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What changed in FULTON FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FULTON FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+374 added−424 removedSource: 10-K (2024-03-01) vs 10-K (2023-03-01)

Top changes in FULTON FINANCIAL CORP's 2023 10-K

374 paragraphs added · 424 removed · 285 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

77 edited+27 added−44 removed118 unchanged
Biggest changeNotable aspects of the NDAA include: (i) significant changes to the collection of beneficial ownership and the establishment of a beneficial ownership registry that requires corporate entities (generally, any corporation, limited liability company, or other similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to the FinCEN (which will be maintained by the FinCEN and made available upon request to financial institutions); (ii) enhanced whistleblower provisions that provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the BSA or other AML-related laws in any judicial or administrative action brought by the Secretary of the Treasury or the Attorney General resulting in monetary sanctions exceeding $1 million (including disgorgement and interest but excluding forfeiture, restitution, or compensation to victims) will receive not more than 30 percent of the monetary sanctions collected and will receive increased protections; (iii) increased penalties for violations of the BSA; (iv) improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and (v) expanded duties and powers of the FinCEN.
Biggest changeNotable aspects of the NDAA include: (i) significant changes to the collection of beneficial ownership and the establishment of a beneficial ownership registry that requires corporate entities (generally, any corporation, limited liability company, or other similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to the FinCEN (which will be maintained by the FinCEN and made available upon request to financial institutions); (ii) enhanced whistleblower provisions that provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the BSA or other AML-related laws in any judicial or administrative action brought by the Secretary of the Treasury or the U.S.
We conduct an annual survey of our workforce to measure employee engagement, assess employee morale, and to help identify areas of the employee experience that could be improved.
We conduct an annual survey of our workforce to measure employee engagement, assess employee morale, and help identify areas of the employee experience that could be improved.
Stress Testing and Capital Planning – As a result of the Economic Growth Act and implementing regulations adopted by the Federal Reserve Board and OCC, the Corporation and Fulton Bank are no longer subject to company-run stress testing requirements under the Dodd-Frank Act.
Stress Testing and Capital Planning - As a result of the Economic Growth Act and implementing regulations adopted by the Federal Reserve Board and the OCC, the Corporation and Fulton Bank are no longer subject to company-run stress testing requirements under the Dodd-Frank Act.
On January 1, 2021, the NDAA was signed into law, which enacted the most significant overhaul of the BSA and other AML-related laws since the Patriot Act.
On January 1, 2021, the NDAA was signed into law, which enacted the most significant overhaul of BSA and other AML-related laws since the Patriot Act.
Standards for Safety and Soundness – Pursuant to the requirements of FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, the federal bank regulatory agencies adopted guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits.
Standards for Safety and Soundness - Pursuant to the requirements of the FDICIA, as amended by the Riegle Community Development and Regulatory Improvement Act of 1994, the federal bank regulatory agencies adopted guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits.
In reviewing acquisition and merger applications, the bank regulatory authorities will consider, among other things, the competitive effect of the transaction, financial and managerial issues, the capital position of the combined organization, convenience and needs factors, including the applicant's CRA record, the effectiveness of the subject organizations in combating money laundering activities, and the transaction's effect on the stability of the U.S. banking or financial system.
In reviewing acquisition and merger applications, bank regulatory authorities will consider, among other things, the competitive effect of the transaction, financial and managerial issues, the capital position of the combined organization, convenience and needs factors, including the applicant's CRA record, the effectiveness of the subject organizations in combating money laundering activities, and the transaction's effect on the stability of the U.S. banking or financial system.
Until the financial holding company returns to compliance, the Federal Reserve Board may impose limitations or conditions on the conduct of its 19 activities, and the company may not commence any new non-banking financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the Federal Reserve Board.
Until the financial holding 19 company returns to compliance, the Federal Reserve Board may impose limitations or conditions on the conduct of its activities, and the company may not commence any new non-banking financial activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of the Federal Reserve Board.
Generally, a capital restoration plan must be filed with the institution's primary federal regulator within 45 days of the date an institution receives notice that it is "undercapitalized," 14 "significantly undercapitalized" or "critically undercapitalized." Although prompt corrective action regulations apply only to depository institutions and not to bank holding companies, bank holding companies must guarantee any such capital restoration plan in certain circumstances.
Generally, a capital restoration plan must be filed with the institution's primary federal regulator within 45 days of the date an institution receives notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Although prompt corrective action regulations apply only to depository institutions and not to bank holding companies, bank holding companies must guarantee any such capital restoration plan in certain circumstances.
The first $16.9 million of otherwise reservable balances (subject to adjustment by the Federal Reserve Board) are exempt from the reserve requirements. Fulton Bank is in compliance with the foregoing requirements. 18 Required reserves must be maintained in the form of either vault cash, an account at a FRB or a pass-through account as defined by the Federal Reserve Board.
The first $16.9 million of otherwise reservable balances (subject to adjustment by the Federal Reserve Board) are exempt from the reserve requirements. Fulton Bank is in compliance with the foregoing requirements. Required reserves must be maintained in the form of either vault cash, an account at a FRB or a pass-through account as defined by the Federal Reserve Board.
In 2000, we became a financial holding company as defined in the GLBA, which gave us the ability to expand our financial services activities under our holding company structure. See "Item 1. Business - General - Competition and - Supervision and Regulation. " We directly own 100% of the common stock of Fulton Bank and five non-bank entities.
In 2000, we became a financial holding company as defined in the GLBA, which gave us the ability to expand our financial services activities under our holding company structure. See "Item 1. Business - Competition and - Supervision and Regulation. " We directly own 100% of the common stock of Fulton Bank and five non-bank entities.
The Basel III Rules defined the risk-weighting categories for bank holding companies and banks that follow the standardized approach, such as the Corporation and Fulton Bank, based on a risk-sensitive analysis, depending on the nature of the exposure. The Capital Simplifications Rules eliminated the standalone prior approval requirement in the Basel III Rules for any repurchase of common stock.
The Basel III Rules defined the risk-weighting categories for bank holding companies and banks that follow the standardized approach, such as the Corporation and Fulton Bank, based on a risk-sensitive analysis, depending on the nature of the exposure. The Capital Rules eliminated the standalone prior approval requirement in the Basel III Rules for any repurchase of common stock.
In addition, the CFPB examines Fulton Bank for compliance with most federal consumer financial protection laws, including the laws relating to fair lending and prohibiting unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products or services and enforces such laws with respect to Fulton Bank and our affiliates.
In addition, the CFPB examines Fulton Bank for compliance with most federal consumer financial protection laws, including the laws relating to fair 10 lending and prohibiting unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products or services and enforces such laws with respect to Fulton Bank and our affiliates.
In certain circumstances, repurchases of our common stock may be subject to a prior approval or notice requirement under other regulations or policies of the Federal Reserve Board. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve Board.
In certain circumstances, repurchases of our common stock may be subject to a prior approval or notice requirement 13 under other regulations or policies of the Federal Reserve Board. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve Board.
Workforce Recruitment and Development – We recruit our workforce, filling both vacant and new positions, largely by posting these positions on our website and on social media platforms, through employee referrals and through talent recruiting efforts by internal and third-party recruiters.
Workforce Recruitment and Development - We recruit our workforce, filling both vacant and new positions by posting these positions on our website and on social media platforms, through employee referrals and through talent recruiting efforts by internal and third-party recruiters.
In general, a QM is a residential mortgage loan that does not have certain high-risk features, such as negative 12 amortization, interest-only payments, balloon payments, or a term exceeding 30 years.
In general, a QM is a residential mortgage loan that does not have certain high-risk features, such as negative amortization, interest-only payments, balloon payments, or a term exceeding 30 years.
For example, the CCPA gives California residents new rights to receive certain disclosures regarding the collection, use, and sharing of "Personal Information," as well as rights to access, delete, and restrict the sale of certain personal information.
For example, the CCPA gives California residents rights to receive certain disclosures regarding the collection, use, and sharing of "personal information" as well as rights to access, delete, and restrict the sale of certain personal information.
The Corporation has an additional 10 million authorized shares of preferred stock, of which approximately 200,000 shares with a liquidation preference of $1,000 per share were outstanding as of December 31, 2022. 10 Supervision and Regulation We operate in an industry that is subject to laws and regulations that are enforced by a number of federal and state agencies.
The Corporation has an additional 10 million authorized shares of preferred stock, of which approximately 200,000 shares with a liquidation preference of $1,000 per share were outstanding as of December 31, 2023. Supervision and Regulation We operate in an industry that is subject to laws and regulations that are enforced by a number of federal and state agencies.
Failure to comply with these and similar statutes and regulations could subject us to formal or informal enforcement actions, the imposition of civil money penalties and consumer litigation.
Failure to comply with these and similar statutes and regulations could subject us to formal or informal enforcement actions, the imposition of civil money penalties and litigation.
Mortgage lenders are required to determine consumers' ability to repay in one of two ways. The first alternative requires the mortgage lender to consider eight underwriting factors when making the credit decision. The mortgage lender may also originate "qualified mortgages" which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements.
Mortgage lenders are required to determine a consumer's ability to repay in one of two ways. The first alternative requires the mortgage lender to consider eight underwriting factors when making the credit decision. The mortgage lender may also originate "qualified mortgages" which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements.
The impact of Basel IV on the Corporation and Fulton Bank will depend on the manner in which it is implemented by the federal banking agencies. As of December 31, 2022, the Corporation and Fulton Bank exceeded all capital requirements necessary to be deemed "well-capitalized" for all regulatory purposes under the capital rules.
The impact of Basel IV on the Corporation and Fulton Bank will depend on the manner in which it is implemented by the federal banking agencies. As of December 31, 2023, the Corporation and Fulton Bank exceeded all capital requirements necessary to be deemed "well-capitalized" for all regulatory purposes under the capital rules.
Electronic copies of our 2022 Annual Report on Form 10-K are available free of charge by visiting "Investor Relations - Documents" at www.fultonbank.com . Electronic copies of quarterly reports on Form 10-Q and current reports on Form 8-K are also available at this Internet address.
Electronic copies of our 2023 Annual Report on Form 10-K are available free of charge by visiting "Investor Relations - Documents" at www.fultonbank.com . Electronic copies of quarterly reports on Form 10-Q and current reports on Form 8-K are also available at this Internet address.
We then task our leaders with developing and implementing communication and action plans aimed at engaging with their respective teams to gain a better understanding of the results of the assessment and to foster enhanced future engagement.
We then task our leaders with developing and implementing communication and action plans aimed at collaborating with their respective teams to gain a better understanding of the results of the assessment and to foster enhanced future engagement.
Among other things, the Economic Growth Act amended certain provisions of the Dodd-Frank Act to raise the total asset threshold for mandatory applicability of enhanced prudential standards for bank holding companies to $250 billion and to allow the Federal Reserve Board to apply enhanced prudential standards to bank holding companies with between $100 billion and $250 billion in total assets to address financial stability risks or safety and soundness concerns.
The Economic Growth Act - The Economic Growth Act amended certain provisions of the Dodd-Frank Act to raise the total asset threshold for mandatory applicability of enhanced prudential standards for bank holding companies to $250 billion and to allow the Federal Reserve Board to apply enhanced prudential standards to bank holding companies with between $100 billion and $250 billion in total assets to address financial stability risks or safety and soundness concerns.
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the U.S. Economy. Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the BHCA and the Bank Merger Act and adopt a plan for revitalization of such practices.
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the U.S. Economy. Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the BHCA and the BMA and adopt a plan for revitalization of such practices.
The CRA also requires all institutions to make public disclosure of their CRA ratings. As of December 31, 2022, Fulton Bank was rated as "outstanding." Regulations require that Fulton Bank publicly disclose certain agreements that are in fulfillment of CRA. Fulton Bank is not a party to any such agreements at this time.
The CRA also requires all institutions to make public disclosure of their CRA ratings. As of December 31, 2023, Fulton Bank was rated as "outstanding." Current regulations require that Fulton Bank publicly disclose certain agreements that are in fulfillment of CRA. Fulton Bank is not a party to any such agreements at this time.
We are not dependent upon one or a few customers or any one industry, and the loss of any single customer or a few customers would not have a material adverse impact on our business. However, a large portion of our loan portfolio is comprised of commercial loans, commercial mortgage loans and construction loans. See "Item 1A.
Although a large portion of our loan portfolio is comprised of commercial loans, commercial mortgage loans and construction loans, we are not dependent upon one or a few customers and the loss of any single customer or a few customers would not have a material adverse impact on our business. See "Item 1A.
As of December 31, 2022, the Corporation and Fulton Bank exceeded the minimum capital requirements, including the capital conservation buffer, as prescribed in the Basel III Rules. 13 The Basel III Rules also provide that the largest banking institutions must adhere to additional countercyclical buffer and supplementary leverage ratio requirements.
As of December 31, 2023, the Corporation and Fulton Bank exceeded the minimum capital requirements, including the capital conservation buffer, as prescribed in the Basel III Rules. The Basel III Rules also provide that the largest banking institutions must adhere to additional countercyclical buffer and supplementary leverage ratio requirements.
The rule will require most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners—the persons who ultimately own or control the company, to the FinCEN.
The rule requires most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners—the persons who ultimately own or control the company, to the FinCEN.
As of December 31, 2022, Fulton Bank's capital ratios were above the minimum levels required to be considered "well capitalized" by the OCC.
As of December 31, 2023, Fulton Bank's capital ratios were above the minimum levels required to be considered "well capitalized" by the OCC.
Although these risk management principles, if adopted as proposed, would not apply to Fulton Bank based upon its current size, the OCC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management.
Although these risk management principles, would not apply to Fulton Bank based upon its current size, the OCC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent management.
The Economic Growth Act also enacted other important changes, for which the banking agencies issued certain corresponding guidance documents and implementing regulations, including: • Raising the total asset threshold for Dodd-Frank Act company-run stress tests from $10 billion to $250 billion; 11 • Prohibiting federal banking agencies from imposing higher capital requirements for high volatility commercial real estate exposures unless such exposures meet the statutory definition for high volatility acquisition, development or construction loans in the Economic Growth Act; • Exempting from appraisal requirements certain transactions involving real property in rural areas and valued at less than $400,000; • Providing that reciprocal deposits are not treated as brokered deposits in the case of a "well capitalized" institution that received an "outstanding" or "good" rating on its most recent examination to the extent the amount of such deposits does not exceed the lesser of $5 billion or 20% of the bank's total liabilities; and • Directing the CFPB to provide guidance on the applicability of the TILA-RESPA Integrated Disclosure rule to mortgage assumption transactions and construction-to-permanent home loans, as well the extent to which lenders can rely on model disclosures that do not reflect recent regulatory changes.
The Economic Growth Act also enacted other important changes, for which the banking agencies issued certain corresponding guidance documents and implementing regulations, including: • Raising the total asset threshold for Dodd-Frank Act company-run stress tests from $10 billion to $250 billion; • Prohibiting federal banking agencies from imposing higher capital requirements for high volatility commercial real estate exposures unless such exposures meet the statutory definition for high volatility acquisition, development or construction loans in the Economic Growth Act; • Exempting from appraisal requirements certain transactions involving real property in rural areas and valued at less than $400,000; • Providing that reciprocal deposits are not treated as brokered deposits in the case of a "well capitalized" institution that received an "outstanding" or "good" rating on its most recent examination to the extent the amount of such deposits does not exceed the lesser of $5 billion or 20% of the bank's total liabilities; and • Directing the CFPB to provide guidance on the applicability of the TILA-RESPA Integrated Disclosure rule to mortgage assumption transactions and construction-to-permanent home loans, as well the extent to which lenders can rely on model disclosures that do not reflect recent regulatory changes. 11 Given Fulton Bank's size, a number of additional benefits afforded to community banks under applicable asset thresholds are not available to Fulton Bank.
We provide for professional development of new and existing employees largely through the efforts of our Center for Learning and Talent Development that develops and administers a wide variety of training programs for professional development. We also provide for a number of off-site, third-party offerings in which employees can further enhance their skills, knowledge and leadership potential.
We provide for professional development of new and existing employees largely through the efforts of our Learning and Development area that develops and administers a wide variety of training programs for professional development. We also provide a number of third-party offerings in which employees can further enhance their skills, knowledge and leadership potential.
On October 21, 2021, the FSOC published a report identifying climate-related financial risks as an "emerging threat" to financial stability. On December 16, 2021, the OCC issued proposed principles for climate-related financial risk management for national banks with more than $100 billion in total assets.
On October 21, 2021, the FSOC published a report identifying climate-related financial risks as an "emerging threat" to financial stability. On October 24, 2023, the OCC issued principles for climate-related financial risk management for national banks with more than $100 billion in total assets.
Stock Information The Corporation's common stock is traded on the Nasdaq Global Select Market under the ticker symbol "FULT." There are 600 million authorized shares of the Corporation's common stock, with approximately 167.5 million shares outstanding as of December 31, 2022.
Stock Information The Corporation's common stock is traded on the Nasdaq Global Select Market under the ticker symbol "FULT." There are 600 million authorized shares of the Corporation's common stock, with approximately 164 million shares outstanding as of December 31, 2023.
The CCPA, which was amended in November 2020 by a ballot initiative titled the California Privacy Rights Act, went into effect on January 1, 2020, and Fulton Bank is required to comply with the CCPA in serving the small number of its customers that are residents of California. Privacy and data security legislation remained a priority issue in 2021.
The CCPA, which was amended in November 2020 by a ballot initiative titled the California Privacy Rights Act, went into effect on January 1, 2020, and Fulton Bank is required to comply with the CCPA in serving the small number of its customers that are residents of California.
Notwithstanding the issuance of these final rules, the scope and content of the federal banking agencies' policies on executive compensation may continue to evolve in the near future. We have had a clawback policy in place since 2012 and will assess the policy against the new requirements.
Notwithstanding the issuance of these final rules, the scope and content of the federal banking agencies' policies on executive compensation may continue to evolve in the near future. We have had a clawback policy in place since 2012 and have updated such policy to comply with the new requirements.
We offer home equity loans and lines of credit as well as a variety of fixed, variable and adjustable rate mortgage products, including construction loans and jumbo residential mortgage loans, all of which are underwritten based upon loan-to-value limits specified in our lending policy. Our consumer loan products include automobile loans, personal lines of credit and checking account overdraft protection.
We offer home equity loans and lines of credit as well as a variety of fixed, variable and adjustable rate mortgage products, including construction loans and jumbo residential mortgage loans, all of which are underwritten based upon loan-to-value limits specified in our lending policy.
The Federal Reserve Board continues to supervise our capital planning and risk management practices through its regular supervisory process.
The Federal Reserve Board continues to supervise our capital planning and risk management practices through its regular supervisory process, which includes regular stress testing.
Among other requirements, the Patriot Act and related regulations impose the following requirements on financial institutions: • establishment of AML programs; • establishment of a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time; • establishment of enhanced due diligence policies, procedures and controls designed to detect and report money laundering; and • prohibition on correspondent accounts for foreign shell banks and compliance with recordkeeping obligations with respect to correspondent accounts of foreign banks.
AML Requirements and the Patriot Act - The Patriot Act amended the BSA and other AML laws and regulations and imposed affirmative obligations on a wide range of financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing. 15 Among other requirements, the Patriot Act and related regulations impose the following requirements on financial institutions: • establishment of AML programs; • establishment of a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time; • establishment of enhanced due diligence policies, procedures and controls designed to detect and report money laundering; and • prohibition on correspondent accounts for foreign shell banks and compliance with recordkeeping obligations with respect to correspondent accounts of foreign banks.
Further, Virginia's omnibus Virginia Clean Economy Act enacted provisions with the goal of the Commonwealth being carbon-free by 2045; and, after the Governor of Maryland reauthorized the Greenhouse Gas Emissions Reduction Act of 2016, the Maryland Department of Environment released the 2030 Greenhouse Gas Reduction Act Plan.
Further, Virginia's omnibus Virginia Clean Economy Act enacted provisions with the goal of the Commonwealth being carbon-free by 2045; after the Governor of Maryland reauthorized the Greenhouse Gas Emissions Reduction Act of 2016, the Maryland Department of Environment released the 2030 Greenhouse Gas Reduction Act Plan; and in 2023, Delaware enacted the Delaware Climate Solutions Act of 2023 that established targets for reduction in greenhouse gas emissions.
Commercial lending products include commercial real estate loans, commercial and industrial loans, construction loans and equipment lease financing loans. Variable, adjustable and fixed rate loans are provided, with variable and adjustable rate loans generally tied to an index, such as the Prime Rate or LIBOR, as well as interest rate derivatives. See "Item 1A.
Commercial lending products include commercial real estate loans, commercial and industrial loans and construction loans. Variable, adjustable and fixed rate loans are provided, with variable and adjustable rate loans generally tied to an index, such as the Prime Rate or SOFR, as well as interest rate derivatives.
As such, we maintain a comprehensive cybersecurity strategy that includes, but is not limited to: regular employee cybersecurity training and communications; continuous monitoring, detection, alerting, and defense in-depth technologies; regular internal and third-party program oversight; policies and procedures regularly reviewed and designed with regulatory and industry guidance; and regular reviews of vendors who maintain sensitive data on behalf of Fulton Bank.
As such, we maintain a comprehensive cybersecurity strategy that includes, but is not limited to: regular employee cybersecurity training and communications; continuous monitoring, detection, alerting, and defense in-depth technologies; regular internal and third-party program oversight; policies and procedures regularly reviewed and designed with regulatory and industry guidance; and regular reviews of vendors who maintain sensitive data on behalf of Fulton Bank. 9 Given that cybersecurity threat actors are continuously adapting their techniques, it is important to note that no cybersecurity program is completely infallible.
Our investing and trading activities have and will continue to depend on, among other things, further rulemaking and guidance that may be issued by the Volcker Rule Regulators and the development of market practices and standards.
Volcker Rule compliance requirements are based on the size and scope of a banking entity's trading activities. Our investing and trading activities have and will continue to depend on, among other things, further rulemaking and guidance that may be issued by the Volcker Rule Regulators and the development of market practices and standards.
Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation. 17 The Dodd-Frank Act requires federal banking agencies and the SEC to establish joint regulations or guidelines for specified entities, including the Corporation and Fulton Bank, that have at least $1 billion in total assets, prohibiting incentive-based compensation arrangements that encourage inappropriate risk-taking by an executive officer, employee, director or principal shareholder that could lead to material financial loss to the entity.
The Dodd-Frank Act requires federal banking agencies and the SEC to establish joint regulations or guidelines for specified entities, including the Corporation and Fulton Bank, that have at least $1 billion in total assets, prohibiting incentive-based compensation arrangements that encourage inappropriate risk-taking by an executive officer, employee, director or principal shareholder that could lead to material financial loss to the entity.
