Fulton Financial (FULT) - 2023 Q4 - Annual Report

PART I Item 1. Business Fulton Financial Corporation operates through its subsidiary Fulton Bank, offering comprehensive financial and wealth management services across five states - The company was incorporated on February 8, 1982, and became a financial holding company under the GLBA[18] - The acquisition of Prudential Bancorp was completed on July 1, 2022, with Prudential Bank merging into Fulton Bank on November 5, 2022[19] - As of December 31, 2023, Fulton Bank operated 208 financial centers across Pennsylvania, Delaware, Maryland, New Jersey, and Virginia[21][25] - The company offers a diverse range of consumer and commercial banking products, including various loans, deposit accounts, and cash management services[22][23] - Wealth management services are provided through Fulton Financial Advisors and Fulton Private Bank, covering investment, trust, brokerage, and advisory services[24] - The workforce comprised approximately 3,400 employees as of December 31, 2023, with a focus on engagement, diversity, and professional development[26][27][29][30][31] - A comprehensive cybersecurity strategy is maintained, integrated into overall risk management with continuous monitoring and third-party oversight[33] - The Corporation faces intense competition from various financial institutions, including banks, credit unions, Fintechs, and marketplace lenders[36][37] - The Corporation's common stock (FULT) and preferred stock (FULTP) are traded on the Nasdaq Stock Market, LLC[3] Supervision and Regulation The Corporation and its subsidiaries are subject to a comprehensive regulatory framework by federal and state authorities - Fulton Financial Corporation is regulated by the Federal Reserve Board, while Fulton Bank, N.A. is primarily regulated by the OCC and CFPB[40] - The company is subject to federal statutes including GLBA, BHCA, and the Dodd-Frank Act for depositor and banking system protection[42] - The Economic Growth Act raised the asset threshold for enhanced prudential standards to $250 billion, exempting the Corporation from certain stress testing[46][47] - The CFPB has supervisory authority over Fulton Bank due to its assets exceeding $10 billion, enforcing consumer protection laws[49][52] - Basel III Rules impose minimum capital ratios, which the Corporation and Fulton Bank exceeded as of December 31, 2023[58][62] - The FDIC's special assessment in November 2023 resulted in a $6.5 million ($5.1 million after tax) accrual for Fulton Financial in Q4 2023[76] - The NDAA of 2021 overhauled AML laws, requiring corporate entities to report beneficial ownership information to FinCEN[80] - Fulton Bank received an 'outstanding' rating under the Community Reinvestment Act (CRA) as of December 31, 2023[83][84] - Federal banking agencies are increasing focus on integrating climate-related risk management into governance and strategic planning[107][108] Item 1A. Risk Factors The Corporation faces significant risks from economic conditions, interest rates, credit quality, liquidity, operations, and regulatory compliance - Difficult economic conditions, including inflation and higher interest rates, could adversely affect loan portfolio quality and require increased credit loss provisions[113][114] - The Fed Funds Rate increase to 5.25%-5.50% has impacted net interest income and led to $275 million in unrealized losses on AFS securities as of year-end 2023[116][117][122] - Approximately 65% of the loan portfolio consists of commercial, commercial mortgage, and construction loans, which carry higher credit risk[128] - The company is dependent on customer deposits, with approximately 33% uninsured as of December 31, 2023, creating vulnerability to deposit outflows[131][133] - Operational risks include human error, fraud, system failures, and evolving cybersecurity threats, with reliance on third-party vendors[138][141][142] - Extensive regulation by federal and state agencies could increase compliance costs and limit business activities[157][159] - Climate change effects could disrupt operations, devalue assets, increase credit risk, and lead to higher compliance costs from new regulations[152][153][154] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC Item 1C. Cybersecurity The Corporation's cybersecurity program is integrated into its enterprise risk management, focusing on identifying, analyzing, and protecting against security threats - The cybersecurity program is integrated into enterprise risk management, using the NIST Cybersecurity Framework[179] - A Chief Information Security Officer (CISO) leads the program, which includes regular employee training and continuous monitoring[179][180] - The Integrated Cybersecurity Incident Response Plan (ICIRP) guides timely response to incidents and coordination with the Board[180][183] - Third-party risk management includes due diligence, service level agreements, and indemnification for data breaches with vendors[179][181] - To date, no cybersecurity incidents have materially affected the Corporation's business strategy, financial condition, or results of operations[184] Item 2. Properties As of December 31, 2023, the Corporation operated 208 financial centers, with a mix of owned and leased properties across its service area - As of December 31, 2023, the Corporation had 208 financial centers (88 owned, 120 leased) and two owned operations centers[185] Item 3. Legal Proceedings The Corporation is involved in various legal and regulatory matters for which loss reserves are established when probable and estimable - The Corporation is involved in various pending and threatened legal proceedings and regulatory inquiries in the ordinary course of