false--12-31Q120200000700564P5Y39000002.52.56000000006000000002224000002225000000P3Y5820000061100000 0000700564 2020-01-01 2020-03-31 0000700564 2020-05-01 0000700564 2020-03-31 0000700564 2019-12-31 0000700564 us-gaap:MortgageBankingMember 2020-01-01 2020-03-31 0000700564 2019-01-01 2019-03-31 0000700564 us-gaap:FinancialServiceOtherMember 2019-01-01 2019-03-31 0000700564 us-gaap:FiduciaryAndTrustMember 2020-01-01 2020-03-31 0000700564 us-gaap:ServiceOtherMember 2019-01-01 2019-03-31 0000700564 us-gaap:FinancialServiceOtherMember 2020-01-01 2020-03-31 0000700564 us-gaap:FiduciaryAndTrustMember 2019-01-01 2019-03-31 0000700564 us-gaap:DepositAccountMember 2020-01-01 2020-03-31 0000700564 us-gaap:ServiceOtherMember 2020-01-01 2020-03-31 0000700564 us-gaap:DepositAccountMember 2019-01-01 2019-03-31 0000700564 us-gaap:MortgageBankingMember 2019-01-01 2019-03-31 0000700564 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0000700564 us-gaap:TreasuryStockMember 2019-01-01 2019-03-31 0000700564 us-gaap:RetainedEarningsMember 2020-01-01 0000700564 us-gaap:CommonStockMember 2019-12-31 0000700564 us-gaap:CommonStockMember 2018-12-31 0000700564 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000700564 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0000700564 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0000700564 us-gaap:CommonStockMember 2019-03-31 0000700564 us-gaap:RetainedEarningsMember 2019-03-31 0000700564 us-gaap:TreasuryStockMember 2018-12-31 0000700564 us-gaap:RetainedEarningsMember 2018-12-31 0000700564 us-gaap:TreasuryStockMember 2020-01-01 2020-03-31 0000700564 2020-01-01 0000700564 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0000700564 us-gaap:TreasuryStockMember 2020-03-31 0000700564 us-gaap:CommonStockMember 2020-03-31 0000700564 us-gaap:RetainedEarningsMember 2019-12-31 0000700564 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0000700564 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0000700564 2018-12-31 0000700564 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0000700564 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0000700564 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0000700564 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000700564 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0000700564 2019-03-31 0000700564 us-gaap:RetainedEarningsMember 2020-03-31 0000700564 us-gaap:TreasuryStockMember 2019-12-31 0000700564 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000700564 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0000700564 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000700564 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0000700564 us-gaap:TreasuryStockMember 2019-03-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember us-gaap:AccountingStandardsUpdate201613Member 2020-01-01 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember us-gaap:AccountingStandardsUpdate201613Member us-gaap:ResidentialMortgageMember 2020-01-01 0000700564 srt:SubsidiariesMember 2019-12-31 0000700564 us-gaap:CollateralizedMortgageObligationsMember 2020-03-31 0000700564 us-gaap:CommercialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:ResidentialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:USStatesAndPoliticalSubdivisionsMember 2020-03-31 0000700564 us-gaap:CorporateDebtSecuritiesMember 2020-03-31 0000700564 us-gaap:AuctionRateSecuritiesMember 2020-03-31 0000700564 us-gaap:CollateralPledgedMember 2020-03-31 0000700564 fult:PooledTrustPreferredSecuritiesMember 2019-03-31 0000700564 us-gaap:CollateralPledgedMember 2019-12-31 0000700564 us-gaap:CollateralizedMortgageObligationsMember 2019-12-31 0000700564 us-gaap:DebtSecuritiesMember 2019-12-31 0000700564 us-gaap:CommercialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:AuctionRateSecuritiesMember 2019-12-31 0000700564 us-gaap:MunicipalBondsMember 2019-12-31 0000700564 us-gaap:ResidentialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:CorporateDebtSecuritiesMember 2019-12-31 0000700564 us-gaap:USStatesAndPoliticalSubdivisionsMember 2019-12-31 0000700564 us-gaap:MunicipalBondsMember 2020-03-31 0000700564 fult:ConstructionCommercialMember us-gaap:SubstandardMember 2019-12-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:PassMember 2019-12-31 0000700564 fult:CommercialLoansCommericalMortgagesConstructionsLoansMember us-gaap:SpecialMentionMember 2019-12-31 0000700564 fult:CommercialLoansCommericalMortgagesConstructionsLoansMember 2019-12-31 0000700564 fult:CommercialUnsecuredMember 2019-12-31 0000700564 fult:CommercialLoansCommericalMortgagesConstructionsLoansMember us-gaap:SubstandardMember 2019-12-31 0000700564 fult:ConstructionCommercialResidentialMember us-gaap:SubstandardMember 2019-12-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-12-31 0000700564 fult:ConstructionCommercialandCommercialResidentialMember us-gaap:PassMember 2019-12-31 0000700564 fult:CommercialSecuredMember us-gaap:SpecialMentionMember 2019-12-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:SpecialMentionMember 2019-12-31 0000700564 fult:CommercialSecuredMember us-gaap:SubstandardMember 2019-12-31 0000700564 fult:CommercialUnsecuredMember us-gaap:SpecialMentionMember 2019-12-31 0000700564 fult:ConstructionCommercialandCommercialResidentialMember us-gaap:SpecialMentionMember 2019-12-31 0000700564 us-gaap:CommercialPortfolioSegmentMember 2019-12-31 0000700564 fult:CommercialLoansCommericalMortgagesConstructionsLoansMember us-gaap:PassMember 2019-12-31 0000700564 fult:ConstructionCommercialandCommercialResidentialMember 2019-12-31 0000700564 fult:CommercialSecuredMember us-gaap:PassMember 2019-12-31 0000700564 fult:ConstructionCommercialMember 2019-12-31 0000700564 fult:CommercialSecuredMember 2019-12-31 0000700564 fult:ConstructionCommercialResidentialMember us-gaap:SpecialMentionMember 2019-12-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:SubstandardMember 2019-12-31 0000700564 fult:ConstructionCommercialMember us-gaap:PassMember 2019-12-31 0000700564 fult:ConstructionCommercialResidentialMember us-gaap:PassMember 2019-12-31 0000700564 fult:CommercialUnsecuredMember us-gaap:PassMember 2019-12-31 0000700564 fult:ConstructionCommercialMember us-gaap:SpecialMentionMember 2019-12-31 0000700564 fult:ConstructionCommercialResidentialMember 2019-12-31 0000700564 us-gaap:CommercialPortfolioSegmentMember us-gaap:SubstandardMember 2019-12-31 0000700564 fult:CommercialUnsecuredMember us-gaap:SubstandardMember 2019-12-31 0000700564 fult:ConstructionCommercialandCommercialResidentialMember us-gaap:SubstandardMember 2019-12-31 0000700564 us-gaap:CommercialPortfolioSegmentMember us-gaap:SpecialMentionMember 2019-12-31 0000700564 us-gaap:CommercialPortfolioSegmentMember us-gaap:PassMember 2019-12-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-03-31 0000700564 us-gaap:CommercialPortfolioSegmentMember 2019-03-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember 2019-03-31 0000700564 fult:LeasingAndOtherAndOverdraftsMember 2019-03-31 0000700564 us-gaap:ConstructionLoansMember 2019-03-31 0000700564 us-gaap:HomeEquityMember 2019-03-31 0000700564 us-gaap:ConsumerPortfolioSegmentMember 2019-03-31 0000700564 us-gaap:ConsumerPortfolioSegmentMember 2019-01-01 2019-03-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember 2018-12-31 0000700564 us-gaap:HomeEquityMember 2019-01-01 2019-03-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-01-01 2019-03-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember 2019-01-01 2019-03-31 0000700564 us-gaap:ConstructionLoansMember 2019-01-01 2019-03-31 0000700564 fult:LeasingAndOtherAndOverdraftsMember 2019-01-01 2019-03-31 0000700564 us-gaap:CommercialPortfolioSegmentMember 2019-01-01 2019-03-31 0000700564 us-gaap:HomeEquityMember 2018-12-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember 2018-12-31 0000700564 us-gaap:ConstructionLoansMember 2018-12-31 0000700564 fult:LeasingAndOtherAndOverdraftsMember 2018-12-31 0000700564 us-gaap:ConsumerPortfolioSegmentMember 2018-12-31 0000700564 us-gaap:CommercialPortfolioSegmentMember 2018-12-31 0000700564 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-03-31 0000700564 us-gaap:ConstructionLoansMember 2020-03-31 0000700564 us-gaap:ConsumerPortfolioSegmentMember 2020-03-31 0000700564 us-gaap:ConstructionLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-03-31 0000700564 fult:LeasingAndOtherAndOverdraftsMember 2020-03-31 0000700564 fult:LeasingAndOtherAndOverdraftsMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-03-31 0000700564 fult:LeasingAndOtherAndOverdraftsMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-03-31 0000700564 us-gaap:CommercialPortfolioSegmentMember 2020-03-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-03-31 0000700564 us-gaap:HomeEquityMember 2020-03-31 0000700564 us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-03-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember 2020-03-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-03-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-03-31 0000700564 us-gaap:HomeEquityMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-03-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-03-31 0000700564 us-gaap:HomeEquityMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-03-31 0000700564 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-03-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-03-31 0000700564 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-03-31 0000700564 us-gaap:ConstructionLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-03-31 0000700564 us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-03-31 0000700564 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-03-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember fult:LoansExcludingOBSCreditExposureMember us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember 2020-01-01 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember fult:LeasingAndOtherAndOverdraftsMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:ConsumerPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:ConsumerPortfolioSegmentMember 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:ConstructionLoansMember 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:ConstructionLoansMember 2020-01-01 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember fult:LeasingAndOtherAndOverdraftsMember 2020-01-01 2020-03-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember fult:LoansExcludingOBSCreditExposureMember us-gaap:ConstructionLoansMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:CommercialPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:ResidentialPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:ResidentialPortfolioSegmentMember 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:ConstructionLoansMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:HomeEquityMember 2020-03-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember fult:LoansExcludingOBSCreditExposureMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:HomeEquityMember 2020-01-01 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember fult:LoansExcludingOBSCreditExposureMember fult:LeasingAndOtherAndOverdraftsMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:HomeEquityMember 2019-12-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember fult:LoansExcludingOBSCreditExposureMember us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember fult:LoansExcludingOBSCreditExposureMember us-gaap:CommercialPortfolioSegmentMember 2019-12-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember fult:LoansExcludingOBSCreditExposureMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:CommercialPortfolioSegmentMember 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember fult:LeasingAndOtherAndOverdraftsMember 2020-03-31 0000700564 fult:LoansExcludingOBSCreditExposureMember 2020-03-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember fult:LoansExcludingOBSCreditExposureMember us-gaap:HomeEquityMember 2019-12-31 0000700564 fult:LoansExcludingOBSCreditExposureMember us-gaap:CommercialPortfolioSegmentMember 2019-12-31 0000700564 fult:ConsumerDirectMember 2020-03-31 0000700564 fult:ConsumerDirectMember 2019-12-31 0000700564 us-gaap:CommercialRealEstateMember 2020-03-31 0000700564 us-gaap:HomeEquityMember 2019-12-31 0000700564 us-gaap:CommercialRealEstateMember 2019-12-31 0000700564 us-gaap:ResidentialMortgageMember 2020-03-31 0000700564 fult:CommercialSecuredMember 2020-03-31 0000700564 us-gaap:ResidentialMortgageMember 2019-12-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember 2020-01-01 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:SubstandardMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember us-gaap:SpecialMentionMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:SpecialMentionMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember us-gaap:SubstandardMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:SpecialMentionMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:PassMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember us-gaap:SubstandardMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember us-gaap:PassMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember us-gaap:PassMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember us-gaap:SpecialMentionMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember us-gaap:SpecialMentionMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:SpecialMentionMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:SubstandardMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:PassMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:SubstandardMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember us-gaap:PassMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:PassMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember us-gaap:SubstandardMember 2020-03-31 0000700564 fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember 2020-01-01 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember us-gaap:SubstandardMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:SubstandardMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialPortfolioSegmentMember us-gaap:PassMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember fult:ConstructionRealEstateMember us-gaap:SpecialMentionMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:PassMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:SpecialMentionMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PortfolioSegmentandLoanClassMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember 2020-01-01 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember 2020-01-01 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember 2020-01-01 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember 2020-01-01 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember 2020-01-01 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember 2020-01-01 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember us-gaap:NonperformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember 2020-03-31 0000700564 fult:ConversiontoTermLoanMember fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember us-gaap:PerformingFinancingReceivableMember 2020-03-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:NonperformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember fult:DelinquentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember fult:DelinquentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember us-gaap:PerformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConsumerIndirectMember fult:DelinquentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConsumerIndirectMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember us-gaap:PerformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember fult:DelinquentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember fult:DelinquentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConsumerIndirectMember us-gaap:NonperformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConsumerIndirectMember us-gaap:PerformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:PerformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConsumerDirectMember us-gaap:NonperformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember us-gaap:PerformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember us-gaap:PerformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember us-gaap:PerformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember fult:DelinquentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember us-gaap:NonperformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember us-gaap:NonperformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:HomeEquityMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConsumerDirectMember fult:DelinquentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConsumerDirectMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ConsumerPortfolioSegmentMember us-gaap:NonperformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:LeasingAndOtherAndOverdraftsMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:DelinquentMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConsumerDirectMember us-gaap:PerformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember fult:ConstructionOtherMember us-gaap:NonperformingFinancingReceivableMember 2019-12-31 0000700564 fult:PaymentActivityAgingStatusMember us-gaap:ResidentialPortfolioSegmentMember us-gaap:NonperformingFinancingReceivableMember 2019-12-31 0000700564 fult:OffBalanceSheetMember 2020-01-01 2020-03-31 0000700564 srt:MinimumMember 2020-01-01 2020-03-31 0000700564 fult:OffBalanceSheetMember fult:CumulativeEffectPeriodofAdoptionAdjustmentMember 2019-12-31 0000700564 srt:MinimumMember 2020-03-31 0000700564 fult:ConstructionCommercialResidentialMember 2020-03-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0000700564 fult:LeasingAndOtherAndOverdraftsMember 2019-12-31 0000700564 us-gaap:ConstructionLoansMember 2019-12-31 0000700564 us-gaap:FinanceLeasesPortfolioSegmentMember 2019-12-31 0000700564 us-gaap:BankOverdraftsMember 2019-12-31 0000700564 us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0000700564 us-gaap:BankOverdraftsMember 2020-03-31 0000700564 us-gaap:FinanceLeasesPortfolioSegmentMember 2020-03-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:CommercialSecuredMember 2020-01-01 2020-03-31 0000700564 us-gaap:HomeEquityMember 2020-01-01 2020-03-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember 2020-01-01 2020-03-31 0000700564 fult:CommercialSecuredMember 2019-01-01 2019-03-31 0000700564 fult:CumulativeEffectPeriodofAdoptionAdjustmentMember 2019-12-31 0000700564 fult:LeasingAndOtherAndOverdraftsMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0000700564 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0000700564 us-gaap:HomeEquityMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0000700564 us-gaap:ConstructionLoansMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0000700564 fult:LeasingAndOtherAndOverdraftsMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0000700564 us-gaap:HomeEquityMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0000700564 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0000700564 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0000700564 us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0000700564 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0000700564 us-gaap:ConstructionLoansMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0000700564 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0000700564 us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0000700564 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0000700564 us-gaap:ResidentialMortgageMember 2019-03-31 0000700564 us-gaap:ResidentialMortgageMember 2020-01-01 2020-03-31 0000700564 us-gaap:ResidentialMortgageMember 2020-03-31 0000700564 us-gaap:ResidentialMortgageMember 2018-12-31 0000700564 us-gaap:ResidentialMortgageMember 2019-12-31 0000700564 us-gaap:ResidentialMortgageMember 2019-01-01 2019-03-31 0000700564 fult:MortgageBankingDerivativesMember 2020-01-01 2020-03-31 0000700564 us-gaap:InterestRateSwapMember 2019-01-01 2019-03-31 0000700564 us-gaap:InterestRateSwapMember 2020-01-01 2020-03-31 0000700564 us-gaap:ForeignExchangeContractMember 2020-01-01 2020-03-31 0000700564 fult:MortgageBankingDerivativesMember 2019-01-01 2019-03-31 0000700564 us-gaap:ForeignExchangeContractMember 2019-01-01 2019-03-31 0000700564 fult:MortgageLoansHeldForSaleMember 2019-01-01 2019-03-31 0000700564 fult:MortgageLoansHeldForSaleMember 2020-01-01 2020-03-31 0000700564 us-gaap:EstimateOfFairValueFairValueDisclosureMember fult:MortgageLoansHeldForSaleMember 2019-12-31 0000700564 fult:CostMember fult:MortgageLoansHeldForSaleMember 2020-03-31 0000700564 fult:CostMember fult:MortgageLoansHeldForSaleMember 2019-12-31 0000700564 us-gaap:EstimateOfFairValueFairValueDisclosureMember fult:MortgageLoansHeldForSaleMember 2020-03-31 0000700564 fult:InterestRateSwapWithCounterpartyMember 2020-03-31 0000700564 us-gaap:ForwardContractsMember 2020-03-31 0000700564 fult:InterestRateSwapWithCounterpartyMember 2019-12-31 0000700564 us-gaap:ForwardContractsMember 2019-12-31 0000700564 fult:InterestRateSwapWithCustomerMember 2019-12-31 0000700564 fult:ForeignExchangeContractsWithCustomerMember 2020-03-31 0000700564 fult:ForeignExchangeContractsWithCorrespondentBanksMember 2020-03-31 0000700564 fult:ForeignExchangeContractsWithCorrespondentBanksMember 2019-12-31 0000700564 fult:InterestRateSwapWithCustomerMember 2020-03-31 0000700564 us-gaap:InterestRateLockCommitmentsMember 2019-12-31 0000700564 us-gaap:InterestRateLockCommitmentsMember 2020-03-31 0000700564 fult:ForeignExchangeContractsWithCustomerMember 2019-12-31 0000700564 us-gaap:ForeignExchangeContractMember 2020-03-31 0000700564 us-gaap:InterestRateSwapMember 2020-03-31 0000700564 us-gaap:ForeignExchangeContractMember 2019-12-31 0000700564 us-gaap:InterestRateSwapMember 2019-12-31 0000700564 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-01-01 2019-03-31 0000700564 us-gaap:AccumulatedOtherThanTemporaryImpairmentMember 2019-01-01 2019-03-31 0000700564 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0000700564 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-01-01 2020-03-31 0000700564 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-12-31 0000700564 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-03-31 0000700564 us-gaap:AccumulatedOtherThanTemporaryImpairmentMember 2020-01-01 2020-03-31 0000700564 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-01-01 2020-03-31 0000700564 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-03-31 0000700564 us-gaap:AccumulatedOtherThanTemporaryImpairmentMember 2019-03-31 0000700564 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-03-31 0000700564 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0000700564 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-12-31 0000700564 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedOtherThanTemporaryImpairmentMember 2019-01-01 2019-03-31 0000700564 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-12-31 0000700564 us-gaap:AccumulatedOtherThanTemporaryImpairmentMember 2020-03-31 0000700564 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2020-03-31 0000700564 us-gaap:AccumulatedOtherThanTemporaryImpairmentMember 2018-12-31 0000700564 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2020-01-01 2020-03-31 0000700564 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0000700564 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2020-01-01 2020-03-31 0000700564 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedOtherThanTemporaryImpairmentMember 2020-01-01 2020-03-31 0000700564 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-03-31 0000700564 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-03-31 0000700564 us-gaap:AccumulatedOtherThanTemporaryImpairmentMember 2019-12-31 0000700564 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-01-01 2019-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USStatesAndPoliticalSubdivisionsMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USStatesAndPoliticalSubdivisionsMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CollateralizedMortgageObligationsMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:ResidentialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CollateralizedMortgageObligationsMember 2020-03-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:ResidentialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USStatesAndPoliticalSubdivisionsMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:ResidentialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateDebtSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateDebtSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateDebtSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:USStatesAndPoliticalSubdivisionsMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CollateralizedMortgageObligationsMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:ResidentialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CollateralizedMortgageObligationsMember 2020-03-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateDebtSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialMortgageBackedSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2019-01-01 2019-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:PooledTrustPreferredSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:PooledTrustPreferredSecuritiesMember 2019-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2020-01-01 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:PooledTrustPreferredSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2020-01-01 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:PooledTrustPreferredSecuritiesMember 2019-01-01 2019-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2019-01-01 2019-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:PooledTrustPreferredSecuritiesMember 2020-01-01 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:PooledTrustPreferredSecuritiesMember 2018-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2019-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2018-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2018-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2019-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember fult:OtherCorporateDebtMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2020-03-31 0000700564 us-gaap:ForwardContractsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000700564 us-gaap:ForeignExchangeContractMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2020-03-31 0000700564 us-gaap:ForwardContractsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000700564 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2019-12-31 0000700564 us-gaap:ForeignExchangeContractMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000700564 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember fult:FinancialInstitutionsSubordinatedDebtMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignExchangeContractMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember fult:FinancialInstitutionsSubordinatedDebtMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember fult:SingleIssuerTrustPreferredSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignExchangeContractMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CollateralizedMortgageObligationsMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:ResidentialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USStatesAndPoliticalSubdivisionsMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CollateralizedMortgageObligationsMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateDebtSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateDebtSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USStatesAndPoliticalSubdivisionsMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:USStatesAndPoliticalSubdivisionsMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateDebtSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CollateralizedMortgageObligationsMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CollateralizedMortgageObligationsMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:USStatesAndPoliticalSubdivisionsMember 2019-12-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:CorporateDebtSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:CommercialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:ResidentialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:ResidentialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueMeasurementsRecurringMember us-gaap:AuctionRateSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember us-gaap:ResidentialMortgageBackedSecuritiesMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-12-31 0000700564 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-03-31 0000700564 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-12-31 0000700564 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel1Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-03-31 0000700564 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-12-31 0000700564 us-gaap:FairValueInputsLevel3Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-03-31 0000700564 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember fult:OtherCorporateDebtMember 2019-12-31 0000700564 fult:DirectorsPlanMember 2020-03-31 0000700564 fult:EmployeeEquityPlanMember 2020-03-31 0000700564 fult:EmployeeEquityPlanMember 2020-01-01 2020-03-31 0000700564 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2020-01-01 2020-03-31 0000700564 us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember 2019-01-01 2019-03-31 0000700564 us-gaap:PensionPlansDefinedBenefitMember 2020-01-01 2020-03-31 0000700564 us-gaap:PensionPlansDefinedBenefitMember 2019-01-01 2019-03-31 0000700564 us-gaap:StandbyLettersOfCreditMember 2019-12-31 0000700564 us-gaap:CommitmentsToExtendCreditMember 2019-12-31 0000700564 fult:CommercialLettersOfCreditMember 2019-12-31 0000700564 us-gaap:StandbyLettersOfCreditMember 2020-03-31 0000700564 fult:CommercialLettersOfCreditMember 2020-03-31 0000700564 us-gaap:CommitmentsToExtendCreditMember 2020-03-31 0000700564 us-gaap:AccountingStandardsUpdate201613Member us-gaap:ResidentialMortgageMember 2020-01-01 0000700564 fult:A3.25Notesdue2030Member us-gaap:SubordinatedDebtMember 2020-03-31 0000700564 fult:A3.75Notesdue2035Member us-gaap:SubordinatedDebtMember 2020-03-31 xbrli:shares iso4217:USD xbrli:pure fult:Security iso4217:USD xbrli:shares fult:loans



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549 

FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020, or

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission File No. 0-10587
FULTON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter) 
Pennsylvania
 
 
23-2195389
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
One Penn Square
P.O. Box 4887
Lancaster,
Pennsylvania
 
17604
(Address of principal executive offices)
 
(Zip Code)
(717) 291-2411
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $2.50
FULT
The Nasdaq Stock Market, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
☒
  
Accelerated filer
 
☐
Non-accelerated filer
 
☐
  
Smaller reporting company
 
☐
 
 
 
 
Emerging growth company
 
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common Stock, $2.50 Par Value –161,794,000 shares outstanding as of May 1, 2020.

