# Fulton Financial Corp: Form 10-K for the period ended Dec 31, 2023 - Company: [Fulton Financial Corp](/companies/fult.md) (CIK 700564) - Form: 10-K - Filed: 2024-03-01 - Accepted by EDGAR: Feb 29, 2024, 17:34 ET - Period: 2023-12-31 - Accession: 0000700564-24-000012 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/700564/000070056424000012/fult-20231231.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/700564/000070056424000012/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2023-12-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 12 months, 2023-01-01 to 2023-12-31 | $228.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax | | Interest expense | 12 months, 2023-01-01 to 2023-12-31 | $418.9m | us-gaap:InterestExpense | | Income tax | 12 months, 2023-01-01 to 2023-12-31 | $64.4m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 12 months, 2023-01-01 to 2023-12-31 | $284.3m | us-gaap:NetIncomeLoss | | Diluted EPS | 12 months, 2023-01-01 to 2023-12-31 | $1.64 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 12 months, 2023-01-01 to 2023-12-31 | $1.66 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 12 months, 2023-01-01 to 2023-12-31 | 166,769,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 12 months, 2023-01-01 to 2023-12-31 | $363.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Dividends paid | 12 months, 2023-01-01 to 2023-12-31 | $115.7m | us-gaap:PaymentsOfDividends | | Share repurchases | 12 months, 2023-01-01 to 2023-12-31 | $77.1m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Total assets | at 2023-12-31 | $27.57bn | us-gaap:Assets | | Total liabilities | at 2023-12-31 | $24.81bn | us-gaap:Liabilities | | Shareholders' equity | at 2023-12-31 | $2.76bn | us-gaap:StockholdersEquity | ## Business As filed, 76,394 characters. #### General The Corporation was incorporated under the laws of Pennsylvania on February 8, 1982 and became a bank holding company through the acquisition of all of the outstanding stock of Fulton Bank on June 30, 1982. In 2000, we became a financial holding company as defined in the GLBA, which gave us the ability to expand our financial services activities under our holding company structure. See "Item 1. Business - *Competition* and - *Supervision and Regulation.*" We directly own 100% of the common stock of Fulton Bank and five non-bank entities. On July 1, 2022, we completed our acquisition of 100% of the outstanding common stock of Prudential Bancorp. Prudential Bancorp's wholly-owned subsidiary, Prudential Bank, became our wholly-owned subsidiary. Prudential Bank merged with and into Fulton Bank on November 5, 2022. Our Internet address is www.fultonbank.com. Electronic copies of our 2023 Annual Report on Form 10-K are available free of charge by visiting "Investor Relations - Documents" at www.fultonbank.com. Electronic copies of quarterly reports on Form 10-Q and current reports on Form 8-K are also available at this Internet address. These reports, as well as any amendments thereto, are posted on our website as soon as reasonably practicable after they are electronically filed with the SEC. The information contained on our website or in any websites linked by our website is not a part of this Annual Report on Form 10-K. #### Banking and Financial Services Through our banking subsidiary, Fulton Bank, we deliver financial services primarily within our five-state market area, comprised of Pennsylvania, Delaware, Maryland, New Jersey and Virginia, in a personalized, community-oriented style that emphasizes relationship banking. We operate in areas that are home to a wide range of manufacturing, healthcare, agriculture and other service companies. Although a large portion of our loan portfolio is comprised of commercial loans, commercial mortgage loans and construction loans, we are not dependent upon one or a few customers and the loss of any single customer or a few customers would not have a material adverse impact on our business. See "Item 1A. Risk Factors - Interest Rate and Credit Risks - *Our loan portfolio composition subjects us to credit risk* and *A significant proportion of our loan portfolio consists of commercial mortgage loans that may pose increased credit risk."* We offer a wide range of consumer and commercial banking products and services, as well as wealth management products and services, to our customers and the communities we serve: Consumer Banking - We offer a diversified suite of consumer banking products and services in our market area. Our consumer banking products and services include various checking account and savings deposit products and certificates of deposit. We offer home equity loans and lines of credit as well as a variety of fixed, variable and adjustable rate mortgage products, including construction loans and jumbo residential mortgage loans, all of which are underwritten based upon loan-to-value limits specified in our lending policy. Our consumer loan products also include automobile loans, student loans, personal loans and lines of credit and checking account overdraft protection. Commercial Banking - We provide commercial banking products and services primarily to small and medium sized businesses (generally with annual gross revenue of less than $150 million) in our market area. Commercial lending products include commercial real estate loans, commercial and industrial loans and construction loans. Variable, adjustable and fixed rate loans are provided, with variable and adjustable rate loans generally tied to an index, such as the Prime Rate or SOFR, as well as interest rate derivatives. Our commercial lending policy encourages relationship banking and provides strict guidelines related to customer creditworthiness and collateral requirements for secured loans. We offer equipment lease financing, letters of credit, cash management services and traditional deposit products to commercial customers. We have established lending limits based on our internal risk rating of a borrower and for certain types of lending commitments. Wealth Management - We offer wealth management services, which include investment management, trust, brokerage, insurance and investment advisory services, to consumer and commercial customers in our market area through Fulton Financial Advisors and Fulton Private Bank, both operating divisions of Fulton Bank. We deliver these products and services through a network of financial center offices. Electronic delivery channels include a network of ATMs and telephone, mobile and online banking. The variety of available delivery channels allows customers to access their account information and perform certain transactions, such as depositing checks, transferring funds and paying bills, at any time of the day. As of December 31, 2023, we had 208 financial centers, not including remote service facilities (mainly stand-alone ATMs), and our main office located in Lancaster, Pennsylvania. #### Human Capital Our workforce, excluding temporary employees and interns, on December 31, 2023 consisted of approximately 3,400 employees, compared to approximately 3,300 employees at December 31, 2022. Employee Engagement and Retention - We place a premium on having a highly engaged workforce because engaged employees tend to perform at a higher level, support our success, and are more likely to remain with our organization. We conduct an annual survey of our workforce to measure employee engagement, assess employee morale, and help identify areas of the employee experience that could be improved. We then task our leaders with developing and implementing communication and action plans aimed at collaborating with their respective teams to gain a better understanding of the results of the assessment and to foster enhanced future engagement. Our leaders are held accountable for the employee engagement of their teams as each leader's engagement score is included in their annual performance review. Additionally, aggregated employee engagement assessment results are reported to our Board of Directors as a key indicator of the health and well-being of our workforce. Culture, Diversity and Inclusion - We believe that building relationships matters. This belief includes relationships with customers and relationships among employees. We place significant emphasis on developing our corporate culture, and we consider our culture to be one of the primary components of our continuing success. Our culture-shaping program, The Fulton Experience, is a highly engaging program that is intended to create new ways of thinking about employees' individual roles, how employees collaborate, and how we and our employees grow together. We believe that we succeed as a company because we value our employees' teamwork and foster a culture around that belief. We apply that same emphasis to the development of a diverse, equitable, and inclusive workforce. We recognize that having a diverse, equitable, and inclusive culture fosters a culture of respect and is a crucial element of a successful organization. Compensation and Rewards - The Corporation invests in its workforce by offering a comprehensive Total Rewards program which includes competitive salaries, incentives, and benefits programs. In line with the Corporation's pay for performance philosophy, we offer performance-based incentive programs designed to drive results in the business units as well as at the corporate level. Workforce Recruitment and Development - We recruit our workforce, filling both vacant and new positions by posting these positions on our website and on social media platforms, through employee referrals and through talent recruiting efforts by internal and third-party recruiters. We provide for professional development of new and existing employees largely through the efforts of our Learning and Development area that develops and administers a wide variety of training programs for professional development. We also provide a number of third-party offerings in which employees can further enhance their skills, knowledge and leadership potential. One such example, afforded to employees with future leadership potential, is through our participation in the Stonier School of Banking sponsored by the American Bankers Association. Safety, Health and Wellness - The safety, health and wellness of our employees remains a top priority. In addition to traditional healthcare, paid time off, paid parental leave and retirement benefits, we provide behavioral and mental health support and work-life services through our Employee Assistance Program. Following the end of the COVID-19 pandemic, we continue to iterate our approach to remote and hybrid working arrangements to support new ways of working while strengthening employee engagement. #### Cybersecurity Cybersecurity is a major component of our overall risk management approach. By the very nature of our business, handling sensitive data is a part of daily operations and is taken very seriously by all employees. The cybersecurity threat environment is volatile and dynamic requiring all levels of the organization to be cognizant and aware of these threats at all times. As such, we maintain a comprehensive cybersecurity strategy that includes, but is not limited to: regular employee cybersecurity training and communications; continuous monitoring, detection, alerting, and defense in-depth technologies; regular internal and third-party program oversight; policies and procedures regularly reviewed and designed with regulatory and industry guidance; and regular reviews of vendors who maintain sensitive data on behalf of Fulton Bank. Given that cybersecurity threat actors are continuously adapting their techniques, it is important to note that no cybersecurity program is completely infallible. As we continue to offer new and innovative technologies for our customers, the risk of cybersecurity attacks and our oversight of this risk will remain at a high level. See "Item 1C. Cybersecurity." #### Climate Risk Management We recognize the potential impact climate change may have on us, our clients, our suppliers, employees, shareholders, and the communities we serve. We are cognizant of our responsibility to better understand the impact of our operations on global climate change and are taking steps to help ensure our organization operates in a manner consistent with responsible environmental stewardship. We are susceptible to losses and disruptions caused by fire, power shortages, telecommunications failures, water shortages, floods, and other extreme weather conditions. Climate change may contribute to or exacerbate these conditions. We are also susceptible to losses arising from the transition to a low carbon economy, including policy changes, energy costs, and shifts in market and customer sentiment that can impact us and our clients as well as other key stakeholders. At this time, we have not experienced material losses from climate change. However, we are aware that its impact may increase in the future. As the potential impact of climate change broadens, we will continue to assess and respond to climate risks as they evolve. #### Non-Bank Subsidiaries We own 100% of the outstanding equity of five non-bank subsidiaries, which are consolidated for financial reporting purposes: (i) Fulton Financial Realty Company, which holds title to or leases certain properties where our financial centers and other facilities are located; (ii) Central Pennsylvania Financial Corp., which owns limited partnership interests in partnerships invested primarily in low- and moderate-income housing projects; (iii) FFC Penn Square, Inc., which owns TruPS issued by a subsidiary of Fulton Bank; (iv) Fulton Insurance Services Group, Inc., which engages in the sale of various life insurance products; and (v) Fulton Community Partner, LLC, whose mission is to change lives for the better by supporting community and economic development projects in distressed and underserved communities through participation in the NMTC program. #### Competition The banking and financial services industries are highly competitive. Within our geographic region, we face direct competition from other commercial banks, varying in size from local community banks to regional and national banks, credit unions and non-bank entities. As a result of the wide availability of electronic delivery channels, we also face competition from financial institutions that do not have a physical presence in our geographic markets. The industry is also highly competitive due to the various types of entities that now compete aggressively for customers that were traditionally served only by the banking industry. Under the current financial services regulatory framework, banks, insurance companies and securities firms may affiliate under a financial holding company structure, allowing their expansion into non-banking financial services activities that had previously been restricted. These activities include a full range of banking, securities and insurance activities, including securities and insurance underwriting, issuing and selling annuities and merchant banking activities. Moreover, we face increased competition from certain non-bank entities, such as Fintechs and marketplace lenders, that in many cases, are not subject to the same regulatory compliance requirements as us. #### Stock Information The Corporation's common stock is traded on the Nasdaq Global Select Market under the ticker symbol "FULT." There are 600 million authorized shares of the Corporation's common stock, with approximately 164 million shares outstanding as of December 31, 2023. The Corporation has an additional 10 million authorized shares of preferred stock, of which approximately 200,000 shares with a liquidation preference of $1,000 per share were outstanding as of December 31, 2023. #### Supervision and Regulation We operate in an industry that is subject to laws and regulations that are enforced by a number of federal and state agencies. Changes in these laws and regulations, including interpretation and enforcement activities, could impact the cost of operating in the financial services industry, limit or expand permissible activities or affect competition among banks and other financial institutions. The Corporation is a registered bank holding company that has elected to be treated as a financial holding company under the BHCA. The Corporation is regulated, supervised and examined by the Federal Reserve Board. Fulton Bank is a national banking association chartered under the laws of the United States and is primarily regulated by the OCC. In addition, the CFPB examines Fulton Bank for compliance with most federal consumer financial protection laws, including the laws relating to fair lending and prohibiting unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products or services and enforces such laws with respect to Fulton Bank and our affiliates. Federal statutes that apply to us and our subsidiaries include the GLBA, the BHCA, the Dodd-Frank Act, the Federal Reserve Act, the National Bank Act and the Federal Deposit Insurance Act, among others. In general, these statutes, regulations promulgated thereunder, and related interpretations establish the eligible business activities we can engage in, certain acquisition and merger restrictions, limitations on intercompany transactions (such as loans and dividends), cash reserve requirements, lending limitations, compliance with unfair, deceptive and abusive acts and practices prohibitions, limitations on investments, and capital adequacy requirements, among other things. Such laws and regulations are intended primarily for the protection of depositors, customers and the DIF, as well as to minimize risk to the banking system as a whole, and, as a result, these laws and regulations are not for the protection of our shareholders or non-depository creditors. The following discussion is general in nature and seeks to highlight some of the more significant regulatory requirements to which we are subject but does not purport to be complete or to describe all applicable laws and regulations. BHCA - The Corporation is subject to regulation and examination by the Federal Reserve Board and is required to file periodic reports and to provide additional information that the Federal Reserve Board may require. The BHCA regulates activities of bank holding companies, including requirements and limitations relating to capital, transactions with officers, directors and affiliates, securities issuances, dividend payments and extensions of credit, among others. The BHCA permits the Federal Reserve Board, in certain circumstances, to issue cease and desist orders and other enforcement actions against bank holding companies (and their non-banking affiliates) to correct or curtail unsafe or unsound banking practices. In addition, the Federal Reserve Board must approve certain proposed changes in organizational structure or other business activities before they occur. The BHCA imposes certain restrictions upon the Corporation regarding the acquisition of substantially all of the assets of, or direct or indirect ownership or control of, any bank for which it is not already the majority owner. Source of Strength - Federal banking law requires bank holding companies like us to act as a source of financial strength and to commit capital and other financial resources to each of their banking subsidiaries. This support may be required at times when we may not be able to provide such support without adversely affecting our ability to meet other obligations or when, absent such requirements, we might not otherwise choose to provide such support. If we are unable to provide such support, the Federal Reserve Board could instead require the divestiture of our subsidiaries and impose operating restrictions pending the divestiture. If a bank holding company commits to a federal bank regulator that it will maintain the capital of its bank subsidiary, whether in response to the Federal Reserve Board's invoking its source of strength authority or in response to other regulatory measures, that commitment will be assumed by the bankruptcy trustee, and the bank will be entitled to priority payment in respect of that commitment. The Economic Growth Act - The Economic Growth Act amended certain provisions of the Dodd-Frank Act to raise the total asset threshold for mandatory applicability of enhanced prudential standards for bank holding companies to $250 billion and to allow the Federal Reserve Board to apply enhanced prudential standards to bank holding companies with between $100 billion and $250 billion in total assets to address financial stability risks or safety and soundness concerns. The Economic Growth Act's increased threshold took effect immediately for bank holding companies with total assets of less than $100 billion, including the Corporation. The Economic Growth Act also enacted other important changes, for which the banking agencies issued certain corresponding guidance documents and implementing regulations, including: - Raising the total asset threshold for Dodd-Frank Act company-run stress tests from $10 billion to $250 billion; - Prohibiting federal banking agencies from imposing higher capital requirements for high volatility commercial real estate exposures unless such exposures meet the statutory definition for high volatility acquisition, development or construction loans in the Economic Growth Act; - Exempting from appraisal requirements certain transactions involving real property in rural areas and valued at less than $400,000; - Providing that reciprocal deposits are not treated as brokered deposits in the case of a "well capitalized" institution that received an "outstanding" or "good" rating on its most recent examination to the extent the amount of such deposits does not exceed the lesser of $5 billion or 20% of the bank's total liabilities; and - Directing the CFPB to provide guidance on the applicability of the TILA-RESPA Integrated Disclosure rule to mortgage assumption transactions and construction-to-permanent home loans, as well the extent to which lenders can rely on model disclosures that do not reflect recent regulatory changes. Given Fulton Bank's size, a number of additional benefits afforded to community banks under applicable asset thresholds are not available to Fulton Bank. Consumer Financial Protection Laws and Enforcement - The CFPB and the federal banking agencies continue to focus attention on consumer protection laws and regulations. The CFPB is responsible for promoting fairness and transparency for mortgages, credit cards, deposit accounts and other consumer financial products and services and for interpreting and enforcing the federal consumer financial laws that govern the provision of such products and services. Federal consumer financial laws enforced by the CFPB include, but are not limited to, the ECOA, the TILA, the Truth in Savings Act, the Home Mortgage Disclosure Act, the RESPA, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act. The CFPB is also authorized to prevent any institution under its authority from engaging in an unfair, deceptive, or abusive act or practice in connection with consumer financial products and services. As a residential mortgage lender, we are subject to multiple federal consumer protection statutes and regulations, including, but not limited to, those statutes and regulations referenced above. In particular, fair lending laws prohibit discrimination in the provision of banking services. Fair lending laws include the ECOA and the Fair Housing Act, both of which outlaw discrimination in credit and residential real estate transactions on the basis of prohibited factors including, among others, race, color, national origin, gender, and religion. A lender may be liable for policies that result in a disparate treatment of, or have a disparate impact on, a protected class of applicants or borrowers. If a pattern or practice of lending discrimination is alleged by a regulator, then that agency may refer the matter to the DOJ for investigation. Failure to comply with these and similar statutes and regulations could subject us to formal or informal enforcement actions, the imposition of civil money penalties and litigation. The CFPB has exclusive examination and primary enforcement authority with respect to compliance with federal consumer financial protection laws and regulations by institutions under its supervision and is authorized, individually or jointly with the federal banking agencies, to conduct investigations to determine whether any person is, or has, engaged in conduct that violates such laws or regulations. The CFPB may bring an administrative enforcement proceeding or civil action in federal district court. In addition, in accordance with a memorandum of understanding entered into between the CFPB and the DOJ, the two agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information sharing and conducting joint investigations; however, the extent to which such coordination may actually occur is unpredictable and may change over time as the result of a number of factors, including changes in leadership at the DOJ and the CFPB, as well as changes in the enforcement policies and priorities of each agency. As an independent bureau funded by the Federal Reserve Board, the CFPB may impose requirements that are more stringent than those of the other bank regulatory agencies. As an IDI with total assets of more than $10 billion, Fulton Bank is subject to the CFPB's supervisory and enforcement authorities. The Dodd-Frank Act also permits states to adopt stricter consumer protection laws and authorizes state attorneys general to enforce consumer protection rules issued by the CFPB. As a result, Fulton Bank operates in a stringent consumer compliance environment. Ability-to-pay rules and qualified mortgages - Under the CFPB rules that implement the TILA, mortgage lenders are required to make a reasonable and good faith determination, based on verified and documented information, that a consumer applying for a residential mortgage loan has a reasonable ability to repay the loan according to its terms. These rules prohibit creditors, such as Fulton Bank, from extending residential mortgage loans without regard for the consumer's ability to repay and add restrictions and requirements to residential mortgage origination and servicing practices. In addition, these rules restrict the imposition of prepayment penalties and compensation practices relating to residential mortgage loan origination. Mortgage lenders are required to determine a consumer's ability to repay in one of two ways. The first alternative requires the mortgage lender to consider eight underwriting factors when making the credit decision. The mortgage lender may also originate "qualified mortgages" which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a QM is a residential mortgage loan that does not have certain high-risk features, such as negative amortization, interest-only payments, balloon payments, or a term exceeding 30 years. In addition, to be a QM loan, the points and fees paid by a consumer cannot exceed 3% of the total loan amount, and the borrower's total DTI ratio must be no higher than 43% (subject to certain limited exceptions for loans eligible for purchase, guarantee or insurance by a government sponsored enterprise or a federal agency). In December 2020, the CFPB issued two final rules related to QM loans. The first rule replaces the strict DTI threshold for QM loans and provides that, in addition to existing requirements, a loan receives a conclusive presumption that the consumer had the ability to repay if the APR does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set. Further, a loan receives a rebuttable presumption that the consumer had the ability to repay if the APR exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points. The second rule creates a new category of "seasoned" QM loans for those that meet certain performance requirements. Specifically, that rule allows a non-QM loan or a "rebuttable presumption" QM loan to receive a safe harbor from APR liability at the end of a "seasoning" period of at least 36 months as a "seasoned QM" if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements, and the loan meets the designated performance and portfolio requirements during the "seasoning period." Integrated disclosures under the RESPA and the TILA - Under the CFPB rules, mortgage lenders are required to provide a loan estimate, not later than the third business day after submission of a loan application, and a closing disclosure at least three days prior to the loan closing. The loan estimate must detail the terms of the loan, including, among other things, expenses, projected monthly mortgage payments and estimated closing costs. The closing disclosure must include, among other things, closing costs and a comparison of costs reported on the loan estimate to actual charges to be applied at closing. Volcker Rule - Provisions of the Dodd-Frank Act, commonly known as the "Volcker Rule," prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds and other private funds that are, among other things, offered within specified exemptions to the Investment Company Act, known as "covered funds," subject to certain exemptions. Volcker Rule compliance requirements are based on the size and scope of a banking entity's trading activities. Our investing and trading activities have and will continue to depend on, among other things, further rulemaking and guidance that may be issued by the Volcker Rule Regulators and the development of market practices and standards. Capital Requirements - The Corporation and Fulton Bank are subject to the Basel III Rules that are based upon the final framework of the Basel Committee for strengthening capital and liquidity regulation. Under the Basel III Rules, the Corporation and Fulton Bank apply the standardized approach in measuring RWA and regulatory capital. Under the Basel III Rules, the Corporation and Fulton Bank are subject to the following minimum capital ratios: - A minimum CET1 capital ratio of 4.50% of RWA; - A minimum Tier 1 capital ratio of 6.00% of RWA; - A minimum Total capital ratio of 8.00% of RWA; and - A minimum Tier 1 leverage ratio (Tier 1 capital to a quarterly average of non-risk weighted total assets) of 4.00%. The Basel III Rules also included a "capital conservation buffer" of 2.5%, composed entirely of CET1 capital, in addition to the minimum capital to RWA ratios outlined above, resulting in effective minimum CET1, Tier 1 and total capital ratios of 7.0%, 8.5% and 10.5%, respectively. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a capital ratio above the minimum, but below the conservation buffer, will face restrictions on dividends, equity repurchases, and executive compensation based on the amount of the shortfall and the institution's "eligible retained income" (that is, four quarter trailing net income, net of distributions and tax effects not reflected in net income). As of December 31, 2023, the Corporation and Fulton Bank exceeded the minimum capital requirements, including the capital conservation buffer, as prescribed in the Basel III Rules. The Basel III Rules also provide that the largest banking institutions must adhere to additional countercyclical buffer and supplementary leverage ratio requirements. The Corporation and Fulton Bank are not presently subject to these requirements. The Basel III Rules provide for a number of required deductions from and adjustments to CET1. These deductions and adjustments include, for example, goodwill, other intangible assets, and DTAs that arise from net operating loss and tax credit carryforwards net of any related valuation allowance. MSRs, DTAs arising from temporary differences that could not be realized through net operating loss carrybacks and investments in non-consolidated financial institutions must also be deducted from CET1 to the extent that they exceed certain thresholds. Through subsequent rulemaking, the federal banking agencies provided certain forms of relief to banking organizations, such as the Corporation and Fulton Bank, that are not subject to the advanced approaches framework. The Corporation and Fulton Bank made a one-time, permanent election under the Basel III Rules to exclude the effects of certain components of AOCI included in shareholders' equity under GAAP in determining regulatory capital ratios. Under the Basel III Rules, certain off-balance sheet commitments and obligations are converted into RWA, that together with on-balance sheet assets, are the base against which regulatory capital is measured. The Basel III Rules defined the risk-weighting categories for bank holding companies and banks that follow the standardized approach, such as the Corporation and Fulton Bank, based on a risk-sensitive analysis, depending on the nature of the exposure. The Capital Rules eliminated the standalone prior approval requirement in the Basel III Rules for any repurchase of common stock. In certain circumstances, repurchases of our common stock may be subject to a prior approval or notice requirement under other regulations or policies of the Federal Reserve Board. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve Board. The Basel Committee published the last version of the Basel III accord in 2017, generally referred to as "Basel IV." Among other things, these standards revise the Basel Committee's standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain "unconditionally cancellable commitments," such as unused credit card and home equity lines of credit) and provides a new standardized approach for operational risk capital. Under the Basel framework, these standards became effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not the Corporation or Fulton Bank. The impact of Basel IV on the Corporation and Fulton Bank will depend on the manner in which it is implemented by the federal banking agencies. As of December 31, 2023, the Corporation and Fulton Bank exceeded all capital requirements necessary to be deemed "well-capitalized" for all regulatory purposes under the capital rules. Stress Testing and Capital Planning - As a result of the Economic Growth Act and implementing regulations adopted by the Federal Reserve Board and the OCC, the Corporation and Fulton Bank are no longer subject to company-run stress testing requirements under the Dodd-Frank Act. The Federal Reserve Board continues to supervise our capital planning and risk management practices through its regular supervisory process, which includes regular stress testing. CECL Transitional Provisions – On August 26, 2020, the federal bank regulatory agencies adopted the CECL Transition Rule that provides banking institutions an optional five-year transition period to phase in the impact of the CECL standard on their regulatory capital. The final rule gives eligible institutions the option to mitigate the estimated capital effects of CECL for two years, followed by a three-year transition period. Taken together, these measures offer institutions a transition period of up to five years. We have elected to avail ourselves of the transition relief permitted under applicable regulations. Prompt Corrective Action - The FDICIA established a system of prompt corrective action to attempt to resolve the problems of undercapitalized institutions. The FDICIA, among other things, establishes five capital categories for FDIC-insured banks: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." An IDI is treated as well capitalized if its total risk-based capital ratio is 10.00% or greater, its Tier 1 risk-based capital ratio is 8.00% or greater, its CET1 risk-based capital ratio is 6.50% or greater and its Tier 1 leverage capital ratio is 5.00% or greater, and it is not subject to any order or directive to meet a specific capital level. As of December 31, 2023, Fulton Bank's capital ratios were above the minimum levels required to be considered "well capitalized" by the OCC. Under this system, the federal banking agencies are required to take certain, and authorized to take other, prompt corrective actions against undercapitalized institutions, the severity of which increase as the capital category of an institution declines, including restrictions on growth of assets and other forms of expansion. Generally, a capital restoration plan must be filed with the institution's primary federal regulator within 45 days of the date an institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Although prompt corrective action regulations apply only to depository institutions and not to bank holding companies, bank holding companies must guarantee any such capital restoration plan in certain circumstances. The liability of a bank holding company under any such guarantee is limited to the lesser of 5.00% of the bank's relevant assets at the time it became "undercapitalized" or the amount needed to comply. A bank holding company might also be liable for civil money damages for failure to fulfill that guarantee. In the event of the bankruptcy of a bank holding company, such guarantee would take priority over the bank holding company's general unsecured creditors. In addition, regulators consider both risk-based capital ratios and other factors that can affect a bank's financial condition, including (i) concentrations of credit risk, (ii) interest rate risk, and (iii) risks from non-traditional activities, along with an institution's ability to manage those risks, when determining capital adequacy. This evaluation is made during the institution's safety and soundness examination. An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. Brokered Deposits - The FDICIA and FDIC regulations limit the ability of an IDI, such as Fulton Bank, to accept, renew or roll over brokered deposits unless the institution is well-capitalized under the prompt corrective action framework described above, or unless it is adequately capitalized and obtains a waiver from the FDIC. In addition, less than well-capitalized banks are subject to restrictions on the interest rates they may pay on deposits. The characterization of deposits as "brokered" may result in the imposition of higher deposit assessments on such deposits. There is a limited exception from the scope of “brokered” deposits for reciprocal deposits for IDIs that are well-rated and well-capitalized (or adequately capitalized and for which the IDI has obtained a waiver from the FDIC as mentioned above). Under this limited exception, qualified IDIs, like Fulton Bank, are able to except from treatment as "brokered" deposits the lesser of up to $5 billion, or 20% of the institution's total liabilities, in reciprocal deposits. Loans and Dividends from Bank Subsidiary - There are various restrictions on the extent to which Fulton Bank can make loans and other extensions of credit (including credit exposure arising from repurchase and reverse repurchase agreements, securities borrowing and derivative transactions) to, or enter into certain transactions with, its affiliates, which includes the Corporation and its non-bank subsidiaries. In general, these restrictions require that such transactions: (i) with the Corporation or any of its non-bank subsidiaries be limited to 10% of Fulton Bank's regulatory capital (20% in the aggregate to all such entities); (ii) satisfy certain qualitative limitations, including that any covered transaction be made on an arm's length basis; and (iii) in the case of extensions of credit, be secured by designated amounts of specified collateral. For safety and soundness reasons, banking regulations also limit the amount of cash that can be transferred from Fulton Bank to the Corporation in the form of dividends. Generally, dividends are limited to the lesser of the amounts calculated under an earnings retention test and an undivided profits test. Under the earnings retention test, without the prior approval of the OCC, a dividend may not be paid if the total of all dividends declared by a bank in any calendar year is in excess of the current year's net income combined with the retained net income of the two preceding years. Under the undivided profits test, a dividend may not be paid in excess of a bank's undivided profits. In addition, banks are prohibited from paying dividends when doing so would cause them to fall below the regulatory minimum capital levels. See "Note 12 - Regulatory Matters," in the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" for additional information regarding regulatory capital and dividend and loan limitations. Federal Deposit Insurance - The deposits of Fulton Bank are insured up to the applicable limits by the DIF, generally up to $250,000 per insured depositor. Fulton Bank pays deposit insurance premiums based on assessment rates established by the FDIC. The FDIC has established a risk-based assessment system under which institutions are classified and pay premiums according to their perceived risk to the DIF. In addition, the FDIC possesses backup enforcement authority over a depository institution holding company, like us, if the conduct or threatened conduct of such bank holding company poses a risk to the DIF, although such authority may not be used if the bank holding company is generally in sound condition and does not pose a foreseeable and material risk to the DIF. FDIC assessment rates for large institutions that have more than $10 billion in assets, such as Fulton Bank, are calculated based on a "scorecard" methodology that seeks to capture both the probability that an individual large institution will fail and the magnitude of the impact on the DIF if such a failure occurs that is based primarily on the difference between the institution's average of total assets and average tangible equity, or its assessment base. The FDIC has the ability to make discretionary adjustments to the total score, up or down, based upon significant risk factors that are not adequately captured in the scorecard. For large institutions, including Fulton Bank, after accounting for potential base-rate adjustments, the total assessment rate could range from 1.5 to 40 bps on an annualized basis. An institution's assessment is determined by multiplying its assessment rate by its assessment base. In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the DIF arising from the protection of uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in 2023. The special assessment is based on an IDI's estimated uninsured deposits as of December 31, 2022, adjusted to excluding the first $5.0 billion of estimated uninsured deposits, and will be assessed at a quarterly rate of 3.36 bps, over eight quarterly assessment periods, beginning in the first quarter of 2024. As a result of this final rule, we accrued $6.5 million ($5.1 million after tax) related to this assessment in the fourth quarter of 2023. This amount represents our current expectation of the full amount of the assessment based on our total uninsured deposits as of December 31, 2022. Under the final rule, the estimated losses to the DIF may be revised from time to time, and the FDIC has retained the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. The extent to which any such additional future assessments will impact our future deposit insurance expense is currently uncertain. The Tax Act disallows the deduction of FDIC deposit insurance premium payments for banking organizations with total consolidated assets of $50 billion or more. For banks with less than $50 billion in total consolidated assets, such as Fulton Bank, the premium deduction is phased out based on the proportion of the bank's assets exceeding $10 billion. AML Requirements and the Patriot Act - The Patriot Act amended the BSA and other AML laws and regulations and imposed affirmative obligations on a wide range of financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing. Among other requirements, the Patriot Act and related regulations impose the following requirements on financial institutions: - establishment of AML programs; - establishment of a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time; - establishment of enhanced due diligence policies, procedures and controls designed to detect and report money laundering; and - prohibition on correspondent accounts for foreign shell banks and compliance with recordkeeping obligations with respect to correspondent accounts of foreign banks. Failure to comply with the requirements of the Patriot Act and other AML laws and regulations could have serious legal, financial, regulatory and reputational consequences. In addition, bank regulators will consider a bank holding company's effectiveness in combating money laundering when ruling on BHCA and Bank Merger Act applications. In addition, financial institutions are subject to customer due diligence requirements, issued by the FinCEN, to identify and verify the identity of natural persons, known as beneficial owners, who own, control, and profit from legal entity customers when those customers open accounts. We have adopted policies, procedures and controls to address compliance with the Patriot Act and other AML laws and regulations, and we will continue to revise and update our policies, procedures and controls to reflect required changes. On January 1, 2021, the NDAA was signed into law, which enacted the most significant overhaul of BSA and other AML-related laws since the Patriot Act. Notable aspects of the NDAA include: (i) significant changes to the collection of beneficial ownership and the establishment of a beneficial ownership registry that requires corporate entities (generally, any corporation, limited liability company, or other similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to the FinCEN (which will be maintained by the FinCEN and made available upon request to financial institutions); (ii) enhanced whistleblower provisions that provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the BSA or other AML-related laws in any judicial or administrative action brought by the Secretary of the Treasury or the U.S. Attorney General resulting in monetary sanctions exceeding $1 million (including disgorgement and interest but excluding forfeiture, restitution, or compensation to victims) will receive not more than 30 percent of the monetary sanctions collected and will receive increased protections; (iii) increased penalties for violations of the BSA; (iv) improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and (v) expanded duties and powers of the FinCEN. Many of the new provisions, including those with respect to beneficial ownership, require the Department of Treasury and the FinCEN to promulgate rules. On December 8, 2021, the FinCEN issued proposed regulations that would implement the amendments with respect to beneficial ownership. On September 29, 2022, the FinCEN issued a final rule establishing a beneficial ownership information reporting requirement, pursuant to the CTA. The rule requires most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners—the persons who ultimately own or control the company, to the FinCEN. On December 22, 2023, FinCEN issued a final rule regarding access by authorized recipients to BOI that will be reported to FinCEN pursuant to Sec. 6403 of the CTA, which is part of the NDAA. The regulations implement strict protocols required by the CTA to protect sensitive personally identifiable information reported to FinCEN and establish the circumstances in which specified recipients have access to BOI, along with data protection protocols and oversight mechanisms applicable to each recipient category. The disclosure of BOI to authorized recipients in accordance with appropriate protocols and oversight will help law enforcement and national security agencies prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity, as well as protect national security. Commercial Real Estate Guidance — Under guidance issued by the federal banking agencies, the agencies have expressed concerns with institutions that ease commercial real estate underwriting standards and have directed financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks. The agencies have also issued guidance that requires a financial institution to employ enhanced risk management practices if the institution is exposed to significant concentration risk. Under that guidance, an institution is potentially exposed to significant concentration risk if: (i) total reported loans for construction, land development, and other land represent 100% or more of total capital or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land development, and other land loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital, and the outstanding balance of the institution's commercial real estate loan portfolio has increased by 50% or more during the prior 36 months. Community Reinvestment — Under the CRA, Fulton Bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to ascertain and meet the credit needs of its entire community, including low- and moderate-income areas. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires an institution's primary federal regulator, in connection with its examination of the institution, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. The assessment focuses on three tests: (i) a lending test, to evaluate the institution's record of making loans, including community development loans, in its designated assessment areas; (ii) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low- or moderate-income individuals and areas and small businesses; and (iii) a service test, to evaluate the institution's delivery of banking services throughout its CRA assessment area, including low- and moderate-income areas. The CRA also requires all institutions to make public disclosure of their CRA ratings. As of December 31, 2023, Fulton Bank was rated as "outstanding." Current regulations require that Fulton Bank publicly disclose certain agreements that are in fulfillment of CRA. Fulton Bank is not a party to any such agreements at this time. On October 24, 2023, the federal banking agencies issued a final rule implementing updates to CRA reform. Among other things, the final rule: (a) adopts four new performance tests to evaluate the CRA performance of large banks (assets of $2 billion or more) - the Retail Lending Test, Retail Services and Products Test, Community Development Financing Test, and Community Development Services Test; (b) retains a strategic plan option, with modifications to reflect the new performance tests and updates to the approval standards; (c) clarifies community development activities by updating the definition of community development, providing a process by which banks may request confirmation that an activity is eligible for community development consideration, and providing for a publicly available interagency illustrative list of qualifying community development activities; (d) updates delineation requirements for facility-based assessment areas and establishes new retail lending assessment areas for certain large banks; (e) updates data collection, maintenance, and reporting requirements for large banks, tailoring those requirements based on large bank asset size and leveraging existing data where possible, while not imposing new data collection and reporting requirements for small and intermediate banks; and (f) continues public file and public notice disclosure requirements and creates a new public comment process to facilitate public engagement. The April 1, 2024, effective date is applicable to certain provisions of the final rule that are similar to the current CRA regulations: facility-based assessment area delineations, effect of CRA on applications, public file, bank public notice, and CRA examination schedule public notice provisions, as well as the new public engagement provision. As of January 1, 2026, banks are required to comply with all other provisions of the final rule, except for certain reporting requirements, which will be applicable on January 1, 2027. Standards for Safety and Soundness - Pursuant to the requirements of the FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, the federal bank regulatory agencies adopted guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If the institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the regulator must issue an order directing corrective actions and may issue an order directing other actions of the types to which a significantly undercapitalized institution is subject under the "prompt corrective action" provisions of FDICIA. If the institution fails to comply with such an order, the regulator may seek to enforce such order in judicial proceedings and to impose civil money penalties. The guidelines prohibit excessive compensation to any executive officer, employee, director or principal shareholder as an unsafe and unsound practice. The guidelines provide that compensation will be considered excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. The federal banking agencies have issued guidance that provides that, to be consistent with safety and soundness principles, a banking organization's incentive compensation arrangements should: (i) provide employees with incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk management; and (iii) be supported by strong corporate governance, including active and effective oversight by the banking organization's board of directors. Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation. The Dodd-Frank Act requires federal banking agencies and the SEC to establish joint regulations or guidelines for specified entities, including the Corporation and Fulton Bank, that have at least $1 billion in total assets, prohibiting incentive-based compensation arrangements that encourage inappropriate risk-taking by an executive officer, employee, director or principal shareholder that could lead to material financial loss to the entity. In addition, these regulations or guidelines must require enhanced disclosure with respect to incentive-based compensation arrangements. On October 15, 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (clawback) provisions, which largely track the proposed rules originally announced in 2015. Notwithstanding the issuance of these final rules, the scope and content of the federal banking agencies' policies on executive compensation may continue to evolve in the near future. We have had a clawback policy in place since 2012 and have updated such policy to comply with the new requirements. Privacy Protection and Cybersecurity — Fulton Bank is subject to regulations implementing the privacy protection provisions of the GLBA. These regulations require Fulton Bank to disclose its privacy policy, including identifying with whom it shares "nonpublic personal information," to customers at the time of establishing the customer relationship and annually thereafter. The regulations also require Fulton Bank to provide its customers with initial and annual notices that accurately reflect its privacy policies and practices. In addition, to the extent its sharing of such information is not covered by an exception, Fulton Bank is required to provide its customers with the ability to "opt-out" of having Fulton Bank share a customer's nonpublic personal information with unaffiliated third parties. Fulton Bank is also subject to regulatory guidelines establishing standards for safeguarding customer information. These regulations implement certain provisions of the GLBA. The guidelines describe the federal bank regulatory agencies' expectations for the creation, implementation and maintenance of an information security program, that includes administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information security and the use of third parties in the provision of financial services. Certain states have enacted laws establishing consumer privacy protections and data security requirements in their respective states. For example, the CCPA gives California residents rights to receive certain disclosures regarding the collection, use, and sharing of "personal information" as well as rights to access, delete, and restrict the sale of certain personal information. The CCPA, which was amended in November 2020 by a ballot initiative titled the California Privacy Rights Act, went into effect on January 1, 2020, and Fulton Bank is required to comply with the CCPA in serving the small number of its customers that are residents of California. Attempts by state and local governments to regulate consumer privacy have the potential to create a patchwork of differing and/or conflicting state regulations. In July 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents experienced and describe the material aspects of their nature, scope and timing. The rules, which supersede their previously interpreted guidance published in February 2018, also require annual disclosures describing a company's cybersecurity risk management, strategy and governance. These SEC rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. Federal Reserve System — Federal Reserve Board regulations require depository institutions to maintain cash reserves against specified deposit liabilities. The dollar amount of a depository institution's reserve requirement is determined by applying the reserve ratios specified in the Federal Reserve Board's Regulation D to an institution's reservable liabilities (primarily net transaction accounts such as negotiable order of withdrawal and demand deposit accounts). A reserve of 3% must be maintained against aggregate transaction account balances of between $16.9 million and $127.5 million (subject to adjustment by the Federal Reserve Board) plus a reserve of 10% (subject to adjustment by the Federal Reserve Board within a range of between 8% and 14%) against that portion of total transaction account balances in excess of $127.5 million. The first $16.9 million of otherwise reservable balances (subject to adjustment by the Federal Reserve Board) are exempt from the reserve requirements. Fulton Bank is in compliance with the foregoing requirements. Required reserves must be maintained in the form of either vault cash, an account at a FRB or a pass-through account as defined by the Federal Reserve Board. Pursuant to the Emergency Economic Stabilization Act of 2008, the FRB pays interest on depository institutions' required and excess reserve balances. The interest rate paid on required reserve balances is currently the average target federal funds rate over the reserve maintenance period. The rate on excess balances will be set equal to the lowest target federal funds rate in effect during the reserve maintenance period. On December 22, 2020, the Federal Reserve Board issued a final rule that amends Regulation D by lowering the reserve requirement ratios on transaction accounts maintained at depository institutions to 0%. It is currently unclear if the reduction of the reserve requirements on transaction accounts is permanent. Acquisitions — The BHCA requires a bank holding company to obtain the prior approval of the Federal Reserve Board before: - the company acquires direct or indirect ownership or control of any voting shares of any bank or savings and loan association, if after such acquisition the bank holding company will directly or indirectly own or control more than five percent of any class of voting securities of the institution; - any of the company's subsidiaries, other than a bank, acquires all or substantially all of the assets of any bank or savings and loan association; or - the company merges or consolidates with any other bank or financial holding company. Prior regulatory approval is also generally required for mergers, acquisitions and consolidations involving other IDIs. In reviewing acquisition and merger applications, bank regulatory authorities will consider, among other things, the competitive effect of the transaction, financial and managerial issues, the capital position of the combined organization, convenience and needs factors, including the applicant's CRA record, the effectiveness of the subject organizations in combating money laundering activities, and the transaction's effect on the stability of the U.S. banking or financial system. On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the U.S. Economy. Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the BHCA and the BMA and adopt a plan for revitalization of such practices. There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers can be finalized, and the prospects for such action are uncertain at this time. In January 2024, the OCC issued a notice of proposed rulemaking to amend its procedural regulations and adopt a new policy statement relating to its approach to evaluating business combinations under the BMA. The adoption of more expansive or prescriptive standards may have an impact on our acquisition activities. The Change in Bank Control Act prohibits a person, entity or group of persons or entities acting in concert, from acquiring "control" of a bank holding company or bank unless the Federal Reserve Board has been given prior notice and has not objected to the transaction. Under Federal Reserve Board regulations, the acquisition of 10% or more (but less than 25%) of the voting stock of a corporation would, under the circumstances set forth in the regulations, create a rebuttable presumption of acquisition of control of the corporation. Effective September 30, 2020, the Federal Reserve finalized a rule that simplifies and increases the transparency of its rules for determining when one company controls another company for purposes of the BHCA and, on March 31, 2021, the Federal Reserve Board published interpretive guidance regarding the final rule and related regulatory control matters. The amended control rule has had, and will likely continue to have, a meaningful impact on control determinations related to investments in banks and bank holding companies and investments by bank holding companies in nonbank companies. On January 29, 2024, the OCC issued a notice of proposed rulemaking and Policy Statement on Bank Mergers, wherein the OCC requested comment on a proposal to update its rules for business combinations involving national banks and federal savings associations. The proposal also includes a policy statement to clarify the OCC's review of applications under the BMA. The proposed rulemaking is part of the OCC's effort to enhance transparency around its process of reviewing transactions under the BMA. It would also serve to provide additional guidance to stakeholders around the OCC's review of applications. The proposed policy statement specifically would discuss: (a) general principles for the OCC's review of applications under the BMA, including indicators for applications likely consistent with approval and applications that raise supervisory or regulatory concerns; (2) the OCC's consideration of the financial stability; managerial and financial resources and future prospects; and convenience and needs statutory factors under the BMA; and (3) the OCC's decision process for extending the public comment period or holding a public meeting. Permissible Activities — As a bank holding company, the Corporation may engage in the business of banking, managing or controlling banks, performing servicing activities for subsidiaries, and engaging in activities that the Federal Reserve Board has determined, by order or regulation, are so closely related to banking as to be a proper incident thereto. As a financial holding company, the Corporation may also engage in or acquire and retain the shares of a company engaged in activities that are financial in nature or incidental or complementary to activities that are financial in nature as long as the Corporation continues to meet the eligibility requirements for financial holding companies, including that the Corporation and each of its U.S. depository institution subsidiaries remain "well-capitalized" and "well-managed." A depository institution is considered "well-capitalized" if it satisfies the requirements of the Prompt Corrective Action framework described above. A depository institution is considered "well-managed" if it received a composite rating and management rating of at least "satisfactory" in its most recent examination. If a financial holding company ceases to be well-capitalized and well-managed, the financial holding company must enter into a non-public confidential agreement with the Federal Reserve Board to comply with all applicable capital and management requirements. Until the financial holding company returns to compliance, the Federal Reserve Board may impose limitations or conditions on the conduct of its activities, and the company may not commence any new non-banking financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the Federal Reserve Board. If the company does not timely return to compliance, the Federal Reserve Board may require divestiture of the financial holding company's banking subsidiaries. Bank holding companies and banks must also be well-capitalized and well-managed in order to acquire banks located outside their home state. A financial holding company will also be limited in its ability to commence non-banking financial activities or acquire a company engaged in such financial activities if any of its IDI subsidiaries fails to maintain a "satisfactory" rating under the CRA. Activities that are "financial in nature" include securities underwriting, dealing and market making, advising mutual funds and investment companies, insurance underwriting and agency, merchant banking, and activities that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines to be financial in nature or incidental to such financial activity. "Complementary activities" are activities that the Federal Reserve Board determines upon application to be complementary to a financial activity and that do not pose a safety and soundness issue. Enforcement Powers of Federal Banking Regulators — The Federal Reserve Board and other U.S. banking agencies have broad enforcement powers with respect to an IDI and its holding company, including the power to (i) impose cease and desist orders, substantial fines and other civil penalties, (ii) terminate deposit insurance, and (iii) appoint a conservator or receiver. Failure to comply with applicable laws or regulations could subject the Corporation or Fulton Bank, as well as their officers and directors, to administrative sanctions and potentially substantial civil and criminal penalties. In addition, under the BHCA, the Federal Reserve Board has the authority to require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon the Federal Reserve Board's determination that such activity or control constitutes a serious risk to the financial soundness and stability of a depository institution subsidiary of the bank holding company. Federal Securities Laws — The Corporation is subject to the periodic reporting, proxy solicitation, tender offer, insider trading, corporate governance and other requirements under the Exchange Act and the rules of the Nasdaq that apply to companies listed on the Nasdaq Global Select Market. Among other things, the federal securities laws require management to issue a report on the effectiveness of its internal controls over financial reporting. In addition, the Corporation's independent registered public accountants are required to issue an opinion on the effectiveness of its internal control over financial reporting. See "Item 8. Financial Statements and Supplementary Data - Report of Independent Registered Public Accounting Firm." Certifications of the Chief Executive Officer and the Chief Financial Officer as required by the Sarbanes-Oxley Act of 2002 and the resulting SEC rules can be found in the *Signatures* and *Exhibits* sections. Climate-Related Regulation - In recent years the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system. Accordingly, the agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to: (i) ensure that management of climate-related risk exposures has been incorporated into existing governance structures; (ii) evaluate the potential impact of climate-related risks on the bank's financial condition, operations and business objectives as part of its strategic planning process; (iii) account for the effects of climate change in stress testing scenarios and systemic risk assessments; (iv) revise expectations for credit portfolio concentrations based on climate-related factors; (v) consider investments in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change; (vi) evaluate the impact of climate change on the bank's borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties; (vii) incorporate climate-related financial risk into the bank's internal reporting, monitoring and escalation processes; and (viii) prepare for the transition risks associated with the adjustment to a low-carbon economy as well as related changes in laws, regulations, governmental policies, technology, and consumer behavior and expectations. On October 21, 2021, the FSOC published a report identifying climate-related financial risks as an "emerging threat" to financial stability. On October 24, 2023, the OCC issued principles for climate-related financial risk management for national banks with more than $100 billion in total assets. Although these risk management principles, would not apply to Fulton Bank based upon its current size, the OCC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management. The final guidance is substantively similar to the guidance previously proposed by the agencies, with targeted modifications in response to commenter feedback. These modifications include clarification on the applicability to large foreign banking organizations and clarification on the role of boards of directors and management. The final guidance contains high-level principles covering six areas: governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement, and reporting; and scenario analysis. Additionally, the final principles describe how climate-related financial risks can be addressed in the management of traditional risk areas. The final principles neither prohibit nor discourage large financial institutions from providing banking services to customers of any specific class or type, as permitted by law or regulation. The decision regarding whether to make a loan or to open, close, or maintain an account rests with the financial institution, so long as the financial institution complies with applicable laws and regulations. The agencies are providing guidance to large financial institutions through these principles on the management of climate-related financial risks just as the agencies provide guidance to financial institutions in identifying and managing other risks. The final principles are intended to promote a consistent understanding of the effective management of climate-related financial risks. In addition, states are considering taking similar actions on climate-related financial risks, including certain states in which we operate. For example, the Governor of Pennsylvania has announced the Pennsylvania Climate Action Plan of 2021 that will, in part, focus on the negative impact businesses have on greenhouse gas emissions. Further, Virginia's omnibus Virginia Clean Economy Act enacted provisions with the goal of the Commonwealth being carbon-free by 2045; after the Governor of Maryland reauthorized the Greenhouse Gas Emissions Reduction Act of 2016, the Maryland Department of Environment released the 2030 Greenhouse Gas Reduction Act Plan; and in 2023, Delaware enacted the Delaware Climate Solutions Act of 2023 that established targets for reduction in greenhouse gas emissions. Once fully implemented, these measures will, at least in part, focus on the greenhouse gases impact that businesses have in the respective states in which they operate. ## Risk factors As filed, 59,580 characters. *An investment in our securities involves certain risks, including, among others, the risks described below. In addition to the other information contained in this Report, you should carefully consider the following risk factors. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of these risks actually occurs, our business, financial condition and results of operations could be materially, adversely affected.* ### GENERAL ECONOMIC AND MARKET CONDITIONS RISKS ***Difficult conditions in the economy and the financial markets may materially adversely affect our business, financial condition and results of operations.*** Our financial condition and results of operations are affected by conditions in the economy and the financial markets generally. Our financial performance is highly dependent upon the business environment in the markets where we operate and in the United States as a whole. Unfavorable or uncertain economic and market conditions can be caused by: declines in economic growth, business activity or investor or business confidence; limitations on the availability, or increases in the cost, of credit and capital; changes in the rate of inflation or in interest rates; high unemployment; labor shortages; governmental fiscal and monetary policies; the level of, or changes in, prices of raw materials, goods or commodities; supply chain issues; global economic conditions; trade policies and tariffs affecting other countries as well as retaliatory policies and tariffs by such countries; geopolitical events, including the war between Russia and Ukraine and the conflict in the Middle East; natural disasters; public health crises, such as epidemics and pandemics; acts of war or terrorism; or a combination of these or other factors. Specifically, the business environment impacts the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral, if any, securing those loans, as well as demand for loans and other products and services we offer. There continues to be economic uncertainty, including the possibility of a recession resulting from elevated levels of inflation and a higher-for-longer interest rate environment, which could negatively impact the quality of our loan portfolio. As a result, we may have to increase our provision for credit losses, which would negatively impact our results of operations, and could result in charge-offs of a higher percentage of our loans. Unlike large, national institutions, we are not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies and geographic locations. If the communities in which we operate do not grow, or if prevailing economic conditions locally or nationally are unfavorable, our business could be adversely affected. In addition, increased market competition in a lower demand environment could adversely affect our profit potential. ### INTEREST RATE AND CREDIT RISKS ### We are subject to interest rate risk. We cannot predict or control changes in interest rates. We are affected by fiscal and monetary policies of the federal government, including those of the Federal Reserve Board, many of which affect interest rates charged on loans and paid on deposits. In a series of actions to combat rising inflation that began in March 2022, the Federal Reserve Board raised the Fed Funds Rate to 5.25% to 5.50% as of February 1, 2024. The speed and magnitude of increases in the Fed Funds Rate since March 2022 is unprecedented in modern economic times, and, as a result of persistently high inflation, the timing and magnitude of future Fed Funds Rate decreases are uncertain, and increases in Fed Funds Rates are possible. Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and securities that we invest in and the interest we pay on deposits and borrowings, but such changes could affect our ability to originate loans and obtain deposits, the fair value of financial assets and liabilities, and the average duration of our assets. Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is the most significant component of our net income, accounting for approximately 79% of total revenues in 2023. Changes in market interest rates, in the shape of the yield curve or in spreads between different market interest rates can have a material effect on our net interest margin. The rates on some interest-earning assets, such as loans and investments, and interest-bearing liabilities, such as deposits and borrowings, adjust concurrently with, or within a brief period after, changes in market interest rates, while others adjust only periodically or not at all during their terms. Thus, changes in market interest rates might, for example, result in an increase in the interest paid on interest-bearing liabilities that is not accompanied by a corresponding increase in the interest earned on interest-earning assets, or the increase in interest earned on interest-earning assets might be at a slower pace, or in a smaller amount, than the increase in interest paid on interest-bearing liabilities, reducing our net interest income and/or net interest margin. In addition, we are dependent on lower-cost, core deposits as our primary source of funding and changes in interest rates could increase our cost of funding, reduce our net interest margin and/or create liquidity challenges. We have policies and procedures designed to manage the risks associated with changes in interest rates and actively manage these risks through hedging and other risk mitigation strategies. However, if our assumptions are wrong or overall economic conditions are significantly different than anticipated, our hedging and other risk mitigation strategies may be ineffective and may adversely impact our business, financial condition and results of operations. An increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay current loan obligations. These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also reduce collateral values and necessitate further increases in the ACL. Changes in interest rates may also affect the average life of loans and certain investment securities, including mortgage-backed securities. Increases in interest rates may extend the average life of fixed rate assets potentially restricting our ability to reinvest in higher yielding alternatives, reduce demand for loans and may result in customers withdrawing their certificates of deposit early. Conversely, decreases in interest rates can result in increased prepayments of loans and certain investment securities, as borrowers or issuers refinance to reduce their borrowing costs. Under those circumstances, we would be subject to reinvestment risk to the extent that we are not able to reinvest the money received from such prepayments at rates that are comparable to the rates on the loans and investment securities that are prepaid. Changes in interest rates also affect the fair value of interest-earning investment securities. Generally, the value of interest-earning investment securities moves inversely with changes in interest rates. Changes in interest rates can affect the fair value of AFS investment securities, with any unrealized gain or loss reflected as a component of AOCI. As a result of rising interest rates in recent years, the fair value of our AFS investment securities declined resulting in unrealized losses of approximately $275 million as of December 31, 2023 and is reflected in AOCI as a reduction to total shareholders' equity. Further increases in interest rates could result in additional unrealized losses on AFS investment securities we hold. Any sale of investment securities with a fair value below amortized cost will result in actual losses, which will adversely affect our results of operations. We cannot predict the nature or timing of any future changes in fiscal and monetary policies or of changes in interest rates; however, policy or interest rate changes could have a material adverse effect on our business, financial condition and results of operations. ### Changes in interest rates can affect demand for our products and services. Movements in interest rates can cause demand for some of our products and services to be cyclical. For example, demand for residential mortgage loans historically has increased during periods when interest rates were declining and historically has decreased during periods when interest rates were rising. As a result, we may need to periodically increase or decrease the size of certain of our product and service offerings, including our personnel, to match increases and decreases in demand and volume. The need to change the scale of our product and service offerings is challenging, and there is often a lag between changes in the interest rate environment and our ability to react to these changes. ***Price fluctuations in securities markets, as well as other market events, such as a disruption in credit and other markets and the abnormal functioning of markets for securities, could have an impact on our results of operations.