Risk Factors - Interest Rate and Credit Risks - Our loan portfolio composition and competition for loans subject us to credit risk ." We offer a wide range of consumer and commercial banking products and services, as well as wealth management products and services, to our customers and the communities we serve: Consumer Banking – We offer a diversified suite of consumer banking products and services in our market area.
Risk Factors - Interest Rate and Credit Risks - Our loan portfolio composition subjects us to credit risk and A significant proportion of our loan portfolio consists of commercial mortgage loans that may pose increased credit risk." We offer a wide range of consumer and commercial banking products and services, as well as wealth management products and services, to our customers and the communities we serve: Consumer Banking - We offer a diversified suite of consumer banking products and services in our market area.
Our leaders are held accountable for employee engagement scores for the teams they lead as each leader's engagement score is included in their annual performance review. Additionally, aggregated employee engagement assessment results are reported to our Board of Directors as a key indicator of the health and well-being of our workforce.
Our leaders are held accountable for the employee engagement of their teams as each leader's engagement score is included in their annual performance review. Additionally, aggregated employee engagement assessment results are reported to our Board of Directors as a key indicator of the health and well-being of our workforce. Culture, Diversity and Inclusion - We believe that building relationships matters.
Acquisitions — The BHCA requires a bank holding company to obtain the prior approval of the Federal Reserve Board before: • the company may acquire direct or indirect ownership or control of any voting shares of any bank or savings and loan association, if after such acquisition the bank holding company will directly or indirectly own or control more than five percent of any class of voting securities of the institution; • any of the company's subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank or savings and loan association; or • the company may merge or consolidate with any other bank or financial holding company.
It is currently unclear if the reduction of the reserve requirements on transaction accounts is permanent. 18 Acquisitions — The BHCA requires a bank holding company to obtain the prior approval of the Federal Reserve Board before: • the company acquires direct or indirect ownership or control of any voting shares of any bank or savings and loan association, if after such acquisition the bank holding company will directly or indirectly own or control more than five percent of any class of voting securities of the institution; • any of the company's subsidiaries, other than a bank, acquires all or substantially all of the assets of any bank or savings and loan association; or • the company merges or consolidates with any other bank or financial holding company.
Under the limited exception, qualified FDIC-IDIs, like Fulton Bank, are able to except from treatment as "brokered" deposits the lesser of up to $5 billion, or 20% of the institution's total liabilities, in reciprocal deposits. In December 2020, the FDIC issued a final rule amending its brokered deposits regulation.
Under this limited exception, qualified IDIs, like Fulton Bank, are 14 able to except from treatment as "brokered" deposits the lesser of up to $5 billion, or 20% of the institution's total liabilities, in reciprocal deposits.
There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers can be finalized, and the prospects for such action are uncertain at this time. The adoption of more expansive or prescriptive standards may have an impact on our acquisition activities.
There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers can be finalized, and the prospects for such action are uncertain at this time.
Culture, Diversity and Inclusion – We believe that building relationships matters. This belief includes relationships with clients and customers and relationships among employees. In recent years, we have placed significant emphasis on developing our corporate culture, and we now consider our culture to be one of the primary components of our continuing success.
This belief includes relationships with customers and relationships among employees. We place significant emphasis on developing our corporate culture, and we consider our culture to be one of the primary components of our continuing success.
In addition, the FDIC possesses backup enforcement authority over a depository institution holding company, like us, if the conduct or threatened conduct of such bank holding company poses a risk to the DIF, although such authority may not be used if the bank holding company is generally in sound condition and does not pose a foreseeable and material risk to the DIF. 15 FDIC assessment rates for large institutions that have more than $10 billion in assets, such as Fulton Bank, are calculated based on a "scorecard" methodology that seeks to capture both the probability that an individual large institution will fail and the magnitude of the impact on the DIF if such a failure occurs that is based primarily on the difference between the institution's average of total assets and average tangible equity.
FDIC assessment rates for large institutions that have more than $10 billion in assets, such as Fulton Bank, are calculated based on a "scorecard" methodology that seeks to capture both the probability that an individual large institution will fail and the magnitude of the impact on the DIF if such a failure occurs that is based primarily on the difference between the institution's average of total assets and average tangible equity, or its assessment base.
For example, the Governor of Pennsylvania has announced the Pennsylvania Climate Action Plan of 2021 that will, in part, focus on the negative impact businesses have on greenhouse gas emissions.
In addition, states are considering taking similar actions on climate-related financial risks, including certain states in which we operate. For example, the Governor of Pennsylvania has announced the Pennsylvania Climate Action Plan of 2021 that will, in part, focus on the negative impact businesses have on greenhouse gas emissions.
Until a final rule is issued, it is not certain to what extent this rulemaking will impact the BSA and AML compliance activities of Fulton Bank. 16 Commercial Real Estate Guidance — Under guidance issued by the federal banking agencies, the agencies have expressed concerns with institutions that ease commercial real estate underwriting standards and have directed financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks.
Commercial Real Estate Guidance — Under guidance issued by the federal banking agencies, the agencies have expressed concerns with institutions that ease commercial real estate underwriting standards and have directed financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks.
We are also susceptible to losses arising from the transition to a low carbon economy, including policy changes, energy costs, and shifts in market and customer sentiment that can impact us and our clients. At this time, we have not experienced material losses from climate change. However, we are aware that its impact may increase in the future.
Climate change may contribute to or exacerbate these conditions. We are also susceptible to losses arising from the transition to a low carbon economy, including policy changes, energy costs, and shifts in market and customer sentiment that can impact us and our clients as well as other key stakeholders.
Once fully implemented, these measures will, at least in part, focus on the greenhouse gases impact that businesses have in the respective states in which they operate. 21 Executive Officers The executive officers of the Corporation as of December 31, 2022 are as follows: Name Age Office Held and Term of Office E.
Once fully implemented, these measures will, at least in part, focus on the greenhouse gases impact that businesses have in the respective states in which they operate. 21
As mandated by the Economic Growth Act, the FDIC adopted a final rule in February 2019 to include a limited exception for reciprocal deposits for FDIC-IDIs that are well-rated and well-capitalized (or adequately capitalized and for which the FDIC-IDI has obtained a waiver from the FDIC as mentioned above).
There is a limited exception from the scope of “brokered” deposits for reciprocal deposits for IDIs that are well-rated and well-capitalized (or adequately capitalized and for which the IDI has obtained a waiver from the FDIC as mentioned above).
In addition, we have established lower total lending limits based on our internal risk rating of a borrower and for certain types of lending commitments. 8 Wealth Management – We offer wealth management services, which include investment management, trust, brokerage, insurance and investment advisory services, to consumer and commercial customers in our market area through Fulton Financial Advisors and Fulton Private Bank, both operating divisions of Fulton Bank.
Wealth Management - We offer wealth management services, which include investment management, trust, brokerage, insurance and investment advisory services, to consumer and commercial customers in our market area through Fulton Financial Advisors and Fulton Private Bank, both operating divisions of Fulton Bank. 8 We deliver these products and services through a network of financial center offices.
By the very nature of our business, handling sensitive data is a part of daily operations and is taken very seriously by all employees. The cybersecurity threat environment is volatile and dynamic requiring all levels of the organization to be cognizant and aware of these threats at all times.
The cybersecurity threat environment is volatile and dynamic requiring all levels of the organization to be cognizant and aware of these threats at all times.
We have elected to avail ourselves of the transition relief permitted under applicable regulations. Prompt Corrective Action – The FDICIA established a system of prompt corrective action to attempt to resolve the problems of undercapitalized institutions.
Prompt Corrective Action - The FDICIA established a system of prompt corrective action to attempt to resolve the problems of undercapitalized institutions.
The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community.
Community Reinvestment — Under the CRA, Fulton Bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to ascertain and meet the credit needs of its entire community, including low- and moderate-income areas. 16 The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community.
More recently, we have been applying that same emphasis to the development of a diverse, equitable, and inclusive workforce. We recognize that having a diverse, equitable, and inclusive culture and workforce encourages employees to share their opinions and different perspectives, fosters a culture of respect, and are crucial elements of a successful organization.
We apply that same emphasis to the development of a diverse, equitable, and inclusive workforce. We recognize that having a diverse, equitable, and inclusive culture fosters a culture of respect and is a crucial element of a successful organization.
These reports, as well as any amendments thereto, are posted on our website as soon as reasonably practicable after they are electronically filed with the SEC.
These reports, as well as any amendments thereto, are posted on our website as soon as reasonably practicable after they are electronically filed with the SEC. The information contained on our website or in any websites linked by our website is not a part of this Annual Report on Form 10-K.
Specifically, that rule allows a non-QM loan or a "rebuttable presumption" QM loan to receive a safe harbor from APR liability at the end of a "seasoning" period of at least 36 months as a "seasoned QM" if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements, and the loan meets the designated performance and portfolio requirements during the "seasoning period." The mandatory compliance date under the first final rule was July 1, 2021, but was subsequently delayed by the CFPB to October 1, 2022.
Specifically, that rule allows a non-QM loan or a "rebuttable presumption" QM loan to 12 receive a safe harbor from APR liability at the end of a "seasoning" period of at least 36 months as a "seasoned QM" if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements, and the loan meets the designated performance and portfolio requirements during the "seasoning period." Integrated disclosures under the RESPA and the TILA - Under the CFPB rules, mortgage lenders are required to provide a loan estimate, not later than the third business day after submission of a loan application, and a closing disclosure at least three days prior to the loan closing.
Climate Risk Management We recognize the potential impact climate change may have on us, our clients, employees, shareholders, and the communities we serve. We are cognizant of our responsibility to better understand the impact of our operations on global climate change and are taking steps to help ensure our organization operates in a manner consistent with responsible environmental stewardship.
We are cognizant of our responsibility to better understand the impact of our operations on global climate change and are taking steps to help ensure our organization operates in a manner consistent with responsible environmental stewardship. We are susceptible to losses and disruptions caused by fire, power shortages, telecommunications failures, water shortages, floods, and other extreme weather conditions.
On January 27, 2022, the SEC extended this comment period until March 4, 2022. On October 15, 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (clawback) provisions, which largely track the proposed rules originally announced in 2015.
In addition, these regulations or guidelines must require enhanced disclosure with respect to incentive-based compensation arrangements. On October 15, 2022, the SEC adopted final 17 rules implementing the incentive-based compensation recovery (clawback) provisions, which largely track the proposed rules originally announced in 2015.
As the potential impact of climate change broadens, we will continue to assess and respond to climate risks as they evolve.
At this time, we have not experienced material losses from climate change. However, we are aware that its impact may increase in the future. As the potential impact of climate change broadens, we will continue to assess and respond to climate risks as they evolve.
On August 26, 2020, the federal bank regulatory agencies issued a rule that allows institutions that adopted the CECL accounting standard in 2020 the option to mitigate the estimated capital effects of CECL for two years, followed by a three-year transition period. Taken together, these measures offer institutions a transition period of up to five years.
The final rule gives eligible institutions the option to mitigate the estimated capital effects of CECL for two years, followed by a three-year transition period. Taken together, these measures offer institutions a transition period of up to five years. We have elected to avail ourselves of the transition relief permitted under applicable regulations.
An institution's assessment is determined by multiplying its assessment rate by its assessment base, which is asset based. The Tax Act disallows the deduction of FDIC deposit insurance premium payments for banking organizations with total consolidated assets of $50 billion or more.
The extent to which any such additional future assessments will impact our future deposit insurance expense is currently uncertain. The Tax Act disallows the deduction of FDIC deposit insurance premium payments for banking organizations with total consolidated assets of $50 billion or more.
The variety of available delivery channels allows customers to access their account information and perform certain transactions, such as depositing checks, transferring funds and paying bills, at any time of the day. As of December 31, 2022, we had 209 financial centers, not including remote service facilities (mainly stand-alone ATMs), and our main office located in Lancaster, Pennsylvania.
Electronic delivery channels include a network of ATMs and telephone, mobile and online banking. The variety of available delivery channels allows customers to access their account information and perform certain transactions, such as depositing checks, transferring funds and paying bills, at any time of the day.
In addition to traditional healthcare, paid time off, paid parental leave and retirement benefits, we provide emotional wellness and work-life services through our Employee Assistance Program. Through COVID-19, we implemented measures to maintain the safety of employees and customers at our financial centers and other facilities and, where appropriate, adopted remote and hybrid onsite- 9 remote working arrangements.
In addition to traditional healthcare, paid time off, paid parental leave and retirement benefits, we provide behavioral and mental health support and work-life services through our Employee Assistance Program. Following the end of the COVID-19 pandemic, we continue to iterate our approach to remote and hybrid working arrangements to support new ways of working while strengthening employee engagement.
Given Fulton Bank's size, a number of additional benefits afforded to community banks under applicable asset thresholds are not available to Fulton Bank. Consumer Financial Protection Laws and Enforcement – The CFPB and the federal banking agencies continue to focus attention on consumer protection laws and regulations.
Consumer Financial Protection Laws and Enforcement - The CFPB and the federal banking agencies continue to focus attention on consumer protection laws and regulations.
We offer residential mortgages through Fulton Mortgage Company, an operating division of Fulton Bank. Commercial Banking – We provide commercial banking products and services primarily to small and medium sized businesses (generally with sales of less than $150 million) in our market area.
Our consumer loan products also include automobile loans, student loans, personal loans and lines of credit and checking account overdraft protection. Commercial Banking - We provide commercial banking products and services primarily to small and medium sized businesses (generally with annual gross revenue of less than $150 million) in our market area.
Human Capital Our workforce, excluding temporary employees and interns, at December 31, 2022 consisted of approximately 3,300 employees, compared to approximately 3,200 employees at December 31, 2021. In 2022, we experienced lower employee turnover than in 2021.
As of December 31, 2023, we had 208 financial centers, not including remote service facilities (mainly stand-alone ATMs), and our main office located in Lancaster, Pennsylvania. Human Capital Our workforce, excluding temporary employees and interns, on December 31, 2023 consisted of approximately 3,400 employees, compared to approximately 3,300 employees at December 31, 2022.
Given that cybersecurity threat actors are continuously adapting their techniques, it is important to note that no cybersecurity program is completely infallible. As we continue to offer new and innovative technologies for our customers, the risk of cybersecurity attacks and our oversight of this risk will remain at a high level.
As we continue to offer new and innovative technologies for our customers, the risk of cybersecurity attacks and our oversight of this risk will remain at a high level. See "Item 1C. Cybersecurity." Climate Risk Management We recognize the potential impact climate change may have on us, our clients, our suppliers, employees, shareholders, and the communities we serve.
The final rule took effect on April 1, 2022, and banks and their service providers were required to be in compliance with the requirements of the rule by May 1, 2022. Federal Reserve System — Federal Reserve Board regulations require depository institutions to maintain cash reserves against specified deposit liabilities.
Federal Reserve System — Federal Reserve Board regulations require depository institutions to maintain cash reserves against specified deposit liabilities.
Risk Factors - Interest Rate and Credit Risks - The replacement of LIBOR as a financial benchmark presents risks to the financial instruments we originated or hold ." Our commercial lending policy encourages relationship banking and provides strict guidelines related to customer creditworthiness and collateral requirements for secured loans.
Our commercial lending policy encourages relationship banking and provides strict guidelines related to customer creditworthiness and collateral requirements for secured loans. We offer equipment lease financing, letters of credit, cash management services and traditional deposit products to commercial customers. We have established lending limits based on our internal risk rating of a borrower and for certain types of lending commitments.
Attempts by state and local governments to regulate consumer privacy have the potential to create a patchwork of differing and/or conflicting state regulations. In addition, Congress and federal regulatory agencies are considering similar laws or regulations that could create new individual privacy rights and impose increased obligations on companies handling personal data.
Attempts by state and local governments to regulate consumer privacy have the potential to create a patchwork of differing and/or conflicting state regulations. In July 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents experienced and describe the material aspects of their nature, scope and timing.
Removed
In addition, we offer equipment lease financing, letters of credit, cash management services and traditional deposit products to commercial customers. As of December 31, 2022, our policies limit the maximum total lending commitment to a single borrower to $100 million, an amount that is significantly below our regulatory lending limit.
Added
Compensation and Rewards - The Corporation invests in its workforce by offering a comprehensive Total Rewards program which includes competitive salaries, incentives, and benefits programs. In line with the Corporation's pay for performance philosophy, we offer performance-based incentive programs designed to drive results in the business units as well as at the corporate level.
Removed
We deliver these products and services through traditional financial center banking, with a network of financial center offices. Electronic delivery channels include a network of ATMs and telephone, mobile and online banking.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

89 edited+16 added−31 removed88 unchanged
Biggest changeWe face substantial competition in all phases of our operations from a variety of competitors, including national banks, regional banks, community banks and, more recently, Fintech companies. Many of our competitors offer the same banking services that we offer and our success depends on our ability to adapt our products and services to evolving industry standards and customer preferences.
Biggest changeMany of our competitors offer the same banking services that we offer and our success depends on our ability to adapt our products and services to evolving industry standards and customer preferences. In addition to product and service offerings, we compete based on a number of other factors, including financial and other terms, underwriting standards, technological capabilities, brand, and reputation.
The Corporation and Fulton Bank are each subject to capital adequacy and liquidity rules and other regulatory requirements specifying minimum amounts and types of capital that must be maintained. From time to time, the regulators implement changes to these regulatory capital adequacy and liquidity guidelines.
The Corporation and Fulton Bank are each subject to capital adequacy and liquidity rules and other regulatory requirements specifying the minimum amounts and types of capital that must be maintained. From time to time, the regulators implement changes to these regulatory capital adequacy and liquidity guidelines.
We maintain reserves for potential losses on certain loans sold, however, it is possible that losses incurred in connection with loan repurchases and reimbursement payments may be in excess of any applicable reserves, and we may be required to increase reserves and may sustain additional losses associated with such loan repurchases and reimbursement payments in the future, all of which could have a material adverse effect on our financial condition and results of operations.
We maintain reserves for potential losses on certain loans sold, however, it is possible that losses incurred in connection with loan repurchases and reimbursement payments may be in excess of any applicable reserves, and we may be required to increase reserves and may sustain additional losses associated with such loan repurchases and reimbursement payments in the future, all of which could have a material adverse effect on our business, financial condition and results of operations.
Cyber threats may also subject us to regulatory investigations, litigation or enforcement actions, require the payment of fines, penalties or damages, or undertaking costly remediation efforts with respect to third parties affected by a 28 cybersecurity incident, all or any of which could adversely affect our business, financial condition or results of operations and/or damage our reputation.
Cyber threats may also subject us to regulatory investigations, litigation or enforcement actions, require the payment of fines, penalties or damages, or undertaking costly remediation efforts with respect to third parties affected by a cybersecurity incident, all or any of which could adversely affect our business, financial condition or results of operations and/or damage our reputation.
These effects can disrupt business operations, damage property, devalue assets and change consumer and business preferences, which may adversely affect borrowers, increase credit risk and reduce demand for our products and services. At this time, we have not experienced material losses from climate change; however, we are aware that its impact may increase in the future.
These effects can disrupt 27 business operations, damage property, devalue assets and change consumer and business preferences, which may adversely affect borrowers, increase credit risk and reduce demand for our products and services. At this time, we have not experienced material losses from climate change; however, we are aware that its impact may increase in the future.
The failure of an external vendor to perform in accordance with applicable contractual arrangements or service level agreements could be disruptive to our operations and could have a material adverse effect on our financial condition or results of operations and/or damage our reputation. Further, third-party vendor risk management continues to be a point of regulatory emphasis.
The failure of an external vendor to perform in accordance with applicable contractual arrangements or service level agreements could be disruptive to our operations and could have a material adverse effect on our business, financial condition or results of operations and/or damage our reputation. Further, third-party vendor risk management continues to be a point of regulatory emphasis.
Thus, changes in market interest rates might, for example, result in an increase in the interest paid on interest-bearing liabilities that is not accompanied by a corresponding increase in the interest earned on interest-earning assets, or the increase in interest earned might be at a slower pace, or in a smaller amount, than the increase in interest paid, reducing our net interest income and/or net interest margin.
Thus, changes in market interest rates might, for example, result in an increase in the interest paid on interest-bearing liabilities that is not accompanied by a corresponding increase in the interest earned on interest-earning assets, or the increase in interest earned on 22 interest-earning assets might be at a slower pace, or in a smaller amount, than the increase in interest paid on interest-bearing liabilities, reducing our net interest income and/or net interest margin.
We cannot predict the nature or timing of any future changes in fiscal and monetary policies or of changes in interest rates; however, policy or interest rate changes could have a material adverse effect on our business, financial condition and results of operations. 25 Changes in interest rates can affect demand for our products and services.
We cannot predict the nature or timing of any future changes in fiscal and monetary policies or of changes in interest rates; however, policy or interest rate changes could have a material adverse effect on our business, financial condition and results of operations. Changes in interest rates can affect demand for our products and services.
Our failure to comply with privacy, data protection, 32 and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions, and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.
Our failure to comply with privacy, data protection, and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions, and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.
Our inability to continue to sell these loans could reduce our non-interest income, limit our ability to originate and fund these loans in the future, and make managing interest rate risk more challenging, any of which could have a material adverse effect on our financial condition and results of operations.
Our inability to continue to sell these loans could reduce our non-interest income, limit our ability to originate and fund these loans in the future, and make managing interest rate risk more challenging, any of which could have a material adverse effect on our business, financial condition and results of operations.
Because payments on these loans often depend on the successful operation and management of borrowers' businesses and properties, repayment of such loans may be affected by factors outside the borrower's control, including adverse conditions in the real estate markets, adverse economic conditions or changes in 26 governmental regulation.
Because payments on these loans often depend on the successful operation and management of borrowers' businesses and properties, repayment of such loans may be affected by factors outside of the borrower's control, including adverse conditions in the real estate markets, adverse economic conditions or changes in governmental regulation.
The inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition or results of operations. 27 We are subject to capital adequacy standards, and a failure to meet these standards could adversely affect our financial condition.
The inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition or results of operations. We are subject to capital adequacy standards, and a failure to meet these standards could adversely affect our financial condition.
We are also exposed to the risk that our business continuity and data security systems prove to be inadequate. Furthermore, our risk management framework is subject to inherent limitations, and risks may exist, or develop in the future, that we have not anticipated or identified.
We are also exposed to the risk that our business continuity and data security systems prove to be inadequate. 25 Furthermore, our risk management framework is subject to inherent limitations, and risks may exist, or develop in the future, that we have not identified or anticipated.
Climate change, its effects and the resulting, unknown impacts could have a material adverse effect on our financial condition and results of operations. We are also susceptible to policy and regulatory changes with respect to banks' climate risk management practices.