1



FULTON FINANCIAL CORPORATION
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2020
INDEX
 
Description
Page
 
 
 
 
 
 
 
 
 
Glossary of Terms
 
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
(a)
 
 
 
(b)
 
 
 
(c)
 
 
 
(d)
 
 
 
(e)
 
 
 
(f)
 
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 4. Mine Safety Disclosures - (not applicable)
 
 
 
 
Item 5. Other Information - (none to be reported)
 
 
 
 
 
 
 
 
 
 


2



FULTON FINANCIAL CORPORATION
GLOSSARY OF DEFINED ACRONYMS AND TERMS
 
 
 
ACL
 
Allowance for Credit Losses
AFS
 
Available for Sale
ALCO
 
Asset/Liability Management Committee
AML
 
Anti-Money Laundering
ARC
 
Auction Rate Security
ASC
 
Accounting Standards Codification
ASU
 
Accounting Standards Update
bp
 
basis point(s)
BSA
 
Bank Secrecy Act
CARES Act
 
Coronavirus Aid, Relief, and Economic Security Act
CECL
 
Current Expected Credit Losses
Corporation or Company
 
Fulton Financial Corporation
COVID-19
 
Coronavirus
ETR
 
Effective Tax Rate
Exchange Act
 
Securities Exchange Act of 1934
EAD
 
Exposure at default
FASB
 
Financial Accounting Standards Board
FDIC
 
Federal Deposit Insurance Corporation
Fed Funds Rate
 
Target Federal Funds Rate
FHLB
 
Federal Home Loan Bank
FOMC
 
Federal Open Market Committee
FRB
 
Federal Reserve Bank
FTE
 
Fully Taxable-Equivalent
Fulton Bank or the Bank
 
Fulton Bank, N.A.
GAAP
 
U.S. Generally Accepted Accounting Principles
HTM
 
Held to Maturity
LGD
 
Loss given default
LIBOR
 
London Interbank Offered Rate
MSRs
 
Mortgage Servicing Rights
NIM
 
Net Interest Margin
Net Loans
 
Loans and lease receivables, (net of unearned income)
OBS
 
Off-Balance-Sheet
OREO
 
Other Real Estate Owned
OTTI
 
Other-than-temporary impairment
PD
 
Probability of default
PPP
 
Paycheck Protection Program
PSU
 
Performance-Based Restricted Stock Unit
RSU
 
Restricted Stock Unit
SBA
 
Small Business Administration
SEC
 
United States Securities and Exchange Commission
TCI
 
Tax Credit Investment
TDR
 
Troubled Debt Restructuring
TruPS
 
Trust Preferred Securities


3




Item 1. Financial Statements
 

CONSOLIDATED BALANCE SHEETS 
 
(in thousands, except per-share data)
 
March 31,
2020
 
December 31,
2019
 
(unaudited)
 
ASSETS
 
 
 
Cash and due from banks
$
181,777

 
$
132,283

Interest-bearing deposits with other banks
674,583

 
385,508

        Cash and cash equivalents
856,360

 
517,791

FRB and FHLB stock
118,989

 
97,422

Loans held for sale
40,645

 
37,828

Investment securities:
 
 
 
AFS, at estimated fair value
2,790,834

 
2,497,537

HTM, at amortized cost
350,606

 
369,841

Loans
17,077,403

 
16,837,526

Less: ACL - loans
(238,508
)
 
(163,622
)
Net loans
16,838,895

 
16,673,904

Premises and equipment
236,908

 
240,046

Accrued interest receivable
59,365

 
60,898

Goodwill and intangible assets
535,171

 
535,303

Other assets
1,102,086

 
855,470

Total Assets
$
22,929,859

 
$
21,886,040

LIABILITIES
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
4,531,872

 
$
4,453,324

Interest-bearing
12,833,154

 
12,940,589

Total Deposits
17,365,026

 
17,393,913

Short-term borrowings
1,386,808

 
883,241

Accrued interest payable
10,890

 
8,834

Long-term borrowings
1,378,466

 
881,769

Other liabilities
502,921

 
376,107

Total Liabilities
20,644,111

 
19,543,864

SHAREHOLDERS’ EQUITY
 
 
 
Common stock, $2.50 par value, 600 million shares authorized, 222.5 million shares issued in 2020 and 222.4 million issued in 2019
556,243

 
556,110

Additional paid-in capital
1,502,189

 
1,499,681

Retained earnings
1,040,646

 
1,079,391

Accumulated other comprehensive gain (loss)
18,308

 
(137
)
Treasury stock, at cost, 61.1 million shares in 2020 and 58.2 million shares in 2019
(831,638
)
 
(792,869
)
Total Shareholders’ Equity
2,285,748

 
2,342,176

Total Liabilities and Shareholders’ Equity
$
22,929,859

 
$
21,886,040

 
 
 
 
See Notes to Consolidated Financial Statements
 
 
 
 

4



CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
(in thousands, except per-share data)
Three months ended March 31
 
2020
 
2019
INTEREST INCOME
 
 
 
Loans, including fees
$
175,523

 
$
183,744

Investment securities:
 
 
 
Taxable
16,294

 
15,435

Tax-exempt
4,709

 
3,279

Loans held for sale
320

 
240

Other interest income
2,532

 
2,002

Total Interest Income
199,378

 
204,700

INTEREST EXPENSE
 
 
 
Deposits
26,440

 
29,689

Short-term borrowings
4,073

 
3,582

Long-term borrowings
8,119

 
8,114

Total Interest Expense
38,632

 
41,385

Net Interest Income
160,746

 
163,315

Provision for credit losses
44,030

 
5,100

Net Interest Income After Provision for Credit Losses
116,716

 
158,215

NON-INTEREST INCOME
 
 
 
Wealth management
15,055

 
13,239

Commercial banking
18,419

 
15,250

Consumer banking
11,239

 
11,377

Mortgage banking
6,234

 
4,772

Other
3,651

 
2,048

Non-Interest Income Before Investment Securities Gains
54,598

 
46,686

Investment securities gains, net
46

 
65

Total Non-Interest Income
54,644

 
46,751

NON-INTEREST EXPENSE
 
 
 
Salaries and employee benefits
80,228

 
77,757

Net occupancy
13,486

 
12,909

Data processing and software
11,645

 
10,353

Other outside services
7,881

 
8,352

Professional fees
4,202

 
3,960

Equipment
3,418

 
3,342

State Taxes
2,804

 
2,002

FDIC insurance
2,808

 
2,609

Marketing
1,579

 
2,160

Amortization of TCI
1,450

 
1,491

Intangible amortization
132

 
107

Other
12,919

 
12,782

Total Non-Interest Expense
142,552

 
137,824

Income Before Income Taxes
28,808

 
67,142

Income taxes
2,761

 
10,479

Net Income
$
26,047

 
$
56,663

PER SHARE:
 
 
 
Net Income (Basic)
$
0.16

 
$
0.33

Net Income (Diluted)
0.16

 
0.33

Cash Dividends
0.13

 
0.13

See Notes to Consolidated Financial Statements
 
 
 

5



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
(in thousands)
 
Three months ended March 31
 
2020
 
2019
 
 
Net Income
$
26,047

 
$
56,663

Other Comprehensive Income, net of tax:
 
 
 
Unrealized gain on securities
17,431

 
20,298

Reclassification adjustment for securities gains included in net income
(36
)
 
(51
)
Amortization of net unrealized losses on AFS securities transferred to HTM
795

 
974

Non-credit related unrealized (loss) on other-than-temporarily impaired debt securities
—

 
(82
)
Amortization of net unrecognized pension and postretirement income
255

 
291

Other Comprehensive Income
18,445

 
21,430

Total Comprehensive Income
$
44,492

 
$
78,093

 
 
 
 
See Notes to Consolidated Financial Statements
 
 
 


6



CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
 
(in thousands, except per-share data)
 
Common Stock
 
 
 
Retained
Earnings
 
 
 
Treasury
Stock
 
Total
 
Shares
Outstanding
 
Amount
 
Additional Paid-in
Capital
 
Accumulated
Other Comprehensive
Income (Loss)
 
Three months ended March 31, 2020
 
Balance at December 31, 2019
164,218

 
$
556,110

 
$
1,499,681

 
$
1,079,391

 
$
(137
)
 
$
(792,869
)
 
$
2,342,176

Net income

 

 

 
26,047

 

 

 
26,047

Other comprehensive income

 

 

 

 
18,445

 

 
18,445

Stock issued
125

 
133

 
889

 

 

 
979

 
2,001

Stock-based compensation awards

 

 
1,619

 

 

 

 
1,619

Acquisition of treasury stock
(2,908
)
 
 
 
 
 
 
 
 
 
(39,748
)
 
(39,748
)
Impact of adopting CECL (1)
 
 
 
 
 
 
(43,807
)
 
 
 
 
 
(43,807
)
Common stock cash dividends - $0.13 per share

 

 

 
(20,985
)
 

 

 
(20,985
)
Balance at March 31, 2020
161,435

 
$
556,243

 
$
1,502,189

 
$
1,040,646

 
$
18,308

 
$
(831,638
)
 
$
2,285,748

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
170,184

 
$
554,377

 
$
1,489,703

 
$
946,032

 
$
(59,063
)
 
$
(683,476
)
 
$
2,247,573

Net income

 

 

 
56,663

 

 

 
56,663

Other comprehensive income

 

 

 

 
21,430

 

 
21,430

Stock issued
115

 
108

 
607

 

 

 
942

 
1,657

Stock-based compensation awards

 

 
1,560

 

 

 

 
1,560

Acquisition of treasury stock
(376
)
 
 
 
 
 
 
 
 
 
(5,877
)
 
(5,877
)
Common stock cash dividends - $0.13 per share

 

 

 
(21,987
)
 

 

 
(21,987
)
Balance at March 31, 2019
169,923

 
$
554,485

 
$
1,491,870

 
$
980,708

 
$
(37,633
)
 
$
(688,411
)
 
$
2,301,019

 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) The Corporation adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments effective January 1, 2020. See Note 1, "Basis of Presentation" to the Consolidated Financial Statements for further details.

7



CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
(in thousands)
Three months ended March 31
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
26,047

 
$
56,663

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Provision for credit losses
44,030

 
5,100

Depreciation and amortization of premises and equipment
7,161

 
6,888

Amortization of TCI
7,619

 
8,155

Net amortization of investment securities premiums
2,707

 
2,075

Investment securities gains, net
(46
)
 
(65
)
Gain on sales of mortgage loans held for sale
(6,181
)
 
(3,122
)
Proceeds from sales of mortgage loans held for sale
195,649

 
142,739

Originations of mortgage loans held for sale
(192,285
)
 
(140,286
)
Intangible amortization
132

 
107

Amortization of issuance costs and discounts on long-term debt
250

 
211

Stock-based compensation
1,619

 
1,560

Other changes, net
(133,579
)
 
(41,754
)
Total adjustments
(72,924
)
 
(18,392
)
Net cash (used in) provided by operating activities
(46,877
)
 
38,271

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from sales of securities AFS
59,894

 
37,660

Proceeds from principal repayments and maturities of AFS securities
61,408

 
51,097

Proceeds from principal repayments and maturities of HTM securities
19,758

 
18,687

Purchase of securities AFS
(390,936
)
 
(143,588
)
Purchase of FRB and FHLB stock
(21,567
)
 
(6,250
)
Net increase in loans
(250,993
)
 
(101,123
)
Net purchases of premises and equipment
(4,023
)
 
(11,363
)
Net cash paid for acquisition
—

 
(3,907
)
Net change in tax credit investments
(128
)
 
(8,003
)
Net cash used in investing activities
(526,587
)
 
(166,790
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net decrease in demand and savings deposits
(34,866
)
 
(108,185
)
Net increase in time deposits
5,979

 
110,004

Net increase in short-term borrowings
503,567

 
74,239

Additions to long-term debt
496,461

 
75,000

Repayments of long-term debt
(13
)
 
(2,026
)
Net proceeds from issuance of common stock
2,001

 
1,657

Dividends paid
(21,348
)
 
(20,592
)
Acquisition of treasury stock
(39,748
)
 
(5,877
)
Net cash provided by financing activities
912,033

 
124,220

Net Increase (Decrease) in Cash and Cash Equivalents
338,569

 
(4,299
)
Cash and Cash Equivalents at Beginning of Period
517,791

 
445,687

Cash and Cash Equivalents at End of Period
$
856,360

 
$
441,388

Supplemental Disclosures of Cash Flow Information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
36,576

 
$
40,695

Income taxes
1,072

 
1,485

See Notes to Consolidated Financial Statements
 
 
 
 

8



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

The accompanying unaudited Consolidated Financial Statements of Fulton Financial Corporation have been prepared in conformity with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements as well as revenues and expenses during the period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The Corporation evaluates subsequent events through the date of filing of this Form 10-Q with the SEC.

CECL Adoption and Updated Significant Accounting Policy

On January 1, 2020, the Corporation adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology, and is referred to as CECL. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loans and HTM debt securities. It also applies to OBS credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with ASC Topic 842.

The Corporation adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net of investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Corporation recorded an overall increase of $58.3 million to the ACL on January 1, 2020 as a result of the adoption of CECL. Retained earnings decreased $43.8 million and deferred tax assets increased by $12.4 million. Included in the $58.3 million increase to the ACL was $2.1 million for certain OBS credit exposures that was previously recognized in other liabilities before the adoption of CECL.

Loans: Loans are stated at their principal amount outstanding, except for mortgage loans held for sale, which are carried at fair value. Interest income on loans is accrued as earned. Unearned income on lease financing receivables is recognized on a basis which approximates the effective yield method.

In general, loans are placed on non-accrual status once they become 90 days delinquent as to principal or interest. 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 loan 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 secured and in the process of collection. The Corporation generally applies payments received on non-accruing loans to principal until such time as the principal is paid off, after which time any payments received are recognized as interest income. If the Corporation believes that all amounts outstanding on a non-accrual loan will ultimately be collected, payments received subsequent to its classification as a non-accrual loan are allocated between interest income and principal.

A loan that is 90 days delinquent may continue to accrue interest if the loan is both adequately secured and is in the process of collection. Past due status is determined based on contractual due dates for loan payments. An adequately secured loan is one that has collateral with a supported fair value that is sufficient to discharge the debt, and/or has an enforceable guarantee from a financially responsible party. A loan is considered to be in the process of collection if collection is proceeding through legal action or through other activities that are reasonably expected to result in repayment of the debt or restoration to current status in the near future.

Loans deemed to be a loss are written off through a charge against the ACL. Closed-end consumer loans are generally charged off when they become 120 days past due (180 days for open-end consumer loans) if they are not adequately secured by real estate. All other loans are evaluated for possible charge-off when it is probable that the balance will not be collected, based on the ability

9



of the borrower to pay and the value of the underlying collateral, if any. Principal recoveries of loans previously charged off are recorded as increases to the ACL.

Loan Origination Fees and Costs: Loan origination fees and the related direct origination costs are deferred and amortized over the life of the loan as an adjustment to interest income using the effective yield method. For mortgage loans sold, net loan origination fees and costs are included in the gain or loss on sale of the related loan, as components of mortgage banking.

Troubled Debt Restructurings: Loans are accounted for and reported as TDRs when, for economic or legal reasons, the Corporation grants a concession to a borrower experiencing financial difficulty that it would not otherwise consider. Concessions, whether negotiated or imposed by bankruptcy, granted under a TDR typically involve a temporary deferral of scheduled loan payments, an extension of a loan’s stated maturity date or a reduction in the interest rate. Non-accrual TDRs can be restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification.

On April 7, 2020, Troubled Debt Restructurings: Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by COVID-19 was issued by the federal banking regulatory agencies. Included in the Interagency Statement were provisions permitting banks that grant loan modifications to customers impacted by COVID-19 to exclude those modifications from loans categorized as TDRs. The Corporation is adopting the guidance in this Interagency Statement effective for COVID-19-related modifications occurring subsequent to March 13, 2020.

Allowance for Credit Losses: The discussion that follows describes the methodology for determining the ACL under the CECL model that was adopted effective January 1, 2020. The allowance methodology for prior periods is disclosed in the Corporation’s 2019 Annual Report on Form 10-K.

The Corporation has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.

Loans: The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses. The ACL also includes certain qualitative adjustments to the CECL model.

Loans Evaluated Collectively: Loans evaluated collectively for expected credit losses include loans on accrual status, excluding accruing TDRs, and loans initially evaluated individually but determined to not to have enhanced credit risk characteristics. This category includes loans on non-accrual status and TDRs where the total commitment amount is less than $1 million. In order to determine the ACL:

•
Loans aggregated into pools based on similar risk characteristics.
•
The PD and LGD CECL model components are determined based on loss estimates driven by historical experience at the input level.
•
The PD model component uses "through the economic cycle transition" matrices based on the Corporation's historical loan and transaction data across each pool of loans.
•
The LGD model component calculates a lifetime LGD estimate across each pool of loans utilizing a nonparametric loss curve modeling approach.
•
Reasonable and supportable forecasts are incorporated into the PD model component.
•
Reasonable and supportable forecast periods are based on different economic forecasts and scenarios sourced from an external party. A future loss forecast over the reasonable and supportable forecast period is based on the projected performance of specific economic variables that statistically correlate with the PD and LGD pools. After the reasonable and supportable forecast period, loss estimates naturally revert to input-level reversion.
•
Cash flow assumptions are established for each loan using maturity date, amortization schedule and interest rate.
•
A constant prepayment rate is calculated for each loan pool in the CECL model.

Loans Evaluated Individually: Loans evaluated individually for expected credit losses include loans on non-accrual status and TDRs where the commitment amount equals or exceeds $1 million. The required ACL for such loans is determined using either the present value of expected future cash flows, observable market price or the fair value of collateral.

Loans evaluated individually may have specific allocations assigned if the measured value of the loan using one of the noted techniques is less than its current carrying value. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

10



For loans secured by real estate, estimated fair values are determined primarily through appraisals performed by third-party appraisers, discounted to arrive at expected net sale proceeds. For collateral dependent loans, estimated real estate fair values are also net of estimated selling costs. When a real estate secured loan is impaired, a decision is made regarding whether an updated appraisal of the real estate is necessary. This decision is based on various considerations, including: the age of the most recent appraisal; the loan-to-value ratio based on the original appraisal; the condition of the property; the Corporation’s experience and knowledge of the real estate market; the purpose of the loan; market factors; payment status; the strength of any guarantors; and the existence and age of other indications of value such as broker price opinions, among others. The Corporation generally obtains updated appraisals performed by third-party appraisers for impaired loans secured predominantly by real estate every 12 months.

When updated appraisals are not obtained for loans secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated an acceptable loan-to-value position and there has not been a significant deterioration in the collateral value since the original appraisal was performed.

For loans with principal balances greater than or equal to $1.0 million secured by non-real estate collateral, such as accounts receivable or inventory, estimated fair values are determined based on borrower financial statements, inventory listings, accounts receivable agings or borrowing base certificates. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. Liquidation or collection discounts are applied to these assets based upon existing loan evaluation policies.

Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal risk rating process is used. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component of the ACL methodology for these loans, which bases the PD on this migration. Assigning risk ratings involves judgment. Risk ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan.

The following is a summary of the Corporation's internal risk rating categories:

•
Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.

•
Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak.

•
Substandard or Lower: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

The allocation of the ACL is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Corporation considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type.

Qualitative and Other Adjustments to ACL: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. These include changes in lending policy, the nature and volume of the portfolio, overall business conditions in the economy, credit concentrations, competition, model imprecision, and legal and regulatory requirements. Qualitative adjustments are judgmental and are based on Management’s knowledge of the portfolio and the markets in which the Corporation operates. Qualitative adjustments are evaluated and approved on a quarterly basis. Additionally, the ACL includes other allowance categories that are not directly incorporated in the quantitative results. These include but are not limited to loans-in-process, trade acceptances and overdrafts.

OBS Credit Exposures: The ACL for OBS credit exposures is recorded in other liabilities on the consolidated balance sheets. This ACL represents management’s estimate of expected losses in its unfunded loan commitments and other OBS credit exposures, such as letters of credit and credit recourse on sold residential mortgage loans. The ACL specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for OBS credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses.


11



HTM debt securities: Expected credit losses on HTM debt securities would be recorded in the ACL on HTM debt securities. As of March 31, 2020, no HTM debt securities required an ACL as these investments consist solely of government guaranteed residential mortgage-backed securities.

AFS debt securities: The ACL approach for AFS debt securities differs from the CECL approach used for HTM debt securities as AFS debt securities are carried at fair value rather than amortized cost. Prior to the adoption of CECL, credit losses on AFS debt securities were determined using an OTTI approach. Under CECL, the concept of OTTI has been eliminated, but the general approach to determining credit losses is largely consistent with the OTTI method. Under CECL, credit losses on AFS debt securities are recognized through an ACL rather than through a direct write-down of the security. As of March 31, 2020, no AFS debt securities required an ACL.

Other Recently Adopted Accounting Standards

On January 1, 2020, the Corporation adopted ASC Update 2018-13 - Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This update changes the fair value measurement disclosure requirements of ASC Topic 820 "Fair Value Measurement." Among other things, the update modifies the disclosure objective paragraphs of ASC 820 to eliminate: (1) "at a minimum" from the phrase "an entity shall disclose at a minimum;" and (2) other similar disclosure requirements to promote the appropriate exercise of discretion by entities.

The Corporation adopted this standards update effective with its March 31, 2020 quarterly report on Form 10-Q and it did not have a material impact on its consolidated financial statements.

On January 1, 2020, the Corporation adopted ASC Update 2018-15 - Intangibles - Goodwill and Other - Internal-Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC Subtopic 350-40 to determine which implementation costs to capitalize as assets.

The Corporation adopted this standards update effective with its March 31, 2020 quarterly report on Form 10-Q and it did not have a material impact on its consolidated financial statements

In March 2020, the Corporation adopted ASC Update 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standards update provided optional guidance for a limited time to ease the potential burden in accounting for reference rate reform, specific to those using LIBOR or another reference rate expected to be discontinued due to this reform.

The Corporation adopted this standards update effective with its March 31, 2020 quarterly report on Form 10-Q and it did not have a material impact on its consolidated financial statements.























12



Recently Issued Accounting Standards

Standard
Description
Date of Anticipated Adoption
Effect on Financial Statements
ASC Update 2018-14 Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
This update amends ASC Topic 715-20 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans.