business[593][594] - Loss reserves are established for matters where a loss is probable and reasonably estimable; otherwise, no reserve is made[593] - Management believes current liabilities from legal matters will not materially adversely affect financial condition, but future outcomes are unpredictable[595] Item 4. Mine Safety Disclosures This item is not applicable to the Corporation PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section outlines the Corporation's common stock market, dividend policy, equity compensation plans, and share repurchase activities - The Corporation's ability to pay common stock dividends depends on federal regulatory requirements and dividends received from its subsidiaries, particularly Fulton Bank[190][176] - The Board approved a $125 million repurchase program for 2024, allowing repurchases of common stock, preferred stock, and subordinated notes[199] Common Stock Information (as of December 31, 2023) | Metric | Value | | :--------------------------------- | :------------------- | | Shares Outstanding | 163.8 million | | Holders of Record | ~42,078 | | Closing Price (Feb 16, 2024) | $15.70 | | Authorized Common Stock Shares | 600 million | | Authorized Preferred Stock Shares | 10 million | | Outstanding Preferred Stock Shares | ~200,000 | Equity Compensation Plans (as of December 31, 2023) | Plan Category | Securities to be Issued (1) | Weighted-Average Exercise Price (2) | Securities Remaining Available (3) | | :------------------------------------------ | :-------------------------- | :---------------------------------- | :------------------------------- | | Approved by security holders | 2,702,606 | $12.61 | 5,766,366 | | Not approved by security holders | — | — | — | Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Total Shares Purchased (Announced Plans) | Approximate Dollar Value Remaining | | :------------------------------------ | :--------------------- | :--------------------------- | :--------------------------------------- | :--------------------------------- | | Oct 1, 2023 to Oct 31, 2023 | — | $— | — | $29,060,105 | | Nov 1, 2023 to Nov 30, 2023 | 441,638 | $13.85 | 441,638 | $22,943,716 | | Dec 1, 2023 to Dec 31, 2023 | — | $— | — | — | | Total | 441,638 | $13.85 | 441,638 | | Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the Corporation's financial condition and results of operations, covering performance metrics, revenue, expenses, and balance sheet changes - The Corporation generates most of its revenue from net interest income, supplemented by fees and asset sales, offset by credit loss provisions, non-interest expenses, and taxes[204] - The FOMC increased the Fed Funds Rate eleven times since March 2022, reaching 5.25% - 5.50% by February 29, 2024, and the Corporation transitioned all products away from LIBOR to SOFR-based benchmarks by June 30, 2023[206][207] Summary of Earnings and Selected Performance Ratios | Metric | 2023 | 2022 | 2021 | | :------------------------------------------------ | :---------- | :---------- | :---------- | | Net income (in thousands) | $284,280 | $286,981 | $275,497 | | Net income available to common shareholders (in thousands) | $274,032 | $276,733 | $265,220 | | Net income available to common shareholders per share (diluted) | $1.64 | $1.67 | $1.62 | | Return on average assets | 1.04 % | 1.10 % | 1.05 % | | Return on average common shareholders' equity | 11.24 % | 11.69 % | 10.64 % | | Net interest margin | 3.42 % | 3.27 % | 2.78 % | | Efficiency ratio | 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 % | Financial Highlights The Corporation's 2023 financial performance was shaped by interest rate dynamics, loan growth, and specific expense items - Net income available to common shareholders decreased by $2.7 million to $274.0 million in 2023 compared to 2022[209] - Net interest income increased by $72.7 million (9.3%) to $854.3 million in 2023, driven by higher interest rates and average loan balances[209] - Net Interest Margin (NIM) increased by 15 bps to 3.42% in 2023, due to higher yields on assets, partially offset by increased liability costs[209] - Average net loans increased by $1.8 billion (9.3%) in 2023, primarily from residential mortgage, commercial and industrial, and commercial mortgage loans[209] - Average deposits decreased by $297.7 million (1.4%) in 2023, mainly due to a $1.6 billion decrease in noninterest-bearing demand deposits[209] - Non-performing assets decreased by $23.5 million (13.2%) to 0.56% of total assets in 2023, while net charge-offs increased to 0.14%[209] - The provision for credit losses was $54.0 million in 2023, up from $28.0 million in 2022[209] - Non-interest income (excluding investment securities losses) increased by $1.3 million (0.6%) in 2023[209] - Non-interest expense increased by $45.5 million (7.2%) in 2023, driven by higher salaries, FDIC insurance, and data processing costs[209][210] - The Effective Tax Rate (ETR) was 18.5% in 2023, up from 17.3% in 2022, remaining below the federal statutory rate[210] Supplemental Reporting of Non-GAAP Based Financial Measures Non-GAAP measures are presented to provide comparative information for assessing operational trends - The Corporation presents non-GAAP financial measures to provide useful and comparative information for assessing operational trends, consistent with internal evaluation and industry practices[211] Operating Net Income Available to Common Shareholders (Non-GAAP Reconciliation) | Metric (in thousands) | 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 | $1,855 | — | — | | 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 | $284,977| $291,989| $265,220| | Operating net income available to common shareholders, per