FULTON FINANCIAL CORP 10-K

Item 8. Financial Statements and Supplementary Data CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per-share data) December 31, 2021 2020 ASSETS Cash and due from banks $ 172,276 $ 120,462 Interest-bearing deposits with other banks 1,466,338 1,727,370 Cash and cash equivalents 1,638,614 1,847,832 FRB and FHLB stock 57,635 92,129 Loans held for sale 35,768 83,886 Investment securities: AFS, at estimated fair value 3,187,390 3,062,143 HTM, at amortized cost 980,384 278,281 Net Loans 18,325,350 18,900,820 Less: ACL - loans ( 249,001 ) ( 277,567 ) Loans, net 18,076,349 18,623,253 Net premises and equipment 220,357 231,480 Accrued interest receivable 57,451 72,942 Goodwill and net intangible assets 538,053 536,659 Other assets 1,004,397 1,078,128 Total Assets $ 25,796,398 $ 25,906,733 LIABILITIES Deposits: Noninterest-bearing $ 7,370,963 $ 6,531,002 Interest-bearing 14,202,536 14,308,205 Total Deposits 21,573,499 20,839,207 Short-term borrowings 416,764 630,066 Accrued interest payable 7,000 10,365 Long-term borrowings 621,345 1,296,263 Other liabilities 465,110 514,004 Total Liabilities 23,083,718 23,289,905 SHAREHOLDERS’ EQUITY Preferred stock, no par value, 10.0 million shares authorized, Series A, 0.2 million shares authorized and issued in 2021 and 2020, liquidation preference of $ 1,000 per share 192,878 192,878 Common stock, 2.50 par value, 600.0 million shares authorized, 223.9 million shares issued in 2021 and 223.2 million issued in 2020 559,766 557,917 Additional paid-in capital 1,519,873 1,508,117 Retained earnings 1,282,383 1,120,781 Accumulated other comprehensive gain 27,411 65,091 Treasury stock, at cost, 63.4 million shares in 2021 and 60.8 million shares in 2020 ( 869,631 ) ( 827,956 ) Total Shareholders’ Equity 2,712,680 2,616,828 Total Liabilities and Shareholders’ Equity $ 25,796,398 $ 25,906,733 See Notes to Consolidated Financial Statements 72 CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per-share data) 2021 2020 2019 Interest Income Loans, including fees $ 638,595 $ 656,077 $ 737,932 Investment securities: Taxable 55,351 58,173 62,556 Tax-exempt 24,470 21,047 14,218 Loans held for sale 1,302 2,077 1,351 Other interest income 3,694 5,504 9,249 Total Interest Income 723,412 742,878 825,306 Interest Expense Deposits 30,005 70,046 131,775 Short-term borrowings 583 5,227 14,543 Long-term borrowings 29,094 38,398 30,599 Total Interest Expense 59,682 113,671 176,917 Net Interest Income 663,730 629,207 648,389 Provision for credit losses ( 14,600 ) 76,920 32,825 Net Interest Income After Provision for Credit Losses 678,330 552,287 615,564 Non-Interest Income Commercial banking 68,689 70,286 71,117 Consumer banking 45,544 41,598 49,503 Wealth management 71,798 59,058 55,678 Mortgage banking 33,576 42,309 23,099 Other 20,622 13,084 12,030 Non-Interest Income Before Investment Securities Gains, Net 240,229 226,335 211,427 Investment securities gains, net 33,516 3,053 4,733 Total Non-Interest Income 273,745 229,388 216,160 Non-Interest Expense Salaries and employee benefits 329,138 324,395 311,934 Data processing and software 56,440 48,073 44,679 Net occupancy 53,799 53,013 52,826 Other outside services 34,194 31,432 39,989 Debt extinguishment 33,249 2,878 4,326 State taxes 18,793 12,613 8,894 Equipment 13,807 13,885 13,575 FDIC insurance 10,665 8,865 7,780 Professional fees 9,647 12,835 13,134 Amortization of TCI 6,187 6,126 6,021 Marketing 5,275 5,127 9,848 Intangible amortization 589 529 1,427 Other 46,047 59,669 53,303 Total Non-Interest Expense 617,830 579,440 567,736 Income Before Income Taxes 334,245 202,235 263,988 Income taxes 58,748 24,195 37,649 Net Income 275,497 178,040 226,339 Preferred stock dividends ( 10,277 ) ( 2,135 ) — Net Income Available to Common Shareholders $ 265,220 $ 175,905 $ 226,339 PER SHARE: Net income available to common shareholders (basic) $ 1.63 $ 1.08 $ 1.36 Net income available to common shareholders (diluted) 1.62 1.08 1.35 Cash dividends 0.64 0.56 0.56 See Notes to Consolidated Financial Statements 73 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) 2021 2020 2019 Net Income $ 275,497 $ 178,040 226,339 Other Comprehensive (Loss)/Income, net of tax: Unrealized gains (losses) on AFS investment securities: Unrealized (loss)/gain on securities ( 17,948 ) 65,651 56,919 Reclassification adjustment for securities gains included in net income ( 25,905 ) ( 2,359 ) ( 3,686 ) Amortization of net unrealized losses on AFS securities transferred to HTM 2,690 3,448 6,285 Non-credit related unrealized (loss) gain on other-than-temporarily impaired debt securities — — ( 680 ) Net unrealized gains (losses) on AFS investment securities ( 41,163 ) 66,740 58,838 Unrealized (losses) gains on interest rate swaps used in cash flow hedges: Net unrealized holding (losses) gains arising during the period ( 2,147 ) — — Less: reclassification adjustment for net losses (gains) realized in net income 2,670 — — Net unrealized (losses) gains on interest rate swaps used in cash flow hedges ( 4,817 ) — — Defined benefit pension plan and postretirement benefits: Unrecognized pension and postretirement (cost) income 7,144 ( 2,532 ) ( 937 ) Amortization of net unrecognized pension and postretirement income 1,156 1,020 1,025 Net unrealized (losses) gains on defined benefit pension and postretirement plans 8,300 ( 1,512 ) 88 Other Comprehensive (Loss)/Income ( 37,680 ) 65,228 58,926 Total Comprehensive Income $ 237,817 $ 243,268 $ 285,265 See Notes to Consolidated Financial Statements 74 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands, except per share data) Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Shares Amount Shares Amount Retained Earnings Treasury Stock Total Balance at December 31, 2018 — $ — 170,184 $ 554,377 $ 1,489,703 $ 946,032 $ ( 59,063 ) $ ( 683,476 ) $ 2,247,573 Net income 226,339 226,339 Other comprehensive income 58,926 58,926 Common stock issued 883 1,733 2,565 2,064 6,362 Stock-based compensation awards 7,413 7,413 Acquisition of treasury stock ( 6,849 ) ( 111,457 ) ( 111,457 ) Common stock cash dividends - $ 0.56 per share ( 92,980 ) ( 92,980 ) Balance at December 31, 2019 — $ — 164,218 $ 556,110 $ 1,499,681 $ 1,079,391 $ ( 137 ) $ ( 792,869 ) $ 2,342,176 Net income 178,040 178,040 Other comprehensive income 65,228 65,228 Preferred stock issued 200 192,878 192,878 Common stock issued 1,040 1,807 907 4,661 7,375 Stock-based compensation awards 7,529 7,529 Acquisition of treasury stock ( 2,908 ) ( 39,748 ) ( 39,748 ) Adjustment for CECL(1) ( 43,807 ) ( 43,807 ) Preferred stock dividend ( 2,135 ) ( 2,135 ) Common stock cash dividends - $ 0.56 per share ( 90,708 ) ( 90,708 ) Balance at December 31, 2020 200 $ 192,878 162,350 $ 557,917 $ 1,508,117 $ 1,120,781 $ 65,091 $ ( 827,956 ) $ 2,616,828 Net income 275,497 275,497 Other comprehensive loss ( 37,680 ) ( 37,680 ) Common stock issued 943 1,849 3,354 2,234 7,437 Stock-based compensation awards 8,402 8,402 Acquisition of treasury stock ( 2,803 ) ( 43,909 ) ( 43,909 ) Preferred stock dividend ( 10,277 ) ( 10,277 ) Common stock cash dividends - $ 0.64 per share ( 103,618 ) ( 103,618 ) Balance at December 31, 2021 200 $ 192,878 160,490 $ 559,766 $ 1,519,873 $ 1,282,383 $ 27,411 $ ( 869,631 ) $ 2,712,680 See Notes to Consolidated Financial Statements (1) The Corporation adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments on January 1, 2020. See Note 1 to the Consolidated Financial Statements for further details. 75 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 275,497 $ 178,040 $ 226,339 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses ( 14,600 ) 76,920 32,825 Depreciation and amortization of premises and equipment 28,802 28,803 28,200 Amortization of TCI 28,003 30,800 32,810 Net amortization of investment securities premiums 16,031 12,222 9,387 Deferred income tax benefit 12,410 ( 21,591 ) ( 165 ) Investment securities gains, net ( 33,516 ) ( 3,053 ) ( 4,733 ) Gain on sales of mortgage loans held for sale ( 24,379 ) ( 53,599 ) ( 17,882 ) Proceeds from sales of mortgage loans held for sale 1,050,943 1,536,174 916,725 Originations of mortgage loans held for sale ( 978,446 ) ( 1,528,633 ) ( 909,572 ) Intangible amortization 589 529 1,427 Amortization of issuance costs and discounts on long-term borrowings 1,846 1,128 842 Debt extinguishment costs 33,249 2,877 — Stock-based compensation 8,402 7,529 7,413 Other changes, net ( 62,559 ) ( 110,781 ) ( 195,903 ) Total adjustments 66,775 ( 20,675 ) ( 98,626 ) Net cash provided by operating activities 342,272 157,365 127,713 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of AFS securities 359,137 215,150 710,739 Proceeds from principal repayments and maturities of AFS securities 469,393 430,845 234,702 Proceeds from principal repayments and maturities of HTM securities 117,958 93,823 83,121 Purchase of AFS securities ( 1,309,470 ) ( 1,134,380 ) ( 1,138,070 ) Purchase of HTM securities ( 443,081 ) — — Sale of Visa Shares 33,962 — — Sale (purchase) of FRB and FHLB stock 34,494 5,293 ( 18,139 ) Net decrease (increase) in loans 561,664 ( 2,072,831 ) ( 708,048 ) Net purchases of premises and equipment ( 17,679 ) ( 20,237 ) ( 33,717 ) Net cash paid for acquisition ( 1,982 ) ( 1,884 ) ( 5,174 ) Net change in tax credit investments ( 18,363 ) ( 15,259 ) ( 18,760 ) Net cash used in investing activities ( 213,967 ) ( 2,499,480 ) ( 893,346 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand and savings deposits 1,315,139 3,951,905 849,437 Net (decrease) increase in time deposits ( 580,847 ) ( 506,611 ) 168,317 Net (decrease) increase in short-term borrowings ( 213,302 ) ( 253,175 ) 128,464 Proceeds from long-term borrowings 620 495,898 485,000 Repayments of long-term borrowings ( 710,633 ) ( 85,410 ) ( 596,056 ) Net proceeds from issuance of preferred stock — 192,878 — Net proceeds from issuance of common stock 7,437 7,375 6,362 Dividends paid ( 112,028 ) ( 90,956 ) ( 92,330 ) Acquisition of treasury stock ( 43,909 ) ( 39,748 ) ( 111,457 ) Net cash (used in) provided by financing activities ( 337,523 ) 3,672,156 837,737 Net (decrease) increase in Cash and Cash Equivalents ( 209,218 ) 1,330,041 72,104 Cash and Cash Equivalents at Beginning of Period 1,847,832 517,791 445,687 Cash and Cash Equivalents at End of Period $ 1,638,614 $ 1,847,832 $ 517,791 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 63,047 $ 112,140 $ 178,612 Income taxes 27,870 16,190 9,193 Supplemental Schedule of Certain Noncash Activities: Transfer of AFS securities to HTM securities $ 376,165 $ — $ — Transfer of HTM securities to AFS securities — — 158,898 See Notes to Consolidated Financial Statements 76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business: The Corporation is a financial holding company that provides a full range of banking and financial services to businesses and consumers through its wholly owned banking subsidiary, Fulton Bank. In addition, the Parent Company owns the following non-bank subsidiaries: Fulton Financial Realty Company, Central Pennsylvania Financial Corp., FFC Management, Inc., FFC Penn Square, Inc. and Fulton Insurance Services Group, Inc. Collectively, the Parent Company and its subsidiaries are referred to as the Corporation. The Corporation’s primary sources of revenue are interest income on loans, investment securities and other interest-earning assets and fee income earned on its products and services. Its expenses consist of interest expense on deposits and borrowed funds, provision for credit losses, other operating expenses and income taxes. The Corporation’s primary competition is other financial services providers operating in its region. Competitors also include financial services providers located outside the Corporation’s geographic market as a result of the growth in electronic delivery channels. The Corporation is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by such regulatory agencies. The Corporation offers, through its banking subsidiary, a full range of retail and commercial banking services in Pennsylvania, Delaware, Maryland, New Jersey and Virginia. Industry diversity is the key to the economic well-being of these markets, and the Corporation is not dependent upon any single customer or industry. Basis of Financial Statement Presentation: The consolidated financial statements have been prepared in conformity with GAAP and include the accounts of the Parent Company and all wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amount of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The Corporation evaluates subsequent events through the date of the filing of this report with the SEC. Cash and Cash Equivalents and Restricted Cash: Cash and cash equivalents consists of cash and due from banks and interest bearing deposits with other banks, which includes restricted cash. Restricted cash comprises cash balances required to be maintained with the FRB, based on customer transaction deposit account levels, and cash balances provided as collateral on derivative contracts and other contracts. See Note 2, "Restrictions on Cash and Cash Equivalents" for additional information. FRB and FHLB Stock: The Bank is a member of the FRB and FHLB and is required by federal law to hold stock in these institutions according to predetermined formulas. These restricted investments are carried at cost on the consolidated balance sheets and are periodically evaluated for impairment. Investments: Debt securities are classified as HTM at the time of purchase when the Corporation has both the intent and ability to hold these investments until they mature. Such debt securities are carried at cost, adjusted for amortization of premiums and accretion of discounts using the effective yield method. The Corporation does not engage in trading activities; however, since the investment portfolio serves as a source of liquidity, most debt securities are classified as AFS. AFS securities are carried at estimated fair value with the related unrealized holding gains and losses reported in shareholders’ equity as a component of OCI, net of tax. Realized securities gains and losses are computed using the specific identification method and are recorded on a trade date basis. The Corporation early adopted ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivative and Hedging, and Topic 825, Financial Instruments," in the third quarter of 2019, which permitted the one-time reclassification of certain HTM securities to AFS under Topic 815, specific to the transition guidance of ASU update 2017-12, which the Corporation adopted on January 1, 2019. See “Note 3 - Investment Securities” for additional information on this reclassification. The portion of this standards update related to codification improvements specific to Topic 326 was implemented with the Corporation’s adoption of ASU 2016-13 in the first quarter of 2020. HTM Debt Securities: Expected credit losses on HTM debt securities would be recorded in the ACL on HTM debt securities. As of December 31, 2021, no HTM debt securities required an ACL as these investments consist solely of government guaranteed residential mortgage-backed securities. 77 AFS Debt Securities : The ACL approach for AFS debt securities differs from the approach used for HTM debt securities as AFS debt securities are carried at fair value rather than amortized cost. In evaluating credit losses on AFS debt securities, management considers factors such as delinquency, guarantees and whether the securities are rated higher than investment grade. As of December 31, 2021, no AFS debt securities required an ACL. Fair Value Option: The Corporation has elected to measure mortgage loans held for sale at fair value. Derivative financial instruments related to mortgage banking activities are also recorded at fair value, as detailed under the heading "Derivative Financial Instruments," below. The Corporation determines fair value for its mortgage loans held for sale based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Changes in fair values during the period are recorded as components of mortgage banking income on the consolidated statements of income. Interest income earned on mortgage loans held for sale is classified in interest income on the consolidated statements of income. Loans : Loans are stated at their principal amount outstanding, except for mortgage loans held for sale, which are carried at fair value. Interest income on loans is accrued as earned. In general, loans are placed on non-accrual status once they become 90 days delinquent as to principal or interest. In certain cases a loan may be placed on non-accrual status prior to being 90 days delinquent if there is an indication that the borrower is having difficulty making payments, or the Corporation believes it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. When interest accruals are discontinued, unpaid interest previously credited to income is reversed. Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently for six consecutive months or the loan is considered secured and in the process of collection. The Corporation generally applies payments received on non-accruing loans to principal until such time as the principal is paid off, after which time any payments received are recognized as interest income. If the Corporation believes that all amounts outstanding on a non-accrual loan will ultimately be collected, payments received subsequent to its classification as a non-accrual loan are allocated between interest income and principal. A loan that is 90 days delinquent may continue to accrue interest if the loan is both adequately secured and is in the process of collection. Past due status is determined based on contractual due dates for loan payments. An adequately secured loan is one that has collateral with a supported fair value that is sufficient to discharge the debt, and/or has an enforceable guarantee from a financially responsible party. A loan is considered to be in the process of collection if collection is proceeding through legal action or through other activities that are reasonably expected to result in repayment of the debt or restoration to current status in the near future. Loans deemed to be a loss are written off through a charge against the ACL. Closed-end consumer loans are generally charged- off when they become 120 days past due ( 180 days for open-end consumer loans) if they are not adequately secured by real estate. All other loans are evaluated for possible charge-off when it is probable that the balance will not be collected, based on the ability of the borrower to pay and the value of the underlying collateral, if any. Principal recoveries of loans previously charged-off are recorded as increases to the ACL. Loan Origination Fees and Costs: Loan origination fees and the related direct origination costs are deferred and amortized over the life of the loan as an adjustment to interest income using the effective yield method. For mortgage loans sold, net loan origination fees and costs are included in the gain or loss on sale of the related loan, as components of mortgage banking. Loan origination fees and the related direct origination costs for loans originated under the PPP loan program are amortized on a straight-line basis over the repayment period of the loan. To the extent that a PPP loan is forgiven, the unamortized fees and costs will be recognized as interest income at the time of forgiveness. Troubled Debt Restructurings: Loans are accounted for and reported as TDRs when, for economic or legal reasons, the Corporation grants a concession to a borrower experiencing financial difficulty that it would not otherwise consider. Concessions, whether negotiated or imposed by bankruptcy, granted under a TDR typically involve a temporary deferral of scheduled loan payments, an extension of a loan’s stated maturity date or a reduction in the interest rate. Non-accrual TDRs can be restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. On March 27, 2020 the CARES Act was signed into law. The CARES Act includes an option for financial institutions to suspend the requirements of GAAP for certain loan modifications that would otherwise be categorized as a TDR. Certain conditions must be met with respect to the loan modification including that the modification is related to COVID-19 and the modified loan was not more than 30 days past due on December 31, 2019. On December 27, 2020, the 2021 Consolidated Appropriations Act was signed into law and this Act extended the relief for TDR treatment until January 1, 2022, when it expired. The Corporation is applying the option under the CARES act for all loan modifications that qualify. 