This update is effective for fiscal years ending after December 15, 2020. Early adoption is permitted.

Fiscal Year 2020
The Corporation intends to adopt this standards update effective with its December 31, 2020 annual report on Form 10-K. This standard will impact the Corporation's disclosure relating to employee benefit plans, but the Corporation does not expect the adoption of this update to have a material impact on its consolidated financial statements.

ASC Update 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
This update simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

This update is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted.
First Quarter 2021
The Corporation intends to adopt this standards update effective with its March 31, 2021 quarterly report on Form 10-Q. This update is not expected to have a material impact on the consolidated financial statements.

Reclassifications

Certain amounts in the 2019 consolidated financial statements and notes have been reclassified to conform to the 2020 presentation.

NOTE 2 – Restrictions on Cash and Cash Equivalents

The Bank is required to maintain reserves against its deposit liabilities. Prior to March 2020, reserves were in the form of cash and balances with the FRB, included in "interest-bearing deposits with other banks." The FRB suspended cash reserve requirements effective March 26, 2020. The amount of such reserves as of December 31, 2019 was $218.9 million.

In addition, collateral is posted by the Corporation with counterparties to secure derivative and other contracts, which is included in "interest-bearing deposits with other banks" on the consolidated balance sheets. The amounts of such collateral as of March 31, 2020 and December 31, 2019 were $452.9 million and $199.6 million, respectively.


13



NOTE 3 – Investment Securities

The following table presents the amortized cost and estimated fair values of investment securities:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
March 31, 2020
(in thousands)
Available for Sale
 
 
 
 
 
 
 
State and municipal securities
$
825,863

 
$
23,790

 
$
(1,569
)
 
$
848,084

Corporate debt securities
375,141

 
5,378

 
(7,041
)
 
373,478

Collateralized mortgage obligations
638,458

 
29,194

 
—

 
667,652

Residential mortgage-backed securities
214,259

 
6,370

 
—

 
220,629

Commercial mortgage-backed securities
574,860

 
12,681

 
(216
)
 
587,325

Auction rate securities
107,410

 
—

 
(13,744
)
 
93,666

   Total
$
2,735,991

 
$
77,413

 
$
(22,570
)
 
$
2,790,834

 
 
 
 
 
 
 
 
Held to Maturity
 
 
 
 
 
 
 
Residential mortgage-backed securities
$
350,606

 
$
21,667

 
$
—

 
$
372,273

 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
December 31, 2019
(in thousands)
Available for Sale
 
 
 
 
 
 
 
State and municipal securities
$
638,125

 
$
15,826

 
$
(1,024
)
 
$
652,927

Corporate debt securities
370,401

 
8,490

 
(1,534
)
 
377,357

Collateralized mortgage obligations
682,307

 
11,726

 
(315
)
 
693,718

Residential mortgage-backed securities
177,183

 
1,078

 
(949
)
 
177,312

Commercial mortgage-backed securities
489,603

 
6,471

 
(1,777
)
 
494,297

Auction rate securities
107,410

 
—

 
(5,484
)
 
101,926

   Total
$
2,465,029

 
$
43,591

 
$
(11,083
)
 
$
2,497,537

 
 
 
 
 
 
 
 
Held to Maturity
 
 
 
 
 
 
 
Residential mortgage-backed securities
$
369,841

 
$
13,864

 
$
—

 
$
383,705



Securities carried at $497.8 million at March 31, 2020 and $462.6 million at December 31, 2019, were pledged as collateral to secure public and trust deposits and customer repurchase agreements.
















14



The amortized cost and estimated fair values of debt securities as of March 31, 2020, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities as certain investment securities are subject to call or prepayment with or without call or prepayment penalties.
 
 
Available for Sale
 
Held to Maturity
 
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
(in thousands)
Due in one year or less
 
$
1,175

 
$
1,175

 
$
—

 
$
—

Due from one year to five years
 
34,996

 
35,936

 
—

 
—

Due from five years to ten years
 
355,584

 
355,472

 
—

 
—

Due after ten years
 
916,659

 
922,645

 
—

 
—

 
 
1,308,414

 
1,315,228

 
—

 
—

Residential mortgage-backed securities(1)
 
214,259

 
220,629

 
350,606

 
372,273

Commercial mortgage-backed securities(1)
 
574,860

 
587,325

 
—

 
—

Collateralized mortgage obligations(1)
 
638,458

 
667,652

 
—

 
—

  Total
 
$
2,735,991

 
$
2,790,834

 
$
350,606

 
$
372,273

 
 
 
 
 
 
 
 
 
(1) Mortgage-backed securities and collateralized mortgage obligations do not have stated maturities and are dependent upon the interest rate environment and prepayments on the underlying loans.

The following table presents information related to the gross realized gains and losses on the sales of debt securities for the three months ended:
 
Gross Realized
 
 
 

Gains
 

Losses
 
Net Gains
Three months ended March 31, 2020
(in thousands)
March 31, 2020
$
117

 
$
(71
)
 
$
46

Three months ended March 31, 2019
 
 
 
 
 
March 31, 2019
$
257

 
$
(192
)
 
$
65


The cumulative balance of credit-related OTTI charges previously recognized as components of earnings for debt securities held by the Corporation at March 31, 2019 were $11.5 million. There were no additional credit losses recognized for the three months ended March 31, 2020.
The following tables present the gross unrealized losses and estimated fair values of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of the following periods:
 
Less than 12 months
 
12 months or longer
 
Total
 
Number of Securities
 
Estimated
Fair Value
 
Unrealized
Losses
 
Number of Securities
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for Sale
 
 
(in thousands)
State and municipal securities
34

 
$
124,083

 
$
(1,569
)
 
—

 
$
—

 
$
—

 
$
124,083

 
$
(1,569
)
Corporate debt securities
15

 
159,999

 
(3,609
)
 
8

 
16,527

 
(3,432
)
 
176,526

 
(7,041
)
Commercial mortgage-backed securities
3

 
71,118

 
(216
)
 
—

 
—

 
—

 
71,118

 
(216
)
Auction rate securities
—

 
—

 
—

 
177

 
93,666

 
(13,744
)
 
93,666

 
(13,744
)
Total available for sale(1)
52

 
$
355,200

 
$
(5,394
)
 
185

 
$
110,193

 
$
(17,176
)
 
$
465,393

 
$
(22,570
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



15



 
Less than 12 months
 
12 months or longer
 
Total
 
Number of Securities
 
Estimated
Fair Value
 
Unrealized
Losses
 
Number of Securities
 
Estimated
Fair Value
 
Unrealized
Losses
 
Estimated
Fair Value
 
Unrealized
Losses
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for Sale
(in thousands)
State and municipal securities
44

 
$
136,344

 
$
(1,024
)
 
—

 
$
—

 
$
—

 
$
136,344

 
$
(1,024
)
Corporate debt securities
5

 
30,719

 
(346
)
 
8

 
18,759

 
(1,188
)
 
49,478

 
(1,534
)
Collateralized mortgage obligations
5

 
33,865

 
(190
)
 
1

 
5,330

 
(125
)
 
39,195

 
(315
)
Residential mortgage-backed securities
5

 
12,247

 
(40
)
 
26

 
127,373

 
(909
)
 
139,620

 
(949
)
Commercial mortgage-backed securities
7

 
121,340

 
(1,777
)
 
—

 
—

 
—

 
121,340

 
(1,777
)
Auction rate securities
—

 
—

 
—

 
177

 
101,926

 
(5,484
)
 
101,926

 
(5,484
)
Total available for sale(1)
66

 
$
334,515

 
$
(3,377
)
 
212

 
$
253,388

 
$
(7,706
)
 
$
587,903

 
$
(11,083
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1) No HTM securities were in an unrealized loss position as of March 31, 2020 and December 31, 2019.

The Corporation’s collateralized mortgage obligations and mortgage-backed securities have contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The change in fair value of these securities is attributable to changes in interest rates and not credit quality, and the Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. Therefore, the Corporation does not have an ACL for these investments as of March 31, 2020.

Based on management’s evaluations, no ACL was required for ARCs or corporate debt securities as of March 31, 2020. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.

NOTE 4 - Allowance for Credit Losses and Asset Quality

Net Loans are summarized as follows:
 
March 31,
2020
 
December 31, 2019
 
(in thousands)
Real estate - commercial mortgage
$
6,895,069

 
$
6,700,776

Commercial and industrial
4,451,239

 
4,446,701

Real estate - residential mortgage
2,718,290

 
2,641,465

Real estate - home equity
1,292,677

 
1,314,944

Real estate - construction
947,768

 
971,079

Consumer
468,172

 
463,164

Equipment lease financing and other
327,272

 
322,625

Overdrafts
2,381

 
3,582

Gross loans
17,102,868

 
16,864,336

Unearned income
(25,465
)
 
(26,810
)
Net Loans
$
17,077,403

 
$
16,837,526



The Corporation segments its loan portfolio by "portfolio segments," as presented in the table above. Certain portfolio segments are further disaggregated by "class segment" for the purpose of estimating credit losses. See "Allowance for Credit Losses" below for further discussion regarding portfolio and class segments and their impact on the determination of the ACL.

Allowance for Credit Losses, effective January 1, 2020

As discussed in Note 1, "Basis of Presentation," the Corporation adopted CECL effective January 1, 2020. CECL requires estimated credit losses on loans to be determined based on an expected life of loan model, as compared to an incurred loss model (in effect for periods prior to 2020). Accordingly, ACL disclosures subsequent to January 1, 2020 are not always comparable to prior periods. In addition, certain new disclosures required under CECL are not applicable to prior periods. As a result, the following tables

16



present disclosures separately for each period, where appropriate. New disclosures required under CECL are only shown for the current period and are noted. See Note 1, "Basis of Presentation", for a summary of the impact of adopting CECL on January 1, 2020.

Under CECL, loans evaluated individually for impairment consist of non-accrual loans and TDRs. Under the incurred loss model in effect prior to the adoption of CECL, loans evaluated individually for impairment were referred to as impaired loans.

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

The following table presents the components of the ACL as of March 31, 2020 (in thousands):
 
March 31,
2020
ACL - loans
$
238,508

ACL - OBS credit exposure
18,963

        Total ACL
$
257,471



The following table presents the activity in the ACL for the three months ended March 31, 2020 (in thousands):
Balance at December 31, 2019
$
166,209

Impact of adopting CECL (1)
58,349

Loans charged off
(14,003
)
Recoveries of loans previously charged off
2,887

Net loans charged off
(11,116
)
Provision for credit losses (2)
44,029

Balance at March 31, 2020
$
257,471

(1) Includes $12.6 million of reserves for OBS credit exposures as of January 1, 2020.
(2) Includes $3.8 million of provision related to OBS credit exposures.

The following table presents the activity in the ACL - loans by portfolio segment, for the three months ended March 31, 2020:
 
Real Estate -
Commercial
Mortgage
 
Commercial and
Industrial
 
Real Estate -
Home
Equity
 
Real Estate -
Residential
Mortgage
 
Real Estate -
Construction
 
Consumer
 
Equipment lease financing, other
and overdrafts
 
Total
 
(in thousands)
Three months ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
45,610

 
$
68,602

 
$
17,744

 
$
19,771

 
$
4,443

 
$
3,762

 
$
3,690

 
$
163,622

Impact of adopting CECL
29,361

 
(18,576
)
 
(65
)
 
21,235

 
4,015

 
5,969

 
3,784

 
45,723

Loans charged off
(855
)
 
(10,899
)
 
(316
)
 
(187
)
 
—

 
(1,213
)
 
(533
)
 
(14,003
)
Recoveries of loans previously charged off
244

 
1,734

 
646

 
85

 
70

 
—

 
108

 
2,887

Net loans recovered (charged off)
(611
)
 
(9,165
)
 
330

 
(102
)
 
70

 
(1,213
)
 
(425
)
 
(11,116
)
Provision for credit losses(1)
15,959

 
22,745

 
(2,756
)
 
1,523

 
(130
)
 
1,347

 
1,591

 
40,279

Balance at March 31, 2020
$
90,319

 
$
63,606

 
$
15,253

 
$
42,427

 
$
8,398

 
$
9,865

 
$
8,640

 
$
238,508


(1) Provision included in the table only includes the portion related to Net Loans.




17



The following table presents the ACL - loans and amortized cost basis of Net Loans under CECL methodology as of March 31, 2020:
 
 
 
ACL - Loans
 
 
 
Net Loans
 
 
 
 
 
Collectively Evaluated for Impairment
 
Individually Evaluated for Impairment
 
Total ACL - Loans
 
Collectively Evaluated for Impairment
 
Individually Evaluated for Impairment
 
Total Net Loans
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Real Estate - Commercial Mortgage
$
84,173

 
$
6,146

 
$
90,319

 
$
6,851,765

 
$
43,304

 
$
6,895,069

 
Commercial and Industrial
57,640

 
5,966

 
63,606

 
4,405,393

 
45,846

 
4,451,239

 
Real Estate - Home Equity
7,806

 
7,447

 
15,253

 
2,696,515

 
21,775

 
2,718,290

 
Real Estate - Residential Mortgage
36,935

 
5,492

 
42,427

 
1,254,677

 
38,000

 
1,292,677

 
Real Estate - Construction
8,168

 
230

 
8,398

 
944,209

 
3,559

 
947,768

 
Consumer
9,861

 
4

 
9,865

 
468,165

 
7

 
468,172

 
Equipment Lease Financing and Other
8,640

 
—

 
8,640

 
287,789

 
16,399

 
304,188

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
213,223

 
$
25,285

 
$
238,508

 
$
16,908,513

 
$
168,890

 
$
17,077,403

 
 
 
 
 
 
 
 
 
 
 
 
 
 


Allowance for Credit Losses, prior to January 1, 2020

The ACL consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a reduction to net loans. The reserve for unfunded lending commitments represents management’s estimate of incurred losses in unfunded loan commitments and letters of credit, and is recorded in other liabilities on the consolidated balance sheets. The ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.
The following table presents the components of the ACL as of December 31, 2019 (in thousands):
Allowance for loan losses
$
163,622

Reserve for unfunded lending commitments
2,587

ACL
$
166,209



The following table presents the activity in the ACL for the three month ended March 31, 2019 (in thousands):
Balance at beginning of period, December 31, 2018
$
169,410

Loans charged off
(6,369
)
Recoveries of loans previously charged off
2,231

Net loans charged off
(4,138
)
Provision for credit losses(1)
5,100

Balance at end of period, March 31, 2019
$
170,372

(1) Includes $610,000 release of provision related to reserve for unfunded lending commitments.









18



The following table presents the activity in the allowance for loan losses, by portfolio segment, for the three months ended March 31, 2019:
 
Real Estate -
Commercial
Mortgage
 
Commercial &
Industrial
 
Real Estate -
Home
Equity
 
Real Estate -
Residential
Mortgage
 
Real Estate -
Construction
 
Consumer
 
Equipment lease financing, other
and overdrafts
 
Total
 
(in thousands)
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
52,889

 
$
58,868

 
$
18,911

 
$
18,921

 
$
5,061

 
$
3,217

 
$
2,670

 
$
160,537

Loans charged off
(1,145
)
 
(2,787
)
 
(219
)
 
(655
)
 
(95
)
 
(683
)
 
(785
)
 
(6,369
)
Recoveries of loans previously charged off
136

 
1,243

 
197

 
132

 
84

 
210

 
229

 
2,231

Net loans recovered (charged off)
(1,009
)
 
(1,544
)
 
(22
)
 
(523
)
 
(11
)
 
(473
)
 
(556
)
 
(4,138
)
Provision for loan losses(1)
66

 
3,177

 
326

 
748

 
(109
)
 
575

 
927

 
5,710

Balance at March 31, 2019
$
51,946

 
$
60,501

 
$
19,215

 
$
19,146

 
$
4,941

 
$
3,319

 
$
3,041

 
$
162,109

(1) The provision in the table only includes the portion related to net loans.

The following table presents Net Loans and their related allowance for loan losses, by portfolio segment as of March 31, 2019:
 
Real Estate -
Commercial
Mortgage
 
Commercial and
Industrial
 
Real Estate -
Home
Equity
 
Real Estate -
Residential
Mortgage
 
Real Estate -
Construction
 
Consumer
 
Equipment lease financing, other and
overdrafts
 
Total
 
(in thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
45,736

 
$
48,266

 
$
8,619

 
$
9,560

 
$
4,390

 
$
3,312

 
$
3,041

 
$
122,924

Individually evaluated for impairment
6,210

 
12,235

 
10,596

 
9,586

 
551

 
7

 
—

 
39,185

 
$
51,946

 
$
60,501

 
$
19,215

 
$
19,146

 
$
4,941

 
$
3,319

 
$
3,041

 
$
162,109

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loans:
 
 
 
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
6,384,048

 
$
4,373,677

 
$
1,389,670

 
$
2,274,330

 
$
946,436

 
$
433,534

 
$
271,854

 
$
16,073,549

Individually evaluated for impairment
44,640

 
55,861

 
23,830

 
39,578

 
6,651

 
11

 
18,513

 
189,084

 
$
6,428,688

 
$
4,429,538

 
$
1,413,500

 
$
2,313,908

 
$
953,087

 
$
433,545

 
$
290,367

 
$
16,262,633



Non-accrual Loans

All loans individually evaluated for impairment are measured for losses on a quarterly basis. As of March 31, 2020 and December 31, 2019, substantially all of the Corporation’s individually evaluated loans with total commitments greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral, if any. Collateral could be in the form of real estate, in the case of commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate.

As of March 31, 2020 and December 31, 2019, approximately 91% and 93%, respectively, of loans evaluated individually for impairment with principal balances greater than or equal to $1.0 million, whose primary collateral is real estate, were measured at estimated fair value using appraisals performed by state certified third-party appraisers that had been updated in the preceding 12 months.









19



The following table presents total non-accrual loans by class segment as of the following periods (in thousands):
 
March 31, 2020
 
December 31, 2019
 
Non-accrual Loans
 
 
 
With a Related Allowance
 
Without a Related Allowance
 
Total
 
Total Non-accrual loans
Real estate - commercial mortgage
$
19,319

 
$
16,337

 
$
35,656

 
$
33,166

Commercial and industrial
15,683

 
25,393

 
41,076

 
48,106

Real estate - residential mortgage
15,134

 
1,260

 
16,394

 
16,676

Real estate - home equity
7,261

 
—

 
7,261

 
7,004

Real estate - construction
1,127

 
2,432

 
3,559

 
3,618

Equipment lease financing and other
—

 
16,399

 
16,399

 
16,528

 
$
58,524

 
$
61,821

 
$
120,345


$
125,098

 
 
 
 
 
 
 
 


As of March 31, 2020, there were $61.8 million of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

Asset Quality

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

The following is a summary of the Corporation's internal risk categories:

Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.

Special Mention: These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in the category are currently acceptable, but are nevertheless potentially weak.

Substandard or Lower: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

20



The following table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, as of March 31, 2020:
 
 
Term Loans Amortized Cost Basis by Origination Year
Revolving Loans
Revolving Loans converted to Term Loans
 
 
 
(dollars in thousands)
Amortized
Amortized
 
 
2020
2019
2018
2017
2016
Prior
Cost Basis
Cost Basis
Total
 Real estate - construction
 
 
 
 
 
 
 
 
 
 
Pass
$
15,264

$
207,620

$
207,198

$
151,785

$
50,763

$
169,515

$
34,143

$
—

$
836,288

 
Special Mention
—

242

4,010

—

1,177

2,812

552

—

8,793

 
Substandard or Lower
—

155

—

—

409

5,701

524

—

6,789

 
   Total real estate - construction
15,264

208,017

211,208

151,785

52,349

178,028

35,219

—

851,870

 
 
 
 
 
 
 
 
 
 
 
Real estate - construction
 
 
 
 
 
 
 
 
 
Current period gross charge-offs
—

—

—

—

—

—

—

—

—

 
Current period recoveries
—

—

—

—

—

70

—

—

70

 
   Current period net charge-offs
—

—

—

—

—

70

—

—

70

 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
Pass
168,025

624,970

386,768

270,298

243,397

684,875

1,753,315

1,469

4,133,117

 
Special Mention
2,192

6,618

12,636

10,854

17,833

39,986

68,501

128

158,748

 
Substandard or Lower
1,962

1,648

15,229

14,390

11,508

27,280

85,565

1,792

159,374

 
   Total commercial and industrial
172,179

633,236

414,633

295,542

272,738

752,141

1,907,381

3,389

4,451,239

 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial loans
 
 
 
 
 
 
 
 
 
Current period gross charge-offs
—

—

—

(48
)
—

(92
)
(10,759
)
—

(10,899
)
 
Current period recoveries
—

—

121

59

39

1,410

105

—

1,734

 
   Current period net charge-offs
—

—

121

11

39

1,318

(10,654
)
—

(9,165
)
 
 
 
 
 
 
 
 
 
 
 
Real estate - commercial
 
 
 
 
 
 
 
 
 
Pass
292,395

907,650

794,055

933,439

946,455

2,676,281

72,827

5,517

6,628,619

 
Special Mention
110

2,712

14,966

17,897

18,254

81,555

3,131

—

138,625

 
Substandard or Lower
—

246

8,224

31,411

9,014

77,394

1,536

—

127,825

 
Total real estate - commercial
292,505

910,608

817,245

982,747

973,723

2,835,230

77,494

5,517

6,895,069

 
 
 
 
 
 
 
 
 
 
 
Real estate - commercial
 
 
 
 
 
 
 
 
 
Current period gross charge-offs
—

—

(16
)
—

(5
)
(834
)
—

—

(855
)
 
Current period recoveries
—

—

—

—

1

243

—

—

244

 
   Current period net charge-offs
—

—

(16
)
—

(4
)
(591
)
—

—

(611
)
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
Pass
$
475,684

$
1,740,240

$
1,388,021

$
1,355,522

$
1,240,615

$
3,530,671

$
1,860,285

$
6,986

$
11,598,024

 
Special Mention
2,302

9,572

31,612

28,751

37,264

124,353

72,184

128

306,166

 
Substandard or Lower
1,962

2,049

23,453

45,801

20,931

110,375

87,625

1,792

293,988

 
Total
479,948

1,751,861

1,443,086

1,430,074

1,298,810

3,765,399

2,020,094

8,906

12,198,178


21



The information presented in the table above is not required for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, internal credit risk ratings for the indicated loan class segments as of December 31, 2019:
 
Pass
 
Special Mention
 
Substandard or Lower
 
Total
 
December 31, 2019
 
(dollars in thousands)
Real estate - commercial mortgage
$
6,429,407

 
$
137,163

 
$
134,206

 
$
6,700,776

Commercial and industrial - secured
3,830,847

 
171,442

 
195,884

 
4,198,173

Commercial and industrial - unsecured
234,987

 
9,665

 
3,876

 
248,528

Total commercial and industrial
4,065,834

 
181,107

 
199,760

 
4,446,701

Construction - commercial residential
100,808

 
2,897

 
3,461

 
107,166

Construction - commercial
765,562

 
1,322

 
2,676

 
769,560

Total construction (excluding Construction - other)
866,370

 
4,219

 
6,137

 
876,726

 
$
11,361,611

 
$
322,489

 
$
340,103

 
$
12,024,203

% of Total
94.5
%
 
2.7
%
 
2.8
%
 
100.0
%


The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, construction loans to individuals secured by residential real estate, consumer and equipment lease financing. For these loans, the most relevant credit quality indicator is delinquency status. The migration of loans through the various delinquency status categories is a significant component of the ACL methodology for those loans, under both the CECL and incurred loss models, which base the PD on this migration.