share (diluted) | $1.71 | $1.76 | $1.62 | Operating Return on Average Assets (Non-GAAP Reconciliation) | Metric (in thousands) | 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 | $1,855 | — | — | | Plus: FDIC special assessment | $6,494 | — | — | | Plus: FultonFirst initiative expenses | $3,197 | — | — | | Less: Tax impact of adjustments | $(2,909) | $(4,055) | — | | Operating net income | $295,225| $302,237| $275,497| | Total average operating assets | $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) (Non-GAAP Reconciliation) | Metric (in thousands) | 2023 | 2022 | 2021 | | :------------------------------------------------ | :---------- | :---------- | :---------- | | 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 | $1,855 | — | — | | 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 | $285,479| $292,543| $265,682| | Average tangible common shareholders' equity | $1,876,513 | $1,819,343 | $1,956,447 | | Return on average common shareholders' equity (tangible) | 15.21 % | 16.08 % | 13.58 % | Efficiency Ratio (Non-GAAP Reconciliation) | Metric (in thousands) | 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| | Total revenue (denominator) | $1,102,363 | $1,023,786 | $916,255 | | Efficiency ratio | 60.5 % | 60.5 % | 63.1 % | Critical Accounting Policies Key accounting policies involve significant management judgment, particularly for the Allowance for Credit Losses and income taxes - The Allowance for Credit Losses (ACL) is a critical policy, based on estimated losses over the life of loans using historical data and economic forecasts[217][220] - The ACL for loans increased by $24.0 million to $293.4 million as of December 31, 2023, due to loan growth and macroeconomic outlook changes[223] - Income tax expense is based on income before taxes, adjusted for tax-exempt income, non-deductible expenses, and credits[225] - The Corporation adopted several new accounting standards in 2023, none of which had a material impact on its consolidated financial statements[411][412][413][414][415] Results of Operations This section details the components of the Corporation's operational results, including net interest income, non-interest income, and expenses Net Interest Income Net interest income, the primary driver of earnings, is managed through interest rate sensitivity and liquidity positions - Net interest income is the most significant component of the Corporation's net income, with risk managed through interest rate sensitivity and liquidity positions[230] Net Interest Income Analysis (2023 vs. 2022) (in thousands) | Metric | 2023 | 2022 | Change (Volume) | Change (Yield/Rate) | Net Change | | :------------------------------------ | :---------- | :---------- | :-------------- | :------------------ | :---------- | | FTE Total Interest Income | $1,291,047 | $879,833 | $66,547 | $344,667 | $411,214 | | FTE Total Interest Expense | $418,950 | $83,204 | $82,855 | $252,891 | $335,746 | | FTE Net Interest Income | $872,097| $796,629| | | $76,000 | | Yield on average interest-earning assets | 5.06 % | 3.61 % | | +145 bps | | | Rate on average interest-bearing liabilities | 2.32 % | 0.54 % | | +178 bps | | Average Loans and FTE Yields by Type (2023 vs. 2022) (dollars in thousands) | Loan Type | 2023 Balance | 2023 Yield | 2022 Balance | 2022 Yield | Increase (Decrease) $ | 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 | $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 % | Average Deposits and Interest Rates by Type (2023 vs. 2022) (dollars in thousands) | Deposit Type | 2023 Balance | 2023 Rate | 2022 Balance | 2022 Rate | Increase (Decrease) $ | 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 | | 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)% | Average Borrowings and Interest Rates by Type (2023 vs. 2022) (dollars in thousands) | Borrowing Type | 2023 Balance | 2023 Rate | 2022 Balance | 2022 Rate | Increase (Decrease) $ | 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 | $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 % | Non-Interest Income Non-interest income remained stable, with growth in commercial banking and wealth management offsetting declines in other areas - The increase in commercial banking revenue was largely driven by commercial customer interest rate swap fee income[242] - Wealth management income increased due to higher assets under management[242] - Mortgage banking income decreased due to lower sales volumes and lower gains on sales margins[242] - Consumer banking income decreased primarily due to a decline in overdraft fees[242] Non-Interest Income Components (2023 vs. 2022) (in thousands) | Category | 2023 | 2022 | Increase (Decrease) $ | Increase (Decrease) % | | :---------------------------------------- | :---------- | :---------- | :-------------------- | :-------------------- | | Commercial banking | $81,160 | $75,779 | $5,381 | 7.1 % | | Wealth management | $75,541 | $72,843 | $2,698 | 3.7 | | 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 Expense Non-interest expenses rose due to higher compensation, FDIC insurance costs including a special assessment, and other service fees - Excluding merger-related expenses, non-interest expense increased by $55.8 million (9.0%) in 2023[244] - The increase in salaries and employee benefits was due to annual merit increases, higher employee count, increased healthcare claims, and higher pension expense[244] - FDIC insurance expense more than doubled due to increased base assessment rates and a $6.5 million special assessment related to 2023 bank closures[244] Non-Interest Expense Components (2023 vs. 2022) (in thousands) | Category | 2023 | 2022 | Increase (Decrease) $ | 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 % | Income Taxes Income tax expense increased in 2023, driven by a higher effective tax rate compared to the prior year - Income tax expense increased by $4.4 million to $64.4 million in 2023 compared to 2022[245] - The Effective Tax Rate (ETR) was 18.5% in 2023, up from 17.3% in 2022, primarily due to the higher ETR[245] - The ETR remains lower than the 21% federal statutory rate due to tax-exempt interest income and tax credit investments[245] Comparison of 2022 to 2021 This section provides a comparative analysis of financial performance between fiscal years 2022 and 2021 - Income tax expense increased by $1.3 million to $60.0 million in 2022, with an ETR of 17.3% (vs. 17.6% in 2021)[259] Net Interest Income Analysis (2022 vs. 2021) (in thousands) | Metric | 2022 | 2021 | Change (Volume) | Change (Yield/Rate) | Net Change | | :------------------------------------ | :---------- | :---------- | :-------------- | :------------------ | :---------- | | FTE Total Interest Income | $879,833 | $735,708 | $30,935 | $113,190 | $144,125 | | FTE Total Interest Expense | $83,204 | $59,682 | $(1,886) | $25,408 | $23,522 | | FTE Net Interest Income | $796,629| $676,026| | | $120,603| | Yield on average interest-earning assets | 3.61 % | 3.02 % | | +59 bps | | | Rate on average interest-bearing liabilities | 0.54 % | 0.38 % | | +16 bps | | Average Loans and FTE Yields by Type (2022 vs. 2021) (dollars in thousands) | Loan Type | 2022 Balance | 2022 Yield | 2021 Balance | 2021 Yield | Increase (Decrease) $ | 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 | $38,682 | — | $(3,776) | — | $42,458 | N/M | | Total loans | $19,152,740| 4.00 % | $18,627,787| 3.46 % | $524,953 | 2.8 % | Average Deposits and Interest Rates by Type (2022 vs. 2021) (dollars in thousands) | Deposit Type | 2022 Balance | 2022 Rate | 2021 Balance | 2021 Rate | Increase (Decrease) $ | 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 | | 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)% | Average Borrowings and Interest Rates by Type (2022 vs. 2021) (dollars in thousands) | Borrowing Type | 2022 Balance | 2022 Rate | 2021 Balance | 2021 Rate | Increase (Decrease) $ | 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 | $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 % | Non-Interest Income Components (2022 vs. 2021) (in thousands) | Category | 2022 | 2021 | Increase (Decrease) $ | Increase (Decrease) % | | :---------------------------------------- | :---------- | :---------- | :-------------------- | :-------------------- | | Commercial banking | $75,779 | $68,689 | $7,090 | 10.3 % | | Wealth management | $72,843 | $71,798 | $1,045 | 1.5 | | 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 Expense Components (2022 vs. 2021) (in thousands) | Category | 2022 | 2021 | Increase (Decrease) $ | 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 % | Financial Condition This section provides a detailed analysis of the Corporation's balance sheet components and financial health Condensed Consolidated Ending Balance Sheets The Corporation's balance sheet reflects growth in total assets, driven by an increase in net loans and deposits Condensed Consolidated Ending Balance Sheets (2023 vs. 2022) (in thousands) | Category | Dec 31, 2023 | Dec 31, 2022 | Increase (Decrease) $ | Increase (Decrease) % | | :-------------------------------- | :----------- | :----------- | :-------------------- | :-------------------- | | Assets | | | | | | Cash and cash equivalents | $549,710 | $681,921 | $(132,211) | (19.4)% | | 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 | | Goodwill and intangibles | $560,687 | $560,824 | $(137) | — | | Total Assets | $27,571,915| $26,931,702| $640,213 | 2.4 % | | Liabilities | | | | | | Deposits | $21,537,623 | $20,649,538 | $888,085 | 4.3 | | Borrowings | $2,487,526 | $2,871,207 | $(383,681) | (13.4) | | 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 % | Investment Securities The investment securities portfolio decreased, primarily due to reductions in U.S. Government and municipal securities - The decrease in AFS securities was primarily due to reductions in U.S. Government securities and state and municipal securities[263] - The decrease in HTM securities was mainly driven by payments on residential mortgage-backed securities[264] Investment Securities Carrying Amount (2023 vs. 2022) (in thousands) | Security Type | Dec 31, 2023 | Dec 31, 2022 | Increase (Decrease) $ | Increase (Decrease) % | | :-------------------------------------- | :----------- | :----------- | :-------------------- | :-------------------- | | Available for Sale (AFS) | | | | | | U.S. Government securities | $42,161 | $218,485 | $(176,324) | (80.7)% | | State and municipal securities | $1,072,013 | $1,105,712 | $(33,699) | (3.0) | | 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 AFS securities | $2,398,352| $2,646,767| $(248,415) | (9.4)% | | Held to Maturity (HTM) | | | | | | 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 HTM securities | $1,267,922| $1,321,256| $(53,334) | (4.0)% | | Total investment securities | $3,666,274| $3,968,023| $(301,749) | (7.6)% | Loans The loan portfolio grew, driven by residential and commercial mortgage lending, while non-performing assets showed improvement - Net loans increased by $1.1 billion (5.3%) in 2023, primarily driven by residential mortgage, commercial mortgage, and commercial and industrial loans[266] - Commercial mortgage and construction loans constituted 43.9% of the loan portfolio as of December 31, 2023[267] - Non-accrual loans decreased by $22.8 million (15.8%) in 2023, with non-accrual loans as a percentage of net loans decreasing to 0.57% from 0.71%[270] - Total