FULT filing — read by section

Item 7. Management’s Discussion and Analysis

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 incorporated under the laws of the Commonwealth of Pennsylvania in 1982, and its wholly owned subsidiaries. Management’s Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report. 
 
 FORWARD-LOOKING STATEMENTS 
 
 The Corporation has made, and may continue to make, certain forward-looking statements with respect to its financial condition, results of operations and business. Do not unduly rely on forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "will," "could," "estimates," "predicts," "potential," "continue," "anticipates," "believes," "plans," "expects," "future," "intends," "projects," the negative of these terms and other comparable terminology. These forward-looking statements may include projections of, or guidance on, the Corporation's future financial performance, expected levels of future expenses, including future credit losses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in the Corporation's business or financial results. 
 
 Forward-looking statements are neither historical facts, nor assurance of future performance. Instead, the statements are based on current beliefs, expectations and assumptions regarding the future of the Corporation's business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Corporation's control, and actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not unduly rely on any of these forward-looking statements. Any forward-looking statement is based only on information currently available and speaks only as of the date when made. The Corporation undertakes no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Many factors could affect future financial results including, without limitation: 
 
 • the impact of adverse conditions in the economy and financial markets on the performance of the Corporation’s loan portfolio and demand for the Corporation's products and services; 
 • the scope and duration of the COVID-19 pandemic, actions taken by governmental authorities in response to the pandemic, the Corporation's participation in the PPP and other COVID-19 relief programs, and the direct and indirect impacts of the pandemic on the Corporation, its customers and third parties; 
 • the determination of the ACL, which depends significantly upon assumptions and judgments with respect to a variety of factors, including the performance of the loan portfolio, the weighted-average remaining lives of different classifications of loans within the loan portfolio and current and forecasted economic conditions, among other factors; 
 • increases in non-performing assets, which may require the Corporation to increase the allowance for credit losses, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets; 
 • investment securities gains and losses, including other-than-temporary declines in the value of securities which may result in charges to earnings; 
 • the effects of market interest rates, and the relative balances of interest rate-sensitive assets to interest rate-sensitive liabilities, on net interest margin and net interest income; 
 • the replacement of LIBOR as a benchmark reference rate; 
 • the effects of changes in interest rates on demand for the Corporation's products and services; 
 • the effects of changes in interest rates or disruptions in liquidity markets on the Corporation's sources of funding; 
 • the effects of the extensive level of regulation and supervision to which the Corporation and Fulton Bank are subject; 
 • the effects of the significant amounts of time and expense associated with regulatory compliance and risk management; 
 • the potential for negative consequences resulting from regulatory violations, investigations and examinations, including potential supervisory actions, the assessment of fines and penalties, the imposition of sanctions, the need to undertake remedial actions and possible damage to the Corporation's reputation; 
 • the continuing impact of the Dodd-Frank Act on the Corporation's business and results of operations; 
 • the effects of, and uncertainty surrounding, new legislation, changes in regulation and government policy, which could result in significant changes in banking and financial services regulation; 
 
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 • the effects of actions by the federal government, including those of the Federal Reserve Board and other government agencies, that impact money supply and market interest rates; 
 • the effects of changes in U.S. federal, state or local tax laws; 
 • the effects of negative publicity on the Corporation's reputation; 
 • the effects of adverse outcomes in litigation and governmental or administrative proceedings; 
 • the potential to incur losses in connection with repurchase and indemnification payments related to sold loans; 
 • the Corporation’s ability to achieve its growth plans; 
 • completed and potential acquisitions may affect costs and the Corporation may not be able to successfully integrate the acquired business or realize the anticipated benefits from such acquisitions; 
 • the potential effects of climate change on the Corporation's business and results of operations; 
 • the effects of concerns relating to the Corporation's ESG posture, including potential adverse impacts on the Corporation's reputation and the market value of its securities; 
 • the effects of competition on deposit rates and growth, loan rates and growth and net interest margin; 
 • the Corporation's ability to manage the level of non-interest expenses, including salaries and employee benefits expenses, operating risk losses and goodwill impairment; 
 • the effects of changes in accounting policies, standards, and interpretations on the Corporation's reporting of its financial condition and results of operations; 
 • the impact of operational risks, including the risk of human error, inadequate or failed internal processes and systems, computer and telecommunications systems failures, faulty or incomplete data and an inadequate risk management framework; 
 • the impact of failures of third parties upon which the Corporation relies to perform in accordance with contractual arrangements; 
 • the failure or circumvention of the Corporation's system of internal controls; 
 • the loss of, or failure to safeguard, confidential or proprietary information; 
 • the Corporation's failure to identify and adequately and promptly address cybersecurity risks, including data breaches and cyber-attacks; 
 • the Corporation's ability to keep pace with technological changes; 
 • the Corporation's ability to attract and retain talented personnel; 
 • capital and liquidity strategies, including the Corporation's ability to comply with applicable capital and liquidity requirements, and the Corporation's ability to generate capital internally or raise capital on favorable terms; 
 • the Corporation's reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or other distributions; and 
 • the effects of any downgrade in the Corporation or Fulton Bank's credit ratings on each of their borrowing costs or access to capital markets. 
 
 OVERVIEW 
 
 The Corporation is a financial holding company, which, through its wholly owned banking subsidiary, provides a full range of retail and commercial financial services in Pennsylvania, Delaware, Maryland, New Jersey and Virginia. 
 
 The Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin, which is FTE net interest income as a percentage of average interest-earning assets. The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments and properties. Offsetting these revenue sources are provisions for credit losses on loans and OBS credit risks, non-interest expenses and income taxes. 
 
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 The following table presents a summary of the Corporation’s earnings and selected performance ratios: 
 
 2021 2020 
 Net income (in thousands) $ 275,497 $ 178,040 
 Net income available to common shareholders (in thousands) $ 265,220 $ 175,905 
 Diluted net income available to common shareholders per share $ 1.62 $ 1.08 
 Return on average assets, annualized 1.05 % 0.73 % 
 Return on average equity 10.64 % 7.45 % 
 Return on average common shareholders' equity (tangible) (1) 
 13.58 % 9.66 % 
 Net interest margin (2) 
 2.78 % 2.86 % 
 Efficiency ratio (1) 
 63.1 % 65.7 % 
 Non-performing assets to total assets 0.60 % 0.58 % 
 Annualized net charge-offs to average loans 0.07 % 0.05 % 

 (1) Ratio represents a financial measure derived by methods other than GAAP. See reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure under the heading, "Supplemental Reporting of Non-GAAP Based Financial Measures," . 
 (2) Presented on an FTE basis, using a 21% Federal tax rate and statutory interest expense disallowances. See also the "Net Interest Income" section of Management’s Discussion. 
 
 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 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. Presentation of these non-GAAP financial measures is consistent with how the Corporation evaluates its performance internally, and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Corporation's industry. Management believes that these non-GAAP financial measures, in addition to GAAP measures, are also useful to investors to evaluate the Corporation's results. Investors should recognize that the Corporation's presentation of these non-GAAP financial measures might not be comparable to similarly-titled measures of other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures, and the Corporation strongly encourages a review of its consolidated financial statements in their entirety. 
 
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 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: 
 
 2021 2020 2019 
 (in thousands, except per share data and percentages) 
 Return on average common shareholders' equity (tangible) 
 Net income available to common shareholders $ 265,220 $ 175,905 $ 226,339 
 Plus: Intangible amortization, net of tax 462 417 1,127 
 Numerator $ 265,682 $ 176,322 $ 227,466 
 
 Average common shareholders' equity $ 2,685,946 $ 2,391,649 $ 2,306,070 
 Less: Average goodwill and intangible assets (536,621) (535,196) (534,120) 
 Less: Average preferred stock (192,878) (32,084) — 
 Average tangible common shareholders' equity (denominator) $ 1,956,447 $ 1,824,369 $ 1,771,950 
 Return on average common shareholders' equity (tangible) 13.58 % 9.66 % 12.84 % 
 
 Efficiency ratio 
 Non-interest expense $ 617,830 $ 579,440 $ 567,736 
 Less: Amortization of tax credit investments (6,187) (6,126) (6,021) 
 Less: Intangible amortization (589) (529) (1,427) 
 
 Less: Prepayment penalty on FHLB advances (33,249) (2,878) (4,326) 
 Numerator $ 577,805 $ 569,907 $ 555,962 
 
 Net interest income $ 663,730 $ 629,207 $ 648,389 
 Tax equivalent adjustment 12,296 12,303 12,967 
 Plus: Total non-interest income 273,745 229,388 216,159 
 Less: Investment securities gains, net (33,516) (3,053) (4,733) 
 Denominator $ 916,255 $ 867,845 $ 872,782 
 Efficiency ratio 63.1 % 65.7 % 63.7 % 
 
 Non-performing assets to common shareholders' equity (tangible) and ACL - loans 
 Non-performing assets (numerator) $ 153,936 $ 151,305 $ 147,986 
 
 Shareholders' equity $ 2,712,680 $ 2,616,828 $ 2,342,176 
 Less: Preferred Stock (192,878) (192,878) — 
 Less: Goodwill and intangible assets (538,053) (536,659) (535,303) 
 Tangible common shareholders' equity 1,981,749 1,887,291 1,806,873 
 Plus: ACL - loans 249,001 277,567 166,209 
 Tangible common shareholders' equity and ACL - loans (denominator) $ 2,230,750 $ 2,164,858 $ 1,973,082 
 Non-performing assets to tangible common shareholders' equity and ACL - loans 6.90 % 6.99 % 7.50 % 

 (1) Presented on a fully taxable equivalent basis, using a 21% federal tax rate for 2019 through 2021. 
 
 COVID-19 Pandemic 
 
 The COVID-19 pandemic has caused substantial disruptions in economic and social activity, both globally and in the United States. The spread of COVID-19, and related governmental actions to respond to the pandemic have caused severe disruptions in the U.S. economy, which have, in turn, disrupted, and will likely continue to disrupt, the business, activities, and operations of the Corporation’s customers as well as the Corporation’s own business and operations. In many locations throughout the U.S., the spread of COVID-19 decreased through much of 2021. However, due in large part to the increased spread of a new, more transmissible coronavirus variant, the number of individuals diagnosed with COVID-19 in the U.S. increased substantially 
 
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 late in 2021 causing continued governmental responses. The resulting impacts of the pandemic have continued to cause changes in consumer and business spending, borrowing needs and saving habits that have and will likely continue to affect the demand for loans and other products and services the Corporation offers, as well as the creditworthiness of its borrowers. The significant impact on commercial activity and disruptions in supply chains associated with the pandemic, both nationally and in the Corporation’s markets, may cause customers, vendors and counterparties to be unable to meet existing payment or other obligations to the Corporation. 
 
