstanding by type:
September 30, 2022December 31, 20212022 vs. 2021 Increase (Decrease)
$%
(in thousands)
Real estate – commercial mortgage$7,554,509 $7,279,080 $275,429 3.8 %
Commercial and industrial (1)
4,243,392 4,208,327 35,065 0.8 
Real estate – residential mortgage4,574,228 3,846,750 727,478 18.9 
Real estate – home equity1,110,103 1,118,248 (8,145)(0.7)
Real estate – construction1,273,097 1,139,779 133,318 11.7 
Consumer633,666 464,657 169,009 36.4 
Equipment lease financing and other328,057 283,557 44,500 15.7 
Overdrafts2,162 1,988 174 8.8 
Gross loans19,719,214 18,342,386 1,376,828 7.5 
Unearned income(24,015)(17,036)(6,979)(41.0)
Net loans$19,695,199 $18,325,350 $1,369,849 7.5 %
(1) Includes PPP loans totaling $32.1 million and $301.3 million as of September 30, 2022 and December 31, 2021, respectively.

64

During the nine months ended September 30, 2022, net loans increased $1.4 billion, or 7.5%, compared to the level at December 31, 2021, primarily due to increases in residential mortgage loans, commercial mortgage loans and consumer loans of $727.5 million, $275.4 million and $169.0 million, respectively. Net loans of $554.3 million were acquired in the Merger. Additionally, residential mortgage loans increased due to the strategic decision by the Corporation to hold a greater proportion of the loan originations from adjustable rate mortgage products on its balance sheet. The increase in consumer loans was primarily driven by growth in indirect auto loans and student loans.

The Corporation does not have a significant concentration of credit risk with any single borrower, industry or geographic location within its footprint. The Corporation's policies limit the maximum total lending commitment to an individual borrower to $100.0 million as of September 30, 2022. In addition, the Corporation has established lower total lending limits for certain types of lending commitments and lower total lending limits based on the Corporation's internal risk rating of an individual borrower at the time the lending commitment is approved, geographic location of customer or collateral and asset class.

The following table summarizes the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios (excluding PPP loans):
September 30, 2022December 31, 2021
Real estate (1)
45.2 %44.3 %
Manufacturing7.0 5.1 
Health care6.7 6.7 
Agriculture5.6 6.1 
Other services (2)
4.8 5.0 
Construction (3)
4.8 3.9 
Hospitality and food services3.7 3.7 
Retail3.2 3.0 
Wholesale trade3.2 2.8 
Educational services2.9 2.7 
Arts, entertainment and recreation2.1 2.3 
Professional, scientific and technical services1.9 1.8 
Public administration1.3 1.5 
Transportation and warehousing1.3 1.3 
Administrative and Support1.1 0.6 
Finance and Insurance1.0 1.4 
Other (4)
4.2 7.8 
Total100.0 %100.0 %

(1) Includes commercial loans to borrowers engaged in the business of: renting, leasing or managing real estate for others; selling and/or buying real estate for others; and appraising real estate.
(2) Excludes public administration.
(3) Includes commercial loans to borrowers engaged in the construction industry.
(4) Includes the energy sector and at September 30, 2022, commercial loans acquired in the Merger.













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The following table presents the changes in non-accrual loans for the three and nine months ended September 30, 2022:
Commercial 
and
Industrial		Real Estate -
Commercial
Mortgage		Real Estate -
Construction		Real Estate -
Residential
Mortgage		Consumer and Real Estate -
Home
Equity		Equipment Lease FinancingTotal
(in thousands)
Three months ended September 30, 2022
Balance at June 30, 2022$43,691 $59,565 $1,357 $35,585 $8,270 $14,062 $162,530 
Additions2,271 41,350 185 2,265 1,714 683 48,468 
Payments(13,744)(3,805)(86)(603)(788)(480)(19,506)
Charge-offs(1,783)(86)— — (1,172)(683)(3,724)
Transfers to accrual status(631)(2,320)— (5,783)(830)— (9,564)
Balance at September 30, 2022$29,804 $94,704 $1,456 $31,464 $7,194 $13,582 $178,204 
Nine months ended September 30, 2022
Balance at December 31, 2021$30,141 $52,815 $901 $35,269 $8,900 $15,640 $143,666 
Additions25,513 62,097 924 4,981 5,091 683 99,289 
Payments(22,637)(11,951)(369)(2,937)(2,229)(1,115)(41,238)
Charge-offs(2,211)(238)— (66)(3,101)(1,626)(7,242)
Transfers to accrual status(980)(4,558)— (5,783)(1,259)— (12,580)
Transfers to OREO(22)(3,461)— — (208)— (3,691)
Balance at September 30, 2022$29,804 $94,704 $1,456 $31,464 $7,194 $13,582 $178,204 