criticized and classified loans increased by $172.9 million (23.0%) in 2023, primarily due to borrower performance in commercial loans[275] Ending Loans Outstanding by Type (2023 vs. 2022) (in thousands) | Loan Type | Dec 31, 2023 | Dec 31, 2022 | Increase (Decrease) $ | Increase (Decrease) % | | :------------------------------ | :----------- | :----------- | :-------------------- | :-------------------- | | Real estate - commercial mortgage | $8,127,728 | $7,693,835 | $433,893 | 5.6 % | | Commercial and industrial | $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 | $336,314 | $303,487 | $32,827 | 10.8 | | Net loans | $21,351,094| $20,279,547| $1,071,547 | 5.3 % | Industry Concentrations in Commercial Mortgage and C&I Loan Portfolios (2023 vs. 2022) | Industry | Dec 31, 2023 | Dec 31, 2022 | | :---------------------------------------- | :----------- | :----------- | | Real estate | 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 | 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 % | Non-Performing Assets (2023 vs. 2022) (in thousands) | Category | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | | :---------------------------------------- | :----------- | :----------- | :----------- | | Non-accrual loans | $121,620 | $144,443 | $143,666 | | Loans 90 days or more past due and still accruing | $31,721 | $27,463 | $27,463 | | Total non-performing loans and leases | $153,341| $171,906| $152,119| | OREO | $896 | $5,790 | $1,817 | | Total non-performing assets | $154,237| $177,696| $153,936| | Non-performing assets to total assets | 0.56 % | 0.66 % | 0.60 % | | ACL to non-performing loans | 191 % | 157 % | 164 % | Loans and Allowance for Credit Losses The Allowance for Credit Losses increased in 2023 due to loan growth, macroeconomic factors, and higher net charge-offs - The increase in the provision for credit losses for net loans in 2023 was driven by loan growth, changes to the macroeconomic outlook, higher net loan charge-offs, and migration of internally risk-rated loans[280] - Management believes the $293.4 million ACL for loans as of December 31, 2023, is sufficient to cover expected credit losses[281] Allowance for Credit Losses (ACL) and Reserve for OBS Credit Exposures (2023 vs. 2022) (in thousands) | Category | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------------- | :----------- | :----------- | | ACL - loans | $293,404 | $269,366 | | Reserve for OBS credit exposures | $17,254 | $16,328 | Activity in ACL - Loans Balances (2023 vs. 2022 vs. 2021) (in thousands) | Activity | 2023 | 2022 | 2021 | | :---------------------------------------- | :---------- | :---------- | :---------- | | Balance 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 | $(39,201) | $(21,472) | $(30,952) | | Recoveries of loans previously charged off | $10,129 | $14,092 | $17,146 | | Net loans (charged off) recovered | $(29,072) | $(7,380) | $(13,806) | | Provision for credit losses | $53,110 | $18,656 | $(14,760) | | Balance at end of period | $293,404| $269,366| $249,001| | Net charge-offs to average loans | 0.14 % | 0.04 % | 0.07 % | | ACL - loans to total net loans | 1.37 | 1.33 | 1.36 | | ACL - loans to non-performing loans | 191 | 157 | 164 | | ACL - loans to non-accrual loans | 241 | 186 | 173 | Deposits and Borrowings Total deposits grew, driven by time and brokered deposits, while borrowings decreased due to reductions in FHLB advances and other borrowings - Total deposits increased by $888.1 million (4.3%) in 2023, driven by increases in time and brokered deposits, partially offset by a significant decrease in noninterest-bearing demand deposits[282] - Total uninsured deposits were estimated at $7.2 billion as of December 31, 2023, down from $7.8 billion in 2022[283] - Total borrowings decreased by $383.7 million (13.4%) in 2023, mainly due to reductions in other borrowings and FHLB advances[285] Ending Deposits by Type (2023 vs. 2022) (in thousands) | Deposit Type | Dec 31, 2023 | Dec 31, 2022 | Increase (Decrease) $ | 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 | | 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 % | Ending Borrowings by Type (2023 vs. 2022) (in thousands) | Borrowing Type | Dec 31, 2023 | Dec 31, 2022 | Increase (Decrease) $ | 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 | $612,142 | $890,573 | $(278,431) | (31.3) | | Total borrowings | $2,487,526| $2,871,207| $(383,681) | (13.4)% | Other Liabilities Other liabilities decreased primarily due to a reduction in derivative-related liabilities - Other liabilities decreased by $69.5 million (8.5%) in 2023, primarily due to a decrease in derivative-related liabilities[286] Shareholders' Equity Shareholders' equity increased due to retained earnings growth and a reduction in accumulated other comprehensive loss - Total shareholders' equity increased by $180.4 million (7.0%) to $2.8 billion (10.0% of total assets) as of December 31, 2023[287] - The increase was primarily due to a $168.5 million increase in retained earnings and a $73.2 million reduction in accumulated other comprehensive loss[287] Regulatory Capital The Corporation and Fulton Bank maintained capital levels well above all regulatory requirements - The Corporation and Fulton Bank are subject to Basel III Rules, requiring minimum capital ratios and a capital conservation buffer[288][292] - As of December 31, 2023, both the Corporation and Fulton Bank met all minimum capital requirements and were categorized as 'well-capitalized'[289][290][291] Corporation's Capital Ratios vs. Regulatory Requirements (Dec 31, 2023) | Capital Ratio | Actual (2023) | Regulatory Minimum | Fully Phased-in, with Capital Conservation Buffers | | :------------------------------------------ | :------------ | :----------------- | :------------------------------------------------- | | Total Risk-Based Capital (to RWA) | 14.0% | 8.0% | 10.5% | | Tier I Risk-Based Capital (to RWA) | 11.2% | 6.0% | 8.5% | | Common Equity Tier I (to RWA) | 10.3% | 4.5% | 7.0% | | Tier I Leverage Capital (to Average Assets) | 9.5% | 4.0% | 4.0% | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Corporation manages market risks, primarily interest rate risk, through simulation modeling, hedging, and liquidity management - Market risk exposure for the Corporation primarily stems from interest rate changes, impacting liquidity, net interest income, and economic value of equity[299] - The Asset/Liability Management Committee (ALCO) is responsible for reviewing and managing interest rate sensitivity and liquidity positions[300] - The Corporation uses net interest income simulation and economic value of equity estimates to measure and manage interest rate risk[301][302][305] - The Corporation uses interest rate derivatives as cash flow hedges to reduce volatility in net interest income and expense[307][308] - In January 2023, the Corporation terminated $1.0 billion in cash flow hedges, with $22.1 million of unrealized losses reclassified as a reduction to interest income in 2023[309] - Liquidity is maintained through core deposits and secondary sources like FHLB advances ($4.9 billion available capacity) and federal funds lines ($2.4 billion available capacity)[310][312][313] - Operating activities generated $363.0 million in cash in 2023, while investing activities used $809.2 million, and financing activities provided $314.0 million[318] - The investment portfolio primarily consists of state and municipal securities, commercial mortgage-backed securities, and residential mortgage-backed securities[320] Expected Impact of Abrupt Interest Rate Changes on Net Interest Income (Dec 31, 2023) | Rate Shock | Annual change in net interest income | % Change in net interest income | | :--------- | :----------------------------------- | :------------------------------ | | +400 bp | +$38.1 million | +4.2% | | +300 bp | +$29.7 million | +3.3% | | +200 bp | +$22.5 million | +2.5% | | +100 bp | +$14.0 million | +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% | Item 8. Financial Statements and Supplementary Data This section presents the Corporation's audited consolidated financial statements and detailed notes, providing a comprehensive view of its financial position and performance Consolidated Balance Sheets The consolidated balance sheets detail the Corporation's assets, liabilities, and shareholders' equity at year-end Consolidated Balance Sheets (as of December 31, 2023 and 2022) | ASSETS (in thousands) | 2023 | 2022 | | :-------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $549,710 | $681,921 | | Investment securities | $3,666,274 | $3,968,023 | | Loans, net | $21,057,690 | $20,010,181 | | Goodwill and net intangible assets| $560,687 | $560,824 | | Total Assets | $27,571,915 | $26,931,702 | | LIABILITIES (in thousands) | | | | Total Deposits | $21,537,623 | $20,649,538 | | Total Borrowings | $2,487,526 | $2,871,207 | | Total Liabilities | $24,811,776 | $24,351,945 | | SHAREHOLDERS' EQUITY (in thousands)| | | | Total Shareholders' Equity | $2,760,139 | $2,579,757 | Consolidated Statements of Income The statements of income present the Corporation's revenues, expenses, and net income over the past three fiscal years Consolidated Statements of Income (Years Ended December 31, 2023, 2022, 2021) | Metric (in thousands) | 2023 | 2022 | 2021 | | :---------------------------------------- | :------------ | :------------ | :------------ | | Total Interest Income | $1,273,236 | $864,838 | $723,412 | | Total Interest Expense | $418,950 | $83,204 | $59,682 | | Net Interest Income | $854,286 | $781,634 | $663,730 | | Provision for credit losses | $54,036 | $28,021 | $(14,600) | | Total Non-Interest Income | $227,678 | $227,130 | $273,745 | | Total Non-Interest Expense | $679,207 | $633,728 | $617,830 | | Income Before Income Taxes | $348,721 | $347,015 | $334,245 | | Income taxes | $64,441 | $60,034 | $58,748 | | 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 (diluted) | $1.64 | $1.67 | $1.62 | Consolidated Statements of Comprehensive Income These statements report net income and other comprehensive income, including unrealized gains and losses on securities and derivatives Consolidated Statements of Comprehensive Income (Years Ended December 31, 2023, 2022, 2021) | Metric (in thousands) | 2023 | 2022 | 2021 | | :-------------------------------------------------------- | :---------- | :------------ | :------------ | | Net Income | $284,280 | $286,981 | $275,497 | | Other Comprehensive Income/(Loss), net of tax: | | | | | Net unrealized gains (losses) on AFS investment securities| $41,369 | $(356,672) | $(41,163) | | Net unrealized gains (losses) on interest rate derivatives used in cash flow hedges | $26,993 | $(56,959) | $(4,817) | | Net unrealized (losses) gains on defined benefit pension and postretirement plans | $4,834 | $744 | $8,300 | | Other Comprehensive Income (Loss) | $73,196 | $(412,887)| $(37,680) | | Total Comprehensive Income (Loss) | $357,476| $(125,906)| $237,817 | Consolidated Statements of Shareholders' Equity These statements detail the changes in shareholders' equity accounts, including common stock, retained earnings, and accumulated other comprehensive loss Consolidated Statements of Shareholders' Equity (Years Ended December 31, 2023, 2022, 2021) | Category (in thousands) | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | | :---------------------------------------- | :----------- | :----------- | :----------- | | Preferred