78 In November 2021, the FASB issued a proposed ASU as part of its Post-Implementation Review process. As part of that process, the proposed ASU would eliminate the accounting guidance for TDRs, effective in 2022. Allowance for Credit Losses: CECL Adoption 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. The Corporation adopted CECL using the modified retrospective method for all financial assets measured at amortized cost, net investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under CECL, while prior period results are reported in accordance with the previously applicable incurred loss methodology, ASC 310-10 and ASC 450-20. The Corporation recorded an increase of $ 58.3 million to the ACL on January 1, 2020 as a result of the adoption of CECL. Retained earnings decreased $ 43.8 million, and DTAs increased by $ 12.4 million. Included in the $ 58.3 million increase to the ACL was $ 2.1 million for certain OBS credit exposures that was previously recognized in other liabilities before the adoption of CECL. The Corporation has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income. Loans: The ACL for loans is an estimate of the expected losses to be realized over the life of the loans in the portfolio. The ACL is determined for two distinct categories of loans: 1) loans evaluated collectively for expected credit losses and 2) loans evaluated individually for expected credit losses. Loans Evaluated Collectively : Loans evaluated collectively for expected credit losses include loans on accrual status, excluding accruing TDRs, and loans initially evaluated individually, but determined not to have enhanced credit risk characteristics. This category includes loans on non-accrual status and TDRs where the total commitment amount is less than $1 million. The ACL is estimated by applying a PD and LGD to the EAD at the loan level. In order to determine the PD, LGD, and EAD calculation inputs: • Loans are aggregated into pools based on similar risk characteristics. • The PD and LGD rates are determined by historical credit loss experience for each pool of loans. • The loan segment PD rates are estimated using six econometric regression models that use the Corporation’s historical credit loss experience and incorporate reasonable and supportable economic forecasts for various macroeconomic variables that are statistically correlated with expected loss behavior in the loan segment. • The reasonable and supportable forecast for each macroeconomic variable is sourced from an external third party and is applied over the contractual term of the Corporation’s loan portfolio. The Corporation’s economic forecast considers the general health of the economy, the interest rate environment, real estate pricing and market risk. • A single baseline forecast scenario is used for each macroeconomic variable. • The loan segment lifetime LGD rates are estimated using a loss rate approach based on the Corporation’s historical charge-off experience and the balance at the time of loan default. • The LGD rates are adjusted for the Corporation’s recovery experience. • To calculate the EAD, the corporation estimates contractual cash flows over the remaining life of each loan. Certain cash flow assumptions are established for each loan using maturity date, amortization schedule and interest rate. In addition, a prepayment rate is used in determining the EAD estimate. Loans Evaluated Individually : Loans evaluated individually for expected credit losses include loans on non-accrual status and TDRs where the commitment amount equals or exceeds $1.0 million. The required ACL for such loans is determined using either the present value of expected future cash flows, observable market price or the fair value of collateral. Loans evaluated individually may have specific allocations of the ACL assigned if the measured value of the loan using one of the noted techniques is less than its current carrying value. For loans measured using the fair value of collateral, if the analysis determines that sufficient collateral value would be available for repayment of the debt, then no allocations would be assigned to those loans. Collateral could be in the form of real estate or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate. 79 For loans secured by real estate, estimated fair values are determined primarily through appraisals performed by third-party appraisers, discounted to arrive at expected net sale proceeds. For collateral dependent loans, estimated real estate fair values are also net of estimated selling costs. When a real estate secured loan is impaired, a decision is made regarding whether an updated appraisal of the real estate is necessary. This decision is based on various considerations, including: the age of the most recent appraisal; the loan-to-value ratio based on the original appraisal; the condition of the property; the Corporation’s experience and knowledge of the real estate market; the purpose of the loan; market factors; payment status; the strength of any guarantors; and the existence and age of other indications of value such as broker price opinions, among others. The Corporation generally obtains updated appraisals performed by third-party appraisers for impaired loans secured predominantly by real estate every 12 months. When updated appraisals are not obtained for loans secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated an acceptable loan-to-value position and there has not been a significant deterioration in the collateral value since the original appraisal was performed. For loans with principal balances greater than or equal to $1.0 million secured by non-real estate collateral, such as accounts receivable or inventory, estimated fair values are determined based on borrower financial statements, inventory listings, accounts receivable agings or borrowing base certificates. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. Liquidation or collection discounts are applied to these assets based upon existing loan evaluation policies. Management regularly reviews loans in the portfolio to assess credit quality indicators and to determine appropriate loan classification. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal risk rating process is used. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk rating categories is a significant component of the ACL methodology for these loans, which bases the PD on this migration. Assigning risk ratings involves judgment. Risk ratings may be changed based on ongoing monitoring procedures, or if specific loan review assessments identify a deterioration or an improvement in the loan. The following is a summary of the Corporation's internal risk rating categories: • Pass : These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk. • Special Mention : These loans have a heightened credit risk, but not to the point of justifying a classification of Substandard. Loans in this category are currently acceptable but, are nevertheless potentially weak. • Substandard or Lower : These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt. The allocation of the ACL is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Corporation considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type. Qualitative and Other Adjustments to ACL: In addition to the quantitative credit loss estimates for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. These qualitative factors include changes in lending policy, the nature and volume of the portfolio, overall business conditions in the economy, credit concentrations, specific industry risks, model imprecision and legal and regulatory requirements. Qualitative adjustments are judgmental and are based on management’s knowledge of the portfolio and the markets in which the Corporation operates. Qualitative adjustments are evaluated and approved on a quarterly basis. Additionally, the ACL includes other allowance categories that are not directly incorporated in the quantitative results. These categories include but are not limited to loans-in-process, trade acceptances and overdrafts. OBS Credit Exposures: The ACL for OBS credit exposures is recorded in other liabilities on the consolidated balance sheets. This portion of the ACL represents management’s estimate of expected losses in its unfunded loan commitments and other OBS credit exposures. The ACL specific to unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). The ACL for OBS credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses. ACL Methodology Before CECL Adoption For the years ended December 31, 2019 and prior, the ACL consists of the ACL for loans and unfunded commitments. The ACL represents management’s estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a 80 reduction to loans. The ACL for unfunded commitments represents management’s estimate of incurred losses in its unfunded loan commitments and other off-balance sheet credit exposures, such as letters of credit, and is recorded in other liabilities on the consolidated balance sheets. The ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries. The Corporation’s ACL for loans includes: 1) specific allowances allocated to loans evaluated for impairment under the ASC Section 310-10-35; and 2) allowances calculated for pools of loans evaluated for impairment under ASC Subtopic 450-20. A loan is considered to be impaired if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. All loans not evaluated for impairment under ASC Section 310-10-35 are evaluated for impairment under ASC Subtopic 450-20, using a pooled loss evaluation approach. Loans are segmented into pools with similar characteristics and a consistently developed loss factor is then applied to all loans in these pools. The Corporation calculates allowance for loan loss allocation needs for loans evaluated under ASC Subtopic 450-20 through the following procedures: The loans are segmented into pools with similar characteristics, as noted above. Commercial loans, commercial mortgages and construction loans to commercial borrowers are further segmented into separate pools based on internally assigned risk ratings. Residential mortgages, home equity loans, consumer loans, and equipment lease financing are further segmented into separate pools based on delinquency status; • A loss rate is calculated for each pool through an analysis of historical losses as loans migrate through the various risk rating or delinquency categories. Estimated loss rates are based on a probability of default and a loss rate forecast; • The loss rate is adjusted to consider qualitative factors, such as economic conditions and trends; and • The resulting adjusted loss rate is applied to the balance of the loans in the pool to arrive at the allowance allocation for the pool. The allocation of the ACL for loans is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio. The Corporation considers risk factors such as: local and national economic conditions; trends in delinquencies and non-accrual loans; the diversity of borrower industry types; and the composition of the portfolio by loan type. Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation and amortization. The provision for depreciation and amortization is generally computed using the straight-line method over the estimated useful lives of the related assets, which are a maximum of 50 years for buildings and improvements, 8 years for furniture and 5 years for equipment. Leasehold improvements are amortized over the shorter of the useful life or the non-cancelable lease term. See Note 5, "Premises and Equipment" for additional information. OREO: Assets acquired in settlement of mortgage loan indebtedness are recorded as OREO and are included in other assets on the consolidated balance sheets, initially at the lower of the estimated fair value of the asset, less estimated selling costs, or the carrying amount of the loan. Costs to maintain the assets and subsequent gains and losses on sales are included in other non-interest expense on the consolidated statements of income. MSRs: The estimated fair value of MSRs related to residential mortgage loans sold and serviced by the Corporation is recorded as an asset upon the sale of such loans. MSRs are amortized as a reduction to mortgage servicing income, included as a component of mortgage banking income on the consolidated statements of income, over the estimated lives of the underlying loans. MSRs are stratified and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair values are determined through a discounted cash flows valuation completed by a third-party valuation expert. Significant inputs to the valuation include expected net servicing income, the discount rate and the expected lives of the underlying loans. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. To the extent the amortized cost of the MSRs exceeds their estimated fair value, a valuation allowance is established through a charge against servicing income. If subsequent valuations indicate that impairment no longer exists, the valuation allowance is reduced through an increase to servicing income. See Note 7, "Mortgage Servicing Rights" for additional information. Derivative Financial Instruments: The Corporation manages its exposure to certain interest rate and foreign currency risks through the use of derivatives. Certain of the Corporation's outstanding derivative contracts are designated as hedges, and none are entered into for speculative purposes. The Corporation enters into derivative contracts that are intended to economically hedge certain of its risks, even if hedge accounting does not apply or the Corporation elects not to apply hedge accounting. 81 The Corporation records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Corporation has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. The Corporation does not have any derivative instruments designated as fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For derivatives designated as cash flow hedges where hedge accounting is applied, changes in fair value are recognized in other comprehensive income. For derivatives where hedge accounting does not apply, changes in fair value are recognized in earnings as components of non-interest income or non-interest expense on the consolidated statements of income. Derivative contracts create counterparty credit risk with both the Corporation's customers and with institutional derivative counterparties. The Corporation manages counterparty credit risk through its credit approval processes, monitoring procedures and obtaining adequate collateral, when the Corporation determines it is appropriate to do so and in accordance with counterparty contracts. For each of the derivatives, gross derivative assets and liabilities are recorded in other assets and other liabilities, respectively, on the consolidated balance sheets. Related gains and losses on these derivative instruments are recorded in other changes, net on the consolidated statement of cash flows. Mortgage Banking Derivatives In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Interest Rate Swaps - Non-Designated Hedges The Corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. As the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. The Corporation’s existing credit derivatives result from participation in interest rate swaps provided by external lenders as part of loan participation arrangements and, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain lenders participating in loans. The Corporation is required to clear all eligible interest rate swap contracts with a clearing agent and is subject to the regulations of the Commodity Futures Trading Commission. Cash Flow Hedges of Interest Rate Risk The Corporation’s objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate swaps as part of its interest rate risk management strategy. During the first quarter of 2021, the Corporation entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Corporation making floating-rate payments over the life of the agreements without exchange of the underlying notional amount. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction 82 affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the Corporation’s variable-rate loans. Foreign Exchange Contracts The Corporation enters into foreign exchange contracts to accommodate the needs of its customers. Foreign exchange contracts are commitments to buy or sell foreign currency on a specific date at a contractual price. The Corporation limits its foreign exchange exposure with customers by entering into contracts with institutional counterparties to mitigate its foreign exchange risk. The Corporation also holds certain amounts of Foreign Currency Nostro Accounts. The Corporation limits the total overnight net foreign currency open positions, which is defined as an aggregate of all outstanding contracts and Foreign Currency Nostro Account balances, to $ 500,000 . See "Note 10 - Derivative Financial Instruments" for additional information. Balance Sheet Offsetting: Certain financial assets and liabilities may be eligible for offset on the consolidated balance sheets because they are subject to master netting arrangements or similar agreements. The Corporation has elected to net its financial assets and liabilities designated as cash flow hedges when offsetting is permitted. The Corporation has elected not to offset the remaining assets and liabilities subject to such arrangements on the consolidated financial statements. The Corporation is a party to interest rate swaps with financial institution counterparties and customers. Under these agreements, the Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of, any one contract. Cash collateral is posted by the party with a net liability position in accordance with contract thresholds and can be used to settle the fair value of the interest rate swaps in the event of default. A daily settlement occurs through a clearing agent for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared through a daily clearing agent. As a result, the total fair values of interest rate swap derivative assets and derivative liabilities recognized on the consolidated balance sheets are not equal and offsetting. The Corporation is also a party to foreign exchange contracts with financial institution counterparties under which the Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of, any one contract. As with interest rate swaps, cash collateral is posted by the party with a net liability position in accordance with contract thresholds and can be used to settle the fair value of the foreign exchange contracts in the event of default. For additional details on balance sheet offsetting, see "Note 10 - Derivative Financial Instruments." Income Taxes: The Corporation utilizes the asset and liability method in accounting for income taxes. Under this method, DTAs and deferred tax liabilities are determined based upon the difference between the values of the assets and liabilities as reflected in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As changes in tax law or rates are enacted, DTAs and deferred tax liabilities are adjusted through the provision for income taxes. In assessing the realizability of DTAs, management considers whether it is more likely than not that some portion or all of the DTAs will not be realized. The ultimate realization of DTAs is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the amount of taxes paid in available carryback years, projected future taxable income, and, if necessary, tax planning strategies in making this assessment. A valuation allowance is provided against DTAs unless it is more likely than not that such DTAs will be realized. ASC Topic 740, "Income Taxes" creates a single model to address uncertainty in tax positions, and clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in an enterprise's financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The liability for unrecognized tax benefits is included in other liabilities within the consolidated balance sheets. See Note 12, "Income Taxes" for additional information. Stock-Based Compensation: The Corporation grants equity awards to employees, consisting of stock options, restricted stock, RSUs and PSUs under its Employee Equity Plan. In addition, employees may purchase stock under the Corporation’s ESPP. The Corporation also grants equity awards to non-employee members of its board of directors and subsidiary bank board of directors under the Directors' Plan. Under the Directors’ Plan, the Corporation can grant equity awards to non-employee holding company and subsidiary bank directors in the form of stock options, restricted stock, RSUs or common stock. Recent grants of equity awards under the Directors’ Plan have been limited to RSUs. 83 Equity awards issued under the Employee Equity Plan are generally granted annually and become fully vested over or after a three-year vesting period. The vesting period for non-performance-based awards represents the period during which employees are required to provide service in exchange for such awards. Equity awards under the Directors' Plan are generally granted annually and become fully vested after a one-year vesting period. Certain events, as defined in the Employee Equity Plan and the Directors' Plan, result in the acceleration of the vesting of equity awards. Restricted stock, RSUs and PSUs earn dividends during the vesting period, which are forfeitable if the awards do not vest. The fair value of stock options, restricted stock and RSUs granted to employees or directors is recognized as compensation expense over the vesting period for such awards. Compensation expense for PSUs is also recognized over the vesting period, however, compensation expense for PSUs may vary based on the expectations