During the third quarter of 2022, non-accrual loans increased approximately $15.7 million, or 9.6%, as a result of additions to non-accrual loans, partially offset by payments, and to a lesser extent, transfers to accrual status, during the period.
The following table summarizes non-performing assets as of the periods shown below:
September 30, 2022December 31, 2021
 (dollars in thousands)
Non-accrual loans$178,204 $143,666 
Loans 90 days or more past due and still accruing14,559 8,453 
Total non-performing loans(1)
192,763 152,119 
OREO (2)
5,877 1,817 
Total non-performing assets$198,640 $153,936 
Non-accrual loans to total loans0.90 %0.78 %
Non-performing loans to total loans0.98 %0.83 %
Non-performing assets to total assets0.76 %0.60 %
ACL - loans to non-performing loans138 %164 %
(1) Excludes PPP loans which are fully guaranteed by the federal government of $10.4 million as of September 30, 2022.
(2) Excludes $3.4 million and $6.4 million of residential mortgage properties for which formal foreclosure proceedings were in process as of September 30, 2022 and December 31, 2021, respectively.

Non-performing loans at September 30, 2022 increased $40.6 million, or 26.7%, compared to $152.1 million as of December 31, 2021. Non-performing loans as a percentage of total loans were 0.98% at September 30, 2022 and 0.83% at December 31, 2021. See Note 5, "Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements for further details on non-performing loans.





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The following table presents TDRs as of the periods shown below:
September 30, 2022December 31, 2021
(in thousands)
Real estate - commercial mortgage$3,448 $3,464 
Commercial and industrial1,837 1,857 
Real estate - residential mortgage12,101 11,948 
Real estate - home equity11,719 12,218 
Consumer2 5 
Total accruing TDRs29,107 29,492 
Non-accrual TDRs(1)
40,401 55,945 
Total TDRs$69,508 $85,437 
(1) Included with non-accrual loans in the preceding table.
The ability to identify potential problem loans in a timely manner is important to maintaining an adequate ACL. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal risk rating process is used to monitor credit quality. The evaluation of credit risk for residential mortgages, home equity loans, construction loans to individuals, consumer loans and equipment lease financing is based on payment history, through the monitoring of delinquency levels and trends.

Total internally risk-rated loans were $12.8 billion, of which $0.8 billion were criticized and classified, as of September 30, 2022, and $12.4 billion, of which $1.1 billion were criticized and classified, as of December 31, 2021. For a description of the Corporation's risk ratings, see "Allowance for Credit Losses" in the Notes to Consolidated Financial Statements in Item 8 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021. The following table presents criticized and classified loans, or those with internal risk ratings of special mention or substandard or lower for commercial mortgages, commercial and industrial loans and construction loans to commercial borrowers, by class segment:
Special Mention (1)
Increase (Decrease)
Substandard or Lower (2)
Increase (Decrease)Total Criticized and Classified Loans
September 30, 2022December 31, 2021$%September 30, 2022December 31, 2021$%September 30, 2022December 31, 2021
(in thousands)
Real estate - commercial mortgage$279,136$387,279$(108,143)(27.9)%$272,996$331,096$(58,100)(17.5)%$552,132$718,375
Commercial and industrial103,902142,369(38,467)(27.0)109,714152,219(42,505)(27.9)213,616294,588
Real estate - construction (3)
8,25258,841(50,589)(86.0)7,1516,324827 13.115,40365,165
Total$391,290$588,489$(197,199)(33.5)%$389,861$489,639$(99,778)(20.4)%$781,151$1,078,128
% of total risk rated loans3.1 %4.7 %3.0 %3.9 %6.1 %8.6 %

(1) Considered "criticized" loans by banking regulators
(2) Considered "classified" loans by banking regulators
(3) Excludes construction - other









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Provision and Allowance for Credit Losses

The following table presents the components of the ACL:
September 30, 2022December 31, 2021
 (in thousands)
ACL - loans $266,838 $249,001 
ACL - OBS credit exposure (1)
15,690 14,533 
        Total ACL$282,528 $263,534 
(1) Included in "other liabilities" on the consolidated balance sheet.