Climate change, its effects and the resulting, unknown impacts could have a material adverse effect on our business, financial condition and results of operations. We are also susceptible to policy and regulatory changes with respect to banks' climate risk management practices.
We may not be able to effectively implement new 34 technology-driven products and services or be successful in marketing these products and services to our customers, or effectively deploy new technologies to improve efficiency. In addition, we depend on internal and outsourced technology to support all aspects of our business operations.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers, or effectively deploy new technologies to improve efficiency. In addition, we depend on internal and outsourced technology to support all aspects of our business operations.
An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on our financial condition and results of operations.
An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on our business, financial condition and results of operations.
In an environment characterized by continual, rapid technological change, when we introduce new products and services, or make changes to our information technology systems and processes as we do from time to time, these operational risks are increased.
In an environment characterized by continual, rapid technological change, when we introduce new products and services, or make changes to our information technology systems and processes as we do from time to time, our operational risks are increased.
Failure to comply with these regulatory requirements, including inadvertent or unintentional violations, may result in the assessment of fines and penalties, the commencement of informal or formal regulatory enforcement actions against us, or regulatory restrictions on our activities.
Failure to comply with these regulatory requirements, including inadvertent or unintentional violations, may result in the assessment of fines and penalties, the commencement of informal or formal regulatory enforcement 28 actions against us, or regulatory restrictions on our activities.
However, the Tax Act also imposed limitations on our ability to take certain deductions, such as the deduction for FDIC deposit insurance premiums, which partially offset the increase in net income from the lower tax rate.
The Tax Act also imposed limitations on our ability to take certain deductions, such as the deduction for FDIC deposit insurance premiums, which partially offset the increase in net income from the lower tax rate.
However, if our assumptions are wrong or overall economic conditions are significantly different than anticipated, our hedging and other risk mitigation strategies may be ineffective and may adversely impact our financial condition and results of operations.
However, if our assumptions are wrong or overall economic conditions are significantly different than anticipated, our hedging and other risk mitigation strategies may be ineffective and may adversely impact our business, financial condition and results of operations.
There can be no assurance that future evaluations of goodwill will not result in impairment charges. 33 We may not be able to achieve our growth plans. Our business plan includes the pursuit of profitable growth.
There can be no assurance that future evaluations of goodwill will not result in impairment charges. We may not be able to achieve our growth plans. Our business plan includes the pursuit of profitable growth.
Further, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors.
If we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition, results of operations and reputation. See Item 9A.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition or results of operations. See "Item 9A.
In addition, the sale of residential mortgage loans and other loans in the secondary market serves as a source of non-interest income and liquidity for us and can reduce our exposure to interest rate risk.
The sale of residential mortgage loans and other loans in the secondary market serves as a source of non-interest income and liquidity for us and can reduce our exposure to interest rate risk.
We are subject to various privacy, information security, and data protection laws, such as the GLBA, that among other things require privacy disclosures and maintenance of a robust security program that are increasingly subject to change which could have a significant impact on our current and planned privacy, data protection, and information security-related practices; our collection, use, sharing, retention, and safeguarding of consumer or employee information; disclosures and notifications during a cyber or information security incident; and some of our current or planned business activities.
We are subject to various federal and state privacy, information security, and data protection laws, such as the GLBA, that among other things require privacy disclosures and maintenance of a robust security program that are increasingly subject to change which could have a significant impact on our current and planned privacy, data protection, and information security-related practices; our collection, use, sharing, retention, and safeguarding of consumer or employee information; disclosures and notifications during a cyber or information security incident; and some of our current or planned business activities.
Unfavorable or uncertain economic and market conditions can be caused by: declines in economic growth, business activity or investor or business confidence; limitations on the availability, or increases in the cost, of credit and capital; changes in the rate of inflation or in interest rates; high unemployment; labor shortages; governmental fiscal and monetary policies; the level of, or changes in, prices of raw materials, goods or commodities; supply chain issues; global economic conditions; trade policies and tariffs affecting other countries as well as retaliatory policies and tariffs by such countries; geopolitical events, including the war between Russia and Ukraine; natural disasters; public health crises, such as epidemics and pandemics; acts of war or terrorism; or a combination of these or other factors.
Unfavorable or uncertain economic and market conditions can be caused by: declines in economic growth, business activity or investor or business confidence; limitations on the availability, or increases in the cost, of credit and capital; changes in the rate of inflation or in interest rates; high unemployment; labor shortages; governmental fiscal and monetary policies; the level of, or changes in, prices of raw materials, goods or commodities; supply chain issues; global economic conditions; trade policies and tariffs affecting other countries as well as retaliatory policies and tariffs by such countries; geopolitical events, including the war between Russia and Ukraine and the conflict in the Middle East; natural disasters; public health crises, such as epidemics and pandemics; acts of war or terrorism; or a combination of these or other factors.
In connection with such sales, we make certain representations and warranties with respect to matters such as the underwriting, origination, documentation or other 29 characteristics of the loans sold.
In connection with such sales, we make certain representations and warranties with respect to matters such as the underwriting, origination, documentation or other characteristics of the loans sold.
In addition, these loans typically have relatively large balances and the deterioration of one or a few of these loans could cause a significant increase in the percentage of non-performing loans.
In addition, commercial loans typically have relatively large balances and the deterioration of one or a few of these loans could cause a significant increase in the percentage of non-performing loans.
Failure to comply may also affect our ability to grow through acquisitions, discourage institutional investment managers to invest in our securities, result in reputational damage, or increase our costs of doing business. The U.S. Congress, state legislatures and federal and state regulatory agencies continually review banking and other laws, regulations and policies for possible changes.
Failure to comply may also affect our ability to grow through acquisitions, discourage institutional investment managers to invest in our securities, result in reputational damage, or increase our costs of doing business. The U.S. Congress, state legislatures and federal and state regulatory agencies periodically review banking and other laws, regulations and policies for possible changes.
Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and securities and the interest we pay on deposits and borrowings, but such changes could affect our ability to originate loans and obtain deposits, the fair value of financial assets and liabilities, and the average duration of our assets.
Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and securities that we invest in and the interest we pay on deposits and borrowings, but such changes could affect our ability to originate loans and obtain deposits, the fair value of financial assets and liabilities, and the average duration of our assets.
Further, deposits from state and municipal entities, primarily in non-maturing, interest-bearing accounts, are a significant source of deposit funding for us, representing approximately 11% of total deposits at December 31, 2022.
Further, deposits from state and municipal entities, primarily in non-maturing, interest-bearing accounts, are a significant source of deposit funding for us, representing approximately 11% of total deposits at December 31, 2023.
If we are not able to continue to rely primarily on customer deposits to meet our liquidity and funding needs, access secondary, non-deposit funding sources on favorable terms or otherwise fail to manage our liquidity effectively, our ability to continue to grow may be constrained, and our liquidity, operating margins, financial condition and results of operations may be materially adversely affected.
If we are not able to continue to depend primarily on customer deposits to meet our liquidity and funding needs, access secondary, non-deposit funding sources on favorable terms or otherwise fail to manage our liquidity effectively, our ability to continue to grow may be constrained, and our liquidity, operating margins, business, financial condition and results of operations may be materially adversely affected.
Our investment management and trust services revenue, which is partially based on the value of the underlying investment portfolios, can also be impacted by fluctuations in the securities markets. If the values of those investment portfolios decrease, whether due to factors influencing U.S. or international securities markets, in general, or otherwise, our revenue could be negatively impacted.
Our investment management and trust services revenue, which is partially based on the value of the underlying investment portfolios, can also be impacted by fluctuations in the securities markets. If the values of those investment portfolios decrease, whether due to factors influencing U.S. or international securities markets, in general, or otherwise, our non-interest income could be negatively impacted.
In addition, adverse changes in our financial condition or results of operations, downgrades in our credit ratings, regulatory actions involving us, or changes in regulatory, industry or market conditions could lead to increases in the cost of these secondary sources of liquidity, the inability to refinance or replace these secondary funding sources as they mature, or the withdrawal of unused borrowing capacity under these secondary funding sources.
In addition, adverse changes in our financial condition or results of operations, downgrades in our credit ratings, regulatory actions involving us, or changes in regulatory, industry or market conditions could lead to an increase in the cost of these secondary sources of liquidity, the inability to refinance or replace these secondary funding sources as they mature, or the withdrawal of unused borrowing capacity under these secondary funding sources.
We rely on customer deposits as our primary source of funding. A substantial majority of our deposits are in non-maturing accounts that customers can withdraw on demand or upon several days' notice.
We are dependent on customer deposits as our primary source of funding. A substantial majority of our deposits are in non-maturing accounts that customers can withdraw on demand or upon several days' notice.
The market value of our securities investments, which include mortgage-backed securities, state and municipal securities and corporate debt securities, are particularly sensitive to price fluctuations and market events. Declines in the values of our securities holdings, combined with adverse changes in the expected cash flows from these investments, could result in OTTI charges.
The market value of our securities investments, which include mortgage-backed securities, state and municipal securities and corporate debt securities, are particularly sensitive to price fluctuations and market events. Declines in the values of our securities holdings, combined with adverse changes in the expected cash flows from these investments, could result in impairment.
An increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay current loan obligations. These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also reduce collateral values and necessitate further increases in the allowance for loan losses.
An increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay current loan obligations. These circumstances could not only result in increased loan defaults, foreclosures and charge-offs, but also reduce collateral values and necessitate further increases in the ACL.
For instance, the leadership of the federal banking agencies, including the Comptroller of the Currency, have emphasized that climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory expectations regarding banks' risk management practices.
For instance, the leadership of the federal banking agencies, including the OCC, have emphasized that climate-related risks are faced by banking organizations of all types and sizes and are in the process of enhancing supervisory expectations regarding banks' risk management practices.
In addition, we rely on lower-cost, core deposits as our primary source of funding and changes in interest rates could increase our cost of funding, reduce our net interest margin and/or create liquidity challenges.
In addition, we are dependent on lower-cost, core deposits as our primary source of funding and changes in interest rates could increase our cost of funding, reduce our net interest margin and/or create liquidity challenges.
We also seek to retain proven, experienced senior employees with superior talent, augmented from time to time by external hires, to provide continuity of succession of our executive management team.
We also seek to retain proven, experienced senior employees augmented from time to time by external hires, to provide continuity of succession of our executive management team.
Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is the most significant component of our net income, accounting for approximately 83% of total revenues in 2022.
Net interest income is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is the most significant component of our net income, accounting for approximately 79% of total revenues in 2023.
Although one of our third-party vendors experienced a data breach in 2022 that had an immaterial impact on us, there can be no assurance that any future third-party vendor data breach would not be material, and if we or a third-party vendor were to experience a cyberattack or information security breach, we could suffer damage to our reputation, productivity losses, response costs associated with investigation and resumption of services, and incur substantial additional expenses, including remediation expenses costs associated with client notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs associated civil litigation, any of which could have a materially adverse effect on our business, financial condition, results of operations and reputation.
There can be no assurance that any future third-party vendor data breach would not be material, and if we or a third-party vendor were to experience a cyberattack or information security breach, we could suffer damage to our reputation, productivity losses, response costs associated with investigation and resumption of services, and incur substantial additional expenses, including remediation expenses costs associated with client notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines, and costs associated with civil litigation, any of which could have a materially adverse effect on our business, financial condition, results of operations and reputation.
Movements in interest rates can cause demand for some of our products and services to be cyclical. For example, demand for residential mortgage loans has historically tended to increase during periods when interest rates were declining and to decrease during periods when interest rates were rising.
Movements in interest rates can cause demand for some of our products and services to be cyclical. For example, demand for residential mortgage loans historically has increased during periods when interest rates were declining and historically has decreased during periods when interest rates were rising.
Because of our large transaction volume and necessary dependence upon automated systems to record and process these transactions, there is a risk that technical flaws, tampering, or manipulation of those automated systems, arising from events wholly or partially beyond our control, may give rise to disruption of service to customers and to financial loss or liability.
Our large transaction volume and necessary dependence upon automated systems to record and process these transactions results in the risk that technical flaws, tampering, or manipulation of those automated systems, arising from events wholly or partially beyond our control, and may give rise to disruption of service to customers and to financial loss or liability.
There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers can be finalized and the prospects for such action are uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities. Acquisitions may dilute shareholder value.
There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers, including the OCC's recent rule proposal, can be finalized and the prospects for such action are uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities.
In addition, changes in interest rates can affect the fair value of AFS investment securities, with any unrealized gain or loss reflected as a component of AOCI.
Generally, the value of interest-earning investment securities moves inversely with changes in interest rates. Changes in interest rates can affect the fair value of AFS investment securities, with any unrealized gain or loss reflected as a component of AOCI.
These law changes may be retroactive to previous periods and, as a result, could negatively affect our current and future financial performance. In December 2017, the Tax Act was signed into law resulting in significant changes to the Tax Code. The Tax Act reduced our federal corporate income tax rate to 21% beginning in 2018.
These law changes may be retroactive to previous periods and, as a result, could negatively affect our current and future financial performance. The Tax Act reduced our federal corporate income tax rate to 21% beginning in 2018.
Competition for qualified personnel is intense in many areas of the financial services industry and has increased significantly since the onset of the COVID-19 pandemic. We endeavor to attract talented and diverse new employees and retain and motivate our existing employees to assist in executing our growth, acquisition and business strategies.
Competition for qualified personnel is intense in many areas of the financial services industry. We endeavor to attract talented and diverse new employees and retain and motivate our existing employees to assist in executing our growth, acquisition and business strategies.
Some of the decisions that our regulators make, including those related to capital distributions, could be affected due to the perception that the quality of the models used to generate the relevant information is insufficient, which could have a negative impact on our ability to make capital distributions in the form of dividends or share repurchases.
Some of the decisions that our regulators make, including those related to capital actions, could be affected due to the perception that the quality of the models used to generate the relevant information is insufficient, which could have a negative impact on our ability to take certain actions, including making dividend payments or engaging in share repurchases.
However, in a series of actions to combat rising inflation that began in March 2022, the Federal Reserve Board raised the Fed Funds Rate to 4.50% - 4.75% as of February 1, 2023.
In a series of actions to combat rising inflation that began in March 2022, the Federal Reserve Board raised the Fed Funds Rate to 5.25% to 5.50% as of February 1, 2024.
Our liquidity management policies and practices emphasize core deposits and repayments and maturities of loans and investments as our primary sources of liquidity. These primary sources of liquidity can be supplemented by FHLB advances, borrowings from the FRB, proceeds from the sales of loans and use of our liquidity resources, including capital markets funding.
Our liquidity management policies and practices emphasize core deposits and repayments and maturities of loans and investments as our primary sources of liquidity. These primary sources of liquidity can be supplemented by FHLB advances, borrowings from the FRB, proceeds from the sales of loans and investment securities and capital raising activities.
If we are unable to attract and retain banking customers, we may be unable to grow or maintain the levels of our loans and deposits, and our financial condition and results of operations may be adversely affected as a result. Ultimately, we may not be able to compete successfully against current and future competitors.
If we are unable to attract and retain banking customers, we may be unable to grow or maintain the levels of our loans and deposits, and our financial condition and results of operations may be adversely affected as a result.
A reduction or discontinuance of dividends on our common stock or our share repurchases could have a material adverse effect on the market price of our common stock. Item 1B. Unresolved Staff Comments None.
A reduction or discontinuance of dividends on our common stock or our share repurchases could have a material adverse effect on the market price of our common stock.
We use models in such processes as determining the pricing of various products, measuring interest rate and other market risks, predicting or estimating losses, assessing capital adequacy and calculating regulatory capital levels, as well as to estimate the value of financial instruments and balance sheet items.
We use models in such processes as determining the pricing of various products, measuring interest rate and other market risks, predicting or estimating losses and assessing capital adequacy, as well as to estimate the value of financial instruments and balance sheet items. Our reliance on models continues to increase as rules, guidance, and expectations change.
Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our stock's tangible book value and net income per common share may occur in connection with any future transaction.
Acquisitions may dilute shareholder value. Future mergers or acquisitions, if any, may involve cash, debt or equity securities as transaction consideration. Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our stock's tangible book value and net income per common share may occur in connection with any future transaction.
Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.
The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.
This risk is sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which we interact on a daily basis, and, therefore, could adversely affect us.
This risk is sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which we interact on a daily basis, and, therefore, could have a material adverse effect on our business, financial condition or results of operations.
Lower-cost, core deposits may be adversely affected by changes in interest rates, and secondary sources of liquidity can be more costly to us than funding provided by deposit account balances having similar maturities.
Secondary sources of liquidity may be more costly to us than funding provided by lower-cost, core deposit account balances having similar maturities.
Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide reasonable, but not absolute, assurances that the objectives of the controls are met.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide reasonable, but not absolute, assurances that the objectives of the controls are met.
On July 1, 2022, we completed the acquisition of Prudential Bancorp, with approximately $933.6 million in total assets. The success of the Prudential Bancorp acquisition or any future acquisitions we may consummate will depend on, among other things, our ability to realize the expected revenue increases, cost savings, strategic gains, increases in geographic or product presence, and/or other anticipated benefits.
The success of any future acquisitions we may consummate will depend on, among other things, our ability to realize the expected revenue increases, cost savings, strategic gains, increases in geographic or product presence, and/or other anticipated benefits.
Furthermore, failure to realize the expected revenue increases, cost savings, strategic gains, increases in geographic or product presence, and/or other anticipated benefits from pending or future acquisitions could have a material adverse effect on our financial condition and results of operations.
Furthermore, failure to realize the expected revenue increases, cost savings, strategic gains, increases in geographic or product presence, and/or other anticipated benefits from pending or future acquisitions could have a material adverse effect on our business, financial condition and results of operations. 30 If the goodwill that we have recorded or will record in the future in connection with our acquisitions becomes impaired, it could have a negative impact on our results of operations.
Regulations relating to privacy, information security, and data protection could increase our costs, affect or limit how we collect and use personal information, and adversely affect our business opportunities.
Changes to the Tax Code may affect our business, financial condition and results of operations. 29 Regulations relating to privacy, information security, and data protection could increase our costs, affect or limit how we collect and use personal information, and adversely affect our business opportunities.
Poorly designed or implemented models present the risk that our business decisions based on information incorporating model output could be adversely affected due to the inaccuracy of that information.
The most recent example of this is the additional models used in the determination of our ACL under CECL. Poorly designed or implemented models present the risk that our business decisions based on information incorporating model output could be adversely affected due to the inaccuracy of that information.
We are required to evaluate goodwill for impairment at least annually. Write-downs of the amount of any impairment, if necessary, are to be charged to earnings in the period in which the impairment occurs.
As of December 31, 2023, we had $553 million of goodwill recorded on our balance sheet. We are required to evaluate goodwill for impairment at least annually. Write-downs of the amount of any impairment, if necessary, are to be charged to earnings in the period in which the impairment occurs.
There can be no assurance that the measures we employ to detect and combat direct or indirect cyber threats will be effective. In addition, because the methods of cyberattacks change frequently or, in some cases, are not recognized until launched, we may be unable to implement effective preventive control measures to proactively address these methods.
In addition, because the methods of cyberattacks change frequently or, in some cases, are not recognized until launched, we may be unable to implement effective preventive control measures to proactively address these methods.
The effects of such changes are difficult to predict and may produce unintended consequences, like limiting the types of financial services and products we may offer, altering demand for existing products and services, increasing the ability of non-banks to offer competing financial services and products, increasing compliance burdens, or otherwise adversely affecting our business, financial condition or results of operations. 31 The CFPB, established pursuant to the Dodd-Frank Act, has imposed enforcement actions against a variety of bank and non-bank market participants with respect to a number of consumer financial products and services.
The effects of such changes are difficult to predict and may produce unintended consequences, like limiting the types of financial services and products we may offer, altering demand for existing products and services, increasing the ability of non-banks to offer competing financial services and products, increasing compliance burdens, or otherwise adversely affecting our business, financial condition or results of operations.
Material estimates subject to change in the near term include, among other items: the allowance for credit losses, particularly in light of the adoption of the new CECL standard on January 1, 2020; the carrying value of goodwill or other intangible assets; the fair value estimates of certain assets and liabilities; and the realization of deferred tax assets and liabilities.
Actual results could differ from these estimates. Material estimates subject to change in the near term include, among other items: the allowance for credit losses; the carrying value of goodwill or other intangible assets; the fair value estimates of certain assets and liabilities; and the realization of deferred tax assets and liabilities.
The financial services industry has become even more competitive as a result of legislative, regulatory, and technological changes and continued banking consolidation, which may increase in connection with current economic, market, and political conditions.
The financial services industry has become even more competitive as a result of legislative, regulatory, and technological changes and continued banking consolidation, which may increase in connection with current economic, market, and political conditions. We face substantial competition in all phases of our operations from a variety of competitors, including national banks, regional banks, community banks and Fintechs.
In the future, we may seek to supplement organic growth through additional acquisitions. If the purchase price of an acquired company exceeds the fair value of the company's net assets, the excess is carried on the acquirer's balance sheet as goodwill. As of December 31, 2022, we had $550.5 million of goodwill recorded on our balance sheet.
We have supplemented our internal growth with strategic acquisitions of banks, branches and other financial services companies. In the future, we may seek to supplement organic growth through additional acquisitions. If the purchase price of an acquired company exceeds the fair value of the company's net assets, the excess is carried on the acquirer's balance sheet as goodwill.
Our shareholders are only entitled to receive such dividends as our Board may declare out of funds legally available for such payments. We are not required to pay dividends on, or effect repurchases of, our common stock and may reduce or eliminate our common stock dividend and/or share repurchases in the future.
We are not required to pay dividends on, or effect repurchases of, our common stock and may reduce or eliminate our common stock dividend and/or share repurchases in the future.
There is substantial uncertainty concerning whether those expiring provisions will be extended or whether future legislation will further revise the Tax Code. Changes to the Tax Code may affect our business, financial condition and results of operations.
There is substantial uncertainty concerning whether those expiring provisions will be extended or whether future legislation will further revise the Tax Code.
Operational errors can include information system misconfiguration, clerical or record-keeping errors, or disruptions from faulty or disabled computer or telecommunications systems. Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified.
Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified.
The need to change the scale of our product and service offerings is challenging, and there is often a lag between changes in the interest rate environment and our reaction to these changes. The replacement of LIBOR as a financial benchmark presents risks to the financial instruments we originated or hold.
The need to change the scale of our product and service offerings is challenging, and there is often a lag between changes in the interest rate environment and our ability to react to these changes.
Critical infrastructure sectors, including the financial services sector, increasingly have been the targets of cyberattacks. Cyberattacks involving large financial institutions, including denial of service attacks, nation-state cyberattacks, ransomware attacks designed to deny access to key internal resources or systems, and targeted social engineering and email attacks, are becoming more common and increasingly sophisticated.
