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Item 7. Management’s Discussion and Analysis

2024-03-01 compared with 2023-03-01 · 299 added, 315 removed, 531 unchanged (54% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations relates to the Corporation, a financial holding company registered under the BHCA and corporation incorporated under the laws of the Commonwealth of Pennsylvania, and its wholly owned subsidiaries.

Management's Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report.

This Management's Discussion relates to the Corporation, a financial holding company registered under the BHCA and corporation incorporated under the laws of the Commonwealth of Pennsylvania, and its wholly-owned subsidiaries.

Management's Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this Annual Report on Form 10-K.

The Corporation is a financial holding company, which, through its wholly-owned banking subsidiary, provides a full range of retail and commercial financial services in Pennsylvania, Delaware, Maryland, New Jersey and Virginia.

The Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings.

Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin, which is FTE net interest income as a percentage of average interest-earning assets.

Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the NIM, which is FTE net interest income as a percentage of average interest-earning assets.

The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments and properties.

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Net income available to common shareholders $ 274,032 $ 276,733 $ 265,220

Diluted net income available to common shareholders per share $ 1.67 $ 1.62 $ 1.08

Diluted operating net income available to common shareholders per share (1)

Net income available to common shareholders per share (diluted) $ 1.64 $ 1.67 $ 1.62

Operating net income available to common shareholders per share (1)

$ 1.71 $ 1.76 $ 1.62

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1.08 % 1.16 % 1.05 %

Return on average common equity 11.69 % 10.64 % 9.94 %

Return on average common shareholders' equity 11.24 % 11.69 % 10.64 %

Return on average common shareholders' equity (tangible) (1)

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(2) Presented on a FTE basis using a 21% federal tax rate and statutory interest expense disallowances.

See also the "Net Interest Income" section of Management's Discussion.

Federal Funds Rate

After maintaining the target range for the Fed Funds Rate at 0.00% to 0.25% from March 16, 2020, as COVID-19 weighed on global economic activity, through March 16, 2022, the FOMC increased the target range eight times to address elevated levels of inflation, placing the target range for the Fed Funds Rate at 4.50% - 4.75% as of February 1, 2023.

Business Combinations

On July 1, 2022, the Corporation completed the acquisition of Prudential Bancorp.

Prudential Bancorp was merged with and into the Corporation, and Prudential Bancorp's wholly owned subsidiary, Prudential Bank, became a wholly owned subsidiary of the Corporation.

The Corporation merged Prudential Bank with and into Fulton Bank on November 5, 2022.

Results of the operations of the acquired entity are included in the Corporation's consolidated financial statements beginning on the acquisition date, July 1, 2022.

In accordance with the terms of the Merger Agreement, each share of Prudential Bancorp's common stock issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive the Merger

Consideration.

In the aggregate, approximately 80% of the Merger Consideration consisted of the Corporation's common stock with the remaining approximately 20% payable in cash.

The receipt of the Corporation’s common stock in the Merger is expected to qualify as a tax-free exchange for Prudential Bancorp shareholders.

The acquisition of Prudential Bancorp was accounted for as a business combination using the acquisition method of accounting, and accordingly, the assets acquired, the liabilities assumed, and consideration transferred were recorded at their estimated fair values as of the Merger.

The $16.3 million excess of the fair value of the Merger Consideration of $119.1 million over the fair value of assets acquired of $102.8 million was recorded as goodwill and is not amortizable or deductible for tax purposes.

COVID-19 Pandemic

The CARES Act was enacted in March 2020 and, among other provisions, authorized the SBA to guarantee loans under the PPP for small businesses that met eligibility requirements in order to keep their workers on the payroll and fund specified operating expenses.

Subsequent legislation extended the authority of the SBA to guaranty loans under the PPP through August 8, 2020.

In December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act reauthorized the SBA to guarantee loans under the PPP through March 31, 2021, and the PPP Extension Act of 2021 extended that authorization through June 30, 2021 for applications received by the SBA prior to June 1, 2021.

From the inception of the PPP through December 31, 2022, the Corporation funded a total of approximately $2.7 billion of loans under the PPP.

Fed Funds Rate

Since March 15, 2022, the FOMC increased the target rate for the Fed Funds Rate eleven times to address elevated levels of inflation, placing the target range at 5.25% - 5.50% as of February 29, 2024.

LIBOR Transition

dollar LIBOR ceased as of June 30, 2023.

The Corporation has transitioned all of its products away from LIBOR.

For most financial products, the most common alternative reference rates have been SOFR-based benchmarks.

This is true for both new originations and legacy LIBOR contracts that were subject to amendment or a transition by their terms.

Financial Highlights

Following is a summary of the financial highlights for the year ended December 31, 2023:

• Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was $276.7 million for the year ended December 31, 2022, a $11.5 million increase compared to $265.2 million for the same period in 2021.

Diluted operating net income available to common shareholders, per share was $1.76 for the year ended December 31, 2022, a $0.14 increase compared to the same period in 2021.

• Net Income Available to Common Shareholders and Net Income Per Share - Net income available to common shareholders was $274.0 million for the year ended December 31, 2023, a $2.7 million decrease compared to $276.7 million for the same period in 2022.

• Net Interest Income - Net interest income was $854.3 million for the year ended December 31, 2023, an increase of $72.7 million, or 9.3%, compared to the same period in 2022.

The increase was driven by higher interest rates and higher average loan balances.

◦ Net Interest Margin - For the year ended December 31, 2022, net interest margin increased to 3.27%, or 49 bps compared to 2021, driven by a 54 bps increase in yield on net loans and a 8 bps increase in yield on investment securities, partially offset by a 10 bps increase on cost of funds.

◦ Loan Growth - Average net loans grew by $0.5 billion, or 2.8%, in comparison to 2021.

Included in average net loans were PPP loans that had an average balance of $0.1 billion, a decrease of $1.0 billion from 2021.

The increase in average net loans was largely driven by increases in average residential mortgage loans, average commercial mortgage loans, average commercial and industrial loans, excluding PPP loans, average consumer loans, and average real estate construction loans of $760.5 million, $374.1 million, $194.6 million, $112.9 million, and $100.2 million, respectively, partially offset by a $1.0 billion decline in PPP loans due to the repayment of these loans upon forgiveness by the SBA.

◦ Deposit Decrease - Average deposits decreased $269.4 million, or 1.2%, in comparison to 2021.

The decrease was primarily due to decreases in average interest-bearing demand deposits and average time deposits of $385.5 million and $321.6 million, respectively, partially offset by increases in average noninterest-bearing demand deposits and average savings and money market deposits of $311.2 million and $151.2 million, respectively.

• Asset Quality - Non-performing assets increased $23.8 million, or 15.4%, as of December 31, 2022 compared to 2021, and were 0.66% and 0.60% of total assets as of the end of those periods, respectively.

For the years ended December 31, 2022 and 2021, net charge-offs to average loans outstanding were 0.04% and 0.07%, respectively.

The provision for credit losses was $28.0 million for the year ended December 31, 2022, compared to a negative provision of $14.6 million for the same period of 2021.

◦ Net Interest Margin - For the year ended December 31, 2023, NIM increased to 3.42%, or 15 bps compared to the same period in 2022, driven by a 157 bps increase in the yield on net loans, a 16 bps increase in the yield on investment securities and a 298 bps increase in the yield on other interest-earning assets, partially offset by a 139 bps increase in the cost of total interest-bearing liabilities and noninterest-bearing deposits.

◦ Net Loans - Average net loans increased $1.8 billion, or 9.3%, for the year ended December 31, 2023 compared to the same period in 2022.

The increase in average net loans was largely driven by increases in average residential mortgage loans, average commercial and industrial loans, average commercial mortgage loans, average consumer loans, and average real estate construction loans of $818.2 million, $366.6 million, $352.3 million, $178.8 million, and $68.8 million, respectively.

◦ Deposits - Average deposits decreased $297.7 million, or 1.4%, for the year ended December 31, 2023 compared to the same period in 2022.

The decrease in average deposits was largely due to a decrease in average noninterest-bearing demand deposits of $1.6 billion, partially offset by increases in average brokered deposits, average time deposits and average savings and money market deposits of $585.4 million, $552.4 million and $157.9 million, respectively.

◦ Borrowings and Other Interest-Bearing Liabilities - Average borrowings and other interest-bearing liabilities increased $1.4 billion for the year ended December 31, 2023 compared to the same period in 2022.

The increase in borrowings and other interest-bearing liabilities was primarily due to increases in average FHLB advances and Federal funds purchased of $727.9 million and $475.3 million, respectively.

• Asset Quality - Non-performing assets decreased $23.5 million, or 13.2%, as of December 31, 2023 compared to December 31, 2022, and were 0.56% and 0.66% of total assets as of those dates, respectively.

Net charge-offs to average loans outstanding was 0.14% for the year ended December 31, 2023, compared to net charge-offs to average loans outstanding of 0.04% for the same period in 2022.

Net charge-offs of $29.1 million for the year ended December 31, 2023 included a charge-off of $13.3 million during the first quarter of 2023 for a commercial office loan.

The provision for credit losses was $54.0 million for the year ended December 31, 2023, compared to $28.0 million for the same period of 2022.

Included in the December 31, 2022 provision for credit losses was the CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio.

• Non-Interest Income - Non-interest income, excluding investment securities gains, for the year ended December 31, 2022 decreased $13.1 million, or 5.4%, in comparison to 2021.

The decrease in non-interest income, excluding investment securities gains, was primarily due to decreases of $19.4 million in mortgage banking income and $5.8 million in other income, primarily due to a decline in income from equity method investments, partially offset by increases of $7.1 million in commercial banking income, $4.0 million in consumer banking fees and $1.0 million in wealth management revenues.