The following table presents the activity in the ACL:
 Three months ended September 30Nine months ended September 30
 2022202120222021
 (in thousands)
Average balance of Net loans$19,563,825 $18,414,153 $18,865,672 $18,765,024 
Balance of ACL at beginning of period$248,564 $255,032 $249,001 $277,567 
CECL Day 1 Provision expense7,954 — 7,954 — 
Purchased credit deteriorated loans1,135 — 1,135 — 
Loans charged off:
Commercial and industrial(1,783)(647)(2,211)(5,920)
Real estate – commercial mortgage(86)(14)(238)(8,357)
Consumer and home equity(1,172)(504)(3,101)(2,481)
Equipment lease financing and other(683)(467)(1,626)(1,871)
Real estate – residential mortgage— (602)(66)(1,290)
Real estate – construction— — — (39)
Total loans charged off(3,724)(2,234)(7,242)(19,958)
Recoveries of loans previously charged off:
Commercial and industrial2,213 2,330 4,932 3,792 
Real estate – commercial mortgage29 564 3,677 1,467 
Consumer and home equity682 504 1,898 1,578 
Equipment lease financing and other247 358 627 670 
Real estate – residential mortgage101 86 415 286 
Real estate – construction— 697 44 1,335 
Total recoveries3,272 4,539 11,593 9,128 
Net loans charged off/(recoveries)(452)2,305 4,351 (10,830)
Provision for credit losses (1)
9,637 (610)4,397 (10,010)
Balance of ACL at end of period$266,838 $256,727 $266,838 $256,727 
Net charge-offs to average loans (annualized)0.01 %(0.05)%(0.05)%0.08 %
(1) Provision for credit losses included in the table only includes the portion related to loans.

The provision for credit losses, specific to loans, for the three months ended September 30, 2022 was $19.0 million, compared to a negative provision of $0.6 million recorded for the same period in 2021. Included in the third quarter of 2022 provision for credit losses was a CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio. The ACL also included $1.1 million for purchased credit deteriorated loans for the acquired Prudential Bancorp loan portfolio. In addition, the ACL includes qualitative loan adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in
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the quantitative models. See Note 5, "Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements for further details on the provision for credit losses.
The following table summarizes the allocation of the ACL - loans:
September 30, 2022December 31, 2021
ACL - loans
% In Each Loan
Category (1)
ACL - loans
% In Each Loan Category (1)
(in thousands)
Real estate - commercial mortgage$88,850 38.3 %$87,970 39.7 %
Commercial and industrial66,125 21.5 67,056 22.9 
Real estate - residential mortgage67,409 23.2 54,236 21.0 
Consumer, home equity, equipment lease financing32,781 10.5 26,798 10.2 
Real estate - construction11,673 6.5 12,941 6.2 
Total ACL - loans$266,838 100.0 %$249,001 100.0 %
(1) Ending loan balances as a % of total loans for the periods presented.

Deposits and Borrowings

The following table presents ending deposits by type:
September 30, 2022December 31, 2021Increase (Decrease)
$%
(in thousands)
Noninterest-bearing demand$7,372,896 $7,370,963 $1,933 — %
Interest-bearing demand5,676,600 5,819,539 (142,939)(2.5)
Savings and money market deposits6,563,003 6,403,995 159,008 2.5 
Total demand and savings19,612,499 19,594,497 18,002 0.1 
Brokered deposits226,883 251,526 (24,643)(9.8)
Time deposits1,537,172 1,727,476 (190,304)(11.0)
Total deposits$21,376,554 $21,573,499 $(196,945)(0.9)%

During the nine months ended September 30, 2022, total deposits decreased by $196.9 million, or 0.9%, primarily due to a $190.3 million decrease in time deposits and a $142.9 million decrease in interest-bearing demand deposits, partially offset by a $159.0 million increase in savings and money market deposits.