Cyberattacks involving large financial institutions, including denial of service attacks, nation-state cyberattacks, ransomware attacks designed to deny access to key internal resources or systems, and targeted social engineering and email and text message attacks designed to allow unauthorized persons to obtain access to an institution's information systems and data or that of its customers, are becoming more common and increasingly sophisticated.
If new regulations or supervisory guidance applicable to us came into effect, our compliance costs and other compliance-related risks would be expected to increase and affect our financial position and results of operations. 30 RISKS FROM ACCOUNTING AND OTHER ESTIMATES Our consolidated financial statements are based in part on assumptions and estimates which, if incorrect, could cause unexpected losses in the future.
If new regulations or supervisory guidance applicable to us came into effect, our compliance costs and other compliance-related risks would be expected to increase and affect our financial position and results of operations.
Models are often based on historical experience to predict future outcomes, as a result new experiences or events which are not part of historical experience can significantly increase model imprecision and impact model reliability. Model inputs can also include information provided by third parties, such as economic forecasts or macroeconomic variables (unemployment rates, real GDP, etc.) upon which we rely.
Models are often based on historical experience to predict future outcomes, and, as a result, new experiences or events which are not part of historical experience can significantly increase model imprecision and impact model reliability.
During 2022, as a result of rising interest rates, the value of our AFS investment securities declined resulting in unrealized losses of approximately $312 million reflected in AOCI as a reduction to total shareholders' equity. Further increases in interest rates could result in additional unrealized losses on AFS investment securities we hold.
As a result of rising interest rates in recent years, the fair value of our AFS investment securities declined resulting in unrealized losses of approximately $275 million as of December 31, 2023 and is reflected in AOCI as a reduction to total shareholders' equity.
We have pursued a strategy of capital management under which we have sought to deploy capital through stock repurchases and increased regular dividends and special dividends on our common stock, in a manner that is beneficial to our shareholders.
We have pursued a strategy of capital management under which we have sought to deploy capital through stock repurchases and dividends on our common stock, in a manner that is beneficial to our shareholders. Our shareholders are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments.
Additionally, account data compromise, malware and ransomware events affecting a broad spectrum of commercial businesses and governmental entities in recent years have resulted in heightened legislative and regulatory focus on privacy, data protection and information security.
Although we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, our insurance coverage may be inapplicable or otherwise insufficient to cover any or all losses. 26 Additionally, account data compromise, malware and ransomware events affecting a broad spectrum of commercial businesses and governmental entities in recent years have resulted in heightened legislative and regulatory focus on privacy, data protection and information security.
In addition to product and service offerings, we compete based on a number of other factors, including financial and other terms, underwriting standards, technological capabilities, brand, and reputation. Increased competition in our market may result in reduced new loan production and/or decreased deposit balances or less favorable terms on loans and leases and/or deposit accounts.
Increased competition in our market may result in reduced new loan production and/or decreased deposit balances or less favorable terms on loans and leases and/or deposit accounts.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties The Corporation's financial center properties as of December 31, 2022 totaled 209 financial centers. Of those financial centers, 91 were owned and 118 were leased. Remote service facilities (mainly stand-alone ATMs) are excluded from these totals. The Corporation's headquarters is located in Lancaster, Pennsylvania.
Biggest changeItem 2. Properties The Corporation's financial center properties as of December 31, 2023 totaled 208 financial centers. Of those financial centers, 88 were owned and 120 were leased. Remote service facilities (mainly stand-alone ATMs) are excluded from these totals. The Corporation's headquarters is located in Lancaster, Pennsylvania.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The information presented in the "Legal Proceedings" section of "Note 19 - Commitments and Contingencies" in the Notes to Consolidated Financial Statements is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 35 PART II
Biggest changeItem 3. Legal Proceedings The information presented in the "Legal Proceedings" section of "Note 20 - Commitments and Contingencies" in the Notes to Consolidated Financial Statements is incorporated herein by reference. Item 4. Mine Safety Disclosures Not applicable. 34 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOn December 20, 2022, the Corporation announced that its board of directors approved the 2023 Repurchase Program. The 2023 Repurchase Program will expire on December 31, 2023. Under the 2023 Repurchase Program, the Corporation is authorized to repurchase up to $100.0 million of shares of its common stock, or approximately 3.6% of its outstanding shares, through December 31, 2023.
Biggest change(2) On December 20, 2022, the Corporation announced the 2023 Repurchase Program which authorized the Corporation to repurchase up to $100.0 million of its common stock through December 31, 2023. The 2023 Repurchase Program expired on December 31, 2023. On December 19, 2023, the Corporation announced that its Board of Directors approved the 2024 Repurchase Program.
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 under the 2023 Repurchase Program in open market or privately negotiated transactions, including 37 without limitation, through accelerated share repurchase transactions. The 2023 Repurchase Program may be discontinued at any time. 38 Item 6. [Reserved]
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 under the 2024 Repurchase Program in open market or privately negotiated transactions, including without limitation, through accelerated share repurchase transactions. The 2024 Repurchase Program may be discontinued at any time. 37 Item 6. [Reserved]
Excludes accrued purchase rights under the ESPP as of December 31, 2022 as the number of shares to be purchased is indeterminable until the shares are issued. 36 Performance Graph The following graph shows cumulative total shareholder return (i.e., price change, plus reinvestment of dividends) on the common stock of the Corporation during the five-year period ended December 31, 2022, compared with (1) the Nasdaq Bank Index and (2) the S&P 500.
Excludes accrued purchase rights under the ESPP as of December 31, 2023 as the number of shares to be purchased is indeterminable until the shares are issued. 35 Performance Graph The following graph shows cumulative total shareholder return (i.e., price change, plus reinvestment of dividends) on the common stock of the Corporation during the five-year period ended December 31, 2023, compared with (1) the Nasdaq Bank Index and (2) the S&P 500.
Risk Factors" - Risks Related to an Investment in Our Securities - We are a bank holding company and rely on dividends and other payments from our subsidiaries for substantially all of our revenue and our ability to make dividend payments, distributions and other payments ;" and "Note 12 - Regulatory Matters," in the Notes to Consolidated Financial Statements in Item 8.
Risk Factors" - We are a bank holding company and rely on dividends and other payments from our subsidiaries for substantially all of our revenue and our ability to make dividend payments, distributions and other payments ;" and "Note 12 - Regulatory Matters," in the Notes to Consolidated Financial Statements in "Item 8.
The graph is not indicative of future price performance. The graph below is furnished under this Part II, Item 5 of this Form 10-K and shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
The graph below is furnished under this Part II, Item 5 of this Annual Report on Form 10-K and shall not be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
"Financial Statements and Supplementary Data." Securities Authorized for Issuance under Equity Compensation Plans The following table provides information about options outstanding under the Corporation's Employee Equity Plan and the number of securities remaining available for future issuance under the Employee Equity Plan, the Directors' Plan and the ESPP as of December 31, 2022: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) Weighted-average exercise price of outstanding options, warrants and rights (2) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) (3) Equity compensation plans approved by security holders 2,632,660 $ 12.11 6,296,473 Equity compensation plans not approved by security holders — — — Total 2,632,660 $ 12.11 6,296,473 (1) The number of securities to be issued upon exercise of outstanding options, warrants and rights includes 1,360,264 PSUs, which is the target number of PSUs that are payable under the Employee Equity Plan, though no shares will be issued until achievement of applicable performance goals, 108,464 stock option units, 947,125 time-vested RSUs granted under the Employee Equity Plan and 216,807 time-vested RSUs granted under the Directors' Plan.
Financial Statements and Supplementary Data." Securities Authorized for Issuance under Equity Compensation Plans The following table provides information about options outstanding under the Corporation's Employee Equity Plan and the number of securities remaining available for future issuance under the Employee Equity Plan, the Directors' Plan and the ESPP as of December 31, 2023: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) Weighted-average exercise price of outstanding options, warrants and rights (2) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) (3) Equity compensation plans approved by security holders 2,702,606 $ 12.61 5,766,366 Equity compensation plans not approved by security holders — — — Total 2,702,606 $ 12.61 5,766,366 (1) The number of securities to be issued upon exercise of outstanding options, warrants and rights includes 1,291,601 PSUs, which is the target number of PSUs that are payable under the Employee Equity Plan, though no shares will be issued until achievement of applicable performance goals, 40,135 stock option units, 1,074,639 time-vested RSUs granted under the Employee Equity Plan and 296,231 time-vested RSUs granted under the Directors' Plan.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock As of December 31, 2022, the Corporation had 167.6 million shares of $2.50 par value common stock outstanding held by approximately 44,075 holders of record. The closing price per share of the Corporation's common stock on February 17, 2023 was $17.37.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock As of December 31, 2023, the Corporation had 163.8 million shares of $2.50 par value common stock outstanding held by approximately 42,078 holders of record. The closing price per share of the Corporation's common stock on February 16, 2024 was $15.70.
Restrictions on the Payments of Dividends The Corporation is a separate and distinct legal entity from its banking and nonbanking subsidiaries and depends on the payment of dividends from its subsidiaries, principally Fulton Bank, for substantially all of its revenues.
The common stock of the Corporation is traded on the Nasdaq Global Select Market under the symbol "FULT". Restrictions on the Payments of Dividends The Corporation is a separate and distinct legal entity from its banking and nonbanking subsidiaries and depends on the payment of dividends from its subsidiaries, principally Fulton Bank, for substantially all of its revenues.
(3) Consists of 5,021,987 shares that may be awarded under the Employee Equity Plan, 46,078 shares that may be awarded under the Directors' Plan and 1,228,408 shares that may be purchased under the ESPP.
(3) Consists of 4,369,008 shares that may be awarded under the Employee Equity Plan, 398,341 shares that may be awarded under the Directors' Plan and 999,017 shares that may be purchased under the ESPP.
Removed
The common stock of the Corporation is traded on the Nasdaq Global Select Market under the symbol "FULT". On July 1 2022, the Corporation reissued 6.2 million shares of treasury stock and paid $29.3 million in cash as consideration for the Prudential Bancorp acquisition.
Added
The graph is not indicative of future price performance.
Removed
Year Ending December 31 Index 2017 2018 2019 2020 2021 2022 Fulton Financial Corporation $ 100.00 $ 86.99 $ 101.10 $ 77.24 $ 106.80 $ 112.23 S&P 500 $ 100.00 $ 116.49 $ 153.17 $ 181.35 $ 233.41 $ 155.59 Nasdaq Bank Index $ 100.00 $ 86.09 $ 102.99 $ 90.82 $ 129.20 $ 100.86 Issuer Purchases of Equity Securities There were no repurchases of our common stock during the fourth quarter of 2022.
Added
Year Ending December 31 Index 2018 2019 2020 2021 2022 2023 Fulton Financial Corporation $ 100.00 $ 117.16 $ 88.95 $ 123.51 $ 126.38 $ 128.62 S&P 500 $ 100.00 $ 131.49 $ 155.68 $ 200.37 $ 164.08 $ 207.21 Nasdaq Bank Index $ 100.00 $ 119.62 $ 105.49 $ 150.07 $ 122.01 $ 113.84 36 Issuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) October 1, 2023 to October 31, 2023 — $ — — $ 29,060,105 November 1, 2023 to November 30, 2023 441,638 13.85 441,638 22,943,716 December 1, 2023 to December 31, 2023 — — — — Total 441,638 $ 13.85 441,638 (1) Includes 1% excise tax on net repurchases of the Corporation's common stock.
Added
The 2024 Repurchase Program will expire on December 31, 2024. Under the 2024 Repurchase Program, the Corporation is authorized to repurchase up to $125.0 million of shares of its common stock outstanding shares through December 31, 2024.
Added
Under this authorization, up to $25.0 million of the $125 million authorization may be used to repurchase shares of the Corporation's preferred stock and outstanding subordinated notes.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements and Supplementary Data: Consolidated Balance Sheets 69 Consolidated Statements of Income 70 Consolidated Statements of Comprehensive Income 71 Consolidated Statements of Shareholders' Equity 72 Consolidated Statements of Cash Flows 73 Notes to Consolidated Financial Statements 74 Management Report On Internal Control Over Financial Reporting 133 Report of Independent Registered Public Accounting Firm 134
Biggest changeFinancial Statements and Supplementary Data: Consolidated Balance Sheets 68 Consolidated Statements of Income 69 Consolidated Statements of Comprehensive Income 70 Consolidated Statements of Shareholders' Equity 71 Consolidated Statements of Cash Flows 72 Notes to Consolidated Financial Statements 73 Management Report On Internal Control Over Financial Reporting 129 Report of Independent Registered Public Accounting Firm 130
Item 6. [Reserved] 39 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 39 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64 Item 8.
Item 6. [Reserved] 38 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 63 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese 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. 41 Following are reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure as of and for the year ended December 31: 2022 2021 2020 (dollars in thousands, except per share data) Operating net income available to common shareholders Net income available to common shareholders $ 276,733 $ 265,220 $ 175,905 Plus: Core deposit intangible amortization 1,029 — — Plus: Merger-related expenses 10,328 — — Plus: CECL Day 1 Provision expense 7,954 — — Less: Tax impact of adjustments (4,055) — — Operating net income available to common shareholders (numerator) $ 291,989 $ 265,220 $ 175,905 Weighted average shares (diluted) (denominator) 165,472 163,307 163,090 Operating net income available to common shareholders, per share (diluted) $ 1.76 $ 1.62 $ 1.08 Operating return on average assets Net income $ 286,981 $ 275,497 $ 178,040 Plus: Core deposit intangible amortization 1,029 — — Plus: Merger-related expenses 10,328 — — Plus: CECL Day 1 Provision expense 7,954 — — Less: Tax impact of adjustments (4,055) — — Operating net income (numerator) $ 302,237 $ 275,497 $ 178,040 Total average assets (denominator) $ 25,971,484 $ 26,170,333 $ 24,333,717 Operating return on average assets 1.16 % 1.05 % 0.73 % Return on average common shareholders' equity (tangible) Net income available to common shareholders $ 276,733 $ 265,220 $ 175,905 Plus: Intangible amortization 1,731 589 529 Plus: Merger-related expenses 10,328 — — Plus: CECL Day 1 Provision expense 7,954 — — Less: Tax impact of adjustments (4,203) (127) (112) Operating net income available to common shareholders (numerator) $ 292,543 $ 265,682 $ 176,322 Average shareholders' equity $ 2,560,323 $ 2,685,946 $ 2,391,649 Less: Average goodwill and intangible assets (548,102) (536,621) (535,196) Less: Average preferred stock (192,878) (192,878) (32,084) Average tangible common shareholders' equity (denominator) $ 1,819,343 $ 1,956,447 $ 1,824,369 Return on average common shareholders' equity (tangible) 16.08 % 13.58 % 9.66 % 42 2022 2021 2020 (dollars in thousands) Efficiency ratio Non-interest expense $ 633,728 $ 617,830 $ 579,440 Less: Amortization of tax credit investments (2,783) (6,187) (6,126) Less: Intangible amortization (1,731) (589) (529) Less: Merger-related expenses (10,328) — — Less: Debt extinguishment costs — (33,249) (2,878) Numerator $ 618,886 $ 577,805 $ 569,907 Net interest income $ 781,634 $ 663,730 $ 629,207 Tax equivalent adjustment 14,995 12,296 12,302 Plus: Total non-interest income 227,130 273,745 229,388 Less: Investment securities losses (gains), net 27 (33,516) (3,053) Total revenue (denominator) $ 1,023,786 $ 916,255 $ 867,844 Efficiency ratio 60.5 % 63.1 % 65.7 % CRITICAL ACCOUNTING POLICIES The following is a summary of those accounting policies that the Corporation considers to be most important to the presentation of its financial condition and results of operations, because they require management's most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain.
Biggest changeReconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure follow: 2023 2022 2021 (dollars in thousands, except per share data) Operating net income available to common shareholders Net income available to common shareholders $ 274,032 $ 276,733 $ 265,220 Plus: Core deposit intangible amortization 2,308 1,029 — Plus: Merger-related expenses — 10,328 — Plus: CECL Day 1 Provision expense — 7,954 — Plus: Interest rate derivative transition valuation (1) 1,855 — — Plus: FDIC special assessment 6,494 — — Plus: FultonFirst initiative expenses 3,197 — — Less: Tax impact of adjustments (2,909) (4,055) — Operating net income available to common shareholders (numerator) $ 284,977 $ 291,989 $ 265,220 Weighted average shares (diluted) (denominator) 166,769 165,472 163,307 Operating net income available to common shareholders, per share (diluted) $ 1.71 $ 1.76 $ 1.62 40 2023 2022 2021 (dollars in thousands) Operating return on average assets Net income $ 284,280 $ 286,981 $ 275,497 Plus: Core deposit intangible amortization 2,308 1,029 — Plus: Merger-related expenses — 10,328 — Plus: CECL Day 1 Provision expense — 7,954 — Plus: Interest rate derivative transition valuation (1) 1,855 — — Plus: FDIC special assessment 6,494 — — Plus: FultonFirst initiative expenses 3,197 — — Less: Tax impact of adjustments (2,909) (4,055) — Operating net income (numerator) $ 295,225 $ 302,237 $ 275,497 Total average assets $ 27,229,704 $ 25,971,484 $ 26,170,333 Less: Average net core deposit intangible (5,996) (3,915) — Total average operating assets (denominator) $ 27,223,708 $ 25,967,569 $ 26,170,333 Operating return on average assets 1.08 % 1.16 % 1.05 % Return on average common shareholders' equity (tangible) Net income available to common shareholders $ 274,032 $ 276,733 $ 265,220 Plus: Intangible amortization 2,944 1,731 589 Plus: Merger-related expenses — 10,328 — Plus: CECL Day 1 Provision expense — 7,954 — Plus: Interest rate derivative transition valuation (1) 1,855 — — Plus: FDIC special assessment 6,494 — — Plus: FultonFirst initiative expenses 3,197 — — Less: Tax impact of adjustments (3,043) (4,203) (127) Adjusted net income available to common shareholders (numerator) $ 285,479 $ 292,543 $ 265,682 Average shareholders' equity $ 2,631,249 $ 2,560,323 $ 2,685,946 Less: Average goodwill and intangible assets (561,858) (548,102) (536,621) Less: Average preferred stock (192,878) (192,878) (192,878) Average tangible common shareholders' equity (denominator) $ 1,876,513 $ 1,819,343 $ 1,956,447 Return on average common shareholders' equity (tangible) 15.21 % 16.08 % 13.58 % 41 2023 2022 2021 (dollars in thousands) Efficiency ratio Non-interest expense $ 679,207 $ 633,728 $ 617,830 Less: Amortization of tax credit investments — (2,783) (6,187) Less: Intangible amortization (2,944) (1,731) (589) Less: Merger-related expenses — (10,328) — Less: Debt extinguishment gain (cost) 720 — (33,249) Less: FDIC special assessment (6,494) — — Less: FultonFirst initiative expenses (3,197) — — Non-interest expense (numerator) $ 667,292 $ 618,886 $ 577,805 Net interest income $ 854,286 $ 781,634 $ 663,730 Tax equivalent adjustment 17,811 14,995 12,296 Plus: Total non-interest income 227,678 227,130 273,745 Plus: Interest rate derivative transition valuation (1) 1,855 — — Less: Investment securities losses (gains), net 733 27 (33,516) Total revenue (denominator) $ 1,102,363 $ 1,023,786 $ 916,255 Efficiency ratio 60.5 % 60.5 % 63.1 % (1) Resulting from the reference rate transition from LIBOR to SOFR in the Corporation's commercial customer interest rate swap program.
Item 7. 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 relates to the Corporation, a financial holding company registered under the BHCA and corporation incorporated under the laws of the Commonwealth of Pennsylvania, and its wholly owned subsidiaries.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This Management's Discussion relates to the Corporation, a financial holding company registered under the BHCA and corporation incorporated under the laws of the Commonwealth of Pennsylvania, and its wholly-owned subsidiaries.
See additional information regarding these critical accounting policies in "Note 1 - Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." Allowance for Credit Losses - ACL is based on estimated losses over the remaining expected life of loans.
See additional information regarding these critical accounting policies in "Note 1 - Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data." Allowance for Credit Losses - The ACL is based on estimated losses over the remaining expected life of loans.
In 2022, interest expense increased $23.5 million compared to 2021, primarily driven by increases in rate on interest-bearing liabilities resulting in a $25.4 million increase in interest expense. The increase in interest expense attributable to rate was primarily driven by the increases in savings and money market deposits, borrowings, demand deposits and brokered deposits.
In 2022, interest expense increased $23.5 million compared to 2021, primarily driven by increases in rate on interest-bearing liabilities resulting in a $25.4 million increase in interest expense. The increase in interest expense attributable to rate was primarily driven by the increases in savings and money market deposits, borrowings, interest-bearing demand deposits and brokered deposits.
Average deposits and interest rates, by type, are summarized in the following table: Increase (Decrease) in Balance 2022 2021 Balance Rate Balance Rate $ % (dollars in thousands) Noninterest-bearing demand $ 7,522,304 — % $ 7,211,153 — % $ 311,151 4.3 % Interest-bearing demand 5,593,942 0.15 5,979,479 0.06 (385,537) (6.4) Savings and money market deposits 6,458,165 0.26 6,306,967 0.08 151,198 2.4 Total demand deposits and savings and money market deposits 19,574,411 0.13 19,497,599 0.04 76,812 0.4 Brokered deposits 262,359 1.56 286,901 0.38 (24,542) (8.6) Time deposits 1,617,804 0.92 1,939,446 1.05 (321,642) (16.6) Total deposits $ 21,454,574 0.20 % $ 21,723,946 0.14 % $ (269,372) (1.2) % The cost of interest-bearing deposits increased 10 bps, to 0.31%, from 0.21% in 2021, due to an increase in rates.
Average deposits and interest rates, by type, are summarized in the following table: 2022 2021 Increase (Decrease) Balance Rate Balance Rate $ % (dollars in thousands) Noninterest-bearing demand $ 7,522,304 — % $ 7,211,153 — % $ 311,151 4.3 % Interest-bearing demand 5,593,942 0.15 5,979,479 0.06 (385,537) (6.4) Savings and money market deposits 6,458,165 0.26 6,306,967 0.08 151,198 2.4 Total demand and savings and money market deposits 19,574,411 0.13 19,497,599 0.04 76,812 0.4 Brokered deposits 262,359 1.56 286,901 0.38 (24,542) (8.6) Time deposits 1,617,804 0.92 1,939,446 1.05 (321,642) (16.6) Total deposits $ 21,454,574 0.20 % $ 21,723,946 0.14 % $ (269,372) (1.2) % The cost of interest-bearing deposits increased 10 bps, to 0.31%, from 0.21% in 2021, due to an increase in rates.