 While employment and the national economy are showing signs of recovery, there is still significant uncertainty concerning the breadth and duration of the economic and social disruptions caused by the COVID-19 pandemic and their impact on the U.S. economy. The extent to which the pandemic continues to impact the Corporation’s operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the continuing progression of the COVID-19 pandemic, whether there are additional outbreaks of COVID-19 and its variants, including vaccine-resistant variants, and the actions taken to contain it or treat its impact. Moreover, although multiple COVID-19 vaccines and booster vaccines have received regulatory approval and are currently being distributed throughout the U.S. and the world, a significant portion of the population remains unvaccinated. If the pandemic continues to cause significant negative impacts to economic conditions, the Corporation’s results of operations, financial condition and cash flows could be materially adversely impacted. 
 
 The Corporation’s business is dependent upon the willingness and ability of its customers to conduct banking and other financial transactions. In an effort to mitigate the spread of COVID-19, the Corporation adjusted service models at certain of its financial center locations, including limiting some locations to drive-up and ATM services only, offering lobby access by appointment only, and encouraging the Corporation’s customers to use electronic banking platforms. A significant portion of the Corporation’s employees has transitioned to remote or hybrid onsite-remote working arrangements as a result of the COVID-19 pandemic, which, in addition to requiring added support from the Corporation’s information technology infrastructure, increases cybersecurity risks. 
 
 COVID-19 has significantly affected the financial markets and has resulted in a number of responses by the U.S. government, including reductions in interest rates by the FOMC. These reductions in interest rates, especially if prolonged, could adversely affect the Corporation’s net interest income and margins and the Corporation’s profitability. 
 
 The CARES Act was enacted in March 2020 and, among other provisions, authorized the SBA to guarantee loans under the PPP for small businesses that meet eligibility requirements in order to keep their workers on the payroll and fund specified operating expenses. Subsequent legislation extended the authority of the SBA to guaranty loans under the PPP through August 8, 2020. In December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act reauthorized the SBA to guarantee loans under the PPP through March 31, 2021, and the PPP Extension Act of 2021 extended that authorization through June 30, 2021 for applications received by the SBA prior to June 1, 2021. From the inception of the PPP through December 31, 2021, the Corporation funded a total of approximately $2.7 billion of loans under the PPP. Through December 31, 2021, a total of $2.2 billion of those PPP loans have qualified for loan forgiveness and have been repaid by the SBA. 
 
 A series of stimulus payments to eligible consumers, enhanced unemployment benefits provided by the federal government and traditional, state-provided unemployment compensation, as well as other forms of relief provided to consumers and businesses, have helped to limit some of the adverse impacts of COVID-19 and, together with other factors, have contributed to significant growth in the Corporation’s customer deposit balances since the onset of the pandemic. The reduction, expiration or discontinuation of these measures may adversely impact the recovery of economic activity and the ability of borrowers to meet their payment and other obligations to the Corporation, either of which could require the Corporation to increase the ACL through provisions for credit losses. Further, if economic activity continues to recover, and consumer spending and business investment increase, customers may be less likely to maintain deposit balances with the Corporation at recent levels and may require the Corporation to increase its reliance on alternative or higher-cost sources of funding. 
 
 The impact of COVID-19 on the Corporation’s financial results is evolving and uncertain. The Corporation has limited exposure to some of the industries that were initially most significantly impacted by COVID-19, such as hospitality and food services, energy and entertainment, and most of these loans are secured by real estate and other forms of collateral. While many areas of the economy continue to show signs of recovery, the lingering effects of the pandemic, particularly in certain sectors of the economy, or a resurgence in COVID-19 infections that prompts the continuation or imposition of governmental restrictions on activities, may result in decreased demand for the Corporation’s loan products. In addition, the decline in economic activity occurring due to COVID-19 and the actions by the FOMC with respect to interest rates are likely to affect the Corporation’s net interest income, non-interest income and credit-related losses for an uncertain period of time. See additional discussion in "Results of Operations" and "Financial Condition" of Management's Discussion. 
 
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 Adoption of CECL 
 
 On January 1, 2020, the Corporation adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology, and is referred to as CECL. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loans and HTM debt securities. It also applies to OBS credit exposures, such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments, and net investments in leases recognized by a lessor in accordance with ASC Topic 842. Refer to "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for additional information on the adoption of CECL. 
 
 The Corporation adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, and OBS credit exposures. Results for 2020 are presented under CECL, and prior years' results are reported in accordance with the previously applicable incurred loss methodology. The Corporation recorded an increase of $58.3 million to the ACL on January 1, 2020, primarily as a result of the adoption of CECL. Retained earnings decreased $43.8 million and DTAs increased by $12.4 million on January 1, 2020, representing the cumulative effect of adoption. 
 
 Financial Highlights 
 
 Following is a summary of the financial highlights for the year ended December 31, 2021: 
 
 • Net Inco me Per Share - Diluted net income per share increased $0.54, or 50.0%, to $1.62 in 2021 compared to $1.08 in 2020. The increase in net income per share was due to a $89.3 million, or 50.8%, increase in net income available to common shareholders. 
 
 • Net Interest Income - The $34.5 million, or 5.5%, increase in net interest income before provision for credit losses primarily resulted from $59.0 million in PPP loan fees. 
 
 ◦ Net Interest Margin - For the year ended December 31, 2021, net interest margin decreased to 2.78%, or 8 bps compared to 2020, driven by a 34 bps decrease in the yield on interest-earning assets, partially offset by a 27 bps decrease on cost of funds. 
 
 ◦ Loan Growth - Average Net Loans grew by $0.4 billion, or 2.0%, in comparison to 2020. Included in average Net Loans were PPP loans that had an average balance of $1.1 billion, a decrease of $0.1 billion from 2020. The increase in average Net Loans was mainly driven by a $0.6 billion increase in the residential mortgage loan portfolio. 
 
 ◦ Deposit Growth - Average deposits increased $2.3 billion, or 12.0%, in comparison to 2020. The increase was the result of growth in total demand and savings. At December 31, 2021, the loan-to-deposit ratio was 84.9%, as compared to 90.7% at December 31, 2020. 
 
 • Asset Quality - Non-performing assets increased $2.6 million, or 1.7%, as of December 31, 2021 compared to December 31, 2020. Net charge-offs to average loans outstanding were 0.07% for the year ended December 31, 2021 compared to 0.05% for the year ended December 31, 2020. The provision for credit losses decreased $91.5 million, to $(14.6) million, for the year ended December 31, 2021 compared to $76.9 million for the same period in 2020. The higher provision in 2020 was largely driven by the adoption of CECL, which, as a result of an overall downturn in economic forecasts due to COVID-19, resulted in increases in the ACL due to higher expected future credit losses under CECL. The reduction of provision in 2021 is largely driven by improved economic conditions in comparison to 2020. 
 
 • Non-Interest Income - Non-interest income, excluding investment securities gains, increased $13.9 million, or 6.1%, in comparison to 2020. The increase was primarily due to increases of $12.7 million in wealth management, $7.1 million in income from equity method investments and $3.9 million in consumer banking income, offset by declines of $8.7 million in mortgage banking income, due to a $29.2 million decline in income from loan sales, partially offset by a net favorable pre-tax income change attributable to the mortgage servicing rights valuation allowance as compared to 2020 of $20.4 million. Specifically, Fulton increased the mortgage servicing valuation allowance by $10.5 million in 2020. The Corporation reduced the valuation allowance by $9.9 million in 2021. As of December 31, 2021, the mortgage servicing rights valuation allowance remaining was $0.6 million. 
 
 • Investment Securities Gains/Balance Sheet Restructurings - During both 2021 and 2020 the Corporation completed limited balance sheet restructurings which included sales of investment securities, corresponding prepayments of 
 
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 FHLB advances and in 2021, the cash tender offer for certain of its outstanding senior and subordinated notes. As a result, investment securities gains totaled $33.5 million in 2021, as compared to $3.1 million in 2020, a $30.4 million increase. In addition, included in non-interest expense were debt extinguishment costs on FHLB advances of $33.2 million and $2.9 million incurred during 2021 and 2020, respectively. 
 
 • Non-Interest Expense - Total non-interest expense increased $38.4 million, or 6.6%, to $617.8 million in 2021 in comparison to 2020. Non-interest expense, excluding debt extinguishment costs of $33.2 million, was $584.6 million, an increase of $21.3 million, or 3.8%, compared to non-interest expenses of $563.2 million in 2020, which excludes expenses associated with cost savings initiatives of $16.2 million. Excluding the net decrease in severance costs of $5.9 million, the increase in non-interest expense over 2020 was primarily due to increases in salaries and employee benefits of $10.6 million, attributable to a $12.7 million increase in incentive compensation and bonuses. Also contributing to the increase in non-interest expense were $8.4 million in data processing and software and $2.8 million in other outside services expense, partially offset by a $3.2 million decrease in professional fees. 
 
 • Income Taxes - Income tax expense for 2021 resulted in an ETR of 17.6%, as compared to 12.0% for 2020. The ETR was higher mainly due to higher income before income taxes. The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and TCIs. 
 
 • Long-term Borrowings - During 2021, the Corporation prepaid FHLB advances reducing the long-term balance to zero from $536.0 million. Also, in the first quarter of 2021, the Corporation completed a cash tender offer for $75.0 million of 4.50% subordinated debt due in 2024 and $60 million of 3.60% senior notes due in 2022. In March 2020, the Corporation issued a total of $375.0 million of subordinated notes, with $200.0 million of subordinated notes due in 2030 having a fixed-to-floating rate of 3.25% and an effective rate of 3.35% and $175.0 million of subordinated notes due in 2035 having a fixed-to-floating rate of 3.75% and an effective rate of 3.85%. 
 