• Non-Interest Expense - Total non-interest expense, excluding merger-related expenses of $10.3 million, increased $5.6 million, or 0.9%, to $623.4 million in 2022 compared to 2021.

The increase was largely driven by increases in salaries and employee benefits expense of $27.7 million, data processing and software expense of $3.8 million, other outside services of $3.0 million, net occupancy expense of $2.4 million, and FDIC insurance expense of $1.9 million, partially offset by a decrease in debt extinguishment expense of $33.2 million.

• Income Taxes - Income tax expense for 2022 resulted in an ETR of 17.3%, in comparison to 17.6% for 2021.

The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and TCIs.

• Non-Interest Income - Non-interest income, excluding investment securities losses, for the year ended December 31, 2023 increased $1.3 million, or 0.6%, compared to the same period in 2022.

The increase in non-interest income, excluding investment securities losses, was primarily due to an increase in commercial banking revenues of $5.4 million, driven by an increase in commercial customer interest rate swap fee income reflected in capital markets and an increase in wealth management of $2.7 million, partially offset by decreases in mortgage banking income of $3.8 million and in consumer banking fees of $2.3 million, largely due to a decline in overdraft fees.

• Non-Interest Expense - Non-interest expense for the year ended December 31, 2023 increased $45.5 million, or 7.2%, compared to the same period in 2022.

Excluding merger-related expenses of $10.3 million for the year ended December 31, 2022, non-interest expense increased $55.8 million, or 9.0%, for the year ended December 31, 2023 compared to the same period in 2022.

The increase in non-interest expense, excluding merger-related expenses, was largely driven by increases of $20.5 million in salaries and employee benefits expense, $13.0 million in FDIC insurance expense, primarily due to the adoption of a final rule to increase base deposit insurance assessment rates effective January 1, 2023 and the special assessment of $6.5 million charged to recover the loss to the DIF in

connection with the closures of certain banks in 2023, $10.6 million in other outside services expense, $6.2 million in data processing and software expense and $2.1 million in marketing expense.

The $20.5 million increase in salaries and employee benefits expense was primarily driven by annual merit increases, an increase in the number of employees, higher healthcare claims expenses and higher pension expense.

• Income Taxes - The Corporation's ETR was 18.5% for the year ended 2023, compared to 17.3% for the same period in 2022.

The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and investments in community development projects that generate tax credits under various programs.

Supplemental Reporting of Non-GAAP Based Financial Measures

This Annual Report on Form 10-K contains supplemental financial information, as detailed below, which has been derived by methods other than GAAP.

The Corporation has presented these non-GAAP financial measures because it believes that these measures provide useful and comparative information to assess trends in the Corporation's results of operations and financial condition.

This Annual Report on Form 10-K contains supplemental financial information, as detailed below, that has been derived by methods other than GAAP.

Presentation of these non-GAAP financial measures is consistent with how the Corporation evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Corporation's industry.

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These non-GAAP financial measures should not be considered a substitute for GAAP basis measures, and the Corporation strongly encourages a review of its consolidated financial statements in their entirety.

Following are reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure as of and for the year ended December 31:

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure follow:

2023 2022 2021

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CECL Day 1 Provision expense — 7,954 —

Interest rate derivative transition valuation (1)

FDIC special assessment 6,494 — —

FultonFirst initiative expenses 3,197 — —

Tax impact of adjustments (2,909) (4,055) —

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Operating net income available to common shareholders, per share (diluted) $ 1.71 $ 1.76 $ 1.62

2023 2022 2021

(dollars in thousands)

Operating return on average assets

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CECL Day 1 Provision expense — 7,954 —

Interest rate derivative transition valuation (1)

FDIC special assessment 6,494 — —

FultonFirst initiative expenses 3,197 — —

Tax impact of adjustments (2,909) (4,055) —

Operating net income (numerator) $ 295,225 $ 302,237 $ 275,497

Total average assets (denominator) $ 25,971,484 $ 26,170,333 $ 24,333,717

Total average assets $ 27,229,704 $ 25,971,484 $ 26,170,333

Average net core deposit intangible (5,996) (3,915) —

Total average operating assets (denominator) $ 27,223,708 $ 25,967,569 $ 26,170,333

Operating return on average assets 1.08 % 1.16 % 1.05 %

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CECL Day 1 Provision expense — 7,954 —

Interest rate derivative transition valuation (1)

FDIC special assessment 6,494 — —

FultonFirst initiative expenses 3,197 — —

Tax impact of adjustments (3,043) (4,203) (127)

Operating net income available to common shareholders (numerator) $ 292,543 $ 265,682 $ 176,322

Adjusted net income available to common shareholders (numerator) $ 285,479 $ 292,543 $ 265,682

Average shareholders' equity $ 2,631,249 $ 2,560,323 $ 2,685,946

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Merger-related expenses — (10,328) —

Debt extinguishment costs — (33,249) (2,878)

Numerator $ 618,886 $ 577,805 $ 569,907

Debt extinguishment gain (cost) 720 — (33,249)

FDIC special assessment (6,494) — —

FultonFirst initiative expenses (3,197) — —

Non-interest expense (numerator) $ 667,292 $ 618,886 $ 577,805

Net interest income $ 854,286 $ 781,634 $ 663,730

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Total non-interest income 227,678 227,130 273,745

Interest rate derivative transition valuation (1)

Investment securities losses (gains), net 733 27 (33,516)

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Efficiency ratio 60.5 % 60.5 % 63.1 %

(1) Resulting from the reference rate transition from LIBOR to SOFR in the Corporation's commercial customer interest rate swap program.

CRITICAL ACCOUNTING POLICIES

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Financial Statements and Supplementary Data."

Allowance for Credit Losses - ACL is based on estimated losses over the remaining expected life of loans.

Allowance for Credit Losses - The ACL is based on estimated losses over the remaining expected life of loans.

Management's determination of the appropriateness of the reserve is based on periodic evaluations of the loan portfolio, lending-related commitments, current and forecasted economic factors and other relevant factors.

In determining the ACL, the Corporation uses three inputs in the model estimate.

These inputs are PD, which estimates the likelihood that a borrower will be unable to meet its debt obligations;

LGD, which estimates the share of an asset that is lost if a borrower defaults;

and EAD, which estimates the gross exposure under a facility upon default.

Loans Evaluated Collectively :

Loans evaluated collectively for expected credit losses include all accruing loans and non-accrual loans where the total commitment amount is less than $1 million.

In determining the ACL, the Corporation uses three inputs to model the estimate.

These inputs are the PD rate which estimates the likelihood that a borrower will be unable to meet its debt obligations, the LGD rate which estimates the percentage of an asset that is lost if a borrower defaults, and the EAD balance which estimates the gross exposure under a facility upon default.

The PD models were developed based on historical default data.

Both internal and external variables are evaluated in the process.

The main internal variables are risk rating or delinquency history, and the external variables are economic variables obtained from third-party provided forecasts.

Management applies risk-rating transition matrices to pools of loans and lending-related commitments with similar risk characteristics to determine default probabilities, utilizes economic forecasts, applies modeled LGD results to associated EAD and incorporates modeled overlays and qualitative adjustments to estimate ACL.

As such, the calculation of the ACL is inherently subjective and requires management to exercise significant judgment.

The ACL is estimated over a reasonable and supportable forecast period based on the projected performance of specific economic variables that statistically correlate with PD rates.

As economic variables revert to long-term averages through the forecast process, externally developed long-term economic forecasts are used to establish the impacts of the economic scenario, reversion, and long-term averages in the development of losses over the expected life of the assets being modeled.

The main internal variables are risk rating or delinquency history and indicators of default.

The external variables are economic variables obtained from third-party forecasts.

The PD models are transition matrix models that utilize historical credit observations and incorporate economic forecasts to project future default rates using a linear regression methodology for each loan segment.

The LGD model uses a vintage loss approach that estimates LGD rates based on the bank’s historical loss experience for each loan segment.

The EAD incorporates a prepayment rate and applies the PD rates to estimate the projected exposure at default across the life of each loan.

The ACL is calculated by applying the LGD to the EAD at each period across the life of each loan.

The ACL incorporates the Corporation’s historical credit observations, current conditions, and reasonable and supportable forecasts that are based on the projected performance of specific economic variables that are statistically correlated with historical PD rates.

The reasonable and supportable forecast extends to 24 months and reverts back to an average PD rate using a straight-line reversion methodology over a 12 month period.

The ACL is highly sensitive to the economic forecasts used to develop the reserve.

Due to the high level of uncertainty regarding significant assumptions, the Corporation has evaluated a range of economic scenarios, including more and less severe economic deteriorations.

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.

As such, the calculation of the ACL is inherently subjective and requires management to exercise judgment.

The ACL may include qualitative adjustments intended to capture the impact of uncertainties not reflected in the quantitative models.

In determining qualitative adjustments, management considers changes in national, regional, and local economic and business conditions and their impact on the lending environment, including underwriting standards and other factors affecting credit losses over the remaining life of each loan.

The ACL for loans was $293.4 million and $269.4 million on December 31, 2023 and December 31, 2022, respectively.

The increase of $20.4 million was primarily a result of increased loan growth and changes to the macroeconomic outlook.

The Corporation performs loan loss sensitivity analysis on a quarterly basis to determine the impact of varying economic conditions based on Moody's model projections.

The increase of $24.0 million was primarily a result of increased loan growth, changes to the macroeconomic outlook and risk migration.

The Corporation performs loan loss sensitivity analysis on a quarterly basis to determine the impact of varying economic conditions based on third-party forecasts.

Our sensitivity analysis does not represent management's view of expected credit losses at the balance sheet date.