22



The Corporation considers the performance of the loan portfolio and its impact on the ACL. For certain loans classes, the Corporation evaluates credit quality based on the aging status of the loan. The following table presents the amortized cost of these loans based on payment activity, by origination year, as of March 31, 2020:
 
 
Term Loans Amortized Cost Basis by Origination Year
Revolving Loans
Revolving Loans converted to Term Loans
 
 
 
(dollars in thousands)
Amortized
Amortized
 
 
 
2020
2019
2018
2017
2016
Prior
Cost Basis
Cost Basis
Total
Real estate - home equity
 
 
 
 
 
 
 
 
 
 
Performing
$
5,325

$
8,862

$
15,818

$
15,412

$
15,729

$
163,189

$
1,054,889

$
2,667

$
1,281,891

 
Nonperforming
—

—

153

381

241

2,489

7,522

—

10,786

 
   Total real estate - home equity
5,325

8,862

15,971

15,793

15,970

165,678

1,062,411

2,667

1,292,677

 
 
 
 
 
 
 
 
 
 
 
Real estate - home equity
 
 
 
 
 
 
 
 
 
 
Current period gross charge-offs
—

—

—

—

(90
)
(197
)
—

—

(287
)
 
Current period recoveries
—

—

—

—

—

217

—

—

217

 
   Current period net charge-offs
—

—

—

—

(90
)
20

—

—

(70
)
 
 
 
 
 
 
 
 
 
 
 
Real estate - residential mortgage
 
 
 
 
 
 
 
 
 
Performing
169,609

706,861

378,541

499,825

347,773

589,717

—

—

2,692,326

 
Nonperforming
—

506

2,181

3,079

381

19,817

—

—

25,964

 
   Total real estate - residential mortgage
169,609

707,367

380,722

502,904

348,154

609,534

—

—

2,718,290

 
 
 
 
 
 
 
 
 
 
 
Real estate - residential mortgage
 
 
 
 
 
 
 
 
 
Current period gross charge-offs
—

(15
)
(80
)
—

—

(92
)
—

—

(187
)
 
Current period recoveries
—

—

4

—

—

81

—

—

85

 
   Current period net charge-offs
—

(15
)
(76
)
—

—

(11
)
—

—

(102
)
 
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
 
 
 
 
 
 
 
Performing
33,478

122,882

125,090

59,335

33,219

46,978

46,494

—

467,476

 
Nonperforming
—

102

31

41

100

273

149

—

696

 
   Total consumer credit - other consumer loans
33,478

122,984

125,121

59,376

33,319

47,251

46,643

—

468,172

 
 
 
 
 
 
 
 
 
 
 
Consumer
 
 
 
 
 
 
 
 
 
Current period gross charge-offs
—

(212
)
(219
)
(254
)
(166
)
(391
)
—

—

(1,242
)
 
Current period recoveries
83

45

40

—

—

261

—

—

429

 
   Current period net charge-offs
83

(167
)
(179
)
(254
)
(166
)
(130
)
—

—

(813
)
 
 
 
 
 
 
 
 
 
 
 
Equipment Lease Financing and Other
 
 
 
 
 
 
 
 
 
Performing
43,624

88,926

66,722

50,454

25,179

8,638

 
—

283,543

 
Nonperforming
956

3,115

225

16,039

284

26

 
—

20,645

 
   Total leasing and other
44,580

92,041

66,947

66,493

25,463

8,664

—

—

304,188

 
 
 
 
 
 
 
 
 
 
 
Equipment Lease Financing and other
 
 
 
 
 
 
 
 
 
Current period gross charge-offs
—

—

—

(95
)
—

(438
)
—

—

(533
)
 
Current period recoveries
5

7

—

64

—

32

—

—

108

 
   Current period net charge-offs
5

7

—

(31
)
—

(406
)
—

—

(425
)
 
 
 
 
 
 
 
 
 
 
 
Construction - other
 
 
 
 
 
 
 
 
 
 
Performing
7,226

73,650

7,678

1,304

16

—

5,841

—

95,715

 
Nonperforming
—

183

—

—

—

—

—

—

183

 
   Total leasing and other
7,226

73,833

7,678

1,304

16

—

5,841

—

95,898

 
 
 
 
 
 
 
 
 
 
 
Construction - other
 
 
 
 
 
 
 
 
 
 
Current period gross charge-offs
—

—

—

—

—

—

—

—

—

 
Current period recoveries
—

—

—

—

—

—

—

—

—

 
   Current period net charge-offs
—

—

—

—

—

—

—

—

—

 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
Performing
$
259,262

$
1,001,181

$
593,849

$
626,330

$
421,916

$
808,522

$
1,107,224

$
2,667

$
4,820,951

 
Nonperforming
956

3,906

2,590

19,540

1,006

22,605

7,671

—

58,274

 
Total
260,218

1,005,087

596,439

645,870

422,922

831,127

1,114,895

2,667

4,879,225


23



The information presented in the table above is not required for periods prior to the adoption of CECL. The following table presents the most comparable required information for the prior period, a summary of performing, delinquent and non-performing loans for the indicated class segments as of December 31, 2019:
 
Performing
 
Delinquent (1)
 
Non-performing (2)
 
Total
 
December 31, 2019
 
(dollars in thousands)
Real estate - home equity
$
1,292,035

 
$
12,341

 
$
10,568

 
$
1,314,944

Real estate - residential mortgage
2,584,763

 
34,291

 
22,411

 
2,641,465

Construction - other
92,649

 
895

 
809

 
94,353

Consumer - direct
63,582

 
465

 
190

 
64,237

Consumer - indirect
393,974

 
4,685

 
268

 
398,927

Total consumer
457,556

 
5,150

 
458

 
463,164

Equipment lease financing and other
278,743

 
4,012

 
16,642

 
299,397

 
$
4,705,746

 
$
56,689

 
$
50,888

 
$
4,813,323

% of Total
97.8
%
 
1.2
%
 
1.0
%
 
100
%
(1) 
Includes all accruing loans 30 days to 89 days past due.
(2) 
Includes all accruing loans 90 days or more past due and all non-accrual loans.

The following table presents non-performing assets:
 
March 31,
2020
 
December 31,
2019
 
(in thousands)
Non-accrual loans
$
120,345

 
$
125,098

Loans 90 days or more past due and still accruing
19,593

 
16,057

Total non-performing loans
139,938

 
141,155

OREO (1)
6,593

 
6,831

Total non-performing assets
$
146,531

 
$
147,986

(1) Excludes $14.8 million of residential mortgage properties for which formal foreclosure proceedings were in process as of March 31, 2020.

The following tables present the aging of the amortized cost basis of loans, by class segment:
 
30-59
 
60-89
 
≥ 90 Days
 
 
 
 
 
 
 
Days Past
 
Days Past
 
Past Due
 
Non-
 
 
 
 
March 31, 2020
Due
 
Due
 
and Accruing
 
Accrual
 
Current
 
Total
Real estate – commercial mortgage
$
20,052

 
$
1,028

 
$
879

 
$
35,657

 
$
6,837,453

 
$
6,895,069

Commercial and industrial
3,401

 
4,577

 
243

 
41,075

 
4,401,943

 
4,451,239

Real estate – residential mortgage
21,052

 
6,351

 
9,439

 
16,393

 
2,665,055

 
2,718,290

Real estate – home equity
6,782

 
1,999

 
3,525

 
7,261

 
1,273,110

 
1,292,677

Real estate – construction
173

 
305

 
820

 
3,560

 
942,910

 
947,768

Consumer
2,852

 
555

 
440

 
—

 
464,325

 
468,172

Equipment lease financing and other
1,461

 
194

 
4,247

 
16,399

 
281,887

 
304,188

Total
$
55,773

 
$
15,009

 
$
19,593

 
$
120,345

 
$
16,866,683

 
$
17,077,403



24



 
30-59 Days Past
Due
 
60-89
Days Past
Due
 
≥ 90 Days
Past Due
and
Accruing
 
Non-
accrual
 
Current
 
Total
December 31, 2019
(in thousands)
Real estate – commercial mortgage
$
10,912

 
$
1,543

 
$
4,113

 
$
33,166

 
$
6,651,042

 
$
6,700,776

Commercial and industrial
2,302

 
2,630

 
1,385

 
48,106

 
4,392,278

 
4,446,701

Real estate – residential mortgage
26,982

 
7,309

 
5,735

 
16,676

 
2,584,763

 
2,641,465

Real estate – home equity
9,635

 
2,706

 
3,564

 
7,004

 
1,292,035

 
1,314,944

Real estate – construction
1,715

 
900

 
688

 
3,618

 
964,158

 
971,079

Consumer
4,228

 
922

 
458

 
—

 
457,556

 
463,164

Equipment lease financing and other
552

 
3,460

 
114

 
16,528

 
278,743

 
299,397

Total
$
56,326

 
$
19,470

 
$
16,057

 
$
125,098

 
$
16,620,575

 
$
16,837,526

 
 
 
 
 
 
 
 
 
 
 
 

Collateral-Dependent Loans

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

Troubled Debt Restructurings

The following table presents TDRs, by class segment:
 
March 31,
2020
 
December 31,
2019
 
(in thousands)
Real estate - residential mortgage
$
21,473

 
$
21,551

Real estate - commercial mortgage
7,648

 
13,330

Real estate - home equity
14,513

 
15,068

Commercial and industrial
4,771

 
5,193

Consumer
7

 
8

Total accruing TDRs
48,412

 
55,150

Non-accrual TDRs (1)
27,600

 
20,825

Total TDRs
$
76,012

 
$
75,975

 
(1)
Included in non-accrual loans in the preceding table detailing non-performing assets.














25



The following table presents TDRs, by class segment, for loans that were modified during the three months ended March 31, 2020 and 2019:
 
Three months ended March 31
 
2020
 
2019
 
Number of Loans
 
Recorded Investment
 
Number of Loans
 
Recorded Investment
 
(dollars in thousands)
Real estate - residential mortgage
7

 
$
660

 
4

 
$
917

Real estate - commercial mortgage
1

 
392

 
—

 
—

Real estate - home equity
8

 
577

 
12

 
829

Commercial and industrial
1

 
74

 
4

 
2,460

Total
17

 
$
1,703

 
20

 
$
4,206



Restructured loan modifications may include payment schedule modifications, interest rate concessions, bankruptcies, principal reduction or some combination of these concessions. During the three months ended March 31, 2020 and 2019, restructured loan modifications of residential mortgages, home equity and commercial loans primarily included maturity date extensions, rate modifications and payment schedule modifications.

In accordance with regulatory guidance, payment schedule modifications granted after March 13, 2020 to borrowers impacted by the effects of the COVID-19 pandemic and who were not delinquent at the time of the payment schedule modifications have been excluded from TDRs. For the three months ended March 31, 2020, payment schedule modifications having a recorded investment of $1.0 billion were excluded from TDRs based on this regulatory guidance.

NOTE 5 – Mortgage Servicing Rights

The following table summarizes the changes in MSRs, which are included in other assets on the Consolidated Balance Sheets:
 
Three months ended March 31
 
2020
 
2019
 
(in thousands)
Amortized cost:
 
 
 
Balance at beginning of period
$
39,267

 
$
38,573

Originations of MSRs
1,478

 
1,225

Amortization
(1,891
)
 
(1,294
)
Balance at end of period
$
38,854

 
$
38,504

 
 
 
 
Valuation allowance:
 
 
 
Balance at beginning of period
$
—

 
$
—

Additions to valuation allowance
(1,100
)
 
—

Balance at end of period
$
(1,100
)
 
$
—

 
 
 
 
Net MSRs at end of period
$
37,754

 
$
38,504



MSRs represent the economic value of contractual rights to service mortgage loans that have been sold. The total portfolio of loans serviced by the Corporation for unrelated third parties was $4.8 billion and $4.9 billion as of March 31, 2020 and December 31, 2019, respectively. Actual and expected prepayments of the underlying mortgage loans can impact the corresponding fair values of the MSRs. The Corporation accounts for MSRs at the lower of amortized cost or fair value.

The fair value of MSRs is estimated by discounting the estimated cash flows from servicing income, net of expense, over the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The fair values of MSRs were $37.8 million and $45.2 million at March 31, 2020 and December 31, 2019, respectively. Based on its fair value analysis at March 31, 2020, the

26



Corporation determined that a $1.1 million increase to the valuation allowance was appropriate. This increase was recorded as a reduction to mortgage banking income on the consolidated statements of income for the three months ended March 31, 2020.

NOTE 6 – Derivative Financial Instruments

The Corporation manages its exposure to certain interest rate and foreign currency risks through the use of derivatives. None of the Corporation's outstanding derivative contracts are designated as hedges, and none are entered into for speculative purposes. Derivative instruments are carried at fair value, with changes in fair value recognized in earnings as components of non-interest income or non-interest expense on the consolidated statements of income.

Derivative contracts create counterparty credit risk with both the Corporation's customers and with institutional derivative counterparties. The Corporation manages counterparty credit risk through its credit approval processes, monitoring procedures and obtaining adequate collateral, when the Corporation determines it is appropriate to do so and in accordance with counterparty contracts.

For each of the derivatives, gross derivative assets and liabilities are recorded in other assets and other liabilities, respectively, on the consolidated balance sheets. Related gains and losses on these derivative instruments are recorded in other changes, net on the consolidated statement of cash flows.

Mortgage Banking Derivatives

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

Interest Rate Swaps

The Corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. The Corporation is required to clear all eligible interest rate swap contracts with a central counterparty and is subject to the regulations of the Commodity Futures Trading Commission.

Foreign Exchange Contracts

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















27



The following table presents a summary of the notional amounts and fair values of derivative financial instruments:
 
March 31, 2020
 
December 31, 2019
 
Notional
Amount
 
Asset
(Liability)
Fair Value
 
Notional
Amount
 
Asset
(Liability)
Fair Value
 
(in thousands)
Interest Rate Locks with Customers
 
 
 
 
 
 
 
Positive fair values
$
315,084

 
$
5,990

 
$
132,260

 
$
1,123

Negative fair values
4,968

 
(57
)
 
9,783

 
(53
)
Forward Commitments
 
 
 
 
 
 
 
Positive fair values
—

 
—

 
75,000

 
63

Negative fair values
341,680

 
(4,131
)
 
180,000

 
(371
)
Interest Rate Swaps with Customers
 
 
 
 
 
 
 
Positive fair values
3,457,081

 
368,172

 
2,903,489

 
143,484

Negative fair values
(12,288
)
 
(6
)
 
376,705

 
(695
)
Interest Rate Swaps with Dealer Counterparties
 
 
 
 
 
 
 
Positive fair values
12,288

 
6

 
376,705

 
695

Negative fair values
3,457,081

 
(180,576
)
 
2,903,489

 
(75,327
)
Foreign Exchange Contracts with Customers
 
 
 
 
 
 
 
Positive fair values
12,331

 
359

 
3,373

 
38

Negative fair values
2,985

 
(125
)
 
7,283

 
(154
)
Foreign Exchange Contracts with Correspondent Banks
 
 
 
 
 
 
 
Positive fair values
5,290

 
168

 
9,028

 
192

Negative fair values
11,393

 
(252
)
 
4,976

 
(45
)


The following table presents a summary of the fair value gains (losses) on derivative financial instruments:
 
Consolidated Statements of Income Classification
 
Three months ended March 31
 
 
 
2020
 
2019
 
 
 
        (in thousands)
Mortgage banking derivatives (1)
Mortgage banking
 
$
1,040

 
$
662

Interest rate swaps
Other expense
 
72

 
(149
)
Foreign exchange contracts
Other income
 
119

 
48

Net fair value gains on derivative financial instruments
 
$
1,231

 
$
561


(1) Includes interest rate locks with customers and forward commitments.

Fair Value Option

The Corporation has elected to measure mortgage loans held for sale at fair value. The following table presents a summary of mortgage loans held for sale and the impact of the fair value election on the consolidated financial statements as of the periods shown:
 
March 31,
2020
 
December 31,
2019
 
(in thousands)
Amortized cost (1)
$
39,480

 
$
37,396

Fair value
40,645

 
37,828


(1) Cost basis of mortgage loans held for sale represents the unpaid principal balance.

Gains related to changes in fair values of mortgage loans held for sale were $733,000 and $21,000 for the three months ended March 31, 2020 and 2019, respectively.


28



Balance Sheet Offsetting

Although certain financial assets and liabilities may be eligible for offset on the consolidated balance sheets because they are subject to master netting arrangements or similar agreements, the Corporation elects to not offset such qualifying assets and liabilities.

The Corporation is a party to interest rate swaps with financial institution counterparties and customers. Under these agreements, the Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of, any one contract. Cash collateral is posted by the party with a net liability position in accordance with contract thresholds and can be used to settle the fair value of the interest rate swap agreements in the event of default. A daily settlement occurs through a clearing agent for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared daily through a clearing agent. As a result, the total fair values of interest rate swap derivative assets and derivative liabilities recognized on the consolidated balance sheet are not equal and offsetting.

The Corporation is also a party to foreign currency exchange contracts with financial institution counterparties, under which the Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of, any one contract. As with interest rate swaps, collateral is posted by the party with a net liability position in accordance with contract thresholds and can be used to settle the fair value of the foreign currency exchange contracts in the event of default.

The Corporation also enters into agreements with customers in which it sells securities subject to an obligation to repurchase the same or similar securities, referred to as repurchase agreements. Under these agreements, the Corporation may transfer legal control over the assets but still maintain effective control through agreements that both entitle and obligate the Corporation to repurchase the assets. Therefore, repurchase agreements are reported as secured borrowings, classified in short-term borrowings on the consolidated balance sheets, while the securities underlying the repurchase agreements remain classified with investment securities on the consolidated balance sheets. The Corporation has no intent to set off these amounts, therefore, these repurchase agreements are not eligible for offset.

The following table presents the Corporation's financial instruments that are eligible for offset, and the effects of offsetting, on the consolidated balance sheets:
 
Gross Amounts
 
Gross Amounts Not Offset
 
 
 
Recognized
 
 on the Consolidated
 
 
 
on the
 
Balance Sheets
 
 
 
Consolidated
 
Financial
 
Cash
 
Net
 
Balance Sheets
 
Instruments(1)
 
Collateral (2)

 
Amount
 
(in thousands)
March 31, 2020
 
 
 
 
 
 
 
Interest rate swap derivative assets
$
368,178

 
$
(6
)
 
$
—

 
$
368,172

Foreign exchange derivative assets with correspondent banks
168

 
(168
)
 
—

 
—

Total
$
368,346

 
$
(174
)
 
$
—

 
$
368,172

 
 
 
 
 
 
 
 
Interest rate swap derivative liabilities
$
180,582

 
$
(6
)
 
$
(180,576
)
 
$
—

Foreign exchange derivative liabilities with correspondent banks
252

 
(168
)
 
—

 
84

Total
$
180,834

 
$
(174
)
 
$
(180,576
)
 
$
84

 
 
 
 
 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
Interest rate swap derivative assets
$
144,179

 
$
(757
)
 
$
—

 
$
143,422

Foreign exchange derivative assets with correspondent banks
192

 
(45
)
 
—

 
147

Total
$
144,371

 
$
(802
)
 
$
—

 
$
143,569

 
 
 
 
 
 
 
 
Interest rate swap derivative liabilities
$
76,022

 
$
(757
)
 
$
(75,265
)
 
$
—

Foreign exchange derivative liabilities with correspondent banks
45

 
(45
)
 
—

 
—

Total
$
76,067

 
$
(802
)
 
$
(75,265
)
 
$
—


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

29



NOTE 7 – Tax Credit Investments

TCIs are primarily for investments promoting qualified affordable housing projects and investments in community development entities. Investments in these projects generate a return primarily through the realization of federal income tax credits and deductions for operating losses over a specified time period.

The TCIs are included in other assets, with any unfunded equity commitments recorded in other liabilities on the consolidated balance sheets. Certain TCIs qualify for the proportional amortization method and are amortized over the period the Corporation expects to receive the tax credits, with the expense included within income taxes on the consolidated statements of income. Other TCIs are accounted for under the equity method of accounting, with amortization included within non-interest expense on the consolidated statements of income. This amortization includes equity in partnership losses and the systematic write-down of investments over the period in which income tax credits are earned. All of the TCIs are evaluated for impairment at the end of each reporting period.