 • Preferred Stock - In October 2020, the Corporation issued 8.0 million depositary shares ("Depositary Shares"), each representing a 1/40th interest in a share of Fulton’s 5.125% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, with a liquidation preference of $1,000 per share (equivalent to $25.00 per Depositary Share), for an aggregate offering amount of $200.0 million. The Corporation received net proceeds from the offering of $192.9 million, after deducting issuance costs. 
 
 CRITICAL ACCOUNTING POLICIES 
 
 The following is a summary of those accounting policies that the Corporation considers to be most important to the presentation of its financial condition and results of operations, because they require management’s most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain. See additional information regarding these critical accounting policies in "Note 1 - Summary of Significant Accounting Policies," in the Notes to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." 
 
 Allowance for Credit Losses - The Corporation adopted CECL in the first quarter of 2020. In accordance with CECL, the ACL, which includes both the ACL - loans and the ACL - OBS credit exposures, is based on estimated losses over the remaining expected life of loans and OBS exposures. 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. 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. 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. Management applies risk-rating transition matrices to pools of loans and lending-related commitments with similar risk characteristics to determine default probabilities, utilizes economic forecasts, applies modeled LGD results to associated EAD and incorporates modeled overlays and qualitative adjustments to estimate ACL. As such, the calculation of the ACL is inherently subjective and requires management to exercise significant judgment. 
 
 The ACL is estimated over a reasonable and supportable forecast period based on the projected performance of specific economic variables that statistically correlate with PD rates. As economic variables revert to long-term averages through the forecast process, externally developed long-term economic forecasts are used to establish the impacts of the economic scenario, reversion, and long-term averages in the development of losses over the expected life of the assets being modeled. The ACL 
 
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 reserve is highly sensitive to the economic forecasts used to develop the reserve. Due to the high level of uncertainty regarding significant assumptions, such as the ultimate impact of COVID-19 and effectiveness of the related governmental responses, since the beginning of 2020, the Corporation has evaluated a range of economic scenarios, including more and less severe economic deteriorations, with varying speeds of recovery. 
 
 The ACL includes qualitative adjustments, as appropriate, intended to capture the impact of uncertainties not reflected in the quantitative models. Qualitative adjustments include and consider changes in national, regional and local economic and business conditions, an assessment of the lending environment, including underwriting standards and other factors affecting credit quality. Qualitative adjustments have increased compared to those at the time of the adoption of CECL on January 1, 2020 primarily as a result of uncertainties related to the economic impact of COVID-19, including consideration for the future performance of loans that received deferrals or forbearances as a result of COVID-19 and the impact COVID-19 had on certain industries where the quantitative models were not fully capturing the appropriate level of risk. The impact from qualitative adjustments on the ACL decreased in 2021 with the improvement in economic conditions. 
 
 The ACL was $249.0 million and $277.6 million on December 31, 2021 and December 31, 2020, respectively. The decrease of $28.6 million was primarily a result of improved economic conditions. 
 
 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. Our sensitivity analysis does not represent management's view of expected credit losses at the balance sheet date. One scenario identified below the base case projection includes a slowdown in near-term economic growth. This scenario resulted in a hypothetical increase to the ACL of approximately $13.8 million. 
 
 For further discussion of the methodology used in the determination of the ACL, refer to Note 1, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." 
 
 Income Taxes – The provision for income taxes is based upon income before taxes, adjusted for the effect of certain tax-exempt income, non-deductible expenses and credits. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. DTAs or deferred tax liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate. 
 
 The Corporation must also evaluate the likelihood that DTAs will be recovered through future taxable income. If any such assets are determined to be more likely than not unrecoverable, then a valuation allowance must be recognized. The assessment of the carrying value of DTAs is based on certain assumptions, the changes of which could have a material impact on the Corporation's consolidated financial statements. 
 
 On a periodic basis, the Corporation evaluates its income tax provision based on tax laws, regulations and financial reporting considerations and records adjustments as appropriate. Recognition and measurement of tax positions is based upon management's evaluations of current taxing authorities' examinations of the Corporation's tax returns, recent positions taken by the taxing authorities on similar transactions and the overall tax environment. 
 
 The provision for income taxes was $58.7 million and $24.2 million on December 31, 2021 and December 31, 2020, respectively. 
 
 Recently Issued Accounting Standards 
 
 For a description of accounting standards recently issued, but not yet adopted by the Corporation, see "Recently Issued Accounting Standards," in "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." 
 
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 RESULTS OF OPERATIONS 
 
 Net Interest Income 
 
 Net interest income is the most significant component of the Corporation’s net income. The Corporation manages the risk associated with changes in interest rates through the techniques described within Item 7A, "Quantitative and Qualitative Disclosures About Market Risk." The following table provides a comparative average balance sheet and net interest income analysis for 2021 compared to 2020 and 2019. Interest income and yields are presented on an FTE basis, using a 21% federal tax rate, as well as statutory interest expense disallowances. The discussion following this table is based on these tax-equivalent amounts. 
 
 2021 2020 2019 
 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) 
 $ 18,627,787 $ 644,387 3.46 % $ 18,270,390 $ 662,785 3.63 % $ 16,430,347 $ 747,119 4.55 % 
 Taxable investment securities (2) 
 2,665,416 55,351 1.88 2,182,410 58,173 2.66 2,278,448 62,556 2.74 
 Tax-exempt investment securities (2) 
 1,007,834 30,974 3.07 825,057 26,641 3.22 500,398 17,998 3.57 
 
 Total investment securities 3,673,250 86,325 2.35 3,007,467 84,814 2.82 2,778,846 80,554 2.89 
 Loans held for sale 39,211 1,302 3.32 60,015 2,077 3.46 25,795 1,351 5.24 
 Other interest-earning assets 2,014,954 3,694 0.18 1,120,727 5,504 0.49 445,008 9,249 2.08 
 Total interest-earning assets 24,355,202 735,708 3.02 22,458,599 755,180 3.36 19,679,996 838,273 4.26 
 Noninterest-earning assets: 
 Cash and due from banks 165,942 139,146 119,144 
 Premises and equipment 228,708 238,864 239,376 
 Other assets 1,686,053 1,746,956 1,385,689 
 Less: ACL - loans (3) 
 (265,572) (249,848) (166,165) 
 Total Assets $ 26,170,333 $ 24,333,717 $ 21,258,040 
 LIABILITIES AND EQUITY 
 Interest-bearing liabilities: 
 Demand deposits $ 5,979,479 $ 3,662 0.06 % $ 5,278,941 $ 11,390 0.22 % $ 4,384,059 $ 33,348 0.76 % 
 Savings and money market deposits 6,306,967 4,936 0.08 5,550,234 14,654 0.26 5,018,381 41,823 0.83 
 Brokered deposits 286,901 1,096 0.38 310,763 2,387 0.77 245,501 5,779 2.35 
 Time deposits 1,939,446 20,311 1.05 2,546,305 41,615 1.63 2,869,326 50,825 1.77 
 Total interest-bearing deposits 14,512,793 30,005 0.21 13,686,243 70,046 0.51 12,517,267 131,775 1.05 
 Short-term borrowings 513,092 583 0.11 810,583 5,227 0.64 849,679 14,543 1.70 
 Long-term borrowings 784,871 29,094 3.71 1,254,300 38,398 3.06 942,600 30,599 3.25 
 Total interest-bearing liabilities 15,810,756 59,682 0.38 15,751,126 113,671 0.72 14,309,546 176,917 1.24 
 Noninterest-bearing liabilities: 
 Demand deposits 7,211,153 5,714,803 4,249,294 
 Other liabilities 462,478 476,139 393,130 
 Total Liabilities 23,484,387 21,942,068 18,951,970 
 Total deposits/Cost of deposits 21,723,946 0.14 19,401,046 0.36 16,766,561 0.79 
 Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds 23,021,909 0.26 21,465,929 0.53 18,558,840 0.95 
 Shareholders’ equity 2,685,946 2,391,649 2,306,070 
 Total Liabilities and Shareholders’ Equity $ 26,170,333 $ 24,333,717 $ 21,258,040 
 Net interest income/net interest margin (FTE) 676,026 2.78 % 641,509 2.86 % 661,356 3.36 % 
 Tax equivalent adjustment (12,296) (12,302) (12,967) 
 Net interest income $ 663,730 $ 629,207 $ 648,389 

 (1) Average balances include non-performing loans. 
 (2) Average balances include amortized historical cost for AFS securities; the related unrealized holding gains (losses) are included in other assets. 
 (3) ACL - loans relates to the ACL specifically for Net Loans and does not include the ACL for OBS credit exposures, which is included in other 
 liabilities. 
 
 47 

 Comparison of 2021 to 2020 
 
 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: 
 
 2021 vs. 2020 Increase (decrease) due to change in 
 Volume Yield/Rate Net 
 (in thousands) 
 Interest income on: 
 Net loans (1) 
 $ 12,882 $ (31,280) $ (18,398) 
 Taxable investment securities 13,430 (16,252) (2,822) 
 Tax-exempt investment securities 5,625 (1,292) 4,333 
 
 Loans held for sale (694) (81) (775) 
 Other interest-earning assets 2,866 (4,676) (1,810) 
 Total interest income $ 34,109 $ (53,581) $ (19,472) 
 Interest expense on: 
 Demand deposits $ 1,414 $ (9,142) $ (7,728) 
 Savings deposits 1,689 (11,407) (9,718) 
 Brokered deposits (170) (1,121) (1,291) 
 Time deposits (8,545) (12,759) (21,304) 
 Short-term borrowings (1,426) (3,218) (4,644) 
 Long-term borrowings (16,337) 7,033 (9,304) 
 Total interest expense $ (23,375) $ (30,614) $ (53,989) 

 (1) Average balance includes non-performing loans. 
 
 Note: Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component. 

 FTE net interest income increased $34.5 million, or 5.4%, to $676.0 million in 2021. Net interest margin decreased 8 bps to 2.78% in 2021 from 2.86% in 2020. As summarized above, FTE interest income decreased $53.6 million as the result of a 34 bps decrease in the yield on interest-earning assets, and increased $34.1 million as the result of a $1.9 billion, or 8.4%, increase in average interest-earning assets, primarily in investments and loans. The yield on the loan portfolio decreased 17 bps, to 3.46%, largely due to decreases in the Fed Funds Rate in 2020 and corresponding decreases in loan index rates. At that time, all variable and certain adjustable rate loans repriced to lower rates as a result of these interest rate decreases, and yields on new loan originations were lower than the average yield on the loan portfolio. Adjustable rate loans reprice on dates specified in loan agreements, which may be later than the date the Fed Funds Rate and related loan index rates increase or decrease. Therefore, the benefit of increases or the reverse effect of decreases in index rates on adjustable rate loans may not be fully realized until future periods. 
 