*** The market value of our securities investments, which include mortgage-backed securities, state and municipal securities and corporate debt securities, are particularly sensitive to price fluctuations and market events. Declines in the values of our securities holdings, combined with adverse changes in the expected cash flows from these investments, could result in impairment. Our investment management and trust services revenue, which is partially based on the value of the underlying investment portfolios, can also be impacted by fluctuations in the securities markets. If the values of those investment portfolios decrease, whether due to factors influencing U.S. or international securities markets, in general, or otherwise, our non-interest income could be negatively impacted. In addition, our ability to sell our securities brokerage services is dependent, in part, upon consumers' level of confidence in securities markets. Securities market volatility or other market disruptions may adversely affect our ability to sell our securities brokerage services, which could negatively affect our fee-based non-interest income, and as a result, our results of operations. ### Our loan portfolio composition subjects us to credit risk. At December 31, 2023, approximately 65% of our loan portfolio consisted of commercial loans, commercial mortgage loans, and residential and commercial construction loans. Commercial loans, commercial mortgage loans and construction loans generally involve a greater degree of credit risk than residential mortgage loans and consumer loans because these loans are likely to be more sensitive to broader economic factors and conditions. Because payments on these loans often depend on the successful operation and management of borrowers' businesses and properties, repayment of such loans may be affected by factors outside of the borrower's control, including adverse conditions in the real estate markets, adverse economic conditions or changes in governmental regulation. In addition, commercial loans typically have relatively large balances and the deterioration of one or a few of these loans could cause a significant increase in the percentage of non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on our business, financial condition and results of operations. ***A significant proportion of our loan portfolio consists of commercial mortgage loans that may pose increased credit risk.*** At December 31, 2023, commercial mortgage loans represented approximately 38% of our loan portfolio. These loans are secured by both owner-occupied and non-owner-occupied commercial real estate. The market for commercial real estate is cyclical and a significant change in the real estate market that results in deterioration in the value of collateral or rental or occupancy rates could adversely affect borrowers’ ability to repay loans. For example, the increased prevalence of remote and hybrid working arrangements as a result of COVID-19 has impacted the demand for commercial office space putting pressure on office rental and occupancy rates. In addition, recent increases in the level of interest rates may make it more difficult for commercial real estate borrowers to refinance or repay maturing loans and may adversely affect the market value of the underlying real estate. Changes in the real estate market could also affect the value of foreclosed assets. Negative developments in the commercial real estate market could result in an increase in non-performing loans, the need for us to increase the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on our business, financial condition and results of operations. ### LIQUIDITY AND CAPITAL RISKS ***Changes in interest rates or disruption in liquidity markets may adversely affect our sources of funding.*** We must maintain sufficient sources of liquidity to meet the demands of our depositors and borrowers, support our operations and meet regulatory requirements. Our liquidity management policies and practices emphasize core deposits and repayments and maturities of loans and investments as our primary sources of liquidity. These primary sources of liquidity can be supplemented by FHLB advances, borrowings from the FRB, proceeds from the sales of loans and investment securities and capital raising activities. Secondary sources of liquidity may be more costly to us than funding provided by lower-cost, core deposit account balances having similar maturities. In addition, adverse changes in our financial condition or results of operations, downgrades in our credit ratings, regulatory actions involving us, or changes in regulatory, industry or market conditions could lead to an increase in the cost of these secondary sources of liquidity, the inability to refinance or replace these secondary funding sources as they mature, or the withdrawal of unused borrowing capacity under these secondary funding sources. We are dependent on customer deposits as our primary source of funding. A substantial majority of our deposits are in non-maturing accounts that customers can withdraw on demand or upon several days' notice. Factors, including competition with bank and non-bank competitors, changes in interest rates, the availability of alternative investment options, customer confidence in the industry and the liquidity needs of deposit customers, can cause fluctuations in both the level and cost of customer deposits. Further, deposits from state and municipal entities, primarily in non-maturing, interest-bearing accounts, are a significant source of deposit funding for us, representing approximately 11% of total deposits at December 31, 2023. State and municipal customers frequently maintain large deposit account balances substantially in excess of the FDIC insurance limit, and these depositors may be more sensitive than other depositors to changes in interest rates. Changes in any of these factors could increase our funding costs, reduce our net interest margin and/or create liquidity challenges. Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of us, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits. As we and other regional banking organizations experienced in 2023, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed "too big to fail" or remove deposits from the banking system entirely. At December 31, 2023, approximately 33% of our deposits were uninsured and we are dependent on these deposits for liquidity. If we are not able to continue to depend primarily on customer deposits to meet our liquidity and funding needs, access secondary, non-deposit funding sources on favorable terms or otherwise fail to manage our liquidity effectively, our ability to continue to grow may be constrained, and our liquidity, operating margins, business, financial condition and results of operations may be materially adversely affected. ***We may need to raise additional capital in the future and such capital may not be available when needed or at all.*** We are required by regulatory agencies to maintain adequate levels of capital. We may need to raise additional capital in the future to meet regulatory or other internal requirements. As a publicly traded company, a likely source of additional funds is the capital markets, accomplished generally through the issuance of equity, both common and preferred stock, and the issuance of debt. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance. We cannot provide any assurance that access to such capital will be available to us on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers or counterparties participating in the capital markets, may materially and adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. If we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. The inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition or results of operations. ***We are subject to capital adequacy standards, and a failure to meet these standards could adversely affect our financial condition.*** The Corporation and Fulton Bank are each subject to capital adequacy and liquidity rules and other regulatory requirements specifying the minimum amounts and types of capital that must be maintained. From time to time, the regulators implement changes to these regulatory capital adequacy and liquidity guidelines. If we fail to meet these minimum capital and liquidity guidelines and other regulatory requirements, we may be restricted in the types of activities we may conduct and may be prohibited from taking certain capital actions, such as making payments on certain capital instruments, paying executive bonuses or dividends, and repurchasing or redeeming capital securities. ### RISKS RELATED TO RISK MANAGEMENT ***We are exposed to many types of operational and other risks, and our framework for managing risks may not be effective in mitigating risk.*** We are exposed to many types of operational risks, including the risk of human error or fraud by employees and other third parties, intentional and inadvertent misrepresentation by loan applicants, borrowers or guarantors, unsatisfactory performance by employees and vendors, clerical and record-keeping errors, operational errors, computer and telecommunications systems malfunctions or failures and reliance on data that may be faulty or incomplete. In an environment characterized by continual, rapid technological change, when we introduce new products and services, or make changes to our information technology systems and processes as we do from time to time, our operational risks are increased. Any of these operational risks could result in the diminished ability to operate one or more of our businesses, financial loss, potential liability to customers, inability to secure insurance, reputational damage and/or regulatory intervention, any or all of which could materially adversely affect us. Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our large transaction volume and necessary dependence upon automated systems to record and process these transactions results in the risk that technical flaws, tampering, or manipulation of those automated systems, arising from events wholly or partially beyond our control, and may give rise to disruption of service to customers and to financial loss or liability. We are also exposed to the risk that our business continuity and data security systems prove to be inadequate. Furthermore, our risk management framework is subject to inherent limitations, and risks may exist, or develop in the future, that we have not identified or anticipated. Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide reasonable, but not absolute, assurances that the objectives of the controls are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition or results of operations. See "Item 9A. Controls and Procedures." ***Loss of, or failure to adequately safeguard, confidential or proprietary information may adversely affect our operations, net income or reputation.*** Our business is highly dependent on information systems and technology and the ability to collect, process, transmit and store significant amounts of confidential information on a daily basis. While we perform some of the functions required to operate our business directly, we also rely on third parties for significant business functions, such as processing customer transactions, providing cloud-based infrastructure, software and data storage services, maintaining customer-facing websites, including our online and mobile banking functions, and developing software for new products and services. These relationships require us to allow third parties to access, store, process and transmit customer information. As a result, we may be subject to cybersecurity risks directly, as well as indirectly, through the vendors to whom we outsource business functions and the downstream service providers of those vendors. Cyber threats could result in unauthorized access, loss or destruction of confidential information or customer data; unavailability, degradation or denial of service; introduction of computer viruses or ransomware; and other adverse events causing us to incur additional costs repairing systems, restoring date or adding new personnel or protection technologies. Cyber threats may also subject us to regulatory investigations, litigation or enforcement actions, require the payment of fines, penalties or damages, or undertaking costly remediation efforts with respect to third parties affected by a cybersecurity incident, all or any of which could adversely affect our business, financial condition or results of operations and/or damage our reputation. Critical infrastructure sectors, including the financial services sector, increasingly have been the targets of cyberattacks. Cyberattacks involving large financial institutions, including denial of service attacks, nation-state cyberattacks, ransomware attacks designed to deny access to key internal resources or systems, and targeted social engineering and email and text message attacks designed to allow unauthorized persons to obtain access to an institution's information systems and data or that of its customers, are becoming more common and increasingly sophisticated. Further, threat actors are increasingly seeking to target vulnerabilities in software systems (and third-party vendors providing those systems) used by large numbers of banking organizations in order to conduct malicious cyber activities. Like other financial institutions, we experience malicious cyber activity on an ongoing basis directed at our websites, computer systems, software, networks and our users. This malicious activity includes attempts at unauthorized access, implantation of computer viruses or malware, and denial of service attacks. We also experience large volumes of phishing and other forms of social engineering attempted for the purpose of perpetuating fraud against us, our employees or our customers. While, to date, malicious cyber activity, cyberattacks and other information security breaches have not had a material adverse impact on us, risk to our systems remains significant. Cybersecurity risks for financial institutions also have evolved as a result of the use of cloud computing and new technologies, devices and delivery channels to transmit and store data and conduct financial transactions. The adoption of new products, services and delivery channels contribute to a more complex operating environment, which enhances operational risk and presents the potential for additional structural vulnerabilities. There can be no assurance that the measures we employ to detect and combat direct or indirect cyber threats will be effective. In addition, because the methods of cyberattacks change frequently or, in some cases, are not recognized until launched, we may be unable to implement effective preventive control measures to proactively address these methods. There can be no assurance that any future third-party vendor data breach would not be material, and if we or a third-party vendor were to experience a cyberattack or information security breach, we could suffer damage to our reputation, productivity losses, response costs associated with investigation and resumption of services, and incur substantial additional expenses, including remediation expenses costs associated with client notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs associated with civil litigation, any of which could have a materially adverse effect on our business, financial condition, results of operations and reputation. Although we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, our insurance coverage may be inapplicable or otherwise insufficient to cover any or all losses. Additionally, account data compromise, malware and ransomware events affecting a broad spectrum of commercial businesses and governmental entities in recent years have resulted in heightened legislative and regulatory focus on privacy, data protection and information security. Changes in laws and regulations may significantly impact our current and planned privacy, data protection and information security-related practices, the collection, use, sharing, retention and safeguarding of consumer and employee information, and current or planned business activities. Compliance with current or future privacy, data protection and information security laws could result in higher compliance and technology costs and could restrict our ability to provide certain products and services that could materially and adversely affect our profitability. ***We are subject to a variety of risks in connection with the origination and sale of loans.*** We originate residential mortgage loans and other loans, such as loans guaranteed, in part, by the SBA, all or portions of which are later sold in the secondary market to government sponsored enterprises or agencies, such as the Federal National Mortgage Association (Fannie Mae) and other non-government sponsored investors. In connection with such sales, we make certain representations and warranties with respect to matters such as the underwriting, origination, documentation or other characteristics of the loans sold. We may be required to repurchase a loan, or to reimburse the purchaser of a loan for any related losses, if it is determined that the loan sold was in violation of representations or warranties made at the time of the sale, and, in some cases, if there is evidence of borrower fraud, in the event of early payment default by the borrower on the loan, or for other reasons. We maintain reserves for potential losses on certain loans sold, however, it is possible that losses incurred in connection with loan repurchases and reimbursement payments may be in excess of any applicable reserves, and we may be required to increase reserves and may sustain additional losses associated with such loan repurchases and reimbursement payments in the future, all of which could have a material adverse effect on our business, financial condition and results of operations. The sale of residential mortgage loans and other loans in the secondary market serves as a source of non-interest income and liquidity for us and can reduce our exposure to interest rate risk. Efforts to reform government sponsored enterprises and agencies, changes in the types of, or standards for, loans purchased by government sponsored enterprises or agencies and other investors, or our failure to maintain our status as an eligible seller of such loans may limit our ability to sell these loans. Our inability to continue to sell these loans could reduce our non-interest income, limit our ability to originate and fund these loans in the future, and make managing interest rate risk more challenging, any of which could have a material adverse effect on our business, financial condition and results of operations. ***Our operational risks include risks associated with third-party vendors and other financial institutions.*** We rely upon certain third-party vendors to provide products and services necessary to maintain our day-to-day operations, including, notably, responsibility for the core processing system that services Fulton Bank. Accordingly, our operations are exposed to the risk that these vendors might not perform in accordance with applicable contractual arrangements or service level agreements. The failure of an external vendor to perform in accordance with applicable contractual arrangements or service level agreements could be disruptive to our operations and could have a material adverse effect on our business, financial condition or results of operations and/or damage our reputation. Further, third-party vendor risk management continues to be a point of regulatory emphasis. A failure to follow applicable regulatory guidance in this area could expose us to regulatory sanctions. The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, execution of transactions or other relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This risk is sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which we interact on a daily basis, and, therefore, could have a material adverse effect on our business, financial condition or results of operations. Any of these operational or other risks could result in our diminished ability to operate one or more of our businesses, financial loss, potential liability to customers, inability to secure insurance, reputational damage and regulatory intervention and could materially adversely affect our business, financial condition and results of operations. ***Climate change may materially adversely affect our business and results of operations.*** We operate in areas where our business and the activities of our customers could be impacted by the effects of climate change, including increased frequency or severity of storms, hurricanes, floods, droughts, and rising sea levels. These effects can disrupt business operations, damage property, devalue assets and change consumer and business preferences, which may adversely affect borrowers, increase credit risk and reduce demand for our products and services. At this time, we have not experienced material losses from climate change; however, we are aware that its impact may increase in the future. Climate change, its effects and the resulting, unknown impacts could have a material adverse effect on our business, financial condition and results of operations. We are also susceptible to policy and regulatory changes with respect to banks' climate risk management practices. For instance, the leadership of the federal banking agencies, including the OCC, have emphasized that climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory expectations regarding banks' risk management practices. The OCC also has appointed its first ever Climate Change Risk Officer and established an internal climate risk implementation committee to assist with these initiatives and support the agency's efforts to enhance its supervision of climate change risk management. If new regulations or supervisory guidance applicable to us came into effect, our compliance costs and other compliance-related risks would be expected to increase and affect our financial position and results of operations. ### RISKS FROM ACCOUNTING AND OTHER ESTIMATES ***Our consolidated financial statements are based in part on assumptions and estimates which, if incorrect, could cause unexpected losses in the future.*** We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ from these estimates. Material estimates subject to change in the near term include, among other items: the allowance for credit losses; the carrying value of goodwill or other intangible assets; the fair value estimates of certain assets and liabilities; and the realization of deferred tax assets and liabilities. These estimates may be adjusted as more current information becomes available and any adjustment may be significant. ### There are risks resulting from the extensive use of models in our business. We rely on quantitative models to measure risks and to estimate certain financial values. We use models in such processes as determining the pricing of various products, measuring interest rate and other market risks, predicting or estimating losses and assessing capital adequacy, as well as to estimate the value of financial instruments and balance sheet items. Our reliance on models continues to increase as rules, guidance, and expectations change. The most recent example of this is the additional models used in the determination of our ACL under CECL. Poorly designed or implemented models present the risk that our business decisions based on information incorporating model output could be adversely affected due to the inaccuracy of that information. Models are often based on historical experience to predict future outcomes, and, as a result, new experiences or events which are not part of historical experience can significantly increase model imprecision and impact model reliability. Model inputs can also include information provided by third parties, such as economic forecasts or macroeconomic variables (unemployment rates, real GDP, etc.) upon which we rely. Some of the decisions that our regulators make, including those related to capital actions, could be affected due to the perception that the quality of the models used to generate the relevant information is insufficient, which could have a negative impact on our ability to take certain actions, including making dividend payments or engaging in share repurchases. ### LEGAL AND REGULATORY COMPLIANCE RISKS ***We are subject to extensive regulation and supervision and may be adversely affected by changes in, or any failure to comply with laws and regulations.*** Virtually every aspect of our operations is subject to extensive regulation and supervision by federal and state regulatory agencies, including the Federal Reserve Board, OCC, FDIC, CFPB, DOJ, UST, SEC, HUD, DOL, state attorneys general and state banking, financial services, securities and insurance regulators. Under this framework, regulatory agencies have broad authority to carry out their supervisory, examination and enforcement responsibilities to address compliance with applicable laws and regulations, including laws and regulations relating to capital adequacy, asset quality, earnings, liquidity, risk management and financial accounting and reporting as well as laws and regulations governing consumer protection, fair lending, privacy, information security and cybersecurity risk management, third-party vendor risk management, AML and sanctions and anti-terrorism laws. Failure to comply with these regulatory requirements, including inadvertent or unintentional violations, may result in the assessment of fines and penalties, the commencement of informal or formal regulatory enforcement actions against us, or regulatory restrictions on our activities. Failure to comply may also affect our ability to grow through acquisitions, discourage institutional investment managers to invest in our securities, result in reputational damage, or increase our costs of doing business. The U.S. Congress, state legislatures and federal and state regulatory agencies periodically review banking and other laws, regulations and policies for possible changes. Changes in applicable federal or state laws, regulations or governmental policies may affect us and our business. The effects of such changes are difficult to predict and may produce unintended consequences, like limiting the types of financial services and products we may offer, altering demand for existing products and services, increasing the ability of non-banks to offer competing financial services and products, increasing compliance burdens, or otherwise adversely affecting our business, financial condition or results of operations. The CFPB, established pursuant to the Dodd-Frank Act, has imposed enforcement actions against a variety of bank and non-bank market participants with respect to a number of consumer financial products and services. These enforcement actions have resulted in those participants expending significant time, money and resources to adjust to the initiatives being pursued by the CFPB. These enforcement actions may also serve as precedent for how the CFPB interprets and enforces consumer protection laws, including practices or acts that are deemed to be unfair, deceptive or abusive, with respect to supervised institutions and may result in the imposition of higher standards of compliance with such laws. Other federal financial regulatory agencies, including the OCC, as well as state attorneys general and state banking agencies and other state financial regulators have also been active in this area with respect to institutions over which they have jurisdiction. Compliance with banking and financial services statutes and regulations also impacts our ability to engage in new activities or to expand existing activities. Federal and state banking agencies possess broad powers to take supervisory actions, as they deem appropriate. These supervisory actions may result in higher capital requirements, higher deposit insurance premiums and limitations on our operations and expansion activities that could have a material adverse effect on our business and profitability. We have dedicated significant time, effort, and expense over time to comply with regulatory and supervisory standards and requirements imposed by our regulators, and we expect that we will continue to do so. If we fail to develop the systems and processes necessary to comply with the standards and requirements imposed by these rules at a reasonable cost, it could have a material adverse effect on our business, financial condition or results of operations. ***From time to time we may be the subject of litigation and governmental or administrative proceedings. Adverse outcomes of any such litigation or proceedings may have a material adverse impact on our business, financial condition and results of operations as well as our reputation.