for actual performance relative to defined performance measures. The fair value of restricted stock, RSUs and a majority of PSUs are based on the trading price of the Corporation's stock on the date of grant. The fair value of certain PSUs are estimated through the use of the Monte Carlo valuation methodology as of the date of grant. See Note 15, "Stock-Based Compensation Plans" for additional information. The Corporation has not issued stock options since 2014 and accordingly, there is no compensation expense for this instrument. Disclosures about Segments of an Enterprise and Related Information : The Corporation does not have any operating segments which require disclosure of additional information. Financial Guarantees : Financial guarantees, which consist primarily of standby and commercial letters of credit, are accounted for by recognizing a liability equal to the fair value of the guarantees and crediting the liability to income over the term of the guarantee. Fair value is estimated based on the fees currently charged to enter into similar agreements with similar terms. Goodwill and Intangible Assets : The Corporation accounts for its acquisitions using the purchase accounting method. Purchase accounting requires that all assets acquired and liabilities assumed, including certain intangible assets that must be recognized, be recorded at their estimated fair values as of the acquisition date. Any purchase price exceeding the fair value of net assets acquired is recorded as goodwill. Goodwill is not amortized to expense, but is evaluated for impairment at least annually. Write-downs of the balance, if necessary as a result of the impairment test, are charged to expense in the period in which goodwill is determined to be impaired. The Corporation performs its annual assessment of goodwill impairment in the fourth quarter of each year. If certain events occur which indicate goodwill might be impaired between annual assessments, goodwill would be evaluated when such events occur. Intangible assets are amortized over their estimated lives. Some intangible assets have indefinite lives and are, therefore, not amortized. All intangible assets must be evaluated for impairment if certain events occur. Any impairment write-downs are recognized as non-interest expense on the consolidated statements of income. See "Note 6 - Goodwill and Intangible Assets," for additional details. Variable Interest Entities ("VIEs") : ASC Topic 810 provides guidance on when to consolidate certain VIEs in the financial statements of the Corporation. VIEs are entities in which equity investors do not have a controlling financial interest or do not have sufficient equity at risk for the entity to finance activities without additional financial support from other parties. VIEs are assessed for consolidation under ASC Topic 810 when the Corporation holds variable interests in these entities. The Corporation consolidates VIEs when it is deemed to be the primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has the power to make decisions that most significantly affect the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Subsidiary Trusts The Parent Company owns all of the common stock of three subsidiary trusts, which have issued securities (TruPS) in conjunction with the Parent Company issuing junior subordinated deferrable interest debentures to the trusts. The terms of the junior subordinated deferrable interest debentures are the same as the terms of the TruPS. The Parent Company’s obligations under the debentures constitute a full and unconditional guarantee by the Parent Company of the obligations of the trusts. The provisions of ASC Topic 810 related to subsidiary trusts, as interpreted by the SEC, disallow consolidation of subsidiary trusts in the financial statements of the Corporation. As a result, TruPS are not included on the Corporation’s consolidated balance sheets. The junior subordinated debentures issued by the Parent Company to the subsidiary trusts, which have the same total balance and rate as the combined equity securities and TruPS issued by the subsidiary trusts, remain in long-term borrowings. See "Note 9 - Short-Term and Long-Term Borrowings" for additional information. 84 Tax Credit Investments The Corporation makes investments in certain community development projects, the majority of which generate tax credits under various federal programs, including qualified affordable housing projects, NMTC projects and historic rehabilitation projects (collectively, TCIs). These investments are made throughout the Corporation's market area as a means of supporting the communities it serves. The Corporation typically acts as a limited partner or member of a limited liability company in its TCIs and does not exert control over the operating or financial policies of the partnership or limited liability company. Tax credits earned are subject to recapture by federal taxing authorities based upon compliance requirements to be met at the project level. Because the Corporation owns 100% of the equity interests in its NMTC, these investments were consolidated based on ASC Topic 810 as of December 31, 2021 and 2020. Investments in affordable housing projects were not consolidated based on management's assessment of the provisions of ASC Topic 810. TCIs are tested for impairment when events or changes in circumstances indicate that it is more likely than not that the carrying amount of the investment will not be realized. An impairment loss is measured as the amount by which the current carrying value exceeds its aggregated remaining value of the tax benefits of the investment. There were no impairment losses recognized for the Corporation’s TCIs in 2021, 2020 or 2019. For additional details, see "Note 12 - Income Taxes." Fair Value Measurements: Assets and liabilities are categorized in a fair value hierarchy for the inputs to valuation techniques used to measure assets and liabilities at fair value using the following three categories (from highest to lowest priority): • Level 1 - Inputs that represent quoted prices for identical instruments in active markets. • Level 2 - Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical instruments in non-active markets. Also included are valuation techniques whose inputs are derived principally from observable market data other than quoted prices, such as interest rates or other market-corroborated means. • Level 3 - Inputs that are largely unobservable, as little or no market data exists for the instrument being valued. The Corporation has categorized all assets and liabilities required to be measured at fair value on both a recurring and nonrecurring basis into the above three levels. See "Note 19 - Fair Value Measurements" for additional details. Revenue Recognition: The sources of revenue for the Corporation are interest income from loans, leases and investments and non-interest income. Non-interest income is earned from various banking and financial services that the Corporation offers through its subsidiaries. Revenue is recognized as earned based on contractual terms, as transactions occur, or as services are provided. Following is further detail of the various types of revenue the Corporation earns and when it is recognized: Interest income : Interest income is recognized on an accrual basis according to loan and lease agreements, investment securities contracts or other such written contracts. Wealth management services: Consists of income from trust commissions, brokerage, money market and insurance commissions. Trust commissions consists of advisory fees that are based on market values of clients' managed portfolios and transaction fees for fiduciary services performed, both of which are recognized when earned. Brokerage includes advisory fees which are recognized when earned on a monthly basis and transaction fees that are recognized when transactions occur. Money market is based on the balances held in trust accounts and is recognized monthly. Insurance commissions are earned and recognized when policies are originated. Currently, no investment management and trust service income is based on performance or investment results. Commercial and consumer banking income: Consists of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts as well as branch fees, automated teller machine fees, debit and credit card income and merchant services fees. Also included are letter of credit fees, foreign exchange income and interest rate swap fees. Revenue is primarily transactional and recognized when earned, at the time the transactions occur. Mortgage banking income: Consists of gains or losses on the sale of residential mortgage loans and mortgage loan servicing income. Other Income: Includes gains on sales of SBA loans, cash surrender value of life insurance, and other miscellaneous income. 85 Leases: All leases with an initial term greater than twelve months recognize: (1) a ROU asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term; and (2) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, each measured on a discounted basis. The Corporation elected to not separate lease and non-lease components. As a lessee, the majority of the operating lease portfolio consists of real estate leases for the Corporation's financial centers, land and office space. The operating leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for 5 years or more. ROU assets and lease liabilities are not recognized for leases with an initial term of 12 months or less. Certain real estate leases have lease payments that adjust based on annual changes in the CPI. The leases that are dependent upon CPI are initially measured using the index or rate at the commencement date and are included in the measurement of the lease liability. Operating lease expense represents fixed lease payments for operating leases recognized on a straight-line basis over the applicable lease term. Variable lease expense represents expenses such as the payment of real estate taxes, insurance and common area maintenance based on the Corporation's pro-rata share. Sublease income consists mostly of operating leases for space within the Corporation's offices and financial centers and is recorded as a reduction to net occupancy expense on the consolidated statements of income. See "Note 17 - Leases" for additional information. Defined Benefit Pension Plan: Net periodic pension costs are funded based on the requirements of federal laws and regulations. The determination of net periodic pension costs is based on assumptions about future events that will affect the amount and timing of required benefit payments under the plan. These assumptions include demographic assumptions such as retirement age and mortality, a discount rate used to determine the current benefit obligation, form of payment election and a long-term expected rate of return on plan assets. Net periodic pension expense includes interest cost, based on the assumed discount rate, an expected return on plan assets, amortization of prior service cost or credit and amortization of net actuarial gains or losses. For the Corporation, there is no service cost as the plan was curtailed in 2008, with no additional benefits accruing. Net periodic pension cost is recognized in salaries and employee benefits on the consolidated statements of income. For additional details, see "Note 16 - Employee Benefit Plans." Other Recently Adopted Accounting Standards On January 1, 2021, the Corporation adopted ASC Update 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The Corporation adopted this standards update effective with its March 31, 2021 quarterly report on Form 10-Q and it did not have a material impact on the consolidated financial statements. On January 1, 2021, the Corporation adopted ASC Update 2021-01 Reference Rate Reform (Topic 848). This update permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of LIBOR transition affected by changes to the interest rates used for discounting, margining or contract price alignment due to reference rate reform. This update was effective upon issuance, and entities may elect to apply the guidance to modifications either retrospectively, as of any date from the beginning of any interim period that includes or is subsequent to March 12, 2020, or prospectively to new modifications from any date in an interim period that includes or is subsequent to January 7, 2021. The Corporation adopted this standards update retrospectively effective with its March 31, 2021 quarterly report on Form 10-Q and such adoption did not have a material impact on the consolidated financial statements. On March 1, 2021, the Corporation adopted ASC Update 2018-14 Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20). The Corporation adopted this standards update effective with its March 31, 2021 quarterly report on Form 10-Q and such adoption did not have a material impact on the consolidated financial statements. Reclassifications Certain amounts in the 2020 consolidated financial statements and notes have been reclassified to conform to the 2021 presentation. 86 NOTE 2 – RESTRICTIONS ON CASH AND CASH EQUIVALENTS The Bank is required to maintain reserves against its deposit liabilities. Prior to March 2020, reserves were in the form of cash and balances with the FRB. The FRB suspended cash reserve requirements effective March 26, 2020. In addition, collateral is posted by the Corporation with counterparties to secure derivative and other contracts, which is included in "interest-bearing deposits with other banks". On the consolidated balance sheets, the amounts of such collateral as of December 31, 2021 and 2020 were $ 202.8 million and $ 408.1 million, respectively. 87 NOTE 3 – INVESTMENT SECURITIES The following tables present the amortized cost and estimated fair values of investment securities, as of December 31: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in thousands) 2021 Available for Sale U.S. Government securities $ 127,831 $ — $ ( 213 ) $ 127,618 State and municipal securities 1,139,187 50,161 ( 678 ) 1,188,670 Corporate debt securities 373,482 13,009 ( 358 ) 386,133 Collateralized mortgage obligations 206,532 3,581 ( 754 ) 209,359 Residential mortgage-backed securities 231,607 1,224 ( 3,036 ) 229,795 Commercial mortgage-backed securities 974,541 6,141 ( 9,534 ) 971,148 Auction rate securities 76,350 — ( 1,683 ) 74,667 Total $ 3,129,530 $ 74,116 $ ( 16,256 ) $ 3,187,390 Held to Maturity Residential mortgage-backed securities $ 404,958 $ 11,022 $ ( 7,067 ) $ 408,913 Commercial mortgage-backed securities 575,426 — ( 18,472 ) 556,954 Total $ 980,384 $ 11,022 $ ( 25,539 ) $ 965,867 2020 Available for Sale State and municipal securities $ 891,327 $ 61,286 $ — $ 952,613 Corporate debt securities 348,391 19,445 ( 691 ) 367,145 Collateralized mortgage obligations 491,321 12,560 ( 115 ) 503,766 Residential mortgage-backed securities 373,779 4,246 ( 27 ) 377,998 Commercial mortgage-backed securities 741,172 22,384 ( 1,141 ) 762,415 Auction rate securities 101,510 — ( 3,304 ) 98,206 Total $ 2,947,500 $ 119,921 $ ( 5,278 ) $ 3,062,143 Held to Maturity Residential mortgage-backed securities $ 278,281 $ 18,576 $ — $ 296,857 On July 1, 2019, the Corporation transferred state and municipal securities from the HTM classification to the AFS classification as permitted through the early adoption of ASU 2019-04, as disclosed in "Note 1 - Summary of Significant Accounting Policies." The amortized cost of the securities transferred was $ 158.9 million, and the estimated fair value was $ 168.5 million. The Corporation has the positive intent and ability to hold the remainder of the HTM portfolio, consisting of residential mortgage-backed securities, to maturity. Securities carried at $ 2,502.1 million at December 31, 2021 and $ 520.5 million at December 31, 2020, were pledged as collateral to secure public and trust deposits. 88 The amortized cost and estimated fair values of debt securities as of December 31, 2021, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Available for Sale Held to Maturity Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value (in thousands) Due in one year or less $ 9,053 $ 9,175 $ — $ — Due from one year to five years 163,249 163,924 — — Due from five years to ten years 391,040 405,782 — — Due after ten years 1,153,508 1,198,207 — — 1,716,850 1,777,088 — — Residential mortgage-backed securities (1) 231,607 229,795 404,958 408,913 Commercial mortgage-backed securities (1) 974,541 971,148 575,426 556,954 Collateralized mortgage obligations (1) 206,532 209,359 — — Total $ 3,129,530 $ 3,187,390 $ 980,384 $ 965,867 (1) Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the underlying loans. The following table presents information related to gross gains and losses on the sales of securities: Gross Realized Gains Gross Realized Losses Net Gains (in thousands) 2021 $ 35,593 $ ( 2,077 ) $ 33,516 2020 6,545 ( 3,492 ) 3,053 2019 11,554 ( 6,821 ) 4,733 During 2021, the Corporation completed a balance sheet restructuring that included a $ 34.0 million gain on the sale of Visa Shares, offset by net losses on other securities of $ 0.4 million, primarily in connection with the sale of $ 24.6 million of ARCs. During 2020, the Corporation completed a balance sheet restructuring that included the sale of investment securities, with an amortized cost of $ 79.0 million and an estimated fair value of $ 82.0 million, resulting in net investment securities gains of $ 3.0 million. Offsetting these gains were $ 2.9 million of prepayment penalties recorded in non-interest expense for the redemption of FHLB advances. 89 The following tables present the gross unrealized losses and estimated fair values of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31: Less Than 12 months 12 Months or Longer Total Number of Securities Estimated Fair Value Unrealized Losses Number of Securities Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses 2021 (dollars in thousands) Available for Sale U.S. Government securities 2 $ 127,618 $ ( 213 ) — $ — $ — $ 127,618 $ ( 213 ) State and municipal securities 29 82,731 ( 678 ) — — — 82,731 ( 678 ) Corporate debt securities 6 43,068 ( 358 ) — — — 43,068 ( 358 ) Collateralized mortgage obligations 4 28,517 ( 754 ) — — — 28,517 ( 754 ) Residential mortgage-backed securities 7 123,687 ( 2,388 ) 1 16,669 ( 648 ) 140,356 ( 3,036 ) Commercial mortgage-backed securities 41 512,312 ( 9,534 ) — — — 512,312 ( 9,534 ) Auction rate securities — — — 118 74,667 ( 1,683 ) 74,667 ( 1,683 ) Total available for sale 89 $ 917,933 $ ( 13,925 ) 119 $ 91,336 $ ( 2,331 ) $ 1,009,269 $ ( 16,256 ) Held to Maturity Residential mortgage-backed securities 14 $ 205,969 $ ( 7,067 ) — $ — $ — $ 205,969 $ ( 7,067 ) Commercial mortgage-backed securities 36 556,954 ( 18,472 ) — — — 556,954 ( 18,472 ) Total 50 $ 762,923 $ ( 25,539 ) — $ — $ — $ 762,923 $ ( 25,539 ) Less Than 12 months 12 Months or Longer Total Number of Securities Estimated Fair Value Unrealized Losses Number of Securities Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses 2020 Available for Sale Corporate debt securities 9 $ 44,528 $ ( 377 ) 1 $ 6,871 $ ( 314 ) $ 51,399 $ ( 691 ) Collateralized mortgage obligations 3 57,601 ( 115 ) — — — 57,601 ( 115 ) Residential mortgage-backed securities 1 20,124 ( 27 ) — — — 20,124 ( 27 ) Commercial mortgage-backed securities 9 144,383 ( 1,141 ) — — — 144,383 ( 1,141 ) Auction rate securities — — — 162 98,206 ( 3,304 ) 98,206 ( 3,304 ) Total available for sale 22 $ 266,636 $ ( 1,660 ) 163 $ 105,077 $ ( 3,618 ) $ 371,713 $ ( 5,278 ) No held to maturity securities were in an unrealized loss position as of December 31, 2020. The Corporation’s collateralized mortgage obligations and mortgage-backed securities have contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. The change in fair value of these securities is attributable to changes in interest rates and not credit quality. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost. Therefore, the Corporation does not have an ACL for these investments as of December 31, 2021 and 2020. As of December 31, 2021 and 2020, all ARCs and corporate debt securities were rated above investment grade. All of the loans underlying the ARCs have principal payments which are guaranteed by the federal government. Based on the payment status, rating and management’s evaluation of these securities, no ACL was required for ARCs or corporate debt securities as of December 31, 2021 and 2020. 