 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. In addition, a shift into lower-cost demand deposits and savings and money market deposits, which increased $1.5 billion collectively, combined with a decrease in higher-cost time deposits, short-term borrowings and long-term borrowings of $1.4 billion, were the primary drivers for $23.4 million of the reduction in interest expense. 
 
 48 

 Average loans and average FTE yields, by type, are summarized in the following table: 
 
 Increase (Decrease) in Balance 
 2021 2020 
 Balance Yield Balance Yield $ % 
 (dollars in thousands) 
 Real estate – commercial mortgage $ 7,149,712 3.14 % $ 6,928,269 3.53 % $ 221,443 3.2 % 
 Commercial and industrial (1) 
 5,052,856 2.64 5,501,317 3.10 (448,461) (8.2) 
 Real estate – residential mortgage 3,501,072 3.40 2,876,538 3.80 624,534 21.7 
 Real estate – home equity 1,141,042 3.85 1,255,094 4.11 (114,052) (9.1) 
 Real estate – construction 1,078,350 3.08 965,534 3.64 112,816 11.7 
 Consumer 456,427 3.99 466,419 4.16 (9,992) (2.1) 
 Equipment lease financing 252,104 3.89 281,859 3.93 (29,755) (10.6) 
 Other (2) 
 (3,776) — (4,640) — 864 18.6 
 Total loans $ 18,627,787 3.46 % $ 18,270,390 3.63 % $ 357,397 2.0 % 

 (1) Includes average PPP loans of $1.1 billion and $1.3 billion for the years ended December 31, 2021 and 2020, respectively. 
 (2) Consists of overdrafts and net origination fees and costs. 
 
 Average loans increased $357.4 million, or 2.0%, which contributed $12.9 million to FTE interest income. The increase was driven largely by growth in residential and commercial mortgage loans, partially offset by a decrease in commercial and industrial loans, primarily due to the decrease in PPP loans. The yield on average loans decreased 17 bps resulting in a decrease in FTE interest income of $31.2 million. 
 
 Average investment securities increased $665.8 million, or 22.1%, in comparison to 2020, which contributed a $19.1 million increase in FTE interest income, offset by a decrease of 47 bps in investment yield, resulting in a $17.5 million decrease in FTE interest income. Other interest-earning assets increased $894.2 million, contributing $2.9 million to FTE interest income. The yield on other interest-earning assets decreased 31 bps in comparison to 2020, as a result of the Fed Funds Rate decreases during 2020, resulting in a $4.7 million decrease in FTE interest income. 
 
 Average deposits and interest rates, by type, are summarized in the following table: 
 
 Increase (Decrease) in
 Balance 
 2021 2020 
 Balance Rate Balance Rate $ % 
 (dollars in thousands) 
 Noninterest-bearing demand $ 7,211,153 — % $ 5,714,803 — % $ 1,496,350 26.2 % 
 Interest-bearing demand 5,979,479 0.06 5,278,941 0.22 700,538 13.3 
 Savings 6,306,967 0.08 5,550,234 0.26 756,733 13.6 
 Total demand and savings 19,497,599 0.04 16,543,978 0.16 2,953,621 17.9 
 Brokered deposits 286,901 0.38 310,763 0.77 (23,862) (7.7) 
 Time deposits 1,939,446 1.05 2,546,305 1.63 (606,859) (23.8) 
 Total deposits $ 21,723,946 0.14 % $ 19,401,046 0.36 % $ 2,322,900 12.0 % 

 The cost of interest-bearing deposits decreased 30 bps, to 0.21%, from 0.51% in 2020, resulting in a $34.4 million decrease in interest expense compared to 2020. These rates do not include the impact of non-interest bearing deposits, which lowered the cost of total deposits to 0.14% and 0.36% in 2021 and 2020, respectively. The decrease in deposit costs was primarily the result of reductions in deposit rates resulting from decreases in the Fed Funds Rate. The majority of deposit rates are discretionary, with the exception of indexed municipal deposit balances. The average balance of interest-bearing deposits increased $0.8 billion, or 6.0%, in comparison to 2020. 
 
 49 

 Average borrowings and interest rates, by type, are summarized in the following table: 
 
 Increase (Decrease) in
Balance 
 2021 2020 
 Balance Rate Balance Rate $ % 
 (dollars in thousands) 
 Short-term borrowings: 
 Customer funding (1) 
 $ 513,092 0.11 % $ 553,033 0.28 % $ (39,941) (7.2) % 
 Federal funds purchased — — 64,918 0.82 (64,918) N/M 
 FHLB advances and other borrowings (2) 
 — — 192,632 1.61 (192,632) N/M 
 Total short-term borrowings 513,092 0.11 810,583 0.64 (297,491) (36.7) 
 Long-term borrowings: 
 FHLB advances 126,677 1.80 557,596 1.86 (430,919) (77.3) 
 Other long-term borrowings 658,194 4.07 696,704 4.02 (38,510) (5.5) 
 Total long-term borrowings 784,871 3.71 1,254,300 3.06 (469,429) (37.4) 
 Total borrowings $ 1,297,963 2.29 % $ 2,064,883 2.11 % $ (766,920) (37.1) % 

 (1) Includes short-term promissory notes. 
 (2) Represents FHLB advances with an original maturity term of less than one year. 
 
 Total average borrowings decreased $766.9 million, or 37.1%, while the total borrowings rate increased 18 bps, to 2.29% compared to 2020. Total average short-term borrowings decreased $297.5 million, or 36.7%, due to the corporate restructuring. The cost of average short-term borrowings decreased 53 bps to 0.11% in 2021, largely due to the restructuring and partial year 2020 net impact of changes in the Fed Funds Rate versus a full year in 2021. 
 
 Average long-term borrowings decreased $469.4 million, or 37.4%, and the long-term borrowings rate increased 65 bps compared to 2020, primarily due to a decrease in FHLB advances. 
 
 Comparison of 2020 to 2019 
 
 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: 
 
 2020 vs. 2019 Increase (decrease) due to change in 
 Volume Yield/Rate Net 
 (in thousands) 
 Interest income on: 
 Net loans (1) 
 $ 77,662 $ (161,996) $ (84,334) 
 Taxable investment securities (3,323) (1,059) (4,382) 
 Tax-exempt investment securities 10,576 (1,933) 8,643 
 
 Loans held for sale 1,308 (582) 726 
 Other interest-earning assets 6,909 (10,654) (3,745) 
 Total interest income $ 93,132 $ (176,224) $ (83,092) 
 Interest expense on: 
 Demand deposits $ 4,863 $ (26,821) $ (21,958) 
 Savings deposits 4,025 (31,194) (27,169) 
 Brokered deposits 959 (4,351) (3,392) 
 Time deposits (5,409) (3,801) (9,210) 
 Short-term borrowings (641) (8,675) (9,316) 
 Long-term borrowings 9,627 (1,828) 7,799 
 Total interest expense $ 13,424 $ (76,670) $ (63,246) 

 (1) Average balance includes non-performing loans. 
 Note: Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component. 
 
 50 

 In March 2020, the FOMC decreased the Fed Funds Rate by a total of 150 bps in response to COVID-19. These changes in the Fed Funds Rate resulted in corresponding decreases to the index rates for the Corporation's variable and adjustable rate loans, primarily the prime rate and LIBOR, as well as for certain interest-bearing liabilities. 
 
 FTE net interest income decreased $19.8 million, or 3.0%, to $641.5 million in 2020. Net interest margin decreased 50 bps to 2.86% in 2020 from 3.36% in 2019. As summarized above, FTE interest income decreased $176.2 million as the result of a 90 basis point decrease in the yield on interest-earning assets, and increased $93.1 million as the result of a $2.8 billion, or 14.1%, increase in average interest-earning assets, primarily loans. The yield on the loan portfolio decreased 92 bps, to 3.63%, largely due to the aforementioned decreases in the Fed Funds Rate in 2020 and corresponding decreases to loan index rates. All variable and certain adjustable rate loans repriced to lower rates as a result of these interest rate decreases, and yields on new loan originations were lower than the yield on the loan portfolio. Adjustable rate loans reprice on dates specified in the loan agreements, which may be later than the date the Fed Funds Rate and related loan index rates increase or decrease. Therefore, the benefit of increases or the reverse effect of decreases in index rates on adjustable rate loans may not be fully realized until future periods. In addition, 2020 interest income included $6.5 million of unamortized origination fees and direct origination costs recognized as interest income at the time of PPP loan forgiveness, which was in addition to the normal amortization of those items of approximately $22.5 million recognized in 2020. 
 
 Interest expense decreased $63.2 million, with a 52 bps decrease in the rate on average interest-bearing liabilities contributing $76.7 million to this decrease, partially offset by a $13.4 million increase in expense as a result of a $1.4 billion, or 10.1% increase in interest-bearing liabilities, primarily demand deposits and long-term borrowings. The rates on average interest-bearing demand and savings accounts decreased 54 and 57 bps, respectively, which contributed $26.8 million and $31.2 million to the decrease in interest expense, respectively. In addition, the 106 bps decrease in the cost of short-term borrowings contributed $8.7 million to the decrease in interest expense. 
 
 Average loans and average FTE yields, by type, are summarized in the following table: 
 
 Increase (Decrease) in Balance 
 2020 2019 
 Balance Yield Balance Yield $ % 
 (dollars in thousands) 
 Real estate - commercial mortgage $ 6,928,269 3.53 % $ 6,463,783 4.56 % $ 464,486 7.2 % 
 Commercial and industrial (1) 
 5,501,317 3.10 4,473,549 4.52 1,027,768 23.0 
 Real estate - residential mortgage 2,876,538 3.80 2,441,684 4.05 434,854 17.8 
 Real estate - home equity 1,255,094 4.11 1,382,908 5.23 (127,814) (9.2) 
 Real estate - construction 965,534 3.64 928,183 4.79 37,351 4.0 
 Consumer 466,419 4.16 448,205 4.42 18,214 4.1 
 Equipment lease financing 281,859 3.93 279,489 4.40 2,370 0.8 
 Other (2) 
 (4,640) — 12,546 — (17,186) (137.0) 
 Total loans $ 18,270,390 3.63 % $ 16,430,347 4.55 % $ 1,840,043 11.2 % 

 (1) Includes average PPP loans of $1.3 billion for the year ended December 31, 2020.. 
 (2) Consists of overdrafts and net origination fees and costs. 
 