*** Many aspects of our business involve a substantial risk of legal liability. From time to time, we have been named or threatened to be named as a defendant in various lawsuits arising from our business activities and, in some cases, from the activities of companies that we or our subsidiaries acquired. In addition, we are periodically the subject of governmental investigations and other forms of regulatory or governmental inquiry. These lawsuits, investigations, inquiries and other matters could lead to administrative, civil or criminal proceedings, result in adverse judgments, settlements, fines, penalties, restitution, injunctions or other types of sanctions, the need for us to undertake remedial actions, or otherwise alter our business, financial or accounting practices. Substantial legal liability or significant regulatory actions against us could materially adversely affect our business, financial condition and results of operations and cause significant reputational harm. ***Changes in U.S. federal, state or local tax laws may negatively impact our financial performance.*** We are subject to changes in tax laws that could increase our effective tax rate. These law changes may be retroactive to previous periods and, as a result, could negatively affect our current and future financial performance. The Tax Act reduced our federal corporate income tax rate to 21% beginning in 2018. The Tax Act also imposed limitations on our ability to take certain deductions, such as the deduction for FDIC deposit insurance premiums, which partially offset the increase in net income from the lower tax rate. The Inflation Reduction Act of 2022 imposes a 1% excise tax on the value of our shares we repurchase on or after January 1, 2023 that exceeds $1 million in the aggregate during any taxable year, subject to certain adjustments. In addition, a number of the changes to the Tax Code are set to expire in future years. There is substantial uncertainty concerning whether those expiring provisions will be extended or whether future legislation will further revise the Tax Code. Changes to the Tax Code may affect our business, financial condition and results of operations. ***Regulations relating to privacy, information security, and data protection could increase our costs, affect or limit how we collect and use personal information, and adversely affect our business opportunities.*** We are subject to various federal and state privacy, information security, and data protection laws, such as the GLBA, that among other things require privacy disclosures and maintenance of a robust security program that are increasingly subject to change which could have a significant impact on our current and planned privacy, data protection, and information security-related practices; our collection, use, sharing, retention, and safeguarding of consumer or employee information; disclosures and notifications during a cyber or information security incident; and some of our current or planned business activities. Our regulators also hold us responsible for privacy and data protection obligations performed by our third-party service providers while providing services to us, as well as disclosures and notifications during a cyber or information security incident. New or changes to existing laws increase our costs of compliance and business operations and could reduce income from certain business initiatives, including increased privacy-related enforcement activity and higher compliance and technology costs, and could restrict our ability to provide certain products and services. Our failure to comply with privacy, data protection, and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions, and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations. ### RISKS RELATED TO STRATEGIC GROWTH ***We face a variety of risks in connection with completed and potential acquisitions.*** We may from time to time seek to supplement organic growth through acquisitions of banks, branches or other financial businesses or assets. Potential acquisitions are typically subject to regulatory or other approvals, and there can be no assurance that we would be able to obtain any such approvals in a timely manner, without restrictive conditions or at all. Even if required approvals are obtained, acquisitions involve numerous risks, including lower than expected performance, higher than expected costs, difficulties related to integration, diversion of management's attention from other business activities, the potential loss of key employees, changes in relationships with customers, disruption of the operations of the acquired business and our business, exposure to potential asset quality issues and unknown or contingent liabilities of the acquired business and changes in banking or tax laws or regulations that may affect the acquired business. The success of any future acquisitions we may consummate will depend on, among other things, our ability to realize the expected revenue increases, cost savings, strategic gains, increases in geographic or product presence, and/or other anticipated benefits. If we are not able to successfully achieve these objectives, the anticipated benefits of the subject acquisition may not be realized fully or at all or may take longer to realize than expected and the subject acquisition could have a material adverse effect on our business, financial condition and results of operations. On July 9, 2021, President Biden issued an executive order on promoting competition in the U.S. economy. Among other initiatives, the executive order encouraged the federal banking agencies to review their current merger oversight practices under the BHCA and the Bank Merger Act and adopt a plan for revitalization of such practices. In January 2024, the OCC issued a notice of proposed rulemaking related to the framework for evaluating mergers involving national banks like Fulton Bank. There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers, including the OCC's recent rule proposal, can be finalized and the prospects for such action are uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities. ### Acquisitions may dilute shareholder value. Future mergers or acquisitions, if any, may involve cash, debt or equity securities as transaction consideration. Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our stock's tangible book value and net income per common share may occur in connection with any future transaction. We cannot say with any certainty that we will be able to consummate, or if consummated, successfully integrate any future acquisitions, or that we will not incur disruptions or unexpected expenses in integrating such acquisitions. Furthermore, failure to realize the expected revenue increases, cost savings, strategic gains, increases in geographic or product presence, and/or other anticipated benefits from pending or future acquisitions could have a material adverse effect on our business, financial condition and results of operations. ***If the goodwill that we have recorded or will record in the future in connection with our acquisitions becomes impaired, it could have a negative impact on our results of operations.*** We have supplemented our internal growth with strategic acquisitions of banks, branches and other financial services companies. In the future, we may seek to supplement organic growth through additional acquisitions. If the purchase price of an acquired company exceeds the fair value of the company's net assets, the excess is carried on the acquirer's balance sheet as goodwill. As of December 31, 2023, we had $553 million of goodwill recorded on our balance sheet. We are required to evaluate goodwill for impairment at least annually. Write-downs of the amount of any impairment, if necessary, are to be charged to earnings in the period in which the impairment occurs. There can be no assurance that future evaluations of goodwill will not result in impairment charges. ### We may not be able to achieve our growth plans. Our business plan includes the pursuit of profitable growth. To achieve profitable growth, we may pursue new lines of business or offer new products or services, all of which can involve significant costs, uncertainties and risks. Any new activity we pursue may require a significant investment of time and resources and may not generate the anticipated return on that investment. In addition, we may not be able to effectively implement and manage any new activities. External factors, such as the need to comply with additional regulations, the availability, or introduction, of competitive alternatives in the market, and changes in customer preferences may also impact the successful implementation of any new activity. Any new activity could have a significant impact on the effectiveness of our system of internal controls. Sustainable growth requires that we manage risks by balancing loan and deposit growth at acceptable levels of risk, maintaining adequate liquidity and capital, hiring and retaining qualified employees, and successfully managing the costs and implementation risks with respect to strategic projects and initiatives. If we are not able to adequately identify and manage the risks associated with new activities, our business, financial condition and results of operations could be materially and adversely impacted. ### RISKS RELATED TO COMPETITION ***Our ability to attract and retain qualified employees is critical to our success.*** Our employees are our most important resource. Competition for qualified personnel is intense in many areas of the financial services industry. We endeavor to attract talented and diverse new employees and retain and motivate our existing employees to assist in executing our growth, acquisition and business strategies. We also seek to retain proven, experienced senior employees augmented from time to time by external hires, to provide continuity of succession of our executive management team. Losses of or changes in our current executive officers or other key personnel, or the inability to recruit and retain qualified personnel in the future, could materially and adversely affect our financial condition and results of operations. ***We face strong competition from financial services companies and other companies that offer banking services, which could materially and adversely affect our business.*** The financial services industry has become even more competitive as a result of legislative, regulatory, and technological changes and continued banking consolidation, which may increase in connection with current economic, market, and political conditions. We face substantial competition in all phases of our operations from a variety of competitors, including national banks, regional banks, community banks and Fintechs. Many of our competitors offer the same banking services that we offer and our success depends on our ability to adapt our products and services to evolving industry standards and customer preferences. In addition to product and service offerings, we compete based on a number of other factors, including financial and other terms, underwriting standards, technological capabilities, brand, and reputation. Increased competition in our market may result in reduced new loan production and/or decreased deposit balances or less favorable terms on loans and leases and/or deposit accounts. We also face competition from many other types of financial institutions, including without limitation, non-bank specialty lenders, insurance companies, private investment funds, investment banks and other financial intermediaries, and some of these competitors may not be subject to the same regulatory requirements that we are. Many of our competitors have significantly greater resources, established customer bases, more locations, and longer operating histories. Should competition in the financial services industry intensify, our ability to market our products and services may be adversely affected. If we are unable to attract and retain banking customers, we may be unable to grow or maintain the levels of our loans and deposits, and our financial condition and results of operations may be adversely affected as a result. Ultimately, we may not be able to compete successfully against current and future competitors. ***Failure to keep pace with technological change could adversely affect our business.*** The financial services industry experiences continuous technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. The costs of implementing new technology, including personnel, can be high, in both absolute and relative terms, and we may not achieve intended benefits of new technology initiatives. Moreover, the implementation of new technology can expose us to new or increased operational risks. For example, our implementation of certain new technologies, such as those related to artificial intelligence, machine learning and automated decision making, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively. Many of our competitors have substantially greater resources to invest in technological improvements or are technology focused start-ups with internally developed cloud-native systems that offer improved user interfaces and experiences. In addition, new payment, credit and investment and wealth management services developed and offered by non-bank or non-traditional competitors pose an increasing threat to the products and services traditionally provided by financial institutions like us. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers, or effectively deploy new technologies to improve efficiency. In addition, we depend on internal and outsourced technology to support all aspects of our business operations. Interruption or failure of these systems creates a risk of business loss as a result of adverse customer experiences and possible diminishing of our reputation, damage claims or civil fines. Failure to successfully keep pace with technological change affecting the financial services industry or to successfully implement core processing strategies could have a material adverse impact on our business and, in turn, our financial condition and results of operations. ### RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES ***We are a bank holding company and rely on dividends and other payments from our subsidiaries for substantially all of our revenue and our ability to make dividend payments, distributions and other payments.*** We are a bank holding company, a separate and distinct legal entity from our bank and non-bank subsidiaries, and we depend on the payment of dividends and other payments and distributions from our subsidiaries, principally Fulton Bank, for substantially all of our revenues. As a result, our ability to make dividend payments on our common and preferred stock depends primarily on compliance with applicable federal regulatory requirements and the receipt of dividends and other distributions from our subsidiaries. There are various regulatory and prudential supervisory restrictions, which may change from time to time, that impact the ability of Fulton Bank to pay dividends or make other payments to us. There can be no assurance that Fulton Bank will be able to pay dividends at past levels, or at all, in the future. If we do not receive sufficient cash dividends or are unable to borrow from Fulton Bank, then we may not have sufficient funds to pay dividends to our shareholders, repurchase our common stock or service our debt obligations. ***We may reduce or discontinue the payment of dividends on, or repurchases of, our common stock.*** We have pursued a strategy of capital management under which we have sought to deploy capital through stock repurchases and dividends on our common stock, in a manner that is beneficial to our shareholders. Our shareholders are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. We are not required to pay dividends on, or effect repurchases of, our common stock and may reduce or eliminate our common stock dividend and/or share repurchases in the future. Our ability to pay dividends to our stockholders is subject to the restrictions set forth in Pennsylvania law, by the Federal Reserve, and by certain covenants contained in our subordinated debentures. Notification to the Federal Reserve is also required prior to our declaring and paying a cash dividend to our shareholders during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. We may not pay a dividend if the Federal Reserve objects or until such time as we receive approval from the Federal Reserve or we no longer need to provide notice under applicable regulations. In addition, we may be restricted by applicable law or regulation or actions taken by our regulators, now or in the future, from paying dividends to, or repurchasing shares of our common stock from, our shareholders. We cannot provide assurance that we will continue paying dividends on, or repurchase shares of, our common stock at current levels or at all. A reduction or discontinuance of dividends on our common stock or our share repurchases could have a material adverse effect on the market price of our common stock. ## Cybersecurity As filed, 5,641 characters. The Corporation's cybersecurity risk management program is integrated into our enterprise risk management program and is designed to expeditiously identify, analyze and protect against security threats to its computer systems, software, networks, storage devices and other technology assets. Our management team, with input from our Board of Directors, proactively manages the Corporation's cybersecurity risks to avoid or minimize the impacts of attacks by unauthorized parties attempting to obtain access to confidential information, destroy data, disrupt service, sabotage systems or cause other damage. Specifically, the Corporation has appointed a CISO to maintain a comprehensive information security program. Our strategy includes a continuous improvement mindset along with a defense in depth approach to cybersecurity. We utilize industry standards that include the NIST Cybersecurity Framework and the Financial Services Sector Cybersecurity Profile. Our layered security architecture consists of innovative technology to detect, prevent, and mitigate cybersecurity threats. Ongoing proactive analysis of cyber threat intelligence ensures that we are taking the appropriate counter measures to defend against the latest threats. We use monitoring and preventive controls to detect and respond swiftly to data breaches and cyber threats involving our systems. We regularly evaluate our systems and controls and implement upgrades as necessary. We also attempt to reduce our exposure to our vendors' data privacy and cyber incidents by performing initial vendor due diligence that is updated periodically for critical vendors, negotiating service level standards with vendors, negotiating for indemnification from vendors for confidentiality and data breaches, and limiting third-party access to the least privileged level necessary to perform outsourced functions. The additional cost to us of data and cybersecurity monitoring and protection systems and controls includes the cost of hardware and software, third-party technology providers, consulting and forensic testing firms, insurance premium costs, legal fees and the cost of personnel who focus a substantial portion of their responsibilities on data security and cybersecurity. The Corporation uses an integrated cybersecurity incident response plan ICIRP designed to enable management to respond timely to cybersecurity incidents, coordinate such responses within the Corporation and with our Board of Directors, notify law enforcement and other government agencies, and notify customers and employees. The ICIRP provides a documented framework for identifying and responding to actual or potential cybersecurity incidents, including timely notification of and escalation to the CIRST. The CIRST facilitates coordination across key stakeholders of the Corporation. The Corporation's CISO and key members of management are members of the ICIRP. The Corporation provides the CISO and the information security team the latest tools and techniques to protect the confidentiality, integrity and availability of the Corporation's data for the benefit of our customers, employees and shareholders. We periodically engage third-party consultants to assess the effectiveness of our strategy, tools and techniques, and overall information security program. Independent oversight and assurance activities specifically include internal audits, vulnerability assessments and penetration testing. The Corporation's cybersecurity professionals are well-trained on how to protect customer and employee information through ongoing education and awareness initiatives. The Corporation maintains a third-party risk management program designed to identify, analyze and monitor risks, including cybersecurity risks, associated with vendors and outside service providers. Our vendor risk management team collaborates closely with the information security team to ensure third parties meet certain information security control requirements. Our information security team proactively monitors our internal systems and email gateways for phishing email attacks. Remote connections are also assessed and monitored given a portion of our workforce works remotely. Our Board of Directors provides direction and oversight over the Corporation's enterprise-wide risk management program, including risks related to cybersecurity. The Risk Committee is responsible for overseeing the Corporation's information security program and execution. The Risk Committee promotes collaboration and cooperation between various elements within the Corporation relative to information security. Cybersecurity incidents are managed through the ICIRP, which provides direction to management allowing for the timely transfer of information throughout the organization. Our policy requires material incidents to be reported within four business days after an incident is determined to be material with the materiality determination to be completed without unreasonable delay. Management's Disclosure Committee has developed a plan to facilitate making timely determinations as to whether and when incidents should be disclosed. If a material incident occurs, the Corporation will describe in detail the material aspects and nature, scope and timing of the incident, along with the impact to its financial condition and results of operations. To our knowledge, previous cybersecurity incidents have not materially affected the Corporation, its business strategy, financial condition or results of operation. With regard to the possible impact of future cybersecurity threats or incidents, see "Item 1A. Risk Factors." ## Properties As filed, 437 characters. The Corporation's financial center properties as of December 31, 2023 totaled 208 financial centers. Of those financial centers, 88 were owned and 120 were leased. Remote service facilities (mainly stand-alone ATMs) are excluded from these totals. The Corporation's headquarters is located in Lancaster, Pennsylvania. The Corporation owns two dedicated operations centers, located in East Petersburg, Pennsylvania and Mantua, New Jersey. ## Legal proceedings As filed, 192 characters. The information presented in the "Legal Proceedings" section of "Note 20 - Commitments and Contingencies" in the Notes to Consolidated Financial Statements is incorporated herein by reference. ## Management's discussion and analysis As filed, 77,445 characters. This Management's Discussion relates to the Corporation, a financial holding company registered under the BHCA and corporation 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 Annual Report on Form 10-K. ### OVERVIEW The Corporation is a financial holding company, which, through its wholly-owned banking subsidiary, provides a full range of retail and commercial financial services 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 NIM, 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: *(dollars in thousands, except per share)* | | 2023 | 2022 | 2021 | | --- | ---: | ---: | ---: | | Net income | **$284,280** | $286,981 | $275,497 | | Net income available to common shareholders | **$274,032** | $276,733 | $265,220 | | Net income available to common shareholders per share (diluted) | **$1.64** | $1.67 | $1.62 | | Operating net income available to common shareholders per share(1) | **$1.71** | $1.76 | $1.62 | | Return on average assets | **1.04%** | 1.10% | 1.05% | | Operating return on average assets(1) | **1.08%** | 1.16% | 1.05% | | Return on average common shareholders' equity | **11.24%** | 11.69% | 10.64% | | Return on average common shareholders' equity (tangible)(1) | **15.21%** | 16.08% | 13.58% | | Net interest margin(2) | **3.42%** | 3.27% | 2.78% | | Efficiency ratio(1) | **60.5%** | 60.5% | 