The following table presents the balances of the Corporation's TCIs and related unfunded commitments:
 
 
 
March 31,
 
December 31,
 
 
 
2020
 
2019
Included in other assets:
 
(in thousands)
Affordable housing tax credit investment, net
 
$
146,556

 
$
153,351

Other tax credit investments, net
 
63,658

 
64,354

 
Total TCIs, net
 
$
210,214

 
$
217,705

Included in other liabilities
 
 
 
 
Unfunded affordable housing tax credit commitments
 
$
15,331

 
$
16,684

Other tax credit liabilities
 
54,823

 
55,105

 
Total unfunded tax credit commitments and liabilities
 
$
70,154

 
$
71,789


The following table presents other information relating to the Corporation's TCIs:
 
 
 
Three Months Ended
 
 
 
 
March 31
 
 
 
 
2020
 
2019
 
Components of income taxes:
 
(in thousands)
Affordable housing tax credits and other tax benefits
 
$
(7,194
)
 
$
(7,575
)
 
Other tax credit investment credits and tax benefits
 
(941
)
 
(1,136
)
 
Amortization of affordable housing investments, net of tax benefit
 
5,024

 
5,495

 
Deferred tax expense
 
208

 
238

 
 
Total reduction in income tax expense
 
$
(2,903
)
 
$
(2,978
)
 
Amortization of TCIs:
 
 
 
 
 
Affordable housing tax credits investment
 
$
1,022

 
$
822

 
Other tax credit investment amortization
 
428

 
669

 
 
Total amortization of TCIs
 
$
1,450

 
$
1,491

 



30



NOTE 8 – Accumulated Other Comprehensive Income

The following table presents changes in other comprehensive income:
 
Before-Tax Amount
 
Tax Effect
 
Net of Tax Amount
 
(in thousands)
Three months ended March 31, 2020
 
 
 
 
 
Unrealized gain on securities
$
22,380

 
$
(4,949
)
 
$
17,431

Reclassification adjustment for securities gains included in net income (1)
(46
)
 
10

 
(36
)
Amortization of net unrealized losses on AFS securities transferred to HTM (2)
1,022

 
(227
)
 
795

Amortization of net unrecognized pension and postretirement items (3)
328

 
(73
)
 
255

Total Other Comprehensive Income
$
23,684

 
$
(5,239
)
 
$
18,445

Three months ended March 31, 2019
 
 
 
 
 
Unrealized gain on securities
$
26,062

 
$
(5,764
)
 
$
20,298

Reclassification adjustment for securities gains included in net income (1)
(65
)
 
14

 
(51
)
Amortization of net unrealized losses on AFS securities transferred to HTM (2)
1,252

 
(278
)
 
974

Non-credit related unrealized loss on other-than-temporarily impaired debt securities
(105
)
 
23

 
(82
)
Amortization of net unrecognized pension and postretirement items (3)
374

 
(83
)
 
291

Total Other Comprehensive Income
$
27,518

 
$
(6,088
)
 
$
21,430



(1)
Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included in "Investment securities gains, net" on the Consolidated Statements of Income. See Note 3, "Investment Securities," for additional details.
(2)
Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included as a reduction to "Interest Income" on the Consolidated Statements of Income.
(3)
Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included in "Salaries and employee benefits" on the Consolidated Statements of Income. See Note 12, "Employee Benefit Plans," for additional details.
The following table presents changes in each component of accumulated other comprehensive income (loss), net of tax:
 
Unrealized Gains (Losses) on Investment Securities
 
Unrealized Non-Credit Gains (Losses) on Other-Than-Temporarily Impaired Debt Securities
 
Unrecognized Pension and Postretirement Plan Income (Costs)
 
Total
 
(in thousands)
Three months ended March 31, 2020
 
 
 
 
 
 
 
Balance at December 31, 2019
$
14,864

 
$
—

 
$
(15,001
)
 
$
(137
)
Other comprehensive income before reclassifications
17,431

 
—

 
—

 
17,431

Amounts reclassified from accumulated other comprehensive income
(36
)
 
—

 
255

 
219

Amortization of net unrealized losses on AFS securities transferred to HTM
795

 
—

 
—

 
795

Balance at March 31, 2020
$
33,054

 
$
—

 
$
(14,746
)
 
$
18,308

Three months ended March 31, 2019

 

 

 

Balance at December 31, 2018
$
(44,654
)
 
$
680

 
$
(15,089
)
 
$
(59,063
)
Other comprehensive income before reclassifications
20,298


(82
)
 
—

 
20,216

Amounts reclassified from accumulated other comprehensive income
(51
)
 
—

 
291

 
240

Amortization of net unrealized losses on AFS securities transferred to HTM
974

 
—

 
—

 
974

Balance at March 31, 2019
$
(23,433
)
 
$
598

 
$
(14,798
)
 
$
(37,633
)



31



NOTE 9 – Fair Value Measurements

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

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

All assets and liabilities measured at fair value on both a recurring and nonrecurring basis, have been categorized into the above three levels. The following tables present assets and liabilities measured at fair value on a recurring basis and reported on the consolidated balance sheets:
 
March 31, 2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Loans held for sale
$
—

 
$
40,645

 
$
—

 
$
40,645

Available for sale investment securities:
 
 
 
 
 
 
 
State and municipal securities
—

 
848,084

 
—

 
848,084

Corporate debt securities
—

 
371,318

 
2,160

 
373,478

Collateralized mortgage obligations
—

 
667,652

 
—

 
667,652

Residential mortgage-backed securities
—

 
220,629

 
—

 
220,629

Commercial mortgage-backed securities
—

 
587,325

 
—

 
587,325

Auction rate securities
—

 
—

 
93,666

 
93,666

Total available for sale investment securities
—

 
2,695,008

 
95,826

 
2,790,834

Other assets:
 
 
 
 
 
 
 
Investments held in Rabbi Trust
19,237

 
—

 
—

 
19,237

Derivative assets
536

 
374,168

 
—

 
374,704

Total assets
$
19,773

 
$
3,109,821

 
$
95,826

 
$
3,225,420

Other liabilities:
 
 
 
 
 
 
 
Deferred compensation liabilities
$
19,237

 
$
—

 
$
—

 
$
19,237

Derivative liabilities
378

 
184,770

 
—

 
185,148

Total liabilities
$
19,615

 
$
184,770

 
$
—

 
$
204,385



32



 
December 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Loans held for sale
$
—

 
$
37,828

 
$
—

 
$
37,828

Available for sale investment securities:
 
 
 
 
 
 
 
State and municipal securities
—

 
652,927

 
—

 
652,927

Corporate debt securities
—

 
374,957

 
2,400

 
377,357

Collateralized mortgage obligations
—

 
693,718

 
—

 
693,718

Residential mortgage-backed securities
—

 
177,312

 
—

 
177,312

Commercial mortgage-backed securities
—

 
494,297

 
—

 
494,297

Auction rate securities
—

 
—

 
101,926

 
101,926

Total available for sale investment securities
—

 
2,393,211

 
104,326

 
2,497,537

Other assets:
 
 
 
 
 
 
 
Investments held in Rabbi Trust
22,213

 
—

 
—

 
22,213

Derivative assets
230

 
145,365

 
—

 
145,595

Total assets
$
22,443

 
$
2,576,404

 
$
104,326

 
$
2,703,173

Other liabilities:
 
 
 
 
 
 
 
Deferred compensation liabilities
$
22,213

 
$
—

 
$
—

 
$
22,213

Derivative liabilities
199

 
76,447

 
—

 
76,646

Total liabilities
$
22,412

 
$
76,447

 
$
—

 
$
98,859


The valuation techniques used to measure fair value for the items in the preceding tables are as follows:
Loans held for sale – This category includes mortgage loans held for sale that are measured at fair value. Fair values as of March 31, 2020 and December 31, 2019 were based on the price that secondary market investors were offering for loans with similar characteristics. See "Note 6 - Derivative Financial Instruments" for details related to the Corporation’s election to measure assets and liabilities at fair value.
Available for sale investment securities – Included in this asset category are debt securities. Level 2 AFS debt securities are valued by a third-party pricing service commonly used in the banking industry. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings and matrix pricing.
Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security types, additional inputs may be used, or some of the standard market inputs may not be applicable.
Management tests the values provided by the pricing service by obtaining securities prices from an alternative third-party source and comparing the results. This test is performed for at least 95% of the securities valued by the pricing service. Generally, differences by security in excess of 5% are researched to reconcile the difference.
•
State and municipal securities/Collateralized mortgage obligations/Residential mortgage-backed securities/Commercial mortgage-backed securities – These debt securities are classified as Level 2 investments. Fair values are determined by a third-party pricing service, as detailed above.

•
Corporate debt securities – This category consists of subordinated debt and senior debt issued by financial institutions ($359.4 million at March 31, 2020 and $362.3 million at December 31, 2019), single-issuer trust preferred securities issued by financial institutions ($10.2 million at March 31, 2020 and $11.2 million at December 31, 2019) and other corporate debt issued by non-financial institutions ($3.9 million at March 31, 2020 and December 31, 2019).

Level 2 investments include the Corporation’s holdings of subordinated debt and senior debt, other corporate debt issued by non-financial institutions and $8.0 million and $8.8 million of single-issuer TruPS held at March 31, 2020 and December 31, 2019, respectively. The fair values for these corporate debt securities are determined by a third-party pricing service, as detailed above.

33



Level 3 investments include the Corporation’s investments in certain single-issuer TruPS ($2.2 million at March 31, 2020 and $2.4 million at December 31, 2019). The fair values of these securities were determined based on quotes provided by third-party brokers who determined fair values based predominantly on internal valuation models which were not indicative prices or binding offers. The Corporation’s third-party pricing service cannot derive fair values for these securities primarily due to inactive markets for similar investments. Level 3 values are tested by management primarily through trend analysis, by comparing current values to those reported at the end of the preceding calendar quarter, and determining if they are reasonable based on price and spread movements for this asset class.
•
Auction rate securities – Due to their illiquidity, ARCs are classified as Level 3 investments and are valued through the use of an expected cash flows model prepared by a third-party valuation expert. The assumptions used in preparing the expected cash flows model include estimates for coupon rates, time to maturity and market rates of return. The most significant unobservable input to the expected cash flows model is an assumed return to market liquidity sometime in the next five years. If the assumed return to market liquidity was lengthened beyond the next five years, this would result in a decrease in the fair value of these ARCs. The Corporation believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid. Level 3 fair values are tested by management through the performance of a trend analysis of the market price and discount rate. Changes in the price and discount rates are compared to changes in market data, including bond ratings, parity ratios, balances and delinquency levels.
Investments held in Rabbi Trust – This category consists of mutual funds that are held in trust for employee deferred compensation plans that the Corporation has elected to measure at fair value. Shares of mutual funds are valued based on net asset value, which represent quoted market prices for the underlying shares held in the mutual funds, and as such, are classified as Level 1.
Derivative assets – Fair value of foreign currency exchange contracts classified as Level 1 assets ($527,000 at March 31, 2020 and $230,000 at December 31, 2019). The mutual funds and foreign exchange prices used to measure these items at fair value are based on quoted prices for identical instruments in active markets.
Level 2 assets, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($6.0 million at March 31, 2020 and $1.2 million at December 31, 2019) and the fair value of interest rate swaps ($368.2 million at March 31, 2020 and $144.2 million at December 31, 2019). The fair values of the Corporation’s interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. See "Note 6 - Derivative Financial Instruments," for additional information.

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

Derivative liabilities – Level 1 liabilities, representing the fair value of foreign currency exchange contracts ($377,000 at March 31, 2020 and $199,000 at December 31, 2019).

Level 2 liabilities, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($4.2 million at March 31, 2020 and $424,000 December 31, 2019) and the fair value of interest rate swaps ($180.6 million at March 31, 2020 and $76.0 million at December 31, 2019).

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



34



The following table presents the changes in the Corporation’s available for sale investment securities measured at fair value on a recurring basis using unobservable inputs (Level 3):
 
Pooled Trust
Preferred
Securities
 
Single-issuer
Trust Preferred
Securities
 
ARCs
Three months ended March 31, 2020
(in thousands)
Balance at December 31, 2019
$
—

 
$
2,400

 
$
101,926

Unrealized adjustment to fair value (1)
—

 
(242
)
 
(8,260
)
Discount accretion (2)
—

 
2

 
—

Balance at March 31, 2020
$
—

 
$
2,160

 
$
93,666

 
 
 
 
 
 
Three months ended March 31, 2019
 
 
 
 
 
Balance at December 31, 2018
$
875

 
$
2,400

 
$
102,994

Unrealized adjustment to fair value (1)
(105
)
 
30

 
(184
)
Balance at March 31, 2019
$
770

 
$
2,430

 
$
102,810


(1)
Pooled trust preferred securities, single-issuer trust preferred securities and ARCs are classified as available for sale investment securities; as such, the unrealized adjustment to fair value was recorded as an unrealized holding gain (loss) and included as a component of "available for sale at estimated fair value" on the consolidated balance sheets.
(2)Included as a component of "net interest income" on the consolidated statements of income.

Certain assets are not measured at fair value on an ongoing basis, but are subject to fair value measurement in certain circumstances, such as upon their acquisition or when there is evidence of impairment. The following table presents Level 3 financial assets measured at fair value on a nonrecurring basis:
 
March 31, 2020
 
December 31, 2019
 
(in thousands)
Net Loans
$
143,605

 
$
144,807

OREO
6,593

 
6,831

MSRs (1)
37,754

 
45,193

Total assets
$
187,952

 
$
196,831

(1)
Amounts shown are estimated fair value. MSRs are recorded on the Corporation's consolidated balance sheets at amortized cost. See "Note 5 - Mortgage Servicing Rights" for additional information.
The valuation techniques used to measure fair value for the items in the table above are as follows:
•
Net Loans – This category consists of loans that were individually evaluated for impairment and have been classified as Level 3 assets. In 2020, the amount shown is the balance of nonaccrual loans, net of the related ACL. In 2019, the amount shown is the balance of impaired loans, net of the related ACL. See "Note 4 - Allowance for Credit Losses and Asset Quality," for additional details.
•
OREO – This category consists of OREO classified as Level 3 assets, for which the fair values were based on estimated selling prices less estimated selling costs for similar assets in active markets.
•
MSRs - This category consists of MSRs, which were initially recorded at fair value upon the sale of residential mortgage loans to secondary market investors, and subsequently carried at the lower of amortized cost or fair value. MSRs are amortized as a reduction to servicing income over the estimated lives of the underlying loans. MSRs are stratified and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair values are determined at the end of each quarter through a discounted cash flows valuation performed by a third-party valuation expert. Significant inputs to the valuation included expected net servicing income, the discount rate and the expected life of the underlying loans. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The weighted average annual constant prepayment rate and the weighted average discount rate used in the March 31, 2020 valuation were 14.9% and 9.5%, respectively. Management tests the reasonableness of the significant inputs to the third-party valuation in comparison to market data. See "Note 5 - Mortgage Servicing Rights," for additional information.


35



In 2008, the Corporation received Class B restricted shares of Visa, Inc. ("Visa") as part of Visa’s initial public offering. These securities are considered equity securities without readily determinable fair values. As such, the approximately 133,000 Visa Class B shares owned as of March 31, 2020 were carried at a zero cost basis.
The following tables present the carrying amounts and estimated fair values of the Corporation’s financial instruments as of the periods shown. A general description of the methods and assumptions used to estimate such fair values follows:
 
March 31, 2020
 
 
Estimated Fair Value
 
Carrying Amount
Level 1
Level 2
Level 3
Total
 
(in thousands)
FINANCIAL ASSETS
 
 
 
 
 
Cash and cash equivalents
$
856,360

$
856,360

$
—

$
—

$
856,360

FRB and FHLB stock
118,989

—

118,989

—

118,989

Loans held for sale
40,645

—

40,645

—

40,645

AFS securities
2,790,834

—

2,695,008

95,826

2,790,834

HTM securities
350,606

—

372,273

—

372,273

Net Loans
16,838,895

—

—

16,427,379

16,427,379

Accrued interest receivable
59,365

59,365

—

—

59,365

Other assets
658,025

239,371

374,167

44,487

658,025

FINANCIAL LIABILITIES
 
 
 
 
 

Demand and savings deposits
$
14,349,257

$
14,349,257

$
—

$
—

$
14,349,257

Brokered deposits
313,337

273,043

40,294

—

313,337

Time deposits
2,702,432

—

2,730,425

—

2,730,425

Short-term borrowings
1,386,808

1,386,808

—

—

1,386,808

Accrued interest payable
10,890

10,890

—

—

10,890

FHLB advances and long-term debt
1,378,466

—

1,421,214

—

1,421,214

Other liabilities
343,602

139,868

184,771

18,963

343,602

 
 
 
 
 
 
 
December 31, 2019
 
 
Estimated Fair Value
 
Carrying Amount
Level 1
Level 2
Level 3
Total
 
(in thousands)
FINANCIAL ASSETS
 
 
 
 
 
Cash and cash equivalents
$
517,791

$
517,791

$
—

$
—

$
517,791

FRB and FHLB stock
97,422

—

97,422

—

97,422

Loans held for sale
37,828

—

37,828

—

37,828

AFS securities
2,497,537

—

2,393,211

104,326

2,497,537

HTM securities
369,841

—

383,705

—

383,705

Net Loans
16,673,904

—

—

16,485,122

16,485,122

Accrued interest receivable
60,898

60,898

—

—

60,898

Other assets
431,565

234,176

145,365

52,024

431,565

FINANCIAL LIABILITIES
 
 
 
 
 
Demand and savings deposits
$
14,327,453

$
14,327,453

$
—

$
—

$
14,327,453

Brokered deposits
264,531

223,982

40,549

—

264,531

Time deposits
2,801,930

—

2,828,988

—

2,828,988

Short-term borrowings
883,241

883,241

—

—

883,241

Accrued interest payable
8,834

8,834

—

—

8,834

FHLB advances and long-term debt
881,769

—

878,385

—

878,385

Other liabilities
221,542

142,508

76,447

2,587

221,542

 

36



Fair values of financial instruments are significantly affected by the assumptions used, principally the timing of future cash flows and discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of the Corporation.
For short-term financial instruments, defined as those with remaining maturities of 90 days or less, and excluding those recorded at fair value on the Corporation’s consolidated balance sheets, book value was considered to be a reasonable estimate of fair value.

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


FRB and FHLB stock represent restricted investments and are carried at cost.

As of March 31, 2020, fair values for loans and time deposits were estimated by discounting future cash flows using the current rates, as adjusted for liquidity considerations, at which similar loans would be made to borrowers and similar deposits would be issued to customers for the same remaining maturities. Fair values of loans also include estimated credit losses that would be assumed in a market transaction, which represents estimated exit prices.

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

NOTE 10 – Net Income Per Share

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

A reconciliation of weighted average shares outstanding used to calculate basic net income per share and diluted net income per share follows (in thousands, except per share data):
 
Three months ended March 31
 
2020
 
2019
Weighted average shares outstanding (basic)
163,475

 
169,884

Impact of common stock equivalents
942

 
1,025

Weighted average shares outstanding (diluted)
164,417

 
170,909

Per share:
 
 
 
Basic
$
0.16

 
$
0.33

Diluted
0.16

 
0.33



NOTE 11 – Stock-Based Compensation

The Corporation grants equity awards to employees in the form of stock options, restricted stock, RSUs or PSUs under its Amended and Restated Equity and Cash Incentive Compensation Plan ("Employee Equity Plan"). Recent grants of equity awards under the Employee Equity Plan have generally been limited to RSUs and PSUs. In addition, employees may purchase stock under the Corporation’s Employee Stock Purchase Plan. The fair value of equity awards granted to employees is recognized as compensation expense over the period during which employees are required to provide service in exchange for such awards. Compensation expense for PSUs is also recognized over the period during which employees are required to provide service in exchange for such

37



awards, however, compensation expense may vary based on the expectations for actual performance relative to defined performance measures.

The Corporation also grants equity awards to non-employee members of its board of directors and subsidiary bank boards of directors under the 2011 Directors’ Equity Participation Plan, which was amended and approved by shareholders as the Amended and Restated Directors’ Equity Participation Plan in 2019 ("Directors’ Plan"). Under the Directors’ Plan, the Corporation can grant equity awards to non-employee holding company and subsidiary bank directors in the form of stock options, restricted stock, RSUs or common stock. Recent grants of equity awards under the Directors’ Plan have been limited to RSUs.

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

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

As of March 31, 2020, the Employee Equity Plan had 10.2 million shares reserved for future grants through 2023, and the Directors’ Plan had approximately 259,000 shares reserved for future grants through 2029.

The following table presents compensation expense and the related tax benefits for equity awards recognized in the consolidated statements of income:
 
Three months ended March 31
 
2020
 
2019
 
        (in thousands)
Compensation expense
$
1,619

 
$
1,560

Tax benefit
(344
)
 
(331
)
Stock-based compensation expense, net of tax benefit
$
1,275

 
$
1,229



NOTE 12 – Employee Benefit Plans

The net periodic pension cost for the Corporation’s Defined Benefit Pension Plan ("Pension Plan") consisted of the following components:
 
Three months ended March 31
 
2020
 
2019
 
        (in thousands)
Interest cost
$
681

 
$
815

Expected return on plan assets
(982
)
 
(689
)
Net amortization and deferral
465

 
495

Net periodic pension cost
$
164

 
$
621












38



The components of the net benefit for the Corporation’s Postretirement Benefits Plan ("Postretirement Plan") consisted of the following components:
 
Three months ended March 31
 
2020
 
2019
 
        (in thousands)
Interest cost
$
11

 
$
15

Net accretion and deferral
(137
)
 
(139
)
Net periodic benefit
$
(126
)
 
$
(124
)

The Corporation recognizes the funded status of its Pension Plan and Postretirement Plan on the Consolidated Balance Sheets and recognizes the change in that funded status through other comprehensive income.

NOTE 13 – Commitments and Contingencies

Commitments

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

Those financial instruments include commitments to extend credit and letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized on the Corporation’s consolidated balance sheets. Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the outstanding amount of those instruments.

The outstanding amounts of commitments to extend credit and letters of credit were as follows:
 
March 31,
2020
 
December 31, 2019
 
(in thousands)
Commitments to extend credit
$
6,569,660

 
$
6,689,519

Standby letters of credit
293,726

 
303,020

Commercial letters of credit
51,471

 
50,432



The Corporation records a reserve for unfunded lending commitments, included in ACL - OBS credit exposures, which represents management’s estimate of credit losses associated with unused commitments to extend credit and letters of credit. See "Note 4 - Allowance for Credit Losses and Asset Quality," for additional details.

Residential Lending

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

The Corporation maintains a reserve for estimated losses related to loans sold to investors. As of March 31, 2020 and December 31, 2019, the total reserve for losses on residential mortgage loans sold was $1.0 million and $3.2 million, respectively, including reserves for both representation and warranty and credit loss exposures. With the adoption of CECL on January 1, 2020 the reserve for estimated losses on certain residential mortgage loans sold to investors was reclassified to ACL - OBS credit exposures. This reclassification resulted in a $2.1 million increase to ACL - OBS credit exposures and a corresponding decrease to the reserve for estimated losses related to loans sold to investors.





39



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

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

As of the date of this report, the Corporation believes that any liabilities, individually or in the aggregate, which may result from the final outcomes of pending legal proceedings, or regulatory or governmental inquiries or investigations, will not have a material adverse effect on the financial condition of the Corporation. However, legal proceedings, inquiries and investigations are often unpredictable, and it is possible that the ultimate resolution of any such matters, if unfavorable, may be material to the Corporation’s results of operations in any future period, depending, in part, upon the size of the loss or liability imposed and the operating results for the period, and could have a material adverse effect on the Corporation’s business. In addition, regardless of the ultimate outcome of any such legal proceeding, inquiry or investigation, any such matter could cause the Corporation to incur additional expenses, which could be significant, and possibly material, to the Corporation’s results of operations in any future period.

SEC Investigation

The Corporation is responding to an investigation by the staff of the Division of Enforcement of the SEC regarding certain accounting determinations that could have impacted the Corporation’s reported earnings per share. The Corporation believes that its financial statements filed with the SEC in Forms 10-K and 10-Q present fairly, in all material respects, its financial condition, results of operations and cash flows as of or for the periods ending on their respective dates. The Corporation is cooperating fully with the SEC and at this time cannot predict when or how the investigation will be resolved.

Kress v. Fulton Bank, N.A.

On October 15, 2019, a former Fulton Bank teller supervisor, D. Kress filed a putative class action lawsuit on behalf of herself and other similarly situated non-exempt, hourly employees in the U.S. District Court for the District of New Jersey, D. Kress v. Fulton Bank, N.A., Case No. 1:19-cv-18985. Fulton Bank accepted service of process on January 20, 2020. The lawsuit alleges that Fulton Bank did not record or otherwise account for the amount of time which non-exempt employees who are paid based on their time worked, spent conducting branch opening security procedures. The allegation is that, as a result, Fulton Bank did not properly compensate those employees for their regular and overtime wages. The lawsuit alleges that by doing so, Fulton violated: (i) the federal Fair Labor Standards Act and seeks back overtime wages for a period of three years, liquidated damages and attorney fees and costs; (ii) the New Jersey State Wage and Hour Law and seeks back overtime wages for a period of six years, treble damages and attorney fees and costs; and (iii) the New Jersey Wage Payment Law and seeks back wages for a period of six years, treble damages and attorney fees and costs. The lawsuit also asserts New Jersey common law claims seeking compensatory damages and interest.

NOTE 14 – Long-Term Debt

In March 2020, the Corporation issued $200.0 million and $175.0 million of subordinated notes due in 2030 and 2035, respectively. The subordinated notes maturing in 2030 were issued with a fixed-to-floating rate of 3.25% and an effective rate of 3.35%, due to issuance costs, and the subordinated notes maturing in 2035 were issued with a fixed-to-floating rate of 3.75% and an effective rate of 3.85%, due to issuance costs.


40



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("Management’s Discussion") relates to Fulton Financial Corporation, a financial holding company registered under the Bank Holding Company Act and incorporated under the laws of the Commonwealth of Pennsylvania in 1982, and its wholly owned subsidiaries. Management’s Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report.