90 NOTE 4 – Loans and Allowance for Credit Losses Loans and leases, net of unearned income Loans and leases, net of unearned income are summarized as follows as of December 31: 2021 2020 (in thousands) Real estate - commercial mortgage $ 7,279,080 $ 7,105,092 Commercial and industrial (1) 4,208,327 5,670,828 Real-estate - residential mortgage 3,846,750 3,141,915 Real-estate - home equity 1,118,248 1,202,913 Real-estate - construction 1,139,779 1,047,218 Consumer 464,657 466,772 Equipment lease financing and other 283,557 284,377 Overdrafts 1,988 4,806 Gross loans 18,342,386 18,923,921 Unearned income ( 17,036 ) ( 23,101 ) Net Loans $ 18,325,350 $ 18,900,820 (1) Includes PPP loans totaling $ 0.3 billion and $ 1.6 billion as of December 31, 2021 and 2020 respectively. The Corporation has extended credit to officers and directors of the Corporation and to their associates. These related-party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collection or present other unfavorable features. The aggregate dollar amount of these loans, including unadvanced commitments, was $ 129.6 million and $ 162.5 million as of December 31, 2021 and 2020, respectively. During 2021, additions totaled $ 52.8 million and repayments totaled $ 85.7 million for related-party loans. Allowance for Credit Losses The ACL related to loans consists of loans evaluated collectively and individually for expected credit losses. The ACL related to loans represents an estimate of expected credit losses over the expected life of the loans as of the balance sheet date and is recorded as a reduction to Net Loans. The ACL for OBS credit exposures includes estimated losses on unfunded loan commitments, letters of credit and other OBS credit exposures. The total ACL is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries. The following table presents the components of the ACL: 2021 2020 (in thousands) ACL - loans $ 249,001 $ 277,567 ACL - OBS credit exposure 14,533 14,373 Total ACL $ 263,534 $ 291,940 91 The following table presents the activity in the ACL for the years ended December 31: 2021 2020 2019 (in thousands) Balance at beginning of period $ 291,940 $ 166,209 $ 169,410 Impact of adopting CECL on January 1, 2020 (1) — 58,348 — Loans charged off ( 30,952 ) ( 30,557 ) ( 53,189 ) Recoveries of loans previously charged off 17,146 21,020 17,163 Net loans charged off ( 13,806 ) ( 9,537 ) ( 36,026 ) Provision for credit losses (2) ( 14,600 ) 76,920 32,825 Balance at the end of the period (3) $ 263,534 $ 291,940 $ 166,209 (1) Includes $ 12.6 million of reserves for OBS credit exposures as of January 1, 2020. (2) Includes $ 0.2 million, $( 0.8 ) million and $( 6.3 ) million related to OBS credit exposures for the years ended December 31, 2021, 2020 and 2019, respectively. (3) Includes $ 14.5 million, $ 14.4 million and $ 2.6 million of reserves for OBS credit exposures as of December 31, 2021, 2020 and 2019, respectively. The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2021 and 2020, by portfolio segment: Real Estate - Commercial Mortgage Commercial and Industrial Real Estate - Home Equity Real Estate - Residential Mortgage Real Estate - Construction Consumer Equipment Finance Leasing and Other Total (in thousands) Balance at December 31, 2019 $ 45,610 $ 68,602 $ 17,744 $ 19,771 $ 4,443 $ 3,762 $ 3,690 $ 163,622 Impact of adopting CECL on January 1, 2020 29,361 ( 18,576 ) ( 65 ) 21,235 4,015 5,969 3,784 45,723 Loans charged off ( 4,225 ) ( 18,915 ) ( 1,193 ) ( 620 ) ( 17 ) ( 3,400 ) ( 2,187 ) ( 30,557 ) Recoveries of loans previously charged off 1,027 11,396 504 491 5,122 1,875 605 21,020 Net loans recovered (charged off) ( 3,198 ) ( 7,519 ) ( 689 ) ( 129 ) 5,105 ( 1,525 ) ( 1,582 ) ( 9,537 ) Provision for loan losses (1) 31,652 32,264 ( 2,758 ) 11,118 2,045 2,699 739 77,759 Balance at December 31, 2020 103,425 74,771 14,232 51,995 15,608 10,905 6,631 277,567 Loans charged off ( 8,726 ) ( 15,337 ) ( 676 ) ( 1,290 ) ( 39 ) ( 2,633 ) ( 2,251 ) ( 30,952 ) Recoveries of loans previously charged off 2,474 9,587 248 375 1,412 2,097 953 17,146 Net loans recovered (charged off) ( 6,252 ) ( 5,750 ) ( 428 ) ( 915 ) 1,373 ( 536 ) ( 1,298 ) ( 13,806 ) Provision for loan losses (1) ( 9,203 ) ( 1,965 ) ( 2,595 ) 3,156 ( 4,040 ) ( 1,829 ) 1,716 ( 14,760 ) Balance at December 31, 2021 $ 87,970 $ 67,056 $ 11,209 $ 54,236 $ 12,941 $ 8,540 $ 7,049 $ 249,001 (1) Provision included in the table only includes the portion related to Net Loans 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 increased during 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. Non-accrual Loans All loans individually evaluated for impairment are measured for losses on a quarterly basis. As of December 31, 2021 and 2020, substantially all of the Corporation’s individually evaluated loans with total commitments greater than or equal to $ 1.0 million were measured based on the estimated fair value of each loan’s collateral, if any. Collateral could be in the form of real estate, in the case of commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real estate. As of December 31, 2021 and 2020, approximately 98 % and 83 %, respectively, of loans evaluated individually for impairment with principal balances greater than or equal to $ 1.0 million, whose primary collateral is real estate, were measured at estimated fair value using appraisals performed by state certified third-party appraisers that had been updated in the preceding 12 months. The following table presents total non-accrual loans, by class segment: 92 2021 2020 With a Related Allowance Without a Related Allowance Total With a Related Allowance Without a Related Allowance Total (in thousands) Real estate - commercial mortgage $ 20,564 $ 32,251 $ 52,815 $ 19,909 $ 31,561 $ 51,470 Commercial and industrial 12,571 17,570 30,141 13,937 18,056 31,993 Real estate - residential mortgage 35,269 — 35,269 24,590 1,517 26,107 Real estate - home equity 8,671 — 8,671 9,398 190 9,588 Real estate - construction 173 728 901 437 958 1,395 Consumer 229 — 229 332 — 332 Equipment lease financing and other 6,247 9,393 15,640 — 16,313 16,313 Total $ 83,724 $ 59,942 $ 143,666 $ 68,603 $ 68,595 $ 137,198 As of December 31, 2021, there were $ 59.9 million of non-accrual loans that did not have a related allowance for credit losses. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary. The amount of interest income on non-accrual loans that was recognized was approximately $ 1.3 million in 2021 and $ 0.3 million in 2020. Asset Quality Maintaining an appropriate ACL is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For commercial construction, residential construction, commercial and industrial, and commercial real estate, an internal risk rating process is used. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for these types of loans. The migration of loans through the various internal risk categories is a significant component of the ACL methodology for these loans, under both the CECL and incurred loss models, which bases the probability of default on this migration. Assigning risk ratings involves judgment. The Corporation's loan review officers provide a separate assessment of risk rating accuracy. Risk ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific loan review assessments identify a deterioration or an improvement in the loans. 93 The following table summarizes designated internal risk categories by portfolio segment and loan class, by origination year, in the current period: December 31, 2021 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans (dollars in thousands) Amortized Amortized 2021 2020 2019 2018 2017 Prior Cost Basis Cost Basis Total Real estate - construction (1) Pass $ 190,030 $ 315,811 $ 113,245 $ 83,886 $ 17,545 $ 117,157 $ 46,409 $ — $ 884,083 Special Mention 5,843 775 9,984 20,200 15,724 6,315 — — 58,841 Substandard or Lower — — — — 1,912 4,185 227 — 6,324 Total real estate - construction 195,873 316,586 123,229 104,086 35,181 127,657 46,636 — 949,248 Real estate - construction (1) Current period gross charge-offs — — ( 39 ) — — — — — ( 39 ) Current period recoveries — — 39 — — 1,373 — — 1,412 Total net (charge-offs) recoveries — — — — — 1,373 — — 1,373 Commercial and industrial (2) Pass 855,924 520,802 396,575 232,805 147,675 581,762 1,177,857 339 3,913,739 Special Mention 5,386 8,538 33,937 8,301 10,346 23,380 52,386 95 142,369 Substandard or Lower 1,225 9,775 19,393 24,327 11,912 34,825 49,562 1,200 152,219 Total commercial and industrial 862,535 539,115 449,905 265,433 169,933 639,967 1,279,805 1,634 4,208,327 Commercial and industrial Current period gross charge-offs ( 2,977 ) ( 406 ) ( 4,966 ) ( 208 ) ( 286 ) ( 800 ) ( 5,694 ) — ( 15,337 ) Current period recoveries 6 39 4,691 841 457 2,342 1,211 — 9,587 Total net (charge-offs) recoveries ( 2,971 ) ( 367 ) ( 275 ) 633 171 1,542 ( 4,483 ) — ( 5,750 ) Real estate - commercial mortgage Pass 1,086,113 899,172 826,866 624,653 712,223 2,356,308 55,370 — 6,560,705 Special Mention 1,317 60,732 96,508 25,280 33,595 169,732 115 — 387,279 Substandard or Lower 1,537 8,516 28,810 68,818 69,793 151,450 684 1,488 331,096 Total real estate - commercial mortgage 1,088,967 968,420 952,184 718,751 815,611 2,677,490 56,169 1,488 7,279,080 Real estate - commercial mortgage Current period gross charge-offs — — ( 14 ) ( 25 ) ( 6,972 ) ( 1,517 ) ( 198 ) — ( 8,726 ) Current period recoveries — — — — 983 1,491 — — 2,474 Total net (charge-offs) recoveries — — ( 14 ) ( 25 ) ( 5,989 ) ( 26 ) ( 198 ) — ( 6,252 ) Total Pass $ 2,132,067 $ 1,735,785 $ 1,336,686 $ 941,344 $ 877,443 $ 3,055,227 $ 1,279,636 $ 339 $ 11,358,527 Special Mention 12,546 70,045 140,429 53,781 59,665 199,427 52,501 95 588,489 Substandard or Lower 2,762 18,291 48,203 93,145 83,617 190,460 50,473 2,688 489,639 Total $ 2,147,375 $ 1,824,121 $ 1,525,318 $ 1,088,270 $ 1,020,725 $ 3,445,114 $ 1,382,610 $ 3,122 $ 12,436,655 (1) Excludes real estate - construction - other. (2) Loans originated in 2021 include $ 0.3 million of PPP loans that were assigned a rating of Pass based on the existence of a federal government guaranty through the SBA. 94 The following table summarizes designated internal risk rating categories by portfolio segment and loan class, by origination year, in the prior period: December 31, 2020 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans (dollars in thousands) Amortized Amortized 2020 2019 2018 2017 2016 Prior Cost Basis Cost Basis Total Real estate - construction (1) Pass $ 185,883 $ 229,097 $ 217,604 $ 81,086 $ 37,976 $ 110,470 $ 38,026 $ — $ 900,142 Special Mention — — — — 7,047 6,212 — — 13,259 Substandard or Lower — 447 — 2,000 753 1,637 632 — 5,469 Total real estate - construction 185,883 229,544 217,604 83,086 45,776 118,319 38,658 — 918,870 Real estate - construction (1) Current period gross charge-offs — — — — — ( 17 ) — — ( 17 ) Current period recoveries — — — — 68 5,054 — — 5,122 Total net (charge-offs) recoveries — — — — 68 5,037 — — 5,105 Commercial and industrial (2) Pass 2,283,533 508,541 298,567 214,089 208,549 596,646 1,278,689 — 5,388,614 Special Mention 6,633 23,834 29,167 10,945 11,506 25,960 45,994 — 154,039 Substandard or Lower 3,221 5,947 8,434 11,251 11,192 23,852 64,278 — 128,175 Total commercial and industrial 2,293,387 538,322 336,168 236,285 231,247 646,458 1,388,961 — 5,670,828 Commercial and industrial Current period gross charge-offs — ( 114 ) ( 30 ) ( 488 ) ( 393 ) ( 520 ) ( 17,370 ) — ( 18,915 ) Current period recoveries — 43 486 216 162 4,531 5,958 — 11,396 Total net (charge-offs) recoveries — ( 71 ) 456 ( 272 ) ( 231 ) 4,011 ( 11,412 ) — ( 7,519 ) Real estate - commercial mortgage Pass 973,664 917,510 708,946 794,955 783,094 2,213,343 53,041 404 6,444,957 Special Mention 13,639 40,874 84,047 80,705 89,112 167,424 2,364 — 478,165 Substandard or Lower 1,238 6,681 6,247 39,027 22,605 103,007 2,225 940 181,970 Total real estate - commercial mortgage 988,541 965,065 799,240 914,687 894,811 2,483,774 57,630 1,344 7,105,092 Real estate - commercial mortgage Current period gross charge-offs ( 60 ) ( 21 ) ( 36 ) ( 2,515 ) ( 29 ) ( 1,547 ) ( 17 ) — ( 4,225 ) Current period recoveries — 6 — — 1 1,020 — — 1,027 Total net (charge-offs) recoveries ( 60 ) ( 15 ) ( 36 ) ( 2,515 ) ( 28 ) ( 527 ) ( 17 ) — ( 3,198 ) Total Pass $ 3,443,080 $ 1,655,148 $ 1,225,117 $ 1,090,130 $ 1,029,619 $ 2,920,459 $ 1,369,756 $ 404 $ 12,733,713 Special Mention 20,272 64,708 113,214 91,650 107,665 199,596 48,358 — 645,463 Substandard or Lower 4,459 13,075 14,681 52,278 34,550 128,496 67,135 940 315,614 Total $ 3,467,811 $ 1,732,931 $ 1,353,012 $ 1,234,058 $ 1,171,834 $ 3,248,551 $ 1,485,249 $ 1,344 $ 13,694,790 (1) Excludes real estate - construction - other. (2) Loans originated in 2020 include $ 1.6 million of PPP loans that were assigned a rating of Pass based on the existence of a federal government guaranty through the SBA. 95 The Corporation considers the performance of the loan portfolio and its impact on the ACL. The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, construction loans to individuals secured by residential real estate, consumer and equipment lease financing. For these loans, the most relevant credit quality indicator is delinquency status and the Corporation evaluates credit quality based on the aging status of the loan. The following table presents the amortized cost of these loans based on payment activity, by origination year, for the current period : December 31, 2021 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans (dollars in thousands) Amortized Amortized 2021 2020 2019 2018 2017 Prior Cost Basis Cost Basis Total Real estate - home equity Performing $ 32,682 $ 23,478 $ 7,024 $ 9,255 $ 7,415 $ 92,983 $ 930,289 $ 3,999 $ 1,107,125 Non-performing — — — 15 282 2,145 8,483 198 11,123 Total real estate - home equity 32,682 23,478 7,024 9,270 7,697 95,128 938,772 4,197 1,118,248 Real estate - home equity Current period gross charge-offs — — ( 41 ) — — ( 171 ) ( 464 ) — ( 676 ) Current period recoveries — — — — — 96 152 — 248 Total net (charge-offs) recoveries — — ( 41 ) — — ( 75 ) ( 312 ) — ( 428 ) Real estate - residential mortgage Performing 1,548,174 1,133,602 344,625 113,801 198,164 468,842 — — 3,807,208 Non-performing — 6,753 2,189 3,424 2,844 24,332 — — 39,542 Total real estate - residential mortgage 1,548,174 1,140,355 346,814 117,225 201,008 493,174 — — 3,846,750 Real estate - residential mortgage Current period gross charge-offs — ( 626 ) ( 148 ) ( 125 ) ( 4 ) ( 387 ) — — ( 1,290 ) Current period recoveries — — 1 18 — 264 92 — 375 Total net (charge-offs) recoveries — ( 626 ) ( 147 ) ( 107 ) ( 4 ) ( 123 ) 92 — ( 915 ) Consumer Performing 129,759 79,440 66,745 59,309 25,839 42,429 60,553 — 464,074 Non-performing 122 101 60 36 32 203 29 — 583 Total consumer 129,881 79,541 66,805 59,345 25,871 42,632 60,582 — 464,657 Consumer Current period gross charge-offs ( 175 ) ( 491 ) ( 455 ) ( 238 ) ( 224 ) ( 240 ) ( 810 ) — ( 2,633 ) Current period recoveries — 223 131 131 167 952 493 — 2,097 Total net (charge-offs) recoveries ( 175 ) ( 268 ) ( 324 ) ( 107 ) ( 57 ) 712 ( 317 ) — ( 536 ) Equipment lease financing and other Performing 97,077 65,316 49,591 34,107 22,444 1,369 — — 269,904 Non-performing — — — — 15,503 138 — — 15,641 Total leasing and other 97,077 65,316 49,591 34,107 37,947 1,507 — — 285,545 Equipment lease financing and other Current period gross charge-offs ( 975 ) ( 1,276 ) — — — — — — ( 2,251 ) Current period recoveries 255 539 88 10 18 43 — — 953 Total net (charge-offs) recoveries ( 720 ) ( 737 ) 88 10 18 43 — — ( 1,298 ) Construction - other Performing 144,652 40,040 638 5,028 — — — — 190,358 Non-performing — — — — 173 — — — 173 Total construction - other 144,652 40,040 638 5,028 173 — — — 190,531 Construction - other Current period gross charge-offs — — — — — — — — — Current period recoveries — — — — — — — — — Total net (charge-offs) recoveries — — — — — — — — — Total Performing $ 1,952,344 $ 1,341,876 $ 468,623 $ 221,500 $ 253,862 $ 605,623 $ 990,842 $ 3,999 $ 5,838,669 Non-performing 122 6,854 2,249 3,475 18,834 26,818 8,512 198 67,062 Total $ 1,952,466 $ 1,348,730 $ 470,872 $ 224,975 $ 272,696 $ 632,441 $ 999,354 $ 4,197 $ 5,905,731 96 December 31, 2020 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans (dollars in thousands) Amortized Amortized 2020 2019 2018 2017 2016 Prior Cost Basis Cost Basis Total Real estate - home equity Performing $ 31,445 $ 8,176 $ 13,906 $ 11,024 $ 11,667 $ 126,749 $ 982,285 $ 5,321 $ 1,190,573 Non-performing — 88 23 233 221 2,290 9,485 — 12,340 Total real estate - home equity 31,445 8,264 13,929 11,257 11,888 129,039 991,770 5,321 1,202,913 Real estate - home equity Current period gross charge-offs — — — — — ( 34 ) ( 1,159 ) — ( 1,193 ) Current period recoveries — — — — — 138 366 — 504 Total net (charge-offs) recoveries — — — — — 104 ( 793 ) — ( 689 ) Real estate - residential mortgage Performing 1,255,532 585,878 228,398 341,563 264,990 434,889 — — 3,111,250 Non-performing 217 2,483 3,177 2,483 722 21,583 — — 30,665 Total real estate - residential mortgage 1,255,749 588,361 231,575 344,046 265,712 456,472 — — 3,141,915 Real estate - residential mortgage Current period gross charge-offs — ( 68 ) ( 101 ) ( 190 ) ( 7 ) ( 254 ) — — ( 620 ) Current period recoveries — 68 16 1 1 405 — — 491 Total net (charge-offs) recoveries — — ( 85 ) ( 189 ) ( 6 ) 151 — — ( 129 ) Consumer Performing 114,399 98,587 95,072 43,334 25,804 36,086 52,698 42 466,022 Non-performing 168 19 124 141 114 150 34 — 750 Total consumer 114,567 98,606 95,196 43,475 25,918 36,236 52,732 42 466,772 Consumer Current period gross charge-offs ( 134 ) ( 542 ) ( 524 ) ( 444 ) ( 489 ) ( 769 ) ( 498 ) — ( 3,400 ) Current period recoveries — 64 165 159 94 101 1,292 — 1,875 Total net (charge-offs) recoveries ( 134 ) ( 478 ) ( 359 ) ( 285 ) ( 395 ) ( 668 ) 794 — ( 1,525 ) Equipment lease financing and other Performing 102,324 65,303 49,453 34,995 15,631 5,040 — — 272,746 Non-performing — — 30 15,983 142 282 — — 16,437 Total leasing and other 102,324 65,303 49,483 50,978 15,773 5,322 — — 289,183 Equipment lease financing and other Current period gross charge-offs ( 606 ) ( 1,581 ) — — — — — — ( 2,187 ) Current period recoveries 185 349 21 18 11 21 — — 605 Total net (charge-offs) recoveries ( 421 ) ( 1,232 ) 21 18 11 21 — — ( 1,582 ) Construction - other Performing 96,444 24,888 6,822 — 16 — — — 128,170 Non-performing — — — 178 — — — — 178 Total construction - other 96,444 24,888 6,822 178 16 — — — 128,348 Construction - other Current period gross charge-offs — — — — — — — — — Current period recoveries — — — — — — — — — Total net (charge-offs) recoveries — — — — — — — — — Total Performing $ 1,600,144 $ 782,832 $ 393,651 $ 430,916 $ 318,108 $ 602,764 $ 1,034,983 $ 5,363 $ 5,168,761 Non-performing 385 2,590 3,354 19,018 1,199 24,305 9,519 — 60,370 Total $ 1,600,529 $ 785,422 $ 397,005 $ 449,934 $ 319,307 $ 627,069 $ 1,044,502 $ 5,363 $ 5,229,131 97 The following table presents non-performing assets: December 31, 2021 December 31, 2020 (in thousands) Non-accrual loans $ 143,666 $ 137,198 Loans 90 days or more past due and still accruing 8,453 9,929 Total non-performing loans 152,119 147,127 OREO (1) 1,817 4,178 Total non-performing assets $ 153,936 $ 151,305 (1) Excludes $ 6.4 million of residential mortgage properties for which formal foreclosure proceedings were in process as of December 31, 2021. The following tables present the aging of the amortized cost basis of loans, by class segment: 30-59 60-89 ≥ 90 Days Days Past Days Past Past Due Non- Due Due and Accruing Accrual Current Total (in thousands) December 31, 2021 Real estate – commercial mortgage $ 1,089 $ 1,750 $ 1,229 $ 52,815 $ 7,222,197 $ 7,279,080 Commercial and industrial 5,457 1,932 488 30,141 4,170,309 4,208,327 Real estate – residential mortgage 22,957 2,920 4,130 35,269 3,781,474 3,846,750 Real estate – home equity 4,369 1,154 2,253 8,671 1,101,801 1,118,248 Real estate – construction 1,318 — — 901 1,137,560 1,139,779 Consumer 3,561 876 353 229 459,638 464,657 Equipment lease financing and other 226 27 — 15,640 252,616 268,509 Total $ 38,977 $ 8,659 $ 8,453 $ 143,666 $ 18,125,595 $ 18,325,350 30-59 Days Past Due 60-89 Days Past Due ≥ 90 Days Past Due and Accruing Non- accrual Current Total (in thousands) December 31, 2020 Real estate – commercial mortgage $ 14,999 $ 9,273 $ 1,177 $ 51,470 $ 7,028,173 $ 7,105,092 Commercial and industrial 11,285 1,068 616 31,993 5,625,866 5,670,828 Real estate – residential mortgage 22,281 7,675 4,687 26,107 3,081,165 3,141,915 Real estate – home equity 5,622 1,654 2,753 9,588 1,183,296 1,202,913 Real estate – construction 1,938 — 155 1,395 1,043,730 1,047,218 Consumer 3,036 501 417 332 462,486 466,772 Equipment lease financing and other 838 150 124 16,313 248,657 266,082 Total $ 59,999 $ 20,321 $ 9,929 $ 137,198 $ 18,673,373 $ 18,900,820 Collateral-Dependent Loans A financial asset is considered to be collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of financial assets deemed collateral-dependent, the Corporation elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, the Corporation records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral supporting collateral-dependent financial assets consists of various types of real estate including: residential properties; commercial properties such as retail centers, office buildings, and lodging; agriculture land; and vacant land. 98 Troubled Debt Restructurings The following table presents TDRs, by class segment for the years ended December 31: 2021 2020 (in thousands) Real estate - commercial mortgage $ 3,464 $ 28,451 Commercial and industrial 1,857 6,982 Real estate - residential mortgage 11,948 18,602 Real estate - home equity 12,218 14,391 Consumer 5 — Total accruing TDRs 29,492 68,426 Non-accrual TDRs (1) 55,945 35,755 Total TDRs $ 85,437 $ 104,181 (1) Included within non-accrual loans in the preceding table . The following table presents TDRs, by class segment, for loans that were modified during the years ended December 31: 