 Average loans increased $1.8 billion, or 11.2%, which contributed $77.7 million to the increase in FTE interest income. The increase was driven largely by growth in the commercial and industrial portfolio as a result of loans originated under the PPP. Excluding loans originated under the PPP, commercial and industrial loan balances declined $2.4 million. Commercial and residential mortgage loan portfolios, as well as the construction, consumer and equipment lease financing portfolios, experienced growth, partially offset by decreases in the home equity loan portfolio. 
 
 Average investment securities increased $228.6 million, or 8.2%, in comparison to 2019, which contributed a $7.3 million increase in FTE interest income. This increase was partially offset by a 7 bps decrease in yields, resulting in a $3.0 million decrease in FTE interest income. Other interest-earning assets increased $675.7 million, primarily the result of an increase in cash pledged with counterparties for interest rate swap contracts, contributing $6.9 million to FTE interest income. The yield on other interest-earning assets decreased 159 bps in comparison to 2019, as a result of the Fed Funds Rate decreases during 2020, resulting in a $10.7 million decrease in FTE interest income. 
 
 51 

 Average deposits and interest rates, by type, are summarized in the following table: 
 
 Increase (Decrease) in Balance 
 2020 2019 
 Balance Rate Balance Rate $ % 
 (dollars in thousands) 
 Noninterest-bearing demand $ 5,714,803 — % $ 4,249,294 — % $ 1,465,509 34.5 % 
 Interest-bearing demand 5,278,941 0.22 4,384,059 0.76 894,882 20.4 
 Savings 5,550,234 0.26 5,018,381 0.83 531,853 10.6 
 Total demand and savings 16,543,978 0.16 13,651,734 0.44 2,892,244 21.2 
 Brokered deposits 310,763 0.77 245,483 2.35 65,280 26.6 
 Time deposits 2,546,305 1.63 2,869,344 1.77 (323,039) (11.3) 
 Total deposits $ 19,401,046 0.36 % $ 16,766,561 0.79 % $ 2,634,485 15.7 % 

 The cost of interest-bearing deposits decreased 54 bps to 0.51% from 1.05% in 2019 and contributed $66.2 million to the decrease in interest expense compared to 2019. These rates do not include the impact of non-interest bearing deposits, which lowered cost of total deposits to 0.36% and 0.79% in 2020 and 2019, respectively. The decrease in the cost was mainly as a result of reductions in deposit rates in response to the FOMC reductions to the Fed Funds Rate as well as deposit rate decreases implemented after the Fed Funds Rate cuts during the second half of 2019. The majority of deposit rates are discretionary, with the exception of indexed municipal balances. The average balance of interest-bearing deposits increased $1.2 billion, or 9.3%, partially offsetting the decrease in interest expense by $4.4 million in comparison to 2019. 
 
 Average borrowings and interest rates, by type, are summarized in the following table: 
 
 2020 2019 Increase (Decrease) in
Balance 
 Balance Rate Balance Rate $ % 
 (dollars in thousands) 
 Short-term borrowings: 
 Customer funding (1) 
 $ 553,033 0.28 % $ 355,983 0.77 % $ 197,050 55.4 % 
 Federal funds purchased 64,918 0.82 132,578 2.20 (67,660) (51.0) 
 FHLB advances and other borrowings (2) 
 192,632 1.61 361,118 2.43 (168,486) (46.7) 
 Total short-term borrowings 810,583 0.64 849,679 1.70 (39,096) (4.6) 
 Long-term borrowings: 
 FHLB advances 557,596 1.86 555,229 2.38 2,367 0.4 
 Other long-term borrowings 696,704 4.02 387,371 4.48 309,333 79.85 
 Total long-term borrowings 1,254,300 3.06 942,600 3.25 311,700 33.1 
 Total borrowings $ 2,064,883 2.11 % $ 1,792,279 2.51 % $ 272,604 15.2 % 

 (1) Includes short-term promissory notes. 
 (2) Represents FHLB advances with an original maturity term of less than one year. 
 
 Total average borrowings increased $272.6 million, or 15.2%, while the total cost of borrowings decreased 40 bps, to 2.11% compared to 2019. Total average short-term borrowings decreased $39.1 million, or 4.6%, due to a decrease in short-term FHLB advances and other borrowings and federal funds purchased, partially offset by increases in average customer funding. The cost of short-term borrowings decreased 106 bps to 0.64% in 2020, largely due to the net impact of the changes in the Fed Funds Rate. 
 
 Average long-term borrowings increased $311.7 million, or 33.1%, and the rate decreased 19 bps compared to 2019, as a result of the issuance of $375.0 million of subordinated notes in March of 2020. 
 
 Provision for Credit Losses 
 
 The provision for credit losses decreased $91.5 million, to $(14.6) million, for the year ended December 31, 2021. The decrease was primarily the result of an improvement in economic conditions. See additional details under "Loans and Allowance for Credit Losses" in the "Financial Condition" section below. 
 
 52 

 Non-Interest Income and Expense 
 Comparison of 2021 to 2020 
 Non-Interest Income 
 The following table presents the components of non-interest income: 
 
 Increase (Decrease) 
 2021 2020 $ % 
 (dollars in thousands) 
 Commercial banking: 
 Merchant and card $ 26,121 $ 23,139 $ 2,982 12.9 % 
 Cash management 20,865 18,725 2,140 11.4 
 Capital markets 9,381 18,288 (8,907) (48.7) 
 Other commercial banking 12,322 10,134 2,188 21.6 
 Total commercial banking 68,689 70,286 (1,597) (2.3) 
 Consumer banking: 
 Card 23,505 19,777 3,728 18.9 
 Overdraft 12,844 12,556 288 2.3 
 Other consumer banking 9,195 9,265 (70) (0.8) 
 Total consumer banking 45,544 41,598 3,946 9.5 
 Wealth management fees 71,798 59,058 12,740 21.6 
 Mortgage banking: 
 Gains on sales of mortgage loans 24,380 53,599 (29,219) (54.5) 
 Mortgage servicing income 9,196 (11,290) 20,486 N/M 
 Total mortgage banking 33,576 42,309 (8,733) (20.6) 
 Other 20,622 13,084 7,538 57.6 
 Non-interest income before
 investment securities gains 240,229 226,335 13,894 6.1 
 
 Investment securities gains, net 33,516 3,053 30,463 N/M 
 Total Non-Interest Income $ 273,745 $ 229,388 $ 44,357 19.3 % 

 Excluding net investment securities gains, non-interest income increased $13.9 million, or 6.1%, in 2021, as compared to 2020. 
 
 Total commercial banking income decreased $1.6 million, or 2.3% compared to 2020, driven mainly by a decrease in capital market revenues. 
 
 Total consumer banking increased $3.9 million, or 9.5%, compared to 2020, driven primarily by higher card income. 
 
 Wealth management revenues increased $12.7 million, or 21.6%, resulting primarily from an increase in client asset levels and improved overall market performance. 
 
 Mortgage banking income decreased $8.7 million, or 20.6%, mainly due to reduced gains on sales of mortgage loans, partially offset by an increase in mortgage servicing income. 
 
 Investment securities gains increased $30.5 million, primarily due to the sale of Visa Class B restricted shares, as part of the balance sheet restructuring undertaken in 2021. 
 
 53 

 Non-Interest Expense 
 
 The following table presents the components of non-interest expense: 
 
 Increase (Decrease) 
 2021 2020 $ % 
 (dollars in thousands) 
 Salaries and employee benefits $ 329,138 $ 324,395 $ 4,743 1.5 % 
 Data processing and software 56,440 48,073 8,367 17.4 
 Net occupancy 53,799 53,013 786 1.5 
 Other outside services 34,194 31,432 2,762 8.8 
 Debt extinguishment 33,249 2,878 30,371 N/M 
 State taxes 18,793 12,613 6,180 49.0 
 Equipment 13,807 13,885 (78) (0.6) 
 FDIC insurance 10,665 8,865 1,800 20.3 
 Professional fees 9,647 12,835 (3,188) (24.8) 
 Amortization of TCI 6,187 6,126 61 1.0 
 Marketing 5,275 5,127 148 2.9 
 Intangible amortization 589 529 60 11.3 
 Other 46,047 59,669 (13,622) (22.8) 
 Total Non-Interest Expense $ 617,830 $ 579,440 $ 38,390 6.6 % 

 Non-interest expense increased $38.4 million, or 6.6%. Non-interest expense, excluding debt extinguishment costs of $33.2 million, was $584.6 million, an increase of $21.3 million, or 3.8%, compared to non-interest expenses of $563.2 million in 2020, which excludes expenses associated with cost savings initiatives of $16.2 million. Excluding the net decrease in severance costs of $5.9 million, the increase in non-interest expense over 2020 was primarily due to increases in salaries and benefits of $10.6 million, attributable to a $12.7 million increase in incentive compensation and bonuses. Also contributing to the increase in non-interest expense were $8.4 million in data processing and software and $2.8 million in other outside services expense, partially offset by a $3.2 million decrease in professional fees. 
 
 Income Taxes 
 
 Income tax expense for 2021 was $58.7 million, a $34.6 million increase compared to 2020. 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 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. 
 