The following table presents ending borrowings by type:
 September 30, 2022December 31, 2021Increase (Decrease)
 $%
 (in thousands)
Federal funds purchased$136,000 $— 136,000 N/M
Federal Home Loan Bank advances265,500 — 265,500 N/M
Senior debt and subordinated debt539,461 620,406 (80,945)(13.0)
Other borrowings(1)
483,720 417,703 66,017 15.8 
Total borrowings$1,424,681 $1,038,109 $386,572 37.2 %
(1) Includes repurchase agreements, short-term promissory notes and capital leases.

During the nine months ended September 30, 2022, borrowings increased $386.2 million, or 37.2%, primarily due to borrowings assumed in the Merger.

Shareholders' Equity

69

Compared to December 31, 2021, shareholders' equity at September 30, 2022 decreased $241.5 million, primarily due to a $470.4 million increase in the loss for AOCI largely attributable to unrealized losses on investment securities and derivative instruments, partially offset by a $124.2 million increase in retained earnings and the $89.7 million issuance of treasury shares in connection with the Merger.

On March 21, 2022, the Corporation announced that its board of directors approved the repurchase of up to $75 million of shares of the Corporation's common stock, or approximately 2.7% of the Corporation's outstanding shares, based on the closing price of the Corporation's common stock and the number of shares outstanding on March 17, 2022. Under the repurchase program, repurchased shares are added to treasury stock at cost. As permitted by securities laws and other legal requirements, and subject to market conditions and other factors, purchases may be made from time to time in open market or privately negotiated transactions, including, without limitation, through accelerated share repurchase transactions. The repurchase program may be discontinued at any time and will expire on December 31, 2022. No shares of the Corporation's common stock were repurchased under this program during the three and nine months ended September 30, 2022.

Regulatory Capital

The Corporation and its subsidiary banks, Fulton Bank and Prudential Bank, are subject to regulatory capital requirements ("Capital Rules") administered by banking regulators. Failure to meet minimum capital requirements could result in certain actions by regulators that could have a material effect on the Corporation's financial statements.

The Capital Rules require the Corporation, Fulton Bank and Prudential Bank to:

•Meet a minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets;

•Meet a minimum Tier 1 Leverage capital ratio of 4.00% of average assets;

•Meet a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 capital ratio of 6.00% of risk-weighted assets;
•Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and
•Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses. Certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, are excluded as a component of Tier 1 capital for institutions of the Corporation's size.

The Capital Rules use a standardized approach for risk weightings that expands the risk-weightings for assets and off-balance sheet exposures from the previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and off-balance sheet exposures and resulting in higher risk weightings for a variety of asset categories.

As of September 30, 2022, the Corporation's capital levels met the fully phased-in minimum capital requirements, including the capital conservation buffers, as prescribed in the Capital Rules.

As of September 30, 2022, Fulton Bank and Prudential Bank met the well capitalized requirements under the regulatory framework for prompt corrective action. To be categorized as well capitalized, a bank must maintain minimum Total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage ratios as set forth in the regulation. There were no other conditions or events since September 30, 2022 that management believes have changed the Corporation's capital categories.

The following table summarizes the Corporation's capital ratios in comparison to regulatory requirements:
September 30, 2022December 31, 2021Regulatory
Minimum
for Capital
Adequacy		Fully Phased-in, with Capital Conservation Buffers
Total Risk-Based Capital (to Risk-Weighted Assets)13.6 %14.1 %8.0 %10.5 %
Tier I Risk-Based Capital (to Risk-Weighted Assets)10.9 %10.9 %6.0 %8.5 %
Common Equity Tier I (to Risk-Weighted Assets)10.0 %9.9 %4.5 %7.0 %
Tier I Leverage Capital (to Average Assets)9.2 %8.6 %4.0 %4.0 %
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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. The types of market risk exposures generally faced by financial institutions include interest rate risk, equity market price risk, debt security market price risk, foreign currency price risk and commodity price risk. Due to the nature of its operations, foreign currency price risk and commodity price risk are not significant to the Corporation.

Interest Rate Risk, Asset/Liability Management and Liquidity

Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Corporation's liquidity position and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create fluctuations in the Corporation's net interest income and changes in the economic value of its equity.