63.1% | | Non-performing assets to total assets | **0.56%** | 0.66% | 0.60% | | Net charge-offs (recoveries) to average loans | **0.14%** | 0.04% | 0.07% | (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 "Supplemental Reporting of Non-GAAP Based Financial Measures" section of Management's Discussion. (2) Presented on a FTE basis using a 21% federal tax rate and statutory interest expense disallowances. #### Fed Funds Rate Since March 15, 2022, the FOMC increased the target rate for the Fed Funds Rate eleven times to address elevated levels of inflation, placing the target range at 5.25% - 5.50% as of February 29, 2024. #### LIBOR Transition U.S. dollar LIBOR ceased as of June 30, 2023. The Corporation has transitioned all of its products away from LIBOR. For most financial products, the most common alternative reference rates have been SOFR-based benchmarks. This is true for both new originations and legacy LIBOR contracts that were subject to amendment or a transition by their terms. #### Financial Highlights Following is a summary of the financial highlights for the year ended December 31, 2023: - *Net Income Available to Common Shareholders and Net Income Per Share* - Net income available to common shareholders was $274.0 million for the year ended December 31, 2023, a $2.7 million decrease compared to $276.7 million for the same period in 2022. - *Net Interest Income -* Net interest income was $854.3 million for the year ended December 31, 2023, an increase of $72.7 million, or 9.3%, compared to the same period in 2022. The increase was driven by higher interest rates and higher average loan balances. - *Net Interest Margin* - For the year ended December 31, 2023, NIM increased to 3.42%, or 15 bps compared to the same period in 2022, driven by a 157 bps increase in the yield on net loans, a 16 bps increase in the yield on investment securities and a 298 bps increase in the yield on other interest-earning assets, partially offset by a 139 bps increase in the cost of total interest-bearing liabilities and noninterest-bearing deposits. - *Net Loans* - Average net loans increased $1.8 billion, or 9.3%, for the year ended December 31, 2023 compared to the same period in 2022. The increase in average net loans was largely driven by increases in average residential mortgage loans, average commercial and industrial loans, average commercial mortgage loans, average consumer loans, and average real estate construction loans of $818.2 million, $366.6 million, $352.3 million, $178.8 million, and $68.8 million, respectively. - *Deposits* - Average deposits decreased $297.7 million, or 1.4%, for the year ended December 31, 2023 compared to the same period in 2022. The decrease in average deposits was largely due to a decrease in average noninterest-bearing demand deposits of $1.6 billion, partially offset by increases in average brokered deposits, average time deposits and average savings and money market deposits of $585.4 million, $552.4 million and $157.9 million, respectively. - *Borrowings and Other Interest-Bearing Liabilities* - Average borrowings and other interest-bearing liabilities increased $1.4 billion for the year ended December 31, 2023 compared to the same period in 2022. The increase in borrowings and other interest-bearing liabilities was primarily due to increases in average FHLB advances and Federal funds purchased of $727.9 million and $475.3 million, respectively. - *Asset Quality* - Non-performing assets decreased $23.5 million, or 13.2%, as of December 31, 2023 compared to December 31, 2022, and were 0.56% and 0.66% of total assets as of those dates, respectively. Net charge-offs to average loans outstanding was 0.14% for the year ended December 31, 2023, compared to net charge-offs to average loans outstanding of 0.04% for the same period in 2022. Net charge-offs of $29.1 million for the year ended December 31, 2023 included a charge-off of $13.3 million during the first quarter of 2023 for a commercial office loan. The provision for credit losses was $54.0 million for the year ended December 31, 2023, compared to $28.0 million for the same period of 2022. Included in the December 31, 2022 provision for credit losses was the CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio. - *Non-Interest Income* - Non-interest income, excluding investment securities losses, for the year ended December 31, 2023 increased $1.3 million, or 0.6%, compared to the same period in 2022. The increase in non-interest income, excluding investment securities losses, was primarily due to an increase in commercial banking revenues of $5.4 million, driven by an increase in commercial customer interest rate swap fee income reflected in capital markets and an increase in wealth management of $2.7 million, partially offset by decreases in mortgage banking income of $3.8 million and in consumer banking fees of $2.3 million, largely due to a decline in overdraft fees. - *Non-Interest Expense* - Non-interest expense for the year ended December 31, 2023 increased $45.5 million, or 7.2%, compared to the same period in 2022. Excluding merger-related expenses of $10.3 million for the year ended December 31, 2022, non-interest expense increased $55.8 million, or 9.0%, for the year ended December 31, 2023 compared to the same period in 2022. The increase in non-interest expense, excluding merger-related expenses, was largely driven by increases of $20.5 million in salaries and employee benefits expense, $13.0 million in FDIC insurance expense, primarily due to the adoption of a final rule to increase base deposit insurance assessment rates effective January 1, 2023 and the special assessment of $6.5 million charged to recover the loss to the DIF in connection with the closures of certain banks in 2023, $10.6 million in other outside services expense, $6.2 million in data processing and software expense and $2.1 million in marketing expense. The $20.5 million increase in salaries and employee benefits expense was primarily driven by annual merit increases, an increase in the number of employees, higher healthcare claims expenses and higher pension expense. - *Income Taxes* - The Corporation's ETR was 18.5% for the year ended 2023, compared to 17.3% for the same period in 2022. 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 programs. #### Supplemental Reporting of Non-GAAP Based Financial Measures This Annual Report on Form 10-K 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. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure follow: *(dollars in thousands, except per share data)* *Operating net income available to common shareholders* | | 2023 | 2022 | 2021 | | --- | ---: | ---: | ---: | | Net income available to common shareholders | **$274,032** | $276,733 | $265,220 | | Plus: Core deposit intangible amortization | **2,308** | 1,029 | — | | Plus: Merger-related expenses | **—** | 10,328 | — | | Plus: CECL Day 1 Provision expense | **—** | 7,954 | — | | Plus: Interest rate derivative transition valuation(1) | **1,855** | — | — | | Plus: FDIC special assessment | **6,494** | — | — | | Plus: FultonFirst initiative expenses | **3,197** | — | — | | Less: Tax impact of adjustments | **(2,909)** | (4,055) | — | | Operating net income available to common shareholders (numerator) | **$284,977** | $291,989 | $265,220 | | Weighted average shares (diluted) (denominator) | **166,769** | 165,472 | 163,307 | | Operating net income available to common shareholders, per share (diluted) | **$1.71** | $1.76 | $1.62 | 40 *(dollars in thousands)* | Operating return on average assets | 2023 | 2022 | 2021 | | --- | ---: | ---: | ---: | | Net income | **$284,280** | $286,981 | $275,497 | | Plus: Core deposit intangible amortization | **2,308** | 1,029 | — | | Plus: Merger-related expenses | **—** | 10,328 | — | | Plus: CECL Day 1 Provision expense | **—** | 7,954 | — | | Plus: Interest rate derivative transition valuation(1) | **1,855** | — | — | | Plus: FDIC special assessment | **6,494** | — | — | | Plus: FultonFirst initiative expenses | **3,197** | — | — | | Less: Tax impact of adjustments | **(2,909)** | (4,055) | — | | Operating net income (numerator) | **$295,225** | $302,237 | $275,497 | | Total average assets | **$27,229,704** | $25,971,484 | $26,170,333 | | Less: Average net core deposit intangible | **(5,996)** | (3,915) | — | | Total average operating assets (denominator) | **$27,223,708** | $25,967,569 | $26,170,333 | | Operating return on average assets | **1.08%** | 1.16% | 1.05% | | **Return on average common shareholders' equity (tangible)** | | | | | Net income available to common shareholders | **$274,032** | $276,733 | $265,220 | | Plus: Intangible amortization | **2,944** | 1,731 | 589 | | Plus: Merger-related expenses | **—** | 10,328 | — | | Plus: CECL Day 1 Provision expense | **—** | 7,954 | — | | Plus: Interest rate derivative transition valuation(1) | **1,855** | — | — | | Plus: FDIC special assessment | **6,494** | — | — | | Plus: FultonFirst initiative expenses | **3,197** | — | — | | Less: Tax impact of adjustments | **(3,043)** | (4,203) | (127) | | Adjusted net income available to common shareholders (numerator) | **$285,479** | $292,543 | $265,682 | | Average shareholders' equity | **$2,631,249** | $2,560,323 | $2,685,946 | | Less: Average goodwill and intangible assets | **(561,858)** | (548,102) | (536,621) | | Less: Average preferred stock | **(192,878)** | (192,878) | (192,878) | | Average tangible common shareholders' equity (denominator) | **$1,876,513** | $1,819,343 | $1,956,447 | | Return on average common shareholders' equity (tangible) | **15.21%** | 16.08% | 13.58% | 41 *(dollars in thousands)* | Efficiency ratio | 2023 | 2022 | 2021 | | --- | ---: | ---: | ---: | | Non-interest expense | **$679,207** | $633,728 | $617,830 | | Less: Amortization of tax credit investments | **—** | (2,783) | (6,187) | | Less: Intangible amortization | **(2,944)** | (1,731) | (589) | | Less: Merger-related expenses | **—** | (10,328) | — | | Less: Debt extinguishment gain (cost) | **720** | **—** | (33,249) | | Less: FDIC special assessment | **(6,494)** | **—** | — | | Less: FultonFirst initiative expenses | **(3,197)** | **—** | — | | Non-interest expense (numerator) | **$667,292** | $618,886 | $577,805 | | Net interest income | **$854,286** | $781,634 | $663,730 | | Tax equivalent adjustment | **17,811** | 14,995 | 12,296 | | Plus: Total non-interest income | **227,678** | 227,130 | 273,745 | | Plus: Interest rate derivative transition valuation(1) | **1,855** | — | — | | Less: Investment securities losses (gains), net | **733** | 27 | (33,516) | | Total revenue (denominator) | **$1,102,363** | $1,023,786 | $916,255 | | Efficiency ratio | **60.5%** | **60.5%** | **63.1%** | (1) Resulting from the reference rate transition from LIBOR to SOFR in the Corporation's commercial customer interest rate swap program. ### CRITICAL ACCOUNTING POLICIES The following is a summary of those accounting policies that the Corporation considers to be most important to the presentation of its financial condition and results of operations, because they require management's most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain. See additional information regarding these critical accounting policies in "Note 1 - Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data." Allowance for Credit Losses - The ACL is based on estimated losses over the remaining expected life of loans. Management's determination of the appropriateness of the reserve is based on periodic evaluations of the loan portfolio, lending-related commitments, current and forecasted economic factors and other relevant factors. *Loans Evaluated Collectively*: Loans evaluated collectively for expected credit losses include all accruing loans and non-accrual loans where the total commitment amount is less than $1 million. In determining the ACL, the Corporation uses three inputs to model the estimate. These inputs are the PD rate which estimates the likelihood that a borrower will be unable to meet its debt obligations, the LGD rate which estimates the percentage of an asset that is lost if a borrower defaults, and the EAD balance which estimates the gross exposure under a facility upon default. The PD models were developed based on historical default data. Both internal and external variables are evaluated in the process. The main internal variables are risk rating or delinquency history and indicators of default. The external variables are economic variables obtained from third-party forecasts. The PD models are transition matrix models that utilize historical credit observations and incorporate economic forecasts to project future default rates using a linear regression methodology for each loan segment. The LGD model uses a vintage loss approach that estimates LGD rates based on the bank’s historical loss experience for each loan segment. The EAD incorporates a prepayment rate and applies the PD rates to estimate the projected exposure at default across the life of each loan. The ACL is calculated by applying the LGD to the EAD at each period across the life of each loan. The ACL incorporates the Corporation’s historical credit observations, current conditions, and reasonable and supportable forecasts that are based on the projected performance of specific economic variables that are statistically correlated with historical PD rates. The reasonable and supportable forecast extends to 24 months and reverts back to an average PD rate using a straight-line reversion methodology over a 12 month period. The ACL is highly sensitive to the economic forecasts used to develop the reserve. As such, the calculation of the ACL is inherently subjective and requires management to exercise judgment. The ACL may include qualitative adjustments intended to capture the impact of uncertainties not reflected in the quantitative models. In determining qualitative adjustments, management considers changes in national, regional, and local economic and business conditions and their impact on the lending environment, including underwriting standards and other factors affecting credit losses over the remaining life of each loan. The ACL for loans was $293.4 million and $269.4 million on December 31, 2023 and December 31, 2022, respectively. The increase of $24.0 million was primarily a result of increased loan growth, changes to the macroeconomic outlook and risk migration. The Corporation performs loan loss sensitivity analysis on a quarterly basis to determine the impact of varying economic conditions based on third-party forecasts. Our sensitivity analysis does not represent management's view of expected credit losses at the balance sheet date. One scenario identified includes a slowdown in near-term economic growth. This scenario resulted in a hypothetical increase to the ACL of approximately $21.6 million. For further discussion of the methodology used in the determination of the ACL, refer to Note 1, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data." Income Taxes - Income tax expense is based upon income before taxes, adjusted for the effect of certain tax-exempt income, non-deductible expenses and credits. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. DTAs or deferred tax liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate. The Corporation must also evaluate the likelihood that DTAs will be recovered through future taxable income. If any such assets are determined to be more likely than not unrecoverable, then a valuation allowance must be recognized. The assessment of the carrying value of DTAs is based on certain assumptions, the changes of which could have a material impact on the Corporation's consolidated financial statements. On a periodic basis, the Corporation evaluates its income tax expense based on tax laws, regulations and financial reporting considerations and records adjustments as appropriate. Recognition and measurement of tax positions is based upon management's evaluations of current taxing authorities' examinations of the Corporation's tax returns, recent positions taken by the taxing authorities on similar transactions and the overall tax environment. Income tax expense was $64.4 million and $60.0 million for the years ended December 31, 2023 and December 31, 2022, respectively. ### Recently Issued Accounting Standards For a description of accounting standards recently issued, but not yet adopted by the Corporation, see "Recently Issued Accounting Standards," in "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data." ### RESULTS OF OPERATIONS ### Net Interest Income Net interest income is the most significant component of the Corporation's net income. The Corporation manages the risk associated with changes in interest rates through the techniques described within Item "7A. Quantitative and Qualitative Disclosures About Market Risk." The following table provides a comparative average balance sheet and net interest income analysis for 2023 compared to 2022 and 2021. Interest income and yields are presented on an FTE basis using a 21% federal tax rate as well as statutory interest expense disallowances. The discussion following this table is based on these tax-equivalent amounts. *(dollars in thousands)* | ASSETS Interest-earning assets: | 2023 Average Balance | Interest (1) | Yield/ Rate | 2022 Average Balance | Interest (1) | Yield/ Rate | 2021 Average Balance | Interest (1) | Yield/ Rate | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Net loans(2) | **$20,929,302** | **$1,166,376** | **5.57%** | $19,152,740 | $765,603 | 4.00% | $18,627,787 | $644,387 | 3.46% | | Investment securities(3) | **4,210,010** | **109,325** | **2.59** | 4,364,627 | 106,115 | 2.43 | 3,673,250 | 86,325 | 2.35 | | Other interest-earning assets | **387,360** | **15,346** | **3.96** | 829,705 | 8,115 | 0.98 | 2,054,165 | 4,996 | 0.24 | | Total interest-earning assets | **25,526,672** | **1,291,047** | **5.06** | 24,347,072 | 879,833 | 3.61 | 24,355,202 | 735,708 | 3.02 | | Noninterest-earning assets: | | | | | | | | | | | Cash and due from banks | **215,649** | | | 156,050 | | | 165,942 | | | | Premises and equipment | **219,315** | | | 220,982 | | | 228,708 | | | | Other assets | **1,553,284** | | | 1,505,277 | | | 1,686,053 | | | | Less: ACL - loans (4) | **(285,216)** | | | (257,897) | | | (265,572) | | | | Total Assets | **$27,229,704** | | | $25,971,484 | | | $26,170,333 | | | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | | | | | | | | Interest-bearing liabilities: | | | | | | | | | | | Demand deposits | **$5,582,930** | **$62,494** | **1.12%** | $5,593,942 | $8,219 | 0.15% | $5,979,479 | $3,662 | 0.06% | | Savings and money market deposits | **6,616,087** | **122,340** | **1.85** | 6,458,165 | 16,642 | 0.26 | 6,306,967 | 4,936 | 0.08 | | Brokered deposits | **847,795** | **43,635** | **5.15** | 262,359 | 4,097 | 1.56 | 286,901 | 1,096 | 0.38 | | Time deposits | **2,170,245** | **63,735** | **2.94** | 1,617,804 | 14,871 | 0.92 | 1,939,446 | 20,311 | 1.05 | | Total interest-bearing deposits | **15,217,057** | **292,204** | **1.92** | 13,932,270 | 43,829 | 0.31 | 14,512,793 | 30,005 | 0.21 | | Borrowings and other interest-bearing liabilities | **2,771,330** | **126,746** | **4.54** | 1,358,357 | 39,375 | 2.89 | 1,297,963 | 29,677 | 2.29 | | Total interest-bearing liabilities | **17,988,387** | **418,950** | **2.32** | 15,290,627 | 83,204 | 0.54 | 15,810,756 | 59,682 | 0.38 | | Noninterest-bearing liabilities: | | | | | | | | | | | Demand deposits | **5,939,799** | | | 7,522,304 | | | 7,211,153 | | | | Other liabilities | **670,269** | | | 598,230 | | | 462,478 | | | | Total Liabilities | **24,598,455** | | | 23,411,161 | | | 23,484,387 | | | | Total deposits | **21,156,856** | | **1.38%** | 21,454,574 | | 0.20% | 21,723,946 | | 0.14% | | Total interest-bearing liabilities and noninterest-bearing deposits | **23,928,186** | | **1.75%** | 22,812,931 | | 0.36% | 23,021,909 | | 0.26% | | Shareholders' equity | **2,631,249** | | | 2,560,323 | | | 2,685,946 | | | | Total Liabilities and Shareholders' Equity | **$27,229,704** | | | $25,971,484 | | | $26,170,333 | | | | Net interest income/net interest margin (FTE) | | **872,097** | **3.42%** | | 796,629 | 3.27% | | 676,026 | 2.78% | | Tax equivalent adjustment | | **(17,811)** | | | (14,995) | | | (12,296) | | | Net interest income | | **$854,286** | | | $781,634 | | | $663,730 | | (1) Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances. (2) Average balances include non-performing loans. (3) Average balances include amortized historical cost for AFS securities; the related unrealized holding gains (losses) are included in other assets. (4) ACL - loans relates to the ACL for net loans and does not include the ACL for OBS credit exposures, which is included in other liabilities. #### Comparison of 2023 to 2022 The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volumes) and changes in yields and rates: *(dollars in thousands)* | Interest income on: | 2023 vs. 2022 Increase (decrease) due to change in Volume | Yield/Rate | Net | | --- | ---: | ---: | ---: | | Net loans(1) | **$76,608** | **$324,165** | **$400,773** | | Investment securities | **(3,763)** | **6,973** | **3,210** | | Other interest-earning assets | **(6,298)** | **13,529** | **7,231** | | Total interest income | **$66,547** | **$344,667** | **$411,214** | | Interest expense on: | | | | | Demand deposits | **$(17)** | **$54,292** | **$54,275** | | Savings and money market deposits | **421** | **105,277** | **105,698** | | Brokered deposits | **19,464** | **20,074** | **39,538** | | Time deposits | **6,577** | **42,287** | **48,864** | | Borrowings and other interest-bearing liabilities | **56,410** | **30,961** | **87,371** | | Total interest expense | **$82,855** | **$252,891** | **$335,746** | (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 the direct changes that are attributable to each component. Compared to 2022, FTE total interest income for 2023 increased $411.2 million due to increases of $344.7 million attributable to changes in yield and $66.5 million attributable to changes in volume. The increase due to changes in yield was largely due to an increase in net loans. The increase due to changes in volume was due to an increase in average net loans, partially offset by decreases in average other interest-earning assets and investment securities. The yield on average interest-earning assets increased 145 bps in 2023 compared to 2022. In 2023, interest expense increased $335.7 million compared to 2022, primarily driven by an increase in rate on interest-bearing liabilities resulting in a $252.9 million increase in interest expense. The increase in interest expense attributable to rate was driven by the increases in savings and money market deposits, interest-bearing demand deposits, time deposits, borrowings and other interest-bearing liabilities and brokered deposits. The increase in interest expense attributable to volume was $82.9 million primarily driven by increases in borrowings and other interest-bearing liabilities and brokered deposits. The rate on average interest-bearing liabilities increased 178 bps in 2023 compared to 2022. Average loans and average FTE yields, by type, are summarized in the following table: *(dollars in thousands)* | | 2023 Balance | Yield | 2022 Balance | Yield | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Real estate - commercial mortgage | **$7,876,076** | **5.97%** | $7,523,806 | 4.00% | $352,270 | 4.7% | | Commercial and industrial | **4,596,742** | **6.27** | 4,230,133 | 4.13 | 366,609 | 8.7 | | Real estate - residential mortgage | **5,079,739** | **3.76** | 4,261,527 | 3.38 | 818,212 | 19.2 | | Real estate - home equity | **1,060,396** | **6.95** | 1,101,142 | 4.60 | (40,746) | (3.7) | | Real estate - construction | **1,247,336** | **6.81** | 1,178,550 | 4.14 | 68,786 | 5.8 | | Consumer | **748,089** | **5.94** | 569,305 | 5.11 | 178,784 | 31.4 | | Leases and other loans(1) | **320,924** | **4.37** | 288,277 | 6.04 | 32,647 | 11.3 | | Total loans | **$20,929,302** | **5.57%** | $19,152,740 | 4.00% | $1,776,562 | 9.3% | (1) Consists of equipment lease financing, overdrafts and net origination fees and costs. During 2023, average loans increased $1.8 billion, or 9.3%, compared to 2022. The increase was largely driven by increases in average residential mortgage loans, average commercial and industrial loans, average commercial mortgage loans, average consumer loans and average construction loans of $818.2 million, $366.6 million, $352.3 million, $178.8 million and $68.8 million, respectively. The yield on total loans increased 157 bps to 5.57% in 2023 compared to 4.00% in 2022. Average deposits and interest rates, by type, are summarized in the following table: *(dollars in thousands)* | | 2023 Balance | Rate | 2022 Balance | Rate | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Noninterest-bearing demand | **$5,939,799** | **—%** | $7,522,304 | —% | $(1,582,505) | (21.0)% | | Interest-bearing demand | **5,582,930** | **1.12** | 5,593,942 | 0.15 | (11,012) | (0.2) | | Savings and money market deposits | **6,616,087** | **1.85** | 6,458,165 | 0.26 | 157,922 | 2.4 | | Total demand deposits and savings and money market deposits | **18,138,816** | **1.02** | 19,574,411 | 0.13 | (1,435,595) | (7.3) | | Brokered deposits | **847,795** | **5.15** | 262,359 | 1.56 | 585,436 | N/M | | Time deposits | **2,170,245** | **2.94** | 1,617,804 | 0.92 | 552,441 | 34.1 | | Total deposits | **$21,156,856** | **1.38%** | $21,454,574 | 0.20% | $(297,718) | (1.4)% | The cost of total deposits increased 118 bps to 1.38% in 2023 compared to 0.20% in 2022, primarily due to rising interest rates and a change in mix of deposits. Average deposits decreased $297.7 million driven by a $1.6 billion decrease in average noninterest-bearing demand deposits, partially offset by increases in average brokered deposits, average time deposits and average savings and money market deposits of $585.4 million, $552.4 million and $157.9 million, respectively. Average borrowings and interest rates, by type, are summarized in the following table: *(dollars in thousands)* | | 2023 Balance | Rate | 2022 Balance | Rate | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Federal funds purchased | **$566,379** | **5.30%** | $91,125 | 3.21% | $475,254 | N/M | | Federal Home Loan Bank advances | **922,164** | **5.05** | 194,295 | 3.77 | 727,869 | N/M | | Senior debt and subordinated debt | **539,726** | **3.96** | 564,337 | 3.94 | (24,611) | (4.4) | | Other borrowings and other interest-bearing liabilities(1) | **743,061** | **3.77** | 508,600 | 1.34 | 234,461 | 46.1 | | Total borrowings and other interest-bearing liabilities | **$2,771,330** | **4.54%** | $1,358,357 | 2.89% | $1,412,973 | 104.0% | (1) Includes repurchase agreements, short-term promissory notes, capital leases and interest-bearing collateral. Average borrowings and other interest-bearing liabilities increased $1.4 billion during 2023 compared to 