FORWARD-LOOKING STATEMENTS

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

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

•
the impact of adverse conditions in the economy and financial markets on the performance of the Corporation’s loan and lease portfolio and demand for the Corporation’s products and services;
•
the scope and duration of the COVID-19 pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impacts of the pandemic on the Corporation, its customers and third parties.
•
increases in non-performing assets, which may require the Corporation to increase the allowance for credit losses, charge off loans and leases and incur elevated collection and carrying costs related to such non-performing assets;
•
investment securities gains and losses, including other-than-temporary declines in the value of securities which may result in charges to earnings;
•
the effects of market interest rates, and the relative balances of interest rate-sensitive assets to interest rate-sensitive liabilities, on net interest margin and net interest income;
•
the planned phasing out of LIBOR as a benchmark reference rate;
•
the effects of changes in interest rates on demand for the Corporation’s products and services;
•
the effects of changes in interest rates or disruptions in liquidity markets on the Corporation’s sources of funding;
•
the effects of the extensive level of regulation and supervision to which the Corporation and Fulton Bank, N.A. are subject;
•
the effects of the significant amounts of time and expense associated with regulatory compliance and risk management;
•
the potential for negative consequences from regulatory violations, investigations and examinations, or failure to comply with the BSA, the Patriot Act and related AML requirements, including potential supervisory actions, the assessment of fines and penalties, the imposition of sanctions and the need to undertake remedial actions;
•
the continuing impact of the Dodd-Frank Act on the Corporation’s business and results of operations;
•
the effects of, and uncertainty surrounding, new legislation, changes in regulation and government policy, which could result in significant changes in banking and financial services regulation;
•
the effects of actions by the federal government, including those of the Federal Reserve Board and other government agencies, that impact money supply and market interest rates;
•
the effects of changes in U.S. federal, state or local tax laws;
•
the effects of negative publicity on the Corporation’s reputation;
•
the effects of adverse outcomes in litigation and governmental or administrative proceedings;
•
the potential to incur losses in connection with repurchase and indemnification payments related to sold loans;
•
the Corporation’s ability to achieve its growth plans;

41



•
completed and potential acquisitions may affect costs and the Corporation may not be able to successfully integrate the acquired business or realize the anticipated benefits from such acquisitions;
•
the effects of competition on deposit rates and growth, loan rates and growth and net interest margin;
•
the Corporation’s ability to manage the level of non-interest expenses, including salaries and employee benefits expenses, operating risk losses and goodwill impairment;
•
the effects of changes in accounting policies, standards, and interpretations on the Corporation’s reporting of its financial condition and results of operations;
•
the impact of operational risks, including the risk of human error, inadequate or failed internal processes and systems, computer and telecommunications systems failures, faulty or incomplete data and an inadequate risk management framework;
•
the impact of failures of third parties upon which the Corporation relies to perform in accordance with contractual arrangements;
•
the failure or circumvention of the Corporation’s system of internal controls;
•
the loss of, or failure to safeguard, confidential or proprietary information;
•
the Corporation’s failure to identify and to address cyber-security risks, including data breaches and cyber-attacks;
•
the Corporation’s ability to keep pace with technological changes;
•
the Corporation’s ability to attract and retain talented personnel;
•
capital and liquidity strategies, including the Corporation’s ability to comply with applicable capital and liquidity requirements, and the Corporation’s ability to generate capital internally or raise capital on favorable terms;
•
the Corporation’s reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or other distributions; and
•
the effects of any downgrade in the Corporation’s or Fulton Bank’s credit ratings on their borrowing costs or access to capital markets; and

Additional information regarding these as well as other factors that could affect future financial results can be found in the sections entitled "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019, and elsewhere in this Report, including in Note 13 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements and in Item 1A. "Risk Factors".


42



RESULTS OF OPERATIONS

Overview

The Corporation is a financial holding company which, through its wholly owned banking subsidiary, provides a full range of consumer and commercial financial services through locations 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, investments and other interest-earning assets, and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin, which is FTE net interest income as a percentage of average interest-earning assets. The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments, or properties. Offsetting these revenue sources are provisions for credit losses, non-interest expenses and income taxes.

The following table presents a summary of the Corporation’s earnings and selected performance ratios:
 
Three months ended March 31
 
2020
 
2019
Net income (in thousands)
$
26,047

 
$
56,663

Diluted net income per share
$
0.16

 
$
0.33

Return on average assets
0.47
%
 
1.11
%
Return on average shareholders' equity
4.48
%
 
10.15
%
Return on average tangible shareholders' equity (1)
5.84
%
 
13.28
%
Net interest margin (2)
3.21
%
 
3.49
%
Efficiency ratio (1)
64.5
%
 
63.9
%
Non-performing assets to total assets
0.64
%
 
0.70
%
Annualized net charge-offs to average loans
0.26
%
 
0.10
%
(1)
Ratio represents a financial measure derived by methods other than GAAP. See reconciliation of this non-GAAP financial measure to the most comparable GAAP measure under the heading, "Supplemental Reporting of Non-GAAP Based Financial Measures" at the end of this "Overview" section of Management’s Discussion.
(2)
Presented on an FTE basis, using a 21% federal tax rate and statutory interest expense disallowances. See also the “Net Interest Income” section of Management’s Discussion.

COVID-19 Pandemic

Beginning in the first quarter of 2020, the COVID-19 pandemic has caused substantial disruption in economic and social activity, both globally and in the United States. The spread of COVID-19, and the related government actions to mandate or encourage temporary closures of businesses, quarantines, social distancing and "stay at home" orders, have caused severe disruptions in the U.S. economy, which has, in turn, disrupted, and will likely continue to disrupt the business, activities, and operations of the Company's customers, as well as the Company's own business and operations. The resulting impacts of the pandemic on consumers, including the sudden, significant increase in the unemployment rate, is expected to cause changes in consumer and business spending, borrowing needs and saving habits, which will likely affect the demand for loans and other products and services the Company offers, as well as the creditworthiness of current and prospective borrowers. The significant decrease in commercial activity and disruptions in supply chains associated with the pandemic, both nationally and in the Company’s markets, may cause customers, vendors, and counterparties to be unable to meet existing payment or other obligations to the Company. If borrowers are unable to meet their payment obligations, the Company will be required to increase the ACL through provisions for credit losses.

The Company expects COVID-19 to limit, at least for a period of time, customer demand for many banking products and services. Many companies and residents in the Company's market areas are subject to a mandatory "non-essential business" shut-downs and stay at home orders, which have reduced banking activity across its market areas. In response to these mandates, the Company has temporarily limited most locations to drive-up and ATM services, with lobby access available by appointment only, reduced hours of operation at some locations, temporarily closed some locations and encouraged the Company’s customers to use electronic banking platforms. In addition, a significant portion of the Company’s employees have transitioned to working remotely as a result of the COVID-19 pandemic. It is not yet fully known what impact these operational changes in response to the pandemic may have on the Company’s financial performance.


43



COVID-19 has significantly affected the financial markets and has resulted in a number of responses by the U.S. government, including reductions in interest rates by the FOMC. These reductions in interest rates, especially if prolonged, could adversely affect net interest income and margins and profitability.

The CARES Act was enacted in March 2020 and, among other provisions, authorized the SBA to guarantee loans under the PPP for small businesses who meet the necessary eligibility requirements in order to keep their workers on the payroll. As of April 30, 2020, under the PPP the Company received approximately 9,200 applications, of which approximately 7,200 had been funded totaling $1.8 billion in new loans and an additional approximately $200 million was in the process of being funded.

The impact of COVID-19 on the Company’s financial results is evolving and uncertain. The Company has limited exposure to some of the industries that were initially most significantly impacted by COVID-19, such as accommodation and food services, energy and entertainment, and most of these loans are secured by real estate and other forms of collateral. However, the overall slowing of the economy and lack of growth in gross domestic product may result in a decreased demand for the Company’s loan products. In addition, the decline in economic activity occurring due to COVID-19 and the actions by the FOMC with respect to interest rates are likely to affect the Company’s net interest income, non-interest income and credit-related losses for an uncertain period of time. As a result, the Company has taken steps to maintain liquidity and conserve capital during this period of uncertainty. The Company has been holding excess cash reserves since the middle of March, has additional liquidity available through Federal Funds lines and brokered deposits and has suspended its share repurchase program until there is more clarity surrounding the economic conditions. See additional discussion in "Results of Operations" and "Financial Condition" of Management's Discussion.

Adoption of CECL

The Corporation adopted CECL effective January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost, and OBS credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology. The Corporation recorded an overall increase of $58.3 million to the ACL on January 1, 2020 as a result of the adoption of CECL. Retained earnings decreased $43.8 million and deferred tax assets increased by $12.4 million on January 1, 2020, representing the cumulative effect of adoption.

The allowance for credit losses is impacted by changing economic forecasts over the expected life of the Corporation's loan portfolio.  Should economic forecasts during the second quarter of 2020 worsen, the allowance for credit losses will increase due to a decline in the overall economy.

Summary of Financial Results for the three months ended March 31, 2020:

•
Net Income and Net Income Per Share - Net income was $26.0 million for the three months ended March 31, 2020 a $30.6 million, or 54.0%, decrease compared to the same period in 2019. Diluted net income per share was $0.16, a $0.17, or 51.5%, decrease compared to the same period in 2019, primarily as a result of lower net income, largely driven by a higher provision for credit losses, as a result of the adoption of CECL and deteriorating economic assumptions resulting from COVID-19.

•
Net Interest Income- Net interest income decreased $2.6 million, or 1.6%, for the three months ended March 31, 2020, compared to the same period in 2019. The decrease resulted from lower yields on interest-earning assets, partially offset by balance sheet growth and the impact of lower funding costs. Overall, the net interest margin decreased 28 bp during the three months ended March 31, 2020 compared to the same period in 2019.

◦
Net Interest Margin - The decrease in the net interest margin reflects the net impact of a 38 bp decrease in yields on interest-earning assets, partially offset by a 13 bp decrease in the cost of funds.

◦
Loan Growth - Average Net Loans grew by $665.7 million, or 4.1%, for the three months ended March 31, 2020, compared to the same period in 2019. The most notable increases were in the residential, commercial mortgage and consumer loan portfolios.

◦
Deposit Growth - Average deposits grew $845.8 million, or 5.2%, for the three months ended March 31, 2020, compared to the same period in 2019. The increase was driven by growth in total interest-bearing demand and savings accounts.


44



•
Long-term Debt - In March 2020, the Corporation issued a total of $375.0 million of subordinated notes, with $200.0 million of subordinated notes due in 2030 having a fixed-to-floating rate of 3.25% and an effective rate of 3.35% and $175.0 million of subordinated notes due in 2035 having a fixed-to-floating rate of 3.75% and an effective rate of 3.85%.

•
Asset Quality - Non-performing assets decreased $1.5 million as of March 31, 2020 compared to December 31, 2019. Annualized net charge-offs to average loans outstanding were 0.26% for the three months ended March 31, 2020, compared to 0.10% for the same period in 2019. The provision for credit losses for the three months ended March 31, 2020 was $44.0 million compared to $5.1 million for the same period in 2019. The higher provision during the first quarter of 2020 was largely driven by the overall downturn in economic forecasts due to COVID-19, resulting in higher expected future credit losses under CECL. The ACL as of March 31, 2020 increased primarily due to the adoption of CECL and the higher provision for credit losses.

•
Non-interest Income - For the three months ended March 31, 2020, non-interest income, excluding net investment securities gains, increased $7.9 million, or 16.9%, as compared to the same period in 2019. Increases were experienced in commercial banking, wealth management and mortgage banking.

•
Non-interest Expense - Non-interest expense increased $4.7 million, or 3.4%, for the three months ended March 31, 2020, in comparison to the same period in 2019. The increase was primarily the result of higher salaries and employee benefits and data processing and software expenses.

•
Income Taxes - Income tax expense was $2.8 million for the three months ended March 31, 2020, resulting in an ETR, or income taxes as a percentage of income before income taxes, of 9.6% as compared to 15.6% for the same period in 2019. The ETR was lower mainly due to lower income before income taxes. The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and investments in community development projects that generate tax credits under various federal programs.

45



Supplemental Reporting of Non-GAAP Based Financial Measures

This Quarterly Report on Form 10-Q contains supplemental financial information, as detailed below, which 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 the Corporation and 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 at 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. Following are reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure:
 
Three months ended March 31
 
2020
 
2019
 
(dollars in thousands)
Return on average tangible shareholders' equity
Net income
$
26,047

 
$
56,663

Plus: Intangible amortization, net of tax
104

 
85

Numerator
$
26,151

 
$
56,748

 
 
 
 
Average common shareholders' equity
$
2,337,016

 
$
2,265,097

Less: Average goodwill and intangible assets
(535,235
)
 
(531,767
)
Average tangible shareholders' equity (denominator)
$
1,801,781

 
$
1,733,330

 
 
 
 
Return on average tangible shareholders' equity, annualized
5.84
%
 
13.28
%
 
 
 
 
Efficiency ratio
 
 
 
Non-interest expense
$
142,552

 
$
137,824

Less: Amortization of tax credit investments
(1,450
)
 
(1,491
)
Less: Intangible amortization
(132
)
 
(107
)
Numerator
$
140,970

 
$
136,226

 
 
 
 
Net interest income (FTE) (1)
$
163,970

 
$
166,564

Plus: Total non-interest income
54,644

 
46,751

Less: Investment securities gains, net
(46
)
 
(65
)
Denominator
$
218,568

 
$
213,250

 
 
 
 
Efficiency ratio
64.5
%
 
63.9
%

(1)
Presented on a FTE basis, using a 21% federal tax rate and statutory interest expense disallowances. See also the “Net Interest Income” section of Management’s Discussion and Analysis.


46



CRITICAL ACCOUNTING POLICIES

The Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 includes a summary of critical 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.

The following discussion is regarding the critical accounting policies related to the application of CECL, which was adopted on January 1, 2020.

ALLOWANCE FOR CREDIT LOSSES

The Corporation adopted new accounting guidance for estimating credit losses, known as CECL, in the first quarter of 2020. In accordance with CECL, the ACL, which includes both the ACL - loans and the ACL for OBS credit exposures, is calculated with the objective of maintaining a reserve for current expected credit losses over the remaining expected life of the portfolio. Management's determination of the appropriateness of the reserve is based on periodic evaluations of the loan portfolio, lending-related commitments, current as well as forecasted economic factors and other relevant factors.

In determining the ACL, the Corporation uses three independent components. These components are PD, which measures the likelihood that a borrower will be unable to meet its debt obligations, LGD, which measures the share of an asset that is lost if a borrower defaults, and EAD which measures the gross exposure under a facility upon default. The PD models were developed based on historical default data. Both internal variables and external variables are evaluated in the process. The main internal variables are risk rating (commercial loans) or delinquency history (consumer loans) and the external variables are economic variables obtained from external forecasts. Management applies risk rating transition matrices to pools of loans and lending-related commitments with similar risk characteristics to determine default probabilities, calibrates using economic forecasts, applies modeled LGD results to associated EAD and incorporates modeled overlays and qualitative adjustments to estimate ACL. As such, the calculation of ACL is inherently subjective and requires management to exercise significant judgment.

The ACL is estimated over a reasonable and supportable forecast period based on the projected performance of specific economic variables that statistically correlate with PD rates. As economic variables revert to long-term averages through the forecast process, externally developed long-term economic forecasts are used to establish the impacts of the economic scenario, reversion, and long-term averages in the development of losses over the expected life of the assets being modeled. The CECL estimate is highly sensitive to the economic forecasts used to develop the estimate. Due to the high level of uncertainty regarding significant assumptions, such as the ultimate impact of COVID-19 and effectiveness of the government stimulus, the Corporation evaluated a range of economic scenarios, including more and less severe economic deteriorations in the second quarter of 2020, with varying speeds of recovery. In isolation, assuming a more prolonged recession through 2021 with elevated unemployment levels through the latter half of 2022, the CECL estimate may have resulted in a significantly higher ACL. However, because qualitative adjustments are a part of the allowance methodology, the actual impact of a change in assumptions is not determinable.

CECL includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative models. Qualitative adjustments include and consider changes in international, national, regional and local economic and business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality. Qualitative adjustments at March 31, 2020 increased compared to those at the time of adoption of CECL on January 1, 2020 as a result of uncertainties related to forecasted economic variables due to the economic impact of COVID-19 and the future performance of loans that received deferrals or forbearances due to COVID-19.

For further discussion of the methodology used in the determination of the ACL, refer to Note 1, "Basis of Presentation" to the Consolidated Financial Statements. To the extent actual outcomes differ from management estimates, additional provision for credit losses may be required that would adversely impact earnings in future periods.

47



Three months ended March 31, 2020 compared to the three months ended March 31, 2019

Net Interest Income

FTE net interest income decreased $2.6 million, to $164.0 million, for the three months ended March 31, 2020, from $166.6 million in the same period in 2019. The NIM decreased 28 bp, or 8.0%, to 3.21% compared to 3.49% for the same period in 2019. The following table provides a comparative average balance sheet and net interest income analysis for those periods. Interest income and yields are presented on an FTE basis, using a 21% federal tax rate and statutory interest expense disallowances. The discussion following this table is based on these FTE amounts.
 
Three months ended March 31
 
2020
 
2019
 
Average
Balance
 
Interest
 
Yield/
Rate
 
Average
Balance
 
Interest
 
Yield/
Rate
ASSETS
(dollars in thousands)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Net loans (1)
$
16,860,067

 
$
177,496

 
4.23
%
 
$
16,194,375

 
$
186,122

 
4.65
%
Taxable investment securities (2)
2,284,457

 
16,294

 
2.85

 
2,285,724

 
15,435

 
2.70

Tax-exempt investment securities (2)
720,223

 
5,960

 
3.29

 
444,132

 
4,150

 
3.71

Total investment securities
3,004,680

 
22,254

 
2.96

 
2,729,856

 
19,585

 
2.87

Loans held for sale
27,178

 
320

 
4.71

 
16,434

 
240

 
5.85

Other interest-earning assets
602,270

 
2,532

 
1.69

 
366,175

 
2,002

 
2.20

Total interest-earning assets
20,494,195

 
202,602

 
3.97

 
19,306,840

 
207,949

 
4.35

Noninterest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
138,248

 
 
 
 
 
110,693

 
 
 
 
Premises and equipment
239,619

 
 
 
 
 
237,124

 
 
 
 
Other assets
1,590,666

 
 
 
 
 
1,197,034

 
 
 
 
Less: ACL - loans (3)
(210,629
)
 
 
 
 
 
(161,326
)
 
 
 
 
Total Assets
$
22,252,099

 
 
 
 
 
$
20,690,365

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Demand deposits
$
4,649,905

 
$
5,643

 
0.49
%
 
$
4,153,984

 
$
7,519

 
0.73
%
Savings deposits
5,127,662

 
7,110

 
0.56

 
4,912,856

 
9,962

 
0.82

Brokered deposits
275,359

 
1,073

 
1.57

 
220,115

 
1,382

 
2.55

Time deposits
2,761,474

 
12,614

 
1.84

 
2,765,803

 
10,826

 
1.59

Total interest-bearing deposits
12,814,400

 
26,440

 
0.83

 
12,052,758

 
29,689

 
1.00

Short-term borrowings
1,303,047

 
4,073

 
1.25

 
820,054

 
3,582

 
1.76

FHLB advances and long-term debt
1,063,214

 
8,119

 
3.06

 
1,002,463

 
8,114

 
3.26

Total interest-bearing liabilities
15,180,661

 
38,632

 
1.02

 
13,875,275

 
41,385

 
1.21

Noninterest-bearing liabilities:

 
 
 
 
 
 
 
 
 
 
Demand deposits
4,307,027

 
 
 
 
 
4,222,875

 
 
 
 
Total Deposits/Cost of deposits
17,121,427

 
 
 
0.62

 
16,275,633

 
 
 
0.74

Other liabilities
427,395

 
 
 
 
 
327,118

 
 
 
 
Total Liabilities
19,915,083

 
 
 
 
 
18,425,268

 
 
 
 
Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds
19,487,688

 
 
 
0.80

 
18,098,150

 
 
 
0.93

Shareholders’ equity
2,337,016

 
 
 
 
 
2,265,097

 
 
 
 
Total Liabilities and Shareholders’ Equity
$
22,252,099

 
 
 
 
 
$
20,690,365

 
 
 
 
Net interest income/FTE NIM
 
 
163,970

 
3.21
%
 
 
 
166,564

 
3.49
%
Tax equivalent adjustment
 
 
(3,224
)
 
 
 
 
 
(3,249
)
 
 
Net interest income
 
 
$
160,746

 
 
 
 
 
$
163,315

 
 
(1)
Average balance includes non-performing loans.
(2)
Balances include amortized historical cost for AFS; the related unrealized holding gains (losses) are included in other assets.
(3)
ACL - loans relates to the ACL specifically on "Net Loans" and does not include the ACL for OBS credit exposures which is included in other liabilities.


48



The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volume) and changes in rates for the three months ended March 31, 2020 in comparison to the same period in 2019:
 
2020 vs. 2019
Increase (Decrease) due
to change in
 
Volume
 
Rate
 
Net
 
(in thousands)
FTE Interest income on:
 
 
 
 
 
Net Loans
$
7,899

 
$
(16,525
)
 
$
(8,626
)
Taxable investment securities
(9
)
 
868

 
859

Tax-exempt investment securities
2,313

 
(503
)
 
1,810

Loans held for sale
134

 
(54
)
 
80

Other interest-earning assets
1,079

 
(549
)
 
530

Total interest income
$
11,416

 
$
(16,763
)
 
$
(5,347
)
Interest expense on:
 
 
 
 
 
Demand deposits
$
741

 
$
(2,617
)
 
$
(1,876
)
Savings deposits
430

 
(3,282
)
 
(2,852
)
Brokered deposits
305

 
(614
)
 
(309
)
Time deposits
246

 
1,542

 
1,788

Short-term borrowings
1,725

 
(1,234
)
 
491

Long-term borrowings
502

 
(497
)
 
5

Total interest expense
$
3,949

 
$
(6,702
)
 
$
(2,753
)
Note: Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of direct changes that are attributable to each component.

The FOMC decreased the Fed Funds Rate by 25 bp in each of August, September and October of 2019. In March 2020 the FOMC decreased the Fed Funds Rate by a total of 150 bp in response to COVID-19. These changes in the Fed Funds Rate resulted in corresponding decreases to the index rates for the Corporation's variable and adjustable rate loans, primarily the prime rate and the LIBOR as well as for certain interest-bearing liabilities.

As summarized in the preceding table, the 38 bp decrease in the yield on average interest-earning assets drove a $16.8 million decrease in FTE interest income, but was partially offset by the impact of a $1.2 billion, or 6.1%, increase in interest-earning assets, primarily loans, which contributed $11.4 million to FTE interest income. The yield on the loan portfolio decreased 42 bp, or 9.0%, from the first quarter of 2019, as all variable and certain adjustable rate loans repriced to lower rates, and yields on new loan originations generally were lower than the average yield on the loan portfolio. Adjustable rate loans reprice on dates specified in the loan agreements, which may be later than the date the Fed Funds Rate and related loan index rates increase or decrease. As such, the impact of changes in index rates on adjustable rate loans may not be fully realized until future periods.