One scenario identified includes a slowdown in near-term economic growth.

This scenario resulted in a hypothetical increase to the ACL of approximately $18.7 million.

This scenario resulted in a hypothetical increase to the ACL o f approximately $21.6 million.

For further discussion of the methodology used in the determination of the ACL, refer to Note 1, "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements in "Item 8.

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Net interest income is the most significant component of the Corporation's net income.

The Corporation manages the risk associated with changes in interest rates through the techniques described within Item 7A, "Quantitative and Qualitative Disclosures About Market Risk." The following table provides a comparative average balance sheet and net interest income analysis for 2022 compared to 2021 and 2020.

The Corporation manages the risk associated with changes in interest rates through the techniques described within Item "7A.

Quantitative and Qualitative Disclosures About Market Risk." The following table provides a comparative average balance sheet and net interest income analysis for 2023 compared to 2022 and 2021.

Interest income and yields are presented on an FTE basis using a 21% federal tax rate as well as statutory interest expense disallowances.

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2023 2022 2021

Balance Interest Yield/

Balance Interest (1)

(dollars in thousands)

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4,210,010 109,325 2.59 4,364,627 106,115 2.43 3,673,250 86,325 2.35

Loans held for sale 14,974 866 5.78 39,211 1,302 3.32 60,015 2,077 3.46

Other interest-earning assets 387,360 15,346 3.96 829,705 8,115 0.98 2,054,165 4,996 0.24

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Total Assets $ 27,229,704 $ 25,971,484 $ 26,170,333

LIABILITIES AND EQUITY

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities:

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Total interest-bearing deposits 15,217,057 292,204 1.92 13,932,270 43,829 0.31 14,512,793 30,005 0.21

Borrowings 1,358,357 39,375 2.89 1,297,963 29,677 2.29 2,064,883 43,625 2.11

Borrowings and other interest-bearing liabilities 2,771,330 126,746 4.54 1,358,357 39,375 2.89 1,297,963 29,677 2.29

Total interest-bearing liabilities 17,988,387 418,950 2.32 15,290,627 83,204 0.54 15,810,756 59,682 0.38

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Total Liabilities 24,598,455 23,411,161 23,484,387

Total deposits/Cost of deposits 21,454,574 0.20% 21,723,946 0.14% 19,401,046 0.36%

Total Interest-bearing liabilities and non-interest bearing deposits/Cost of funds 22,812,931 0.36% 23,021,909 0.26% 21,465,929 0.53%

Total deposits 21,156,856 1.38% 21,454,574 0.20% 21,723,946 0.14%

Total interest-bearing liabilities and noninterest-bearing deposits 23,928,186 1.75% 22,812,931 0.36% 23,021,909 0.26%

Shareholders' equity 2,631,249 2,560,323 2,685,946

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Net interest income $ 854,286 $ 781,634 $ 663,730

(1) Presented on a fully taxable-equivalent basis using a 21% federal tax rate and statutory interest expense disallowances.

(2) Average balances include non-performing loans.

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the related unrealized holding gains (losses) are included in other assets.

(3) ACL - loans relates to the ACL specifically for net loans and does not include the reserve for OBS credit exposures, which is included in other liabilities.

(4) ACL - loans relates to the ACL for net loans and does not include the ACL for OBS credit exposures, which is included in other liabilities.

Comparison of 2023 to 2022

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Investment securities (3,763) 6,973 3,210

Loans held for sale (1,076) 640 (436)

Other interest-earning assets (6,298) 13,529 7,231

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Time deposits 6,577 42,287 48,864

Borrowings 1,463 8,235 9,698

Borrowings and other interest-bearing liabilities 56,410 30,961 87,371

Total interest expense $ 82,855 $ 252,891 $ 335,746

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Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component.

Compared to 2021, FTE total interest income for 2022 increased $144.1 million, or 19.6%, primarily due to an increase of $113.2 million attributable to changes in yield, of which $102.7 million related to net loans.

Compared to 2022, FTE total interest income for 2023 increased $411.2 million due to increases of $344.7 million attributable to changes in yield and $66.5 million attributable to changes in volume.

The increase due to changes in yield was largely due to an increase in net loans.

The increase due to changes in volume was due to an increase in average net loans, partially offset by decreases in average other interest-earning assets and investment securities.

The yield on average interest-earning assets increased 145 bps in 2023 compared to 2022.

In 2022, interest expense increased $23.5 million compared to 2021, primarily driven by increases in rate on interest-bearing liabilities resulting in a $25.4 million increase in interest expense.

The increase in interest expense attributable to rate was primarily driven by the increases in savings and money market deposits, borrowings, demand deposits and brokered deposits.

In 2023, interest expense increased $335.7 million compared to 2022, primarily driven by an increase in rate on interest-bearing liabilities resulting in a $252.9 million increase in interest expense.

The increase in interest expense attributable to rate was driven by the increases in savings and money market deposits, interest-bearing demand deposits, time deposits, borrowings and other interest-bearing liabilities and brokered deposits.

The increase in interest expense attributable to volume was $82.9 million primarily driven by increases in borrowings and other interest-bearing liabilities and brokered deposits.

The rate on average interest-bearing liabilities increased 178 bps in 2023 compared to 2022.

Average loans and average FTE yields, by type, are summarized in the following table:

Increase (Decrease) in Balance

2023 2022 Increase (Decrease)

Balance Yield Balance Yield $ %

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Commercial and industrial 4,596,742 6.27 4,230,133 4.13 366,609 8.7

4,230,133 4.13 5,052,856 2.64 (822,723) (16.3)

Real estate - residential mortgage 5,079,739 3.76 4,261,527 3.38 818,212 19.2

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Consumer 748,089 5.94 569,305 5.11 178,784 31.4

Equipment lease financing 249,595 3.99 252,104 3.89 (2,509) (1.0)

38,682 — (3,776) — 42,458 N/M

Leases and other loans (1)

320,924 4.37 288,277 6.04 32,647 11.3

Total loans $ 20,929,302 5.57 % $ 19,152,740 4.00 % $ 1,776,562 9.3 %

(1) Includes average PPP loans of $0.1 billion and $1.1 billion for the years ended December 31, 2022 and 2021, respectively.

(2) Consists of overdrafts and net origination fees and costs.

Average loans increased $525.0 million, or 2.8%, compared to 2021.

The increase was largely driven by increases in average residential mortgage loans, average commercial mortgage loans, average consumer loans and average construction loans of

$760.5 million, $374.1 million, $112.9 million and $100.2 million, respectively, partially offset by decreases in average commercial and industrial loans of $822.7 million primarily due to the repayment of PPP loans upon forgiveness by the SBA.

Average investment securities increased $691.4 million, or 18.8%, in comparison to 2021, which contributed a $16.8 million increase in FTE interest income.

The yield on investment securities increased 8 bps in comparison to 2021, resulting in a $3.0 million increase in FTE interest income.

Yield on other interest-earning assets increased 71 bps in comparison to 2021, contributing $6.8 million to FTE interest income, partially offset by a decrease in the average balance of other interest-earning assets of $1.2 billion, contributing a $3.3 million decrease to FTE interest income.

(1) Consists of equipment lease financing, overdrafts and net origination fees and costs.

During 2023, average loans increased $1.8 billion, or 9.3%, compared to 2022.

The increase was largely driven by increases in average residential mortgage loans, average commercial and industrial loans, average commercial mortgage loans, average consumer loans and average construction loans of $818.2 million, $366.6 million, $352.3 million, $178.8 million and $68.8 million, respectively.

The yield on total loans increased 157 bps to 5.57% in 2023 compared to 4.00% in 2022.

Average deposits and interest rates, by type, are summarized in the following table:

Increase (Decrease) in

2023 2022 Increase (Decrease)

Balance Rate Balance Rate $ %

4 unchanged sentences

Total demand deposits and savings and money market deposits 18,138,816 1.02 19,574,411 0.13 (1,435,595) (7.3)

Brokered deposits 262,359 1.56 286,901 0.38 (24,542) (8.6)

Brokered deposits 847,795 5.15 262,359 1.56 585,436 N/M

Time deposits 2,170,245 2.94 1,617,804 0.92 552,441 34.1

Total deposits $ 21,156,856 1.38 % $ 21,454,574 0.20 % $ (297,718) (1.4) %

The cost of interest-bearing deposits increased 10 bps, to 0.31%, from 0.21% in 2021, due to an increase in rates.

The rate on total demand deposits and savings and money market deposits increased to 0.13%, compared to 0.04% for 2021.

Average interest-bearing demand deposits and average time deposits decreased $385.5 million and $321.6 million, respectively, during 2022.

Average noninterest-bearing demand deposits and average savings and money market deposits increased $311.2 million and $151.2 million, respectively, during 2022 compared to 2021.

The cost of total deposits increased 118 bps to 1.38% in 2023 compared to 0.20% in 2022, primarily due to rising interest rates and a change in mix of deposits.

Average deposits decreased $297.7 million driven by a $1.6 billion decrease in average noninterest-bearing demand deposits, partially offset by increases in average brokered deposits, average time deposits and average savings and money market deposits of $585.4 million, $552.4 million and $157.9 million, respectively.

Average borrowings and interest rates, by type, are summarized in the following table:

Increase (Decrease) in

2023 2022 Increase (Decrease)

Balance Rate Balance Rate $ %

1 unchanged sentence

Federal funds purchased $ 566,379 5.30 % $ 91,125 3.21 % $ 475,254 N/M

Federal Home Loan Bank advances 194,295 3.77 126,677 1.80 67,618 53.4 %

Federal Home Loan Bank advances 922,164 5.05 194,295 3.77 727,869 N/M

Senior debt and subordinated debt 539,726 3.96 564,337 3.94 (24,611) (4.4)

Other borrowings (1)

Other borrowings and other interest-bearing liabilities (1)

743,061 3.77 508,600 1.34 234,461 46.1

Total borrowings $ 1,358,357 2.89 % $ 1,297,963 2.29 % $ 60,394 4.7 %

(1) Includes repurchase agreements, short-term promissory notes and capital leases.