2021 2020 2019 Number of Loans Post-Modification Recorded Investment Number of Loans Post-Modification Recorded Investment Number of Loans Post-Modification Recorded Investment (dollars in thousands) Real estate - commercial mortgage 9 $ 16,020 12 $ 24,868 2 $ 263 Commercial and industrial 10 2,823 20 5,218 16 5,378 Real estate - residential mortgage 46 13,256 48 10,493 6 2,252 Real estate - home equity 30 1,226 48 4,359 59 2,706 Real estate - construction 1 154 — — — — Consumer — — 14 345 — — Total 96 $ 33,479 142 $ 45,283 83 $ 10,599 Restructured loan modifications may include payment schedule modifications, interest rate concessions, bankruptcies, principal reduction or some combination of these concessions. The restructured loan modifications primarily included maturity date extensions, rate modifications and payment schedule modifications. In accordance with regulatory guidance, payment schedule modifications granted after March 13, 2020, to borrowers impacted by the effects of COVID-19 pandemic and who are not delinquent at the time of the payment schedule modifications, have been excluded from TDRs. As of December 31, 2021, $ 38.2 million in recorded investment remain in an active COVID-19 deferral program. NOTE 5 – PREMISES AND EQUIPMENT The following is a summary of premises and equipment as of December 31: 2021 2020 (in thousands) Land $ 38,494 $ 38,654 Buildings and improvements 346,098 343,604 Furniture and equipment 145,627 165,572 Construction in progress 8,644 5,423 Total premises and equipment 538,863 553,253 Less: Accumulated depreciation and amortization ( 318,506 ) ( 321,773 ) Net premises and equipment $ 220,357 $ 231,480 99 NOTE 6 – GOODWILL AND INTANGIBLE ASSETS Goodwill totaled $ 534.3 million and $ 533.4 million as of December 31, 2021 and 2020, respectively. The increase of $ 0.9 million was the result of certain acquisitions in 2021. There were no goodwill impairment charges in 2021 based on the annual assessment. The estimated fair values of the Corporation’s reporting units are subject to uncertainty, including future changes in fair values of banks in general and future operating results of reporting units, which could differ significantly from the assumptions used in the current valuation of reporting units. The follow table summarizes intangible assets, which are included in Goodwill and intangible assets on the consolidated balance sheets: 2021 2020 (in millions) Intangible assets Amortizing intangible assets $ 5.4 $ 4.3 Accumulated amortization ( 1.6 ) ( 1.0 ) Net intangibles $ 3.8 $ 3.3 Amortization expense was $ 589 thousand and $ 529 thousand for the years ending December 31, 2021 and 2020, respectively. NOTE 7 – MORTGAGE SERVICING RIGHTS The following table summarizes the changes in MSRs, which are included in other assets on the consolidated balance sheets, with adjustments to the fair value included in mortgage banking income on the consolidated statements of income: 2021 2020 2019 (in thousands) Amortized cost: Balance at beginning of period $ 38,745 $ 39,267 $ 38,573 Originations of MSRs 9,216 12,173 7,546 Amortization ( 11,968 ) ( 12,695 ) ( 6,852 ) Balance at end of period $ 35,993 $ 38,745 $ 39,267 Valuation allowance: Balance at beginning of period $ ( 10,500 ) $ — $ — Reduction (addition) to valuation allowance 9,900 ( 10,500 ) — Balance at end of period $ ( 600 ) $ ( 10,500 ) $ — Net MSRs at end of period $ 35,393 $ 28,245 $ 39,267 Estimated fair value of MSRs at end of period $ 35,393 $ 28,245 $ 45,193 MSRs represent the economic value of existing contractual rights to service mortgage loans that have been sold. The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $ 4.3 billion and $ 4.7 billion as of December 31, 2021 and 2020, respectively. Actual and expected prepayments of the underlying mortgage loans can impact the value of MSRs. The Corporation accounts for MSRs at the lower of amortized cost or fair value. The fair value of MSRs is estimated by discounting the estimated cash flows from servicing income, net of expense, over the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The fair values of MSRs were $ 35.4 million and $ 28.2 million as of December 31, 2021 and 2020, respectively. Based on its fair value analysis as of December 31, 2021, 100 the Corporation determined that a $ 0.6 million valuation allowance was required for the year ended December 31, 2021. The valuation allowance was $ 10,500 and $ 0 at December 31, 2020 and 2019, respectively. Total servicing income, recognized as an increase to mortgage banking income in the consolidated statements of income, was $ 11.2 million, $ 11.9 million and $ 12.0 million as of December 31, 2021, 2020 and 2019, respectively. Total MSR amortization expense, recognized as a reduction to mortgage banking income in the consolidated statements of income, was $ 12.0 million, $ 12.7 million and $ 6.9 million in 2021, 2020 and 2019, respectively. Estimated future MSR amortization expense, based on balances as of December 31, 2021, and the estimated remaining lives of the underlying loans, follows (in thousands): Year 2022 $ 6,104 2023 5,665 2024 5,186 2025 4,663 2026 4,095 Thereafter 10,280 Total estimated amortization expense $ 35,993 NOTE 8 – DEPOSITS Deposits consisted of the following as of December 31: 2021 2020 (in thousands) Noninterest-bearing demand $ 7,370,963 $ 6,531,002 Interest-bearing demand 5,819,539 5,818,564 Savings and money market accounts 6,403,995 5,929,792 Total demand and savings 19,594,497 18,279,358 Brokered deposits 251,526 335,185 Time deposits 1,727,476 2,224,664 Total Deposits $ 21,573,499 $ 20,839,207 The scheduled maturities of time deposits as of December 31, 2021 were as follows (in thousands): Year 2022 $ 1,315,785 2023 232,748 2024 71,064 2025 29,367 2026 14,810 Thereafter 63,702 $ 1,727,476 Included in time deposits were certificates of deposit equal to or greater than $100,000 of $ 0.7 billion and $ 1.0 billion as of December 31, 2021 and 2020, respectively. Time deposits of $250,000 or more were $ 219.0 million and $ 330.4 million as of December 31, 2021 and 2020, respectively. 101 NOTE 9 – SHORT-TERM AND LONG-TERM BORROWINGS Short-term borrowings as of December 31, 2021 and 2020 and the related maximum amounts outstanding at the end of any month in each of the three years then ended are presented below. December 31 Maximum Outstanding 2021 2020 2021 2020 (in thousands) Federal funds purchased $ — $ — $ — $ 200,000 Short-term FHLB advances (1) — — — 980,000 Customer funding (2) 416,764 630,066 552,547 630,066 Total short-term borrowings $ 416,764 $ 630,066 (1) Represents FHLB advances with an original maturity term of less than one year. (2) Includes short-term promissory notes. As of December 31, 2021, the Corporation had aggregate availability under federal funds lines of $ 2.1 billion. A combination of commercial real estate loans, commercial loans, consumer loans and investment securities were pledged to the FRB to provide access to FRB discount window borrowings. As of December 31, 2021 and 2020, the Corporation had $ 0.9 billion and $ 0.3 billion, respectively, of collateralized borrowing availability at the FRB discount window, and no outstanding borrowings. FHLB advances with an original maturity of one year or more and long-term borrowings included the following as of December 31: 2021 2020 (in thousands) FHLB advances $ — $ 535,973 Subordinated debt 543,778 625,000 Senior notes 65,000 125,000 Junior subordinated deferrable interest debentures 16,496 16,496 Other long-term debt 939 507 Unamortized discounts and issuance costs ( 4,868 ) ( 6,713 ) Total long-term borrowings $ 621,345 $ 1,296,263 As of December 31, 2021, the Corporation had additional borrowing capacity of approximately $ 5.8 billion with the FHLB. Advances from the FHLB are secured by FHLB stock, qualifying residential mortgages, investment securities and other assets. The following table summarizes the scheduled maturities with an original maturity of one year or more and long-term borrowings as of December 31, 2021 (in thousands): Year 2022 $ 65,313 2023 313 2024 169,091 2025 — 2026 — Thereafter 391,496 Unamortized discounts and issuance costs ( 4,868 ) $ 621,345 In March 2020, the Corporation issued $ 200.0 million and $ 175.0 million of subordinated notes due in 2030 and 2035, respectively. The subordinated notes maturing in 2030 were issued with a fixed-to-floating rate of 3.25 % and an effective rate of 3.35 %, due to issuance costs, and the subordinated notes maturing in 2035 were issued with a fixed-to-floating rate of 3.75 % and an effective rate of 3.85 %, due to issuance costs. 102 In March 2017, the Corporation issued $ 125.0 million of senior notes, with a fixed rate of 3.60 % and an effective rate of 3.95 %, as a result of discounts and issuance costs, which mature on March 16, 2022. Interest is paid semi-annually in September and March. In June 2015, the Corporation issued $ 150.0 million of subordinated notes, which mature on November 15, 2024 and carry a fixed rate of 4.50 % and an effective rate of 4.69 % as a result of discounts and issuance costs. Interest is paid semi-annually in May and November. In November 2014, the Corporation issued $ 100.0 million of subordinated notes, which mature on November 15, 2024 and carry a fixed rate of 4.50 % and an effective rate of 4.87 % as a result of discounts and issuance costs. Interest is paid semi-annually in May and November. As of December 31, 2021, the Parent Company owned all of the common stock of three subsidiary trusts, which have issued TruPS in conjunction with the Parent Company issuing junior subordinated deferrable interest debentures to the trusts. The TruPS are redeemable on specified dates, or earlier if certain events arise. The following table provides details of the debentures as of December 31, 2021 (dollars in thousands): Debentures Issued to Fixed/ Variable Interest Rate Amount Maturity Callable Call Price Columbia Bancorp Statutory Trust Variable 2.78 % $ 6,186 06/30/34 03/31/22 100.0 Columbia Bancorp Statutory Trust II Variable 2.09 % 4,124 03/15/35 03/15/22 100.0 Columbia Bancorp Statutory Trust III Variable 1.97 % 6,186 06/15/35 03/15/22 100.0 $ 16,496 NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS The following table presents the notional amounts and fair values of derivative financial instruments as of December 31: 2021 2020 Notional Amount Asset (Liability) Fair Value Notional Amount Asset (Liability) Fair Value (in thousands) Interest Rate Locks with Customers Positive fair values $ 261,428 $ 2,326 $ 382,903 $ 8,034 Negative fair values 2,549 ( 23 ) 3,154 ( 35 ) Forward Commitments Positive fair values 51,000 41 — — Negative fair values — — 292,262 ( 2,263 ) Interest Rate Swaps with Customers Positive fair values 3,213,924 153,752 3,834,062 330,951 Negative fair values 752,462 ( 4,766 ) 45,640 ( 2 ) Interest Rate Swaps with Dealer Counterparties Positive fair values 752,462 4,766 45,640 2 Negative fair values 3,213,924 ( 79,889 ) 3,834,062 ( 165,205 ) Interest Rate Swaps used in Cash Flow Hedges Positive fair values 500,000 60 — — Negative fair values 500,000 ( 1,432 ) — — Foreign Exchange Contracts with Customers Positive fair values 7,629 229 1,121 5 Negative fair values 3,388 ( 51 ) 5,963 ( 275 ) Foreign Exchange Contracts with Correspondent Banks Positive fair values 3,656 69 6,372 318 Negative fair values 9,364 ( 240 ) 1,422 ( 5 ) 103 The following table presents the effect of fair value and cash flow hedge accounting on accumulated OCI for the year ended December 31, 2021: Amount of Gain (Loss) Recognized in OCI on Derivative Amount of Gain (Loss) Recognized in OCI Included Component Amount of Gain or (Loss) Recognized in OCI Excluded Component Location of Gain or (Loss) Recognized from AOCI into Income Amount of Gain Reclassified from AOCI into Income Amount of Gain Reclassified from AOCI into Income Included Component Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component Derivatives in Cash Flow Hedging Relationships: Interest Rate Products ( 3,452,060 ) ( 3,452,060 ) — Interest income 2,775,589 2,775,589 — The following table presents the effect of fair value and cash flow hedge accounting on the consolidated statements of income for the year ended December 31, 2021: Consolidated Statements of Income Classification Interest Income Interest Expense Total amounts of income line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded $ 2,776 $ — The effects of fair value and cash flow hedging: Amount of gain or (loss) on cash flow hedging relationships — — Interest contracts: Amount of gain reclassified from AOCI into income 2,776 — Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring — — Amount of Gain Reclassified from AOCI into Income - Included Component 2,776 — Amount of Gain or (Loss) Reclassified from AOCI into Income - Excluded Component — — During the next twelve months, the Corporation estimates that an additional $ 4.9 million will be reclassified as an increase to interest income. The following table presents the fair value gains (losses) on derivative financial instruments for the years ended December 31: Consolidated Statements of Income Classification 2021 2020 2019 (in thousands) Mortgage banking derivatives (1) Mortgage banking $ ( 3,392 ) $ 4,974 $ 689 Interest rate swaps Other expense 1,050 70 122 Foreign exchange contracts Other income ( 36 ) 12 20 Net fair value gains (losses) on derivative financial instruments $ ( 2,378 ) $ 5,056 $ 831 (1) Includes interest rate locks with customers and forward commitments. 104 Fair Value Option The Corporation has elected to measure mortgage loans held for sale at fair value. The following table presents a summary of mortgage loans held for sale and the impact of the fair value election on the consolidated financial statements as of December 31: 2021 2020 (in thousands) Amortized cost (1) $ 35,050 $ 80,662 Fair value 35,768 83,886 (1) Cost basis of mortgage loans held for sale represents the unpaid principal balance. Losses related to changes in fair values of mortgage loans held for sale were $ 2.5 million for the year ended December 31, 2021. Gains related to changes in fair values of mortgage loans held for sale were $ 2.8 million for the year ended December 31, 2020, and losses related to changes in fair values of mortgage loans held for sale were $ 0.3 million for the year ended December 31, 2019. The gains and losses are recorded on the consolidated income statements as an adjustment to mortgage banking income. Balance Sheet Offsetting The fair values of interest rate swap agreements and foreign exchange contracts the Corporation enters into with customers and dealer counterparties may be eligible for offset on the consolidated balance sheets if they are subject to master netting arrangements or similar agreements. The Corporation has elected to net its financial assets and liabilities designated as cash flow hedges when offsetting is permitted. The following table presents the financial instruments that are eligible for offset, and the effects of offsetting, on the consolidated balance sheets as of December 31: Gross Amounts Gross Amounts Not Offset Recognized on the Consolidated on the Balance Sheets Consolidated Financial Cash Net Balance Sheets Instruments (1) Collateral (2) Amount (in thousands) 2021 Interest rate swap derivative assets $ 158,578 $ ( 8,028 ) $ — $ 150,550 Foreign exchange derivative assets with correspondent banks 69 ( 69 ) — — Total $ 158,647 $ ( 8,097 ) $ — $ 150,550 Interest rate swap derivative liabilities $ 86,087 $ ( 6,656 ) $ ( 74,359 ) $ 5,072 Foreign exchange derivative liabilities with correspondent banks 240 ( 69 ) — 171 Total $ 86,327 $ ( 6,725 ) $ ( 74,359 ) $ 5,243 2020 Interest rate swap derivative assets $ 330,951 $ ( 2 ) $ — $ 330,949 Foreign exchange derivative assets with correspondent banks 318 ( 5 ) — 313 Total $ 331,269 $ ( 7 ) $ — $ 331,262 Interest rate swap derivative liabilities $ 165,205 $ ( 2 ) $ ( 165,203 ) $ — Foreign exchange derivative liabilities with correspondent banks 5 ( 5 ) — — Total $ 165,210 $ ( 7 ) $ ( 165,203 ) $ — (1) For interest rate swap assets, amounts represent any derivative liability fair values that could be offset in the event of counterparty or customer default. For interest rate swap liabilities, amounts represent any derivative asset fair values that could be offset in the event of counterparty or customer default. (2) Amounts represent cash collateral (pledged by the Corporation) or received from the counterparty on interest rate swap transactions and foreign exchange contracts with financial institution counterparties. Interest rate swaps with customers are collateralized by the same collateral securing the underlying loans to those borrowers. Cash collateral amounts are included in the table only to the extent of the net derivative fair values. 105 NOTE 11 – REGULATORY MATTERS Regulatory Capital Requirements The Corporation and the Bank are subject to regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can trigger certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Basel III Rules In July 2013, the FRB approved 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. The minimum regulatory capital requirements established by the Basel III Rules became effective on January 1, 2015, and became fully phased in on January 1, 2019. The Basel III Rules require the Corporation and the Bank to: • Meet a minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets and a minimum Tier 1 capital of 6.00% of risk-weighted assets; • Meet a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of 4.00% of average assets; • Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and • Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses. Certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, are excluded as a component of Tier 1 capital for institutions of the Corporation's size. 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. The Corporation and the Bank are required to maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements. The rules provide that the failure to maintain the "capital conservation buffer" results in restrictions on capital distributions and discretionary cash bonus payments to executive officers. As a result, under the Basel III Rules, if the Bank fails to maintain the required minimum capital conservation buffer, the Corporation will be subject to limits, and possibly prohibitions, on its ability to obtain capital distributions from such subsidiaries. If the Corporation does not receive sufficient cash dividends from the Bank, it may not have sufficient funds to pay dividends on its common stock, service its debt obligations or repurchase its common stock. As of December 31, 2021 and 2020, the Corporation's capital levels met the fully phased-in minimum capital requirements, including the new capital conservation buffers, as prescribed in the Basel III Rules. As of December 31, 2021 and 2020, the Bank was well capitalized under the regulatory framework for prompt corrective action based on its capital ratio calculation. To be categorized as well capitalized, the bank was required to 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 below. There are no conditions or events since December 31, 2021, that management believes have changed the institution's categories. 106 T he following tables present the Total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage requirements under the Basel III Rules, as of December 31: 2021 Actual For Capital Adequacy Purposes Well Capitalized Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) Total Capital (to Risk-Weighted Assets): Corporation $ 2,841,529 14.1 % $ 1,610,429 8.0 % N/A N/A Fulton Bank, N.A. 2,591,332 12.9 1,602,597 8.0 $ 2,003,246 10.0 % Tier I Capital (to Risk-Weighted Assets): Corporation $ 2,195,647 10.9 % $ 1,207,822 6.0 % N/A N/A Fulton Bank, N.A 2,395,890 12.0 1,201,948 6.0 $ 1,602,597 8.0 % Common Equity Tier I Capital (to Risk-Weighted Assets): Corporation $ 2,002,769 9.9 % $ 905,866 4.5 % N/A N/A Fulton Bank, N.A 2,351,890 11.7 901,461 4.5 $ 1,302,110 6.5 % Tier I Leverage Capital (to Average Assets): Corporation $ 2,195,647 8.6 % $ 1,023,787 4.0 % N/A N/A Fulton Bank, N.A 2,395,890 9.4 1,017,083 4.0 $ 1,271,354 5.0 % N/A – Not applicable as "well capitalized" applies to banks only. 2020 Actual For Capital Adequacy Purposes Well Capitalized Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) Total Capital (to Risk-Weighted Assets): Corporation $ 2,837,801 14.4 % $ 1,571,876 8.0 % N/A N/A Fulton Bank, N.A. 2,758,963 14.1 1,562,322 8.0 $ 1,952,903 10.0 % Tier I Capital (to Risk-Weighted Assets): Corporation $ 2,067,640 10.5 % $ 1,178,907 6.0 % N/A N/A Fulton Bank, N.A 2,529,802 13.0 1,171,742 6.0 $ 1,562,322 8.0 % Common Equity Tier I Capital (to Risk-Weighted Assets): Corporation $ 1,874,762 9.5 % $ 884,181 4.5 % N/A N/A Fulton Bank, N.A 2,485,802 12.7 878,806 4.5 $ 1,269,387 6.5 % Tier I Leverage Capital (to Average Assets): Corporation $ 2,067,640 8.2 % $ 1,009,469 4.0 % N/A N/A Fulton Bank, N.A 2,529,802 10.1 1,001,313 4.0 $ 1,251,641 5.0 % N/A – Not applicable as "well capitalized" applies to banks only. Dividend and Loan Limitations The dividends that may be paid by the Bank to the Parent Company are subject to certain legal and regulatory limitations. The total amount available for payment of dividends by the Bank to the Parent Company was approximately $ 73.7 million as of December 31, 2021, based on the Bank maintaining enough capital to be considered well capitalized under the Basel III Rules. Under current regulations, the Bank is limited in the amount it may loan to its affiliates, including the Parent Company. Loans to a single affiliate may not exceed 10 %, and the aggregate of loans to all affiliates may not exceed 20 % of the Bank's regulatory capital. 