Non-interest expense, excluding merger-related expenses of $10.3 million, was $623.4 million, an increase of $5.6 million, or 0.9% compared to non-interest expenses of $617.8 million in 2021.
Non-interest expense, excluding merger-related expenses of $10.3 million, was $623.4 million, an increase of $5.6 million, or 0.9% compared to non-interest expense of $617.8 million in 2021.
Excluding merger-related expenses, the increase in non-interest expense compared to 2021 was primarily due to increases in salaries and benefits of $27.7 million, attributable to higher employee base salaries of $20.2 million and deferred loan origination expense of $14.3 million, partially offset by lower commissions expense of $8.8 million.
Excluding merger-related expenses, the increase in non-interest expense compared to 2021 was primarily due to increases in salaries and employee benefits of $27.7 million, attributable to higher employee base salaries of $20.2 million and deferred loan origination expense of $14.3 million, partially offset by lower commissions expense of $8.8 million.
Increases in data processing and software expenses, other outside services and net occupancy expense in 2022 of $3.8 million, $3.0 million and $2.4 million, respectively, also contributed to the increase in non-interest expenses compared to 2021. These increases were partially offset by a decrease of $33.2 million in debt extinguishment expense in 2021.
Increases in data processing and software expenses, other outside services and net occupancy expense in 2022 of $3.8 million, $3.0 million and $2.4 million, respectively, also contributed to the increase in non-interest expense compared to 2021. These increases were partially offset by a decrease of $33.2 million in debt extinguishment expense in 2021.
Average borrowings and interest rates, by type, are summarized in the following table: Increase (Decrease) in Balance 2022 2021 Balance Rate Balance Rate $ % (dollars in thousands) Borrowings: Federal funds purchased $ 91,125 3.21 % $ — — % $ 91,125 N/M Federal Home Loan Bank advances 194,295 3.77 126,677 1.80 67,618 53.4 % Senior debt and subordinated debt 564,337 3.94 657,386 4.07 (93,049) (14.2) Other borrowings (1) 508,600 1.34 513,900 0.12 (5,300) (1.0) Total borrowings $ 1,358,357 2.89 % $ 1,297,963 2.29 % $ 60,394 4.7 % (1) Includes repurchase agreements, short-term promissory notes and capital leases.
Average borrowings and interest rates, by type, are summarized in the following table: 2022 2021 Increase (Decrease) Balance Rate Balance Rate $ % (dollars in thousands) Borrowings: Federal funds purchased $ 91,125 3.21 % $ — — % $ 91,125 N/M Federal Home Loan Bank advances 194,295 3.77 126,677 1.80 67,618 53.4 Senior debt and subordinated debt 564,337 3.94 657,386 4.07 (93,049) (14.2) Other borrowings and other interest-bearing liabilities (1) 508,600 1.34 513,900 0.12 (5,300) (1.0) Total borrowings and other interest-bearing liabilities $ 1,358,357 2.89 % $ 1,297,963 2.29 % $ 60,394 4.7 % (1) Includes repurchase agreements, short-term promissory notes and capital leases.
See reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure under the "Supplemental Reporting of Non-GAAP Based Financial Measures" section of Management's Discussion. (2) Presented on a FTE basis using a 21% Federal tax rate and statutory interest expense disallowances. See also the "Net Interest Income" section of Management's Discussion.
See reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure under the "Supplemental Reporting of Non-GAAP Based Financial Measures" section of Management's Discussion. (2) Presented on a FTE basis using a 21% federal tax rate and statutory interest expense disallowances.
In addition, the Corporation has established lower total lending limits for certain types of lending commitments and lower total lending limits based on the Corporation's internal risk rating of an individual borrower at the time the lending commitment is approved. 55 The following table summarizes the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios (excluding PPP loans) as of December 31: 2022 2021 Real estate (1) 43.9 % 44.3 % Manufacturing 6.8 5.1 Health care 6.5 6.7 Agriculture 5.4 6.1 Construction (2) 4.7 3.9 Other services (3) 4.7 5.0 Hospitality and food services 3.6 3.7 Retail 3.1 3.0 Wholesale trade 3.1 2.8 Educational services 2.8 2.7 Arts, entertainment and recreation 2.0 2.3 Professional, scientific and technical services 1.8 1.8 Transportation and warehousing 1.3 1.3 Public administration 1.2 1.5 Administrative and Support 1.1 0.6 Finance and Insurance 0.9 1.4 Other 7.1 7.8 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.
The Corporation has established lower total lending limits for certain types of lending commitments and lower total lending limits based on the Corporation's internal risk rating of an individual borrower at the time the lending commitment is approved. 54 The following table summarizes the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios: December 31, 2023 2022 Real estate (1) 46.6 % 43.9 % Health care 6.6 6.5 Manufacturing 6.1 6.8 Agriculture 5.6 5.4 Other services 4.5 4.7 Construction (2) 4.1 4.7 Hospitality and food services 3.6 3.6 Retail 3.3 3.1 Wholesale trade 3.2 3.1 Educational services 2.9 2.8 Professional, scientific and technical services 2.2 1.8 Arts, entertainment and recreation 1.9 2.0 Transportation and warehousing 1.7 1.3 Finance and Insurance 1.3 0.9 Administrative and Support 1.1 1.1 Public administration 1.0 1.2 Other 4.3 7.1 Total 100.0 % 100.0 % (1) Includes commercial loans to borrowers engaged in the business of: renting, leasing or managing real estate for others; selling and/or buying real estate for others; and appraising real estate.
(2) Includes all accruing loans 90 days or more past due and all non-accrual loans and leases. 59 Loans and Allowance for Credit Losses The Corporation accounts for the credit risk associated with lending activities through the ACL and the provision for credit losses.
(2) Includes accruing loans 90 days or more past due and non-accrual loans and leases. 58 Loans and Allowance for Credit Losses The Corporation accounts for the credit risk associated with lending activities through the ACL and the provision for credit losses.
Management's Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report. OVERVIEW The Corporation is a financial holding company, which, through its wholly owned banking subsidiary, provides a full range of retail and commercial financial services in Pennsylvania, Delaware, Maryland, New Jersey and Virginia.
Management's Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this Annual Report on Form 10-K. OVERVIEW The Corporation is a financial holding company, which, through its wholly-owned banking subsidiary, provides a full range of retail and commercial financial services in Pennsylvania, Delaware, Maryland, New Jersey and Virginia.
The primary contributors to this net decrease were as follows: • Mortgage banking income decreased $19.4 million, or 57.7%, compared to 2021, mainly due to reduced gains on sales of mortgage loans. • Other non-interest income decreased $5.8 million, or 28.1%, compared to 2021, primarily due to a decline in income from equity method investments. • Total commercial banking income increased $7.1 million, or 10.3%, compared to 2021, driven mainly by increases in commercial customer swap fees reflected in capital markets, cash management fees and merchant and card revenues. • Total consumer banking income increased $4.0 million, or 8.7%, compared to 2021, driven primarily by increases in overdraft fees and card income. • Investment securities gains decreased $33.5 million, primarily due to the sale of Visa Shares, as part of the balance sheet restructuring undertaken in 2021. 48 Non-Interest Expense The following table presents the components of non-interest expense: Increase (Decrease) 2022 2021 $ % (dollars in thousands) Salaries and employee benefits $ 356,884 $ 329,138 $ 27,746 8.4 % Data processing and software 60,255 56,440 3,815 6.8 Net occupancy 56,195 53,799 2,396 4.5 Other outside services 37,152 34,194 2,958 8.7 State taxes 15,113 18,793 (3,680) (19.6) Equipment 14,033 13,807 226 1.6 FDIC insurance 12,547 10,665 1,882 17.6 Professional fees 9,123 9,647 (524) (5.4) Marketing 6,885 5,275 1,610 30.5 Intangible amortization 1,731 589 1,142 N/M Debt extinguishment — 33,249 (33,249) N/M Merger-related expenses 10,328 — 10,328 N/M Other 53,482 52,234 1,248 2.4 Total Non-Interest Expense $ 633,728 $ 617,830 $ 15,898 2.6 % Non-interest expense increased $15.9 million, or 2.6% compared to 2021.
The primary contributors to this net decrease were as follows: • Mortgage banking income decreased $19.4 million, or 57.7%, compared to 2021, mainly due to reduced gains on sales of mortgage loans. • Other non-interest income decreased $5.8 million, or 28.1%, compared to 2021, primarily due to a decline in income from equity method investments. • Total commercial banking income increased $7.1 million, or 10.3%, compared to 2021, driven mainly by increases in commercial customer interest rate swap fees reflected in capital markets, cash management fees and merchant and card revenues. • Total consumer banking income increased $4.0 million, or 8.7%, compared to 2021, driven primarily by increases in overdraft fees and card income. • Investment securities gains decreased $33.5 million, primarily due to the gain on sale of Visa Shares, as part of the balance sheet restructuring undertaken in 2021. 51 Non-Interest Expense The following table presents the components of non-interest expense: Increase (Decrease) 2022 2021 $ % (dollars in thousands) Salaries and employee benefits $ 356,884 $ 329,138 $ 27,746 8.4 % Data processing and software 60,255 56,440 3,815 6.8 Net occupancy 56,195 53,799 2,396 4.5 Other outside services 37,152 34,194 2,958 8.7 Equipment 14,033 13,807 226 1.6 FDIC insurance 12,547 10,665 1,882 17.6 Professional fees 9,123 9,647 (524) (5.4) Marketing 6,885 5,275 1,610 30.5 Intangible amortization 1,731 589 1,142 N/M Debt extinguishment — 33,249 (33,249) N/M Merger-related expenses 10,328 — 10,328 N/M Other 68,595 71,027 (2,432) (3.4) Total non-interest expense $ 633,728 $ 617,830 $ 15,898 2.6 % Non-interest expense increased $15.9 million, or 2.6% compared to 2021.
These obligations include payments for liabilities recorded on the Corporation's consolidated balance sheets as well as contractual obligations for purchased services. Contractual purchase obligations to third parties that were fixed and determinable of $93 million and $96 million at December 31, 2022 and 2021, respectively, include information technology, telecommunication and data processing outsourcing contracts.
These obligations include payments for liabilities recorded on the Corporation's consolidated balance sheets as well as contractual obligations for purchased services. Contractual purchase obligations to third parties that were fixed and determinable of approximately $125 million and $93 million at December 31, 2023 and 2022, respectively, include information technology, telecommunication and data processing outsourcing contracts.
See Note 10 "Borrowings" of the Notes to Consolidated Financial Statements for additional details. 47 Non-Interest Income and Expense Non-Interest Income The following table presents the components of non-interest income: Increase (Decrease) 2022 2021 $ % (dollars in thousands) Commercial banking: Merchant and card $ 28,276 $ 26,121 $ 2,155 8.3 % Cash management 23,729 20,865 2,864 13.7 Capital markets 12,256 9,381 2,875 30.6 Other commercial banking 11,518 12,322 (804) (6.5) Total commercial banking 75,779 68,689 7,090 10.3 Consumer banking: Card 24,472 23,505 967 4.1 Overdraft 15,480 12,844 2,636 20.5 Other consumer banking 9,544 9,195 349 3.8 Total consumer banking 49,496 45,544 3,952 8.7 Wealth management revenues 72,843 71,798 1,045 1.5 Mortgage banking: Gains on sales of mortgage loans 8,820 24,380 (15,560) (63.8) Mortgage servicing income 5,384 9,196 (3,812) (41.5) Total mortgage banking 14,204 33,576 (19,372) (57.7) Other 14,835 20,622 (5,787) (28.1) Non-interest income before investment securities gains 227,157 240,229 (13,072) (5.4) Investment securities gains (losses), net (27) 33,516 (33,543) (100.1) Total Non-Interest Income $ 227,130 $ 273,745 $ (46,615) (17.0) % Excluding net investment securities gains, non-interest income decreased $13.1 million, or 5.4%, in 2022, as compared to 2021.
See "Note 10 - Borrowings" of the Notes to Consolidated Financial Statements for additional details. 50 Non-Interest Income The following table presents the components of non-interest income: Increase (Decrease) 2022 2021 $ % (dollars in thousands) Commercial banking: Merchant and card $ 28,276 $ 26,121 $ 2,155 8.3 % Cash management 23,729 20,865 2,864 13.7 Capital markets 12,256 9,381 2,875 30.6 Other commercial banking 11,518 12,322 (804) (6.5) Total commercial banking 75,779 68,689 7,090 10.3 Wealth management 72,843 71,798 1,045 1.5 Consumer banking: Card 24,472 23,505 967 4.1 Overdraft 15,480 12,844 2,636 20.5 Other consumer banking 9,544 9,195 349 3.8 Total consumer banking 49,496 45,544 3,952 8.7 Mortgage banking 14,204 33,576 (19,372) (57.7) Other 14,835 20,622 (5,787) (28.1) Non-interest income before investment securities gains (losses) 227,157 240,229 (13,072) (5.4) Investment securities gains (losses), net (27) 33,516 (33,543) (100.1) Total Non-Interest Income $ 227,130 $ 273,745 $ (46,615) (17.0) % Non-interest income before investment securities gains (losses) decreased $13.1 million, or 5.4%, in 2022, as compared to 2021.
The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and TCIs that generate tax credits under various federal programs. 53 FINANCIAL CONDITION The table below presents condensed consolidated ending balance sheets.
The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and investments in community development projects that generate tax credits under various programs. 52 FINANCIAL CONDITION The table below presents condensed consolidated ending balance sheets.
Recognition and measurement of tax positions is based upon management's evaluations of current taxing authorities' examinations of the Corporation's tax returns, recent positions taken by the taxing authorities on similar transactions and the overall tax environment. Income tax expense was $60.0 million and $58.7 million for the years ended December 31, 2022 and December 31, 2021, respectively.
Recognition and measurement of tax positions is based upon management's evaluations of current taxing authorities' examinations of the Corporation's tax returns, recent positions taken by the taxing authorities on similar transactions and the overall tax environment. Income tax expense was $64.4 million and $60.0 million for the years ended December 31, 2023 and December 31, 2022, respectively.
Average loans and average FTE yields, by type, are summarized in the following table: Increase (Decrease) in Balance 2022 2021 Balance Yield Balance Yield $ % (dollars in thousands) Real estate – commercial mortgage $ 7,523,806 4.00 % $ 7,149,712 3.14 % $ 374,094 5.2 % Commercial and industrial (1) 4,230,133 4.13 5,052,856 2.64 (822,723) (16.3) Real estate – residential mortgage 4,261,527 3.38 3,501,072 3.40 760,455 21.7 Real estate – home equity 1,101,142 4.60 1,141,042 3.85 (39,900) (3.5) Real estate – construction 1,178,550 4.14 1,078,350 3.08 100,200 9.3 Consumer 569,305 5.11 456,427 3.99 112,878 24.7 Equipment lease financing 249,595 3.99 252,104 3.89 (2,509) (1.0) Other (2) 38,682 — (3,776) — 42,458 N/M Total loans $ 19,152,740 4.00 % $ 18,627,787 3.46 % $ 524,953 2.8 % (1) Includes average PPP loans of $0.1 billion and $1.1 billion for the years ended December 31, 2022 and 2021, respectively.
Average loans and average FTE yields, by type, are summarized in the following table: 2022 2021 Increase (Decrease) Balance Yield Balance Yield $ % (dollars in thousands) Real estate - commercial mortgage $ 7,523,806 4.00 % $ 7,149,712 3.14 % $ 374,094 5.2 % Commercial and industrial 4,230,133 4.13 5,052,856 2.73 (822,723) (16.3) Real estate - residential mortgage 4,261,527 3.38 3,501,072 3.40 760,455 21.7 Real estate - home equity 1,101,142 4.60 1,141,042 3.85 (39,900) (3.5) Real estate - construction 1,178,550 4.14 1,078,350 3.08 100,200 9.3 Consumer 569,305 5.11 456,427 3.99 112,878 24.7 Equipment finance leasing 249,595 3.99 252,104 3.89 (2,509) (1.0) Other (1) 38,682 — (3,776) — 42,458 N/M Total loans $ 19,152,740 4.00 % $ 18,627,787 3.46 % $ 524,953 2.8% (1) Consists of overdrafts and net origination fees and costs.
(2) Average balances include amortized historical cost for AFS securities; the related unrealized holding gains (losses) are included in other assets.
(2) Average balances include non-performing loans. (3) Average balances include amortized historical cost for AFS securities; the related unrealized holding gains (losses) are included in other assets.
Total average borrowings increased $60.4 million, or 4.7%, and the total borrowings rate increased 60 bps, to 2.89%, compared to 2021. Borrowings increased primarily as a result of the decrease in deposits. Short-term Federal funds purchased and Federal Home Loan Bank advances increased $91.1 million and $67.6 million, respectively.
Total average borrowings and other interest-bearing liabilities increased $60.4 million, or 4.7%, and the rate on total average borrowings and other interest-bearing liabilities increased 60 bps, to 2.89%, compared to 2021. Borrowings increased primarily as a result of the decrease in deposits. Short-term Federal funds purchased and FHLB advances increased $91.1 million and $67.6 million, respectively.
The following table presents a summary of the Corporation's earnings and selected performance ratios: 2022 2021 2020 (dollars in thousands, except per share) Net income $ 286,981 $ 275,497 $ 178,040 Net income available to common shareholders $ 276,733 $ 265,220 $ 175,905 Diluted net income available to common shareholders per share $ 1.67 $ 1.62 $ 1.08 Diluted operating net income available to common shareholders per share (1) $ 1.76 $ 1.62 $ 1.08 Return on average assets 1.10 % 1.05 % 0.73 % Operating return on average assets (1) 1.16 % 1.05 % 0.73 % Return on average common equity 11.69 % 10.64 % 9.94 % Return on average common shareholders' equity (tangible) (1) 16.08 % 13.58 % 9.66 % Net interest margin (2) 3.27 % 2.78 % 2.86 % Efficiency ratio (1) 60.5 % 63.1 % 65.7 % Non-performing assets to total assets 0.66 % 0.60 % 0.58 % Net charge-offs (recoveries) to average loans 0.04 % 0.07 % 0.05 % (1) Ratio represents a financial measure derived by methods other than GAAP.
The following table presents a summary of the Corporation's earnings and selected performance ratios: 2023 2022 2021 (dollars in thousands, except per share) Net income $ 284,280 $ 286,981 $ 275,497 Net income available to common shareholders $ 274,032 $ 276,733 $ 265,220 Net income available to common shareholders per share (diluted) $ 1.64 $ 1.67 $ 1.62 Operating net income available to common shareholders per share (1) $ 1.71 $ 1.76 $ 1.62 Return on average assets 1.04 % 1.10 % 1.05 % Operating return on average assets (1) 1.08 % 1.16 % 1.05 % Return on average common shareholders' equity 11.24 % 11.69 % 10.64 % Return on average common shareholders' equity (tangible) (1) 15.21 % 16.08 % 13.58 % Net interest margin (2) 3.42 % 3.27 % 2.78 % Efficiency ratio (1) 60.5 % 60.5 % 63.1 % Non-performing assets to total assets 0.56 % 0.66 % 0.60 % Net charge-offs (recoveries) to average loans 0.14 % 0.04 % 0.07 % (1) Ratio represents a financial measure derived by methods other than GAAP.
Yield on other interest-earning assets increased 71 bps in comparison to 2021, contributing $6.8 million to FTE interest income, partially offset by a decrease in the average balance of other interest-earning assets of $1.2 billion, contributing a $3.3 million decrease to FTE interest income.
Yield on other interest-earning assets increased 74 bps in comparison to 2021, contributing $7.5 million to FTE interest income, partially offset by a decrease in the average balance of other interest-earning assets of $1.2 billion, contributing a $4.4 million decrease to FTE interest income.
These inputs are PD, which estimates the likelihood that a borrower will be unable to meet its debt obligations; LGD, which estimates the share of an asset that is lost if a borrower defaults; and EAD, which estimates the gross exposure under a facility upon default. The PD models were developed based on historical default data.
These inputs are the PD rate which estimates the likelihood that a borrower will be unable to meet its debt obligations, the LGD rate which estimates the percentage of an asset that is lost if a borrower defaults, and the EAD balance which estimates the gross exposure under a facility upon default.
As of December 31, 2022, Fulton Bank was well capitalized under the regulatory framework for prompt corrective action based on its capital ratio calculations. To be categorized as well capitalized, Fulton 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 table above.
As of December 31, 2023, Fulton Bank met the well-capitalized requirements under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, a bank must maintain minimum Total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage ratios as set forth in the Capital Rules.
Average investment securities increased $691.4 million, or 18.8%, in comparison to 2021, which contributed a $16.8 million increase in FTE interest income. The yield on investment securities increased 8 bps in comparison to 2021, resulting in a $3.0 million increase in FTE interest income.
The yield on investment securities increased 8 bps in comparison to 2021, resulting in a $3.0 million increase in FTE interest income.
The Corporation is a party to financial instruments with OBS risk in the normal course of business to meet the financing needs of its customers.
The increase is primarily due to the renewals of large multi-year contracts. The Corporation is a party to financial instruments with OBS risk in the normal course of business to meet the financing needs of its customers.
The Corporation does not have a significant concentration of credit risk with any single borrower, industry or geographic location within its footprint. As of December 31, 2022, approximately $9.0 billion, or 44.1%, of the loan portfolio was comprised of commercial mortgage loans and construction loans.
The Corporation does not have a significant concentration of credit risk with any single borrower. As of December 31, 2023, approximately $9.4 billion, or 43.9%, of the loan portfolio was comprised of commercial mortgage loans and construction loans.
Included in the December 31, 2022 provision for credit losses was the CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio. 40 • Non-Interest Income - Non-interest income, excluding investment securities gains, for the year ended December 31, 2022 decreased $13.1 million, or 5.4%, in comparison to 2021.
Included in the December 31, 2022 provision for credit losses was the CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio. • Non-Interest Income - Non-interest income, excluding investment securities losses, for the year ended December 31, 2023 increased $1.3 million, or 0.6%, compared to the same period in 2022.
Income Taxes Income tax expense for 2022 was $60.0 million, a $1.3 million increase compared to 2021. The ETR was 17.3% in 2022 compared to 17.6% in 2021. The increase in income tax expense resulted primarily from higher income before income taxes.
Income Taxes Income tax expense for 2022 was $60.0 million, a $1.3 million increase compared to 2021. The Corporation's ETR was 17.3% for the year ended 2022, compared to 17.6% for the same period in 2021.