Interest expense decreased $2.8 million primarily due to the 19 bp decrease in the rate on average interest-bearing liabilities. The rates on average interest-bearing demand deposits and savings deposits decreased 24 bp and 26 bp, respectively, which contributed $2.6 million and $3.3 million to the decrease in interest expense, respectively. These decreases were partially offset by the 25 bp increase in the rates on time deposits, which generated a $1.5 million increase to interest expense. In addition, the 51 bp decrease in the rates on short-term borrowings contributed $1.2 million to the decrease in interest expense, however the increase in short-term borrowings contributed $1.7 million in additional interest expense.












49



Average loans and average FTE yields, by type, are summarized in the following table:
 
Three months ended March 31
 
Increase (Decrease)
 
2020
 
2019
 
 in Balance
 
Balance
 
Yield
 
Balance
 
Yield
 
$
 
%
 
(dollars in thousands)
Real estate – commercial mortgage
$
6,746,766

 
4.20
%
 
$
6,378,145

 
4.69
%
 
$
368,621

 
5.8
%
Commercial and industrial
4,446,750

 
4.21

 
4,462,609

 
4.66

 
(15,859
)
 
(0.4
)
Real estate – residential mortgage
2,670,019

 
3.97

 
2,276,611

 
4.06

 
393,408

 
17.3

Real estate – home equity
1,300,132

 
4.73

 
1,433,574

 
5.33

 
(133,442
)
 
(9.3
)
Real estate – construction
929,529

 
4.13

 
930,246

 
4.83

 
(717
)
 
(0.1
)
Consumer
466,415

 
4.34

 
424,480

 
4.49

 
41,935

 
9.9

Equipment lease financing
284,566

 
4.32

 
276,949

 
4.40

 
7,617

 
2.8

Other
15,890

 
—

 
11,761

 
—

 
4,129

 
35.1

Total loans
$
16,860,067

 
4.23
%
 
$
16,194,375

 
4.65
%
 
$
665,692

 
4.1
%

Average loans increased $665.7 million, or 4.1%, compared to the same period of 2019. The increase was driven largely by growth in the residential and commercial mortgage loan portfolios, as well as the consumer portfolio, partially offset by decreases in the home equity and commercial and industrial loan portfolios.

Average deposits and average interest rates, by type, are summarized in the following table:
 
Three months ended March 31
 
Increase (Decrease)
in Balance
 
2020
 
2019
 
 
Balance
 
Rate
 
Balance
 
Rate
 
$
 
%
 
(dollars in thousands)
Noninterest-bearing demand
$
4,307,027

 
—
%
 
$
4,222,875

 
—
%
 
$
84,152

 
2.0
%
Interest-bearing demand
4,649,905

 
0.49

 
4,153,984

 
0.73

 
495,921

 
11.9

Savings
5,127,662

 
0.56

 
4,912,856

 
0.82

 
214,806

 
4.4

Total demand and savings
14,084,594

 
0.36

 
13,289,715

 
0.53

 
794,879

 
6.0

Brokered deposits
275,359

 
1.57

 
220,115

 
2.55

 
55,244

 
25.1

Time deposits
2,761,474

 
1.84

 
2,765,803

 
1.59

 
(4,329
)
 
(0.2
)
Total deposits
$
17,121,427

 
0.62
%
 
$
16,275,633

 
0.74
%
 
$
845,794

 
5.2
%

Average total demand and savings accounts increased $794.9 million, or 6.0%, primarily driven by increases in interest-bearing demand deposits and saving accounts. The average cost of interest-bearing deposits decreased 17 bp due rate decreases in most non-maturity deposit categories. The overall increase in total demand and savings deposits was primarily due to a $570.1 million, or 11.8%, increase in commercial account balances, a $139.0 million, or 7.5%, increase in municipal account balances, and an $85.7 million, or 1.3%, increase in consumer account balances.

The average cost of total deposits decreased 12 bp, to 0.62%, for the first quarter of 2020, compared to 0.74% for the same period of 2019, mainly as a result of rate decreases implemented after the Fed Funds Rate cuts during the second half of 2019. The majority of deposit rates are discretionary, with the exception of indexed municipal balances. Deposit costs are expected to decrease significantly in the second quarter of 2020 as a result of deposit rate cuts in the second half of March 2020 in response to the sweeping FOMC reductions to the Fed Funds Rate.











50



Average borrowings and interest rates, by type, are summarized in the following table:
 
Three months ended March 31
 
Increase (Decrease)
 
2020
 
2019
 
in Balance
 
Balance
 
Rate
 
Balance
 
Rate
 
$
 
%
 
(dollars in thousands)
Short-term borrowings:
 
 
 
 
 
 
 
 
 
 
 
Total short-term customer funding(1)
$
428,242

 
0.58
%
 
$
368,799

 
0.72
%
 
$
59,443

 
16.1
 %
Federal funds purchased
186,868

 
1.12

 
157,122

 
2.43

 
29,746

 
18.9

Short-term FHLB advances and other borrowings (2)
687,937

 
1.70

 
294,133

 
2.71

 
393,804

 
133.9

Total short-term borrowings
1,303,047

 
1.25

 
820,054

 
1.76

 
482,993

 
58.9

Long-term borrowings:
 
 
 
 

 
 
 

 

FHLB advances
556,951

 
1.93

 
615,343

 
2.48

 
(58,392
)
 
(9.5
)
Other long-term debt
506,263

 
4.30

 
387,120

 
4.49

 
119,143

 
30.8

Total long-term borrowings
1,063,214

 
3.06

 
1,002,463

 
3.26

 
60,751

 
6.1

Total borrowings
$
2,366,261

 
2.06
%
 
$
1,822,517

 
2.59
%
 
$
543,744

 
29.8
 %
(1) Includes repurchase agreements and short-term promissory notes.
(2) Consists of FHLB borrowings with original term of less than one year.

Average total short-term borrowings increased $483.0 million, or 58.9%, primarily as a result of a $393.8 million increase in short-term FHLB advances and other borrowings. Total short-term customer funding and federal funds purchased also increased during the first quarter of 2020. The average cost of short-term borrowings decreased 51 bp, mainly due to the net impact of changes in the Fed Funds Rate.

Average total long-term borrowings increased $60.8 million, or 6.1%, during the first quarter of 2020, compared to the same period of 2019, as a result of the issuance of $375.0 million of subordinated notes in March of 2020, partially offset by a decrease in average FHLB advances.

Provision for Credit Losses

The provision for credit losses was $44.0 million for the first quarter of 2020, an increase of $38.9 million from the same period of 2019. The increase was the result of several factors, most notably, the overall downturn in economic forecasts due to COVID-19.

























51



Non-Interest Income

The following table presents the components of non-interest income:
 
Three months ended March 31
 
Increase (Decrease)
 
2020
 
2019
 
$
 
%
 
(dollars in thousands)
Wealth management
$
15,055

 
$
13,239

 
$
1,816

 
13.7
 %
Commercial banking:
 
 
 
 
 
 
 
   Merchant and card
5,624

 
5,558

 
66

 
1.2

   Cash management
4,742

 
4,361

 
381

 
8.7

Capital markets
5,075

 
2,515

 
2,560

 
101.8

   Other commercial banking
2,978

 
2,816

 
162

 
5.8

         Total commercial banking
18,419

 
15,250

 
3,169

 
20.8

Consumer banking:
 
 
 
 
 
 
 
  Card
4,685

 
4,686

 
(1
)
 
—

  Overdraft
4,058

 
4,104

 
(46
)
 
(1.1
)
  Other consumer banking
2,496

 
2,587

 
(91
)
 
(3.5
)
         Total consumer
11,239

 
11,377

 
(138
)
 
(1.2
)
Mortgage banking:
 
 
 
 
 
 
 
Gains on sales of mortgage loans
6,181

 
3,122

 
3,059

 
98.0

Mortgage servicing
53

 
1,650

 
(1,597
)
 
(96.8
)
        Total mortgage banking
6,234

 
4,772

 
1,462

 
30.6

Other
3,651

 
2,048

 
1,603

 
78.3

        Total, excluding investment securities gains, net
54,598

 
46,686

 
7,912

 
16.9

Investment securities gains, net
46

 
65

 
(19
)
 
(29.2
)
              Total non-interest income
$
54,644

 
$
46,751

 
$
7,893

 
16.9
 %
N/M - Not meaningful

Excluding net investment securities gains, non-interest income increased $7.9 million, or 16.9%, in the first quarter of 2020 as compared to the same period in 2019. Wealth management revenues increased $1.8 million, or 13.7%, resulting primarily from growth in brokerage income due to an increase in client asset levels and improved overall market performance prior to the impact of COVID-19 at the end of the quarter.

Total commercial banking income increased $3.2 million, or 20.8%, compared to the same period in 2019, driven by increases in capital markets revenues, primarily commercial loan interest rate swap income, and cash management fees.

Mortgage banking income increased $1.5 million, or 30.6%, driven by an increase in gains on sales of mortgage loans, partially offset by a decrease in mortgage servicing income. The increase in gains on sales of mortgage loans reflected increases in both the volume of loans sold and higher spreads on sales. The decrease in mortgage servicing income resulted from a $1.1 million increase to the valuation allowance for MSR's.

Other income increased $1.6 million, as a result of additional investments made in bank owned life insurance in 2019 and gains on sales of certain properties.




52



Non-Interest Expense

The following table presents the components of non-interest expense:
 
Three months ended March 31
 
Increase (Decrease)
 
2020
 
2019
 
$
 
%
 
(dollars in thousands)
Salaries and employee benefits
$
80,228

 
$
77,757

 
$
2,471

 
3.2
%
Net occupancy
13,486

 
12,909

 
577

 
4.5

Data processing and software
11,645

 
10,353

 
1,292

 
12.5

Other outside services
7,881

 
8,352

 
(471
)
 
(5.6
)
Professional fees
4,202

 
3,960

 
242

 
6.1

Equipment
3,418

 
3,342

 
76

 
2.3

FDIC insurance
2,808

 
2,609

 
199

 
7.6

State taxes
2,804

 
2,002

 
802

 
40.1

Marketing
1,579

 
2,160

 
(581
)
 
(26.9
)
Amortization of tax credit investments
1,450

 
1,491

 
(41
)
 
(2.7
)
Intangible amortization
132

 
107

 
25

 
23.4

Other
12,919

 
12,782

 
137

 
1.1

Total non-interest expense
$
142,552

 
$
137,824

 
$
4,728

 
3.4
%

The $2.5 million, or 3.2%, increase in salaries and employee benefits reflected the net impact of an increase in employee salaries, due mainly to annual merit increases and commissions, and an increase in benefits, primarily due to higher health insurance and 401K matching expense, partially offset by lower defined benefits expense compared to 2019. Staffing levels were consistent in both periods.

Data processing and software increased $1.3 million, or 12.5%, reflecting higher transaction volumes and costs related to technology initiatives.

Professional fees increased $242,000, or 6.1%, primarily due to an increase in legal fees. The Corporation incurs fees related to various legal matters in the normal course of business. These fees can fluctuate based on timing and the extent of these matters.

State taxes increased $802,000, or 40.1%, primarily driven by an increase in PA shares tax expense, and a reduction in tax credits.

Marketing expense decreased $581,000, or 26.9%, as the prior year period included costs associated with the consolidation of the Corporation's banking subsidiaries into Fulton Bank.

Income Taxes

Income tax expense for the three months ended March 31, 2020 was $2.8 million, a $7.7 million decrease from $10.5 million for the same period in 2019. The Corporation’s ETR was 9.6% for the three months ended March 31, 2020, as compared to 15.6% in the same period of 2019. The decrease in income tax expense and the ETR primarily resulted from a decrease in income before taxes. The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and investments in community development projects that generate tax credits under various federal programs.
 
 
 
 
 
 
 

53



FINANCIAL CONDITION

The table below presents condensed consolidated ending balance sheets.
 
March 31, 2020
 
December 31, 2019
 
Increase (Decrease)
 
 
 
$
 
%
 
(dollars in thousands)
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
856,360

 
$
517,791

 
$
338,569

 
65.4
 %
FRB and FHLB Stock
118,989

 
97,422

 
21,567

 
22.1

Loans held for sale
40,645

 
37,828

 
2,817

 
7.4

Investment securities
3,141,440

 
2,867,378

 
274,062

 
9.6

Net Loans
16,838,895

 
16,673,904

 
164,991

 
1.0

Premises and equipment
236,908

 
240,046

 
(3,138
)
 
(1.3
)
Goodwill and intangibles
535,171

 
535,303

 
(132
)
 
—

Other assets
1,161,451

 
916,368

 
245,083

 
26.7

Total Assets
$
22,929,859

 
$
21,886,040

 
$
1,043,819

 
4.8
 %
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
Deposits
$
17,365,026

 
$
17,393,913

 
$
(28,887
)
 
(0.2
)%
Short-term borrowings
1,386,808

 
883,241

 
503,567

 
57.0

Long-term borrowings
1,378,466

 
881,769

 
496,697

 
56.3

Other liabilities
513,811

 
384,941

 
128,870

 
33.5

Total Liabilities
20,644,111

 
19,543,864

 
1,100,247

 
5.6

Total Shareholders’ Equity
2,285,748

 
2,342,176

 
(56,428
)
 
(2.4
)
Total Liabilities and Shareholders’ Equity
$
22,929,859

 
$
21,886,040

 
$
1,043,819

 
4.8
 %

Cash and Cash Equivalents

The $338.6 million, or 65.4%, increase in cash and cash equivalents mainly resulted from additional collateral required to be posted with counterparties for derivative contracts as well as additional cash maintained at the FRB for liquidity purposes due to the uncertainty surrounding COVID-19.

FRB and FHLB Stock

FRB and FHLB stock increased $21.6 million, or 22.1%, due to an increase in FHLB stock as a result of higher short-term and long-term FHLB borrowings as of March 31, 2020 compared to December 31, 2019.



















54



Investment Securities

The following table presents the carrying amount of investment securities:
 
March 31,
2020
 
December 31,
2019
 
Increase (Decrease)
 
 
 
$
 
%
 
(dollars in thousands)
Available for Sale
 
 
 
 
 
 
 
State and municipal securities
$
848,084

 
$
652,927

 
$
195,157

 
29.9
 %
Corporate debt securities
373,478

 
377,357

 
(3,879
)
 
(1.0
)
Collateralized mortgage obligations
667,652

 
693,718

 
(26,066
)
 
(3.8
)
Residential mortgage-backed securities
220,629

 
177,312

 
43,317

 
24.4

Commercial mortgage-backed securities
587,325

 
494,297

 
93,028

 
18.8

Auction rate securities
93,666

 
101,926

 
(8,260
)
 
(8.1
)
   Total available for sale securities
$
2,790,834

 
$
2,497,537

 
$
293,297

 
11.7
 %
Held to Maturity
 
 
 
 
 
 
 
Residential mortgage-backed securities
$
350,606

 
$
369,841

 
$
(19,235
)
 
(5.2
)%
Total Investment Securities
$
3,141,440

 
$
2,867,378

 
$
274,062

 
9.6
 %

Total AFS securities increased $293.3 million, or 11.7%, primarily due to the investment of a portion of the proceeds from the issuance of $375.0 million of subordinated notes. See Note 14, "Long-Term Debt," in the Notes to Consolidated Financial Statements for additional detail on the subordinated notes issuance. Other increases resulted from the reinvestment of ordinary cash flows from prepayments, repayments, calls or maturities. Total HTM securities decreased $19.2 million, or 5.2%, primarily as a result of principal repayments and premium amortization. There were no purchases of or transfers into HTM securities during the periods presented.

Loans

The following table presents ending balances of Net Loans outstanding:
 
March 31,
2020
 
December 31, 2019
 
Increase (Decrease)
 
 
 
$
 
%
 
(dollars in thousands)
Real estate – commercial mortgage
$
6,895,069

 
$
6,700,776

 
$
194,293

 
2.9
 %
Commercial and industrial
4,451,239

 
4,446,701

 
4,538

 
0.1

Real estate – residential mortgage
2,718,290

 
2,641,465

 
76,825

 
2.9

Real estate – home equity
1,292,677

 
1,314,944

 
(22,267
)
 
(1.7
)
Real estate – construction
947,768

 
971,079

 
(23,311
)
 
(2.4
)
Consumer
468,172

 
463,164

 
5,008

 
1.1

Equipment lease financing and other
327,272

 
322,625

 
4,647

 
1.4

Overdrafts
2,381

 
3,582

 
(1,201
)
 
(33.5
)
Gross loans
17,102,868

 
16,864,336

 
238,532

 
1.4

Unearned income
(25,465
)
 
(26,810
)
 
1,345

 
(5.0
)
Net Loans
$
17,077,403

 
$
16,837,526

 
$
239,877

 
1.4
 %

Net Loans increased $239.9 million, or 1.4%, in comparison to December 31, 2019, primarily due to growth in residential and commercial mortgage loans, partially offset by decreases in home equity and construction loans.

Construction loans include loans to commercial borrowers secured by commercial real estate, loans to commercial borrowers secured by residential real estate, and other construction loans, which are loans to individuals secured by residential real estate. Approximately $7.8 billion, or 45.9%, of the loan portfolio was in commercial mortgage and construction loans as of March 31, 2020. The Corporation's internal policy limits its maximum total lending commitment to an individual borrowing relationship to $55 million as of March 31, 2020. In addition, the Corporation has established lower total lending limits for certain types of lending

55



commitments, and lower total lending limits based on the Corporation's internal risk rating of an individual borrowing relationship at the time the lending commitment is approved.

As of April 30, 2020, under the PPP the Company received approximately 9,200 applications, of which approximately 7,200 had been funded totaling $1.8 billion in new loans and an additional approximately $200 million was in the process of being funded.

The Corporation has limited exposure to some of the industries that were initially most significantly impacted by COVID-19, such as accommodation and food services, energy and entertainment, and most of these loans are secured by real estate and other forms of collateral. The following table summarizes the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios:
 
March 31, 2020
 
December 31, 2019
Real estate (1)
43.0
%
 
41.4
%
Health care
7.7

 
8.1

Agriculture
6.8

 
7.1

Construction (2)
6.0

 
6.2

Manufacturing
6.1

 
6.0

Other services
4.9

 
4.7

Retail
4.2

 
4.2

Accommodation and food services
4.2

 
4.1

Wholesale trade
3.8

 
3.6

Educational services
3.1

 
4.1

Professional, scientific and technical services
2.8

 
2.9

Arts, entertainment and recreation
2.4

 
2.2

Public administration
1.9

 
2.0

Transportation and warehousing
1.3

 
1.2

Other (4)
1.8

 
2.2

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.
(2)
Includes commercial loans to borrowers engaged in the construction industry.
(3)
Excludes public administration.
(4)
Includes energy.

The following table presents the changes in non-accrual loans for the three months ended March 31, 2020:
 
Commercial 
and
Industrial
 
Real Estate -
Commercial
Mortgage
 
Real Estate -
Construction
 
Real Estate -
Residential
Mortgage
 
Real Estate -
Home
Equity
 
Consumer
 
Equipment Lease Financing
 
Total
 
(in thousands)
Three months ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
48,106

 
$
33,166

 
$
3,618

 
$
16,676

 
$
7,004

 
$
—

 
$
16,528

 
$
125,098

Additions
16,659

 
7,615

 
—

 
887

 
1,174

 
1,213

 
526

 
28,074

Payments
(12,791
)
 
(4,253
)
 
(58
)
 
(163
)
 
(524
)
 
—

 
(560
)
 
(18,349
)
Charge-offs
(10,899
)
 
(855
)
 
—

 
(187
)
 
(316
)
 
(1,213
)
 
(95
)
 
(13,565
)
Transfers to OREO
—

 
(16
)
 
—

 
(820
)
 
(77
)
 
—

 
—

 
(913
)
Balance at March 31, 2020
$
41,075

 
$
35,657

 
$
3,560

 
$
16,393

 
$
7,261

 
$
—

 
$
16,399

 
$
120,345


Non-accrual loans decreased $4.8 million, or 3.8%, in comparison to December 31, 2019, primarily as a result of payments and charge-offs, partially offset by additions to non-accrual loans.
 


56



The following table summarizes non-performing assets as of the indicated dates:
 
March 31, 2020
 
December 31, 2019
 
(dollars in thousands)
Non-accrual loans
$
120,345

 
$
125,098

Loans 90 days or more past due and still accruing
19,593

 
16,057

Total non-performing loans
139,938

 
141,155

OREO (1)
6,593

 
6,831

Total non-performing assets
$
146,531

 
$
147,986

Non-performing loans to total loans
0.82
%
 
0.84
%
Non-performing assets to total assets
0.64
%
 
0.68
%
ACL - loans to non-performing loans
170
%
 
116
%
(1) Excludes $14.8 million of residential mortgage properties for which formal foreclosure proceedings were in process as of March 31, 2020.

Non-performing loans decreased $5.2 million, or 3.7%, in comparison to December 31, 2019. Non-performing loans as a percentage of total loans were 0.82% at March 31, 2020 in comparison to 0.84% at December 31, 2019. See Note 4, "Allowance for Credit Losses and Asset Quality," in the Notes to Consolidated Financial Statements for further details on non-performing loans.

The following table presents loans whose terms have been modified under TDRs, by type, as of the indicated dates:
 
March 31, 2020
 
December 31, 2019
 
(in thousands)
Real estate - residential mortgage
$
21,473

 
$
21,551

Real estate - home equity
14,513

 
15,068

Real estate - commercial mortgage
7,648

 
13,330

Commercial and industrial
4,771

 
5,193

Consumer
7

 
8

Total accruing TDRs
48,412

 
55,150

Non-accrual TDRs (1)
27,600

 
20,825

Total TDRs
$
76,012

 
$
75,975

(1) Included with non-accrual loans in the preceding table.
 
The Company has adopted a disaster relief and assistance program and has provided assistance through payment deferrals and forbearances to consumer, small business and commercial customers that have been impacted by the COVID-19 pandemic.

The ability to identify potential problem loans in a timely manner is important to maintaining an adequate ACL. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal risk rating process is used to monitor credit quality. The evaluation of credit risk for residential mortgages, home equity loans, construction loans to individuals and consumer loans is based on payment history, through the monitoring of delinquency levels and trends. For a description of the Corporation's risk ratings, see Note 4, "Allowance for Credit Losses and Asset Quality," in the Notes to Consolidated Financial Statements.













57



Total internally risk-rated loans were $12.2 billion as of March 31, 2020 and $12.0 billion as of December 31, 2019. The following table presents internal risk ratings for commercial and industrial loans, real estate - commercial mortgages and real estate - construction loans to commercial borrowers with internal risk ratings of Special Mention (considered "criticized" loans by banking regulators) or Substandard or lower (considered "classified" loans by banking regulators), by class segment.
 