107 NOTE 12 – INCOME TAXES The components of the provision for income taxes are as follows: 2021 2020 2019 (in thousands) Current tax expense: Federal $ 35,692 $ 38,397 $ 32,610 State 10,646 7,389 5,204 46,338 45,786 37,814 Deferred tax (benefit) expense: Federal 11,081 ( 18,131 ) ( 1,271 ) State 1,329 ( 3,460 ) 1,106 12,410 ( 21,591 ) ( 165 ) Total income tax expense $ 58,748 $ 24,195 $ 37,649 The differences between the effective income tax rate and the federal statutory income tax rate are as follows: 2021 2020 2019 Statutory tax rate 21.0 % 21.0 % 21.0 % Tax credit investments ( 3.0 ) ( 5.7 ) ( 4.6 ) Tax-exempt income ( 3.0 ) ( 4.9 ) ( 3.9 ) Bank owned life insurance ( 0.5 ) ( 0.7 ) ( 0.4 ) State income taxes, net of federal benefit 2.6 1.1 0.2 Change in valuation allowance — — 1.8 Executive compensation 0.1 — — FDIC Premium 0.3 0.3 — Penalties — 0.2 — Other, net 0.1 0.7 0.2 Effective income tax rate 17.6 % 12.0 % 14.3 % 108 The net DTA recorded by the Corporation is included in other assets and consists of the following tax effects of temporary differences as of December 31: 2021 2020 (in thousands) Deferred tax assets: Allowance for credit losses $ 62,465 $ 67,059 Tax credit carryforwards 27,192 39,294 State loss carryforwards 23,996 20,401 Lease Liability 21,034 — Tax credit investments 11,203 10,159 Other accrued expenses 10,633 9,801 Deferred compensation 9,190 8,486 Stock-based compensation 3,499 3,289 Postretirement and defined benefit plans — 1,553 Other 7,348 12,107 Total gross deferred tax assets $ 176,560 $ 172,149 Deferred tax liabilities: Equipment lease financing $ 41,049 $ 44,216 Right-of-use-asset 18,671 — Unrealized holding gains on AFS securities 10,432 23,978 Premises and equipment 9,151 8,876 MSRs 8,016 6,414 Acquisition premiums/discounts 5,466 5,466 Intangible assets 1,272 1,205 Postretirement and defined benefit plans 1,243 — Other 13,492 15,811 Total gross deferred tax liabilities 108,792 105,966 Net deferred tax asset, before valuation allowance 67,768 66,183 Valuation allowance ( 23,996 ) ( 20,401 ) Net deferred tax asset $ 43,772 $ 45,782 In assessing the realizability of DTAs, management considers whether it is more likely than not that some or all of the DTAs will not be realized. The ultimate realization of DTAs is dependent upon the generation of future taxable income and/or capital gain income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies, such as those that may be implemented to generate capital gains, in making this assessment. The valuation allowance relates to state net operating loss carryforwards for which realizability is uncertain. As of December 31, 2021 and 2020, the Corporation had state net operating loss carryforwards of approximately $ 306.9 million and $ 263.6 million, respectively, which are available to offset future state taxable income, and expire at various dates through 2041. As of December 31, 2021, based on the level of historical taxable income and projections for future taxable income over the periods in which the DTAs are deductible, management believes it is more likely than not that the Corporation will realize the benefits of its DTAs, net of the valuation allowance. As of December 31, 2021, the Corporation had tax credit carryforwards related to TCIs of approximately $ 27.2 million. The Corporation recorded a DTA of $ 27.2 million, reflecting the benefit of these tax credit carryforwards. Such DTA will begin to expire in 2041 if not yet utilized. 109 Uncertain Tax Positions The following table summarizes the changes in unrecognized tax benefits for the years ended December 31: 2021 2020 2019 (in thousands) Balance at beginning of year $ 2,151 $ 2,517 $ 2,726 Current period tax positions 120 95 292 Lapse of statute of limitations ( 598 ) ( 461 ) ( 501 ) Balance at end of year $ 1,673 $ 2,151 $ 2,517 Virtually all of the Corporation’s unrecognized tax benefits are for positions that are taken on an annual basis on state tax returns. Increases to unrecognized tax benefits will occur as a result of accruing for the nonrecognition of the position for the current year. Decreases will occur as a result of the lapsing of the statute of limitations for the oldest outstanding year which includes the position. These offsetting increases and decreases are likely to continue in the future, including over the next twelve months. While the net effect on total unrecognized tax benefits during this period cannot be reasonably estimated, approximately $ 0.6 million is expected to reverse in 2022 due to lapsing of the statute of limitations. Decreases can also occur throughout the settlement of positions with taxing authorities. As of December 31, 2021, if recognized, all of the Corporation’s unrecognized tax benefits would impact the effective tax rate. Not included in the table above is $ 0.4 million of federal income tax benefit on unrecognized state tax benefits which, if recognized, would also impact the effective tax rate. Interest accrued related to unrecognized tax benefits is recorded as a component of income tax expense. Penalties, if incurred, would also be recognized in income tax expense. The Corporation recognized approximately $( 75,000 ) and $( 17,000 ) in 2021 and 2020, respectively, for interest and penalties in income tax expense related to unrecognized tax positions. As of December 31, 2021 and 2020, total accrued interest and penalties related to unrecognized tax positions were approximately $ 0.6 million and $ 0.7 million, respectively. The Corporation files income tax returns in the federal and various state jurisdictions. In most cases, unrecognized tax benefits are related to tax years that remain subject to examination by the relevant taxing authorities. With few exceptions, the Corporation is no longer subject to federal, state and local examinations by tax authorities for years before 2018. Tax Credit Investments The TCIs are included in other assets, with any unfunded equity commitments recorded in other liabilities on the consolidated balance sheets. Certain TCIs qualify for the proportional amortization method and are amortized over the period the Corporation expects to receive the tax credits, with the expense included within income taxes on the consolidated statements of income. Other TCIs are accounted for under the equity method of accounting, with amortization included within non-interest expense on the consolidated statements of income. This amortization includes equity in partnership losses and the systematic write-down of investments over the period in which income tax credits are earned. All of the TCIs are evaluated for impairment at the end of each reporting period. The following table presents the balances of the Corporation's TCIs and related unfunded commitments as of December 31: 2021 2020 Included in other assets: ( in thousands) Affordable housing tax credit investments, net $ 161,052 $ 152,203 Other tax credit investments, net 42,987 59,224 Total TCIs, net $ 204,039 $ 211,427 Included in other liabilities: Unfunded affordable housing tax credit commitments $ 49,364 $ 31,562 Other tax credit liabilities 33,941 49,491 Total unfunded tax credit commitments and liabilities $ 83,305 $ 81,053 110 The following table presents other information relating to the Corporation's TCIs for the years ended December 31: 2021 2020 2019 ( in thousands) Components of income taxes: Tax credits and benefits ( 28,141 ) ( 32,940 ) ( 35,184 ) Amortization of tax credits and benefits, net of tax benefits 17,378 20,429 22,184 Deferred tax expense 639 921 954 Total reduction in income tax expense $ ( 10,124 ) $ ( 11,590 ) $ ( 12,046 ) Amortization of TCIs: Total amortization of TCIs $ 6,187 $ 6,126 $ 6,021 NOTE 13 – NET INCOME PER COMMON SHARE Basic net income per common share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding. Diluted net income per common share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock method. The Corporation’s common stock equivalents consist of outstanding stock options, restricted stock, RSUs and PSUs. PSUs are required to be included in weighted average diluted shares outstanding if performance measures, as defined in each PSU award agreement, are met as of the end of the period. A reconciliation of weighted average common shares outstanding used to calculate basic and diluted net income per share follows: 2021 2020 2019 (in thousands) Weighted average common shares outstanding (basic) 162,233 162,372 166,902 Impact of common stock equivalents 1,074 718 890 Weighted average common shares outstanding (diluted) 163,307 163,090 167,792 111 NOTE 14 – SHAREHOLDERS’ EQUITY Preferred Stock On October 29, 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, of which 200,000 are authorized and issued, with a liquidation preference of $ 1,000 per share (equivalent to $ 25.00 per Depositary Share), for an aggregate offering amount of $ 200 million. The preferred stock is redeemable, at the Corporation’s option, in whole or in part, on and after January 15, 2026, and redeemable in whole, but not in part, prior to January 15, 2026 within 90 days following the occurrence of a regulatory capital treatment event. The Corporation received net proceeds from the offering of $ 192.9 million, after deducting underwriting discounts and commissions and before deducting transaction expenses payable by the Corporation. Accumulated Other Comprehensive Income (Loss) The following table presents the components of other comprehensive income (loss) for the years ended December 31: Before-Tax Amount Tax Effect Net of Tax Amount (in thousands) 2021 Unrealized loss on securities $ ( 23,222 ) $ 5,274 $ ( 17,948 ) Reclassification adjustment for securities gains included in net income (1) ( 33,516 ) 7,611 ( 25,905 ) Amortization of net unrealized losses on AFS transferred to HTM (2) 3,485 ( 795 ) 2,690 Net unrealized holding loss arising during the period on interest rate swaps used in cash flow hedges ( 2,776 ) 629 ( 2,147 ) Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges ( 3,452 ) 782 ( 2,670 ) Unrecognized pension and postretirement income 9,147 ( 2,003 ) 7,144 Amortization of net unrecognized pension and postretirement items (3) 1,480 ( 324 ) 1,156 Total Other Comprehensive Loss $ ( 48,854 ) $ 11,174 $ ( 37,680 ) 2020 Unrealized gain on securities $ 85,188 $ ( 19,537 ) $ 65,651 Reclassification adjustment for securities gains included in net income (1) ( 3,053 ) 694 ( 2,359 ) Amortization of net unrealized losses on AFS transferred to HTM (2) (4) 4,360 ( 912 ) 3,448 Unrecognized pension and postretirement income ( 3,242 ) 710 ( 2,532 ) Amortization of net unrecognized pension and postretirement items (3) 1,311 ( 291 ) 1,020 Total Other Comprehensive Income $ 84,564 $ ( 19,336 ) $ 65,228 2019 Unrealized gain on securities $ 73,085 $ ( 16,166 ) $ 56,919 Reclassification adjustment for securities gains included in net income (1) ( 4,733 ) 1,047 ( 3,686 ) Amortization of net unrealized losses on AFS transferred to HTM (2) 8,070 ( 1,785 ) 6,285 Non-credit related unrealized losses on other-than-temporarily impaired debt securities ( 873 ) 193 ( 680 ) Unrecognized pension and postretirement income ( 1,203 ) 266 ( 937 ) Amortization of net unrecognized pension and postretirement items (3) 1,316 ( 291 ) 1,025 Total Other Comprehensive Income $ 75,662 $ ( 16,736 ) $ 58,926 (1) Amounts reclassified out of AOCI/(loss). Before-tax amounts included in "Investment securities gains, net" on the consolidated statements of income. See "Note 3 - Investment Securities," for additional details. (2) Amounts reclassified out of AOCI/(loss). Before-tax amounts included as a reduction to "Interest Income" on the consolidated statements of income. See "Note 3, - Investment Securities," for additional details. (3) Amounts reclassified out of AOCI/(loss). Before-tax amounts included in "Salaries and employee benefits" on the consolidated statements of income. See "Note 13 - Employee Benefit Plans," for additional details. 112 (4) Before-Tax amount includes a $ 3.7 million reclassification of unrealized loss related to the early adoption of ASU 2019-04, as disclosed in "Note 1 - Summary of Significant Accounting Policies" from "Amortization of net unrealized losses on AFS securities transferred to HTM" to "Unrealized gain on securities." The following table presents changes in each component of accumulated other comprehensive income (loss), net of tax, for the years ended December 31: Unrealized Gains (Losses) on Investment Securities Net Unrealized (Loss) Gain on Interest Rate Swaps used in Cash Flow Hedges Unrecognized Pension and Postretirement Plan Income (Costs) Total (in thousands) Balance at December 31, 2018 $ ( 43,974 ) $ — $ ( 15,089 ) $ ( 59,063 ) Other comprehensive loss before reclassifications 56,239 — ( 937 ) 55,302 Amounts reclassified from AOCI (loss) ( 3,686 ) — 1,025 ( 2,661 ) Amortization of net unrealized losses on AFS securities transferred to HTM 6,285 — — 6,285 Balance at December 31, 2019 14,864 — ( 15,001 ) ( 137 ) OCI before reclassifications 65,651 — ( 2,532 ) 63,119 Amounts reclassified from AOCI ( 2,359 ) — 1,020 ( 1,339 ) Amortization of net unrealized losses on AFS securities transferred to HTM 3,448 — — 3,448 Balance at December 31, 2020 81,604 — ( 16,513 ) 65,091 OCI before reclassifications ( 17,948 ) — 7,144 ( 10,804 ) Amounts reclassified from AOCI ( 25,905 ) ( 4,817 ) 1,156 ( 29,566 ) Amortization of net unrealized losses on AFS securities transferred to HTM 2,690 — — 2,690 Balance at December 31, 2021 $ 40,441 $ ( 4,817 ) $ ( 8,213 ) $ 27,411 Common Stock Repurchase Plans In February 2021, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation is authorized to repurchase up to $ 75.0 million of its outstanding shares of common stock, or approximately 3.2 % of its outstanding shares, through December 31, 2021 . In November 2021, the Corporation's board of directors approved the extension of this program through March 31, 2022. During 2021, 2.8 million shares were repurchased at a total cost of $ 43.9 million, or $ 15.65 per share, under this program. As of December 31, 2021, there was $ 31.1 million of share repurchase authorization that may be utilized to repurchase common shares through March 31, 2022 under this program. In October 2019, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation was authorized to repurchase up to $ 100.0 million of its outstanding shares of common stock, or approximately 3.9 % of its outstanding shares, through December 31, 2020. During the first quarter of 2020, 2.9 million shares were repurchased at a total cost of $ 39.7 million, or $ 13.65 per share, under this program. The repurchase program was suspended in mid-March of 2020 in order to preserve liquidity in response to potential unknown economic impacts of the COVID-19 pandemic at that time. In March 2019, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation was authorized to repurchase up to $ 100.0 million of its outstanding shares of common stock, or approximately 3.5 % of its outstanding shares, through December 31, 2019 . During 2019, the Corporation repurchased approximately 6.1 million shares under this program for a total cost of $ 100.0 million, or $ 16.28 per share, completing this program. In November 2018, the Corporation's board of directors approved a share repurchase program pursuant to which the Corporation was authorized to repurchase up to $ 75.0 million of its outstanding shares of common stock, or approximately 2.7 % of its outstanding shares, through December 31, 2019 . During 2019 and 2018, the Corporation repurchased approximately 706,000 and 4.1 million shares, respectively, under this program for a total cost of $ 75.0 million, or $ 15.57 per share, completing this program. Under these repurchase programs, repurchased shares are added to treasury stock, at cost. As permitted by securities laws and other legal requirements, and subject to market conditions and other factors, purchases may be made from time to time in open market or privately negotiated transactions, including, without limitation, through accelerated share repurchase transactions. 113 NOTE 15 – STOCK-BASED COMPENSATION PLANS The following table presents compensation expense and related tax benefits for all equity awards recognized in the consolidated statements of income: 2021 2020 2019 (in thousands) Compensation expense $ 9,264 $ 8,381 $ 7,413 Tax benefit ( 2,027 ) ( 1,790 ) ( 1,610 ) Total stock-based compensation, net of tax $ 7,237 $ 6,591 $ 5,803 The tax benefits as a percentage of compensation expense, as shown in the preceding table, were 21.9 %, 21.4 % and 21.7 % in 2021, 2020 and 2019, respectively. These percentages differ from the Corporation’s federal statutory tax rate of 21 %. Tax benefits are only recognized over the vesting period for awards that ordinarily will generate a tax deduction when exercised, in the case of non-qualified stock options, or upon vesting, in the case of restricted stock, RSUs, and PSUs. Tax benefits in excess of the tax rate resulted from incentive stock option exercises that triggered a tax deduction when they were exercised, and excess tax benefits realized on vesting RSUs and PSUs during the period. The following table provides information about stock option activity for the year ended December 31, 2021: Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in millions) Outstanding and exercisable as of December 31, 2020 398,307 $ 11.39 Exercised ( 148,670 ) 11.10 Forfeited ( 1,676 ) 11.33 Expired ( 8,370 ) 11.24 Outstanding and exercisable as of December 31, 2021 239,591 $ 11.57 1.6 years $ 1.3 The following table presents information about stock options exercised: 2021 2020 2019 (dollars in thousands) Number of options exercised 148,670 89,725 150,296 Total intrinsic value of options exercised $ 801 $ 192 $ 1,028 Cash received from options exercised $ 1,651 $ 880 $ 1,446 Tax benefit from options exercised $ 155 $ 37 $ 188 Upon exercise, the Corporation issues shares from its authorized, but unissued, common stock to satisfy the options. The following table provides information about nonvested restricted stock, RSUs and PSUs granted under the Employee Equity Plan and Directors' Plan for the year ended December 31, 2021: Restricted Stock/RSUs/PSUs (1) Shares Weighted Average Grant Date Fair Value Nonvested as of December 31, 2020 1,897,380 $ 14.07 Granted 665,749 16.83 Vested ( 379,193 ) 16.37 Forfeited ( 121,197 ) 15.78 Nonvested as of December 31, 2021 2,062,739 $ 14.26 (1) There were no nonvested stock options at December 31, 2021 or 2020. 