(3) ACL - loans relates to the ACL specifically for net loans and does not include the reserve for OBS credit exposures, which is included in other liabilities. 45 Comparison of 2022 to 2021 The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volumes) and changes in yields and rates: 2022 vs. 2021 Increase (decrease) due to change in Volume Yield/Rate Net (dollars in thousands) Interest income on: Net loans (1) $ 18,540 $ 102,676 $ 121,216 Investment securities 16,759 3,031 19,790 Loans held for sale (1,076) 640 (436) Other interest-earning assets (3,288) 6,843 3,555 Total interest income $ 30,935 $ 113,190 $ 144,125 Interest expense on: Demand deposits $ (256) $ 4,813 $ 4,557 Savings and money market deposits 123 11,583 11,706 Brokered deposits (101) 3,102 3,001 Time deposits (3,115) (2,325) (5,440) Borrowings 1,463 8,235 9,698 Total interest expense $ (1,886) $ 25,408 $ 23,522 (1) Average balance includes non-performing loans.
The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and TCIs that generate tax credits under various federal programs. 48 Comparison of 2022 to 2021 The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volumes) and changes in yields and rates: 2022 vs. 2021 Increase (decrease) due to change in Volume Yield/Rate Net (dollars in thousands) Interest income on: Net loans (1) $ 18,540 $ 102,676 $ 121,216 Investment securities 16,759 3,031 19,790 Other interest-earning assets (4,364) 7,483 3,119 Total interest income $ 30,935 $ 113,190 $ 144,125 Interest expense on: Demand deposits $ (256) $ 4,813 $ 4,557 Savings and money market deposits 123 11,583 11,706 Brokered deposits (101) 3,102 3,001 Time deposits (3,115) (2,325) (5,440) Borrowings 1,463 8,235 9,698 Total interest expense $ (1,886) $ 25,408 $ 23,522 (1) Average balance includes non-performing loans.
For further discussion of the methodology used in the determination of the ACL, refer to Note 1, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements in Item 8.
This scenario resulted in a hypothetical increase to the ACL o f approximately $21.6 million. For further discussion of the methodology used in the determination of the ACL, refer to Note 1, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements in "Item 8.
Non-accrual loans as a percentage of net loans decreased to 0.71% at December 31, 2022, compared to 0.78% at December 31, 2021. 56 The following table presents non-performing assets as of the dates shown: December 31, 2022 2021 2020 (dollars in thousands) Non-accrual loans (1) (2) (3) $ 144,443 $ 143,666 $ 137,198 Loans 90 days or more past due and still accruing (2) 27,463 8,453 9,929 Total non-performing loans and leases 171,906 152,119 147,127 OREO (4) 5,790 1,817 4,178 Total non-performing assets $ 177,696 $ 153,936 $ 151,305 (1) The amount of interest income on non-accrual loans that was recognized in 2022 was approximately $2.2 million.
During 2023, non-accrual loans as a percentage of net loans decreased to 0.57%, compared to 0.71% as of December 31, 2022. 55 The following table presents non-performing assets: December 31, 2023 2022 2021 (dollars in thousands) Non-accrual loans (1)(2) $ 121,620 $ 144,443 $ 143,666 Loans 90 days or more past due and still accruing (2) 31,721 27,463 8,453 Total non-performing loans and leases 153,341 171,906 152,119 OREO (3) 896 5,790 1,817 Total non-performing assets $ 154,237 $ 177,696 $ 153,936 Non-accrual loans to total loans 0.57 % 0.71 % 0.78 % Non-performing loans to total loans 0.72 % 0.85 % 0.83 % Non-performing assets to total assets 0.56 % 0.66 % 0.60 % ACL to non-performing loans 191 % 157 % 164 % (1) The amount of interest income on non-accrual loans that was recognized in 2023, 2022 and 2021was approximately $1.5 million, $2.2 million and $1.3 million, respectively.
Both internal and external variables are evaluated in the process. The main internal variables are risk rating or delinquency history, and the external variables are economic variables obtained from third-party provided forecasts.
The PD models were developed based on historical default data. Both internal and external variables are evaluated in the process. The main internal variables are risk rating or delinquency history and indicators of default. The external variables are economic variables obtained from third-party forecasts.
The increase was largely driven by increases in average residential mortgage loans, average commercial mortgage loans, average consumer loans and average construction loans of 46 $760.5 million, $374.1 million, $112.9 million and $100.2 million, respectively, partially offset by decreases in average commercial and industrial loans of $822.7 million primarily due to the repayment of PPP loans upon forgiveness by the SBA.
The increase was largely driven by increases in average residential mortgage loans, average commercial mortgage loans, average consumer loans and average construction loans of $760.5 million, $374.1 million, $112.9 million and $100.2 million, respectively, partially offset by decreases in average commercial and industrial loans of $822.7 million primarily due to the repayment of Paycheck Protection Program loans upon forgiveness by the SBA. 49 Average investment securities increased $691.4 million, or 18.8%, in comparison to 2021, which contributed a $16.8 million increase in FTE interest income.
Note: Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component. FTE net interest income increased $34.5 million, or 5.4%, to $676.0 million in 2021.
Note: Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component.
A summary of the Corporation's activity in ACL - loans is shown below: 2022 2021 2020 (dollars in thousands) Net loans $ 20,279,547 $ 18,325,350 $ 18,900,820 Average balance of net loans $ 19,152,740 $ 18,627,787 $ 18,270,390 Balance of ACL at beginning of period $ 249,001 $ 277,567 $ 163,620 CECL Day 1 provision expense 7,954 — — Initial purchased credit deteriorated loans 1,135 — — Impact of adopting CECL on January 1, 2020 — — 45,724 Loans charged off: Commercial and industrial (2,390) (15,337) (18,915) Real estate – commercial mortgage (12,473) (8,726) (4,225) Consumer and real estate - home equity (4,412) (3,309) (4,593) Real estate – residential mortgage (66) (1,290) (620) Real estate – construction — (39) (17) Equipment lease financing and other (2,131) (2,251) (2,187) Total loans charged off (21,472) (30,952) (30,557) Recoveries of loans previously charged off: Commercial and industrial 5,893 9,587 11,396 Real estate – commercial mortgage 3,860 2,474 1,027 Consumer and real estate - home equity 2,581 2,345 2,379 Real estate – residential mortgage 425 375 491 Real estate – construction 574 1,412 5,122 Equipment lease financing and other 759 953 605 Total recoveries 14,092 17,146 21,020 Net loans charged off (7,380) (13,806) (9,537) Provision for credit losses 18,656 (14,760) 77,760 Balance of ACL at end of period $ 269,366 $ 249,001 $ 277,567 Provision for OBS credit exposures $ 1,411 $ 160 $ (840) Reserve for OBS credit exposures (1) $ 16,328 $ 14,533 $ 14,373 Selected Asset Quality Ratios %: Net charge-offs to average loans 0.04 % 0.07 % 0.05 % ACL - loans to total net loans 1.33 1.36 1.47 Non-performing assets (2) to total assets 0.66 0.60 0.58 Non-accrual loans to total net loans 0.71 0.78 0.72 ACL - loans to non-performing loans 157 164 189 ACL - loans to non-accrual loans 186 173 202 (1) Reserve for OBS credit exposures is recorded within other liabilities on the consolidated balance sheets.
The following table presents the activity in the ACL: December 31, December 31, December 31, 2023 2022 2021 (dollars in thousands) Net loans $ 21,351,094 $ 20,279,547 $ 18,325,350 Average balance of net loans $ 20,929,302 $ 19,152,740 $ 18,627,787 Balance of ACL at beginning of period $ 269,366 $ 249,001 $ 277,567 CECL Day 1 provision expense — 7,954 — Initial purchased credit deteriorated loans — 1,135 — Loans charged off: Commercial and industrial (9,246) (2,390) (15,337) Real estate - commercial mortgage (17,999) (12,473) (8,726) Consumer and real estate - home equity (7,514) (4,412) (3,309) Real estate - residential mortgage (62) (66) (1,290) Real estate - construction — — (39) Leases and other loans (4,380) (2,131) (2,251) Total loans charged off (39,201) (21,472) (30,952) Recoveries of loans previously charged off: Commercial and industrial 3,473 5,893 9,587 Real estate - commercial mortgage 1,076 3,860 2,474 Consumer and real estate - home equity 3,198 2,581 2,345 Real estate - residential mortgage 421 425 375 Real estate - construction 858 574 1,412 Leases and other loans 1,103 759 953 Total recoveries 10,129 14,092 17,146 Net loans charged off (recoveries) (29,072) (7,380) (13,806) Provision for credit losses (1) 53,110 18,656 (14,760) Balance of ACL at end of period $ 293,404 $ 269,366 $ 249,001 Provision for OBS credit exposures $ 926 $ 1,411 $ 160 Reserve for OBS credit exposures (2) $ 17,254 $ 16,328 $ 14,533 Selected Asset Quality Ratios %: Net charge-offs to average loans 0.14 % 0.04 % 0.07 % ACL - loans to total net loans 1.37 1.33 1.36 Non-performing assets (3) to total assets 0.56 0.66 0.60 Non-accrual loans to total net loans 0.57 0.71 0.78 ACL - loans to non-performing loans 191 157 164 ACL - loans to non-accrual loans 241 186 173 (1) Provision for credit losses includes only the portion related to net loans.
The discussion following this table is based on these tax-equivalent amounts. 2022 2021 2020 Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate (dollars in thousands) ASSETS Interest-earning assets: Net loans (1) $ 19,152,740 $ 765,603 4.00 % $ 18,627,787 $ 644,387 3.46 % $ 18,270,390 $ 662,785 3.63 % Investment securities (2) 4,364,627 106,115 2.43 3,673,250 86,325 2.35 3,007,467 84,814 2.82 Loans held for sale 14,974 866 5.78 39,211 1,302 3.32 60,015 2,077 3.46 Other interest-earning assets 814,731 7,249 0.89 2,014,954 3,694 0.18 1,120,727 5,504 0.49 Total interest-earning assets 24,347,072 879,833 3.61 24,355,202 735,708 3.02 22,458,599 755,180 3.36 Noninterest-earning assets: Cash and due from banks 156,050 165,942 139,146 Premises and equipment 220,982 228,708 238,864 Other assets 1,505,277 1,686,053 1,746,956 Less: ACL - loans (3) (257,897) (265,572) (249,848) Total Assets $ 25,971,484 $ 26,170,333 $ 24,333,717 LIABILITIES AND EQUITY Interest-bearing liabilities: Demand deposits $ 5,593,942 $ 8,219 0.15 % $ 5,979,479 $ 3,662 0.06 % $ 5,278,941 $ 11,390 0.22 % Savings and money market deposits 6,458,165 16,642 0.26 6,306,967 4,936 0.08 5,550,234 14,654 0.26 Brokered deposits 262,359 4,097 1.56 286,901 1,096 0.38 310,763 2,387 0.77 Time deposits 1,617,804 14,871 0.92 1,939,446 20,311 1.05 2,546,305 41,615 1.63 Total interest-bearing deposits 13,932,270 43,829 0.31 14,512,793 30,005 0.21 13,686,243 70,046 0.51 Borrowings 1,358,357 39,375 2.89 1,297,963 29,677 2.29 2,064,883 43,625 2.11 Total interest-bearing liabilities 15,290,627 83,204 0.54 15,810,756 59,682 0.38 15,751,126 113,671 0.72 Noninterest-bearing liabilities: Demand deposits 7,522,304 7,211,153 5,714,803 Other liabilities 598,230 462,478 476,139 Total Liabilities 23,411,161 23,484,387 21,942,068 Total deposits/Cost of deposits 21,454,574 0.20% 21,723,946 0.14% 19,401,046 0.36% Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds 22,812,931 0.36% 23,021,909 0.26% 21,465,929 0.53% Shareholders' equity 2,560,323 2,685,946 2,391,649 Total Liabilities and Shareholders' Equity $ 25,971,484 $ 26,170,333 $ 24,333,717 Net interest income/net interest margin (FTE) 796,629 3.27 % 676,026 2.78 % 641,509 2.86 % Tax equivalent adjustment (14,995) (12,296) (12,302) Net interest income $ 781,634 $ 663,730 $ 629,207 (1) Average balances include non-performing loans.
The discussion following this table is based on these tax-equivalent amounts. 2023 2022 2021 Average Balance Interest (1) Yield/ Rate Average Balance Interest (1) Yield/ Rate Average Balance Interest (1) Yield/ Rate (dollars in thousands) ASSETS Interest-earning assets: Net loans (2) $ 20,929,302 $ 1,166,376 5.57 % $ 19,152,740 $ 765,603 4.00 % $ 18,627,787 $ 644,387 3.46 % Investment securities (3) 4,210,010 109,325 2.59 4,364,627 106,115 2.43 3,673,250 86,325 2.35 Other interest-earning assets 387,360 15,346 3.96 829,705 8,115 0.98 2,054,165 4,996 0.24 Total interest-earning assets 25,526,672 1,291,047 5.06 24,347,072 879,833 3.61 24,355,202 735,708 3.02 Noninterest-earning assets: Cash and due from banks 215,649 156,050 165,942 Premises and equipment 219,315 220,982 228,708 Other assets 1,553,284 1,505,277 1,686,053 Less: ACL - loans (4) (285,216) (257,897) (265,572) Total Assets $ 27,229,704 $ 25,971,484 $ 26,170,333 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Demand deposits $ 5,582,930 $ 62,494 1.12 % $ 5,593,942 $ 8,219 0.15 % $ 5,979,479 $ 3,662 0.06 % Savings and money market deposits 6,616,087 122,340 1.85 6,458,165 16,642 0.26 6,306,967 4,936 0.08 Brokered deposits 847,795 43,635 5.15 262,359 4,097 1.56 286,901 1,096 0.38 Time deposits 2,170,245 63,735 2.94 1,617,804 14,871 0.92 1,939,446 20,311 1.05 Total interest-bearing deposits 15,217,057 292,204 1.92 13,932,270 43,829 0.31 14,512,793 30,005 0.21 Borrowings and other interest-bearing liabilities 2,771,330 126,746 4.54 1,358,357 39,375 2.89 1,297,963 29,677 2.29 Total interest-bearing liabilities 17,988,387 418,950 2.32 15,290,627 83,204 0.54 15,810,756 59,682 0.38 Noninterest-bearing liabilities: Demand deposits 5,939,799 7,522,304 7,211,153 Other liabilities 670,269 598,230 462,478 Total Liabilities 24,598,455 23,411,161 23,484,387 Total deposits 21,156,856 1.38% 21,454,574 0.20% 21,723,946 0.14% Total interest-bearing liabilities and noninterest-bearing deposits 23,928,186 1.75% 22,812,931 0.36% 23,021,909 0.26% Shareholders' equity 2,631,249 2,560,323 2,685,946 Total Liabilities and Shareholders' Equity $ 27,229,704 $ 25,971,484 $ 26,170,333 Net interest income/net interest margin (FTE) 872,097 3.42 % 796,629 3.27 % 676,026 2.78 % Tax equivalent adjustment (17,811) (14,995) (12,296) Net interest income $ 854,286 $ 781,634 $ 663,730 (1) Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances.
(2) Consists of overdrafts and net origination fees and costs. Average loans increased $525.0 million, or 2.8%, compared to 2021.
Average loans increased $525.0 million, or 2.8%, compared to 2021.
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 generates the majority of its revenue through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the NIM, which is FTE net interest income as a percentage of average interest-earning assets.
The following table presents the changes in non-accrual loans for the years ended December 31: Commercial and Industrial Real Estate - Commercial Mortgage Real Estate - Construction Real Estate - Residential Mortgage Consumer and Real Estate - Home Equity Equipment Lease Financing Total (dollars in thousands) Balance at December 31, 2020 $ 31,993 $ 51,470 $ 1,395 $ 26,107 $ 9,920 $ 16,313 $ 137,198 Additions 40,722 36,664 404 12,498 4,600 1,919 96,807 Payments (27,175) (25,668) (859) (1,823) (1,883) (341) (57,749) Charge-offs (15,337) (8,726) (39) (1,290) (3,309) (2,251) (30,952) Transfers to OREO — — — — (274) — (274) Transfers to accrual status (62) (925) — (223) (154) — (1,364) Balance at December 31, 2021 30,141 52,815 901 35,269 8,900 15,640 143,666 Additions 27,627 66,212 1,104 6,151 6,363 1,188 108,645 Payments (27,260) (27,394) (637) (5,440) (2,941) (1,390) (65,062) Charge-offs (2,390) (12,473) — (66) (4,412) (2,131) (21,472) Transfers to OREO (22) (3,461) — — (297) — (3,780) Transfers to accrual status (980) (5,538) — (9,620) (1,416) — (17,554) Balance of non-accrual loans at December 31, 2022 $ 27,116 $ 70,161 $ 1,368 $ 26,294 $ 6,197 $ 13,307 $ 144,443 Non-accrual loans increased $0.8 million, or 0.5%, in 2022.
The following table presents the changes in non-accrual loans for the years ended December 31: Commercial and Industrial Real Estate - Commercial Mortgage Real Estate - Construction Real Estate - Residential Mortgage Consumer and Real Estate - Home Equity Equipment Lease Financing Total (dollars in thousands) Balance at December 31, 2021 $ 30,141 $ 52,815 $ 901 $ 35,269 $ 8,900 $ 15,640 $ 143,666 Additions 27,627 66,212 1,104 6,151 6,363 1,188 108,645 Payments (27,260) (27,394) (637) (5,440) (2,941) (1,390) (65,062) Charge-offs (2,390) (12,473) — (66) (4,412) (2,131) (21,472) Transfers to OREO (22) (3,461) — — (297) — (3,780) Transfers to accrual status (980) (5,538) — (9,620) (1,416) — (17,554) Balance at December 31, 2022 27,116 70,161 1,368 26,294 6,197 13,307 144,443 Additions 46,358 31,004 438 792 8,416 1,520 88,528 Payments (24,276) (38,296) (465) (1,881) (2,245) (554) (67,717) Charge-offs (9,246) (17,999) — (62) (7,514) (4,380) (39,201) Transfers to OREO — — — (1,793) — — (1,793) Transfers to accrual status — (65) — (2,526) (49) — (2,640) Balance at December 31, 2023 $ 39,952 $ 44,805 $ 1,341 $ 20,824 $ 4,805 $ 9,893 $ 121,620 During 2023, non-accrual loans decreased $22.8 million, or 15.8%, largely due to payments and charge-offs, partially offset by additions to non-accrual loans.
(2) Includes commercial loans to borrowers engaged in the construction industry. (3) Excludes public administration.
Real estate commercial office represents 3% of total loans. (2) Includes commercial loans to borrowers engaged in the construction industry.
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 and financial condition.
Supplemental Reporting of Non-GAAP Based Financial Measures This Annual Report on Form 10-K contains supplemental financial information, as detailed below, that has been derived by methods other than GAAP. The Corporation has presented these non-GAAP financial measures because it believes that these measures provide useful and comparative information to assess trends in the Corporation's results of operations.
The increase was driven by higher interest rates and higher average loan balances. ◦ Net Interest Margin - For the year ended December 31, 2022, net interest margin increased to 3.27%, or 49 bps compared to 2021, driven by a 54 bps increase in yield on net loans and a 8 bps increase in yield on investment securities, partially offset by a 10 bps increase on cost of funds. ◦ Loan Growth - Average net loans grew by $0.5 billion, or 2.8%, in comparison to 2021.
The increase was driven by higher interest rates and higher average loan balances. ◦ Net Interest Margin - For the year ended December 31, 2023, NIM increased to 3.42%, or 15 bps compared to the same period in 2022, driven by a 157 bps increase in the yield on net loans, a 16 bps increase in the yield on investment securities and a 298 bps increase in the yield on other interest-earning assets, partially offset by a 139 bps increase in the cost of total interest-bearing liabilities and noninterest-bearing deposits. ◦ Net Loans - Average net loans increased $1.8 billion, or 9.3%, for the year ended December 31, 2023 compared to the same period in 2022.
Our sensitivity analysis does not represent management's view of expected credit losses at the balance sheet date. One scenario identified includes a slowdown in near-term economic growth. This scenario resulted in a hypothetical increase to the ACL of approximately $18.7 million.
The Corporation performs loan loss sensitivity analysis on a quarterly basis to determine the impact of varying economic conditions based on third-party forecasts. Our sensitivity analysis does not represent management's view of expected credit losses at the balance sheet date. One scenario identified includes a slowdown in near-term economic growth.
The Basel III 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; • Continue to require a minimum Total capital ratio of 8.00% of risk-weighted assets and a Tier 1 leverage capital ratio of 4.00% of average assets; and 62 • Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses as a result of which certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, will be excluded as a component of Tier 1 capital for institutions of the Corporation's size.
The Capital Rules require the Corporation and Fulton Bank to: • Meet a minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets; • Meet a minimum Tier 1 Leverage capital ratio of 4.00% of average assets; • Meet a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 capital ratio of 6.00% of risk-weighted assets; • Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and • Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses.
"Financial Statements and Supplementary Data." 44 RESULTS OF OPERATIONS Net Interest Income Net interest income is the most significant component of the Corporation's net income.
Financial Statements and Supplementary Data." 43 RESULTS OF OPERATIONS Net Interest Income Net interest income is the most significant component of the Corporation's net income. The Corporation manages the risk associated with changes in interest rates through the techniques described within Item "7A.
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.
The ACL incorporates the Corporation’s historical credit observations, current conditions, and reasonable and supportable forecasts that are based on the projected performance of specific economic variables that are statistically correlated with historical PD rates.
Financial Highlights Following is a summary of the financial highlights for the year ended December 31, 2022: • Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was $276.7 million for the year ended December 31, 2022, a $11.5 million increase compared to $265.2 million for the same period in 2021.
This is true for both new originations and legacy LIBOR contracts that were subject to amendment or a transition by their terms. 38 Financial Highlights Following is a summary of the financial highlights for the year ended December 31, 2023: • Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was $274.0 million for the year ended December 31, 2023, a $2.7 million decrease compared to $276.7 million for the same period in 2022. • Net Interest Income - Net interest income was $854.3 million for the year ended December 31, 2023, an increase of $72.7 million, or 9.3%, compared to the same period in 2022.
For the years ended December 31, 2022 and 2021, net charge-offs to average loans outstanding were 0.04% and 0.07%, respectively. The provision for credit losses was $28.0 million for the year ended December 31, 2022, compared to a negative provision of $14.6 million for the same period of 2021.
The provision for credit losses was $54.0 million for the year ended December 31, 2023, compared to $28.0 million for the same period of 2022.
Failure to meet minimum capital requirements can trigger certain actions by these regulators that could have a material effect on the Corporation's financial statements.
Financial Statements and Supplementary Data" for details of accumulated comprehensive loss. Regulatory Capital The Corporation and its wholly-owned subsidiary bank, Fulton Bank, are subject to the Capital Rules administered by banking regulators. Failure to meet minimum capital requirements can trigger certain actions by regulators that could have a material effect on the Corporation's financial statements.