The Corporation employs various management techniques to minimize its exposure to interest rate risk. The Corporation's ALCO is responsible for reviewing the interest rate sensitivity and liquidity positions of the Corporation, approving asset and liability management policies, and overseeing the formulation and implementation of strategies regarding balance sheet positions.

The Corporation uses two complementary methods to measure and manage interest rate risk. They are simulation of net interest income and estimates of economic value of equity. Using these measurements in tandem provides a reasonably comprehensive summary of the magnitude of the Corporation's interest rate risk, level of risk as time evolves, and exposure to changes in interest rates.

Simulation of net interest income is performed for the next 12-month period. A variety of interest rate scenarios are used to measure the effects of sudden and gradual movements upward and downward in the yield curve. These results are compared to the results obtained in a flat or unchanged interest rate scenario. Simulation of net interest income is used primarily to measure the Corporation's short-term earnings exposure to rate movements. The Corporation's policy limits the potential exposure of net interest income, in a non-parallel instantaneous shock, to 10% of the base case net interest income for a 100 bps shock in interest rates, 15% for a 200 bps shock, 20% for a 300 bps shock and 25% for a 400 bps shock. A "shock" is an immediate upward or downward movement of interest rates. The shocks do not take into account changes in customer behavior that could result in changes to mix and/or volumes in the balance sheet, nor does it take into account the potential effects of competition on the pricing of deposits and loans over the forward 12-month period.

Contractual maturities and repricing opportunities of loans are incorporated in the simulation model as are prepayment assumptions, maturity data and call options within the investment portfolio. Assumptions based on past experience are incorporated into the model for non-maturity deposit accounts. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model's simulated results due to timing, amount and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

The following table summarizes the expected impact of abrupt interest rate changes, that is, a non-parallel instantaneous shock, on net interest income as of September 30, 2022 :
Rate Shock(1)
Annual change
in net interest income		% change in net interest income
+400 bp+ $133.0 million14.3%
+300 bp+ $100.3 million10.8%
+200 bp+ $68.2 million7.3%
+100 bp+ $34.7 million3.7%
–100 bp– $60.4 million– 6.5%
–200 bp– $144.7 million– 15.6%

(1) These results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates.

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Interest Rate Swaps

The Corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. These interest rate swaps are derivative financial instruments, and the gross fair values are recorded in other assets and liabilities on the consolidated balance sheets, with changes in fair value during the period recorded in other non-interest expense on the consolidated statements of income.

Cash Flow Hedges

The Corporation's objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate swaps as part of its interest rate risk management strategy. The Corporation uses interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Corporation making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the Corporation's variable-rate liabilities.

Liquidity

The Corporation must maintain a sufficient level of liquid assets to meet the cash needs of its customers, who, as depositors, may want to withdraw funds or who, as borrowers, need credit availability. Liquidity is provided on a continuous basis through scheduled and unscheduled principal and interest payments on investments and outstanding loans and through the availability of deposits and borrowings. The Corporation also maintains secondary sources that provide liquidity on a secured and unsecured basis to meet short- and long-term needs.

The Corporation maintains liquidity sources in the form of interest-bearing deposits and customer funding (short-term promissory notes). The Corporation can access additional liquidity from these sources, if necessary, by increasing the rates of interest paid on those instruments. The positive impact to liquidity resulting from paying higher interest rates could have a detrimental impact on the net interest margin and net interest income if rates on interest-earning assets do not experience a proportionate increase. Borrowing availability with the FHLB and the FRB, along with federal funds lines at various correspondent banks, provides the Corporation with additional liquidity.

Fulton Bank and Prudential Bank are members of the FHLB and have access to FHLB overnight and term credit facilities. As of September 30, 2022, the Corporation had $265.5 million in advances outstanding with the FHLB. As of September 30, 2022, the Corporation has borrowing capacity of approximately $5.7 billion under these facilities. Advances from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets.

As of September 30, 2022, the Corporation had aggregate federal funds lines borrowing capacity of $2.2 billion. A combination of commercial real estate loans, commercial loans and securities are pledged to the FRB of Philadelphia to provide access to FRB discount window borrowings. As of September 30, 2022, the Corporation had $1.2 billion of collateralized borrowing capacity at the discount window.