 54 

 Comparison of 2020 to 2019 
 
 Non-Interest Income 
 The following table presents the components of non-interest income: 
 
 Increase (Decrease) 
 2020 2019 $ % 
 (dollars in thousands) 
 Commercial banking: 
 Merchant and card $ 23,139 $ 24,077 $ (938) (3.9) % 
 Cash management 18,725 18,392 333 1.8 
 Capital markets 18,288 14,875 3,413 22.9 
 Other commercial banking 10,134 13,773 (3,639) (26.4) 
 Total commercial banking 70,286 71,117 (831) (1.2) 
 Consumer banking: 
 Card 19,777 20,515 (738) (3.6) 
 Overdraft 12,556 17,949 (5,393) (30.0) 
 Other consumer banking 9,265 11,039 (1,774) (16.1) 
 Total consumer banking 41,598 49,503 (7,905) (16.0) 
 Wealth management fees 59,058 55,678 3,380 6.1 
 Mortgage banking: 
 Gains on sales of mortgage loans 53,599 17,881 35,718 N/M 
 Mortgage servicing income (11,290) 5,218 (16,508) N/M 
 Total mortgage banking 42,309 23,099 19,210 83.2 
 Other 13,084 12,030 1,054 8.8 
 Non-interest income before
 investment securities gains 226,335 211,427 14,908 7.1 
 Investment securities gains, net 3,053 4,733 (1,680) (35.5) 
 Total Non-Interest Income $ 229,388 $ 216,160 $ 13,228 6.1 % 

 Excluding net investment securities gains, non-interest income increased $14.9 million, or 7.1%, in 2020, as compared to 2019. 
 
 Total commercial banking income decreased $0.8 million, compared to 2019, driven mainly by a decrease in other commercial banking income (SBA lending income and other service charges as a result of COVID-19). This decrease was somewhat offset by an increase in capital markets revenue. 
 
 Total consumer banking decreased $7.9 million, or 16.0%, compared to 2019, driven primarily by lower overdraft fees. Other consumer banking income decreased largely due to lower ATM fees. 
 
 Wealth management revenues increased $3.4 million, or 6.1%, resulting primarily from growth in brokerage income due to an increase in client asset levels and improved overall market performance. 
 
 Mortgage banking income increased $19.2 million, or 83.2%, mainly due to gains on sales of mortgage loans, partially offset by a decrease in mortgage servicing income. Gains increased as a result of both higher volumes of loans sold and higher spreads on sales. The decrease in mortgage servicing income was driven by $10.5 million of MSR impairment charges and higher MSR amortization due to higher prepayments as a result of the lower rate environment. There were no MSR impairment charges in 2019. 
 
 Investment securities gains decreased $1.7 million, or 35.5%, mainly attributed to the difference in scope of the limited balance sheet restructures in 2020 and 2019. 
 
 55 

 Non-Interest Expense 
 
 The following table presents the components of non-interest expense: 
 
 Increase (Decrease) 
 2020 2019 $ % 
 (dollars in thousands) 
 Salaries and employee benefits $ 324,395 $ 311,934 $ 12,461 4.0 % 
 Net occupancy 53,013 52,826 187 0.4 
 Data processing and software 48,073 44,679 3,394 7.6 
 Other outside services 31,432 39,989 (8,557) (21.4) 
 Equipment 13,885 13,575 310 2.3 
 Professional fees 12,835 13,134 (299) (2.3) 
 State taxes 12,613 8,894 3,719 41.8 
 FDIC insurance 8,865 7,780 1,085 13.9 
 Amortization of TCI 6,126 6,021 105 1.7 
 Marketing 5,127 9,848 (4,721) (47.9) 
 Debt extinguishment 2,878 4,326 (1,448) (33.5) 
 Intangible amortization 529 1,427 (898) (62.9) 
 Other 59,669 53,303 6,366 11.9 
 Total non-interest expense $ 579,440 $ 567,736 $ 11,704 2.1 % 

 In the third quarter of 2020, the Corporation announced cost-savings initiatives which resulted in annual expense savings, not to be fully realized until mid-2021. In 2020, $16.2 million of expenses were recognized related to the cost-savings initiatives in the following categories: $5.6 million of severance expense (included in salaries and employee benefits) and $4.8 million of write-offs of fixed assets and $5.8 million of lease termination charges (both included in other expense). The Corporation has been reinvesting a portion of the cost savings to accelerate digital transformation initiatives. 
 
 In 2019, the Corporation recognized $10.9 million of expenses related to the Charter Consolidation, primarily in the following categories: $1.9 million of severance expense (included in salaries and employee benefits), $6.6 million of other outside services, $1.0 million of an intangible write-off (included in intangible amortization) and $0.6 million in marketing expense. 
 
 The more significant fluctuations in expense levels, excluding the cost-savings initiatives in 2020 and the Charter Consolidation costs in 2019, by category are explained below: 
 
 • Salaries and employee benefits increased $9.0 million mainly due to increases in employee salaries (annual merit increases), overtime and incentive compensation (primarily COVID-19 related for front-line employees). 
 
 • Other outside services decreased $2.0 million, or 5.9%, primarily due to more in-house development and less reliance on third-party service providers. 
 
 • Data processing and software increased $3.4 million, reflecting higher transaction volumes and costs related to growth and technology initiatives. 
 
 • Marketing decreased $4.1 million, or 44.3 %, as a result of reduced marketing campaigns. 
 
 • State taxes increased $3.7 million, or 41.8%, as a result of higher Pennsylvania Bank Shares tax due to the Bank's increased equity as well as higher sales taxes. 
 
 • Other expenses decreased $4.3 million compared to 2019, primarily driven by a decrease in travel and entertainment, influenced by the restrictions due to COVID-19. 
 
 56 

 FINANCIAL CONDITION 
 
 The table below presents condensed consolidated ending balance sheets. 
 
 December 31 Increase (Decrease) 
 2021 2020 $ % 
 (dollars in thousands) 
 Assets 
 Cash and cash equivalents $ 1,638,614 $ 1,847,832 $ (209,218) (11.3) % 
 FRB and FHLB Stock 57,635 92,129 (34,494) (37.4) % 
 Loans held for sale 35,768 83,886 (48,118) (57.4) 
 Investment securities 4,167,774 3,340,424 827,350 24.8 
 Loans, net 18,076,349 18,623,253 (546,904) (2.9) 
 Net premises and equipment 220,357 231,480 (11,123) (4.8) 
 Goodwill and intangibles 538,053 536,659 1,394 0.3 
 Other assets 1,061,848 1,151,070 (89,222) (7.8) 
 Total Assets $ 25,796,398 $ 25,906,733 $ (110,335) (0.4) % 
 Liabilities and Shareholders’ Equity 
 Deposits $ 21,573,499 $ 20,839,207 $ 734,292 3.5 % 
 Short-term borrowings 416,764 630,066 (213,302) (33.9) 
 Long-term borrowings 621,345 1,296,263 (674,918) (52.1) 
 Other liabilities 472,110 524,369 (52,259) (10.0) 
 Total Liabilities 23,083,718 23,289,905 (206,187) (0.9) 
 Total Shareholders’ Equity 2,712,680 2,616,828 95,852 3.7 
 Total Liabilities and Shareholders’ Equity $ 25,796,398 $ 25,906,733 $ (110,335) (0.4) % 

 Investment Securities 
 
 The following table presents the carrying amount of investment securities as of December 31: 
 
 2021 2020 
 (in thousands) 
 Available for Sale 
 U.S. Government securities $ 127,618 $ — 
 
 State and municipal securities 1,188,670 952,613 
 Corporate debt securities 386,133 367,145 
 Collateralized mortgage obligations 209,359 503,766 
 Residential Mortgage-backed securities 229,795 377,998 
 Commercial mortgage backed securities 971,148 762,415 
 Auction rate securities 74,667 98,206 
 
 3,187,390 3,062,143 
 Held to Maturity 
 
 Residential mortgage-backed securities 404,958 278,281 
 Commercial mortgage-backed securities 575,426 — 
 980,384 278,281 
 Total investment securities $ 4,167,774 $ 3,340,424 
 
 Total AFS securities increased $125.2 million, or 4.1%, to $3,187.4 million at December 31, 2021, primarily due to an increase in state and municipal securities and commercial mortgage backed securities, partially offset by a decrease in collateralized mortgage obligations. 
 
 57 

 Total HTM securities increased $702.1 million, primarily due to the addition of commercial mortgage-backed securities and an increase in residential mortgage-backed securities. 
 
 Loans 
 
 The following table presents ending loans outstanding, by type, as of the dates shown, and the changes in balances for the most recent year: 
 
 December 31 
 2021 2020 2019 
 (dollars in thousands) 
 Real estate – commercial mortgage $ 7,279,080 $ 7,105,092 $ 6,700,776 
 Commercial and industrial (1) 
 4,208,327 5,670,828 4,446,701 
 Real estate – residential mortgage 3,846,750 3,141,915 2,641,465 
 Real estate – home equity 1,118,248 1,202,913 1,314,944 
 Real estate – construction 1,139,779 1,047,218 971,079 
 Consumer 464,657 466,772 463,164 
 Equipment lease financing and other 283,557 284,377 322,625 
 Overdrafts 1,988 4,806 3,582 
 Gross loans 18,342,386 18,923,921 16,864,336 
 Unearned income (17,036) (23,101) (26,810) 
 Net Loans $ 18,325,350 $ 18,900,820 $ 16,837,526 

 (1) Includes PPP loans totaling $0.3 billion and $1.6 billion as of December 31, 2021 and 2020, respectively. 
 
 Net Loans decreased $575.5 million, or 3.0%, as of December 31, 2021 compared to December 31, 2020, primarily due to a $1,462.5 million decrease in commercial and industrial loans due to the decrease in PPP loans, partially offset by a $704.8 million increase in residential mortgage loans. 
 
 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, 2021, approximately $8,418.9 million, or 45.9%, of the loan portfolio was comprised of commercial mortgage and construction loans. The Corporation's policies limit the maximum total lending commitment to an individual borrower to $55.0 million as of December 31, 2021. 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. 
 
 58 

 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: 
 
 2021 2020 
 Real estate (1) 
 44.3 % 43.1 % 
 Health care 6.7 7.2 
 Agriculture 6.1 6.5 
 Manufacturing 5.1 5.0 
 Other services (2) 
 5.0 4.9 
 Construction (3) 
 3.9 4.7 
 Hospitality and food services 3.7 4.0 
 Retail 3.0 3.5 
 Wholesale trade 2.8 2.7 
 Educational services 2.7 3.0 
 Arts, entertainment and recreation 2.3 2.4 
 Professional, scientific and technical services 1.8 2.2 
 Public administration 1.5 1.7 
 Finance and Insurance 1.4 1.4 
 Transportation and warehousing 1.3 1.4 
 Other (4) 
 8.4 6.3 
 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) Excludes public administration. 
 (3) Includes commercial loans to borrowers engaged in the construction industry. 
 (4) Includes energy sector. 
 