114 As of December 31, 2021, there was $ 12.7 million of total unrecognized compensation cost (pre-tax) related to restricted stock, RSUs and PSUs that will be recognized as compensation expense over a weighted average period of 1.85 years. As of December 31, 2021, the Employee Equity Plan had 9.6 million shares reserved for future grants through 2023, and the Directors’ Plan had 109,000 shares reserved for future grants through 2029. The fair value of certain PSUs with market-based performance conditions granted under the Employee Equity Plan was estimated on the grant date using the Monte Carlo valuation methodology performed by a third-party valuation expert. This valuation is dependent upon certain assumptions, as summarized in the following table: 2021 2020 2019 Risk-free interest rate 0.25 % 0.25 % 2.27 % Volatility of Corporation’s stock 42.55 % 33.10 % 23.00 % Expected life of PSUs 3 years 3 years 3 years The expected life of the PSUs with fair values measured using the Monte Carlo valuation methodology was based on the defined performance period of three years . Volatility of the Corporation’s stock was based on historical volatility for the period commensurate with the expected life of the PSUs. The risk-free interest rate is the zero-coupon U.S. Treasury rate commensurate with the expected life of the PSUs on the date of the grant. Based on the assumptions above, the Corporation calculated an estimated fair value per PSU with market-based performance conditions granted in 2021, 2020 and 2019 of $ 16.94 , $ 10.16 and $ 16.83 , respectively. Under the ESPP, eligible employees can purchase stock of the Corporation at 85 % of the fair market value of the stock on the date of purchase. The ESPP is considered to be a compensatory plan and, as such, compensation expense is recognized for the 15 % discount on shares purchased. The following table summarizes activity under the ESPP: 2021 2020 2019 ESPP shares purchased 134,156 194,485 136,576 Average purchase price per share (85% of market value) $ 13.92 $ 10.02 $ 14.03 Compensation expense recognized (in thousands) $ 329 $ 344 $ 338 NOTE 16 – EMPLOYEE BENEFIT PLANS The following summarizes retirement plan expense for the years ended December 31: 2021 2020 2019 (in thousands) 401(k) Retirement Plan $ 10,338 $ 9,853 $ 8,976 Pension Plan 217 660 2,484 Total $ 10,555 $ 10,513 $ 11,460 The 401(k) Retirement Plan is a defined contribution plan under which eligible employees may defer a portion of their pre-tax covered compensation on an annual basis, with employer matches of up to 5 % of employee compensation. Employee and employer contributions under these features are 100 % vested. Contributions to the Defined Benefit Pension Plan ("Pension Plan") are actuarially determined and funded annually, if necessary. The Corporation recognizes the funded status of its Pension Plan on the consolidated balance sheets and recognizes the changes in that funded status through OCI. The Pension Plan has been curtailed, with no additional benefits accruing to participants. Pension Plan The net periodic pension cost for the Pension Plan, as determined by consulting actuaries, consisted of the following components for the years ended December 31: 115 2021 2020 2019 (in thousands) Interest cost $ 2,244 $ 2,726 $ 3,257 Expected return on assets ( 4,044 ) ( 3,925 ) ( 2,754 ) Net amortization and deferral 2,017 1,859 1,981 Net periodic pension cost $ 217 $ 660 $ 2,484 The following table summarizes the changes in the projected benefit obligation and fair value of plan assets for the plan years ended December 31: 2021 2020 (in thousands) Projected benefit obligation at beginning of year $ 92,292 $ 86,204 Interest cost 2,244 2,726 Benefit payments ( 4,272 ) ( 4,104 ) Change in assumptions ( 2,613 ) 7,532 Experience gain ( 121 ) ( 66 ) Projected benefit obligation at end of year $ 87,530 $ 92,292 Fair value of plan assets at beginning of year $ 87,177 $ 83,676 Actual return on plan assets 11,210 7,605 Benefit payments ( 4,272 ) ( 4,104 ) Fair value of plan assets at end of year $ 94,115 $ 87,177 The following table presents the funded status of the Pension Plan, included in other assets and other liabilities on the consolidated balance sheets, as of December 31: 2021 2020 (in thousands) Projected benefit obligation $ ( 87,530 ) $ ( 92,292 ) Fair value of plan assets 94,115 87,177 Funded status $ 6,585 $ ( 5,115 ) The following table summarizes the changes in the unrecognized net loss included as a component of accumulated other comprehensive income (loss): Unrecognized Net Loss Before tax Net of tax (in thousands) Balance as of December 31, 2019 $ 23,546 $ 18,337 Recognized as a component of 2020 periodic pension cost ( 1,859 ) ( 1,452 ) Unrecognized gains arising in 2020 3,787 2,958 Balance as of December 31, 2020 25,474 19,843 Recognized as a component of 2021 periodic pension cost ( 2,017 ) ( 1,574 ) Unrecognized losses arising in 2021 ( 9,899 ) ( 7,724 ) Balance as of December 31, 2021 $ 13,558 $ 10,545 116 The following rates were used to calculate the net periodic pension cost and the present value of benefit obligations as of December 31: 2021 2020 2019 Discount rate-projected benefit obligation 2.80 % 2.50 % 3.25 % Expected long-term rate of return on plan assets 5.00 % 5.00 % 5.00 % The discount rates used were determined using the Citigroup Average Life discount rate table, as adjusted based on the Pension Plan's expected benefit payments. The 5.00 % long-term rate of return on plan assets used to calculate the net periodic pension cost was based on historical returns, adjusted for expectations of long-term asset returns based on the December 31, 2021 weighted average asset allocations. The expected long-term return is considered to be appropriate based on the asset mix and the historical returns realized. The following table presents a summary of the fair values of the Pension Plan’s assets as of December 31: 2021 2020 Estimated Fair Value % of Total Assets Estimated Fair Value % of Total Assets (dollars in thousands) Equity mutual funds $ 35,752 $ 37,847 Equity common trust funds 19,824 12,450 Equity securities 55,576 59.1 % 50,297 57.7 % Cash and money market funds 8,447 9,444 Fixed income mutual funds 15,566 16,134 Corporate debt securities 2,733 3,319 U.S. Government agency securities 9,524 6,257 Fixed income securities and cash 36,270 38.5 % 35,154 40.3 % Other alternative investment funds 2,269 2.4 % 1,726 2.0 % Total $ 94,115 100.0 % $ 87,177 100.0 % Investment allocation decisions are made by a retirement plan committee. The goal of the investment allocation strategy is to match certain benefit obligations with maturities of fixed income securities. Alternative investments may include managed futures, commodities, real estate investment trusts, master limited partnerships, and long-short strategies with traditional stocks and bonds. All alternative investments are in the form of mutual funds, not individual contracts, to enable daily liquidity. The fair values for assets held by the Pension Plan are based on quoted prices for identical instruments and would be categorized as Level 1 assets under the fair value hierarchy. Estimated future benefit payments are as follows (in thousands): Year 2022 $ 4,505 2023 4,595 2024 4,663 2025 4,745 2026 4,839 Thereafter 24,505 Total $ 47,852 Postretirement Benefits The Corporation provides medical benefits and life insurance benefits under a postretirement benefits plan ("Postretirement Plan") to certain retired full-time employees who were employees of the Corporation prior to January 1, 1998. Prior to February 1, 2014, certain full-time employees became eligible for these discretionary benefits if they reached retirement age while working for the Corporation. The Corporation recognizes the funded status of the postretirement plan on the consolidated balance sheets and recognizes the changes in that funded status through OCI. 117 The components of the net benefit for Postretirement Plan other than pensions are as follows: 2021 2020 2019 (in thousands) Interest cost $ 32 $ 43 $ 61 Net amortization and deferral ( 536 ) ( 548 ) ( 556 ) Net postretirement benefit $ ( 504 ) $ ( 505 ) $ ( 495 ) This table summarizes the changes in the accumulated postretirement benefit obligation for the years ended December 31: 2021 2020 (in thousands) Accumulated postretirement benefit obligation at beginning of year $ 1,322 $ 1,450 Interest cost 32 43 Benefit payments ( 167 ) ( 177 ) Change in experience 71 ( 32 ) Change in assumptions ( 14 ) 38 Accumulated postretirement benefit obligation at end of year $ 1,244 $ 1,322 The fair values of the plan assets were $ 0 as of both December 31, 2021 and 2020. The funded status of the Postretirement Plan, included in other liabilities on the consolidated balance sheets as of December 31, 2021 and 2020 was $ 1.2 million and $ 1.3 million, respectively. The following table summarizes the changes in items recognized as a component of accumulated other comprehensive income (loss): Before tax Unrecognized Prior Service Cost Unrecognized Net Loss (Gain) Total Net of tax (in thousands) Balance as of December 31, 2019 $ ( 3,476 ) $ ( 948 ) $ ( 4,424 ) $ ( 3,451 ) Recognized as a component of 2020 postretirement cost 464 84 548 428 Unrecognized gains arising in 2020 — 6 6 5 Balance as of December 31, 2020 ( 3,012 ) ( 858 ) ( 3,870 ) ( 3,018 ) Recognized as a component of 2021 postretirement cost 464 72 536 418 Unrecognized gains arising in 2021 — 57 57 44 Balance as of December 31, 2021 $ ( 2,548 ) $ ( 729 ) $ ( 3,277 ) $ ( 2,556 ) The following rates were used to calculate net periodic postretirement benefit cost and the present value of benefit obligations as of December 31: 2021 2020 2019 Discount rate-projected benefit obligation 2.80 % 2.50 % 3.25 % Expected long-term rate of return on plan assets 3.00 % 3.00 % 3.00 % The discount rates used to calculate the accumulated postretirement benefit obligation were determined using the Citigroup Average Life discount rate table, as adjusted based on the Postretirement Plan's expected benefit payments. 118 Estimated future benefit payments under the Postretirement Plan are as follows (in thousands): Year 2022 $ 160 2023 147 2024 134 2025 123 2026 111 Thereafter 403 Total $ 1,078 NOTE 17 – LEASES The Corporation has operating leases for certain financial centers, corporate offices and land. The following table presents the components of lease expense, which is included in net occupancy expense on the consolidated statements of income (in thousands): 2021 2020 2019 Operating lease expense $ 16,345 $ 18,481 $ 18,852 Variable lease expense 1,384 2,830 2,924 Sublease income ( 860 ) ( 749 ) ( 791 ) Total lease expense $ 16,869 $ 20,562 $ 20,985 Supplemental consolidated balance sheet information related to leases was as follows as of December 31 (dollars in thousands): Operating Leases Balance Sheet Classification 2021 2020 ROU assets Other assets $ 82,431 $ 84,227 Lease liabilities Other liabilities $ 92,864 $ 96,812 Weighted average remaining lease term 7.0 years 7.5 years Weighted average discount rate 2.73 % 2.96 % The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term, as of January 1, 2019, for leases that existed at adoption and as of the lease commencement or modification date for leases subsequently entered into. Supplemental cash flow information related to operating leases was as follows (in thousands): 2021 2020 Cash paid for amounts included in the measurement of lease liabilities $ 19,611 $ 18,973 ROU assets obtained in exchange for lease obligations 12,588 2,931 119 Lease payment obligations for each of the next five years and thereafter, with a reconciliation to the Corporation's lease liability were as follows (in thousands): Year Operating Leases 2022 $ 19,310 2023 18,086 2024 15,974 2025 14,099 2026 11,648 Thereafter 35,858 Total lease payments 114,975 Less: imputed interest ( 22,111 ) Present value of lease liabilities $ 92,864 As of December 31, 2021, the Corporation had not entered into any material leases that have not yet commenced. NOTE 18 – COMMITMENTS AND CONTINGENCIES Commitments The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. 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. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower or obligor. Since a portion of the commitments is expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral, if any, obtained upon extension of credit is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, equipment and income-producing commercial properties. 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 and domestic trade transactions for customers. The credit risk involved in issuing letters of credit is similar to that involved in extending loan facilities. These obligations are underwritten consistently with commercial lending standards. The maximum exposure to loss for standby and commercial letters of credit is equal to the contractual (or notional) amount of the instruments. The Corporation records a reserve for unfunded commitments, included in other liabilities on the consolidated balance sheets, which represents management's estimate of losses inherent in commitments to extend credit and letters of credit. See "Note 4 - Loans and Allowance for Credit Losses," for additional information. The following table presents the Corporation’s commitments to extend credit and letters of credit: 2021 2020 (in thousands) Commercial and industrial $ 5,072,008 $ 5,245,041 Real estate - commercial mortgage and real estate - construction 1,914,238 1,787,963 Real estate - home equity 1,744,922 1,618,051 Total commitments to extend credit $ 8,731,168 $ 8,651,055 Standby letters of credit $ 298,275 $ 308,168 Commercial letters of credit 54,196 56,229 Total letters of credit $ 352,471 $ 364,397 120 Residential Lending The Corporation originates and sells residential mortgages to secondary market investors. The Corporation provides customary representations and warranties to secondary market investors that specify, among other things, that the loans have been underwritten to the standards of the secondary market investor. The Corporation may be required to repurchase specific loans, or reimburse the investor for a credit loss incurred on a sold loan if it is determined that the representations and warranties have not been met. Under some agreements with secondary market investors, the Corporation may have additional credit exposure beyond customary representations and warranties, based on the specific terms of those agreements. The Corporation maintains a reserve for estimated credit losses related to loans sold to investors. As of December 31, 2021 and 2020, the total reserve for losses on residential mortgage loans sold was $ 1.1 million, for each period, including reserves for both representation and warranty and credit loss exposures. With the adoption of CECL on January 1, 2020, the reserve for estimated losses on certain residential mortgage loans sold to investors was reclassified to ACL - OBS credit exposures. In addition, a component of ACL - OBS credit exposures of $ 3.8 million and $ 5.3 million as of December 31, 2021 and December 31, 2020, respectively, related to additional credit exposure for potential loan repurchases. Legal Proceedings The Corporation is involved in various pending and threatened claims and other legal proceedings in the ordinary course of its business activities. The Corporation evaluates the possible impact of these matters, taking into consideration the most recent information available. A loss reserve is established for those matters for which the Corporation believes a loss is both probable and reasonably estimable. Once established, the reserve is adjusted as appropriate to reflect any subsequent developments. Actual losses with respect to any such matter may be more or less than the amount estimated by the Corporation. For matters where a loss is not probable, or the amount of the loss cannot be reasonably estimated by the Corporation, no loss reserve is established. In addition, from time to time, the Corporation is involved in investigations or other forms of regulatory or governmental inquiry covering a range of possible issues and, in some cases, these may be part of similar reviews of the specified activities of other companies. These inquiries or investigations could lead to administrative, civil or criminal proceedings involving the Corporation, and could result in fines, penalties, restitution, other types of sanctions, or the need for the Corporation to undertake remedial actions, or to alter its business, financial or accounting practices. The Corporation's practice is to cooperate fully with regulatory and governmental inquiries and investigations. As of the date of this Report, the Corporation believes that any liabilities, individually or in the aggregate, that may result from the final outcomes of pending legal proceedings, or regulatory or governmental inquiries or investigations, will not have a material adverse effect on the financial condition of the Corporation. However, legal proceedings, inquiries and investigations are often unpredictable, and it is possible that the ultimate resolution of any such matters, if unfavorable, may be material to the Corporation's results of operations in any future period, depending, in part, upon the size of the loss or liability imposed and the operating results for the period, and could have a material adverse effect on the Corporation's business. In addition, regardless of the ultimate outcome of any such legal proceeding, inquiry or investigation, any such matter could cause the Corporation to incur additional expenses, which could be significant, and possibly material, to the Corporation's results of operations in any future period. Kress v. Fulton Bank, N.A. On October 15, 2019, a former Fulton Bank teller supervisor, D. Kress, filed a putative collective and class action lawsuit on behalf of herself and other teller supervisors, tellers, and other similar non-exempt employees in the U.S. District Court for the District of New Jersey, D. Kress v. Fulton Bank, N.A. , Case No. 1:19-cv-18985. Fulton Bank accepted summons without a formal service of process on January 20, 2020. The lawsuit alleges that Fulton Bank did not record or otherwise account for the amount of time D. Kress and putative collective and class members spent conducting branch opening security procedures. The allegation is that, as a result, Fulton Bank did not properly compensate those employees for their regular and overtime wages. The lawsuit alleges that by doing so, Fulton violated: (i) the federal Fair Labor Standards Act and seeks back overtime wages for a period of three years, liquidated damages and attorney fees and costs; (ii) the New Jersey State Wage and Hour Law and seeks back overtime wages for a period of six years, treble damages and attorney fees and costs; and (iii) the New Jersey Wage Payment Law and seeks back wages for a period of six years, treble damages and attorney fees and costs. The lawsuit also asserts New Jersey common law claims seeking compensatory damages and interest. The Corporation and counsel representing plaintiffs ("Plaintiffs' Counsel") reached and executed a formal Settlement Agreement to resolve this lawsuit. Plaintiffs' Counsel filed a Motion for Preliminary Approval of Class and Collective Settlement and Provisional Certification of Settlement Class and Collective ("the Motion") with the U.S. District Court for the District of New Jersey ("the Court"). The Corporation is not able to provide any assurance that the Court will grant the Motion. If the Court grants the Motion, subject to final approval by 121 the Court, the Settlement Agreement will be administered according to its terms. The financial terms of the Settlement Agreement are not expected to be material to the Corporation. The Corporation established an accrued liability during the third quarter of 2020 for the costs expected to be incurred in connection with the Settlement Agreement. The accrued liability is included in "other liabilities" on the consolidated balance sheets. NOTE 19 – FAIR VALUE MEASUREMENTS The following tables present assets and liabilities measured at fair value on a recurring basis and reported on the consolidated balance sheets: 2021 Level 1 Level 2 Level 3 Total (in thousands) Loans held for sale $ — $ 35,768 $ — $ 35,768 Available for sale investment securities: U.S. Government securities 127,618 — — 127,618 State and municipal securities — 1,188,670 — 1,188,670 Corporate debt securities — 386,133 — 386,133 Collateralized mortgage obligations — 209,359 — 209,359 Residential mortgage-backed securities — 229,795 — 229,795 Commercial mortgage-backed securities — 971,148 — 971,148 Auction rate securities — — 74,667 74,667 Total available for sale investment securities 127,618 2,985,105 74,667 3,187,390 Other assets: Investments held in Rabbi Trust 28,619 — — 28,619 Derivative assets 298 160,945 — 161,243 Total assets $ 156,535 $ 3,181,818 $ 74,667 $ 3,413,020 Other liabilities: Deferred compensation liabilities $ 28,619 $ — $ — $ 28,619 Derivative liabilities 291 86,110 — 86,401 Total liabilities $ 28,910 $ 86,110 $ — $ 115,020 2020 Level 1 Level 2 Level 3 Total (in thousands) Loans held for sale $ — $ 83,886 $ — $ 83,886 Available for sale investment securities: State and municipal securities — 952,613 — 952,613 Corporate debt securities — 367,145 — 367,145 Collateralized mortgage obligations — 503,766 — 503,766 Residential mortgage-backed securities — 377,998 — 377,998 Commercial mortgage-backed securities — 762,415 — 762,415 Auction rate securities — — 98,206 98,206 Total available for sale investment securities — 2,963,937 98,206 3,062,143 Other assets: Investments held in Rabbi Trust 24,383 — — 24,383 Derivative assets 323 338,987 — 339,310 Total assets $ 24,706 $ 3,386,810 $ 98,206 $ 3,509,722 Other liabilities: Deferred compensation liabilities $ 24,383 $ — $ — $ 24,383 Derivative liabilities 280 167,505 — 167,785 Total liabilities $ 24,663 $ 167,505 $ — $ 192,168 The valuation techniques used to measure fair value for the items in the preceding tables are as follows: 122 Loans held for sale – This category includes mortgage loans held for sale that are measured at fair value. Fair values as of December 31, 2021 and 2020, were measured as the price that secondary market investors were offering for loans with similar characteristics. See "Note 1 - Summary of Significant Accounting Policies" for details related to the Corporation’s election to measure assets and liabilities at fair value. Available for sale investment securities – Included in this asset category are debt securities. Level 2 investment securities are valued by a third-party pricing service. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings and matrix pricing. Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security types, additional inputs may be used, or some of the standard market inputs may not be applicable. • U.S. Government securities – These securities are classified as Level 1. Fair values are based on quoted prices with active markets. • U.S. Government sponsored agency securities – These debt securities are classified as Level 2. Fair values are determined by a third-party pricing service, as detailed above. • State and municipal securities/Collateralized mortgage obligations/Residential mortgage-backed securities/Commercial mortgage-backed securities – These debt securities are classified as Level 2. Fair values are determined by a third-party pricing service, as detailed above. • Corporate debt securities – This category consists of subordinated and senior debt issued by financial institutions ($ 383.4 million at December 31, 2021 and $ 362.8 million at December 31, 2020), single-issuer trust preferred securities issued by financial institutions (none at December 31, 2021 and at 2020), and other corporate debt issued by non-financial institutions ($ 2.8 million at December 31, 2021 and $ 4.4 million at December 31, 2020). As noted in "Note 3 - Investment Securities", several corporate debt securities were sold during 2020. Refer to the specific note for further information. Level 2 investments include subordinated debt and senior debt, and other corporate debt issued by non-financial institutions at December 31, 2021 and 2020. The fair values for these corporate debt securities are determined by a third-party pricing service, as detailed above. Level 3 investments include ARCs. Due to their illiquidity, ARCs are classified as Level 3 investments and are valued through the use of an expected cash flows model prepared by a third-party valuation expert. The assumptions used in preparing the expected cash flows model include estimates for coupon rates, time to maturity and market rates of return. The most significant unobservable input to the expected cash flows model is an assumed return to market liquidity sometime within the next 5 years. If the assumed return to market liquidity was lengthened beyond the next 5 years, this would result in a decrease in the fair value of these ARCs. The Corporation believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid. Level 3 values are tested by management through the performance of a trend analysis of the market price and discount rate. Changes in the price and discount rates are compared to changes in market data, including bond ratings, parity ratios, balances and delinquency levels. Investments held in Rabbi Trust - This category consists of mutual funds that are held in trust for employee deferred compensation plans that the Corporation has elected to measure at fair value. Shares of mutual funds are valued based on net asset value, which represents quoted market prices for the underlying shares held in the mutual funds, and as such, are classified as Level 1. Derivative assets - Fair value of foreign currency exchange contracts classified as Level 1 assets ($ 298,000 at December 31, 2021 and $ 323,000 at December 31, 2020). The mutual funds and foreign exchange prices used to measure these items at fair value are based on quoted prices for identical instruments in active markets. Level 2 assets, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($ 2.4 million at December 31, 2021 and $ 8.0 million at December 31, 2020) and the fair value of interest rate swaps ($ 158.6 million at December 31, 2021 and $ 331.0 million at December 31, 2020). The fair values of the interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. See "Note 10 - Derivative Financial Instruments," for additional information. 123 Deferred compensation liabilities – Fair value of amounts due to employees under deferred compensation plans, classified as Level 1 liabilities and are included in other liabilities on the consolidated balance sheets. The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Investments held in Rabbi Trust" above. Derivative liabilities - Level 1 liabilities, representing the fair value of foreign currency exchange contracts ($ 0.3 million at December 31, 2021 and 2020). Level 2 liabilities, representing the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($ 0.0 million at December 31, 2021 and $ 2.3 million at December 31, 2020) and the fair value of interest rate swaps ($ 86.1 million at December 31, 2021 and $ 165.2 million at December 31, 2020). The fair values of these liabilities are determined in the same manner as the related assets, which are described under the heading "Derivative assets" above. The following table presents the changes in AFS investment securities measured at fair value on a recurring basis using unobservable inputs (Level 3) for the years ended December 31: Single-issuer Trust Preferred Securities ARCs (in thousands) Balance at December 31, 2019 $ 2,400 $ 101,926 Sales ( 2,160 ) — Unrealized adjustment to fair value (1) ( 242 ) ( 3,720 ) Discount accretion (2) 2 — Balance at December 31, 2020 $ — $ 98,206 Sales — ( 24,619 ) Unrealized adjustment to fair value (1) — 1,080 Discount accretion (2) — — Balance at December 31, 2021 $ — $ 74,667 (1) Single-issuer trust preferred securities and ARCs are classified as AFS investment securities; as such, the unrealized adjustment to fair value was recorded as an unrealized holding gain (loss) and included as a component of "AFS at estimated fair value" on the consolidated balance sheets. (2) Included as a component of "net interest income" on the consolidated statements of income. Certain financial instruments are not measured at fair value on an ongoing basis but are subject to fair value measurement in certain circumstances, such as upon their acquisition or when there is evidence of impairment. The following table presents Level 3 financial instruments measured at fair value on a nonrecurring basis: 2021 2020 (in thousands) Loans, net $ 118,458 $ 116,584 OREO 1,817 4,178 MSRs (1) 35,393 28,245 Total assets $ 155,668 $ 149,007 (1) Amounts shown are estimated fair value. MSRs are recorded on the Corporation's consolidated balance sheets at lower of amortized cost or fair value. See "Note 7 - Mortgage Servicing Rights" for additional information. The valuation techniques used to measure fair value for the items in the table above are as follows: • Loans, net – This category consists of loans that were individually evaluated for impairment and have been classified as Level 3 assets. In 2021, the amount shown is the balance of nonaccrual loans, net of the related ACL. In 2020, the amount shown is the balance of impaired loans, net of the related ACL See "Note 4 - Loans and Allowance for Credit Losses," for additional details. • OREO – This category consists of OREO classified as Level 3 assets, for which the fair values were based on estimated selling prices less estimated selling costs for similar assets in active markets. • MSRs - This category consists of MSRs, which were initially recorded at fair value upon the sale of residential mortgage loans to secondary market investors, and subsequently carried at the lower of amortized cost or fair value. MSRs are amortized as a reduction to servicing income over the estimated lives of the underlying loans. MSRs are 124 stratified by product type and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair values are determined at the end of each quarter through a discounted cash flows valuation performed by a third-party valuation expert. Significant inputs to the valuation included expected net servicing income, the discount rate and the expected life of the underlying loans. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The weighted average annual constant prepayment rate and the weighted average discount rate used in the December 31, 2021, valuation were 14.6 % and 9.0 %, respectively. Management reviews the reasonableness of the significant inputs to the third-party valuation in comparison to market data. See "Note 7 - Mortgage Servicing Rights," for additional information. Changes in any of those inputs, in isolation, could result in a significantly different fair value measurement, as depicted in the table below: Significant Input Scenario Shock % Change in Valuation Prepayment Rate + 30% ( 16 )% Prepayment Rate - 30% 15 % Discount Rate - 200 bps 7 % Discount Rate + 200 bps ( 7 )% 125 The following table details the book values and the estimated fair values of the Corporation’s financial instruments as of December 31, 2021 and 2020. A general description of the methods and assumptions used to estimate such fair values is also provided. 2021 Estimated Fair Value Carrying Amount Level 1 Level 2 Level 3 Total FINANCIAL ASSETS (in thousands) Cash and cash equivalents $ 1,638,614 $ 1,638,614 $ — $ — $ 1,638,614 FRB and FHLB stock 57,635 — 57,635 — 57,635 Loans held for sale 35,768 — 35,768 — 35,768 HTM securities 980,384 — 965,867 — 965,867 AFS securities 3,187,390 127,618 2,985,105 74,667 3,187,390 Net Loans 18,076,349 — — 17,519,497 17,519,497 Accrued interest receivable 57,451 57,451 — — 57,451 Other assets 565,491 367,336 160,945 37,210 565,491 FINANCIAL LIABILITIES Demand and savings deposits $ 19,594,497 $ 19,594,497 $ — $ — $ 19,594,497 Brokered deposits 251,526 231,526 20,603 — 252,129 Time deposits 1,727,476 — 1,730,673 — 1,730,673 Accrued interest payable 7,000 7,000 — — 7,000 Short-term borrowings 416,764 416,764 — — 416,764 Long-term borrowings 621,345 — 605,719 — 605,719 Other liabilities 288,862 188,219 86,110 14,533 288,862 2020 Estimated Fair Value Carrying Amount Level 1 Level 2 Level 3 Total FINANCIAL ASSETS (in thousands) Cash and cash equivalents $ 1,847,832 $ 1,847,832 $ — $ — $ 1,847,832 FRB and FHLB stock 92,129 — 92,129 — 92,129 Loans held for sale 83,886 — 83,886 — 83,886 HTM securities 278,281 — 296,857 — 296,857 AFS securities 3,062,143 — 2,963,937 98,206 3,062,143 Net Loans 18,623,253 — — 18,354,532 18,354,532 Accrued interest receivable 72,942 72,942 — — 72,942 Other assets 650,425 279,015 338,987 32,423 650,425 FINANCIAL LIABILITIES Demand and savings deposits $ 18,279,358 $ 18,279,358 $ — $ — $ 18,279,358 Brokered deposits 335,185 295,185 41,206 — 336,391 Time deposits 2,224,664 — 2,246,457 — 2,246,457 Accrued interest payable 10,365 10,365 — — 10,365 Short-term borrowings 630,066 630,066 — — 630,066 Long-term borrowings 1,296,263 — 1,332,041 — 1,332,041 Other liabilities 338,747 156,869 167,505 14,373 338,747 Fair values of financial instruments are significantly affected by the assumptions used, principally the timing of future cash flows and discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of the Corporation. 126 For short-term financial instruments, defined as those with remaining maturities of 90 days or less, and excluding those recorded at fair value on the Corporation’s consolidated balance sheets, book value was considered to be a reasonable estimate of fair value. The following instruments are predominantly short-term: Assets Liabilities Cash and cash equivalents Demand and savings deposits Accrued interest receivable Short-term borrowings Accrued interest payable FRB and FHLB stock represent restricted investments and are carried at cost on the consolidated balance sheets, which is a reasonable estimate of fair value. As of December 31, 2021, fair values for loans and time deposits were estimated by discounting future cash flows using the current rates, as adjusted for liquidity considerations, at which similar loans would be made to borrowers and similar deposits would be issued to customers for the same remaining maturities. Fair values of loans also include estimated credit losses that would be assumed in a market transaction, which represents estimated exit prices. Brokered deposits consists of demand and saving deposits, which are classified as Level 1, and time deposits, which are classified as Level 2. The fair value of these deposits are determined in a manner consistent with the respective type of deposits discussed above. NOTE 20 – CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY CONDENSED BALANCE SHEETS December 31, 2021 2020 (in thousands) ASSETS Cash and cash equivalents $ 352,715 $ 10,063 Other assets 25,888 28,940 Receivable from subsidiaries 50,822 53,438 Investments in: Bank subsidiary 2,872,274 3,045,529 Non-bank subsidiaries 188,171 313,003 Total Assets $ 3,489,870 $ 3,450,973 LIABILITIES AND EQUITY Long-term borrowings $ 620,406 $ 759,782 Payable to non-bank subsidiaries 78,793 — Other liabilities 77,991 74,363 Total Liabilities 777,190 834,145 Shareholders’ equity 2,712,680 2,616,828 Total Liabilities and Shareholders’ Equity $ 3,489,870 $ 3,450,973 127 CONDENSED STATEMENTS OF INCOME 2021 2020 2019 (in thousands) Income: Dividends from subsidiaries $ 469,339 $ 161,000 $ 209,000 Other (1) 258 100 191,978 469,597 161,100 400,978 Expenses 58,527 48,634 218,837 Income before income taxes and equity in undistributed net income of subsidiaries 411,070 112,466 182,141 Income tax benefit ( 12,516 ) ( 9,679 ) ( 5,798 ) 423,586 122,145 187,939 Equity in undistributed net income (loss) of: Bank subsidiary ( 133,157 ) 162,037 44,926 Non-bank subsidiaries ( 14,932 ) ( 106,142 ) ( 6,526 ) Net Income 275,497 178,040 226,339 Preferred stock dividends ( 10,277 ) ( 2,135 ) — Net Income Available to Common Shareholders $ 265,220 $ 175,905 $ 226,339 (1) Consists primarily of management fees received from subsidiary banks in 2019 and 2018. CONDENSED STATEMENTS OF CASH FLOWS 2021 2020 2019 (in thousands) Cash Flows From Operating Activities: Net Income $ 275,497 $ 178,040 $ 226,339 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of issuance costs and discount of long-term debt 1,846 1,128 842 Stock-based compensation 8,402 7,529 7,413 (Increase) decrease in other assets 119,822 ( 307,976 ) ( 20,449 ) Equity in undistributed net income of subsidiaries 148,091 ( 55,895 ) ( 38,400 ) Write-off of unamortized costs on trust preferred securities 12,390 — — (Decrease) increase in other liabilities and payable to non-bank subsidiaries 78,716 ( 244,598 ) 1,580 Total adjustments 369,267 ( 599,812 ) ( 49,014 ) Net cash provided by operating activities 644,764 ( 421,772 ) 177,325 Cash Flows From Investing Activities — — — Cash Flows From Financing Activities: Repayments of long-term borrowings ( 153,612 ) ( 19,453 ) — Additions to long-term borrowings — 370,898 — Net proceeds from issuance of preferred stock — 192,878 — Net proceeds from issuance of common stock 7,437 7,375 6,362 Dividends paid ( 112,028 ) ( 90,956 ) ( 92,330 ) Acquisition of treasury stock ( 43,909 ) ( 39,748 ) ( 111,457 ) Net cash used in financing activities ( 302,112 ) 420,994 ( 197,425 ) Net (Decrease) Increase in Cash and Cash Equivalents 342,652 ( 778 ) ( 20,100 ) Cash and Cash Equivalents at Beginning of Year 10,063 10,841 30,941 Cash and Cash Equivalents at End of Year $ 352,715 $ 10,063 $ 10,841 128 Management Report on Internal Control Over Financial Reporting The management of Fulton Financial Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Fulton Financial Corporation’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on this assessment, management concluded that, as of December 31, 2021, the Corporation’s internal control over financial reporting is effective based on those criteria. /s/ E. P HILIP W ENGER E. Philip Wenger Chairman and Chief Executive Officer /s/ M ARK R. M C C OLLOM Mark R. McCollom Senior Executive Vice President and Chief Financial Officer 129 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Fulton Financial Corporation: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Fulton Financial Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Change in Accounting Principle As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU 2016-13, Financial Instruments – Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments . Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and 130 dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of the allowance for credit losses related to loans evaluated collectively for expected credit losses As discussed in Notes 1 and 4 to the consolidated financial statements, the Company’s allowance for credit losses related to loans evaluated collectively for expected credit losses (collective ACL) was $234.9 million, of a total allowance for credit losses of $249.0 million as of December 31, 2021. The collective ACL includes the measure of expected credit losses on a collective (pooled) basis for those loans and leases that share similar risk characteristics and uses an undiscounted approach. The Company estimates the collective ACL by applying a probability of default (PD) and loss given default (LGD) to the exposure at default (EAD) at the loan level. The PD models are econometric regression models that utilize the Company’s historical credit loss experience and incorporate a reasonable and supportable economic forecast through the use of externally developed macroeconomic scenarios. After a reasonable and supportable forecast period, the forecast of future economic conditions reverts to long-run historical economic trends. The LGD model calculates a lifetime LGD estimate for each loan pool utilizing a loss rate approach that is based on the Company’s historical charge-off experience. The EAD calculation incorporates pre-payment rates, and inputs related to loan level cash flows, maturity dates, and interest rates. The pre-payment rates utilized in the EAD calculation are sourced from a prepayment model that utilizes the Company’s historical loan prepayment history to develop prepayment speeds. The collective ACL also includes qualitative reserve adjustments for factors that are not fully captured in the quantitative models. We identified the assessment of the valuation of the collective ACL as a critical audit matter. Such assessment involved significant measurement uncertainty requiring especially complex auditor judgment, and specialized skills and knowledge of the industry. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The assessment of the collective ACL encompassed the evaluation of the overall ACL methodology, which includes the methods and models used to estimate PD, LGD, and EAD and their key assumptions and inputs. Key assumptions and inputs used in the estimation of the PD rate include the historical observation period, loan pool segmentation including the use of credit risk ratings for commercial and industrial loans, commercial mortgages and construction loans, and a reasonable and supportable economic forecast which includes reversion to a long run historical economic trends. Key assumptions and inputs used in the estimation of the LGD rate include the loan pool segmentation and historical observation period. Key assumptions and inputs used in the estimation of the EAD include a constant prepayment rate and loan level cash flow adjustments. Key assumptions and inputs used in the estimation of the constant prepayment rate include interest rates, the historical observation period and loan pool segmentation. The assessment also included an evaluation of the qualitative adjustments including an evaluation of the methods used by management in estimating this reserve. The collective ACL estimate is sensitive to changes in the assumption discussed above such that changes in these assumptions can cause significant changes to the estimate. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL estimate, including controls over the: • development of the collective ACL methodology 131 • development of the PD, LGD, and prepayment models and of the methods used to calculate the EAD • identification and determination of the key inputs and assumptions used in the PD and LGD models, and EAD calculation which included key inputs and assumptions within the pre-payment model • performance monitoring of the PD, LGD, and prepayment models • development of the qualitative adjustments • measurement and on-going monitoring of the overall ACL estimate. We evaluated the Company’s process to develop the collective ACL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, assumptions, and related methodologies. In addition, we involved credit risk professionals with specialized skills and knowledge who assisted in: • evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting principles • evaluating the assumptions and methodologies used in developing the PD rates, LGD rates, and EAD estimate and judgments made by the Company relative to performance monitoring by inspecting management’s model and methodology documentation and through comparisons against Company specific metrics, the Company’s business environment, and applicable industry and regulatory practices • determining whether loans are pooled by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices • testing individual credit ratings for a selection of borrowers by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees and underlying collateral evaluating the methodology used to develop the qualitative adjustments by inspecting management’s methodology and development documentation and assessing the effects of these factors on the collective ACL estimate compared with relevant industry practices and Company specific metrics. We also assessed the sufficiency of the audit evidence obtained related to the collective ACL estimate by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting practices, and potential bias in the accounting estimates. /s/ KPMG LLP We have served as the Company’s auditor since 2002. Philadelphia, Pennsylvania February 28, 2022 132 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.