Total average borrowings increased $60.4 million, or 4.7%, and the total borrowings rate increased 60 bps, to 2.89%, compared to 2021.

Borrowings increased primarily as a result of the decrease in deposits.

Short-term Federal funds purchased and Federal Home Loan Bank advances increased $91.1 million and $67.6 million, respectively.

Senior debt and subordinated debt decreased $93.0 million primarily due to the $65.0 million repayment of senior notes on March 16, 2022 and the redemption of $17.0 million of TruPS in September 2022.

Total borrowings and other interest-bearing liabilities $ 2,771,330 4.54 % $ 1,358,357 2.89 % $ 1,412,973 104.0 %

(1) Includes repurchase agreements, short-term promissory notes, capital leases and interest-bearing collateral.

Average borrowings and other interest-bearing liabilities increased $1.4 billion during 2023 compared to 2022, primarily as a result of an increase in average net loans and a decrease in average total deposits.

Average FHLB advances, average Federal funds purchased and average other borrowings and other interest-bearing liabilities increased $727.9 million, $475.3 million and $234.5 million, respectively.

See "Note 10 - Borrowings" of the Notes to Consolidated Financial Statements for additional details.

Non-Interest Income and Expense

Non-Interest Income

9 unchanged sentences

Total commercial banking 81,160 75,779 5,381 7.1

Wealth management 75,541 72,843 2,698 3.7

Consumer banking:

3 unchanged sentences

Total consumer banking 47,197 49,496 (2,299) (4.6)

Wealth management revenues 72,843 71,798 1,045 1.5

Mortgage banking 10,388 14,204 (3,816) (26.9)

Gains on sales of mortgage loans 8,820 24,380 (15,560) (63.8)

Mortgage servicing income 5,384 9,196 (3,812) (41.5)

Total mortgage banking 14,204 33,576 (19,372) (57.7)

Other 14,125 14,835 (710) (4.8)

Non-interest income before investment securities gains 227,157 240,229 (13,072) (5.4)

Investment securities gains (losses), net (27) 33,516 (33,543) (100.1)

Non-interest income before investment securities gains (losses) 228,411 227,157 1,254 0.6

Investment securities gains (losses), net (733) (27) (706) N/M

Total Non-Interest Income $ 227,678 $ 227,130 $ 548 0.2 %

Excluding net investment securities gains, non-interest income decreased $13.1 million, or 5.4%, in 2022, as compared to 2021.

The primary contributors to this net decrease were as follows:

• Mortgage banking income decreased $19.4 million, or 57.7%, compared to 2021, mainly due to reduced gains on sales of mortgage loans.

• Other non-interest income decreased $5.8 million, or 28.1%, compared to 2021, primarily due to a decline in income from equity method investments.

• Total commercial banking income increased $7.1 million, or 10.3%, compared to 2021, driven mainly by increases in commercial customer swap fees reflected in capital markets, cash management fees and merchant and card revenues.

• Total consumer banking income increased $4.0 million, or 8.7%, compared to 2021, driven primarily by increases in overdraft fees and card income.

• Investment securities gains decreased $33.5 million, primarily due to the sale of Visa Shares, as part of the balance sheet restructuring undertaken in 2021.

Non-interest income before investment securities gains (losses) increased $1.3 million, or 0.6%, during 2023 compared to 2022.

The increase in non-interest income was primarily due to increases in commercial banking revenues of $5.4 million, largely driven by an increase in commercial customer interest rate swap fee income reflected in capital markets, an increase in wealth management of $2.7 million, due to an increase in assets under management, and an increase in the cash surrender value of bank owned life insurance agreements of $1.7 million, reflected in other non-interest income, partially offset by decreases in mortgage banking income of $3.8 million, mainly due to lower sales volumes and lower gains on sales margins, consumer banking income of $2.3 million, driven largely by decreases in overdraft fees, and an $1.8 million reduction in other non-interest income to reflect market valuation movement in certain of the Corporation's legacy commercial customer back-to-back interest rate swap transactions resulting from the transition from LIBOR to SOFR.

Non-Interest Expense

7 unchanged sentences

Other outside services 47,724 37,152 10,572 28.5

State taxes 15,113 18,793 (3,680) (19.6)

Equipment 14,033 13,807 226 1.6

FDIC insurance 25,565 12,547 13,018 103.8

Professional fees 9,123 9,647 (524) (5.4)

Equipment 14,390 14,033 357 2.5

Marketing 9,004 6,885 2,119 30.8

Intangible amortization 1,731 589 1,142 N/M

Debt extinguishment — 33,249 (33,249) N/M

Professional fees 8,392 9,123 (731) (8.0)

Intangible amortization 2,944 1,731 1,213 70.1

Merger-related expenses — 10,328 (10,328) N/M

1 unchanged sentence

Total Non-Interest Expense $ 679,207 $ 633,728 $ 45,479 7.2 %

Non-interest expense increased $15.9 million, or 2.6% compared to 2021.

Non-interest expense, excluding merger-related expenses of $10.3 million, was $623.4 million, an increase of $5.6 million, or 0.9% compared to non-interest expenses of $617.8 million in 2021.

Excluding merger-related expenses, the increase in non-interest expense compared to 2021 was primarily due to increases in salaries and benefits of $27.7 million, attributable to higher employee base salaries of $20.2 million and deferred loan origination expense of $14.3 million, partially offset by lower commissions expense of $8.8 million.

Increases in data processing and software expenses, other outside services and net occupancy expense in 2022 of $3.8 million, $3.0 million and $2.4 million, respectively, also contributed to the increase in non-interest expenses compared to 2021.

These increases were partially offset by a decrease of $33.2 million in debt extinguishment expense in 2021.

Non-interest expense in 2023 increased $45.5 million, or 7.2%, compared to 2022.

Excluding merger-related expenses of $10.3 million in 2022, non-interest expense increased $55.8 million, or 9.0%, in 2023 compared to 2022.

The increase in non-interest expense, excluding merger-related expenses, was primarily due to increases of $20.5 million in salaries and employee benefits expense, $13.0 million in FDIC insurance expense, primarily due to the adoption of a final rule to increase base deposit insurance assessment rates effective January 1, 2023, and the special assessment of $6.5 million charged to recover the loss to the DIF in connection with the closures of certain banks in 2023, $10.6 million in other outside services expense largely due to a number of corporate initiatives, $6.2 million in data processing and software expense due to ongoing investment in technology and customer growth and $2.1 million in marketing expense primarily due to a targeted customer deposit acquisition program and brand marketing campaigns.

The $20.5 million increase in salaries and employee benefits expense was largely due to annual merit increases, an increase in the number of employees, higher healthcare claims expense and higher pension expense.

Income tax expense for 2023 was $64.4 million, a $4.4 million increase compared to 2022.

The ETR was 18.5% in 2023 compared to 17.3% in 2022.

The increase in income tax expense resulted primarily from higher income before income taxes.

The increase in income tax expense in 2023 resulted primarily from the higher ETR.

The ETR is generally lower than the federal statutory rate of 21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities and TCIs that generate tax credits under various federal programs.

8 unchanged sentences

Investment securities 16,759 3,031 19,790

Loans held for sale (694) (81) (775)

Other interest-earning assets (4,364) 7,483 3,119

9 unchanged sentences

FTE net interest income increased $34.5 million, or 5.4%, to $676.0 million in 2021.

Net interest margin decreased 8 bps to 2.78% in 2021 from 2.86% in 2020.

As summarized above, FTE interest income decreased $53.6 million as the result of a 34 bps decrease in the yield on interest-earning assets, and increased $34.1 million as the result of a $1.9 billion, or 8.4%, increase in average interest-earning assets, primarily in investments and loans.

The yield on the loan portfolio decreased 17 bps, to 3.46%, largely due to decreases in the Fed Funds Rate in 2020 and corresponding decreases to loan index rates.

At that time all variable and certain adjustable rate loans repriced to lower rates as a result of these interest rate decreases, and yields on new loan originations were lower than the yield on the loan portfolio.

Adjustable rate loans reprice on dates specified in the loan agreements, which may be later than the date the Fed Funds Rate and related loan index rates increase or decrease.

Therefore, the benefit of increases or the reverse effect of decreases in index rates on adjustable rate loans may not be fully realized until future periods.

Interest expense decreased $54.0 million, with a 34 bps decrease in the rate on average interest-bearing liabilities contributing $30.6 million to this decrease.

In addition, a shift into lower-cost demand deposits and savings and money market deposits, which increased $1.5 billion collectively, combined with a decrease in higher-cost time deposits, short-term borrowings and long-term borrowings of $1.4 billion, were the primary drivers for the $23.4 million reduction in interest expense in 2021 compared to 2020.

The yield on average interest-earning assets increased 59 bps in 2022 compared to 2021.

In 2022, interest expense increased $23.5 million compared to 2021, primarily driven by increases in rate on interest-bearing liabilities resulting in a $25.4 million increase in interest expense.

The increase in interest expense attributable to rate was primarily driven by the increases in savings and money market deposits, borrowings, interest-bearing demand deposits and brokered deposits.