2022, primarily as a result of an increase in average net loans and a decrease in average total deposits. Average FHLB advances, average Federal funds purchased and average other borrowings and other interest-bearing liabilities increased $727.9 million, $475.3 million and $234.5 million, respectively. See "Note 10 - Borrowings" of the Notes to Consolidated Financial Statements for additional details. ### Non-Interest Income The following table presents the components of non-interest income: *(dollars in thousands)* | Commercial banking: | 2023 | 2022 | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | | Merchant and card | **$29,205** | $28,276 | $929 | 3.3% | | Cash management | **23,340** | 23,729 | (389) | (1.6) | | Capital markets | **15,654** | 12,256 | 3,398 | 27.7 | | Other commercial banking | **12,961** | 11,518 | 1,443 | 12.5 | | Total commercial banking | **81,160** | 75,779 | 5,381 | 7.1 | | Wealth management | **75,541** | 72,843 | 2,698 | 3.7 | | Consumer banking: | | | | | | Card | **26,343** | 24,472 | 1,871 | 7.6 | | Overdraft | **11,416** | 15,480 | (4,064) | (26.3) | | Other consumer banking | **9,438** | 9,544 | (106) | (1.1) | | Total consumer banking | **47,197** | 49,496 | (2,299) | (4.6) | | Mortgage banking | **10,388** | 14,204 | (3,816) | (26.9) | | Other | **14,125** | 14,835 | (710) | (4.8) | | Non-interest income before investment securities gains (losses) | **228,411** | 227,157 | 1,254 | 0.6 | | Investment securities gains (losses), net | **(733)** | (27) | (706) | N/M | | Total Non-Interest Income | **$227,678** | $227,130 | $548 | 0.2% | Non-interest income before investment securities gains (losses) increased $1.3 million, or 0.6%, during 2023 compared to 2022. The increase in non-interest income was primarily due to increases in commercial banking revenues of $5.4 million, largely driven by an increase in commercial customer interest rate swap fee income reflected in capital markets, an increase in wealth management of $2.7 million, due to an increase in assets under management, and an increase in the cash surrender value of bank owned life insurance agreements of $1.7 million, reflected in other non-interest income, partially offset by decreases in mortgage banking income of $3.8 million, mainly due to lower sales volumes and lower gains on sales margins, consumer banking income of $2.3 million, driven largely by decreases in overdraft fees, and an $1.8 million reduction in other non-interest income to reflect market valuation movement in certain of the Corporation's legacy commercial customer back-to-back interest rate swap transactions resulting from the transition from LIBOR to SOFR. ### Non-Interest Expense The following table presents the components of non-interest expense: *(dollars in thousands)* | | 2023 | 2022 | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | | Salaries and employee benefits | **$377,417** | $356,884 | $20,533 | 5.8% | | Data processing and software | **66,471** | 60,255 | 6,216 | 10.3 | | Net occupancy | **58,019** | 56,195 | 1,824 | 3.2 | | Other outside services | **47,724** | 37,152 | 10,572 | 28.5 | | FDIC insurance | **25,565** | 12,547 | 13,018 | 103.8 | | Equipment | **14,390** | 14,033 | 357 | 2.5 | | Marketing | **9,004** | 6,885 | 2,119 | 30.8 | | Professional fees | **8,392** | 9,123 | (731) | (8.0) | | Intangible amortization | **2,944** | 1,731 | 1,213 | 70.1 | | Merger-related expenses | **—** | 10,328 | (10,328) | N/M | | Other | **69,281** | 68,595 | 686 | 1.0 | | Total Non-Interest Expense | **$679,207** | $633,728 | $45,479 | 7.2% | Non-interest expense in 2023 increased $45.5 million, or 7.2%, compared to 2022. Excluding merger-related expenses of $10.3 million in 2022, non-interest expense increased $55.8 million, or 9.0%, in 2023 compared to 2022. The increase in non-interest expense, excluding merger-related expenses, was primarily due to increases of $20.5 million in salaries and employee benefits expense, $13.0 million in FDIC insurance expense, primarily due to the adoption of a final rule to increase base deposit insurance assessment rates effective January 1, 2023, and the special assessment of $6.5 million charged to recover the loss to the DIF in connection with the closures of certain banks in 2023, $10.6 million in other outside services expense largely due to a number of corporate initiatives, $6.2 million in data processing and software expense due to ongoing investment in technology and customer growth and $2.1 million in marketing expense primarily due to a targeted customer deposit acquisition program and brand marketing campaigns. The $20.5 million increase in salaries and employee benefits expense was largely due to annual merit increases, an increase in the number of employees, higher healthcare claims expense and higher pension expense. ### Income Taxes Income tax expense for 2023 was $64.4 million, a $4.4 million increase compared to 2022. The ETR was 18.5% in 2023 compared to 17.3% in 2022. The increase in income tax expense in 2023 resulted primarily from the higher ETR. 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 TCIs that generate tax credits under various federal programs. #### Comparison of 2022 to 2021 The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volumes) and changes in yields and rates: *(dollars in thousands)* | Interest income on: | 2022 vs. 2021 Increase (decrease) due to change in Volume | Yield/Rate | Net | | --- | ---: | ---: | ---: | | Net loans(1) | $18,540 | $102,676 | $121,216 | | Investment securities | 16,759 | 3,031 | 19,790 | | Other interest-earning assets | (4,364) | 7,483 | 3,119 | | Total interest income | $30,935 | $113,190 | $144,125 | | Interest expense on: | | | | | Demand deposits | $(256) | $4,813 | $4,557 | | Savings and money market deposits | 123 | 11,583 | 11,706 | | Brokered deposits | (101) | 3,102 | 3,001 | | Time deposits | (3,115) | (2,325) | (5,440) | | Borrowings | 1,463 | 8,235 | 9,698 | | Total interest expense | $(1,886) | $25,408 | $23,522 | (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 the direct changes that are attributable to each component. Compared to 2021, FTE total interest income for 2022 increased $144.1 million, or 19.6%, primarily due to an increase of $113.2 million attributable to changes in yield, of which $102.7 million related to net loans. The yield on average interest-earning assets increased 59 bps in 2022 compared to 2021. In 2022, interest expense increased $23.5 million compared to 2021, primarily driven by increases in rate on interest-bearing liabilities resulting in a $25.4 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, borrowings, interest-bearing demand deposits and brokered deposits. Average loans and average FTE yields, by type, are summarized in the following table: *(dollars in thousands)* | | 2022 Balance | Yield | 2021 Balance | Yield | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Real estate - commercial mortgage | $7,523,806 | 4.00% | $7,149,712 | 3.14% | $374,094 | 5.2% | | Commercial and industrial | 4,230,133 | 4.13 | 5,052,856 | 2.73 | (822,723) | (16.3) | | Real estate - residential mortgage | 4,261,527 | 3.38 | 3,501,072 | 3.40 | 760,455 | 21.7 | | Real estate - home equity | 1,101,142 | 4.60 | 1,141,042 | 3.85 | (39,900) | (3.5) | | Real estate - construction | 1,178,550 | 4.14 | 1,078,350 | 3.08 | 100,200 | 9.3 | | Consumer | 569,305 | 5.11 | 456,427 | 3.99 | 112,878 | 24.7 | | Equipment finance leasing | 249,595 | 3.99 | 252,104 | 3.89 | (2,509) | (1.0) | | Other (1) | 38,682 | — | (3,776) | — | 42,458 | N/M | | Total loans | $19,152,740 | 4.00% | $18,627,787 | 3.46% | $524,953 | 2.8% | (1) Consists of overdrafts and net origination fees and costs. Average loans increased $525.0 million, or 2.8%, compared to 2021. The increase was largely driven by increases in average residential mortgage loans, average commercial mortgage loans, average consumer loans and average construction loans of $760.5 million, $374.1 million, $112.9 million and $100.2 million, respectively, partially offset by decreases in average commercial and industrial loans of $822.7 million primarily due to the repayment of Paycheck Protection Program loans upon forgiveness by the SBA. Average investment securities increased $691.4 million, or 18.8%, in comparison to 2021, which contributed a $16.8 million increase in FTE interest income. The yield on investment securities increased 8 bps in comparison to 2021, resulting in a $3.0 million increase in FTE interest income. Yield on other interest-earning assets increased 74 bps in comparison to 2021, contributing $7.5 million to FTE interest income, partially offset by a decrease in the average balance of other interest-earning assets of $1.2 billion, contributing a $4.4 million decrease to FTE interest income. Average deposits and interest rates, by type, are summarized in the following table: *(dollars in thousands)* | | 2022 Balance | Rate | 2021 Balance | Rate | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Noninterest-bearing demand | $7,522,304 | —% | $7,211,153 | —% | $311,151 | 4.3% | | Interest-bearing demand | 5,593,942 | 0.15 | 5,979,479 | 0.06 | (385,537) | (6.4) | | Savings and money market deposits | 6,458,165 | 0.26 | 6,306,967 | 0.08 | 151,198 | 2.4 | | Total demand and savings and money market deposits | 19,574,411 | 0.13 | 19,497,599 | 0.04 | 76,812 | 0.4 | | Brokered deposits | 262,359 | 1.56 | 286,901 | 0.38 | (24,542) | (8.6) | | Time deposits | 1,617,804 | 0.92 | 1,939,446 | 1.05 | (321,642) | (16.6) | | Total deposits | $21,454,574 | 0.20% | $21,723,946 | 0.14% | $(269,372) | (1.2)% | The cost of interest-bearing deposits increased 10 bps, to 0.31%, from 0.21% in 2021, due to an increase in rates. The rate on total demand deposits and savings and money market deposits increased to 0.13%, compared to 0.04% for 2021. Average interest-bearing demand deposits and average time deposits decreased $385.5 million and $321.6 million, respectively, during 2022. Average noninterest-bearing demand deposits and average savings and money market deposits increased $311.2 million and $151.2 million, respectively, during 2022 compared to 2021. Average borrowings and interest rates, by type, are summarized in the following table: *(dollars in thousands)* | Borrowings: | 2022 Balance | Rate | 2021 Balance | Rate | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Federal funds purchased | $91,125 | 3.21% | $— | —% | $91,125 | N/M | | Federal Home Loan Bank advances | 194,295 | 3.77 | 126,677 | 1.80 | 67,618 | 53.4 | | Senior debt and subordinated debt | 564,337 | 3.94 | 657,386 | 4.07 | (93,049) | (14.2) | | Other borrowings and other interest-bearing liabilities(1) | 508,600 | 1.34 | 513,900 | 0.12 | (5,300) | (1.0) | | Total borrowings and other interest-bearing liabilities | $1,358,357 | 2.89% | $1,297,963 | 2.29% | $60,394 | 4.7% | (1) Includes repurchase agreements, short-term promissory notes and capital leases. Total average borrowings and other interest-bearing liabilities increased $60.4 million, or 4.7%, and the rate on total average borrowings and other interest-bearing liabilities increased 60 bps, to 2.89%, compared to 2021. Borrowings increased primarily as a result of the decrease in deposits. Short-term Federal funds purchased and FHLB advances increased $91.1 million and $67.6 million, respectively. Senior debt and subordinated debt decreased $93.0 million primarily due to the $65.0 million repayment of senior notes on March 16, 2022 and the redemption of $17.0 million of TruPS in September 2022. See "Note 10 - Borrowings" of the Notes to Consolidated Financial Statements for additional details. #### Non-Interest Income The following table presents the components of non-interest income: *(dollars in thousands)* | Commercial banking: | 2022 | 2021 | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | | Merchant and card | $28,276 | $26,121 | $2,155 | 8.3% | | Cash management | 23,729 | 20,865 | 2,864 | 13.7 | | Capital markets | 12,256 | 9,381 | 2,875 | 30.6 | | Other commercial banking | 11,518 | 12,322 | (804) | (6.5) | | Total commercial banking | 75,779 | 68,689 | 7,090 | 10.3 | | Wealth management | 72,843 | 71,798 | 1,045 | 1.5 | | Consumer banking: | | | | | | Card | 24,472 | 23,505 | 967 | 4.1 | | Overdraft | 15,480 | 12,844 | 2,636 | 20.5 | | Other consumer banking | 9,544 | 9,195 | 349 | 3.8 | | Total consumer banking | 49,496 | 45,544 | 3,952 | 8.7 | | Mortgage banking | 14,204 | 33,576 | (19,372) | (57.7) | | Other | 14,835 | 20,622 | (5,787) | (28.1) | | Non-interest income before investment securities gains (losses) | 227,157 | 240,229 | (13,072) | (5.4) | | Investment securities gains (losses), net | (27) | 33,516 | (33,543) | (100.1) | | Total Non-Interest Income | $227,130 | $273,745 | $(46,615) | (17.0)% | Non-interest income before investment securities gains (losses) decreased $13.1 million, or 5.4%, in 2022, as compared to 2021. The primary contributors to this net decrease were as follows: - Mortgage banking income decreased $19.4 million, or 57.7%, compared to 2021, mainly due to reduced gains on sales of mortgage loans. - Other non-interest income decreased $5.8 million, or 28.1%, compared to 2021, primarily due to a decline in income from equity method investments. - Total commercial banking income increased $7.1 million, or 10.3%, compared to 2021, driven mainly by increases in commercial customer interest rate swap fees reflected in capital markets, cash management fees and merchant and card revenues. - Total consumer banking income increased $4.0 million, or 8.7%, compared to 2021, driven primarily by increases in overdraft fees and card income. - Investment securities gains decreased $33.5 million, primarily due to the gain on sale of Visa Shares, as part of the balance sheet restructuring undertaken in 2021. #### Non-Interest Expense The following table presents the components of non-interest expense: *(dollars in thousands)* | | 2022 | 2021 | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | | Salaries and employee benefits | $356,884 | $329,138 | $27,746 | 8.4% | | Data processing and software | 60,255 | 56,440 | 3,815 | 6.8 | | Net occupancy | 56,195 | 53,799 | 2,396 | 4.5 | | Other outside services | 37,152 | 34,194 | 2,958 | 8.7 | | Equipment | 14,033 | 13,807 | 226 | 1.6 | | FDIC insurance | 12,547 | 10,665 | 1,882 | 17.6 | | Professional fees | 9,123 | 9,647 | (524) | (5.4) | | Marketing | 6,885 | 5,275 | 1,610 | 30.5 | | Intangible amortization | 1,731 | 589 | 1,142 | N/M | | Debt extinguishment | — | 33,249 | (33,249) | N/M | | Merger-related expenses | 10,328 | — | 10,328 | N/M | | Other | 68,595 | 71,027 | (2,432) | (3.4) | | Total non-interest expense | $633,728 | $617,830 | $15,898 | 2.6% | Non-interest expense increased $15.9 million, or 2.6% compared to 2021. Non-interest expense, excluding merger-related expenses of $10.3 million, was $623.4 million, an increase of $5.6 million, or 0.9% compared to non-interest expense of $617.8 million in 2021. Excluding merger-related expenses, the increase in non-interest expense compared to 2021 was primarily due to increases in salaries and employee benefits of $27.7 million, attributable to higher employee base salaries of $20.2 million and deferred loan origination expense of $14.3 million, partially offset by lower commissions expense of $8.8 million. Increases in data processing and software expenses, other outside services and net occupancy expense in 2022 of $3.8 million, $3.0 million and $2.4 million, respectively, also contributed to the increase in non-interest expense compared to 2021. These increases were partially offset by a decrease of $33.2 million in debt extinguishment expense in 2021. ### Income Taxes Income tax expense for 2022 was $60.0 million, a $1.3 million increase compared to 2021. The Corporation's ETR was 17.3% for the year ended 2022, compared to 17.6% for the same period in 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 programs. ### FINANCIAL CONDITION The table below presents condensed consolidated ending balance sheets. *(dollars in thousands)* | Assets | December 31, 2023 | 2022 | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | | Cash and cash equivalents | **$549,710** | $681,921 | $(132,211) | (19.4)% | | FRB and FHLB Stock | **124,405** | 130,186 | (5,781) | (4.4) | | Loans held for sale | **15,158** | 7,264 | 7,894 | 108.7 | | Investment securities | **3,666,274** | 3,968,023 | (301,749) | (7.6) | | Net loans, less ACL - loans | **21,057,690** | 20,010,181 | 1,047,509 | 5.2 | | Net premises and equipment | **222,881** | 225,141 | (2,260) | (1.0) | | Goodwill and intangibles | **560,687** | 560,824 | (137) | — | | Other assets | **1,375,110** | 1,348,162 | 26,948 | 2.0 | | Total Assets | **$27,571,915** | $26,931,702 | $640,213 | 2.4% | | **Liabilities and Shareholders' Equity** | | | | | | Deposits | **$21,537,623** | $20,649,538 | $888,085 | 4.3% | | Borrowings | **2,487,526** | 2,871,207 | (383,681) | (13.4) | | Other liabilities | **786,627** | 831,200 | (44,573) | (5.4) | | Total Liabilities | **24,811,776** | 24,351,945 | 459,831 | 1.9 | | Total Shareholders' Equity | **2,760,139** | 2,579,757 | 180,382 | 7.0 | | Total Liabilities and Shareholders' Equity | **$27,571,915** | $26,931,702 | $640,213 | 2.4% | ### Investment Securities The table below presents the carrying amount of investment securities: *(dollars in thousands)* | Available for Sale | December 31, 2023 | 2022 | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | | U.S. Government securities | **$42,161** | $218,485 | $(176,324) | (80.7)% | | U.S. Government-sponsored agency securities | **1,010** | 1,008 | 2 | 0.2 | | State and municipal securities | **1,072,013** | 1,105,712 | (33,699) | (3.0) | | Corporate debt securities | **440,551** | 422,309 | 18,242 | 4.3 | | Collateralized mortgage obligations | **111,434** | 134,033 | (22,599) | (16.9) | | Residential mortgage-backed securities | **196,795** | 212,698 | (15,903) | (7.5) | | Commercial mortgage-backed securities | **534,388** | 552,522 | (18,134) | (3.3) | | Total available for sale securities | **$2,398,352** | $2,646,767 | $(248,415) | (9.4)% | | **Held to Maturity** | | | | | | Residential mortgage-backed securities | **$407,075** | $457,325 | $(50,250) | (11.0)% | | Commercial mortgage-backed securities | **860,847** | 863,931 | (3,084) | (0.4) | | Total held to maturity securities | **$1,267,922** | $1,321,256 | $(53,334) | (4.0)% | | Total investment securities | **$3,666,274** | $3,968,023 | $(301,749) | (7.6)% | Compared to December 31, 2022, total AFS securities at December 31, 2023 decreased $248.4 million, or 9.4%, primarily due to decreases in U.S. Government securities, state and municipal securities, collateralized mortgage obligations, commercial mortgage-backed securities and residential mortgage-backed securities of $176.3 million $33.7 million, $22.6 million, $18.1 million and $15.9 million, respectively. At December 31, 2023, total HTM securities decreased $53.3 million, or 4.0%, primarily driven by a decrease in residential mortgage-backed securities of $50.3 million due to payments. ### Loans The following table presents ending loans outstanding, by type: *(dollars in thousands)* | | December 31, 2023 | 2022 | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | | Real estate - commercial mortgage | **$8,127,728** | $7,693,835 | $433,893 | 5.6% | | Commercial and industrial(1) | **4,545,552** | 4,473,004 | 72,548 | 1.6 | | Real estate - residential mortgage | **5,325,923** | 4,737,279 | 588,644 | 12.4 | | Real estate - home equity | **1,047,184** | 1,102,838 | (55,654) | (5.0) | | Real estate - construction | **1,239,075** | 1,269,925 | (30,850) | (2.4) | | Consumer | **729,318** | 699,179 | 30,139 | 4.3 | | Leases and other loans(2) | **336,314** | 303,487 | 32,827 | 10.8 | | Net loans | **$21,351,094** | $20,279,547 | $1,071,547 | 5.3% | (1) Includes unearned income of $41.0 thousand and $4.5 million as of December 31, 2023 and 2022, respectively. (2) Includes unearned income of $38.0 million and $24.8 million as of December 31, 2023 and 2022, respectively. During 2023, net loans increased $1.1 billion, or 5.3%, compared to December 31, 2022, primarily due to increases in residential mortgage loans, commercial mortgage loans and commercial and industrial loans of $588.6 million, $433.9 million and $72.5 million, respectively, partially offset by decreases in home equity loans and construction loans of $55.7 million and $30.9 million, respectively. The Corporation does not have a significant concentration of credit risk with any single borrower. As of December 31, 2023, approximately $9.4 billion, or 43.9%, of the loan portfolio was comprised of commercial mortgage loans and construction loans. 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. The following table summarizes the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios: | | December 31, 2023 | 2022 | | --- | ---: | ---: | | Real estate(1) | **46.6%** | 43.9% | | Health care | **6.6** | 6.5 | | Manufacturing | **6.1** | 6.8 | | Agriculture | **5.6** | 5.4 | | Other services | **4.5** | 4.7 | | Construction(2) | **4.1** | 4.7 | | Hospitality and food services | **3.6** | 3.6 | | Retail | **3.3** | 3.1 | | Wholesale trade | **3.2** | 3.1 | | Educational services | **2.9** | 2.8 | | Professional, scientific and technical services | **2.2** | 1.8 | | Arts, entertainment and recreation | **1.9** | 2.0 | | Transportation and warehousing | **1.7** | 1.3 | | Finance and Insurance | **1.3** | 0.9 | | Administrative and Support | **1.1** | 1.1 | | Public administration | **1.0** | 1.2 | | Other | **4.3** | 7.1 | | Total | **100.0%** | 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. Real estate commercial office represents 3% of total loans. (2) Includes commercial loans to borrowers engaged in the construction industry. The following table presents the changes in non-accrual loans for the years ended December 31: *(dollars in thousands)* | | Commercial and Industrial | Real Estate - Commercial Mortgage | Real Estate - Construction | Real Estate - Residential Mortgage | Consumer and Real Estate - Home Equity | Equipment Lease Financing | Total | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Balance at December 31, 2021 | $30,141 | $52,815 | $901 | $35,269 | $8,900 | $15,640 | $143,666 | | Additions | 27,627 | 66,212 | 1,104 | 6,151 | 6,363 | 1,188 | 108,645 | | Payments | (27,260) | (27,394) | (637) | (5,440) | (2,941) | (1,390) | (65,062) | | Charge-offs | (2,390) | (12,473) | — | (66) | (4,412) | (2,131) | (21,472) | | Transfers to OREO | (22) | (3,461) | — | — | (297) | — | (3,780) | | Transfers to accrual status | (980) | (5,538) | — | (9,620) | (1,416) | — | (17,554) | | Balance at December 31, 2022 | **27,116** | **70,161** | **1,368** | **26,294** | **6,197** | **13,307** | **144,443** | | Additions | **46,358** | **31,004** | **438** | **792** | **8,416** | **1,520** | **88,528** | | Payments | **(24,276)** | **(38,296)** | **(465)** | **(1,881)** | **(2,245)** | **(554)** | **(67,717)** | | Charge-offs | **(9,246)** | **(17,999)** | **—** | **(62)** | **(7,514)** | **(4,380)** | **(39,201)** | | Transfers to OREO | **—** | **—** | **—** | **(1,793)** | **—** | **—** | **(1,793)** | | Transfers to accrual status | **—** | **(65)** | **—** | **(2,526)** | **(49)** | **—** | **(2,640)** | | Balance at December 31, 2023 | **$39,952** | **$44,805** | **$1,341** | **$20,824** | **$4,805** | **$9,893** | **$121,620** | During 2023, non-accrual loans decreased $22.8 million, or 15.8%, largely due to payments and charge-offs, partially offset by additions to non-accrual loans. During 2023, non-accrual loans as a percentage of net loans decreased to 0.57%, compared to 0.71% as of December 31, 2022. The following table presents non-performing assets: *(dollars in thousands)* | | December 31, 2023 | 2022 | 2021 | | --- | ---: | ---: | ---: | | Non-accrual loans(1)(2) | **$121,620** | $144,443 | $143,666 | | Loans 90 days or more past due and still accruing(2) | **31,721** | 27,463 | 8,453 | | Total non-performing loans and leases | **153,341** | 171,906 | 152,119 | | OREO(3) | **896** | 5,790 | 1,817 | | Total non-performing assets | **$154,237** | $177,696 | $153,936 | | Non-accrual loans to total loans | **0.57%** | 0.71% | 0.78% | | Non-performing loans to total loans | **0.72%** | 0.85% | 0.83% | | Non-performing assets to total assets | **0.56%** | 0.66% | 0.60% | | ACL to non-performing loans | **191%** | 157% | 164% | (1) The amount of interest income on non-accrual loans that was recognized in 2023, 2022 and 2021was approximately $1.5 million, $2.2 million and $1.3 million, respectively. (2) Accrual of interest is generally discontinued when a loan becomes 90 days past due. In certain cases a loan may be placed on non-accrual status prior to being 90 days delinquent if there is an indication that the borrower is having difficulty making payments or the Corporation believes it is probable that all amounts will not be collected according to the contractual terms of the agreement. When interest accruals are discontinued, unpaid interest previously credited to income is reversed. Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently for six consecutive months or the loan is considered to be adequately secured and in the process of collection. Certain loans, primarily adequately collateralized residential mortgage loans, may continue to accrue interest after reaching 90 days past due. (3) Excludes $10.9 million, $6.0 million and $6.4 million of residential mortgage properties for which formal foreclosure proceedings were in process as of December 31, 2023, 2022 and 2021, respectively. The following table presents non-performing loans: *(dollars in thousands)* | | December 31, 2023 | 2022 | 2021 | | --- | ---: | ---: | ---: | | Real estate - commercial mortgage | **$46,527** | $72,634 | $54,044 | | Commercial and industrial | **41,020** | 28,288 | 30,629 | | Real estate - residential mortgage | **42,029** | 46,509 | 39,399 | | Real estate - home equity | **10,079** | 8,809 | 10,924 | | Real estate - construction | **2,876** | 1,368 | 901 | | Consumer | **799** | 991 | 582 | | Leases and other loans | **10,011** | 13,307 | 15,640 | | Total non-performing loans | **$153,341** | $171,906 | $152,119 | | Non-performing loans to total loans | **0.72%** | 0.85% | 0.83% | The following table presents the amortized cost basis of loans modified to borrowers experiencing financial difficulty: *(dollars in thousands)* | | December 31, 2023 | | --- | ---: | | Real estate - commercial mortgage | **$2,944** | | Commercial and industrial | **11,970** | | Real estate - residential mortgage | **9,092** | | Total | **$24,006** | There were no loans modified due to borrowers experiencing financial difficulty that defaulted during 2023. The following table summarizes OREO, by property type: *(dollars in thousands)* | | December 31, 2023 | 2022 | 2021 | | --- | ---: | ---: | ---: | | Commercial properties | **$165** | $3,881 | $943 | | Residential properties | **229** | 482 | 669 | | Undeveloped land | **502** | 1,427 | 205 | | Total OREO | **$896** | $5,790 | $1,817 | The Corporation's ability to identify potential problem loans in a timely manner is important to maintaining an adequate ACL. For commercial and industrial loans, commercial mortgage loans 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 leases and other loans is based on payment history through the monitoring of delinquency levels and trends. Total internally risk-rated loans were $13.7 billion and $13.2 billion as of December 31, 2023 and 2022, respectively, of which $0.9 million and $0.8 million were criticized and classified loans, respectively. The following table presents criticized and classified loans, or those with internal risk ratings of special mention(1) or substandard or lower(2) for commercial mortgages, commercial and industrial loans and construction loans to commercial borrowers, by class segment: *(dollars in thousands)* | | Special Mention(1) December 31, 2023 | 2022 | Increase (Decrease) $% | | Substandard or Lower(2) December 31, 2023 | 2022 | Increase (Decrease) $% | | Total Criticized and Classified Loans December 31, 2023 | 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Real estate - commercial mortgage | **$302,553** | $306,381 | $(3,828) | (1.2)% | **$224,774** | $184,014 | $40,760 | 22.2% | **$527,327** | $490,395 | | Commercial and industrial | **135,837** | 133,943 | 1,894 | 1.4 | **196,500** | 95,546 | 100,954 | 105.7 | **332,337** | 229,489 | | Real estate - construction(3) | **38,520** | 21,603 | 16,917 | 78.3 | **26,771** | 10,601 | 16,170 | 152.5 | **65,291** | 32,204 | | Total | **$476,910** | $461,927 | $14,983 | 3.2% | **$448,045** | $290,161 | $157,884 | 54.4% | **$924,955** | $752,088 | | % of total risk-rated loans | **3.5%** | 3.5% | | | **3.3%** | 2.2% | | | **6.8%** | 5.7% | (1) Considered "criticized" loans by banking regulators. (2) Considered "classified" loans by banking regulators. (3) Excludes construction - other. Total loans risk-rated special mention increased by $15.0 million, or 3.2%, compared to December 31, 2022. Total loans risk- rated substandard or lower increased by $157.9 million, or 54.4%, compared to December 31, 2022, primarily due to borrower performance in both commercial and industrial loans and commercial real estate loans. Total criticized and classified loans increased $172.9 million, or 23.0%, compared to December 31, 2022. The following table presents, by class segment, a summary of delinquency status and rates, as a percentage of total loans that do not have internal risk ratings: *(dollars in thousands)* | | Delinquent(1) December 31, 2023 $% | | December 31, 2022 $% | | Non-performing(2) December 31, 2023 $% | | December 31, 2022 $% | | Total December 31, 2023 $% | | December 31, 2022 $% | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Consumer and real estate - home equity | **$20,345** | **1.15%** | $16,141 | 0.90% | **$10,878** | **0.61%** | $9,800 | 0.54% | **$31,223** | **1.76%** | $25,941 | 1.44% | | Real estate - residential mortgage | **59,983** | **1.13** | 65,270 | 1.38 | **42,029** | **0.79** | 46,509 | 0.98 | **102,012** | **1.92** | 111,779 | 2.36 | | Real estate - construction | **4,636** | **0.37** | 3,520 | 0.28 | **1,535** | **0.12** | — | — | **6,171** | **0.50** | 3,520 | 0.28 | | Leases and other loans | **868** | **0.26** | 470 | 0.16 | **10,011** | **2.98** | 13,307 | 4.45 | **10,879** | **3.23** | 13,777 | 4.61 | | Total | **$85,832** | **0.99%** | $85,401 | 1.05% | **$64,453** | **0.74%** | $69,616 | 0.86% | **$150,285** | **1.74%** | $155,017 | 1.92% | (1) Includes accruing loans 30 days to 89 days past due. (2) Includes accruing loans 90 days or more past due and non-accrual loans and leases. ### Loans and Allowance for Credit Losses The Corporation accounts for the credit risk associated with lending activities through the ACL and the provision for credit losses. The following table presents the activity in the ACL: *(dollars in thousands)* | | December 31, 2023 | December 31, 2022 | December 31, 2021 | | --- | ---: | ---: | ---: | | Net loans | **$21,351,094** | $20,279,547 | $18,325,350 | | Average balance of net loans | **$20,929,302** | $19,152,740 | $18,627,787 | | Balance of ACL at beginning of period | **$269,366** | $249,001 | $277,567 | | CECL Day 1 provision expense | **—** | 7,954 | — | | Initial purchased credit deteriorated loans | **—** | 1,135 | — | | Loans charged off: | | | | | Commercial and industrial | **(9,246)** | (2,390) | (15,337) | | Real estate - commercial mortgage | **(17,999)** | (12,473) | (8,726) | | Consumer and real estate - home equity | **(7,514)** | (4,412) | (3,309) | | Real estate - residential mortgage | **(62)** | (66) | (1,290) | | Real estate - construction | **—** | — | (39) | | Leases and other loans | **(4,380)** | (2,131) | (2,251) | | Total loans charged off | **(39,201)** | (21,472) | (30,952) | | Recoveries of loans previously charged off: | | | | | Commercial and industrial | **3,473** | 5,893 | 9,587 | | Real estate - commercial mortgage | **1,076** | 3,860 | 2,474 | | Consumer and real estate - home equity | **3,198** | 2,581 | 2,345 | | Real estate - residential mortgage | **421** | 425 | 375 | | Real estate - construction | **858** | 574 | 1,412 | | Leases and other loans | **1,103** | 759 | 953 | | Total recoveries | **10,129** | 14,092 | 17,146 | | Net loans charged off (recoveries) | **(29,072)** | (7,380) | (13,806) | | Provision for credit losses(1) | **53,110** | 18,656 | (14,760) | | Balance of ACL at end of period | **$293,404** | $269,366 | $249,001 | | Provision for OBS credit exposures | **$926** | $1,411 | $160 | | Reserve for OBS credit exposures(2) | **$17,254** | $16,328 | $14,533 | | Selected Asset Quality Ratios %: | | | | | Net charge-offs to average loans | **0.14%** | 0.04% | 0.07% | | ACL - loans to total net loans | **1.37** | 1.33 | 1.36 | | Non-performing assets(3) to total assets | **0.56** | 0.66 | 0.60 | | Non-accrual loans to total net loans | **0.57** | 0.71 | 0.78 | | ACL - loans to non-performing loans | **191** | 157 | 164 | | ACL - loans to non-accrual loans | **241** | 186 | 173 | (1) Provision for credit losses includes only the portion related to net loans. (2) Reserve for OBS credit exposures is recorded within other liabilities on the consolidated balance sheets. (3) Includes accruing loans past due 90 days or more. The provision for credit losses, specific to loans, for 2023 was $53.1 million, compared to a provision for credit losses, specific to loans, of $26.6 million, which included an $8.0 million CECL Day 1 Provision recorded in 2022. The increase in the provision for credit losses for net loans was primarily driven by loan growth, changes to the macroeconomic outlook, higher net loan charge-offs and migration of internally risk-rated loans into special mention and substandard or lower categories. The following table summarizes the allocation of the ACL - loans: *(dollars in thousands)* | | December 31, 2023 ACL - loans | % to Total ACL - loans(1) | % to Total Net Loans(2) | December 31, 2022 ACL - loans | % to Total ACL - loans(1) | % to Total Net Loans(2) | December 31, 2021 ACL - loans | % to Total ACL - loans(1) | % to Total Net Loans(2) | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Real estate - commercial mortgage | **$112,565** | **38.4%** | **38.1%** | $69,456 | 25.8% | 37.9% | $87,970 | 35.3% | 39.7% | | Commercial and industrial | **74,266** | **25.3** | **21.3** | 70,116 | 26.0 | 22.1 | 67,056 | 26.9 | 23.0 | | Real estate - residential mortgage | **73,286** | **25.0** | **24.9** | 83,250 | 30.9 | 23.4 | 54,236 | 21.8 | 21.0 | | Consumer, home equity and leases and other loans | **20,992** | **7.1** | **9.9** | 35,801 | 13.3 | 10.3 | 26,798 | 10.8 | 10.1 | | Real estate - construction | **12,295** | **4.2** | **5.8** | 10,743 | 4.0 | 6.3 | 12,941 | 5.2 | 6.2 | | Total | **$293,404** | **100.0%** | **100%** | $269,366 | 100.0% | 100% | $249,001 | 100.0% | 100.0% | (1) Ending ACL - loan portfolio segment balance as a % of total ACL - loans. (2) Ending loan portfolio segment balances as a % of total net loans for the periods presented. Management believes that the $293.4 million ACL - loans as of December 31, 2023 is sufficient to cover expected credit losses in the loan portfolio. ### Deposits and Borrowings The following table presents ending deposits, by type: *(dollars in thousands)* | | December 31, 2023 | 2022 | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | | Noninterest-bearing demand | **$5,314,094** | $7,006,388 | $(1,692,294) | (24.2)% | | Interest-bearing demand | **5,722,695** | 5,410,903 | 311,792 | 5.8 | | Savings and money market deposits | **6,616,901** | 6,434,621 | 182,280 | 2.8 | | Total demand and savings | **17,653,690** | 18,851,912 | (1,198,222) | (6.4) | | Brokered deposits | **1,144,692** | 208,416 | 936,276 | N/M | | Time deposits | **2,739,241** | 1,589,210 | 1,150,031 | 72.4 | | Total deposits | **$21,537,623** | $20,649,538 | $888,085 | 4.3% | During 2023, total deposits increased by $888.1 million, or 4.3%, compared to December 31, 2022. The increase in total deposits was primarily due to increases in time deposits, brokered deposits, interest-bearing demand deposits and savings and money market deposits of $1.2 billion, $936.3 million, $311.8 million and $182.3 million, respectively, partially offset by a decrease in noninterest-bearing demand deposits $1.7 billion. The shift from noninterest-bearing demand deposits to interest-bearing deposits was mainly due to rising interest rates. Total uninsured deposits (excluding intra-Company deposits) were estimated to be $7.2 billion and $7.8 billion at December 31, 2023 and December 31, 2022, respectively. The following table presents ending borrowings, by type: *(dollars in thousands)* | | December 31, 2023 | 2022 | Increase (Decrease) $% | | | --- | ---: | ---: | ---: | ---: | | Federal funds purchased | **$240,000** | $191,000 | $49,000 | 25.7 | | Federal Home Loan Bank advances | **1,100,000** | 1,250,000 | (150,000) | (12.0) | | Senior debt and subordinated debt | **535,384** | 539,634 | (4,250) | (0.8) | | Other borrowings(1) | **612,142** | 890,573 | (278,431) | (31.3) | | Total borrowings | **$2,487,526** | $2,871,207 | $(383,681) | (13.4)% | (1) Includes repurchase agreements, short-term promissory notes and capital leases. During 2023, total borrowings decreased $383.7 million, or 13.4%, compared to December 31, 2022. The decrease in total borrowings was due to decreases in other borrowings of $278.4 million, FHLB advances of $150.0 million and senior and subordinated debt of $4.3 million, partially offset by an increase in Federal funds purchased of $49.0 million. ### Other Liabilities During 2023, other liabilities decreased $69.5 million, or 8.5%, compared to December 31, 2022, primarily due to a decrease in derivative related liabilities. ### Shareholders' Equity During 2023, total shareholders' equity increased $180.4 million, or 7.0%, to $2.8 billion, or 10.0% of total assets, as of December 31, 2023. The increase was due primarily to an increase of $168.5 million in retained earnings and a reduction of $73.2 million in accumulated other comprehensive loss, partially offset by a $75.3 million increase in treasury stock largely due to common stock repurchases. See "Note 15 - Shareholders' Equity" in the Notes to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" for details of accumulated comprehensive loss. #### Regulatory Capital The Corporation and its wholly-owned subsidiary bank, Fulton Bank, are subject to the Capital Rules administered by banking regulators. Failure to meet minimum capital requirements can trigger certain actions by regulators that could have a material effect on the Corporation's financial statements. The Capital Rules require the Corporation and Fulton 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. As of December 31, 2023, the Corporation's capital levels met the minimum capital requirements, including the capital conservation buffers, as prescribed in the Capital Rules. As of December 31, 2023, Fulton 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 Capital Rules. There were no other conditions or events since December 31, 2023 that management believes have changed the Corporation's capital categories. The following table summarizes the Corporation's capital ratios in comparison to regulatory requirements: | | December 31, 2023 | December 31, 2022 | Regulatory Minimum for Capital Adequacy | Fully Phased-in, with Capital Conservation Buffers | | --- | ---: | ---: | ---: | ---: | | Total Risk-Based Capital (to Risk-Weighted Assets) | **14.0%** | 13.6% | 8.0% | 10.5% | | Tier I Risk-Based Capital (to Risk-Weighted Assets) | **11.2%** | 10.9% | 6.0% | 8.5% | | Common Equity Tier I (to Risk-Weighted Assets) | **10.3%** | 10.0% | 4.5% | 7.0% | | Tier I Leverage Capital (to Average Assets) | **9.5%** | 9.5% | 4.0% | 4.0% | 61 ### Contractual Obligations and Off-Balance Sheet Arrangements The Corporation has various financial obligations that require future cash payments. These obligations include payments for liabilities recorded on the Corporation's consolidated balance sheets as well as contractual obligations for purchased services. Contractual purchase obligations to third parties that were fixed and determinable of approximately $125 million and $93 million at December 31, 2023 and 2022, respectively, include information technology, telecommunication and data processing outsourcing contracts. The increase is primarily due to the renewals of large multi-year contracts. The Corporation is a party to financial instruments with OBS risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit and interest rate risk that are not recognized on the consolidated balance sheets. 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. 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 or domestic trade transactions for customers. Commitments and standby and commercial letters of credit do not necessarily represent future cash needs, as they may expire without being drawn. The following table presents the Corporation's commitments to extend credit and letters of credit as of December 31, 2023 (dollars in thousands): | | | | --- | ---: | | Commercial and industrial | $4,929,981 | | Real estate - commercial mortgage and real estate - construction | 1,867,830 | | Real estate - home equity | 1,992,700 | | Total commitments to extend credit | $8,790,511 | | Standby letters of credit | $264,440 | | Commercial letters of credit | 67,396 | | Total letters of credit | $331,836 | 62 ## Market risk As filed, 18,529 characters. 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 its 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, i.e. a non-parallel instantaneous shock, on net interest income as of December 31, 2023: | Rate Shock(1) +400 bp +300 bp +200 bp +100 bp | Annual change in net interest income +$38.1 million + $29.7 million + $22.5 million + $14.0 million | % Change in net interest income + 4.2% + 3.3% + 2.5% + 1.6% | | --- | --- | ---: | | -100 bp | - $38.1 million | - 4.2% | | -200 bp | - $76.8 million | - 8.5% | | -300 bp | - $105.9 million | - 11.7% | | -400 bp | - $124.8 million | -13.8% | (1) These results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates. Economic value of equity estimates the discounted present value of asset and liability cash flows. Discount rates are based upon market prices for like assets and liabilities. Abrupt changes or "shocks" in interest rates, both upward and downward, are used to determine the comparative effect of such interest rate movements relative to the unchanged environment. This measurement tool is used primarily to evaluate the longer-term repricing risks and options in the Corporation's balance sheet. The Corporation's policy limits the economic value of equity that may be at risk, in a non-parallel instantaneous shock, to 10% of the base case economic value of equity for a 100 bps shock in interest rates, 20% for a 200 bps shock, 30% for a 300 bps shock and 40% for a 400 bps shock. As of December 31, 2023, the Corporation was within economic value of equity policy limits for every 100 bps shock. #### Interest Rate Derivatives The Corporation enters into interest rate derivatives with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate derivatives with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate derivatives is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. These interest rate derivatives 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 income 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 net interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate derivatives as part of its interest rate risk management strategy. The Corporation enters into interest rate derivatives designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans and borrowings. 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 or interest expense 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. In January 2023, the Corporation terminated interest rate derivatives designated as cash flow hedges with a combined notional amount of $1.0 billion. As the hedged transaction continues to be probable, the unrealized losses that have been recorded in AOCI will be recognized as reduction to interest income when the previously forecasted hedged item affects earnings in future periods. During 2023, $22.1 million of these unrealized losses have been reclassified as a reduction of interest income on loans, including fees, on the consolidated statements of income. #### 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 NIM 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 is a member of the FHLB and has access to FHLB overnight and term credit facilities. As of December 31, 2023, the Bank had total borrowing capacity of approximately $8.2 billion with $3.3 billion of advances and letters of credit outstanding, for a remaining available borrowing capacity of approximately $4.9 billion. Advances from the FHLB, when utilized, are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. As of December 31, 2023, the Corporation had aggregate federal funds lines borrowing capacity of $2.6 billion, with $0.2 billion of outstanding borrowings against that amount. As of December 31, 2023, the Corporation had $1.3 billion of collateralized borrowing capacity at the discount window and $1.9 billion of borrowing capacity at the Bank Term Funding Program facility with no amounts outstanding under these programs. A combination of commercial real estate loans, commercial loans, consumer loans and securities are pledged to the FRB of Philadelphia to provide access to FRB discount window borrowings. Securities carried at $0.4 billion at December 31, 2023 and $1.1 billion at December 31, 2022 were pledged as collateral to secure public and trust deposits. The Corporation has commitments to extend credit and letters of credit. As of December 31, 2023, the balance of commitments to extend credit was $8.8 billion and total letters of credit were $0.3 billion. Liquidity must also be managed at the 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 including monitoring the granularity of the deposit portfolio and level of uninsured deposits. Management will implement appropriate strategies, as necessary, to remain adequately capitalized and to meet its cash needs. The consolidated statements of cash flows provide additional information. The Corporation's operating activities during 2023 generated $363.0 million of cash, mainly due to net income of $284.3 million. Cash used in investing activities was $809.2 million, primarily due to $1.1 billion net increase in loans. Net cash provided by financing activities was $314.0 million, due largely to the increases in time and brokered deposits, partially offset by decreases in demand and savings deposits and other borrowings. The following table presents the expected maturities of government, state and municipal and corporate AFS investment securities, at estimated fair value, as of December 31, 2023 and the weighted average yields on such securities (calculated based on historical cost): *(dollars in thousands)* | Available for sale | Maturing Within One Year Amount | Yield | After One But Within Five Years Amount | Yield | After Five But Within Ten Years Amount | Yield | After Ten Years Amount | Yield | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | U.S. Government securities | $42,161 | 2.40% | $— | —% | $— | —% | $— | —% | | U.S. Government-sponsored agency securities | — | — | 1,010 | 3.10 | — | — | — | — | | State and municipal(1) | — | — | 5,089 | 4.57 | 178,818 | 3.92 | 888,106 | 3.90 | | Corporate debt securities | 6,861 | 10.00 | 141,422 | 5.14 | 292,268 | 4.02 | — | — | | Total | $49,022 | 3.45% | $147,521 | 5.10% | $471,086 | 3.99% | $888,106 | 3.90% | (1) Weighted average yields on tax-exempt securities have been computed on a FTE basis assuming a federal tax rate of 21% and statutory interest expense disallowances. The Corporation's investment portfolio consists mainly of state and municipal securities, commercial mortgage-backed securities, residential mortgage-backed securities, corporate debt securities and collateralized mortgage obligations. Commercial mortgage-backed securities, residential mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers' ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans and are generally influenced by the level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans decrease. As rates decrease, cash flows generally increase as prepayments increase. The following table presents AFS residential mortgage-backed securities, commercial mortgage-backed securities and collateralized mortgage obligations, at estimated fair value, and HTM residential mortgage-backed securities and commercial mortgage-backed securities, at amortized cost, as of December 31, 2023, without stated maturities, including the weighted average yields and estimated weighted average lives based on prepayment speeds on such securities: *(dollars in thousands)* | Available for sale | Amount | Yield | Weighted Average Life (in years) | | --- | ---: | ---: | ---: | | Residential mortgage-backed securities | $196,795 | 2.79% | 6.6 | | Commercial mortgage-backed securities | 534,388 | 2.71 | 6.6 | | Collateralized mortgage obligations | 111,434 | 2.71 | 5.2 | | **Held to maturity** | | | | | Residential mortgage-backed securities | $407,075 | 2.01% | 6.6 | | Commercial mortgage-backed securities | 860,847 | 1.53 | 6.6 | The following table presents the contractual maturities of fixed rate loans and loan types subject to changes in interest rates as of December 31, 2023: *(dollars in thousands)* | Commercial and industrial: | One Year or Less | One Through Five Years | More Than Five Years | Total | | --- | ---: | ---: | ---: | ---: | | Adjustable and floating rate | $981,531 | $2,171,857 | $474,121 | $3,627,509 | | Fixed rate | 340,178 | 491,241 | 86,666 | 918,085 | | Total commercial and industrial | 1,321,709 | 2,663,098 | 560,787 | 4,545,594 | | Real estate - mortgage(1): | | | | | | Adjustable and floating rate | 1,760,892 | 4,843,777 | 3,308,714 | 9,913,383 | | Fixed rate | 870,638 | 1,890,160 | 1,826,655 | 4,587,453 | | Total real estate - mortgage(1) | 2,631,530 | 6,733,937 | 5,135,369 | 14,500,836 | | Real estate - construction: | | | | | | Adjustable and floating rate | 325,599 | 463,450 | 147,111 | 936,160 | | Fixed rate | 258,068 | 41,105 | 3,742 | 302,915 | | Total real estate - construction | 583,667 | 504,555 | 150,853 | 1,239,075 | | Consumer, leases and other: | | | | | | Adjustable and floating rate | 11,322 | 37,660 | 8 | 48,990 | | Fixed rate | 296,185 | 618,707 | 139,716 | 1,054,608 | | Total consumer, leases and other | 307,507 | 656,367 | 139,724 | 1,103,598 | | Unearned income | — | (38,009) | — | (38,009) | | Total | $4,844,413 | $10,519,948 | $5,986,733 | $21,351,094 | (1) Includes commercial and residential mortgages and home equity loans. Contractual maturities of time deposits as of December 31, 2023 were as follows (dollars in thousands): | Year | | | --- | ---: | | 2024 | $2,180,323 | | 2025 | 421,029 | | 2026 | 64,748 | | 2027 | 16,343 | | 2028 | 8,429 | | Thereafter | 48,369 | | Total | $2,739,241 | 66 Contractual maturities of the portion of time deposits estimated to be in excess of the FDIC insurance limit as of December 31, 2023 included in the table above, were as follows (dollars in thousands): | | | | --- | ---: | | Three months or less | $46,709 | | Over three through six months | 63,171 | | Over six through twelve months | 65,705 | | Over twelve months | 25,366 | | Total | $200,951 | Total uninsured deposits (excluding intra-Company deposits) were estimated to be $7.2 billion at December 31, 2023 compared with $7.8 billion at December 31, 2022. #### 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 residential mortgage-backed securities, commercial mortgage-backed securities and collateralized mortgage obligations; as well as, state and municipal securities and corporate debt securities. All of the Corporation's investments in residential mortgage-backed securities, commercial 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 December 31, 2023, the Corporation owned securities issued by various states and municipalities with a total fair value of $1.1 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 December 31, 2023, approximately 100% of state and municipal securities were supported by the general obligation of corresponding states or municipalities. Approximately 74% of these securities were school district issuances, which are also supported by the states of the issuing municipalities. ## Controls and procedures As filed, 1,619 characters. ### Disclosure 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 Interim Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation's Chief Executive Officer and Interim Chief Financial Officer concluded that, as of December 31, 2023, 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 the Corporation's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The "Management Report on Internal Control over Financial Reporting" and the "Report of Independent Registered Public Accounting Firm" may be found in "Item 8, Financial Statements and Supplementary Data" of this document. ### Changes in Internal Control over Financial Reporting Curtis J. Myers became Chief Executive Officer on January 1, 2023. Other than the above, there have been no changes in the Corporation's internal control over financial reporting during the Corporation's fiscal year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting as of December 31, 2023. Filed Mar 1, 2024. Source: SEC EDGAR, the filing index for accession 0000700564-24-000012. Last ingested by Listed: Nov 10, 2026, 20:26 ET. No prices; not investment advice.