The following table presents the Corporation's commitments to extend credit and letters of credit as of December 31, 2022 (dollars in thousands): Commercial and industrial $ 4,832,858 Real estate - commercial mortgage and real estate - construction 1,972,505 Real estate - home equity 1,890,258 Total commitments to extend credit $ 8,695,621 Standby letters of credit $ 260,829 Commercial letters of credit 49,288 Total letters of credit $ 310,117 63
The following table presents the Corporation's commitments to extend credit and letters of credit as of December 31, 2023 (dollars in thousands): Commercial and industrial $ 4,929,981 Real estate - commercial mortgage and real estate - construction 1,867,830 Real estate - home equity 1,992,700 Total commitments to extend credit $ 8,790,511 Standby letters of credit $ 264,440 Commercial letters of credit 67,396 Total letters of credit $ 331,836 62
Certain loans, primarily adequately collateralized residential mortgage loans, may continue to accrue interest after reaching 90 days past due. (3) Excluded from non-performing assets as of December 31, 2022, were $29.6 million of loans modified under TDRs. These loans continue to accrue interest and are, therefore, not included in non-accrual loans.
Certain loans, primarily adequately collateralized residential mortgage loans, may continue to accrue interest after reaching 90 days past due. (3) Excludes $10.9 million, $6.0 million and $6.4 million of residential mortgage properties for which formal foreclosure proceedings were in process as of December 31, 2023, 2022 and 2021, respectively.
Interest income and yields are presented on an FTE basis using a 21% federal tax rate as well as statutory interest expense disallowances.
Quantitative and Qualitative Disclosures About Market Risk." The following table provides a comparative average balance sheet and net interest income analysis for 2023 compared to 2022 and 2021. Interest income and yields are presented on an FTE basis using a 21% federal tax rate as well as statutory interest expense disallowances.
The following table summarizes the Corporation's capital ratios in comparison to regulatory requirements at December 31: 2022 2021 Regulatory Minimum for Capital Adequacy Fully Phased-in, with Capital Conservation Buffers Total Risk-Based Capital (to Risk-Weighted Assets) 13.6% 14.1% 8.0% 10.5% Tier I Risk-Based Capital (to Risk-Weighted Assets) 10.9% 10.9% 6.0% 8.5% Common Equity Tier I (to Risk-Weighted Assets) 10.0% 9.9% 4.5% 7.0% Tier I Leverage Capital (to Average Assets) 9.5% 8.6% 4.0% 4.0% In July 2013, the Federal Reserve Board approved the Basel III Rules establishing a new comprehensive capital framework for U.S. banking organizations and implementing the Basel Committee on Banking Supervision's December 2010 framework for strengthening international capital standards.
The following table summarizes the Corporation's capital ratios in comparison to regulatory requirements: December 31, 2023 December 31, 2022 Regulatory Minimum for Capital Adequacy Fully Phased-in, with Capital Conservation Buffers Total Risk-Based Capital (to Risk-Weighted Assets) 14.0% 13.6% 8.0% 10.5% Tier I Risk-Based Capital (to Risk-Weighted Assets) 11.2% 10.9% 6.0% 8.5% Common Equity Tier I (to Risk-Weighted Assets) 10.3% 10.0% 4.5% 7.0% Tier I Leverage Capital (to Average Assets) 9.5% 9.5% 4.0% 4.0% 61 Contractual Obligations and Off-Balance Sheet Arrangements The Corporation has various financial obligations that require future cash payments.
The decrease in non-interest income, excluding investment securities gains, was primarily due to decreases of $19.4 million in mortgage banking income and $5.8 million in other income, primarily due to a decline in income from equity method investments, partially offset by increases of $7.1 million in commercial banking income, $4.0 million in consumer banking fees and $1.0 million in wealth management revenues. • Non-Interest Expense - Total non-interest expense, excluding merger-related expenses of $10.3 million, increased $5.6 million, or 0.9%, to $623.4 million in 2022 compared to 2021.
The increase in non-interest income, excluding investment securities losses, was primarily due to an increase in commercial banking revenues of $5.4 million, driven by an increase in commercial customer interest rate swap fee income reflected in capital markets and an increase in wealth management of $2.7 million, partially offset by decreases in mortgage banking income of $3.8 million and in consumer banking fees of $2.3 million, largely due to a decline in overdraft fees. • Non-Interest Expense - Non-interest expense for the year ended December 31, 2023 increased $45.5 million, or 7.2%, compared to the same period in 2022.
"Financial Statements and Supplementary Data" for additional information. 60 The following table summarizes the allocation of the ACL - loans : 2022 2021 2020 ACL - loans % In Each Loan Category (1) ACL - loans % In Each Loan Category (1) ACL - loans % In Each Loan Category (1) (dollars in thousands) Real estate - commercial mortgage $ 69,456 37.9 % $ 87,970 39.7 % $ 103,425 37.6 % Commercial and industrial 70,116 22.0 67,056 22.9 74,771 30.0 Real estate - residential mortgage 83,250 23.3 54,236 21.0 51,995 16.6 Consumer, home equity, equipment lease financing and overdrafts 35,801 10.5 26,798 10.2 31,770 10.3 Real estate - construction 10,743 6.3 12,941 6.2 15,608 5.5 Total $ 269,366 100.0 % $ 249,001 100.0 % $ 277,569 100.0 % (1) Ending loan balances as a % of total loans for the years presented.
The increase in the provision for credit losses for net loans was primarily driven by loan growth, changes to the macroeconomic outlook, higher net loan charge-offs and migration of internally risk-rated loans into special mention and substandard or lower categories. 59 The following table summarizes the allocation of the ACL - loans : December 31, 2023 December 31, 2022 December 31, 2021 ACL - loans % to Total ACL - loans (1) % to Total Net Loans (2) ACL - loans % to Total ACL - loans (1) % to Total Net Loans (2) ACL - loans % to Total ACL - loans (1) % to Total Net Loans (2) (dollars in thousands) Real estate - commercial mortgage $ 112,565 38.4 % 38.1 % $ 69,456 25.8 % 37.9 % $ 87,970 35.3 % 39.7 % Commercial and industrial 74,266 25.3 21.3 70,116 26.0 22.1 67,056 26.9 23.0 Real estate - residential mortgage 73,286 25.0 24.9 83,250 30.9 23.4 54,236 21.8 21.0 Consumer, home equity and leases and other loans 20,992 7.1 9.9 35,801 13.3 10.3 26,798 10.8 10.1 Real estate - construction 12,295 4.2 5.8 10,743 4.0 6.3 12,941 5.2 6.2 Total $ 293,404 100.0 % 100 % $ 269,366 100.0 % 100 % $ 249,001 100.0 % 100.0 % (1) Ending ACL - loan portfolio segment balance as a % of total ACL - loans.
Net loans increased $1,954.2 million, or 10.7%, as of December 31, 2022 compared to December 31, 2021, primarily due to increases in residential mortgage loans, commercial mortgage loans, commercial and industrial loans and consumer loans of $890.5 million, $414.8 million, $269.2 million and $234.5 million, respectively.
During 2023, net loans increased $1.1 billion, or 5.3%, compared to December 31, 2022, primarily due to increases in residential mortgage loans, commercial mortgage loans and commercial and industrial loans of $588.6 million, $433.9 million and $72.5 million, respectively, partially offset by decreases in home equity loans and construction loans of $55.7 million and $30.9 million, respectively.
Government sponsored agency securities 1,008 — State and municipal securities 1,105,712 1,188,670 Corporate debt securities 422,309 386,133 Collateralized mortgage obligations 134,033 209,359 Residential mortgage-backed securities 212,698 229,795 Commercial mortgage-backed securities 552,522 971,148 Auction rate securities — 74,667 Total available for sale securities 2,646,767 3,187,390 Held to Maturity Residential mortgage-backed securities 457,325 404,958 Commercial mortgage-backed securities 863,931 575,426 Total held to maturity securities 1,321,256 980,384 Total investment securities $ 3,968,023 $ 4,167,774 Total AFS securities decreased $540.6 million, or 17.0%, to $2,646.8 million at December 31, 2022, primarily due to decreases in commercial mortgage backed securities, state and municipal securities, collateralized mortgage obligations and auction rate 54 securities of $418.6 million, $83.0 million, $75.3 million and $74.7 million, respectively, partially offset by an increase in U.S.
Government-sponsored agency securities 1,010 1,008 2 0.2 State and municipal securities 1,072,013 1,105,712 (33,699) (3.0) Corporate debt securities 440,551 422,309 18,242 4.3 Collateralized mortgage obligations 111,434 134,033 (22,599) (16.9) Residential mortgage-backed securities 196,795 212,698 (15,903) (7.5) Commercial mortgage-backed securities 534,388 552,522 (18,134) (3.3) Total available for sale securities $ 2,398,352 $ 2,646,767 $ (248,415) (9.4) % Held to Maturity Residential mortgage-backed securities $ 407,075 $ 457,325 $ (50,250) (11.0) % Commercial mortgage-backed securities 860,847 863,931 (3,084) (0.4) Total held to maturity securities $ 1,267,922 $ 1,321,256 $ (53,334) (4.0) % Total investment securities $ 3,666,274 $ 3,968,023 $ (301,749) (7.6) % Compared to December 31, 2022, total AFS securities at December 31, 2023 decreased $248.4 million, or 9.4%, primarily due to decreases in U.S.
Management's determination of the appropriateness of the reserve is based on periodic evaluations of the loan portfolio, lending-related commitments, current and forecasted economic factors and other relevant factors. In determining the ACL, the Corporation uses three inputs in the model estimate.
Management's determination of the appropriateness of the reserve is based on periodic evaluations of the loan portfolio, lending-related commitments, current and forecasted economic factors and other relevant factors. Loans Evaluated Collectively : Loans evaluated collectively for expected credit losses include all accruing loans and non-accrual loans where the total commitment amount is less than $1 million.
The ETR was 17.6% in 2021, as compared to 12.0% in 2020. The increase in income tax expense and the ETR resulted primarily from higher income before income taxes.
The increase in income tax expense in 2023 resulted primarily from the higher ETR.
The decrease was primarily due to decreases in average interest-bearing demand deposits and average time deposits of $385.5 million and $321.6 million, respectively, partially offset by increases in average noninterest-bearing demand deposits and average savings and money market deposits of $311.2 million and $151.2 million, respectively. • Asset Quality - Non-performing assets increased $23.8 million, or 15.4%, as of December 31, 2022 compared to 2021, and were 0.66% and 0.60% of total assets as of the end of those periods, respectively.
The increase in borrowings and other interest-bearing liabilities was primarily due to increases in average FHLB advances and Federal funds purchased of $727.9 million and $475.3 million, respectively. • Asset Quality - Non-performing assets decreased $23.5 million, or 13.2%, as of December 31, 2023 compared to December 31, 2022, and were 0.56% and 0.66% of total assets as of those dates, respectively.
The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and TCIs. Supplemental Reporting of Non-GAAP Based Financial Measures This Annual Report on Form 10-K contains supplemental financial information, as detailed below, which has been derived by methods other than GAAP.
The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and investments in community development projects that generate tax credits under various programs.
Federal Funds Rate After maintaining the target range for the Fed Funds Rate at 0.00% to 0.25% from March 16, 2020, as COVID-19 weighed on global economic activity, through March 16, 2022, the FOMC increased the target range eight times to address elevated levels of inflation, placing the target range for the Fed Funds Rate at 4.50% - 4.75% as of February 1, 2023.
Fed Funds Rate Since March 15, 2022, the FOMC increased the target rate for the Fed Funds Rate eleven times to address elevated levels of inflation, placing the target range at 5.25% - 5.50% as of February 29, 2024. LIBOR Transition U.S. dollar LIBOR ceased as of June 30, 2023.
The increase in total borrowings during 2022 is reflective of the decrease in total deposit funding and the increase in net loans. Other Liabilities Other liabilities increased $355.9 million, or 76.5%, to $821.0 million as of December 31, 2022, primarily as the result of a $360.8 million increase in derivative related liabilities.
Other Liabilities During 2023, other liabilities decreased $69.5 million, or 8.5%, compared to December 31, 2022, primarily due to a decrease in derivative related liabilities. Shareholders' Equity During 2023, total shareholders' equity increased $180.4 million, or 7.0%, to $2.8 billion, or 10.0% of total assets, as of December 31, 2023.
December 31 Increase (Decrease) 2022 2021 $ % (dollars in thousands) Assets Cash and cash equivalents $ 681,921 $ 1,638,614 $ (956,693) (58.4) % FRB and FHLB Stock 130,186 57,635 72,551 125.9 Loans held for sale 7,264 35,768 (28,504) (79.7) Investment securities 3,968,023 4,167,774 (199,751) (4.8) Loans, net 20,010,181 18,076,349 1,933,832 10.7 Net premises and equipment 225,141 220,357 4,784 2.2 Goodwill and intangibles 560,824 538,053 22,771 4.2 Other assets 1,348,162 1,061,848 286,314 27.0 Total Assets $ 26,931,702 $ 25,796,398 $ 1,135,304 4.4 % Liabilities and Shareholders' Equity Deposits $ 20,649,538 $ 21,573,499 $ (923,961) (4.3) % Borrowings 2,871,207 1,038,109 1,833,098 N/M Other liabilities 831,200 472,110 359,090 76.1 Total Liabilities 24,351,945 23,083,718 1,268,227 5.5 Total Shareholders' Equity 2,579,757 2,712,680 (132,923) (4.9) Total Liabilities and Shareholders' Equity $ 26,931,702 $ 25,796,398 $ 1,135,304 4.4 % Investment Securities The following table presents the carrying amount of investment securities as of December 31: 2022 2021 (dollars in thousands) Available for Sale U.S.
December 31, Increase (Decrease) 2023 2022 $ % (dollars in thousands) Assets Cash and cash equivalents $ 549,710 $ 681,921 $ (132,211) (19.4) % FRB and FHLB Stock 124,405 130,186 (5,781) (4.4) Loans held for sale 15,158 7,264 7,894 108.7 Investment securities 3,666,274 3,968,023 (301,749) (7.6) Net loans, less ACL - loans 21,057,690 20,010,181 1,047,509 5.2 Net premises and equipment 222,881 225,141 (2,260) (1.0) Goodwill and intangibles 560,687 560,824 (137) — Other assets 1,375,110 1,348,162 26,948 2.0 Total Assets $ 27,571,915 $ 26,931,702 $ 640,213 2.4 % Liabilities and Shareholders' Equity Deposits $ 21,537,623 $ 20,649,538 $ 888,085 4.3 % Borrowings 2,487,526 2,871,207 (383,681) (13.4) Other liabilities 786,627 831,200 (44,573) (5.4) Total Liabilities 24,811,776 24,351,945 459,831 1.9 Total Shareholders' Equity 2,760,139 2,579,757 180,382 7.0 Total Liabilities and Shareholders' Equity $ 27,571,915 $ 26,931,702 $ 640,213 2.4 % Investment Securities The table below presents the carrying amount of investment securities: December 31, Increase (Decrease) 2023 2022 $ % (dollars in thousands) Available for Sale U.S.
"Financial Statements and Supplementary Data." The evaluation of credit risk for residential mortgages, home equity loans, construction loans to individuals, consumer loans and equipment lease financing is based on aggregate payment history through the monitoring of delinquency levels and trends. Total internally risk rated loans were $13.2 billion and $12.4 billion as of December 31, 2022 and 2021, respectively.
For commercial and industrial loans, commercial mortgage loans and construction loans to commercial borrowers, an internal risk rating process is used to monitor credit quality. The evaluation of credit risk for residential mortgages, home equity loans, construction loans to individuals, consumer loans and leases and other loans is based on payment history through the monitoring of delinquency levels and trends.
The following table presents criticized and classified loans, or those with internal risk ratings of special mention (1) or substandard or lower (2) for commercial mortgage loans, commercial and industrial loans and construction loans to commercial borrowers, by class segment, as of December 31: Special Mention (1) Increase (Decrease) Substandard or Lower (2) Increase (Decrease) Total Criticized and Classified Loans 2022 2021 $ % 2022 2021 $ % 2022 2021 (dollars in thousands) Real estate - commercial mortgage $ 306,381 $ 387,279 $ (80,898) (20.9)% $ 184,014 $ 331,096 $ (147,082) (44.4)% $ 490,395 $ 718,375 Commercial and industrial 133,943 142,369 (8,426) (5.9) 95,546 152,219 (56,673) (37.2) 229,489 294,588 Real estate - construction (3) 21,603 58,841 (37,238) (63.3) 10,601 6,324 4,277 67.6 32,204 65,165 Total $ 461,927 $ 588,489 $ (126,562) (21.5)% $ 290,161 $ 489,639 $ (199,478) (40.7)% $ 752,088 $ 1,078,128 % of total risk rated loans 3.5% 4.7% 2.2% 3.9% 5.7% 8.6% (1) Considered "criticized" loans by banking regulators (2) Considered "classified" loans by banking regulators (3) Excludes construction - other As of December 31, 2022, total loans with risk ratings of special mention decreased by $126.6 million, or 21.5%, and total loans with a risk rating of substandard or lower decreased by $199.5 million, or 40.7%, resulting in an overall decrease in total criticized loans of $326.0 million, or 30.2%, compared to 2021. 58 The following table presents, by class segment, a summary of delinquency status and rates, as a percentage of total loans that do not have internal risk ratings as of December 31: Delinquent (1) Non-performing (2) Total 2022 2021 2022 2021 2022 2021 $ % $ % $ % $ % $ % $ % (dollars in thousands) Consumer and real estate - home equity $ 16,141 0.90 % $ 9,960 0.63 % $ 9,800 0.54 % $ 11,706 0.74 % $ 25,941 1.44 % $ 21,666 1.37 % Real estate - residential mortgage 65,270 1.38 25,877 0.67 46,509 0.98 39,542 1.03 111,779 2.36 65,419 1.70 Real estate - construction - other 3,520 0.28 1,318 0.11 — — 173 0.02 3,520 0.28 1,491 0.13 Equipment lease financing 470 0.16 253 0.09 13,307 4.45 15,641 5.83 13,777 4.61 15,894 5.92 Total $ 85,401 1.05 % $ 37,408 0.56 % $ 69,616 0.86 % $ 67,062 0.98 % $ 155,017 1.92 % $ 104,470 1.54 % (1) Includes all accruing loans 30 days to 89 days past due.
Total criticized and classified loans increased $172.9 million, or 23.0%, compared to December 31, 2022. 57 The following table presents, by class segment, a summary of delinquency status and rates, as a percentage of total loans that do not have internal risk ratings: Delinquent (1) Non-performing (2) Total December 31, December 31, December 31, December 31, December 31, December 31, 2023 2022 2023 2022 2023 2022 $ % $ % $ % $ % $ % $ % (dollars in thousands) Consumer and real estate - home equity $ 20,345 1.15 % $ 16,141 0.90 % $ 10,878 0.61 % $ 9,800 0.54 % $ 31,223 1.76 % $ 25,941 1.44 % Real estate - residential mortgage 59,983 1.13 65,270 1.38 42,029 0.79 46,509 0.98 102,012 1.92 111,779 2.36 Real estate - construction 4,636 0.37 3,520 0.28 1,535 0.12 — — 6,171 0.50 3,520 0.28 Leases and other loans 868 0.26 470 0.16 10,011 2.98 13,307 4.45 10,879 3.23 13,777 4.61 Total $ 85,832 0.99 % $ 85,401 1.05 % $ 64,453 0.74 % $ 69,616 0.86 % $ 150,285 1.74 % $ 155,017 1.92 % (1) Includes accruing loans 30 days to 89 days past due.
The increase in average net loans was largely driven by increases in average residential mortgage loans, average commercial mortgage loans, average commercial and industrial loans, excluding PPP loans, average consumer loans, and average real estate construction loans of $760.5 million, $374.1 million, $194.6 million, $112.9 million, and $100.2 million, respectively, partially offset by a $1.0 billion decline in PPP loans due to the repayment of these loans upon forgiveness by the SBA. ◦ Deposit Decrease - Average deposits decreased $269.4 million, or 1.2%, in comparison to 2021.
The increase in average net loans was largely driven by increases in average residential mortgage loans, average commercial and industrial loans, average commercial mortgage loans, average consumer loans, and average real estate construction loans of $818.2 million, $366.6 million, $352.3 million, $178.8 million, and $68.8 million, respectively. ◦ Deposits - Average deposits decreased $297.7 million, or 1.4%, for the year ended December 31, 2023 compared to the same period in 2022.
Qualitative adjustments include and consider changes in national, regional and local economic and business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality. The ACL for loans was $269.4 million and $249.0 million on December 31, 2022 and December 31, 2021, respectively.
The ACL may include qualitative adjustments intended to capture the impact of uncertainties not reflected in the quantitative models. In determining qualitative adjustments, management considers changes in national, regional, and local economic and business conditions and their impact on the lending environment, including underwriting standards and other factors affecting credit losses over the remaining life of each loan.
Management believes that the $269.4 million ACL - loans as of December 31, 2022, was sufficient to cover expected losses in the loan portfolio. See additional disclosures in "Note 1 - Summary of Significant Accounting Policies," and "Note 5 - Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements in Item 8.
(2) Ending loan portfolio segment balances as a % of total net loans for the periods presented. Management believes that the $293.4 million ACL - loans as of December 31, 2023 is sufficient to cover expected credit losses in the loan portfolio.
Total borrowings increased $1,833.1 million in 2022 compared to 2021, as a result of increases in FHLB advances of $1,250.0 million, customer repurchases of $472.9 million presented in other borrowings and Federal funds purchased of $191.0 million. These increases were partially offset by a decrease in senior debt and subordinated debt of $80.8 million.
The decrease in total borrowings was due to decreases in other borrowings of $278.4 million, FHLB advances of $150.0 million and senior and subordinated debt of $4.3 million, partially offset by an increase in Federal funds purchased of $49.0 million.
The decrease was due primarily to an increase in accumulated comprehensive loss of $412.9 million, partially offset by increases of $168.4 million from retained earnings and $87.9 million from treasury stock, primarily driven by the reissuance of treasury shares in connection with the Merger.
The increase was due primarily to an increase of $168.5 million in retained earnings and a reduction of $73.2 million in accumulated other comprehensive loss, partially offset by a $75.3 million increase in treasury stock largely due to common stock repurchases. See "Note 15 - Shareholders' Equity" in the Notes to the Consolidated Financial Statements in "Item 8.
Diluted operating net income available to common shareholders, per share was $1.76 for the year ended December 31, 2022, a $0.14 increase compared to the same period in 2021. • Net Interest Income - Net interest income was $781.6 million for the year ended December 31, 2022, an increase of $117.9 million, or 17.8%, compared to the same period in 2021.
Excluding merger-related expenses of $10.3 million for the year ended December 31, 2022, non-interest expense increased $55.8 million, or 9.0%, for the year ended December 31, 2023 compared to the same period in 2022.