Average loans and average FTE yields, by type, are summarized in the following table:

Increase (Decrease) in Balance

2022 2021 Increase (Decrease)

Balance Yield Balance Yield $ %

7 unchanged sentences

Consumer 569,305 5.11 456,427 3.99 112,878 24.7

Equipment lease financing 252,104 3.89 281,859 3.93 (29,755) (10.6)

(3,776) — (4,640) — 864 (18.6)

Equipment finance leasing 249,595 3.99 252,104 3.89 (2,509) (1.0)

38,682 — (3,776) — 42,458 N/M

Total loans $ 19,152,740 4.00 % $ 18,627,787 3.46 % $ 524,953 2.8%

(1) Includes average PPP loans of $1.1 billion and $1.3 billion for the years ended December 31, 2021 and 2020, respectively.

(1) Consists of overdrafts and net origination fees and costs.

Average loans increased $357.4 million, or 2.0%, which contributed $12.9 million to the increase in FTE interest income.

The increase was driven largely by growth in residential mortgage loans and commercial mortgage loans, partially offset by a decrease in commercial and industrial loans, primarily due to a decrease in PPP loans.

The yield on average loans decreased 17 bps resulting in a decrease in FTE interest income of $31.2 million.

Average investment securities increased $665.8 million, or 22.1%, in comparison to 2020, which contributed a $19.1 million increase in FTE interest income, offset by a decrease of 47 bps in yield on average investment securities, resulting in a $17.5 million decrease in FTE interest income.

Average other interest-earning assets increased $894.2 million, contributing $2.9 million to FTE interest income.

The yield on other interest-earning assets decreased 31 bps in comparison to 2020, as a result of the Fed Funds Rate decrease during 2020, resulting in a $4.7 million decrease in FTE interest income.

Average loans increased $525.0 million, or 2.8%, compared to 2021.

The increase was largely driven by increases in average residential mortgage loans, average commercial mortgage loans, average consumer loans and average construction loans of $760.5 million, $374.1 million, $112.9 million and $100.2 million, respectively, partially offset by decreases in average commercial and industrial loans of $822.7 million primarily due to the repayment of Paycheck Protection Program loans upon forgiveness by the SBA.

Average investment securities increased $691.4 million, or 18.8%, in comparison to 2021, which contributed a $16.8 million increase in FTE interest income.

The yield on investment securities increased 8 bps in comparison to 2021, resulting in a $3.0 million increase in FTE interest income.

Yield on other interest-earning assets increased 74 bps in comparison to 2021, contributing $7.5 million to FTE interest income, partially offset by a decrease in the average balance of other interest-earning assets of $1.2 billion, contributing a $4.4 million decrease to FTE interest income.

Average deposits and interest rates, by type, are summarized in the following table:

Increase (Decrease) in Balance

2022 2021 Increase (Decrease)

Balance Rate Balance Rate $ %

7 unchanged sentences

Total deposits $ 21,454,574 0.20 % $ 21,723,946 0.14 % $ (269,372) (1.2) %

The cost of interest-bearing deposits decreased 30 bps to 0.21% from 0.51% in 2020, resulting in a $34.4 million decrease in interest expense compared to 2020.

These rates do not include the impact of non-interest bearing deposits, which lowered cost of total deposits to 0.14% and 0.36% in 2021 and 2020, respectively.

The decrease in deposit cost was primarily the result of reductions in deposit rates resulting from decreases in the Fed Funds Rate.

The majority of the deposit rates are discretionary, with the exception of indexed municipal deposit balances.

The average balance of interest-bearing deposits increased $826.6 million, or 6.0%, in comparison to 2020.

The cost of interest-bearing deposits increased 10 bps, to 0.31%, from 0.21% in 2021, due to an increase in rates.

The rate on total demand deposits and savings and money market deposits increased to 0.13%, compared to 0.04% for 2021.

Average interest-bearing demand deposits and average time deposits decreased $385.5 million and $321.6 million, respectively, during 2022.

Average noninterest-bearing demand deposits and average savings and money market deposits increased $311.2 million and $151.2 million, respectively, during 2022 compared to 2021.

Average borrowings and interest rates, by type, are summarized in the following table:

2021 2020 Increase (Decrease) in

2022 2021 Increase (Decrease)

Balance Rate Balance Rate $ %

3 unchanged sentences

Senior debt and subordinated debt 564,337 3.94 657,386 4.07 (93,049) (14.2)

Other borrowings (1)

Other borrowings and other interest-bearing liabilities (1)

508,600 1.34 513,900 0.12 (5,300) (1.0)

Total borrowings $ 1,297,963 2.29 % $ 2,064,883 2.11 % $ (766,920) (37.1) %

Total borrowings and other interest-bearing liabilities $ 1,358,357 2.89 % $ 1,297,963 2.29 % $ 60,394 4.7 %

(1) Includes repurchase agreements, short-term promissory notes and capital leases.

Total average borrowings in 2021 decreased $766.9 million, or 37.1%, due to a balance sheet restructuring, while the total borrowings rate increased 18 bps to 2.29% compared to 2020.

Average Federal Home Loan Bank advances decreased $430.9 million, or 77.3%, and average other borrowings decreased $231.8 million or 31.1% compared to 2020.

Total average borrowings and other interest-bearing liabilities increased $60.4 million, or 4.7%, and the rate on total average borrowings and other interest-bearing liabilities increased 60 bps, to 2.89%, compared to 2021.

Borrowings increased primarily as a result of the decrease in deposits.

Short-term Federal funds purchased and FHLB advances increased $91.1 million and $67.6 million, respectively.

See "Note 10 - Borrowings" of the Notes to Consolidated Financial Statements for additional details.

Non-Interest Income

9 unchanged sentences

Total commercial banking 75,779 68,689 7,090 10.3

Wealth management 72,843 71,798 1,045 1.5

Consumer banking:

3 unchanged sentences

Total consumer banking 49,496 45,544 3,952 8.7

Wealth management revenues 71,798 59,058 12,740 21.6

Mortgage banking 14,204 33,576 (19,372) (57.7)

Gains on sales of mortgage loans 24,380 53,599 (29,219) (54.5)

Mortgage servicing income 9,196 (11,290) 20,486 N/M

Total mortgage banking 33,576 42,309 (8,733) (20.6)

Other 14,835 20,622 (5,787) (28.1)

Non-interest income before investment securities gains 240,229 226,335 13,894 6.1

Investment securities gains (losses), net 33,516 3,053 30,463 N/M

Non-interest income before investment securities gains (losses) 227,157 240,229 (13,072) (5.4)

Investment securities gains (losses), net (27) 33,516 (33,543) (100.1)

Total Non-Interest Income $ 227,130 $ 273,745 $ (46,615) (17.0) %

Excluding net investment securities gains, non-interest income increased $13.9 million, or 6.1%, in 2021 compared to 2020.

Total commercial banking income in 2021 decreased $1.6 million, or 2.3%, compared to 2020, driven mainly by a decrease in commercial customer swap fees reflected in capital markets.

Total consumer banking increased $3.9 million, or 9.5%, compared to 2020, driven primarily by higher card fee income.

Wealth management revenues increased $12.7 million, or 21.6%, resulting primarily from an increase in client asset levels and improved overall market performance.

Mortgage banking income decreased $8.7 million, or 20.6%, mainly due to reduced gains on sales of mortgage loans, partially offset by an increase in mortgage servicing income.

Investment securities gains increased $30.5 million, primarily due to the sale of Visa Shares as part of the balance sheet restructuring undertaken in 2021.

Non-interest income before investment securities gains (losses) decreased $13.1 million, or 5.4%, in 2022, as compared to 2021.

The primary contributors to this net decrease were as follows:

• Mortgage banking income decreased $19.4 million, or 57.7%, compared to 2021, mainly due to reduced gains on sales of mortgage loans.

• Other non-interest income decreased $5.8 million, or 28.1%, compared to 2021, primarily due to a decline in income from equity method investments.

• Total commercial banking income increased $7.1 million, or 10.3%, compared to 2021, driven mainly by increases in commercial customer interest rate swap fees reflected in capital markets, cash management fees and merchant and card revenues.

• Total consumer banking income increased $4.0 million, or 8.7%, compared to 2021, driven primarily by increases in overdraft fees and card income.

• Investment securities gains decreased $33.5 million, primarily due to the gain on sale of Visa Shares, as part of the balance sheet restructuring undertaken in 2021.

Non-Interest Expense

7 unchanged sentences

Other outside services 37,152 34,194 2,958 8.7

Debt extinguishment 33,249 2,878 30,371 N/M

State taxes 18,793 12,613 6,180 49.0

Equipment 14,033 13,807 226 1.6

2 unchanged sentences

Marketing 6,885 5,275 1,610 30.5

Intangible amortization 589 529 60 11.3

Intangible amortization 1,731 589 1,142 N/M

Debt extinguishment — 33,249 (33,249) N/M

Merger-related expenses 10,328 — 10,328 N/M

Other 68,595 71,027 (2,432) (3.4)

Total non-interest expense $ 633,728 $ 617,830 $ 15,898 2.6 %

Non-interest expense increased $38.4 million, or 6.6% in 2021.

Non-interest expense, excluding debt extinguishment costs of $33.2 million, was $584.6 million, an increase of $21.3 million, or 3.8%, compared to non-interest expenses of $563.2 million in 2020, which excludes expenses associated with cost savings initiatives of $16.2 million.

Excluding the net decrease in severance costs of $5.9 million, the increase in non-interest expense over 2020 was primarily due to increases in salaries and benefits of $10.6 million, attributable to a $12.7 million increase in incentive compensation and bonuses.

Also contributing to the increase in non-interest expense in 2021 were $8.4 million in data processing and software and $2.8 million in other outside services expense, partially offset by a $3.2 million decrease in professional fees.

Non-interest expense increased $15.9 million, or 2.6% compared to 2021.