Securities carried at $1.3 billion at September 30, 2022 and $2.5 billion at December 31, 2021 were pledged as collateral to secure public and trust deposits.

Liquidity must also be managed at the Corporation's parent company level. For safety and soundness reasons, banking regulations limit the amount of cash that can be transferred from subsidiary banks to the parent company in the form of loans and dividends. Generally, these limitations are based on the subsidiary banks’ regulatory capital levels and their net income. Management continues to monitor the liquidity and capital needs of the parent company and will implement appropriate strategies, as necessary, to remain adequately capitalized and to meet its cash needs.

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The consolidated statements of cash flows provide additional information. The Corporation's operating activities during the first nine months of 2022 provided $519.2 million of cash. Cash used by investing activities was $0.9 billion and was mainly due to the net increase in loans. Cash used by financing activities was $700.7 million, and was primarily due an decrease in deposits. Changes resulting from assets acquired and liabilities assumed in the Merger are not reflected in the Consolidated Statement of Cash Flows.


Debt Security Market Price Risk

Debt security market price risk is the risk that changes in the values of debt securities, unrelated to interest rate changes, could have a material impact on the financial position or results of operations of the Corporation. The Corporation's debt security investments consist primarily of U.S. government-sponsored agency issued mortgage-backed securities and collateralized mortgage obligations, state and municipal securities, auction rate securities and corporate debt securities. All of the Corporation's investments in mortgage-backed securities and collateralized mortgage obligations have principal payments that are guaranteed by U.S. government-sponsored agencies.

State and Municipal Securities

As of September 30, 2022, the Corporation owned securities issued by various states and municipalities with a total fair value of $1.0 billion. Uncertainty with respect to the financial strength of state and municipal bond insurers places emphasis on the underlying strength of issuers. Pressure on local tax revenues of issuers due to adverse economic conditions could have an adverse impact on the underlying credit quality of issuers. The Corporation evaluates existing and potential holdings primarily based on the underlying creditworthiness of the issuing state or municipality and then, to a lesser extent, on any credit enhancement. State and municipal securities can be supported by the general obligation of the issuing state or municipality, allowing the securities to be repaid by any means available to the issuing state or municipality. As of September 30, 2022, approximately 100% of state and municipal securities were supported by the general obligation of corresponding states or municipalities. Approximately 76% of these securities were school district issuances, which are also supported by the states of the issuing municipalities.


Item 4. Controls and Procedures

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's management, including the Corporation's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to Rule 13a-15, promulgated under the Exchange Act. Based upon that evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, the Corporation's disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Corporation reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

Prudential Bancorp was acquired on July 1, 2022. The Corporation has extended oversight and monitoring processes that support internal control over financial reporting to include the acquired operations. Other than these processes, there have been no changes in the Corporation's internal control over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information presented in the "Legal Proceedings" section of Note 13 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A of the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)  None.
(b)  None.
(c) On March 21, 2022, the Corporation announced that its board of directors approved the repurchase of up to $75 million of shares of the Corporation's common stock, or approximately 2.7% of the Corporation's outstanding shares, through December 31, 2022. Under this repurchase program, repurchased shares are added to treasury stock at cost. As permitted by securities laws and other legal requirements, and subject to market conditions and other factors, purchases may be made from time to time in open market or privately negotiated transactions, including, without limitation, through accelerated share repurchase transactions. This repurchase program may be discontinued at any time. During the three months ended September 30, 2022, no shares were repurchased under this program.

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Item 6. Exhibits
3.1 
Articles of Incorporation, as amended and restated, of Fulton Financial Corporation– Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on Form 8-K filed on June 24, 2011. (File No. 0-10587)

3.2 
3.3 
4.1 
4.2 
4.3 
4.4 
Stock Certificate - Incorporated by reference as Exhibit 4.1 of Fulton Financial Corporation Registration Statement on Form S-4 filed on April 21, 2022.
31.1   
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1   
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2   
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Income, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
104 Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101)

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FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
FULTON FINANCIAL CORPORATION
Date: November 9, 2022/s/ E. Philip Wenger
 E. Philip Wenger
 Chairman and Chief Executive Officer
Date:November 9, 2022/s/ Mark R. McCollom
Mark R. McCollom
Senior Executive Vice President and Chief Financial Officer

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