The increase was largely driven by increases in salaries and employee benefits expense of $27.7 million, data processing and software expense of $3.8 million, other outside services of $3.0 million, net occupancy expense of $2.4 million, and FDIC insurance expense of $1.9 million, partially offset by a decrease in debt extinguishment expense of $33.2 million. • Income Taxes - Income tax expense for 2022 resulted in an ETR of 17.3%, in comparison to 17.6% for 2021.
The $20.5 million increase in salaries and employee benefits expense was largely due to annual merit increases, an increase in the number of employees, higher healthcare claims expense and higher pension expense. Income Taxes Income tax expense for 2023 was $64.4 million, a $4.4 million increase compared to 2022. The ETR was 18.5% in 2023 compared to 17.3% in 2022.
The increase was driven largely by growth in residential mortgage loans and commercial mortgage loans, partially offset by a decrease in commercial and industrial loans, primarily due to a decrease in PPP loans. The yield on average loans decreased 17 bps resulting in a decrease in FTE interest income of $31.2 million.
The increase was largely driven by increases in average residential mortgage loans, average commercial and industrial loans, average commercial mortgage loans, average consumer loans and average construction loans of $818.2 million, $366.6 million, $352.3 million, $178.8 million and $68.8 million, respectively. The yield on total loans increased 157 bps to 5.57% in 2023 compared to 4.00% in 2022.
The increase of $20.4 million was primarily a result of increased loan growth and changes to the macroeconomic outlook. 43 The Corporation performs loan loss sensitivity analysis on a quarterly basis to determine the impact of varying economic conditions based on Moody's model projections.
The ACL for loans was $293.4 million and $269.4 million on December 31, 2023 and December 31, 2022, respectively. The increase of $24.0 million was primarily a result of increased loan growth, changes to the macroeconomic outlook and risk migration.
Interest expense decreased $54.0 million, with a 34 bps decrease in the rate on average interest-bearing liabilities contributing $30.6 million to this decrease.
The rate on average interest-bearing liabilities increased 178 bps in 2023 compared to 2022.
Deposits and Borrowings The following table presents ending deposits, by type, as of December 31: Increase (Decrease) 2022 2021 $ % (dollars in thousands) Noninterest-bearing demand $ 7,006,388 $ 7,370,963 $ (364,575) (4.9) % Interest-bearing demand 5,410,903 5,819,539 (408,636) (7.0) Savings and money market deposits 6,434,621 6,403,995 30,626 0.5 Total demand and savings 18,851,912 19,594,497 (742,585) (3.8) Brokered deposits 208,416 251,526 (43,110) (17.1) Time deposits 1,589,210 1,727,476 (138,266) (8.0) Total deposits $ 20,649,538 $ 21,573,499 $ (923,961) (4.3) % Compared to 2021, total deposits decreased by $924.0 million, or 4.3%, primarily due to decreases in interest-bearing demand deposits, noninterest-bearing demand deposits and time deposits of $408.6 million, $364.6 million and $138.3 million, respectively. 61 The following table presents ending borrowings, by type, as of December 31: Increase (Decrease) 2022 2021 $ % (dollars in thousands) Federal funds purchased $ 191,000 $ — $ 191,000 N/M Federal Home Loan Bank advances 1,250,000 — 1,250,000 N/M Senior debt and subordinated debt 539,634 620,406 (80,772) (13.0) Other borrowings (1) 890,573 417,703 472,870 113.2 Total borrowings $ 2,871,207 $ 1,038,109 $ 1,833,098 N/M (1) Includes short-term promissory notes.
The following table presents ending borrowings, by type: December 31, Increase (Decrease) 2023 2022 $ % (dollars in thousands) Federal funds purchased $ 240,000 $ 191,000 $ 49,000 25.7 Federal Home Loan Bank advances 1,100,000 1,250,000 (150,000) (12.0) Senior debt and subordinated debt 535,384 539,634 (4,250) (0.8) Other borrowings (1) 612,142 890,573 (278,431) (31.3) Total borrowings $ 2,487,526 $ 2,871,207 $ (383,681) (13.4) % (1) Includes repurchase agreements, short-term promissory notes and capital leases. 60 During 2023, total borrowings decreased $383.7 million, or 13.4%, compared to December 31, 2022.
The average balance of interest-bearing deposits increased $826.6 million, or 6.0%, in comparison to 2020. 51 Average borrowings and interest rates, by type, are summarized in the following table: 2021 2020 Increase (Decrease) in Balance Balance Rate Balance Rate $ % (dollars in thousands) Borrowings: Federal funds purchased $ — — % $ 64,918 0.83 % $ (64,918) N/M Federal Home Loan Bank advances 126,677 1.80 557,596 1.83 (430,919) (77.3) Senior debt and subordinated debt 657,386 4.07 696,704 4.02 (39,318) (5.6) Other borrowings (1) 513,900 0.12 745,665 0.36 (231,765) (31.1) Total borrowings $ 1,297,963 2.29 % $ 2,064,883 2.11 % $ (766,920) (37.1) % (1) Includes repurchase agreements, short-term promissory notes and capital leases.
Average borrowings and interest rates, by type, are summarized in the following table: 2023 2022 Increase (Decrease) Balance Rate Balance Rate $ % (dollars in thousands) Federal funds purchased $ 566,379 5.30 % $ 91,125 3.21 % $ 475,254 N/M Federal Home Loan Bank advances 922,164 5.05 194,295 3.77 727,869 N/M Senior debt and subordinated debt 539,726 3.96 564,337 3.94 (24,611) (4.4) Other borrowings and other interest-bearing liabilities (1) 743,061 3.77 508,600 1.34 234,461 46.1 Total borrowings and other interest-bearing liabilities $ 2,771,330 4.54 % $ 1,358,357 2.89 % $ 1,412,973 104.0 % (1) Includes repurchase agreements, short-term promissory notes, capital leases and interest-bearing collateral.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

25 edited+3 added−4 removed22 unchanged
Biggest changeThe following table summarizes the expected impact of abrupt interest rate changes, i.e. a non-parallel instantaneous shock, on net interest income as of December 31, 2022 (due to the current level of interest rates, the 300 basis point downward shock scenario is not shown): Rate Shock (1) Annual change in net interest income % Change in net interest income +400 bps + $80.0 million + 8.2% +300 bps + $62.0 million + 6.3% +200 bps + $45.2 million + 4.6% +100 bps + $25.4 million + 2.6% -100 bps - $37.3 million - 3.8% -200 bps - $84.5 million - 8.6% (1) These results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates.
Biggest changeThe following table summarizes the expected impact of abrupt interest rate changes, i.e. a non-parallel instantaneous shock, on net interest income as of December 31, 2023: Rate Shock (1) Annual change in net interest income % Change in net interest income +400 bp +$38.1 million + 4.2% +300 bp + $29.7 million + 3.3% +200 bp + $22.5 million + 2.5% +100 bp + $14.0 million + 1.6% -100 bp - $38.1 million - 4.2% -200 bp - $76.8 million - 8.5% -300 bp - $105.9 million - 11.7% -400 bp - $124.8 million -13.8% (1) These results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates. 63 Economic value of equity estimates the discounted present value of asset and liability cash flows.
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.
First, changes in rates have an impact on the Corporation's liquidity position and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create fluctuations in the Corporation's net interest income and changes in its economic value of its equity.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income or interest expense in the same period during which the hedged transaction affects earnings.
Cash Flow Hedges The Corporation's objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate derivatives as part of its interest rate risk management strategy.
Cash Flow Hedges The Corporation's objectives in using interest rate derivatives are to reduce volatility in net interest income and net interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate derivatives as part of its interest rate risk management strategy.
These interest rate derivatives are derivative financial instruments, and the gross fair values are recorded in other assets and liabilities on the consolidated balance sheets, with changes in fair value during the period recorded in other non-interest expense on the consolidated statements of income.
These interest rate derivatives are derivative financial instruments, and the gross fair values are recorded in other assets and liabilities on the consolidated balance sheets, with changes in fair value during the period recorded in other non-interest income on the consolidated statements of income.
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.
The positive impact to liquidity resulting from paying higher interest rates could have a detrimental impact on NIM and net interest income if rates on interest-earning assets do not experience a proportionate increase. Borrowing availability with the FHLB and the FRB, along with federal funds lines at various correspondent banks, provides the Corporation with additional liquidity.
As of December 31, 2022, the Corporation was within economic value of equity policy limits for every 100 bps shock. Interest Rate Derivatives The Corporation enters into interest rate derivatives with certain qualifying commercial loan customers to meet their interest rate risk management needs.
As of December 31, 2023, the Corporation was within economic value of equity policy limits for every 100 bps shock. Interest Rate Derivatives The Corporation enters into interest rate derivatives with certain qualifying commercial loan customers to meet their interest rate risk management needs.
State and Municipal Securities As of December 31, 2022, the Corporation owned securities issued by various states and municipalities with a total fair value of $1.1 billion. Uncertainty with respect to the financial strength of state and municipal bond insurers places emphasis on the underlying strength of issuers.
State and Municipal Securities As of December 31, 2023, the Corporation owned securities issued by various states and municipalities with a total fair value of $1.1 billion. Uncertainty with respect to the financial strength of state and municipal bond insurers places emphasis on the underlying strength of issuers.
State and municipal securities can be supported by the general obligation of the issuing state or municipality, allowing the securities to be repaid by any means available to the issuing state or municipality. As of December 31, 2022, approximately 100% of state and municipal securities were supported by the general obligation of corresponding states or municipalities.
State and municipal securities can be supported by the general obligation of the issuing state or municipality, allowing the securities to be repaid by any means available to the issuing state or municipality. As of December 31, 2023, approximately 100% of state and municipal securities were supported by the general obligation of corresponding states or municipalities.
The following table presents the expected maturities of government and corporate AFS investment securities, at estimated fair value, as of December 31, 2022 and the weighted average yields on such securities (calculated based on historical cost): Maturing Within One Year After One But Within Five Years After Five But Within Ten Years After Ten Years Amount Yield Amount Yield Amount Yield Amount Yield Available for sale (dollars in thousands) U.S.
The following table presents the expected maturities of government, state and municipal and corporate AFS investment securities, at estimated fair value, as of December 31, 2023 and the weighted average yields on such securities (calculated based on historical cost): Maturing Within One Year After One But Within Five Years After Five But Within Ten Years After Ten Years Amount Yield Amount Yield Amount Yield Amount Yield Available for sale (dollars in thousands) U.S.
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 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.
The Corporation's debt security investments consist primarily of U.S. government-sponsored agency issued residential mortgage-backed securities, commercial mortgage-backed securities and collateralized mortgage obligations; as well as, state and municipal securities and corporate debt securities. All of the Corporation's investments in residential mortgage-backed securities, commercial mortgage-backed securities and collateralized mortgage obligations have principal payments that are guaranteed by U.S. government-sponsored agencies.
The Corporation's investment portfolio consists mainly of state and municipal securities, mortgage-backed securities and collateralized mortgage obligations. Mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers' ability to prepay obligations.
The Corporation's investment portfolio consists mainly of state and municipal securities, commercial mortgage-backed securities, residential mortgage-backed securities, corporate debt securities and collateralized mortgage obligations. Commercial mortgage-backed securities, residential mortgage-backed securities and collateralized mortgage obligations have stated maturities that may differ from actual maturities due to borrowers' ability to prepay obligations.
Advances from the FHLB, when utilized, are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. As of December 31, 2022, the Corporation had aggregate availability under federal funds lines of $2.3 billion, with $0.2 billion of outstanding borrowings against that amount.
Advances from the FHLB, when utilized, are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. As of December 31, 2023, the Corporation had aggregate federal funds lines borrowing capacity of $2.6 billion, with $0.2 billion of outstanding borrowings against that amount.
Fulton Bank is a member of the FHLB and has access to FHLB overnight and term credit facilities. As of December 31, 2022, the Bank had total borrowing capacity of approximately $7.7 billion with $3.1 billion of advances and letters of credit outstanding, for a remaining available borrowing capacity of approximately $4.6 billion.
Fulton Bank is a member of the FHLB and has access to FHLB overnight and term credit facilities. As of December 31, 2023, the Bank had total borrowing capacity of approximately $8.2 billion with $3.3 billion of advances and letters of credit outstanding, for a remaining available borrowing capacity of approximately $4.9 billion.
The Corporation has commitments to extend credit and letters of credit. As of December 31, 2022, the balance of commitments to extend credit was $8,695.6 million and total letters of credit were $310.1 million. Liquidity must also be managed at the Corporation's parent company level.
The Corporation has commitments to extend credit and letters of credit. As of December 31, 2023, the balance of commitments to extend credit was $8.8 billion and total letters of credit were $0.3 billion. Liquidity must also be managed at the Parent Company level.
A combination of commercial real estate loans, commercial loans, consumer loans and securities are pledged to the FRB of Philadelphia to provide access to FRB discount window borrowings. As of 65 December 31, 2022, the Corporation had $1.3 billion of collateralized borrowing availability at the discount window, and no outstanding borrowings.
A combination of commercial real estate loans, commercial loans, consumer loans and securities are pledged to the FRB of Philadelphia to provide access to FRB discount window borrowings. Securities carried at $0.4 billion at December 31, 2023 and $1.1 billion at December 31, 2022 were pledged as collateral to secure public and trust deposits.
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 64 to determine the comparative effect of such interest rate movements relative to the unchanged environment.
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 consolidated statements of cash flows provide additional information. The Corporation's operating activities during 2022 generated $598.3 million of cash, mainly due to net income of $287.0 million and an increase in other liabilities presented in other changes, net. Cash used in investing activities was $1,539.1 million, primarily due to $1,407.3 million net increase in loans.
The Corporation's operating activities during 2023 generated $363.0 million of cash, mainly due to net income of $284.3 million. Cash used in investing activities was $809.2 million, primarily due to $1.1 billion net increase in loans.
Net cash used in financing activities was $15.9 million, due primarily to the decreases in deposits and dividend payments, partially offset by an increase in borrowings.
Net cash provided by financing activities was $314.0 million, due largely to the increases in time and brokered deposits, partially offset by decreases in demand and savings deposits and other borrowings.
The Corporation enters into interest rate derivatives designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Corporation making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.
The Corporation enters into interest rate derivatives designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans and borrowings.
Management continues to monitor the liquidity and capital needs of the parent company and will implement appropriate strategies, as necessary, to remain adequately capitalized and to meet its cash needs. 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.
Management continues to monitor the liquidity and capital needs of the Parent Company including monitoring the granularity of the deposit portfolio and level of uninsured deposits. Management will implement appropriate strategies, as necessary, to remain adequately capitalized and to meet its cash needs. The consolidated statements of cash flows provide additional information.
Government securities $ 121,579 0.65 % $ 96,906 2.40 % $ — — % $ — — % U.S.
Government securities $ 42,161 2.40 % $ — — % $ — — % $ — — % U.S.
Contractual maturities of time deposits as of December 31, 2022 were as follows (dollars in thousands): Year 2023 $ 966,235 2024 234,681 2025 285,527 2026 19,704 2027 18,474 Thereafter 64,589 Total $ 1,589,210 67 Contractual maturities of outstanding uninsured time deposits included in the table above, as of December 31, 2022, were as follows (dollars in thousands): Three months or less $ 54,013 Over three through six months 24,351 Over six through twelve months 61,441 Over twelve months 74,976 Total $ 214,781 Total uninsured deposits were estimated to be $7.0 billion at December 31, 2022 compared with $7.8 billion at December 31, 2021.
Contractual maturities of time deposits as of December 31, 2023 were as follows (dollars in thousands): Year 2024 $ 2,180,323 2025 421,029 2026 64,748 2027 16,343 2028 8,429 Thereafter 48,369 Total $ 2,739,241 66 Contractual maturities of the portion of time deposits estimated to be in excess of the FDIC insurance limit as of December 31, 2023 included in the table above, were as follows (dollars in thousands): Three months or less $ 46,709 Over three through six months 63,171 Over six through twelve months 65,705 Over twelve months 25,366 Total $ 200,951 Total uninsured deposits (excluding intra-Company deposits) were estimated to be $7.2 billion at December 31, 2023 compared with $7.8 billion at December 31, 2022.
Government sponsored agency securities — — 1,008 — — — — — State and municipal (1) 6,644 4.37 16,668 3.92 129,934 4.05 952,466 3.86 Corporate debt securities 15,240 5.28 39,954 4.08 367,115 4.01 — — Total $ 143,463 1.29 % $ 154,536 3.01 % $ 497,049 4.02 % $ 952,466 3.86 % (1) Weighted average yields on tax-exempt securities have been computed on a FTE basis assuming a federal tax rate of 21% and statutory interest expense disallowances.
Government-sponsored agency securities — — 1,010 3.10 — — — — State and municipal (1) — — 5,089 4.57 178,818 3.92 888,106 3.90 Corporate debt securities 6,861 10.00 141,422 5.14 292,268 4.02 — — Total $ 49,022 3.45 % $ 147,521 5.10 % $ 471,086 3.99 % $ 888,106 3.90 % (1) Weighted average yields on tax-exempt securities have been computed on a FTE basis assuming a federal tax rate of 21% and statutory interest expense disallowances.
Approximately 74% of these securities were school district issuances, which are also supported by the states of the issuing municipalities. Auction Rate Securities During 2022, the Corporation sold its investments in ARCs. The fair values of the ARCs in 2021 were derived using significant unobservable inputs based on an expected cash flows model.
Approximately 74% of these securities were school district issuances, which are also supported by the states of the issuing municipalities. 67
Removed
This measurement tool is used primarily to evaluate the longer-term repricing risks and options in the Corporation's balance sheet.
Added
During 2023, $22.1 million of these unrealized losses have been reclassified as a reduction of interest income on loans, including fees, on the consolidated statements of income.
Removed
See "Note 12 - Regulatory Matters - Dividend and Loan Limitations" in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information concerning limitations on the dividends that may be paid to the Corporation, and loans that may be granted to the Corporation.
Added
As of December 31, 2023, the Corporation had $1.3 billion of 64 collateralized borrowing capacity at the discount window and $1.9 billion of borrowing capacity at the Bank Term Funding Program facility with no amounts outstanding under these programs.
Removed
As rates decrease, cash flows generally increase as prepayments increase. 66 The following table presents AFS mortgage-backed investment securities, at estimated fair value, and HTM mortgage-backed investment securities, at amortized cost, as of December 31, 2022, without stated maturities, including the weighted average yields and estimated weighted average lives based on prepayment speeds on such securities: Weighted Amount Yield Average Life (dollars in thousands) (in years) Available for sale Residential mortgage-backed securities $ 212,698 2.80 % 10.9 Commercial mortgage-backed securities 552,522 2.48 4.5 Collateralized mortgage obligations 134,033 2.76 4.4 Held to maturity Residential mortgage-backed securities $ 457,325 2.00 % 8.9 Commercial mortgage-backed securities 863,931 1.53 6.7 The following table presents the contractual maturities of fixed rate loans and loan types subject to changes in interest rates as of December 31, 2022: One Year or Less One Through Five Years More Than Five Years Total (dollars in thousands) Commercial and industrial: Adjustable and floating rate $ 990,649 $ 2,028,595 $ 403,684 $ 3,422,928 Fixed rate 529,764 423,430 101,415 1,054,609 Total commercial and industrial $ 1,520,413 $ 2,452,025 $ 505,099 $ 4,477,537 Real estate – mortgage (1) : Adjustable and floating rate $ 1,554,976 $ 4,867,831 $ 2,696,644 $ 9,119,451 Fixed rate 875,849 1,899,138 1,639,514 4,414,501 Total real estate - mortgage (1) $ 2,430,825 $ 6,766,969 $ 4,336,158 $ 13,533,952 Real estate – construction: Adjustable and floating rate $ 327,554 $ 492,810 $ 158,364 $ 978,728 Fixed rate 261,464 24,066 5,667 291,197 Total real estate – construction $ 589,018 $ 516,876 $ 164,031 $ 1,269,925 Consumer, lease financing and other: Adjustable and floating rate $ 12,175 $ 39,137 $ — $ 51,312 Fixed rate 265,137 574,459 136,602 976,198 Total consumer, lease financing and other $ 277,312 $ 613,596 $ 136,602 $ 1,027,510 Unearned income — (29,377) — (29,377) Total $ 4,817,568 $ 10,320,089 $ 5,141,890 $ 20,279,547 (1) Includes commercial and residential mortgages and home equity loans.
Added
As rates decrease, cash flows generally increase as prepayments increase. 65 The following table presents AFS residential mortgage-backed securities, commercial mortgage-backed securities and collateralized mortgage obligations, at estimated fair value, and HTM residential mortgage-backed securities and commercial mortgage-backed securities, at amortized cost, as of December 31, 2023, without stated maturities, including the weighted average yields and estimated weighted average lives based on prepayment speeds on such securities: Weighted Amount Yield Average Life (dollars in thousands) (in years) Available for sale Residential mortgage-backed securities $ 196,795 2.79 % 6.6 Commercial mortgage-backed securities 534,388 2.71 6.6 Collateralized mortgage obligations 111,434 2.71 5.2 Held to maturity Residential mortgage-backed securities $ 407,075 2.01 % 6.6 Commercial mortgage-backed securities 860,847 1.53 6.6 The following table presents the contractual maturities of fixed rate loans and loan types subject to changes in interest rates as of December 31, 2023: One Year or Less One Through Five Years More Than Five Years Total (dollars in thousands) Commercial and industrial: Adjustable and floating rate $ 981,531 $ 2,171,857 $ 474,121 $ 3,627,509 Fixed rate 340,178 491,241 86,666 918,085 Total commercial and industrial 1,321,709 2,663,098 560,787 4,545,594 Real estate - mortgage (1) : Adjustable and floating rate 1,760,892 4,843,777 3,308,714 9,913,383 Fixed rate 870,638 1,890,160 1,826,655 4,587,453 Total real estate - mortgage (1) 2,631,530 6,733,937 5,135,369 14,500,836 Real estate - construction: Adjustable and floating rate 325,599 463,450 147,111 936,160 Fixed rate 258,068 41,105 3,742 302,915 Total real estate - construction 583,667 504,555 150,853 1,239,075 Consumer, leases and other: Adjustable and floating rate 11,322 37,660 8 48,990 Fixed rate 296,185 618,707 139,716 1,054,608 Total consumer, leases and other 307,507 656,367 139,724 1,103,598 Unearned income — (38,009) — (38,009) Total $ 4,844,413 $ 10,519,948 $ 5,986,733 $ 21,351,094 (1) Includes commercial and residential mortgages and home equity loans.
Removed
The expected cash flows model produced fair values which assumed a return to market liquidity sometime within the next five years. All of the loans underlying the ARCs had principal payments which were guaranteed by the federal government. 68

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