 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 Real Estate -
Home
Equity Consumer Equipment Lease Financing Total 
 (in thousands) 
 Balance at December 31, 2019 $ 48,106 $ 33,166 $ 3,618 $ 16,676 $ 7,004 $ — $ 16,528 $ 125,098 
 Additions 37,208 37,538 153 12,994 5,621 3,742 3,177 100,433 
 Payments (34,405) (14,077) (2,358) (1,848) (1,617) (10) (1,205) (55,520) 
 Charge-offs (18,915) (4,225) (17) (620) (1,193) (3,400) (2,187) (30,557) 
 Transfers to OREO — (31) — (237) (227) — — (495) 
 Transfers to accrual status (1) (901) (1) (858) — — — (1,761) 
 Balance at December 31, 2020 31,993 51,470 1,395 26,107 9,588 332 16,313 137,198 
 Additions 40,722 36,664 404 12,498 1,972 2,628 1,919 96,807 
 Payments (27,175) (25,668) (859) (1,823) (1,785) (98) (341) (57,749) 
 Charge-offs (15,337) (8,726) (39) (1,290) (676) (2,633) (2,251) (30,952) 
 Transfers to OREO — — — — (274) — — (274) 
 Transfers to accrual status (62) (925) — (223) (154) — — (1,364) 
 Balance of non-accrual loans at December 31, 2021 $ 30,141 $ 52,815 $ 901 $ 35,269 $ 8,671 $ 229 $ 15,640 $ 143,666 

 Non-accrual loans increased $6.5 million, or 4.7%, in 2021. Non-accrual loans as a percentage of Net Loans increased to 0.78% at December 31, 2021, compared to 0.72% at December 31, 2020. 
 
 59 

 The following table presents non-performing assets as of the dates shown: 
 
 December 31, 
 2021 2020 2019 
 (in thousands) 
 Non-accrual loans (1) (2) (3) 
 $ 143,666 $ 137,198 $ 125,098 
 Loans 90 days or more past due and still accruing (2) 
 8,453 9,929 16,057 
 Total non-performing loans and leases 152,119 147,127 141,155 
 OREO (4) 
 1,817 4,178 6,831 
 Total non-performing assets $ 153,936 $ 151,305 $ 147,986 

 (1) The amount of interest income on non-accrual loans that was recognized in 2021 was approximately $1.3 million. 
 (2) Accrual of interest is generally discontinued when a loan becomes 90 days past due. In certain cases a loan may be placed on non-accrual status prior to being 90 days delinquent if there is an indication that the borrower is having difficulty making payments or the Corporation believes it is probable that all amounts will not be collected according to the contractual terms of the agreement. When interest accruals are discontinued, unpaid interest previously credited to income is reversed. Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently for six consecutive months or the loan is considered to be adequately secured and in the process of collection. Certain loans, primarily adequately collateralized residential mortgage loans, may continue to accrue interest after reaching 90 days past due. 
 (3) Excluded from non-performing assets as of December 31, 2021, were $29.5 million of loans modified under TDRs. These loans continue to accrue interest and are, therefore, not included in non-accrual loans. 
 (4) Excludes $6.4 million of residential mortgage properties for which formal foreclosure proceedings were in process as of December 31, 2021. 
 
 The following table presents non-performing loans, by type, as of the dates shown: 
 
 December 31, 
 2021 2020 2019 
 (dollars in thousands) 
 Commercial and industrial $ 30,629 $ 32,609 $ 49,491 
 Real estate – commercial mortgage 54,044 52,647 37,279 
 Real estate – residential mortgage 39,399 30,794 22,411 
 Real estate – home equity 10,924 1,550 10,568 
 Real estate – construction 901 12,341 4,306 
 Consumer 582 749 458 
 Equipment lease financing 15,640 16,437 16,642 
 Total non-performing loans $ 152,119 $ 147,127 $ 141,155 
 Non-performing loans to total loans 0.83 % 0.78 % 0.84 % 

 The following table presents TDRs as of the dates shown: 
 
 December 31, 
 2021 2020 2019 
 (in thousands) 
 Real estate – commercial mortgage $ 3,464 $ 28,451 $ 13,330 
 Commercial and industrial 1,857 6,982 5,193 
 Real estate – residential mortgage 11,948 18,602 21,551 
 Real estate – home equity 12,218 14,391 15,068 
 Consumer 5 — 8 
 
 Total accruing TDRs 29,492 68,426 55,150 
 Non-accrual TDRs (1) 
 55,945 35,755 20,825 
 Total TDRs $ 85,437 $ 104,181 $ 75,975 

 (1) Included within non-accrual loans in the preceding table. 
 
 The decrease in TDRs in 2021 compared to 2020 is primarily due to a decrease in commercial mortgage, residential mortgage and commercial and industrial loans, partially offset by an increase in non-accrual TDRs. 
 
 Total TDRs modified during 2021 and still outstanding as of December 31, 2021, were $33.5 million. Of these loans, $15.5 million, or 46.4%, had a payment default during 2021, which the Corporation defines as a single missed scheduled payment, 
 
 60 

 subsequent to modification. TDRs modified during 2020 and still outstanding as of December 31, 2020, totaled $45.3 million. Of these loans, $15.5 million, or 34.3%, had a payment default during 2020, which the Corporation defines as a single missed scheduled payment, subsequent to modification. 
 
 The following table summarizes OREO, by property type, as of December 31: 
 
 2021 2020 
 (in thousands) 
 Commercial properties $ 943 $ 1,730 
 Residential properties 669 1,496 
 Undeveloped land 205 952 
 Total OREO $ 1,817 $ 4,178 

 As noted under the heading "Critical Accounting Policies" within Management's Discussion, the Corporation's ability to identify potential problem loans in a timely manner is key to maintaining an adequate ACL. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal risk rating process is used to monitor credit quality. For a complete description of the Corporation's risk ratings, refer to the "Allowance for Credit Losses" section within "Note 1 - Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements in Item 8. "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 $12.4 billion and $13.7 billion as of December 31, 2021 and 2020, respectively. The following table presents criticized and classified loans, or those with internal risk ratings of special mention (1) or substandard or lower (2) for commercial mortgages, commercial and industrial loans and construction loans to commercial borrowers, by class segment, as of December 31: 
 
 Special Mention (1) 
 Increase (Decrease) Substandard or Lower (2) 
 Increase (Decrease) Total Criticized and Classified Loans 
 2021 2020 $ % 2021 2020 $ % 2021 2020 
 (dollars in thousands) 
 Real estate - commercial mortgage $ 387,279 $ 478,165 $ (90,886) (19.0)% $ 331,096 $ 181,970 $ 149,126 82.0% $ 718,375 $ 660,135 
 Commercial and industrial 142,369 154,039 (11,670) (7.6) 152,219 128,175 24,044 18.8 294,588 282,214 
 Real estate - construction (3) 
 58,841 13,259 45,582 N/M 6,324 5,469 855 15.6 65,165 18,728 
 Total $ 588,489 $ 645,463 $ (56,974) (8.8)% $ 489,639 $ 315,614 $ 174,025 55.1% $ 1,078,128 $ 961,077 
 % of total risk rated loans 4.7% 4.7% 3.9% 2.3% 8.6% 7.0% 

 (1) Considered "criticized" loans by banking regulators 
 (2) Considered "classified" loans by banking regulators 
 (3) Excludes construction - other 
 
 As of December 31, 2021, total loans with risk ratings of special mention decreased by $57.0 million, or 8.8%, and total loans with a risk rating of substandard or lower increased by $174.0 million, or 55.1%, resulting in an overall increase in total criticized loans of $117.1 million, 12.2% higher than 2020. The largest drivers of the migration into these risk rating categories was within the arts, recreation and entertainment industry, education industry and hospitality industry, which is included in the real estate - commercial mortgage category. 
 
 61 

 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 
 2021 2020 2021 2020 2021 2020 
 $ % $ % $ % $ % $ % $ % 
 (dollars in thousands) 
 Real estate - home equity 
 $ 5,523 0.49 % $ 7,276 0.55 % $ 11,123 0.99 % $ 12,340 0.94 % $ 16,646 1.49 % $ 19,616 1.49 % 
 Real estate - residential mortgage 
 25,877 0.67 29,956 0.95 39,542 1.03 30,665 0.98 65,419 1.70 60,621 1.93 
 Real estate - construction - other 
 1,318 0.11 1,938 0.20 173 0.02 178 0.02 1,491 0.13 2,116 0.22 
 Consumer 4,437 0.95 3,537 0.76 583 0.13 750 0.16 5,020 1.08 4,287 0.93 
 Equipment lease financing 
 253 0.09 988 0.33 15,641 5.83 16,437 5.49 15,894 5.92 17,425 5.82 
 Total $ 37,408 0.56 % $ 43,695 0.92 % $ 67,062 0.98 % $ 60,370 1.25 % $ 104,470 1.54 % $ 104,065 2.17 % 

 (1) Includes all accruing loans 30 days to 89 days past due. 
 (2) Includes all accruing loans 90 days or more past due and all non-accrual loans and leases. 
 
 62 

 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. 
 