Special Mention
 
Increase (Decrease)
 
Substandard or Lower
 
Increase (Decrease)
 
Total Criticized and Classified Loans
 
March 31, 2020
 
December 31, 2019
 
$
 
%
 
March 31, 2020
 
December 31, 2019
 
$
 
%
 
March 31, 2020
 
December 31, 2019
 
(dollars in thousands)
Real estate - commercial mortgage
$
138,625

 
$
137,163

 
$
1,462

 
1.1
 %
 
$
127,825

 
$
134,206

 
$
(6,381
)
 
(4.8
)%
 
$
266,450

 
$
271,369

Commercial and industrial
158,748

 
181,107

 
(22,359
)
 
(12.3
)
 
159,374

 
199,760

 
(40,386
)
 
(20.2
)
 
318,122

 
380,867

Real estate - construction(1)
8,793

 
4,219

 
4,574

 
108.4

 
6,789

 
6,137

 
652

 
10.6

 
15,582

 
10,356

Total
$
306,166

 
$
322,489

 
$
(16,323
)
 
(5.1
)%
 
$
293,988

 
$
340,103

 
$
(46,115
)
 
(13.6
)%
 
$
600,154

 
$
662,592

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% of total risk rated loans
2.5
%
 
2.7
%
 
 
 
 
 
2.4
%
 
2.8
%
 
 
 
 
 
4.9
%
 
5.5
%

(1) Excludes construction - other
 
Provision and Allowance for Credit Losses

The following table presents the components of the ACL:
 
March 31,
2020
 
December 31,
2019
 
(dollars in thousands)
ACL - loans
$
238,508

 
$
163,622

ACL - OBS credit exposure (1)
18,963

 
2,587

        Total ACL
$
257,471

 
$
166,209

 
 
 
 
ACL - loans to net loans outstanding
1.40
%
 
0.97
%

(1) Included in "other liabilities" on the consolidated balance sheet.























58



The following table presents the activity in the ACL related to loans:
 
Three months ended March 31
 
2020
 
2019
 
(dollars in thousands)
Average balance of net loans
$
16,860,067

 
$
16,194,375

 
 
 
 
Balance of ACL - loans at beginning of period
$
163,622

 
$
169,410

Impact of adopting CECL
45,723

 
—

Loans charged off:
 
 
 
Commercial and industrial
10,899

 
2,787

Consumer
1,213

 
683

Real estate – commercial mortgage
855

 
1,145

Real estate – home equity
316

 
219

Real estate – residential mortgage
187

 
655

Real estate – construction
—

 
95

Equipment lease financing and other
533

 
785

Total loans charged off
14,003

 
6,369

Recoveries of loans previously charged off:
 
 
 
Commercial and industrial
1,734

 
1,243

Real estate – commercial mortgage
244

 
136

Real estate – home equity
646

 
197

Real estate – residential mortgage
85

 
132

Real estate – construction
70

 
84

Consumer
—

 
210

Equipment lease financing and other
108

 
229

Total recoveries
2,887

 
2,231

Net loans charged off
11,116

 
4,138

Provision for credit losses (1)
40,279

 
5,100

Balance of ACL - loans at end of period
$
238,508

 
$
170,372

 
 
 
 
Net charge-offs to average loans (annualized)
0.26
%
 
0.10
%

(1) Provision included in the table only includes the portion related to loans.

The provision for credit losses, specific to loans, for the three months ended March 31, 2020 was $40.3 million. Prior periods did not incorporate "life of loan" losses and applied methodology on an incurred loss model, which would not have considered economic forecasts or forward-looking consideration over the remaining expected lives of loans. The amount recorded for the three months ended March 31, 2020 was primarily driven by economic assumptions, which considered the impact of COVID-19.

In addition, net charge-offs were approximately $7.0 million higher in 2020 compared to 2019. Annualized net charge-offs as a percentage of average loans for the first quarter of 2020 were 0.26%, as compared to 0.10% during the same period of 2019.













59



The following table summarizes the allocation of the ACL - loans:
 
March 31, 2020
 
December 31, 2019
 
ACL - loans
 
%
In Each Loan
Category (1)
 
ACL - loans
 
%
In Each Loan
Category (1)
 
(dollars in thousands)
Real estate - commercial mortgage
$
90,319

 
40.3
%
 
$
45,610

 
39.7
%
Commercial and industrial
63,606

 
26.0

 
68,602

 
26.4

Real estate - residential mortgage
42,427

 
7.6

 
19,771

 
7.8

Real estate - home equity
15,253

 
15.9

 
17,744

 
15.7

Consumer
9,865

 
2.7

 
3,762

 
5.8

Real estate - construction
8,398

 
5.5

 
4,443

 
2.7

Equipment lease financing and other
8,640

 
1.9

 
3,690

 
1.9
%
Total ACL - loans
$
238,508

 
100.0
%
 
$
163,622

 
100.0
%
(1) Ending loan balances as of a % of total loans for the periods presented.
N/A - Not applicable
 

Other Assets

Other assets increased $245.1 million, or 26.7%, primarily due to higher fair values of derivative contracts and an increase in the net deferred tax asset as the result of the adoption of CECL and a reclassification from accrued federal income tax.

Deposits and Borrowings

The following table presents ending deposits, by type, as of the dates indicated:
 
March 31, 2020
 
December 31, 2019
 
Increase (Decrease)
 
 
 
$
 
%
 
(dollars in thousands)
Noninterest-bearing demand
$
4,531,872

 
$
4,453,324

 
$
78,548

 
1.8
 %
Interest-bearing demand
4,724,520

 
4,720,188

 
4,332

 
0.1

Savings
5,092,865

 
5,153,941

 
(61,076
)
 
(1.2
)
Total demand and savings
14,349,257

 
14,327,453

 
21,804

 
0.2

Brokered deposits
313,337

 
264,531

 
48,806

 
18.5

Time deposits
2,702,432

 
2,801,929

 
(99,497
)
 
(3.6
)
Total deposits
$
17,365,026

 
$
17,393,913

 
$
(28,887
)
 
(0.2
)%


















60



The following table presents ending borrowings, by type, as of the dates indicated:
 
March 31, 2020
 
December 31, 2019
 
Increase
 
 
 
$
 
%
 
(dollars in thousands)
Short-term borrowings:
 
 
 
 
 
 
 
Total short-term customer funding(1)
$
461,808

 
$
383,241

 
$
78,567

 
20.5
%
Federal funds purchased
200,000

 
—

 
200,000

 
N/M
Short-term FHLB advances and other borrowings (2)
725,000

 
500,000

 
225,000

 
45.0

Total short-term borrowings
1,386,808

 
883,241

 
503,567

 
57.0

Long-term borrowings:
 
 
 
 
 
 
 
FHLB advances
616,011

 
491,024

 
124,987

 
25.5

Other long-term debt
762,455

 
390,745

 
371,710

 
95.1

Total long-term borrowings
1,378,466

 
881,769

 
496,697

 
56.3

Total borrowings
$
2,765,274

 
$
1,765,010

 
$
1,000,264

 
56.7
%
 
 
 
 
 
 
 
 
(1) Includes repurchase agreements and short-term promissory notes.
(2) Consists of FHLB borrowings with an original maturity term of less than one year.
N/M - Not meaningful

Total short-term borrowings increased $503.6 million, or 57.0%, due to $200.0 million of federal funds purchased and an increase of $78.6 million, or 20.5%, in short-term customer funding and a $225.0 million increase in short-term FHLB advances and other borrowings. The increase in short-term borrowings supported the growth in interest-earning assets. Long-term FHLB advances increased $125.0 million, or 25.5%, and other long-term debt increased $371.7 million as the result of the issuance of $375.0 million of subordinated notes in March 2020 as discussed in the "Overview" section of Management's Discussion.

Other Liabilities

Other liabilities increased $128.9 million, or 33.5%, primarily as the result of an increase in the fair values of derivative contracts.

Shareholders' Equity

Total shareholders’ equity decreased $56.4 million during the first three months of 2020. The decrease was due primarily to the $43.8 million reduction to retained earnings as a result of the adoption of CECL on January 1, 2020, the $39.7 million of common stock repurchases and $21.0 million of common stock cash dividends, partially offset by $26.0 million of net income, and an $18.4 million increase in accumulated other comprehensive income, mainly due to improvements in fair values of AFS securities.

In October 2019, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation is authorized to repurchase up to $100.0 million of its outstanding shares of common stock, or approximately 3.9% of its outstanding shares, through December 31, 2020. During the three months ended March 31, 2020, 2.9 million shares were repurchased at a total cost of $39.7 million, or $13.65 per share, under this program. Up to an additional $60.3 million of the Corporation's common stock may be repurchased under this program. Under the repurchase program, repurchased shares were added to treasury stock, at cost. As permitted by securities laws and other legal requirements, and subject to market conditions and other factors, purchases may be made from time to time in open market or privately negotiated transactions, including, without limitation, through accelerated share repurchase transactions. The repurchase program may be discontinued at any time and was suspended in mid-March in order to preserve liquidity in response to potential unknown economic impacts due to the COVID-19 pandemic.

Regulatory Capital

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

The Capital Rules require the Corporation and Fulton Bank to:

•
Meet a minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets and a Tier 1 capital ratio of 6.00% of risk-weighted assets;


61



•
Continue to require a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of 4.00% of average assets; 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, have been phased out as a component of Tier 1 capital for institutions of the Corporation's size.

The Corporation and Fulton Bank are also required to 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.

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

As of March 31, 2020, the Corporation's capital levels met the fully phased-in minimum capital requirements, including the new capital conservation buffers, as prescribed in the Capital Rules.

In March 2020, the banking regulators amended the optional CECL Transition Rule to allow banks to add back to regulatory capital the decrease recorded to retained earnings at the CECL adoption date, or January1, 2020 for the Corporation, plus 25% of additions to the ACL over the next two years. These amounts will then be phased in as reductions to regulatory capital over the following three years, or 2022 - 2024. Prior to this amendment, the regulatory capital impact of adopting CECL was to be phased in over a 3-year period beginning in 2020. The Corporation has elected to apply the amended rule to the regulatory capital treatment for the adoption of CECL.

As of March 31, 2020, Fulton Bank met the well capitalized requirements under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage ratios as set forth in the regulation. There are no conditions or events since March 31, 2020 that management believes have changed the institutions’ capital categories.

The following table summarizes the Corporation’s capital ratios in comparison to regulatory requirements:
 
March 31, 2020
 
December 31, 2019
 
Regulatory
Minimum
for Capital
Adequacy
 
Fully Phased-in, with Capital Conservation Buffers
Total Capital (to Risk-Weighted Assets)
13.8
%
 
11.8
%
 
8.0
%
 
10.5
%
Tier I Capital (to Risk-Weighted Assets)
9.4
%
 
9.7
%
 
6.0
%
 
8.5
%
Common Equity Tier I (to Risk-Weighted Assets)
9.4
%
 
9.7
%
 
4.5
%
 
7.0
%
Tier I Capital (to Average Assets)
7.9
%
 
8.4
%
 
4.0
%
 
4.0
%

The increase in the total capital ratio from December 31, 2019 to March 31, 2020 was mainly due to the issuance of $375.0 million of subordinated notes in March 2020, as discussed in the "Overview" of Management's Discussion, partially offset by common stock repurchases during the quarter.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk, Asset/Liability Management and Liquidity

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

62



The Corporation employs various management techniques to minimize its exposure to interest rate risk. An 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 bp shock in interest rates, 15% for a 200 bp shock and 20% for a 300 bp shock. A "shock" is an immediate upward or downward movement of interest rates. The shocks do not take into account changes in customer behavior that could result in changes to mix and/or volumes in the balance sheet, nor does it take into account the potential effects of competition on the pricing of deposits and loans over the forward 12-month period.

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

The following table summarizes the expected impact of abrupt interest rate changes, that is, a non-parallel instantaneous shock, on net interest income as of March 31, 2020 (due to the current level of interest rates, the downward shock scenarios are not shown):
Rate Shock(1)
Annual change
in net interest income
 
% change in net interest income
+400 bp
+ $93.1 million
 
15.4%
+300 bp
+ $70.0 million
 
11.6%
+200 bp
+ $46.2 million
 
7.6%
+100 bp
+ $21.4 million
 
3.5%

(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 bp shock in interest rates, 20% for a 200 bp shock and 30% for a 300 bp shock. As of March 31, 2020, the Corporation was within economic value of equity policy limits for every 100 bp shock.

Interest Rate Swaps

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




63



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-term and long-term needs.

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

Fulton Bank is a member of the FHLB and has access to FHLB overnight and term credit facilities. As of March 31, 2020, the Corporation had $1.3 billion of borrowings outstanding from the FHLB with an additional borrowing capacity of approximately $3.3 billion under these facilities. Advances from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets.

As of March 31, 2020, the Corporation had aggregate federal funds lines of $1.8 billion, with $200.0 million borrowed against that amount. A combination of commercial real estate loans, commercial loans and securities are pledged to the Federal Reserve Bank of Philadelphia to provide access to Federal Reserve Bank Discount Window borrowings. As of March 31, 2020, the Corporation had $465 million of collateralized borrowing availability at the Discount Window, and no outstanding borrowings.

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

The Corporation’s sources and uses of funds were discussed in general terms in the "Net Interest Income" section of Management’s Discussion and Analysis. The Consolidated Statements of Cash Flows provide additional information. The Corporation’s operating activities during the first three months of 2020 used $46.9 million of cash, mainly due to net income of $26.0 million, partially offset by the net impact of provision for credit losses of $44.0 million and other operating activities of $133.6 million. Cash used in investing activities was $526.6 million, mainly due to net increases in investments and loans. Cash provided by financing activities was $912.0 million due mainly to increases in short-term borrowings and long-term debt.

Debt Security Market Price Risk

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

State and Municipal Securities

As of March 31, 2020, the Corporation owned securities issued by various states or municipalities with a total cost basis of $825.9 million and a fair value of $848.1 million. Downward pressure on local tax revenues of issuers could have an adverse impact on the underlying credit quality of issuers. The Corporation evaluates existing and potential holdings primarily based on the creditworthiness of the issuing state or municipality and then, to a lesser extent, on any underlying credit enhancement. State or 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 March 31, 2020, approximately 99% of state and municipal securities were supported by the general obligation of corresponding states or municipalities. Approximately 63% of these securities were school district issuances, which are also supported by the states of the issuing municipalities.



64



Corporate Debt Securities

The Corporation holds corporate debt securities in the form of single-issuer TruPS, subordinated debt and senior debt issued by financial institutions. As of March 31, 2020, these securities had an amortized cost of $375.1 million and an estimated fair value of $373.5 million.

See "Note 9 - Fair Value Measurements," in the Notes to Consolidated Financial Statements for further discussion related to the fair values of debt securities.

Item 4. Controls and Procedures

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Rule 13a-15, promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, the Corporation’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Corporation reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2020, the Corporation implemented new CECL accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASUs issued to amend ASC Topic 326. There were no other changes made to the Corporation’s internal control over financial reporting that materially affected, or would be reasonably likely to materially affect, the Corporation’s internal control over financial reporting.




65



PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Item 1A. Risk Factors of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019 includes a discussion of the material risks and uncertainties that could adversely affect the Corporation's business, results of operations and financial condition. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in the Annual Report on Form 10-K.

The outbreak of the COVID-19 pandemic has adversely affected, and may continue to adversely affect, the Corporation’s business, results of operations and financial condition for an indefinite period.

Beginning in the first quarter of 2020, the COVID-19 pandemic has caused substantial disruption in economic and social activity, both globally and in the United States. The spread of COVID-19, and the related government actions to mandate or encourage temporary closures of businesses, quarantines, social distancing and "stay at home" orders, have caused severe disruptions in the U.S. economy, which has, in turn, disrupted, and will likely continue to disrupt, the business, activities, and operations of the Corporation’s customers, as well as the Corporation’s own business and operations.

The national public health crisis arising from the COVID-19 pandemic (and public expectations about it), combined with certain pre-existing factors, including, but not limited to, international trade disputes, inflation risks and oil price volatility, could further destabilize the financial markets and the economies of the geographic markets in which the Corporation operates. The resulting impacts of the pandemic on consumers, including the sudden, significant increase in the unemployment rate, is expected to cause changes in consumer and business spending, borrowing needs and saving habits, which will likely affect the demand for loans and other products and services the Corporation offers, as well as the creditworthiness of current and prospective borrowers. The significant decrease in commercial activity and disruptions in supply chains associated with the pandemic, both nationally and in the Corporation’s markets, may cause customers, vendors and counterparties to be unable to meet existing payment or other obligations to the Corporation.

The Corporation’s business is dependent upon the willingness and ability of its customers to conduct banking and other financial transactions. The Corporation expects the pandemic to limit, at least for a period of time, customer demand for many banking products and services. Many companies and residents in the Corporation’s market areas are subject to a mandatory "non-essential business" shut-downs and stay at home orders, which have reduced banking activity across the Corporation’s market areas. In response to these mandates, the Corporation has temporarily limited most locations to drive-up and ATM services, with lobby access available by appointment only, reduced hours of operation at some locations, temporarily closed some locations and encouraged the Corporation’s customers to use electronic banking platforms. The Corporation expects these measures to remain in place for an undetermined period of time. The increased use of electronic banking platforms by the Corporation’s customers may expose the Corporation to increased operational risks, including fraud and cybersecurity risks. In addition, the use of quarantines and social distancing methods to curtail the spread of COVID-19 - whether mandated by governmental authorities or recommended as a public health practice - may adversely affect the Corporation’s operations as key personnel, employees and customers avoid physical interaction. A significant portion of the Corporation’s employees has transitioned to working remotely as a result of the COVID-19 pandemic, which, in addition to requiring added support from the Corporation’s information technology infrastructure, increases cybersecurity risks. The continued spread of COVID-19 (or an outbreak of a similar highly contagious disease) could also negatively impact the business and operations of third-party service providers who perform critical services for the Corporation’s business. It is not yet known what impact these operational changes may have on the Corporation’s financial performance.

The Corporation has offered, and may continue to offer, payment deferrals, forbearances, fee waivers, and other forms of assistance to commercial, small business and consumer customers that have been impacted by the COVID-19 pandemic. If these customers are unable to repay their loans in a timely manner when payment deferrals, forbearances or other forms of assistance end, delinquency levels may increase, the Corporation may be required to reverse the accrual of interest during the deferral or forbearance period, and the Corporation may need to increase its ACL through provisions for credit losses. In addition, the existence of deferrals, forbearances and other forms of assistance provided to borrowers impacted by the COVID-19 pandemic may not be considered

66



TDRs or be required to be reflected as delinquent during the applicable deferral or forbearance period, and may make it more challenging to identify deterioration in individual borrower performance and in the loan portfolio generally.

In addition, the Corporation is a participating lender under the PPP, a loan program administered through the SBA, that was created to help eligible businesses, organizations and self-employed persons fund their operating costs during the COVID-19 pandemic. Under the PPP, the SBA guarantees 100% of the amounts loaned. There are areas of ambiguity in the laws, regulations and guidance relating to the operation of the PPP, which exposes the Corporation to potential risks relating to non-compliance with the requirements of the PPP. For example, other lenders have been named in litigation related to their processes and procedures for accepting and processing applications for PPP loans and other matters related to PPP loans. In addition, the Corporation may be exposed to credit risk in connection with PPP loans if a determination is made by the SBA that a deficiency exists in the manner in which the PPP loan was originated, funded or serviced. If a deficiency is identified, the SBA may deny or limit its liability under its guaranty, or seek to recover from the Corporation amounts paid pursuant to its guaranty. Moreover, loan programs adopted by the federal government, such as the PPP and the Main Street Lending Program, while intended to lessen the impact of the pandemic on businesses, may result in a decreased demand for the Corporation’s loan products.

There continue to be broad concerns related to the potential effects of the COVID-19 pandemic. Even after government-mandated business shut-downs and stay at home orders expire, the aftereffects of the pandemic may continue to have an adverse effect on, among other things, (i) the Corporation’s ability to attract customer deposits, (ii) the ability of the Corporation’s borrowers to satisfy their obligations, (iii) the demand for the Corporation’s loans or the Corporation’s other products and services and/or (iv) unemployment rates, financial markets, real estate markets or economic growth. Further, the timing and ability of the Corporation’s customers’ businesses to re-open and ramp up to prior levels of activity will vary, depending upon geography, industry and other factors.

The outbreak of COVID-19 has significantly affected the financial markets and has resulted in a number of responses by the U.S. government, including a reductions in interest rates by the FOMC. These reductions in interest rates, especially if prolonged, could adversely affect the Corporation’s net interest income and margins and the Corporation’s profitability.

The COVID-19 pandemic and its impact on the economy heightens the risk associated with many of the risk factors described in the Corporation’s previous reports filed with the Securities and Exchange Commission, including those related to economic conditions in the Corporation’s market areas, interest rates, loan losses, operational risks, the Corporation’s reliance on its executives and third party service providers and impairments of goodwill and intangible assets. For example, borrower loan defaults that adversely affect the Corporation’s earnings correlate with deteriorating economic conditions. If the Corporation’s borrowers are unable to meet their payment obligations, the Corporation will be required to increase the ACL through provisions for credit losses. The Corporation’s recent adoption of CECL, in the context of the COVID-19 pandemic, resulted in a substantial increase in the ACL, through a provision for credit losses, in the first quarter of 2020. In addition, the application of the CECL model may require future additions to the ACL, if, for example, assessments relating to the severity or duration of the COVID-19 pandemic and its impact on the economy cause forecasts of future economic conditions to decline further.

The impact of the pandemic on the Corporation’s financial results is evolving and uncertain. The decline in economic activity occurring due to the COVID-19 pandemic and the actions by the FOMC with respect to interest rates are likely to affect the Corporation’s net interest income, non-interest income and credit-related losses for an uncertain period of time. The Corporation believes that it may experience a material adverse effect in the Corporation’s business, results of operations and financial condition as a result of the COVID-19 pandemic for an indefinite period.

There have been no other material changes to the risk factors previously disclosed in Part I, Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019.


67



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)  None.
(b)  None.
(c)



Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
 
 
 
 
 
 
 
 
 
January 1, 2020 to January 31, 2020
 
—

 
$
—

 
—

 
$
100,000,000

February 1, 2020 to February 29, 2020
 
458,283

 
15.18

 
458,283

 
93,045,097

March 1, 2020 to March 31, 2020
 
2,449,590

 
13.37

 
2,907,873

 
60,304,122


In October 2019, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation is authorized to repurchase up to $100.0 million of its outstanding shares of common stock, or approximately 3.9% of its outstanding shares, through December 31, 2020. During three months ended March 31, 2020, 2.9 million shares were repurchased at a total cost of $39.7 million, or $13.65 per share. Up to an additional $60.3 million of the Corporation's common stock may be repurchased under this program through December 31, 2020. Under the repurchase programs, repurchased shares were added to treasury stock, at cost.

As permitted by securities laws and other legal requirements, and subject to market conditions and other factors, purchases may be made from time to time in open market or privately negotiated transactions, including, without limitation, through accelerated share repurchase transactions. The repurchase program may be discontinued at any time and was suspended in mid-March in order to preserve liquidity in response to potential unknown economic impacts due to the COVID-19 pandemic.


68



Item 6. Exhibits
 
 
 
 
3.1

  

 
 
 
 
 
3.2

  
 
 
 
 
 
31.1

  
 
 
 
 
 
31.2

  

 
 
 
 
 
32.1

  

 
 
 
 
 
32.2

  
 
 
 
 
 
101

 
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Income, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
 
 
 
 
 
104

 
Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101)
 
 
 
 
 


69





FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
FULTON FINANCIAL CORPORATION
 
 
 
 
 
 
 
Date:
 
May 11, 2020
 
/s/ E. Philip Wenger
 
 
 
 
E. Philip Wenger
 
 
 
 
Chairman and Chief Executive Officer
 
 
 
 
 
Date:
 
May 11, 2020
 
/s/ Mark R. McCollom
 
 
 
 
Mark R. McCollom
 
 
 
 
Senior Executive Vice President and Chief Financial Officer
 
 
 
 



70