Stock | $192,878 | $192,878 | $192,878 | | Common Stock | $564,402 | $561,511 | $559,766 | | Additional Paid-in Capital | $1,552,860 | $1,541,840 | $1,519,873 | | Retained Earnings | $1,619,300 | $1,450,758 | $1,282,383 | | Accumulated Other Comprehensive Loss | $(312,280) | $(385,476) | $27,411 | | Treasury Stock | $(857,021) | $(781,754) | $(869,631) | | Total Shareholders' Equity | $2,760,139| $2,579,757| $2,712,680| Consolidated Statements of Cash Flows These statements show the sources and uses of cash from operating, investing, and financing activities over the past three years Consolidated Statements of Cash Flows (Years Ended December 31, 2023, 2022, 2021) | Cash Flow Activity (in thousands) | 2023 | 2022 | 2021 | | :---------------------------------------- | :------------ | :------------ | :------------ | | Net cash provided by operating activities | $362,984 | $594,791 | $338,391 | | Net cash used in investing activities | $(809,215) | $(1,535,583) | $(210,086) | | Net cash provided by (used in) financing activities | $314,020 | $(15,901) | $(337,523) | | Net decrease in Cash and Cash Equivalents | $(132,211) | $(956,693) | $(209,218) | | Cash and Cash Equivalents at End of Period| $549,710 | $681,921 | $1,638,614 | NOTE 1 - Summary of Significant Accounting Policies This note outlines the key accounting principles and practices used in preparing the consolidated financial statements - The Corporation is a financial holding company providing banking and financial services through its subsidiaries across five states[332][334] - Financial statements are prepared in accordance with GAAP, requiring management estimates and assumptions[335] - Debt securities are classified as Held-to-Maturity (HTM) or Available-for-Sale (AFS); AFS securities are carried at fair value with unrealized gains/losses in OCI[338] - Loans are stated at amortized cost and are generally placed on non-accrual status after 90 days delinquency[342][343] - The Allowance for Credit Losses (ACL) is an estimate of expected losses over the life of loans, determined using PD, LGD, and EAD models[349][352][353][354][355] - The Corporation uses interest rate derivatives to manage interest rate risk, with cash flow hedges recognizing changes in fair value in OCI[371][372][378][379] - The Corporation adopted several new FASB ASUs in 2023, none of which had a material impact on its consolidated financial statements[411][412][413][414][415] NOTE 2 - Business Combinations This note details the acquisition of Prudential Bancorp and its accounting treatment - On July 1, 2022, the Corporation acquired Prudential Bancorp, with Prudential Bank merging into Fulton Bank in Q4 2022[424] - The acquisition was accounted for using the acquisition method, with the excess purchase price of $19.1 million recorded as goodwill[426] - Goodwill increased to $553.3 million as of December 31, 2023, from $550.5 million in 2022, due to adjustments from the merger[430] Prudential Bancorp Acquisition Summary (July 1, 2022) | Category (in thousands) | Fair Value | | :-------------------------------- | :----------- | | Consideration transferred: | | | Common stock shares issued | $89,713 | | Cash paid to shareholders | $29,343 | | Value of consideration | $119,056 | | Assets acquired: | | | Investment securities | $287,126 | | Loans | $554,091 | | Total assets | $930,627 | | Liabilities assumed: | | | Deposits | $532,170 | | Borrowings | $284,000 | | Total liabilities | $830,652 | | Net assets acquired | $99,975 | | Goodwill resulting from the Merger | $19,081 | NOTE 3 - Restrictions on Cash and Cash Equivalents This note describes restrictions on cash balances held as collateral - Cash collateral posted with counterparties for derivatives and other contracts was $17.4 million as of December 31, 2023[431] NOTE 4 - Investment Securities This note provides a detailed breakdown of the Corporation's investment securities portfolio by type, cost, and fair value - Securities totaling $0.4 billion (2023) and $1.1 billion (2022) were pledged as collateral for public and trust deposits[434] - As of December 31, 2023, there were 727 AFS and 180 HTM positions with unrealized losses, which the Corporation does not intend to sell prior to recovery[438][440][441][442] Investment Securities Amortized Cost and Fair Values (as of December 31, 2023) (in thousands) | Security Type | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | | :-------------------------------------- | :------------- | :--------------------- | :---------------------- | :------------------- | | Available for Sale (AFS) | | | | | | U.S. Government securities | $42,475 | — | $(314) | $42,161 | | State and municipal securities | $1,200,571 | $1,089 | $(129,647) | $1,072,013 | | Corporate debt securities | $480,714 | $473 | $(40,636) | $440,551 | | Collateralized mortgage obligations | $122,824 | — | $(11,390) | $111,434 | | Residential mortgage-backed securities | $223,273 | $7 | $(26,485) | $196,795 | | Commercial mortgage-backed securities | $627,364 | — | $(92,976) | $534,388 | | Total AFS | $2,698,259 | $1,569 | $(301,476) | $2,398,352 | | Held to Maturity (HTM) | | | | | | Residential mortgage-backed securities | $407,075 | — | $(51,805) | $355,270 | | Commercial mortgage-backed securities | $860,847 | — | $(143,910) | $716,937 | | Total HTM | $1,267,922 | — | $(195,715) | $1,072,207 | Gross Gains and Losses on Securities Sales (Years Ended December 31) (in thousands) | Year | Gross Realized Gains | Gross Realized Losses | Net Gains (Losses) | | :--- | :------------------- | :-------------------- | :----------------- | | 2023 | $283 | $(1,016) | $(733) | | 2022 | $1,587 | $(1,614) | $(27) | | 2021 | $35,593 | $(2,077) | $33,516 | NOTE 5 - Loans and Allowance for Credit Losses This note details the composition of the loan portfolio, credit quality metrics, and activity in the allowance for credit losses - Related-party loans to officers, directors, and associates totaled $162.5 million as of December 31, 2023, made on substantially the same terms as unrelated transactions[443] - Non-accrual loans without a specific valuation allowance within the ACL totaled $52.8 million (2023) and $53.6 million (2022)[451] - No loans modified due to financial difficulty defaulted in 2023, and no principal balance forgiveness was provided[464][465] Loans and Leases, Net of Unearned Income (as of December 31) (in thousands) | Loan Type | 2023 | 2022 | | :------------------------------ | :------------ | :------------ | | Real estate - commercial mortgage | $8,127,728 | $7,693,835 | | Commercial and industrial | $4,545,552 | $4,473,004 | | Real-estate - residential mortgage | $5,325,923 | $4,737,279 | | Real-estate - home equity | $1,047,184 | $1,102,838 | | Real-estate - construction | $1,239,075 | $1,269,925 | | Consumer | $729,318 | $699,179 | | Leases and other loans | $336,314 | $303,487 | | Net loans | $21,351,094| $20,279,547| Activity in ACL - Loans by Portfolio Segment (2023) (in thousands) | Portfolio Segment | Balance at Dec 31, 2022 | Loans Charged Off | Recoveries | Net Loans (Charged Off) Recovered | Provision for Loan Losses | Balance at Dec 31, 2023 | | :------------------------------------ | :---------------------- | :---------------- | :--------- | :-------------------------------- | :------------------------ | :---------------------- | | Real estate - commercial mortgage | $69,456 | $(17,999) | $1,076 | $(16,923) | $60,032 | $112,565 | | Commercial and industrial | $70,116 | $(9,246) | $3,473 | $(5,773) | $9,923 | $74,266 | | Consumer and real estate - home equity| $26,429 | $(7,514) | $3,198 | $(4,316) | $(4,509) | $17,604 | | Real estate - residential mortgage | $83,250 | $(62) | $421 | $359 | $(10,323) | $73,286 | | Real estate - construction | $10,743 | — | $858 | $858 | $694 | $12,295 | | Leases and other loans | $9,372 | $(4,380) | $1,103 | $(3,277) | $(2,707) | $3,388 | | Total | $269,366 | $(39,201) | $10,129| $(29,072) | $53,110 | $293,404 | Non-Accrual Loans by Class Segment (as of December 31) (in thousands) | Loan Class | 2023 (with related allowance) | 2023 (without related allowance) | 2023 Total | 2022 (with related allowance) | 2022 (without related allowance) | 2022 Total | | :-------------------------------- | :---------------------------- | :------------------------------- | :--------- | :---------------------------- | :------------------------------- | :--------- | | Real estate - commercial mortgage | $23,338 | $21,467 | $44,805 | $39,722 | $30,439 | $70,161 | | Commercial and industrial | $12,410 | $27,542 | $39,952 | $14,804 | $12,312 | $27,116 | | Real estate - residential mortgage| $18,806 | $2,018 | $20,824 | $25,315 | $979 | $26,294 | | Real estate - home equity | $4,649 | $104 | $4,753 | $5,975 | $130 | $6,105 | | Real estate - construction | $341 | $1,000 | $1,341 | $866 | $502 | $1,368 | | Consumer | $52 | — | $52 | $92 | — | $92 | | Leases and other loans | $9,255 | $638 | $9,893 | $4,052 | $9,255 | $13,307 | | Total | $68,851 | $52,769 | $121,620| $90,826 | $53,617 | $144,443| Non-Performing Assets (as of December 31) (in thousands) | Category | 2023 | 2022 | | :---------------------------------------- | :------------ | :------------ | | Non-accrual loans | $121,620 | $144,443 | | Loans 90 days or more past due and still accruing | $31,721 | $27,463 | | Total non-performing loans | $153,341 | $171,906 | | OREO | $896 | $5,790 | | Total non-performing assets | $154,237 | $177,696 | Aging of Amortized Cost Basis of Loans (as of December 31, 2023) (in thousands) | Loan Class | 30-59 Days Past Due | 60-89 Days Past Due | ≥ 90 Days Past Due and Accruing | Non Accrual | Current | Total | | :-------------------------------- | :------------------ | :------------------ | :------------------------------ | :---------- | :------------ | :------------ | | Real estate - commercial mortgage | $4,408 | $1,341 | $1,722 | $44,805 | $8,075,452 | $8,127,728 | | Commercial and industrial | $5,620 | $1,656 | $1,068 | $39,952 | $4,497,256 | $4,545,552 | | Real estate - residential mortgage| $49,145 | $10,838 | $21,205 | $20,824 | $5,223,911 | $5,325,923 | | Real estate - home equity | $8,142 | $2,075 | $5,326 | $4,753 | $1,026,888 | $1,047,184 | | Real estate - construction | $4,185 | $451 | $1,535 | $1,341 | $1,231,563 | $1,239,075 | | Consumer | $8,361 | $1,767 | $747 | $52 | $718,391 | $729,318 | | Leases and other loans | $146 | $722 | $118 | $9,893 | $325,435 | $336,314 | | Total | $80,007 | $18,850 | $31,721 | $121,620| $21,098,896| $21,351,094| Loans Modified to Borrowers Experiencing Financial Difficulty (2023) | Concession Type | Amortized Cost Basis (in thousands) | % of Class of Financing Receivable | | :---------------------------------- | :---------------------------------- | :--------------------------------- | | Term Extension | $23,096 | | | Real estate - commercial mortgage | $2,944 | 0.04 % | | Commercial and industrial | $11,970 | 0.26 | | Real estate - residential mortgage | $8,182 | 0.15 | | Interest Rate Reduction and Term Extension | $910 | | | Real estate - residential mortgage | $910 | 0.02 % | NOTE 6 - Premises and Equipment This note provides a summary of the Corporation's investment in physical assets Premises and Equipment (as of December 31) | Category (in thousands) | 2023 | 2022 | | :-------------------------------------- | :---------- | :---------- | | Land | $39,742 | $39,752 | | Buildings and improvements |