 A summary of the Corporation’s activity in the ACL, including loans and OBS credit exposures: 
 
 2021 2020 2019 
 (dollars in thousands) 
 Net Loans $ 18,325,350 $ 18,900,820 $ 16,837,526 
 Average balance of Net Loans $ 18,627,787 $ 18,270,390 $ 16,430,347 
 Balance of ACL at beginning of period $ 291,940 $ 166,209 $ 169,410 
 Impact of adopting CECL on January 1, 2020 — 58,348 — 
 Loans charged off: 
 Commercial and industrial (15,337) (18,915) (42,410) 
 Real estate – commercial mortgage (8,726) (4,225) (1,837) 
 Real estate – home equity (676) (1,193) (1,291) 
 Consumer (2,633) (3,400) (3,403) 
 Equipment lease financing and other (2,251) (2,187) (2,560) 
 Real estate – residential mortgage (1,290) (620) (1,545) 
 Real estate – construction (39) (17) (143) 
 Total loans charged off (30,952) (30,557) (53,189) 
 Recoveries of loans previously charged off: 
 Commercial and industrial 9,587 11,396 8,721 
 Real estate – construction 1,412 5,122 2,591 
 Real estate – home equity 248 504 688 
 Consumer 2,097 1,875 1,306 
 Real estate – commercial mortgage 2,474 1,027 2,202 
 Equipment lease financing and other 953 605 666 
 Real estate – residential mortgage 375 491 989 
 Total recoveries 17,146 21,020 17,163 
 Net loans charged off (13,806) (9,537) (36,026) 
 Provision for credit losses (14,600) 76,920 32,825 
 Balance of ACL at end of period $ 263,534 $ 291,940 $ 166,209 
 Components of the ACL: 
 ACL - Loans $ 249,001 $ 277,567 $ 163,622 
 ACL - OBS credit exposures (1) 
 14,533 14,373 2,587 
 Balance of ACL at end of period $ 263,534 $ 291,940 $ 166,209 
 Selected Asset Quality Ratios: 
 Net charge-offs to average loans 0.07 % 0.05 % 0.22 % 
 ACL - loans to total Net Loans 1.36 1.47 0.97 
 ACL to total Net Loans 1.44 1.54 0.99 
 Non-performing assets (2) to total assets 
 0.60 0.58 0.68 
 Non-performing assets (2) to total loans and OREO 
 0.83 0.83 0.88 
 Non-accrual loans to total Net Loans 0.78 0.72 0.74 
 ACL - loans (3) to non-performing loans 
 163.69 188.66 117.75 
 Non-performing assets (2) to tangible common shareholders' equity and ACL - loans (3) 
 6.90 6.99 7.50 

 (1) Reserve for OBS credit exposures is recorded within other liabilities on the consolidated balance sheets. Prior to 2020, it was referred to as "reserve for unfunded lending commitments". See "Note 4 - Loans and Allowance for Credit Losses" in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." for further details. 
 (2) Includes accruing loans past due 90 days or more. 
 (3) Ratio represents a financial measure derived by methods other than GAAP. See reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure under the heading, "Supplemental Reporting of Non-GAAP Based Financial Measures," in the Overview of Item 7. "Management Discussion & Analysis of Financial Condition and Results of Operations." 
 
 63 

 The provision for credit losses decreased $91.5 million in comparison to 2020. The amounts recorded in 2021 were primarily driven by economic assumptions. Periods prior to 2020 did not incorporate "life of loan" losses under CECL and applied an incurred loss model, which would not have considered economic forecasts or forward-looking considerations over the remaining expected lives of loans. See "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." for further details. 
 
 The following table summarizes the allocation of the ACL - loans : 
 
 2021 2020 2019 
 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 $ 87,970 39.7 % $ 103,425 37.6 % $ 45,610 39.6 % 
 Commercial and industrial 67,056 22.9 74,771 30.0 68,602 26.4 
 Real estate - residential mortgage 54,236 21.0 51,995 16.6 19,771 15.7 
 Consumer, home equity, equipment lease financing 26,798 10.2 31,770 10.3 25,196 12.5 
 Real estate - construction 12,941 6.2 15,608 5.5 4,443 5.8 
 
 Total $ 249,001 100.0 % $ 277,567 100.0 % $ 163,622 100.0 % 

 (1) Ending loan balances as a % of total loans for the years presented. 
 
 Management believes that the $249.0 million ACL - loans as of December 31, 2021, was sufficient to cover expected losses in the loan portfolio. See additional disclosures in "Note 1 - Summary of Significant Accounting Policies," and "Note 4 - Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data;" and "Critical Accounting Policies" above. 
 
 Other Assets 
 
 Other assets decreased $73.7 million, or 6.8%, to $1.0 billion as of December 31, 2021, primarily due to the decrease in fair values of derivatives related to the Bank's customer back-to-back interest rate swap program of $177.2 million, partially offset by an increase on bank-owned life insurance of $90.1 million driven by purchases of new policies of $75.0 million during 2021. 
 
 Deposits and Borrowings 
 
 The following table presents ending deposits, by type, as of December 31: 
 
 Increase (Decrease) 
 2021 2020 $ % 
 (dollars in thousands) 
 Noninterest-bearing demand $ 7,370,963 $ 6,531,002 $ 839,961 12.9 % 
 Interest-bearing demand 5,819,539 5,818,564 975 — 
 Savings 6,403,995 5,929,792 474,203 8.0 
 Total demand and savings 19,594,497 18,279,358 1,315,139 7.2 
 Brokered deposits 251,526 335,185 (83,659) (25.0) 
 Time deposits 1,727,476 2,224,664 (497,188) (22.3) 
 Total deposits $ 21,573,499 $ 20,839,207 $ 734,292 3.5 % 

 Compared to 2021, total demand and savings deposits increased by $1.3 billion, or 7.2%, partially offset by a decrease in brokered deposits of $83.7 million and time deposits of $497.2 million. This shift from higher-cost to lower-cost deposits favorably impacted the Corporation's net interest margin and profitability. 
 
 64 

 The following table presents ending borrowings, by type, as of December 31: 
 
 Increase (Decrease) 
 2021 2020 $ % 
 (dollars in thousands) 
 Short-term borrowings: 
 
 Customer funding (1) 
 $ 416,764 $ 630,066 $ (213,302) (33.9) % 
 
 Long-term borrowings: 
 FHLB advances — 535,973 (535,973) (100.0) 
 Other long-term borrowings 621,345 760,290 (138,945) (18.3) 
 Total long-term borrowings 621,345 1,296,263 (674,918) (52.1) 
 Total borrowings $ 1,038,109 $ 1,926,329 $ (888,220) (46.1) % 

 (1) Includes short-term promissory notes. 
 
 Total short-term borrowings decreased $213.3 million, or 33.9%, compared to 2020, as a result of lower balances of customer short-term promissory notes. Long-term borrowings decreased $674.9 million, or 52.1%, compared to 2020, primarily due to the prepayment of FHLB advances as part of the balance sheet restructuring. Also, in the first quarter of 2021, the Corporation completed a cash tender offer for $75 million of 4.50% subordinated debt due in 2024 and $60 million of 3.60% senior notes due in 2022. 
 
 Other Liabilities 
 
 Other liabilities decreased $48.9 million, or 9.5%, to $465.1 million as of December 31, 2021, primarily as the result of a decrease in the fair values of derivatives related to the Bank's customer back-to-back interest rate swap program. 
 
 Shareholders’ Equity 
 
 Total shareholders’ equity increased $95.9 million, or 3.7%, to $2.7 billion, or 10.5% of total assets, as of December 31, 2021. The increase was due primarily to an increase in retained earnings reflecting the net income available to common shareholders of $265.2 million for 2021, partially offset by a $41.7 million increase in treasury stock primarily driven by the Corporation's share repurchase program. The Corporation repurchased 2.8 million shares of its common stock during 2021 at a cost of $43.9 million. As of December 31, 2021, up to an additional $31.1 million of common stock may be purchased through March 31, 2022 under the $75 million share repurchase program originally announced in February 2021. Shareholders' equity also decreased in 2021 due to a $37.7 million decrease in AOCI primarily from unrealized losses on and reclassification of securities. See "Note 14 - Shareholders' Equity" in the Notes to the Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data" for details of share repurchases. 
 
 The Corporation and its wholly owned subsidiary bank, Fulton Bank, are subject to regulatory capital requirements administered by the FRB and OCC. 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. The regulations require that banks and bank holding companies maintain minimum amounts and ratios of total, Tier I and Common Equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), and Tier I capital to average assets (as defined in the regulations). 
 
 The following table summarizes the Corporation’s capital ratios in comparison to regulatory requirements at December 31: 
 
 2021 2020 Regulatory
Minimum
for Capital
Adequacy Fully Phased-in, with Capital Conservation Buffers 
 Total Risk-Based Capital (to Risk-Weighted Assets) 14.1% 14.4% 8.0% 10.5% 
 Tier I Risk-Based Capital (to Risk-Weighted Assets) 10.9% 10.5% 6.0% 8.5% 
 Common Equity Tier I (to Risk-Weighted Assets) 9.9% 9.5% 4.5% 7.0% 
 Tier I Leverage Capital (to Average Assets) 8.6% 8.2% 4.0% 4.0% 

 In July 2013, the FRB 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 Basel III Rules substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions. 
 
 65 

 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 
 • 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. 
 
 As of January 1, 2019, the Corporation and Fulton Bank were also required to maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments. 
 
 The Basel III Rules use a standardized approach for risk weightings that expand the risk-weightings for assets and off-balance sheet exposures from the previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and off-balance sheet exposures, resulting in higher risk weights for a variety of asset categories. 
 
 As of December 31, 2021, 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. There are no conditions or events since December 31, 2021 that management believes have changed Fulton Bank's categories. See "Note 11 - Regulatory Matters," in the Notes to Consolidated Financial Statements in Item 8. "Financial Statements and Supplementary Data." 
 
 Contractual Obligations and Off-Balance Sheet Arrangements 
 
 The Corporation has various financial obligations that require future cash payments. These obligations include payments for liabilities recorded on the Corporation’s consolidated balance sheets as well as contractual obligations for purchased services. 
 
 Contractual purchase obligations to third parties that were fixed and determinable of $96 million and $75 million at December 31, 2021 and 2020, respectively, include information technology, telecommunication and data processing outsourcing contracts. The increase is primarily driven by a contract extension with the Bank's core information system provider. 
 
 The Corporation is a party to financial instruments with OBS risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit and interest rate risk that are not recognized on the consolidated balance sheets. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued to guarantee the financial or performance obligation of a customer to a third party. Commercial letters of credit are conditional commitments issued to facilitate foreign or domestic trade transactions for customers. Commitments and standby and commercial letters of credit do not necessarily represent future cash needs, as they may expire without being drawn. 
 
 The following table presents the Corporation’s commitments to extend credit and letters of credit as of December 31, 2021 (in thousands): 
 
 Commercial and industrial $ 5,072,008 
 Real estate - commercial mortgage and real estate - construction 1,914,238 
 Real estate - home equity 1,744,922 
 Total commitments to extend credit $ 8,731,168 
 
 Standby letters of credit $ 298,275 
 Commercial letters of credit 54,196 
 Total letters of credit $ 352,471 

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FULTON FINANCIAL CORP 10-K

Item 7. Management’s Discussion and Analysis