Non-interest expense, excluding merger-related expenses of $10.3 million, was $623.4 million, an increase of $5.6 million, or 0.9% compared to non-interest expense of $617.8 million in 2021.

Excluding merger-related expenses, the increase in non-interest expense compared to 2021 was primarily due to increases in salaries and employee benefits of $27.7 million, attributable to higher employee base salaries of $20.2 million and deferred loan origination expense of $14.3 million, partially offset by lower commissions expense of $8.8 million.

These increases were partially offset by a decrease of $33.2 million in debt extinguishment expense in 2021.

Income tax expense for 2022 was $60.0 million, a $1.3 million increase compared to 2021.

The ETR was 17.6% in 2021, as compared to 12.0% in 2020.

The increase in income tax expense and the ETR resulted primarily from higher income before income taxes.

The Corporation's ETR was 17.3% for the year ended 2022, compared to 17.6% for the same period in 2021.

FINANCIAL CONDITION

7 unchanged sentences

Investment securities 3,666,274 3,968,023 (301,749) (7.6)

Loans, net 20,010,181 18,076,349 1,933,832 10.7

Net loans, less ACL - loans 21,057,690 20,010,181 1,047,509 5.2

Net premises and equipment 222,881 225,141 (2,260) (1.0)

4 unchanged sentences

Deposits $ 21,537,623 $ 20,649,538 $ 888,085 4.3 %

Borrowings 2,871,207 1,038,109 1,833,098 N/M

Borrowings 2,487,526 2,871,207 (383,681) (13.4)

Other liabilities 786,627 831,200 (44,573) (5.4)

3 unchanged sentences

Investment Securities

The following table presents the carrying amount of investment securities as of December 31:

The table below presents the carrying amount of investment securities:

December 31, Increase (Decrease)

2023 2022 $ %

(dollars in thousands)

7 unchanged sentences

Commercial mortgage-backed securities 534,388 552,522 (18,134) (3.3)

Auction rate securities — 74,667

Total available for sale securities $ 2,398,352 $ 2,646,767 $ (248,415) (9.4) %

4 unchanged sentences

Total investment securities $ 3,666,274 $ 3,968,023 $ (301,749) (7.6) %

Total AFS securities decreased $540.6 million, or 17.0%, to $2,646.8 million at December 31, 2022, primarily due to decreases in commercial mortgage backed securities, state and municipal securities, collateralized mortgage obligations and auction rate

securities of $418.6 million, $83.0 million, $75.3 million and $74.7 million, respectively, partially offset by an increase in U.S.

Government securities of $90.9 million.

Total HTM securities increased $340.9 million, or 34.8%, due to increases in commercial mortgage-backed securities and residential mortgage-backed securities of $288.5 million and $52.4 million, respectively.

The following table presents ending loans outstanding, by type, as of the dates shown, and the changes in balances for the most recent year:

Compared to December 31, 2022, total AFS securities at December 31, 2023 decreased $248.4 million, or 9.4%, primarily due to decreases in U.S.

Government securities, state and municipal securities, collateralized mortgage obligations, commercial

mortgage-backed securities and residential mortgage-backed securities of $176.3 million $33.7 million, $22.6 million, $18.1 million and $15.9 million, respectively.

At December 31, 2023, total HTM securities decreased $53.3 million, or 4.0%, primarily driven by a decrease in residential mortgage-backed securities of $50.3 million due to payments.

The following table presents ending loans outstanding, by type:

December 31, Increase (Decrease)

2023 2022 $ %

7 unchanged sentences

Consumer 729,318 699,179 30,139 4.3

Equipment lease financing and other 324,928 283,557 284,377

Overdrafts 3,403 1,988 4,806

Gross loans 20,308,924 18,342,386 18,923,921

Unearned income (29,377) (17,036) (23,101)

Leases and other loans (2)

336,314 303,487 32,827 10.8

Net loans $ 21,351,094 $ 20,279,547 $ 1,071,547 5.3 %

(1) Includes PPP loans totaling $20.4 million, $301.3 million and $1,581.7 million as of December 31, 2022, 2021 and 2020, respectively.

Net loans increased $1,954.2 million, or 10.7%, as of December 31, 2022 compared to December 31, 2021, primarily due to increases in residential mortgage loans, commercial mortgage loans, commercial and industrial loans and consumer loans of $890.5 million, $414.8 million, $269.2 million and $234.5 million, respectively.

The Corporation does not have a significant concentration of credit risk with any single borrower, industry or geographic location within its footprint.

(1) Includes unearned income of $41.0 thousand and $4.5 million as of December 31, 2023 and 2022, respectively.

(2) Includes unearned income of $38.0 million and $24.8 million as of December 31, 2023 and 2022, respectively.

During 2023, net loans increased $1.1 billion, or 5.3%, compared to December 31, 2022, primarily due to increases in residential mortgage loans, commercial mortgage loans and commercial and industrial loans of $588.6 million, $433.9 million and $72.5 million, respectively, partially offset by decreases in home equity loans and construction loans of $55.7 million and $30.9 million, respectively.

The Corporation does not have a significant concentration of credit risk with any single borrower.

As of December 31, 2023, approximately $9.4 billion, or 43.9%, of the loan portfolio was comprised of commercial mortgage loans and construction loans.

The Corporation's policies limit the maximum total lending commitment to an individual borrower to $100.0 million as of December 31, 2022.

In addition, the Corporation has established lower total lending limits for certain types of lending commitments and lower total lending limits based on the Corporation's internal risk rating of an individual borrower at the time the lending commitment is approved.

The following table summarizes the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios (excluding PPP loans) as of December 31:

The Corporation has established lower total lending limits for certain types of lending commitments and lower total lending limits based on the Corporation's internal risk rating of an individual borrower at the time the lending commitment is approved.

The following table summarizes the industry concentrations within the commercial mortgage and the commercial and industrial loan portfolios:

Real estate (1)

46.6 % 43.9 %

Manufacturing 6.8 5.1

Health care 6.6 6.5

Manufacturing 6.1 6.8

Agriculture 5.6 5.4

Construction (2)

Other services 4.5 4.7

Construction (2)

Hospitality and food services 3.6 3.6

2 unchanged sentences

Educational services 2.9 2.8

Arts, entertainment and recreation 2.0 2.3

Professional, scientific and technical services 2.2 1.8

Arts, entertainment and recreation 1.9 2.0

Transportation and warehousing 1.7 1.3

Public administration 1.2 1.5

Administrative and Support 1.1 0.6

Finance and Insurance 1.3 0.9

Administrative and Support 1.1 1.1

Public administration 1.0 1.2

Other 4.3 7.1

2 unchanged sentences

renting, leasing or managing real estate for others;

selling and/or buying real estate for others;

selling and/or buying real estate for

and appraising real estate.

Real estate commercial office represents 3% of total loans.

(2) Includes commercial loans to borrowers engaged in the construction industry.

(3) Excludes public administration.

The following table presents the changes in non-accrual loans for the years ended December 31:

3 unchanged sentences

Construction Real Estate -

Mortgage Consumer and Real Estate -

Equity Equipment Lease Financing Total

Mortgage Consumer and

Real Estate -

Home Equity Equipment Lease Financing Total

(dollars in thousands)

11 unchanged sentences

Transfers to accrual status — (65) — (2,526) (49) — (2,640)

Balance of non-accrual loans at December 31, 2022 $ 27,116 $ 70,161 $ 1,368 $ 26,294 $ 6,197 $ 13,307 $ 144,443

Non-accrual loans increased $0.8 million, or 0.5%, in 2022.

Non-accrual loans as a percentage of net loans decreased to 0.71% at December 31, 2022, compared to 0.78% at December 31, 2021.

The following table presents non-performing assets as of the dates shown:

Balance at December 31, 2023 $ 39,952 $ 44,805 $ 1,341 $ 20,824 $ 4,805 $ 9,893 $ 121,620

During 2023, non-accrual loans decreased $22.8 million, or 15.8%, largely due to payments and charge-offs, partially offset by additions to non-accrual loans.

During 2023, non-accrual loans as a percentage of net loans decreased to 0.57%, compared to 0.71% as of December 31, 2022.

The following table presents non-performing assets:

2023 2022 2021

7 unchanged sentences

Total non-performing assets $ 154,237 $ 177,696 $ 153,936

(1) The amount of interest income on non-accrual loans that was recognized in 2022 was approximately $2.2 million.

Non-accrual loans to total loans 0.57 % 0.71 % 0.78 %

Non-performing loans to total loans 0.72 % 0.85 % 0.83 %

Non-performing assets to total assets 0.56 % 0.66 % 0.60 %

ACL to non-performing loans 191 % 157 % 164 %

(1) The amount of interest income on non-accrual loans that was recognized in 2023, 2022 and 2021was approximately $1.5 million, $2.2 million and $1.3

million, respectively.

(2) Accrual of interest is generally discontinued when a loan becomes 90 days past due.

In certain cases a loan may be placed on non-accrual status prior to being 90 days delinquent if there is an indication that the borrower is having difficulty making payments or the Corporation believes it is probable that all amounts will not be collected according to the contractual terms of the agreement.

When interest accruals are discontinued, unpaid interest previously credited to income is reversed.

Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently for six consecutive months or the loan is considered to be adequately secured and in the process of collection.

Certain loans, primarily adequately collateralized residential mortgage loans, may continue to accrue interest after reaching 90 days past due.

(3) Excluded from non-performing assets as of December 31, 2022, were $29.6 million of loans modified under TDRs.

These loans continue to accrue interest and are, therefore, not included in non-accrual loans.

(4) Excludes $6.0 million of residential mortgage properties for which formal foreclosure proceedings were in process as of December 31, 2022.

The following table presents non-performing loans, by type, as of the dates shown:

In certain cases a loan may be placed on non-accrual status prior to being

90 days delinquent if there is an indication that the borrower is having difficulty making payments or the Corporation believes it is probable that all amounts

will not be collected according to the contractual terms of the agreement.

When interest accruals are discontinued, unpaid interest previously credited to

income is reversed.

Non-accrual loans may be restored to accrual status when all delinquent principal and interest has been paid currently for six consecutive

months or the loan is considered to be adequately secured and in the process of collection.

Certain loans, primarily adequately collateralized residential

mortgage loans, may continue to accrue interest after reaching 90 days past due.

(3) Excludes $10.9 million, $6.0 million and $6.4 million of residential mortgage properties for which formal foreclosure proceedings were in process as of

December 31, 2023, 2022 and 2021, respectively.

The following table presents non-performing loans:

2023 2022 2021

6 unchanged sentences

Consumer 799 991 582

Equipment lease financing 13,307 15,640 16,437

Leases and other loans 10,011 13,307 15,640

Total non-performing loans $ 153,341 $ 171,906 $ 152,119

Non-performing loans to total loans 0.72 % 0.85 % 0.83 %

The following table presents TDRs as of the dates shown:

2022 2021 2020

The following table presents the amortized cost basis of loans modified to borrowers experiencing financial difficulty:

(dollars in thousands)

2 unchanged sentences

Real estate - residential mortgage 9,092

Real estate – home equity 10,717 12,218 14,391

Consumer — 5 —

Total accruing TDRs 29,585 29,492 68,426

Non-accrual TDRs (1)

31,853 55,945 35,755

Total TDRs $ 61,438 $ 85,437 $ 104,181

(1) Included within non-accrual loans in the preceding table.

The decrease in TDRs in 2022 compared to 2021 was primarily due to a decrease in non-accrual TDRs.

The decrease in TDRs in 2021 compared to 2020 was primarily due to a decrease in commercial mortgage loans, residential mortgage loans, and commercial and industrial loans, partially offset by an increase in non-accrual TDRs.

Total TDRs modified during 2022 and still outstanding as of December 31, 2022, were $1.6 million.

Of these loans, $0.7 million, or 40.5%, had a payment default during 2022, which the Corporation defines as a single missed scheduled payment subsequent to modification.

TDRs modified during 2021 and still outstanding as of December 31, 2021 totaled $33.5 million.

Of these loans, $15.5 million, or 46.4%, had a payment default during 2021, which the Corporation defines as a single missed scheduled payment, subsequent to modification.

The following table summarizes OREO, by property type, as of December 31:

Total $ 24,006

There were no loans modified due to borrowers experiencing financial difficulty that defaulted during 2023.

The following table summarizes OREO, by property type:

2023 2022 2021

4 unchanged sentences

Total OREO $ 896 $ 5,790 $ 1,817

As noted under the heading "Critical Accounting Policies" within Management's Discussion, the Corporation's ability to identify potential problem loans in a timely manner is key to maintaining an adequate ACL.

For commercial loans, commercial mortgage loans and construction loans to commercial borrowers, an internal risk rating process is used to monitor credit quality.

For a complete description of the Corporation's risk ratings, refer to the "Allowance for Credit Losses" section within "Note 1 - Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements in Item 8.

"Financial Statements and Supplementary Data." The evaluation of credit risk for residential mortgages, home equity loans, construction loans to individuals, consumer loans and equipment lease financing is based on aggregate payment history through the monitoring of delinquency levels and trends.

Total internally risk rated loans were $13.2 billion and $12.4 billion as of December 31, 2022 and 2021, respectively.

The following table presents criticized and classified loans, or those with internal risk ratings of special mention (1) or substandard or lower (2) for commercial mortgage loans, commercial and industrial loans and construction loans to commercial borrowers, by class segment, as of December 31:

The Corporation's ability to identify potential problem loans in a timely manner is important to maintaining an adequate ACL.

For commercial and industrial loans, commercial mortgage loans and construction loans to commercial borrowers, an internal risk rating process is used to monitor credit quality.

The evaluation of credit risk for residential mortgages, home equity loans, construction loans to individuals, consumer loans and leases and other loans is based on payment history through the monitoring of delinquency levels and trends.

Total internally risk-rated loans were $13.7 billion and $13.2 billion as of December 31, 2023 and 2022, respectively, of which $0.9 million and $0.8 million were criticized and classified loans, respectively.

The following table presents criticized and classified loans, or those with internal risk ratings of special mention (1) or substandard or lower (2) for commercial mortgages, commercial and industrial loans and construction loans to commercial borrowers, by class segment:

Special Mention (1)

1 unchanged sentence

Increase (Decrease) Total Criticized and Classified Loans

December 31, December 31, December 31,

2023 2022 $ % 2023 2022 $ % 2023 2022

9 unchanged sentences

(3) Excludes construction - other.

As of December 31, 2022, total loans with risk ratings of special mention decreased by $126.6 million, or 21.5%, and total loans with a risk rating of substandard or lower decreased by $199.5 million, or 40.7%, resulting in an overall decrease in total criticized loans of $326.0 million, or 30.2%, compared to 2021.

The following table presents, by class segment, a summary of delinquency status and rates, as a percentage of total

loans that do not have internal risk ratings as of December 31:

Total loans risk-rated special mention increased by $15.0 million, or 3.2%, compared to December 31, 2022.

Total loans risk- rated substandard or lower increased by $157.9 million, or 54.4%, compared to December 31, 2022, primarily due to borrower performance in both commercial and industrial loans and commercial real estate loans.

Total criticized and classified loans increased $172.9 million, or 23.0%, compared to December 31, 2022.

The following table presents, by class segment, a summary of delinquency status and rates, as a percentage of total loans that do not have internal risk ratings:

Delinquent (1)

Non-performing (2)

December 31, December 31, December 31, December 31, December 31, December 31,

2023 2022 2023 2022 2023 2022

3 unchanged sentences

Real estate - residential mortgage 59,983 1.13 65,270 1.38 42,029 0.79 46,509 0.98 102,012 1.92 111,779 2.36

65,270 1.38 25,877 0.67 46,509 0.98 39,542 1.03 111,779 2.36 65,419 1.70

Real estate - construction - other

3,520 0.28 1,318 0.11 — — 173 0.02 3,520 0.28 1,491 0.13

Equipment lease financing

470 0.16 253 0.09 13,307 4.45 15,641 5.83 13,777 4.61 15,894 5.92

Real estate - construction 4,636 0.37 3,520 0.28 1,535 0.12 — — 6,171 0.50 3,520 0.28

Leases and other loans 868 0.26 470 0.16 10,011 2.98 13,307 4.45 10,879 3.23 13,777 4.61

Total $ 85,832 0.99 % $ 85,401 1.05 % $ 64,453 0.74 % $ 69,616 0.86 % $ 150,285 1.74 % $ 155,017 1.92 %

(1) Includes all accruing loans 30 days to 89 days past due.

(2) Includes all accruing loans 90 days or more past due and all non-accrual loans and leases.

(1) Includes accruing loans 30 days to 89 days past due.

(2) Includes accruing loans 90 days or more past due and non-accrual loans and leases.

Loans and Allowance for Credit Losses

The Corporation accounts for the credit risk associated with lending activities through the ACL and the provision for credit losses.

A summary of the Corporation's activity in ACL - loans is shown below:

The following table presents the activity in the ACL:

December 31, December 31, December 31,

2023 2022 2021

5 unchanged sentences

Initial purchased credit deteriorated loans — 1,135 —

Impact of adopting CECL on January 1, 2020 — — 45,724

Loans charged off:

4 unchanged sentences

Real estate - construction — — (39)

Equipment lease financing and other (2,131) (2,251) (2,187)

Leases and other loans (4,380) (2,131) (2,251)

Total loans charged off (39,201) (21,472) (30,952)

5 unchanged sentences

Real estate - construction 858 574 1,412

Equipment lease financing and other 759 953 605

Leases and other loans 1,103 759 953

Total recoveries 10,129 14,092 17,146

Net loans charged off (7,380) (13,806) (9,537)

Net loans charged off (recoveries) (29,072) (7,380) (13,806)

Provision for credit losses (1)

53,110 18,656 (14,760)

Balance of ACL at end of period $ 293,404 $ 269,366 $ 249,001

10 unchanged sentences

ACL - loans to non-accrual loans 241 186 173

(1) Provision for credit losses includes only the portion related to net loans.

(2) Reserve for OBS credit exposures is recorded within other liabilities on the consolidated balance sheets.

See "Note 5 - Loans and Allowance for Credit Losses" in the Notes to Consolidated Financial Statements in Item 8.

"Financial Statements and Supplementary Data." additional information.

(3) Includes accruing loans past due 90 days or more.

Excluding the CECL Day 1 Provision of $8.0 million for the acquired Prudential Bancorp loan portfolio, the provision for credit losses increased $33.4 million in comparison to 2021.

The increase in the provision for credit losses was primarily driven by loan growth and changes to the macroeconomic outlook.

See "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in Item 8.

"Financial Statements and Supplementary Data" for additional information.

The provision for credit losses, specific to loans, for 2023 was $53.1 million, compared to a provision for credit losses, specific to loans, of $26.6 million, which included an $8.0 million CECL Day 1 Provision recorded in 2022.

The increase in the provision for credit losses for net loans was primarily driven by loan growth, changes to the macroeconomic outlook, higher net loan charge-offs and migration of internally risk-rated loans into special mention and substandard or lower categories.

The following table summarizes the allocation of the ACL - loans :

2022 2021 2020

ACL - loans %

December 31, 2023 December 31, 2022 December 31, 2021

ACL - loans % to Total ACL - loans (1)

% to Total Net Loans (2)

ACL - loans % to Total ACL - loans (1)

% to Total Net Loans (2)

ACL - loans % to Total ACL - loans (1)

% to Total Net Loans (2)

(dollars in thousands)

2 unchanged sentences

Real estate - residential mortgage 73,286 25.0 24.9 83,250 30.9 23.4 54,236 21.8 21.0

Consumer, home equity, equipment lease financing and overdrafts 35,801 10.5 26,798 10.2 31,770 10.3

Consumer, home equity and leases and other loans 20,992 7.1 9.9 35,801 13.3 10.3 26,798 10.8 10.1

Real estate - construction 12,295 4.2 5.8 10,743 4.0 6.3 12,941 5.2 6.2

Total $ 293,404 100.0 % 100 % $ 269,366 100.0 % 100 % $ 249,001 100.0 % 100.0 %

(1) Ending loan balances as a % of total loans for the years presented.

Management believes that the $269.4 million ACL - loans as of December 31, 2022, was sufficient to cover expected losses in the loan portfolio.

See additional disclosures in "Note 1 - Summary of Significant Accounting Policies," and "Note 5 - Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements in Item 8.

"Financial Statements and Supplementary Data;" and "Critical Accounting Policies" above.

Other assets increased $252.2 million, or 25.1%, to $1.3 billion as of December 31, 2022 compared to 2021, primarily due to increases in deferred Federal income taxes, cash surrender value of life insurance and equity method investments of $117.8 million, $92.2 million and $15.2 million, respectively.

(1) Ending ACL - loan portfolio segment balance as a % of total ACL - loans.

(2) Ending loan portfolio segment balances as a % of total net loans for the periods presented.

Management believes that the $293.4 million ACL - loans as of December 31, 2023 is sufficient to cover expected credit losses in the loan portfolio.

Deposits and Borrowings

The following table presents ending deposits, by type, as of December 31:

Increase (Decrease)

The following table presents ending deposits, by type:

December 31, Increase (Decrease)

2023 2022 $ %

4 unchanged sentences

Total demand and savings 17,653,690 18,851,912 (1,198,222) (6.4)

Brokered deposits 208,416 251,526 (43,110) (17.1)

Brokered deposits 1,144,692 208,416 936,276 N/M

Time deposits 2,739,241 1,589,210 1,150,031 72.4

Total deposits $ 21,537,623 $ 20,649,538 $ 888,085 4.3 %

Compared to 2021, total deposits decreased by $924.0 million, or 4.3%, primarily due to decreases in interest-bearing demand deposits, noninterest-bearing demand deposits and time deposits of $408.6 million, $364.6 million and $138.3 million, respectively.

The following table presents ending borrowings, by type, as of December 31:

Increase (Decrease)

During 2023, total deposits increased by $888.1 million, or 4.3%, compared to December 31, 2022.

The increase in total deposits was primarily due to increases in time deposits, brokered deposits, interest-bearing demand deposits and savings and money market deposits of $1.2 billion, $936.3 million, $311.8 million and $182.3 million, respectively, partially offset by a decrease in noninterest-bearing demand deposits $1.7 billion.

The shift from noninterest-bearing demand deposits to interest-bearing deposits was mainly due to rising interest rates.

Total uninsured deposits (excluding intra-Company deposits) were estimated to be $7.2 billion and $7.8 billion at December 31, 2023 and December 31, 2022, respectively.

The following table presents ending borrowings, by type:

December 31, Increase (Decrease)

2023 2022 $ %

(dollars in thousands)

Federal funds purchased $ 191,000 $ — $ 191,000 N/M

Federal Home Loan Bank advances 1,250,000 — 1,250,000 N/M

Federal funds purchased $ 240,000 $ 191,000 $ 49,000 25.7

Federal Home Loan Bank advances 1,100,000 1,250,000 (150,000) (12.0)

Senior debt and subordinated debt 535,384 539,634 (4,250) (0.8)

1 unchanged sentence

612,142 890,573 (278,431) (31.3)

Total borrowings $ 2,871,207 $ 1,038,109 $ 1,833,098 N/M

(1) Includes short-term promissory notes.

Total borrowings increased $1,833.1 million in 2022 compared to 2021, as a result of increases in FHLB advances of $1,250.0 million, customer repurchases of $472.9 million presented in other borrowings and Federal funds purchased of $191.0 million.

These increases were partially offset by a decrease in senior debt and subordinated debt of $80.8 million.

The increase in total borrowings during 2022 is reflective of the decrease in total deposit funding and the increase in net loans.

Total borrowings $ 2,487,526 $ 2,871,207 $ (383,681) (13.4) %

(1) Includes repurchase agreements, short-term promissory notes and capital leases.

During 2023, total borrowings decreased $383.7 million, or 13.4%, compared to December 31, 2022.

The decrease in total borrowings was due to decreases in other borrowings of $278.4 million, FHLB advances of $150.0 million and senior and subordinated debt of $4.3 million, partially offset by an increase in Federal funds purchased of $49.0 million.

Other Liabilities

Other liabilities increased $355.9 million, or 76.5%, to $821.0 million as of December 31, 2022, primarily as the result of a $360.8 million increase in derivative related liabilities.

During 2023, other liabilities decreased $69.5 million, or 8.5%, compared to December 31, 2022, primarily due to a decrease in derivative related liabilities.

Shareholders' Equity

Total shareholders' equity decreased $132.9 million, or 4.9%, to $2,579.8 million, or 9.6% of total assets, as of December 31, 2022.

The decrease was due primarily to an increase in accumulated comprehensive loss of $412.9 million, partially offset by increases of $168.4 million from retained earnings and $87.9 million from treasury stock, primarily driven by the reissuance of treasury shares in connection with the Merger.

During 2023, total shareholders' equity increased $180.4 million, or 7.0%, to $2.8 billion, or 10.0% of total assets, as of December 31, 2023.

The increase was due primarily to an increase of $168.5 million in retained earnings and a reduction of $73.2 million in accumulated other comprehensive loss, partially offset by a $75.3 million increase in treasury stock largely due to common stock repurchases.

See "Note 15 - Shareholders' Equity" in the Notes to the Consolidated Financial Statements in "Item 8.

Financial Statements and Supplementary Data" for details of accumulated comprehensive loss.

The Corporation and its wholly owned subsidiary bank, Fulton Bank, are subject to regulatory capital requirements administered by the FRB and OCC.

Failure to meet minimum capital requirements can trigger certain actions by these regulators that could have a material effect on the Corporation's financial statements.

The regulations require that banks and bank holding companies maintain minimum amounts and ratios of total, Tier I and Common Equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), and Tier I capital to average assets (as defined in the regulations).

The following table summarizes the Corporation's capital ratios in comparison to regulatory requirements at December 31:

Regulatory Capital

The Corporation and its wholly-owned subsidiary bank, Fulton Bank, are subject to the Capital Rules administered by banking regulators.

Failure to meet minimum capital requirements can trigger certain actions by regulators that could have a material effect on the Corporation's financial statements.

The Capital Rules require the Corporation and Fulton Bank to:

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

• Meet a minimum Tier 1 Leverage capital ratio of 4.00% of average assets;

• Meet a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 capital ratio of 6.00% of risk-weighted assets;

• Maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments;

• 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.

As of December 31, 2023, the Corporation's capital levels met the minimum capital requirements, including the capital conservation buffers, as prescribed in the Capital Rules.

As of December 31, 2023, Fulton Bank met the well-capitalized requirements under the regulatory framework for prompt corrective action.

To be categorized as well-capitalized, a bank must maintain minimum Total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage ratios as set forth in the Capital Rules.

There were no other conditions or events since December 31, 2023 that management believes have changed the Corporation's capital categories.

The following table summarizes the Corporation's capital ratios in comparison to regulatory requirements:

2023 December 31,

2022 Regulatory

4 unchanged sentences

Tier I Leverage Capital (to Average Assets) 9.5% 9.5% 4.0% 4.0%

In July 2013, the Federal Reserve Board approved the Basel III Rules establishing a new comprehensive capital framework for U.S.

banking organizations and implementing the Basel Committee on Banking Supervision's December 2010 framework for strengthening international capital standards.

The Basel III Rules substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions.

The Basel III Rules require the Corporation and Fulton Bank to:

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

• Continue to require a minimum Total capital ratio of 8.00% of risk-weighted assets and a Tier 1 leverage capital ratio of 4.00% of average assets;

• Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses as a result of which certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, will be excluded as a component of Tier 1 capital for institutions of the Corporation's size.

As of January 1, 2019, the Corporation and Fulton Bank were also required to maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments.

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

As of December 31, 2022, Fulton Bank was well capitalized under the regulatory framework for prompt corrective action based on its capital ratio calculations.

To be categorized as well capitalized, Fulton Bank must maintain minimum total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage ratios as set forth in the table above.

There are no conditions or events since December 31, 2022 that management believes have changed Fulton Bank's categories.

See "Note 12 - Regulatory Matters," in the Notes to Consolidated Financial Statements in Item 8.

"Financial Statements and Supplementary Data."

Contractual Obligations and Off-Balance Sheet Arrangements

1 unchanged sentence

These obligations include payments for liabilities recorded on the Corporation's consolidated balance sheets as well as contractual obligations for purchased services.

Contractual purchase obligations to third parties that were fixed and determinable of $93 million and $96 million at December 31, 2022 and 2021, respectively, include information technology, telecommunication and data processing outsourcing contracts.

Contractual purchase obligations to third parties that were fixed and determinable of approximately $125 million and $93 million at December 31, 2023 and 2022, respectively, include information technology, telecommunication and data processing outsourcing contracts.

The increase is primarily due to the renewals of large multi-year contracts.

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

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis