FULTON FINANCIAL CORP 10-K

Item 8. Financial Statements and Supplementary Data CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per-share data) December 31, 2023 2022 ASSETS Cash and due from banks $ 300,343 $ 126,898 Interest-bearing deposits with other banks 249,367 555,023 Cash and cash equivalents 549,710 681,921 FRB and FHLB stock 124,405 130,186 Loans held for sale 15,158 7,264 Investment securities: AFS, at estimated fair value 2,398,352 2,646,767 HTM, at amortized cost 1,267,922 1,321,256 Net loans 21,351,094 20,279,547 Less: ACL - loans ( 293,404 ) ( 269,366 ) Loans, net 21,057,690 20,010,181 Net premises and equipment 222,881 225,141 Accrued interest receivable 107,972 91,579 Goodwill and net intangible assets 560,687 560,824 Other assets 1,267,138 1,256,583 Total Assets $ 27,571,915 $ 26,931,702 LIABILITIES Deposits: Noninterest-bearing $ 5,314,094 $ 7,006,388 Interest-bearing 16,223,529 13,643,150 Total Deposits 21,537,623 20,649,538 Borrowings: Federal funds purchased 240,000 191,000 Federal Home Loan Bank advances 1,100,000 1,250,000 Senior debt and subordinated debt 535,384 539,634 Other borrowings and interest-bearing liabilities 612,142 890,573 Total borrowings 2,487,526 2,871,207 Accrued interest payable 35,083 10,185 Other liabilities 751,544 821,015 Total Liabilities $ 24,811,776 $ 24,351,945 SHAREHOLDERS' EQUITY Preferred stock, no par value, 10,000,000 shares authorized, Series A, 200,000 shares authorized and issued as of December 31, 2023 and 2022, liquidation preference of $ 1,000 per share 192,878 192,878 Common stock, $ 2.50 par value, 600,000,000 shares authorized, 225,760,963 shares issued as of December 31, 2023 and 224,604,432 issued as of December 31, 2022 564,402 561,511 Additional paid-in capital 1,552,860 1,541,840 Retained earnings 1,619,300 1,450,758 Accumulated other comprehensive loss ( 312,280 ) ( 385,476 ) Treasury stock, at cost, 61,959,552 shares in 2023 and 57,005,339 shares in 2022 ( 857,021 ) ( 781,754 ) Total Shareholders' Equity 2,760,139 2,579,757 Total Liabilities and Shareholders' Equity $ 27,571,915 $ 26,931,702 See Notes to Consolidated Financial Statements 68 CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per-share data) 2023 2022 2021 Interest Income Loans, including fees $ 1,156,373 $ 758,609 $ 638,595 Investment securities 101,518 98,115 79,821 Other interest income 15,345 8,114 4,996 Total Interest Income 1,273,236 864,838 723,412 Interest Expense Deposits 292,205 43,829 30,005 Federal funds purchased 30,417 2,967 — Federal Home Loan Bank advances 46,965 7,334 2,286 Senior debt and subordinated debt 21,361 22,257 26,784 Other borrowings and interest-bearing liabilities 28,002 6,817 607 Total Interest Expense 418,950 83,204 59,682 Net Interest Income 854,286 781,634 663,730 Provision for credit losses 54,036 28,021 ( 14,600 ) Net Interest Income After Provision for Credit Losses 800,250 753,613 678,330 Non-Interest Income Commercial banking 81,160 75,779 68,689 Wealth management 75,541 72,843 71,798 Consumer banking 47,197 49,496 45,544 Mortgage banking 10,388 14,204 33,576 Other 14,125 14,835 20,622 Non-Interest Income Before Investment Securities Gains, Net 228,411 227,157 240,229 Investment securities gains (losses), net ( 733 ) ( 27 ) 33,516 Total Non-Interest Income 227,678 227,130 273,745 Non-Interest Expense Salaries and employee benefits 377,417 356,884 329,138 Data processing and software 66,471 60,255 56,440 Net occupancy 58,019 56,195 53,799 Other outside services 47,724 37,152 34,194 FDIC insurance 25,565 12,547 10,665 Equipment 14,390 14,033 13,807 Marketing 9,004 6,885 5,275 Professional fees 8,392 9,123 9,647 Intangible amortization 2,944 1,731 589 Debt extinguishment cost — — 33,249 Merger-related expenses — 10,328 — Other 69,281 68,595 71,027 Total Non-Interest Expense 679,207 633,728 617,830 Income Before Income Taxes 348,721 347,015 334,245 Income taxes 64,441 60,034 58,748 Net Income 284,280 286,981 275,497 Preferred stock dividends ( 10,248 ) ( 10,248 ) ( 10,277 ) Net Income Available to Common Shareholders $ 274,032 $ 276,733 $ 265,220 PER SHARE: Net income available to common shareholders (basic) $ 1.66 $ 1.69 $ 1.63 Net income available to common shareholders (diluted) 1.64 1.67 1.62 Cash dividends 0.64 0.66 0.64 See Notes to Consolidated Financial Statements 69 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) 2023 2022 2021 Net Income $ 284,280 $ 286,981 $ 275,497 Other Comprehensive Income/(Loss), net of tax: Unrealized gains (losses) on AFS investment securities: Net unrealized holding gains (losses) on securities 36,023 ( 312,169 ) ( 17,948 ) Reclassification adjustment for securities gains (losses) included in net income ( 567 ) ( 20 ) ( 25,905 ) Amortization of net unrealized gains (losses) on AFS securities transferred to HTM 5,913 ( 44,483 ) 2,690 Net unrealized gains (losses) on AFS investment securities 41,369 ( 356,672 ) ( 41,163 ) Unrealized (losses) gains on interest rate derivatives used in cash flow hedges: Net unrealized holding losses arising during the period 6,998 ( 62,963 ) ( 2,670 ) Reclassification adjustment for net gains (losses) realized in net income 19,995 6,004 ( 2,147 ) Net unrealized gains (losses) on interest rate derivatives used in cash flow hedges 26,993 ( 56,959 ) ( 4,817 ) Defined benefit pension plan and postretirement benefits: Unrecognized pension and postretirement income (cost) 4,777 644 7,144 Amortization of net unrecognized pension and postretirement income (loss) 57 100 1,156 Net unrealized (losses) gains on defined benefit pension and postretirement plans 4,834 744 8,300 Other Comprehensive Income (Loss) 73,196 ( 412,887 ) ( 37,680 ) Total Comprehensive Income (Loss) $ 357,476 $ ( 125,906 ) $ 237,817 See Notes to Consolidated Financial Statements 70 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 Outstanding Amount Shares Outstanding Amount Retained Earnings Treasury Stock Total 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 (1) 288 720 3,960 ( 136 ) 4,544 Dividend reinvestment activity 362 4 4,934 4,938 Stock-based compensation awards (repurchases) 293 1,129 7,792 ( 2,564 ) 6,357 Acquisition of treasury stock ( 2,803 ) ( 43,909 ) ( 43,909 ) Preferred stock dividend ( 10,277 ) ( 10,277 ) Common stock 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 Net income 286,981 286,981 Other comprehensive loss ( 412,887 ) ( 412,887 ) Common stock issued (1) 261 653 3,677 4,330 Dividend reinvestment activity 362 85 5,149 5,234 Stock-based compensation awards (repurchases) 277 1,092 13,658 ( 2,438 ) 12,312 Reissuance of treasury stock pursuant to acquisition 6,209 4,547 85,166 89,713 Preferred stock dividend ( 10,248 ) ( 10,248 ) Common stock dividends - $ 0.66 per share ( 108,358 ) ( 108,358 ) Balance at December 31, 2022 200 192,878 167,599 561,511 1,541,840 1,450,758 ( 385,476 ) ( 781,754 ) 2,579,757 Net income 284,280 284,280 Other comprehensive income 73,196 73,196 Common stock issued (1) 231 578 2,548 34 3,160 Dividend reinvestment activity 408 ( 132 ) 5,691 5,559 Stock-based compensation awards (repurchases) 592 2,313 8,604 ( 3,936 ) 6,981 Acquisition of treasury stock ( 5,029 ) ( 77,056 ) ( 77,056 ) Preferred stock dividend ( 10,248 ) ( 10,248 ) Common stock dividends - $ 0.64 per share ( 105,490 ) ( 105,490 ) Balance at December 31, 2023 200 $ 192,878 163,801 $ 564,402 $ 1,552,860 $ 1,619,300 $ ( 312,280 ) $ ( 857,021 ) $ 2,760,139 (1) Issuance of common stock includes issuance in connection with the Corporation's ESPP and exercised stock options. See Notes to Consolidated Financial Statements 71 CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 284,280 $ 286,981 $ 275,497 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 54,036 28,021 ( 14,600 ) Depreciation and amortization of premises and equipment 30,055 30,201 28,802 Net amortization of investment securities premiums 11,231 12,824 16,031 Investment securities losses (gains), net 733 27 ( 33,516 ) Gain on sales of mortgage loans held for sale ( 5,094 ) ( 8,816 ) ( 24,379 ) Proceeds from sales of mortgage loans held for sale 363,406 455,607 1,050,943 Originations of mortgage loans held for sale ( 366,206 ) ( 418,287 ) ( 978,446 ) Intangible amortization 2,944 1,731 589 Amortization of issuance costs and discounts on long-term borrowings 750 724 1,846 Debt extinguishment costs — — 33,249 Stock-based compensation 12,540 14,000 8,402 Change in deferred federal income tax 24,666 ( 117,849 ) ( 417 ) Net change in accrued salaries and benefits ( 5,868 ) 12,826 ( 1,226 ) Change in life insurance cash surrender value ( 27,664 ) ( 95,702 ) ( 93,986 ) Other changes, net ( 16,825 ) 392,503 69,602 Total adjustments 78,704 307,810 62,894 Net cash provided by operating activities 362,984 594,791 338,391 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of AFS securities 213,424 196,411 359,137 Proceeds from principal repayments and maturities of AFS securities 149,211 583,444 469,393 Proceeds from principal repayments and maturities of HTM securities 59,685 109,759 117,958 Purchase of AFS securities ( 79,053 ) ( 845,744 ) ( 1,309,470 ) Purchase of HTM securities — ( 30,959 ) ( 443,081 ) Sale of Visa Shares — — 33,962 Net change in FRB and FHLB stock 5,781 ( 72,551 ) 34,494 Net change in loans ( 1,100,816 ) ( 1,407,289 ) 561,664 Net purchases of premises and equipment ( 32,958 ) ( 21,246 ) ( 17,679 ) Settlement of bank owned life insurance 2,264 3,474 3,881 Net cash paid for acquisition — ( 21,811 ) ( 1,982 ) Net change in tax credit investments ( 26,753 ) ( 29,071 ) ( 18,363 ) Net cash used in investing activities ( 809,215 ) ( 1,535,583 ) ( 210,086 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in demand and savings deposits ( 1,198,222 ) ( 1,198,319 ) 1,315,139 Net change in time deposits and brokered deposits 2,086,307 ( 257,823 ) ( 580,847 ) Net (decrease) increase in other borrowings ( 379,431 ) 1,629,870 ( 212,682 ) Repayments of senior debt and subordinated debt ( 5,000 ) ( 81,496 ) ( 710,633 ) Net proceeds from issuance of common stock 3,160 7,876 7,437 Dividends paid ( 115,738 ) ( 116,009 ) ( 112,028 ) Acquisition of treasury stock ( 77,056 ) — ( 43,909 ) Net cash provided by (used in) financing activities 314,020 ( 15,901 ) ( 337,523 ) Net decrease in Cash and Cash Equivalents ( 132,211 ) ( 956,693 ) ( 209,218 ) Cash and Cash Equivalents at Beginning of Period 681,921 1,638,614 1,847,832 Cash and Cash Equivalents at End of Period $ 549,710 $ 681,921 $ 1,638,614 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 394,052 $ 80,019 $ 63,047 Income taxes 25,319 32,669 27,870 Supplemental Schedule of Certain Noncash Activities: Transfer of AFS securities to HTM securities $ — $ 479,008 $ 376,165 See Notes to Consolidated Financial Statements 72 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 Penn Square, Inc., Fulton Insurance Services Group, Inc. and Fulton Community Partner, LLC. 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. Basis of Financial Statement Presentation: The consolidated financial statements have been prepared in accordance 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 3 - 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. HTM Debt Securities: Expected credit losses on HTM debt securities would be recorded in the ACL on HTM debt securities. As of December 31, 2023, no HTM debt securities required an ACL as these investments consist solely of Agency guaranteed residential mortgage-backed and commercial mortgage-backed securities. AFS Debt Securities : The Bank's AFS rated debt securities are investment grade. In evaluating credit losses on debt securities, management considers factors such as the credit quality of the investments, the credit rating of the security, and the delinquency history of the security. As of December 31, 2023, 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 73 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 amortized cost, 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 adequately 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 Modifications: Loans are accounted for and reported as modified 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 loan modification typically involve a more than insignificant deferral of scheduled loan payments, an extension of a loan's stated maturity date, a reduction in the interest rate or a forgiveness of principal. Because the effect of most modifications made to loans to borrowers experiencing financial difficulty is already included in the ACL, a change to the ACL is generally not recorded upon modification. When principal forgiveness is provided, the amortized cost basis of the forgiven portion of the loan is written off against the ACL. Allowance for Credit Losses: The Corporation follows ASU 2016-13 Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments . 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 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. The ACL consists of loans evaluated collectively and individually for expected credit losses. The ACL 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 is increased or decreased (when the provision for credit losses is negative) through the provision for credit losses and increased or decreased (when recoveries of loans previously charged off exceed loans charged off) by charge-offs, net of 74 recoveries. The reserve for OBS credit exposures includes estimated losses on unfunded loan commitments, letters of credit and other OBS credit exposures. Loans: The ACL 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 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 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. 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. Loans Evaluated Individually : Loans evaluated individually for expected credit losses include loans on non-accrual status 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. 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. 75 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 provided by the borrower. 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 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. OBS Credit Exposures: The reserve for OBS credit exposures is recorded in other liabilities on the consolidated balance sheets, and represents management's estimate of expected losses in its unfunded loan commitments and other OBS credit exposures. The reserve for OBS credit exposures 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 reserve for OBS credit exposures is increased or decreased by charges or reductions to expense, through the provision for credit losses. 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 7 years for equipment. Leasehold improvements are amortized over the shorter of the useful life or the non-cancelable lease term. Premises and equipment acquired in a business combination are initially recorded at fair value and subsequently carried at cost less depreciation and amortization. See "Note 6 - 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 8 - Mortgage Servicing Rights" for additional information. 76 Derivative Financial Instruments: The Corporation manages its exposure to certain interest rate risk 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. 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 OCI, net of tax. 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 statements 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 Derivatives - Non-Designated Hedges The Corporation enters into interest rate derivatives with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate derivatives with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate derivatives 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 OBS credit exposures result from participation in interest rate derivatives 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. The Corporation is required to clear all eligible interest rate derivative 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 interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate derivatives as part of its interest rate risk management strategy. The Corporation enters into interest rate derivatives designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans and borrowings. 77 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 OCI, net of tax, and subsequently reclassified into interest income or interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in OCI related to derivatives will be reclassified to interest income or interest expense as interest payments are made on the Corporation's variable-rate loans and borrowings. 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, to $ 0.5 million. See "Note 11 - 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 derivatives 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 derivatives 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 derivatives are required to be cleared through a daily clearing agent. As a result, the total fair values of interest rate 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 derivatives, 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 information on balance sheet offsetting, see "Note 11 - 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 income tax expense. 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 13 - 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 Fulton Bank's Board of Directors under the Directors' Plan. Under the Directors' Plan, the Corporation can grant equity awards to non-employee 78 holding company and subsidiary bank directors in the form of stock options, restricted stock, RSUs or common stock. Recent grants of equity awards under the Directors' Plan have been limited to RSUs. Equity awards 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 fully vest 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 and service 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 16 - 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 7 - Goodwill and Intangible Assets," for additional information. 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. The Corporation makes investments in certain community development projects, the majority of which generate tax credits under various federal programs, including 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. 79 Because the Corporation owns 100% of the equity interests in its NMTC investments, these investments were consolidated based on ASC Topic 810 as of December 31, 2023 and 2022. 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 2023, 2022 or 2021. For additional information, see "Note 13 - 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 information. 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 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 income includes advisory fees which are recognized when earned on a monthly basis and transaction fees that are recognized when transactions occur. Money market income 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 and other service charges on deposit accounts as well as branch fees, ATM fees, debit and credit card income and merchant services fees. Also included are letter of credit fees, foreign exchange income and interest rate derivative 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. Leases: All leases with an initial term greater than 12 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. 80 Certain real estate leases have lease payments that adjust based on annual changes in the CPI or at a stated contractual rate. The leases that are dependent upon the CPI or stated contractual rate are initially measured using the CPI or contractual 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 18 - Leases" for additional information. Defined Benefit 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. The Corporation curtailed the Pension Plan in 2008, with no additional benefits accruing. In connection with the Merger, the Corporation assumed the obligations of Prudential Bancorp under a multiemployer defined benefit pension plan that had previously been closed to new Prudential Bancorp participants. Net periodic pension cost is recognized in salaries and employee benefits on the consolidated statements of income. For additional information, see "Note 17 - Employee Benefit Plans." Business Combinations: Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, identifiable assets acquired and liabilities assumed are measured at fair value as of the acquisition date. The difference between the purchase price and the fair value of net assets acquired is recorded as goodwill. Results of the operations of the acquired entity are included in the consolidated statement of income from the acquisition date. Acquisition costs are expensed as incurred. Recently Adopted Accounting Standards In March 2022, FASB issued ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method ("ASU 2022-01") . This update addresses questions regarding the last-of-layer method arising from the issuance of ASU 2017-12 and permits more flexibility in hedging interest rate risk for both variable-rate and fixed-rate financial instruments and introduces the ability to hedge risk components for non-financial hedges. The Corporation adopted ASU 2022-01 on January 1, 2023, and it did not have a material impact on its consolidated financial statements. In March 2022, FASB issued ASU 2022-02 Financial Instruments - Credit Losses (Topic 326) ("ASU 2022-02"). This update reduces the complexity of accounting for TDRs by eliminating certain accounting guidance, enhancing disclosures and improving the consistency of vintage disclosures. The Corporation adopted ASU 2022-02 on January 1, 2023, and it did not have a material impact on its consolidated financial statements. In September 2022, FASB issued ASU 2022-04 Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations ("ASU 2022-04"). This update enhances transparency in the disclosure of supplier finance programs, which previously had no explicit requirements under GAAP. The Corporation adopted ASU 2022-04 on January 1, 2023, and it did not have a material impact on its consolidated financial statements. In December 2022, FASB issued ASU 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This update extends the sunset provision date of ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04") to December 31, 2024 . The Corporation adopted ASU 2020-04 on June 30, 2023 and it did not have a material impact on its consolidated financial statements. In March 2023, FASB issued ASU 2023-02 Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02") . This update allows any tax credit program that meets certain criteria to use the proportional amortization method. The Corporation early adopted ASU 2023-02 using the modified retrospective method effective upon issuance, and it did not have a material impact on its consolidated financial statements. 81 In July 2023, FASB issued ASU 2023-03 Presentation of Financial Statements (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC SAB No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and SAB Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock ("ASU 2023-03") . This update amends certain SEC paragraphs from the Codification in response to (1) the issuance of SEC SAB 120; (2) the SEC staff announcement at the March 24, 2022, EITF meeting; and (3) SAB Topic 6.B, "Accounting Series Release No. 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock." ASU 2023-03 does not provide any new guidance so there is no transition or effective date associated with it. In August 2023, FASB issued ASU 2023-04 Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC SAB No. 121 ("ASU 2023-04") . This update adjusts language in FASB ASC 405-10 to align with SEC SAB No. 121 relating to accounting for obligations to safeguard crypto-assets an entity holds for its platform users. ASU 2023-24 does not provide any new guidance so there is no transition or effective date associated with it. The Corporation currently does not have obligations to safeguard crypto-assets. In October 2023, FASB issued ASU 2023-06 Disclosure Improvements ("ASU 2023-06"). This update adjusts language in FASB disclosure guidance to align with certain SEC disclosure requirements. The Corporation adopted ASU 2023-06 upon issuance, and it did not have an impact on its consolidated financial statements. Recently Issued Accounting Standards In March 2023, FASB issued ASU 2023-01 Leases (Topic 842): Common Control Arrangements ("ASU 2023-01") . This update clarifies guidance for leases between related parties under common control . The Corporation will adopt ASU 2023-01 on January 1, 2024. The Corporation does not expect the adoption of ASU 2023-01 to have a material impact on its consolidated financial statements. In November 2023, FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-04") . This update requires public entities with reportable segments to provide additional and more detailed disclosures. The Corporation will adopt ASU 2023-07 on December 15, 2024. The Corporation is not currently required to report segment information and, as such, does not expect the adoption of ASU 2023-07 to have an impact on its consolidated financial statements. In December 2023, FASB issued ASU 2023-08 Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets ("ASU 2023-08") . This update provides guidance for crypto assets to be carried at fair value and requires additional disclosures. The Corporation will adopt ASU 2023-08 on January 1, 2025. The Corporation does not expect the adoption of ASU 2023-08 to have an impact on its consolidated financial statements. The Corporation currently does not hold crypto assets. In December 2023, FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09") . This update requires companies to disclose specific categories in the income tax rate reconciliation and requires additional information for certain reconciling items. The Corporation will adopt ASU 2023-09 on January 1, 2025. The Corporation does not expect the adoption of ASU 2023-09 to have an impact on its consolidated financial statements. Reclassifications Certain amounts in the 2022 consolidated financial statements and notes have been reclassified to conform to the 2023 presentation. NOTE 2 - BUSINESS COMBINATIONS On July 1, 2022, the Corporation completed its acquisition of Prudential Bancorp, a Pennsylvania chartered bank holding company headquartered in Philadelphia, Pennsylvania that primarily served the Greater Philadelphia region. On that date, the Corporation acquired 100 % of the outstanding common stock 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 in the fourth quarter of 2022. Results of the operations of the acquired entity were included in the Corporation's consolidated financial statements beginning on July 1, 2022. 82 In accordance with the terms of the definitive 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 eighty percent (80%) of the Merger Consideration consisted of the Corporation's common stock with the remaining approximately twenty percent (20%) paid in cash. 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 date. The $ 19.1 million excess of the Merger Consideration over the fair value of assets acquired was recorded as goodwill and is not amortizable or deductible for tax purposes. The following table summarizes the consideration transferred and the fair values of identifiable assets acquired and liabilities assumed on July 1, 2022: Fair Value (dollars in thousands, except share data) Consideration transferred: Common stock shares issued ( 6,208,516 ) $ 89,713 Cash paid to Prudential Bancorp shareholders 29,343 Value of consideration 119,056 Assets acquired: Cash and due from banks 7,533 Investment securities 287,126 Loans 554,091 Premises and equipment 8,574 Other assets 73,303 Total assets 930,627 Liabilities assumed: Deposits 532,170 Borrowings (1) 284,000 Other liabilities 14,482 Total liabilities 830,652 Net assets acquired: 99,975 Goodwill resulting from the Merger $ 19,081 (1) Included a $ 30.5 million intercompany borrowing between Prudential Bank and Fulton Bank. While the valuation of the acquired assets and liabilities were completed, fair value estimates related to the assets and liabilities from Prudential Bancorp were subject to adjustment for up to one year after the closing date of the Merger as additional information became available. Included in the above table are adjustments of $2.8 million that occurred during the year ended December 31, 2023 resulting in a change to goodwill resulting from the Merger. The amount of goodwill recorded reflects the increased market share and related synergies that are expected to result from the acquisition and represents the excess purchase price over the estimated fair value of the net assets acquired from Prudential Bancorp. 83 The following table presents the change in goodwill during the period: (dollars in thousands) Goodwill at December 31, 2021 $ 534,266 Goodwill from the Merger 16,273 Goodwill at December 31, 2022 550,539 Adjustments to goodwill from the Merger 2,807 Goodwill at December 31, 2023 $ 553,346 NOTE 3 - RESTRICTIONS ON CASH AND CASH EQUIVALENTS Cash collateral is posted by the Corporation with counterparties to secure derivatives 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, 2023 and 2022 were $ 17.4 million and $ 13.9 million, respectively. 84 NOTE 4 - 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 (dollars in thousands) 2023 Available for Sale U.S. Government securities $ 42,475 $ — $ ( 314 ) $ 42,161 U.S. Government-sponsored agency securities 1,038 — ( 28 ) 1,010 State and municipal securities 1,200,571 1,089 ( 129,647 ) 1,072,013 Corporate debt securities 480,714 473 ( 40,636 ) 440,551 Collateralized mortgage obligations 122,824 — ( 11,390 ) 111,434 Residential mortgage-backed securities 223,273 7 ( 26,485 ) 196,795 Commercial mortgage-backed securities 627,364 — ( 92,976 ) 534,388 Total $ 2,698,259 $ 1,569 $ ( 301,476 ) $ 2,398,352 Held to Maturity Residential mortgage-backed securities $ 407,075 $ — $ ( 51,805 ) $ 355,270 Commercial mortgage-backed securities 860,847 — ( 143,910 ) 716,937 Total $ 1,267,922 $ — $ ( 195,715 ) $ 1,072,207 2022 Available for Sale U.S. Government securities $ 226,140 $ — $ ( 7,655 ) $ 218,485 U.S. Government-sponsored agency securities 1,050 — ( 42 ) 1,008 State and municipal securities 1,284,245 283 ( 178,816 ) 1,105,712 Corporate debt securities 459,792 — ( 37,483 ) 422,309 Collateralized mortgage obligations 147,155 — ( 13,122 ) 134,033 Residential mortgage-backed securities 242,527 18 ( 29,847 ) 212,698 Commercial mortgage-backed securities 631,604 — ( 79,082 ) 552,522 Total $ 2,992,513 $ 301 $ ( 346,047 ) $ 2,646,767 Held to Maturity Residential mortgage-backed securities $ 457,325 $ — $ ( 57,480 ) $ 399,845 Commercial mortgage-backed securities 863,931 — ( 138,727 ) 725,204 Total $ 1,321,256 $ — $ ( 196,207 ) $ 1,125,049 On May 1, 2022, the Corporation transferred certain residential mortgage-backed securities and commercial mortgage-backed securities from AFS to HTM classification as permitted by ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments . The estimated fair value of the securities transferred was $ 415.2 million, and the amortized cost of the securities was $ 479.0 million. Securities carried at $ 0.4 billion and $ 1.1 billion at December 31, 2023 and 2022, respectively, were pledged as collateral to secure public and trust deposits. 85 The amortized cost and estimated fair values of debt securities as of December 31, 2023, 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 with or without call or prepayment penalties. Available for Sale Held to Maturity Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value (dollars in thousands) Due in one year or less $ 49,267 $ 49,022 $ — $ — Due from one year to five years 153,550 147,521 — — Due from five years to ten years 508,237 471,086 — — Due after ten years 1,013,744 888,106 — — 1,724,798 1,555,735 — — Residential mortgage-backed securities (1) 223,273 196,795 407,075 355,270 Commercial mortgage-backed securities (1) 627,364 534,388 860,847 716,937 Collateralized mortgage obligations (1) 122,824 111,434 — — Total $ 2,698,259 $ 2,398,352 $ 1,267,922 $ 1,072,207 (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 for the years presented: Gross Realized Gains Gross Realized Losses Net Gains (Losses) (dollars in thousands) 2023 $ 283 $ ( 1,016 ) $ ( 733 ) 2022 1,587 ( 1,614 ) ( 27 ) 2021 35,593 ( 2,077 ) 33,516 86 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 Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses 2023 (dollars in thousands) Available for Sale U.S. Government securities $ — $ — $ 42,161 $ ( 314 ) $ 42,161 $ ( 314 ) U.S. Government-sponsored agency securities — — 1,010 ( 28 ) 1,010 ( 28 ) State and municipal securities 76,155 ( 858 ) 917,274 ( 128,789 ) 993,429 ( 129,647 ) Corporate debt securities 42,945 ( 1,326 ) 370,523 ( 39,310 ) 413,468 ( 40,636 ) Collateralized mortgage obligations — — 111,434 ( 11,390 ) 111,434 ( 11,390 ) Residential mortgage-backed securities 409 ( 3 ) 195,453 ( 26,482 ) 195,862 ( 26,485 ) Commercial mortgage-backed securities 26,907 ( 1,053 ) 507,481 ( 91,923 ) 534,388 ( 92,976 ) Total available for sale $ 146,416 $ ( 3,240 ) $ 2,145,336 $ ( 298,236 ) $ 2,291,752 $ ( 301,476 ) Held to Maturity Residential mortgage-backed securities $ — $ — $ 355,270 $ ( 51,805 ) $ 355,270 $ ( 51,805 ) Commercial mortgage-backed securities — — 716,937 ( 143,910 ) 716,937 ( 143,910 ) Total held to maturity $ — $ — $ 1,072,207 $ ( 195,715 ) $ 1,072,207 $ ( 195,715 ) There were 727 AFS and 180 HTM positions at unrealized loss at December 31, 2023. Less than 12 months 12 Months or Longer Total Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses 2022 (dollars in thousands) Available for Sale U.S. Government Securities $ 96,906 $ ( 2,814 ) $ 121,579 $ ( 4,841 ) $ 218,485 $ ( 7,655 ) U.S. Government-sponsored agency securities 1,008 ( 42 ) — — 1,008 ( 42 ) State and municipal securities 995,122 ( 157,397 ) 61,089 ( 21,419 ) 1,056,211 ( 178,816 ) Corporate debt securities 376,398 ( 31,333 ) 37,157 ( 6,150 ) 413,555 ( 37,483 ) Collateralized mortgage obligations 113,191 ( 7,650 ) 20,842 ( 5,472 ) 134,033 ( 13,122 ) Residential mortgage-backed securities 154,861 ( 18,301 ) 55,293 ( 11,546 ) 210,154 ( 29,847 ) Commercial mortgage-backed securities 371,109 ( 38,845 ) 181,413 ( 40,237 ) 552,522 ( 79,082 ) Total available for sale $ 2,108,595 $ ( 256,382 ) $ 477,373 $ ( 89,665 ) $ 2,585,968 $ ( 346,047 ) Held to maturity Residential mortgage-backed securities $ 246,667 $ ( 14,275 ) $ 153,178 $ ( 43,205 ) $ 399,845 $ ( 57,480 ) Commercial mortgage-backed securities 258,255 ( 24,029 ) 466,949 ( 114,698 ) 725,204 ( 138,727 ) Total held to maturity $ 504,922 $ ( 38,304 ) $ 620,127 $ ( 157,903 ) $ 1,125,049 $ ( 196,207 ) There were 782 AFS and 180 HTM positions at unrealized loss at December 31, 2022. The Corporation's collateralized mortgage obligations, residential mortgage-backed securities and commercial 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. In addition, these securities have principal payments that are guaranteed by U.S. government-sponsored agencies. Therefore, the Corporation does not have an ACL for these investments as of December 31, 2023 and 2022. As of December 31, 2023 and 2022, no ACL was required for the Corporation's state and municipal securities. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity. The majority of the corporate debt securities were rated at or above investment grade as of December 31, 2023 and 2022, respectively. The Corporation does not have the intent to sell and does not believe it will be more likely than not to be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity. Based on the payment status, rating and management's evaluation of these securities, no ACL was required for corporate debt securities as of December 31, 2023 and 2022. 87 NOTE 5 - 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: 2023 2022 (dollars in thousands) Real estate - commercial mortgage $ 8,127,728 $ 7,693,835 Commercial and industrial (1) 4,545,552 4,473,004 Real-estate - residential mortgage 5,325,923 4,737,279 Real-estate - home equity 1,047,184 1,102,838 Real-estate - construction 1,239,075 1,269,925 Consumer 729,318 699,179 Leases and other loans (2) 336,314 303,487 Net loans $ 21,351,094 $ 20,279,547 (1) Includes unearned income of $ 41.0 thousand and $ 4.5 million at December 31, 2023 and December 31, 2022, respectively. (2) Includes unearned income of $ 38.0 million and $ 24.8 million at December 31, 2023 and December 31, 2022, 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 $ 162.5 million and $ 126.3 million as of December 31, 2023 and 2022, respectively. During 2023, additions totaled $ 45.4 million and repayments totaled $ 9.2 million for related-party loans. Allowance for Credit Losses The following table summarizes the ACL - loans balance and the reserve for OBS credit exposures balance as of December 31, 2023 and 2022: 2023 2022 (dollars in thousands) ACL - loans $ 293,404 $ 269,366 Reserve for OBS credit exposures (1) $ 17,254 $ 16,328 (1) Included in other liabilities on the consolidated balance sheets. The following table presents the activity in the ACL - loans balances for the years ended December 31: 2023 2022 2021 (dollars in thousands) Balance at beginning of period $ 269,366 $ 249,001 $ 277,567 CECL Day 1 Provision expense — 7,954 — Initial purchased credit deteriorated loans — 1,135 — Loans charged off ( 39,201 ) ( 21,472 ) ( 30,952 ) Recoveries of loans previously charged off 10,129 14,092 17,146 Net loans (charged off) recovered ( 29,072 ) ( 7,380 ) ( 13,806 ) Provision for credit losses 53,110 18,656 ( 14,760 ) Balance at end of period $ 293,404 $ 269,366 $ 249,001 88 The following table presents the activity in the ACL - loans losses by portfolio segment for the years ended December 31, 2023 and 2022, by portfolio segment: Real Estate - Commercial Mortgage Commercial and Industrial Consumer and Real Estate - Home Equity Real Estate - Residential Mortgage Real Estate - Construction Leases and other loans Total (dollars in thousands) Balance at December 31, 2021 $ 87,970 $ 67,056 $ 19,749 $ 54,236 $ 12,941 $ 7,049 $ 249,001 CECL Day 1 Provision expense 4,107 — 131 3,716 — — 7,954 Initial purchased credit deteriorated loans 1,051 — 7 77 — — 1,135 Loans charged off ( 12,473 ) ( 2,390 ) ( 4,412 ) ( 66 ) — ( 2,131 ) ( 21,472 ) Recoveries of loans previously charged off 3,860 5,893 2,581 425 574 759 14,092 Net loans (charged off) recovered ( 8,613 ) 3,503 ( 1,831 ) 359 574 ( 1,372 ) ( 7,380 ) Provision for loan losses (1) ( 15,059 ) ( 443 ) 8,373 24,862 ( 2,772 ) 3,695 18,656 Balance at December 31, 2022 69,456 70,116 26,429 83,250 10,743 9,372 269,366 Loans charged off ( 17,999 ) ( 9,246 ) ( 7,514 ) ( 62 ) — ( 4,380 ) ( 39,201 ) Recoveries of loans previously charged off 1,076 3,473 3,198 421 858 1,103 10,129 Net loans (charged off) recovered ( 16,923 ) ( 5,773 ) ( 4,316 ) 359 858 ( 3,277 ) ( 29,072 ) Provision for loan losses (1) 60,032 9,923 ( 4,509 ) ( 10,323 ) 694 ( 2,707 ) 53,110 Balance at December 31, 2023 $ 112,565 $ 74,266 $ 17,604 $ 73,286 $ 12,295 $ 3,388 $ 293,404 (1) Provision included in the table only includes the portion related to net loans 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 increase in ACL - loans in 2023 was largely due to loan growth, changes to the macroeconomic outlook, net charge-offs and risk migration. The increase in ACL - loans in 2022 was primarily due to loan growth and changes to the macroeconomic outlook. In 2023, the Corporation made updates to its PD and LGD models and methodology to enhance base quantitative ACL models. The Corporation updated the PD models to utilize a linear regression methodology and implemented a discreet 24 month reasonable and supportable forecast period with a 12 month straight-line reversion methodology. The ACL model enhancements did not have a material effect on the ACL as the model updates reduced reliance on supplementary models and qualitative factors and increased reliance on the output of the Corporation’s base quantitative models. Collateral-Dependent Loans A loan or a lease 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 loans and leases 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 collateral-dependent loan or lease's carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral supporting collateral-dependent loans or leases consists of various types of real estate, including residential properties, commercial properties, such as retail centers, office buildings, and lodging, agricultural land, and vacant land. All loans individually evaluated for impairment are measured for losses on a quarterly basis. As of December 31, 2023 and 2022, 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 receivables 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, 2023 and 2022, approximately 78 % and 91 %, respectively, of loans evaluated individually for impairment with principal balances greater than or equal to $ 1.0 million, whose primary collateral consisted of real estate, were measured at estimated fair value using appraisals performed by certified third-party appraisers that had been updated in the preceding 12 months. 89 Non-accrual Loans The following table presents total non-accrual loans, by class segment: 2023 2022 With a Related Allowance Without a Related Allowance Total With a Related Allowance Without a Related Allowance Total (dollars in thousands) Real estate - commercial mortgage $ 23,338 $ 21,467 $ 44,805 $ 39,722 $ 30,439 $ 70,161 Commercial and industrial 12,410 27,542 39,952 14,804 12,312 27,116 Real estate - residential mortgage 18,806 2,018 20,824 25,315 979 26,294 Real estate - home equity 4,649 104 4,753 5,975 130 6,105 Real estate - construction 341 1,000 1,341 866 502 1,368 Consumer 52 — 52 92 — 92 Leases and other loans 9,255 638 9,893 4,052 9,255 13,307 Total $ 68,851 $ 52,769 $ 121,620 $ 90,826 $ 53,617 $ 144,443 As of December 31, 2023 and December 31, 2022, there were $ 52.8 million and $53.6 million, respectively, of non-accrual loans that did not have a specific valuation allowance within the ACL. 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 $ 1.5 million in 2023 and $ 2.2 million in 2022. Asset Quality Maintaining an appropriate ACL is dependent on various factors, including the ability to identify potential problem loans in a timely manner. For 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, 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 a loan. 90 The following table summarizes designated internal risk rating categories by portfolio segment and loan class, by origination year, in the current period: December 31, 2023 (dollars in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans Amortized Amortized 2023 2022 2021 2020 2019 Prior Cost Basis Cost Basis Total Real estate - commercial mortgage Pass $ 783,673 $ 993,017 $ 1,203,852 $ 984,958 $ 721,857 $ 2,822,155 $ 59,253 $ 31,636 $ 7,600,401 Special Mention 2,767 43,904 105,185 7,862 35,289 105,786 1,760 — 302,553 Substandard or Lower 366 20,958 31,304 49,142 26,579 95,621 804 — 224,774 Total real estate - commercial mortgage 786,806 1,057,879 1,340,341 1,041,962 783,725 3,023,562 61,817 31,636 8,127,728 Real estate - commercial mortgage Current period gross charge-offs — — — — — ( 424 ) — ( 17,575 ) ( 17,999 ) Commercial and industrial Pass 626,386 590,132 330,576 341,218 272,126 598,838 1,443,203 10,736 4,213,215 Special Mention 7,936 9,548 16,499 3,577 6,817 18,487 72,775 198 135,837 Substandard or Lower 247 25,184 4,611 3,843 18,988 31,663 105,230 6,734 196,500 Total commercial and industrial 634,569 624,864 351,686 348,638 297,931 648,988 1,621,208 17,668 4,545,552 Commercial and industrial Current period gross charge-offs — ( 299 ) — — — ( 249 ) ( 682 ) ( 8,016 ) ( 9,246 ) Real estate - construction (1) Pass 322,922 258,080 261,583 37,426 9,510 34,097 13,677 — 937,295 Special Mention — 12,622 25,898 — — — — — 38,520 Substandard or Lower — 521 2,229 — 340 21,284 168 2,229 26,771 Total real estate - construction 322,922 271,223 289,710 37,426 9,850 55,381 13,845 2,229 1,002,586 Real estate - construction Current period gross charge-offs — — — — — — — — — Total Pass $ 1,732,981 $ 1,841,229 $ 1,796,011 $ 1,363,602 $ 1,003,493 $ 3,455,090 $ 1,516,133 $ 42,372 $ 12,750,911 Special Mention 10,703 66,074 147,582 11,439 42,106 124,273 74,535 198 476,910 Substandard or Lower 613 46,663 38,144 52,985 45,907 148,568 106,202 8,963 448,045 Total $ 1,744,297 $ 1,953,966 $ 1,981,737 $ 1,428,026 $ 1,091,506 $ 3,727,931 $ 1,696,870 $ 51,533 $ 13,675,866 (1) Excludes real estate - construction - other. 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. 91 The following table summarizes designated internal risk rating categories by portfolio segment and loan class, by origination year, in the prior period: December 31, 2022 (dollars in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans Amortized Amortized 2022 2021 2020 2019 2018 Prior Cost Basis Cost Basis Total Real estate - commercial mortgage Pass $ 1,014,575 $ 1,095,725 $ 969,118 $ 810,850 $ 621,689 $ 2,610,511 $ 80,665 $ 307 $ 7,203,440 Special Mention 95 50,367 23,296 33,735 16,205 181,736 947 — 306,381 Substandard or Lower 1,032 3,039 31,042 38,378 23,112 87,168 243 — 184,014 Total real estate - commercial mortgage 1,015,702 1,149,131 1,023,456 882,963 661,006 2,879,415 81,855 307 7,693,835 Real estate - commercial mortgage Current period gross charge-offs — — — — — ( 53 ) — ( 12,420 ) ( 12,473 ) Commercial and industrial Pass 907,390 449,145 397,881 315,605 185,096 604,352 1,387,961 618 4,248,048 Special Mention 11,405 24,479 3,763 8,147 5,218 24,633 56,048 250 133,943 Substandard or Lower 834 418 4,818 13,044 3,081 22,025 51,077 249 95,546 Total commercial and industrial 919,629 474,042 406,462 336,796 193,395 651,010 1,495,086 1,117 4,477,537 Commercial and industrial Current period gross charge-offs — — ( 36 ) — ( 21 ) ( 365 ) ( 1,192 ) ( 776 ) ( 2,390 ) Real estate - construction (1) Pass 159,195 390,993 243,406 28,539 24,421 93,511 47,271 — 987,336 Special Mention — — — — — 21,603 — — 21,603 Substandard or Lower — — 3,852 2,274 — 4,272 203 — 10,601 Total real estate - construction 159,195 390,993 247,258 30,813 24,421 119,386 47,474 — 1,019,540 Real estate - construction (1) Current period gross charge-offs — — — — — — — — — Total Pass $ 2,081,160 $ 1,935,863 $ 1,610,405 $ 1,154,994 $ 831,206 $ 3,308,374 $ 1,515,897 $ 925 $ 12,438,824 Special Mention 11,500 74,846 27,059 41,882 21,423 227,972 56,995 250 461,927 Substandard or Lower 1,866 3,457 39,712 53,696 26,193 113,465 51,523 249 290,161 Total $ 2,094,526 $ 2,014,166 $ 1,677,176 $ 1,250,572 $ 878,822 $ 3,649,811 $ 1,624,415 $ 1,424 $ 13,190,912 (1) Excludes real estate - construction - other. 92 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 other loans. 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 tables present the amortized cost of these loans based on payment activity, by origination year, for the periods shown: December 31, 2023 (dollars in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans Amortized Amortized 2023 2022 2021 2020 2019 Prior Cost Basis Cost Basis Total Real estate - residential mortgage Performing $ 623,247 $ 1,126,656 $ 1,682,759 $ 984,050 $ 260,049 $ 607,133 $ — $ — $ 5,283,894 Nonperforming — 1,720 4,888 4,701 6,233 24,487 — — 42,029 Total real estate - residential mortgage 623,247 1,128,376 1,687,647 988,751 266,282 631,620 — — 5,325,923 Real estate - residential mortgage Current period gross charge-offs — — — — — — — ( 62 ) ( 62 ) Consumer and real estate - home equity Performing 272,571 276,373 85,985 62,426 37,667 204,913 805,645 20,044 1,765,624 Nonperforming 295 455 866 282 354 5,526 1,439 1,661 10,878 Total consumer and real estate - home equity 272,866 276,828 86,851 62,708 38,021 210,439 807,084 21,705 1,776,502 Consumer and real estate - home equity Current period gross charge-offs ( 119 ) — — — — ( 525 ) ( 283 ) ( 6,587 ) ( 7,514 ) Leases and other loans Performing 166,490 83,641 27,755 22,304 16,246 9,867 — — 326,303 Nonperforming — 118 — — — 9,893 — — 10,011 Total leases and other loans 166,490 83,759 27,755 22,304 16,246 19,760 — — 336,314 Leases and other loans Current period gross charge-offs ( 471 ) ( 521 ) ( 246 ) ( 128 ) ( 82 ) ( 656 ) ( 765 ) ( 1,511 ) ( 4,380 ) Construction - other Performing 127,382 93,319 13,698 555 — — — — 234,954 Nonperforming — 1,535 — — — — — — 1,535 Total construction - other 127,382 94,854 13,698 555 — — — — 236,489 Construction - other Current period gross charge-offs — — — — — — — — — Total Performing $ 1,189,690 $ 1,579,989 $ 1,810,197 $ 1,069,335 $ 313,962 $ 821,913 $ 805,645 $ 20,044 $ 7,610,775 Nonperforming 295 3,828 5,754 4,983 6,587 39,906 1,439 1,661 64,453 Total $ 1,189,985 $ 1,583,817 $ 1,815,951 $ 1,074,318 $ 320,549 $ 861,819 $ 807,084 $ 21,705 $ 7,675,228 93 December 31, 2022 (dollars in thousands) Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Loans Amortized Amortized 2022 2021 2020 2019 2018 Prior Cost Basis Cost Basis Total Real estate - residential mortgage Performing $ 933,903 $ 1,708,703 $ 1,054,126 $ 286,167 $ 87,455 $ 620,416 $ — $ — $ 4,690,770 Nonperforming 1,199 5,104 6,597 6,466 4,587 22,556 — — 46,509 Total real estate - residential mortgage 935,102 1,713,807 1,060,723 292,633 92,042 642,972 — — 4,737,279 Real estate - residential mortgage Current period gross charge-offs — — — — — — — ( 66 ) ( 66 ) Consumer and real estate - home equity Performing 416,631 109,724 80,422 52,384 45,642 211,127 842,226 34,061 1,792,217 Nonperforming 292 298 174 36 98 6,512 1,722 668 9,800 Total consumer and real estate - home equity 416,923 110,022 80,596 52,420 45,740 217,639 843,948 34,729 1,802,017 Consumer and real estate - home equity loans Current period gross charge-offs — ( 587 ) ( 70 ) ( 108 ) ( 16 ) ( 442 ) ( 178 ) ( 3,011 ) ( 4,412 ) Leases and other loans Performing 146,198 39,427 40,024 29,309 15,019 15,670 — — 285,647 Nonperforming — — — — — 13,307 — — 13,307 Total leases and other 146,198 39,427 40,024 29,309 15,019 28,977 — — 298,954 Leases and other loans Current period gross charge-offs ( 506 ) ( 167 ) ( 140 ) ( 80 ) ( 47 ) ( 1,191 ) — — ( 2,131 ) Construction - other Performing 164,924 73,492 10,892 — 1,077 — — — 250,385 Nonperforming — — — — — — — — — Total construction - other 164,924 73,492 10,892 — 1,077 — — — 250,385 Construction - other Current period gross charge-offs — — — — — — — — — Total Performing $ 1,661,656 $ 1,931,346 $ 1,185,464 $ 367,860 $ 149,193 $ 847,213 $ 842,226 $ 34,061 $ 7,019,019 Nonperforming 1,491 5,402 6,771 6,502 4,685 42,375 1,722 668 69,616 Total $ 1,663,147 $ 1,936,748 $ 1,192,235 $ 374,362 $ 153,878 $ 889,588 $ 843,948 $ 34,729 $ 7,088,635 94 The following table presents non-performing assets: December 31, 2023 December 31, 2022 (dollars in thousands) Non-accrual loans $ 121,620 $ 144,443 Loans 90 days or more past due and still accruing 31,721 27,463 Total non-performing loans 153,341 171,906 OREO (1) 896 5,790 Total non-performing assets $ 154,237 $ 177,696 (1) Excludes $ 10.9 million and $ 6.0 million of residential mortgage properties for which formal foreclosure proceeding were in process as of December 31, 2023 and 2022, respectively. 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 (dollars in thousands) December 31, 2023 Real estate - commercial mortgage $ 4,408 $ 1,341 $ 1,722 $ 44,805 $ 8,075,452 $ 8,127,728 Commercial and industrial (1) 5,620 1,656 1,068 39,952 4,497,256 4,545,552 Real estate - residential mortgage 49,145 10,838 21,205 20,824 5,223,911 5,325,923 Real estate - home equity 8,142 2,075 5,326 4,753 1,026,888 1,047,184 Real estate - construction 4,185 451 1,535 1,341 1,231,563 1,239,075 Consumer 8,361 1,767 747 52 718,391 729,318 Leases and other loans (1) 146 722 118 9,893 325,435 336,314 Total $ 80,007 $ 18,850 $ 31,721 $ 121,620 $ 21,098,896 $ 21,351,094 (1) Includes unearned income. 30-59 Days Past Due 60-89 Days Past Due ≥ 90 Days Past Due and Accruing Non- accrual Current Total (dollars in thousands) December 31, 2022 Real estate - commercial mortgage $ 10,753 $ 4,644 $ 2,473 $ 70,161 $ 7,605,804 $ 7,693,835 Commercial and industrial (1) 6,067 2,289 1,172 27,116 4,436,360 4,473,004 Real estate - residential mortgage 57,061 8,209 20,215 26,294 4,625,500 4,737,279 Real estate - home equity 5,666 2,444 2,704 6,105 1,085,919 1,102,838 Real estate - construction 1,762 1,758 — 1,368 1,265,037 1,269,925 Consumer 6,692 1,339 899 92 690,157 699,179 Leases and other loans (1) 348 122 — 13,307 289,710 303,487 Total $ 88,349 $ 20,805 $ 27,463 $ 144,443 $ 19,998,487 $ 20,279,547 (1 ) Includes unearned income. Loan Modifications to Borrowers Experiencing Financial Difficulty On January 1, 2023, the Corporation adopted ASU 2022-02. Loan modifications reported below do not include modifications with insignificant payment delays. ASU 2022-02 lists the following factors when considering if the loan modification has insignificant payment delays: (1) the amount of the restructured payments subject to the delay is insignificant relative to the unpaid principal or collateral value of the debt and will result in an insignificant shortfall in the contractual amount due, and (2) 95 the delay in timing of the restructured payment period is insignificant relative to the frequency of payments due under the debt, the debt’s original contractual maturity or the debt’s original expected duration. The Corporation modifies loans by providing a concession when deemed appropriate. Depending on the circumstances, a term extension, interest rate reduction or principal forgiveness may be granted. In certain instances a combination of concessions may be provided to a customer. When principal forgiveness is provided, the amount of principal forgiven is deemed to be uncollectible and the amortized cost basis of the loan is reduced by the amount of the forgiven portion, with a corresponding reduction to the ACL. The following table presents the amortized cost basis for the year ended December 31, 2023 of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted: Term Extension Amortized Cost Basis % of Class of Financing Receivable (dollars in thousands) Real estate - commercial mortgage $ 2,944 0.04 % Commercial and industrial 11,970 0.26 Real estate - residential mortgage 8,182 0.15 Total $ 23,096 Interest Rate Reduction and Term Extension Amortized Cost Basis % of Class of Financing Receivable (dollars in thousands) Real estate - residential mortgage $ 910 0.02 % Total $ 910 The following table presents the financial effect of the modifications made to borrowers experiencing financial difficulty for the year ended December 31, 2023. Term Extension Financial Effect Real estate - commercial mortgage Added a weighted-average 1.22 years to the life of loans, which reduced monthly payment amounts for the borrowers. Commercial and industrial Added a weighted-average 0.92 years to the life of loans, which reduced monthly payment amounts for the borrowers. Real estate - residential mortgage Added a weighted-average 8.10 years to the life of loans, which reduced monthly payment amounts for the borrowers. Interest Rate Reduction Financial Effect Real estate - residential mortgage Reduced weighted-average interest rate from 3.76 % to 2.30 % During the year ended December 31, 2023, there were no loans modified due to financial difficulty where there was a principal balance forgiveness. During the year ended December 31, 2023, there were no loans modified due to financial difficulty during 2023 that defaulted subsequent to modification. 96 The following table presents the performance of loans that have been modified in the year ended December 31, 2023. 30-89 90+ Total Days Past Past Due Past Current Due and Accruing Due (dollars in thousands) Real estate - commercial mortgage $ 2,944 $ — $ — $ — Commercial and industrial 11,970 — — — Real estate - residential mortgage 9,092 — — — Total $ 24,006 $ — $ — $ — There were no commitments to lend additional funds to borrowers with loan modifications as a result of financial difficulty as of December 31, 2023. NOTE 6 - PREMISES AND EQUIPMENT The following is a summary of premises and equipment as of December 31: 2023 2022 (dollars in thousands) Land $ 39,742 $ 39,752 Buildings and improvements 365,744 357,698 Furniture and equipment 161,244 152,048 Construction in progress 12,313 8,711 Total premises and equipment 579,043 558,209 Less: Accumulated depreciation and amortization ( 356,162 ) ( 333,068 ) Net premises and equipment $ 222,881 $ 225,141 NOTE 7 - GOODWILL AND INTANGIBLE ASSETS Goodwill totaled $ 553.3 million and $ 550.5 million as of December 31, 2023 and 2022, respectively. The increase was the result of adjustments related to the Merger. See "Note 2 - Business Combinations" in the Notes to Consolidated Financial Statements for additional information. There were no goodwill impairment charges in 2023 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: December 31, 2023 2022 (dollars in thousands) Amortizing intangible assets $ 13,596 $ 13,596 Accumulated amortization ( 6,255 ) ( 3,311 ) Net intangibles $ 7,341 $ 10,285 Net intangibles included CDI of $ 4.9 million and $ 7.2 million as of December 31, 2023 and 2022, respectively. The CDI was recorded as part of the Merger and is being amortized over 7 years using the sum-of-the-years digits method. 97 NOTE 8 - 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 carrying value included in mortgage banking income on the consolidated statements of income: 2023 2022 2021 (dollars in thousands) Amortized cost: Balance at beginning of period $ 34,217 $ 35,993 $ 38,745 Originations of MSRs 2,475 4,067 9,216 Amortization ( 5,090 ) ( 5,843 ) ( 11,968 ) Balance at end of period $ 31,602 $ 34,217 $ 35,993 Valuation allowance: Balance at beginning of period $ — $ ( 600 ) $ ( 10,500 ) Reduction (addition) to valuation allowance — 600 9,900 Balance at end of period $ — $ — $ ( 600 ) Net MSRs at end of period $ 31,602 $ 34,217 $ 35,393 Estimated fair value of MSRs at end of period $ 49,696 $ 50,044 $ 35,393 MSRs represent the economic value of 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 $ 4.1 billion and $ 4.2 billion as of December 31, 2023 and 2022, respectively. Actual and expected prepayments of the underlying mortgage loans can impact the fair 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 $ 49.7 million and $ 50.0 million as of December 31, 2023 and 2022, respectively. Based on its fair value analysis as of December 31, 2023 and 2022, the Corporation determined that no valuation allowance was required for the years ended December 31, 2023 and 2022. The valuation allowance was $ 0.6 million at December 31, 2021. Total servicing income, included in mortgage banking income in the consolidated statements of income, was $ 10.2 million, $ 10.6 million and $ 11.2 million as of December 31, 2023, 2022 and 2021, respectively. Total MSR amortization expense, recognized as a reduction to mortgage banking income in the consolidated statements of income, was $ 5.1 million, $ 5.8 million and $ 12.0 million in 2023, 2022 and 2021, respectively. Estimated future MSR amortization expense, based on balances as of December 31, 2023, and the estimated remaining lives of the underlying loans, follows (dollars in thousands): Year 2024 $ 3,822 2025 3,425 2026 3,061 2027 2,741 2028 2,455 Thereafter 16,098 Total estimated amortization expense $ 31,602 98 NOTE 9 - DEPOSITS Deposits consisted of the following as of December 31: 2023 2022 (dollars in thousands) Noninterest-bearing demand $ 5,314,094 $ 7,006,388 Interest-bearing demand 5,722,695 5,410,903 Savings and money market accounts 6,616,901 6,434,621 Total demand and savings 17,653,690 18,851,912 Brokered deposits 1,144,692 208,416 Time deposits 2,739,241 1,589,210 Total Deposits $ 21,537,623 $ 20,649,538 The scheduled maturities of time deposits as of December 31, 2023 were as follows (dollars in thousands): Year 2024 $ 2,180,323 2025 421,029 2026 64,748 2027 16,343 2028 8,429 Thereafter 48,369 Total $ 2,739,241 Included in time deposits were certificates of deposit equal to or greater than $100,000 of $ 1.5 billion and $ 691.4 million as of December 31, 2023 and 2022, respectively. Time deposits equal or greater than $250,000 were $ 551.2 million and $ 214.8 million as of December 31, 2023 and 2022, respectively. NOTE 10 - BORROWINGS Borrowings as of December 31, 2023 and 2022 and the related maximum amounts outstanding at the end of any month in each of the two years then ended are presented below. December 31 Maximum Outstanding 2023 2022 2023 2022 (dollars in thousands) Federal funds purchased $ 240,000 $ 191,000 $ 862,000 $ 292,000 Federal Home Loan Bank advances 1,100,000 1,250,000 1,720,000 1,250,000 Other borrowings: Short-term promissory notes issued to customers and customer repurchase agreements 611,304 574,394 646,439 574,394 Other repurchase agreements — 315,000 — 315,000 Other borrowings 838 1,179 1,151 — Total other borrowings $ 612,142 $ 890,573 As of December 31, 2023, the Corporation had aggregate federal funds lines borrowing capacity of $ 2.6 billion, with $0.2 billion of outstanding borrowings against that amount. A combination of commercial real estate loans, commercial loans, consumer loans and investment securities were pledged to the FRB to provide access to the FRB discount window borrowings. The Corporation had $ 1.3 billion of collateralized borrowing availability at the FRB discount window with no amount outstanding as of December 31, 2023. The Corporation had $1.9 billion of borrowing capacity at the Bank Term Funding Program facility with no amount outstanding as of December 31, 2023. 99 As of December 31, 2023, the Corporation had total borrowing capacity of $ 8.2 billion with remaining borrowing capacity of approximately $ 4.9 billion with the FHLB. Advances from the FHLB, when utilized, are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets. The following is included in senior and subordinated debt as of December 31: 2023 2022 (dollars in thousands) Subordinated debt $ 538,778 $ 543,601 Unamortized discounts and issuance costs ( 3,394 ) ( 3,967 ) Total senior debt and subordinated debt $ 535,384 $ 539,634 The following table summarizes the scheduled maturities of senior and subordinated debt with an original maturity of one year or more as of December 31, 2023 (dollars in thousands): Year 2024 $ 168,778 2025 — 2026 — 2027 — 2028 — Thereafter 370,000 Unamortized discounts and issuance costs ( 3,394 ) Total $ 535,384 In December 2023, the Corporation retired $ 5.0 million of subordinated debt with a fixed-to-floating rate of 3.25 % and effective rate of 3.35 % maturing in 2030. On March 16, 2022, $ 65.0 million of senior notes with a fixed rate of 3.60 % were repaid upon their maturity. The Corporation owned all of the common stock of the Columbia Bancorp Statutory Trust, Columbia Bancorp Statutory Trust II and Columbia Bancorp Statutory Trust III, each of which issued TruPS in conjunction with the Corporation issuing junior subordinated deferrable interest debentures to these trusts. In September 2022, the Corporation redeemed all of the outstanding junior subordinated deferrable interest debentures issued to these trusts, totaling approximately $ 17.2 million, and these trusts redeemed all of the outstanding TruPS in a like amount, after which the subsidiary trusts were canceled. 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. 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. 100 NOTE 11 - DERIVATIVE FINANCIAL INSTRUMENTS The following table presents a summary of notional amounts and fair values of derivative financial instruments as of December 31: 2023 2022 Notional Amount Asset (Liability) Fair Value Notional Amount Asset (Liability) Fair Value (dollars in thousands) Interest Rate Locks with Customers Positive fair values $ 119,558 $ 460 $ 70,836 $ 182 Negative fair values 1,015 ( 2 ) 4,939 ( 51 ) Forward Commitments Positive fair values — — — — Negative fair values 42,000 ( 854 ) 10,000 ( 147 ) Interest Rate Derivatives with Customers Positive fair values 824,659 22,656 171,317 3,337 Negative fair values 3,784,236 ( 222,530 ) 3,802,480 ( 280,401 ) Interest Rate Derivatives with Dealer Counterparties (1) Positive fair values 3,784,236 128,235 3,802,480 161,956 Negative fair values 824,659 ( 23,023 ) 171,317 ( 3,703 ) Interest Rate Derivatives used in Cash Flow Hedges ( 1) Positive fair values 2,500,000 6,189 600,000 1,321 Negative fair values 750,000 — 1,000,000 ( 12,163 ) Foreign Exchange Contracts with Customers Positive fair values 4,159 40 11,123 571 Negative fair values 13,353 ( 446 ) 3,672 ( 85 ) Foreign Exchange Contracts with Correspondent Banks Positive fair values 15,969 532 4,887 101 Negative fair values 6,112 ( 31 ) 8,280 ( 499 ) (1) Fair values are net of a valuation allowance of $366.3 thousand as of December 31, 2023 and 2022. In the third quarter of 2023, the Corporation recorded a $3.0 million reduction to 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. For the year ended December 31, 2023, the full-year reduction to other non-interest income related to the transition from LIBOR to SOFR was $1.9 million. 101 The following table presents the effect of cash flow hedge accounting on AOCI for the year ended December 31, 2023 and 2022: Amount of Gain (Loss) Recognized in OCI on Derivative Amount of Gain (Loss) Recognized in OCI Included Component Amount of Gain (Loss) Recognized in OCI Excluded Component Location of Gain (Loss) Recognized from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income Included Component Amount of Gain (Loss) Reclassified from AOCI into Income Excluded Component (dollars in thousands) Year ended December 31, 2023 Interest Rate Products $ 19,598 $ 19,598 $ — Interest Income $ ( 27,546 ) $ ( 27,546 ) $ — Interest Rate Products ( 10,550 ) ( 10,550 ) — Interest Expense 1,696 1,696 — Total $ 9,048 $ 9,048 $ — $ ( 25,850 ) $ ( 25,850 ) $ — Year ended December 31, 2022 Interest Rate Products $ ( 81,400 ) $ ( 81,400 ) $ — Interest Income $ ( 7,761 ) $ ( 7,761 ) $ — Total $ ( 81,400 ) $ ( 81,400 ) $ — $ ( 7,761 ) $ ( 7,761 ) $ — The following table presents the effect of fair value and cash flow hedge accounting on the income statement for the year ended December 31: Consolidated Statements of Income Classification 2023 2022 Interest Income Interest Expense Interest Income Interest Expense (dollars in thousands) 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 $ ( 27,546 ) $ 1,696 $ ( 7,761 ) $ — The effects of fair value and cash flow hedging: Amount of gain or (loss) on cash flow hedging relationships — — — — Interest contracts: Amount of gain (loss) reclassified from AOCI into income ( 27,546 ) 1,696 ( 7,761 ) — 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 (loss) reclassified from AOCI into income - included component ( 27,546 ) 1,696 ( 7,761 ) — Amount of gain (loss) reclassified from AOCI into income - excluded component — — — — During the next twelve months, the Corporation estimates that an additional $ 25.4 million will be reclassified as a decrease to interest income. 102 The following table presents the fair value gains (losses) on derivative financial instruments for the years ended December 31: Consolidated Statements of Income Classification 2023 2022 2021 (dollars in thousands) Mortgage banking derivatives (1) Mortgage banking $ ( 380 ) $ ( 2,360 ) $ ( 3,392 ) Interest rate derivatives Other income ( 1,855 ) — 1,050 Foreign exchange contracts Other income 7 81 ( 36 ) Net fair value gains/(losses) on derivative financial instruments $ ( 2,228 ) $ ( 2,279 ) $ ( 2,378 ) (1) Includes interest rate locks with customers and forward commitments. Fair Value Option The Corporation has elected to measure mortgage loans held for sale at fair value. The following table presents a summary of mortgage loans held for sale and the impact of the fair value election on the consolidated financial statements as of December 31: 2023 2022 (dollars in thousands) Amortized Cost (1) $ 14,792 $ 7,180 Fair value 15,158 7,264 (1) Cost basis of mortgage loans held for sale represents the unpaid principal balance. Gains related to changes in fair values of mortgage loans held for sale were $ 0.3 million for the year ended December 31, 2023. Losses related to changes in fair values of mortgage loans held for sale were $ 0.6 million for the year ended December 31, 2022, and losses related to changes in fair values of mortgage loans held for sale were $ 2.5 million for the year ended December 31, 2021. 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 derivative 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 interest rate derivatives when offsetting is permitted. The following table presents the Corporation's financial instruments that are eligible for offset, and the effects of offsetting, on the consolidated balance sheets as of December 31: 103 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 (dollars in thousands) 2023 Interest rate derivative assets $ 157,080 $ ( 15,154 ) $ — $ 141,926 Foreign exchange derivative assets with correspondent banks 532 ( 532 ) — — Total $ 157,612 $ ( 15,686 ) $ — $ 141,926 Interest rate derivative liabilities $ 245,553 $ ( 21,343 ) $ ( 93,841 ) $ 130,369 Foreign exchange derivative liabilities with correspondent banks 31 ( 532 ) — ( 501 ) Total $ 245,584 $ ( 21,875 ) $ ( 93,841 ) $ 129,868 2022 Interest rate derivative assets $ 166,614 $ ( 8,071 ) $ — $ 158,543 Foreign exchange derivative assets with correspondent banks 101 ( 101 ) — — Total $ 166,715 $ ( 8,172 ) $ — $ 158,543 Interest rate derivative liabilities $ 296,267 $ ( 2,771 ) $ ( 127,638 ) $ 165,858 Foreign exchange derivative liabilities with correspondent banks 499 ( 101 ) — 398 Total $ 296,766 $ ( 2,872 ) $ ( 127,638 ) $ 166,256 (1) For interest rate derivative assets, amounts represent any derivative liability fair values that could be offset in the event of counterparty or customer default. For interest rate derivative 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 derivative transactions and foreign exchange contracts with financial institution counterparties. Interest rate derivatives 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. Cash Flow Hedge Terminations In January 2023, the Corporation terminated interest rate derivatives designated as cash flow hedges with a combined notional amount of $ 1.0 billion. As the hedged transaction continues to be probable, the unrealized losses that have been recorded in AOCI are recognized as reduction to interest income when the previously forecasted hedged item affects earnings in future periods. During 2023, $ 22.1 million of these unrealized losses have been reclassified as a reduction of interest income on loans, including fees, on the consolidated statements of income. NOTE 12 - 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 The Basel III Rules provide a comprehensive framework and 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 104 • 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 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, 2023 and 2022, the Corporation's capital levels met the minimum capital requirements, including the capital conservation buffers, as prescribed in the Basel III Rules. As of December 31, 2023 and 2022, 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, 2023, that management believes have changed the institution's categories. 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: 2023 Actual For Capital Adequacy Purposes Well Capitalized Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) Total Capital (to Risk-Weighted Assets): Corporation $ 3,184,496 14.0 % $ 1,817,712 8.0 % N/A N/A Fulton Bank, N.A. 2,896,908 12.8 1,809,836 8.0 $ 2,262,295 10.0 % Tier I Capital (to Risk-Weighted Assets): Corporation $ 2,541,819 11.2 % $ 1,363,284 6.0 % N/A N/A Fulton Bank, N.A 2,620,837 11.6 1,357,377 6.0 $ 1,809,836 8.0 % Common Equity Tier I Capital (to Risk-Weighted Assets): Corporation $ 2,348,941 10.3 % $ 1,022,463 4.5 % N/A N/A Fulton Bank, N.A 2,576,837 11.4 1,018,033 4.5 $ 1,470,492 6.5 % Tier I Leverage Capital (to Average Assets): Corporation $ 2,541,819 9.5 % $ 1,072,189 4.0 % N/A N/A Fulton Bank, N.A 2,620,837 9.6 1,089,195 4.0 $ 1,361,494 5.0 % N/A - Not applicable as "well capitalized" applies to banks only. 105 2022 Actual For Capital Adequacy Purposes Well Capitalized Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) Total Capital (to Risk-Weighted Assets): Corporation $ 3,051,813 13.6 % $ 1,799,138 8.0 % N/A N/A Fulton Bank, N.A. 2,846,302 12.7 1,786,472 8.0 $ 2,233,090 10.0 % Tier I Capital (to Risk-Weighted Assets): Corporation $ 2,447,018 10.9 % $ 1,349,353 6.0 % N/A N/A Fulton Bank, N.A 2,612,363 11.7 1,339,854 6.0 $ 1,786,472 8.0 % Common Equity Tier I Capital (to Risk-Weighted Assets): Corporation $ 2,254,140 10.0 % $ 1,012,015 4.5 % N/A N/A Fulton Bank, N.A 2,568,363 11.5 1,004,890 4.5 $ 1,451,508 6.5 % Tier I Leverage Capital (to Average Assets): Corporation $ 2,447,018 9.5 % $ 1,032,543 4.0 % N/A N/A Fulton Bank, N.A 2,612,363 10.1 1,035,915 4.0 $ 1,294,893 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 calculated using the three-year earnings test was approximately $ 131.8 million as of December 31, 2023, 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. NOTE 13 - INCOME TAXES The components of income taxes are as follows: 2023 2022 2021 (dollars in thousands) Current tax expense: Federal $ 49,707 $ 44,478 $ 35,692 State 11,137 6,906 10,646 Total current tax expense 60,844 51,384 46,338 Deferred tax (benefit) expense: Federal 3,021 8,974 11,081 State 576 ( 324 ) 1,329 Total deferred tax (benefit) expense 3,597 8,650 12,410 Total income tax expense $ 64,441 $ 60,034 $ 58,748 106 The differences between the effective income tax rate and the federal statutory income tax rate are as follows: 2023 2022 2021 Statutory tax rate 21.0 % 21.0 % 21.0 % Tax credit investments ( 1.3 ) ( 2.0 ) ( 3.0 ) Tax-exempt income ( 4.2 ) ( 3.5 ) ( 3.0 ) Bank owned life insurance ( 0.8 ) ( 0.7 ) ( 0.5 ) State income taxes, net of federal benefit 2.6 1.2 2.6 Executive compensation 0.3 0.3 0.1 FDIC Premium 0.5 0.3 0.3 Other, net 0.4 0.7 0.1 Effective income tax rate 18.5 % 17.3 % 17.6 % 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: 2023 2022 (dollars in thousands) Deferred tax assets: Unrealized holding losses on securities $ 90,671 $ 110,689 Allowance for credit losses 71,013 65,481 State loss carryforwards 27,948 26,421 Lease liability 21,570 21,264 Other accrued expenses 11,082 10,059 Deferred compensation 10,215 9,014 Intangible assets 7,460 3,023 Stock-based compensation 5,129 4,681 Tax credit carryforwards 4,995 5,146 Other 5,469 5,223 Total gross deferred tax assets $ 255,552 $ 261,001 Deferred tax liabilities: Equipment lease financing 47,345 26,560 Right-of-use-asset 20,022 19,276 MSRs 7,158 7,750 Acquisition premiums/discounts 5,508 5,492 Postretirement and defined benefit plans 3,438 1,755 Tax credit investments 1,747 3,393 Premises and equipment 1,678 5,775 Other — 16 Total gross deferred tax liabilities $ 86,896 $ 70,017 Net deferred tax asset, before valuation allowance 168,656 190,984 Valuation allowance ( 27,948 ) ( 26,421 ) Net deferred tax asset $ 140,708 $ 164,563 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. 107 The valuation allowance relates to state net operating loss carryforwards for which realizability is uncertain. As of December 31, 2023 and 2022, the Corporation had state net operating loss carryforwards of approximately $ 354 million and $ 335 million, respectively, which are available to offset future state taxable income, and expire at various dates through 2043. As of December 31, 2023, 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, 2023, the Corporation had tax credit carryforwards related to TCIs of approximately $ 5 million. The Corporation recorded a DTA of $ 5 million, reflecting the benefit of these tax credit carryforwards, which will begin to expire in 2042 if not yet utilized. Uncertain Tax Positions The following table summarizes the changes in unrecognized tax benefits for the years ended December 31: 2023 2022 2021 (dollars in thousands) Balance at beginning of year $ 1,228 $ 1,673 $ 2,151 Current period tax positions 147 112 120 Lapse of statute of limitations ( 331 ) ( 557 ) ( 598 ) Balance at end of year $ 1,044 $ 1,228 $ 1,673 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 $ 0.1 million is expected to reverse in 2024 due to lapsing of the statute of limitations. Decreases can also occur throughout the settlement of positions with taxing authorities. As of December 31, 2023, if recognized, all of the Corporation's unrecognized tax benefits would impact the effective tax rate. Not included in the table above is $ 0.2 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 $ 138 thousand and $ 121 thousand of recoveries in 2023 and 2022, respectively, for interest and penalties in income tax expense related to unrecognized tax positions. As of December 31, 2023 and 2022, total accrued interest and penalties related to unrecognized tax positions were approximately $ 0.3 million and $ 0.5 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 2020. Tax Credit Investments The TCIs are included in other assets, with any unfunded equity commitments recorded in other liabilities on the consolidated balance sheets and changes are reflected in change in tax credit investments in the consolidated statements of cash flows. In 2023, the Corporation adopted ASU 2023-02, which allows all TCIs to qualify for the proportional amortization method if: (1) it is probable that the income tax credits allocatable to the Corporation will be available; (2) the Corporation does not have the ability to exercise significant influence over the operating and financial policies of the underlying project; (3) substantially all of the projected benefits are from income tax credits and other income tax benefits; (4) the Corporation's projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive; and (5) the Corporation is a limited liability investor in the limited liability entity for both legal and tax purposes, and the Corporation’s liability is limited to its capital investment. See "Note 1 - Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements. 108 All TCIs held as of December 31, 2023 that qualify for the proportional amortization method, 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 and net income in the consolidated statements of cash flows. All TCIs are evaluated for impairment at the end of each reporting period. There were no impairments recorded against TCIs during 2023. The following table presents the balances of the Corporation's TCIs and related unfunded commitments as of December 31: 2023 2022 Included in other assets: (dollars in thousands) Affordable housing tax credit investments, net $ 170,115 $ 161,103 Other tax credit investments, net 35,907 61,077 Total TCIs, net $ 206,022 $ 222,180 Included in other liabilities: Unfunded affordable housing tax credit commitments $ 58,312 $ 53,108 Other tax credit liabilities 28,361 46,814 Total unfunded tax credit commitments and liabilities $ 86,673 $ 99,922 The following table presents other information relating to the Corporation's TCIs for the years ended December 31: 2023 2022 2021 (dollars in thousands) Components of income taxes: Tax credits and benefits $ ( 28,748 ) $ ( 27,154 ) $ ( 28,141 ) Amortization of tax credits and benefits, net of tax benefits 23,446 19,298 17,378 Deferred tax expense 610 766 639 Total reduction in income tax expense $ ( 4,692 ) $ ( 7,090 ) $ ( 10,124 ) Amortization of TCIs: Total amortization of TCIs $ — $ 2,783 $ 6,187 NOTE 14 - 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: 2023 2022 2021 (in thousands) Weighted average common shares outstanding (basic) 165,241 164,119 162,233 Impact of common stock equivalents 1,528 1,353 1,074 Weighted average common shares outstanding (diluted) 166,769 165,472 163,307 109 ` NOTE 15 - SHAREHOLDERS' EQUITY Preferred Stock On October 29, 2020, the Corporation issued 8.0 million depositary shares ("Depositary Shares"), each representing a 1/40 th interest in a share of the Corporation'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. Stock Reissuance On July 1, 2022, the Corporation reissued 6,208,516 shares of common stock that had been held as Treasury stock in connection with the Merger. 110 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 (dollars in thousands) 2023 Unrealized gain (loss) on securities $ 46,572 $ ( 10,549 ) $ 36,023 Reclassification adjustment for securities gains (losses) included in net income (1) ( 733 ) 166 ( 567 ) Amortization of net unrealized gains (losses) on AFS transferred to HTM (2) 7,644 ( 1,731 ) 5,913 Net unrealized holding gains (loss) arising during the period on interest rate derivatives used in cash flow hedges 9,048 ( 2,050 ) 6,998 Reclassification adjustment for net loss (gain) realized in net income on interest rate derivatives used in cash flow hedges 25,850 ( 5,855 ) 19,995 Unrecognized pension and postretirement income (cost) 6,162 ( 1,385 ) 4,777 Amortization of net unrecognized pension and postretirement items (3) 73 ( 16 ) 57 Total Other Comprehensive Income $ 94,616 $ ( 21,420 ) $ 73,196 2022 Unrealized gain (loss) on securities $ ( 403,606 ) $ 91,437 $ ( 312,169 ) Reclassification adjustment for securities gains (losses) included in net income (1) ( 27 ) 7 ( 20 ) Amortization of net unrealized gains (losses) on AFS transferred to HTM (2) ( 57,509 ) 13,026 ( 44,483 ) Net unrealized holding gain (loss) arising during the period on interest rate derivatives used in cash flow hedges ( 81,400 ) 18,437 ( 62,963 ) Reclassification adjustment for net loss (gain) realized in net income on interest rate derivatives used in cash flow hedges 7,761 ( 1,757 ) 6,004 Unrecognized pension and postretirement income (cost) 825 ( 181 ) 644 Amortization of net unrecognized pension and postretirement items (3) 128 ( 28 ) 100 Total Other Comprehensive (Loss) $ ( 533,828 ) $ 120,941 $ ( 412,887 ) 2021 Unrealized gain (loss) on securities $ ( 23,222 ) $ 5,274 $ ( 17,948 ) Reclassification adjustment for securities gains (losses) included in net income (1) ( 33,516 ) 7,611 ( 25,905 ) Amortization of net unrealized gains (losses) on AFS transferred to HTM (2) 3,485 ( 795 ) 2,690 Net unrealized holding gains (loss) arising during the period on interest rate derivatives used in cash flow hedges ( 3,452 ) 782 ( 2,670 ) Reclassification adjustment for net loss realized in net income on interest rate swaps used in cash flow hedges ( 2,776 ) 629 ( 2,147 ) Unrecognized pension and postretirement income (cost) 9,147 ( 2,003 ) 7,144 Amortization of net unrecognized pension and postretirement items (3) 1,480 ( 324 ) 1,156 Total Other Comprehensive Income (Loss) $ ( 48,854 ) $ 11,174 $ ( 37,680 ) A (1) Amounts reclassified out of AOCI. Before-tax amounts included in "Investment securities gains, net" on the Consolidated Statements of Income. See "Note 4 - Investment Securities," for additional details. (2) Amounts reclassified out of AOCI. Before-tax amounts included as a reduction to "Interest Income" on the Consolidated Statements of Income. (3) Amounts reclassified out of AOCI. Before-tax amounts included in "Salaries and employee benefits" on the Consolidated Statements of Income. See "Note 17 - Employee Benefit Plans," for additional details. 111 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 Gain (Loss) on Interest Rate Derivatives used in Cash Flow Hedges Unrecognized Pension and Postretirement Plan Income (Costs) Total (dollars in thousands) Balance at December 31, 2020 $ 81,604 $ — $ ( 16,513 ) $ 65,091 OCI before reclassifications ( 17,948 ) — 7,144 ( 10,804 ) Amounts reclassified from AOCI gain (loss) ( 25,905 ) ( 4,817 ) 1,156 ( 29,566 ) Amortization of net unrealized gains (losses) on AFS securities transferred to HTM 2,690 — — 2,690 Balance at December 31, 2021 40,441 ( 4,817 ) ( 8,213 ) 27,411 OCI before reclassifications ( 312,169 ) ( 62,963 ) 644 ( 374,488 ) Amounts reclassified from AOCI ( 20 ) 6,004 100 6,084 Amortization of net unrealized gains (losses) on AFS securities transferred to HTM ( 44,483 ) — — ( 44,483 ) Balance at December 31, 2022 ( 316,231 ) ( 61,776 ) ( 7,469 ) ( 385,476 ) OCI before reclassifications 36,023 6,998 4,777 47,798 Amounts reclassified from AOCI ( 567 ) 19,995 57 19,485 Amortization of net unrealized gains (losses) on AFS securities transferred to HTM 5,913 — — 5,913 Balance at December 31, 2023 $ ( 274,862 ) $ ( 34,783 ) $ ( 2,635 ) $ ( 312,280 ) Common Stock Repurchase Programs On December 19, 2023, the Corporation announced that its Board of Directors approved the 2024 Repurchase Program. The 2024 Repurchase Program will expire on December 31, 2024. Under the 2024 Repurchase Program, the Corporation is authorized to repurchase up to $ 125.0 million of shares of its common stock. Under this authorization, up to $ 25.0 million of the $125 million authorization may be used to repurchase the Corporation's Preferred Stock and outstanding subordinated notes through December 31, 2024. The 2024 Repurchase Program may be discontinued at any time. On December 20, 2022, the Corporation announced that its Board of Directors approved the 2023 Repurchase Program. Under the 2023 Repurchase Program, the Corporation is authorized to repurchase up to $ 100.0 million of its common stock, or approximately 3.6 % of its outstanding shares, through December 31, 2023. During 2023, 5.0 million shares were repurchased at a total cost of $ 77.1 million or $ 15.32 per share, under t he 2023 Repurchase Program. On March 21, 2022, the Corporation announced that its Board of Directors approved the repurchase of up to $75 million of shares of the Corporation's common stock commencing on April 1, 2022 and expiring on December 31, 2022. No shares of the Corporation's common stock were repurchased under this program during 2022. On February 9, 2021, the Corporation announced that its Board of Directors approved the share repurchase of up to $ 75.0 million of the Corporation's common stock through December 31, 2021 . On November 19, 2021, the Corporation announced that its 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. No shares of the Corporation's common stock were repurchased under this program during 2022. 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. 112 NOTE 16 - 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 for the years ended December 31, 2023, 2022 and 2021: 2023 2022 2021 (dollars in thousands) Compensation expense $ 11,265 $ 15,081 $ 9,264 Tax benefit ( 2,484 ) ( 2,690 ) ( 2,027 ) Total stock-based compensation, net of tax $ 8,781 $ 12,391 $ 7,237 The tax benefits as a percentage of compensation expense, as shown in the preceding table, were 22.1 %, 17.8 % and 21.9 % in 2023, 2022 and 2021, 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, 2023: Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in millions) Outstanding and exercisable as of December 31, 2022 108,464 $ 12.11 Granted — — Exercised ( 68,134 ) 11.81 Forfeited — — Expired ( 195 ) 11.58 Outstanding and exercisable as of December 31, 2023 40,135 $ 12.61 0.3 years $ 0.2 The following table presents information about stock options exercised for the years ended December 31, 2023, 2022 and 2021: 2023 2022 2021 (dollars in thousands) Number of options exercised 68,134 130,503 148,670 Total intrinsic value of options exercised $ 249 $ 842 $ 801 Cash received from options exercised $ 805 $ 1,402 $ 1,651 Tax benefit from options exercised $ 47 $ 163 $ 155 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, 2023: Restricted Stock/RSUs/PSUs (1) Shares Weighted Average Grant Date Fair Value Nonvested as of December 31, 2022 2,524,196 $ 14.16 Granted 1,026,492 11.85 Vested ( 806,481 ) 11.79 Forfeited ( 81,736 ) 13.21 Nonvested as of December 31, 2023 2,662,471 $ 14.24 (1) There were no nonvested stock options at December 31, 2023 or 2022. 113 As of December 31, 2023, there was $ 10.6 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 1.7 years . As of December 31, 2023, the Employee Equity Plan had 4.4 million shares reserved for future grants through 2032, and the Directors' Plan had 398.3 thousand shares reserved for future grants through 2033. 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: 2023 2022 2021 Risk-free interest rate 3.84 % 2.84 % 0.25 % Volatility of Corporation’s stock 35.63 % 43.46 % 42.55 % 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 2023, 2022 and 2021 of $ 10.63 , $ 14.93 and $ 16.94 , 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: 2023 2022 2021 ESPP shares purchased 162,667 134,645 134,156 Average purchase price per share (85% of market value) $ 11.68 $ 14.06 $ 13.92 Compensation expense recognized (in thousands) $ 348 $ 334 $ 329 NOTE 17 - EMPLOYEE BENEFIT PLANS The following summarizes retirement plan expense for the years ended December 31: 2023 2022 2021 (dollars in thousands) 401(k) Retirement Plan $ 11,930 $ 10,988 $ 10,338 Pension Plan 464 ( 1,347 ) 217 Total $ 12,394 $ 9,641 $ 10,555 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 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. 114 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: 2023 2022 2021 (dollars in thousands) Interest cost $ 3,269 $ 2,393 $ 2,244 Expected return on assets ( 3,436 ) ( 4,393 ) ( 4,044 ) Net amortization and deferral 631 653 2,017 Net periodic pension cost $ 464 $ ( 1,347 ) $ 217 The following table summarizes the changes in the projected benefit obligation and fair value of Pension Plan assets for the plan years ended December 31: 2023 2022 (dollars in thousands) Projected benefit obligation at beginning of year $ 68,716 $ 87,530 Interest cost 3,269 2,393 Benefit payments ( 4,687 ) ( 4,502 ) Change in assumptions 1,492 ( 17,131 ) Experience gain 162 426 Projected benefit obligation at end of year $ 68,952 $ 68,716 Fair value of plan assets at beginning of year $ 78,137 $ 94,115 Actual return on plan assets 11,209 ( 11,476 ) Benefit payments ( 4,687 ) ( 4,502 ) Fair value of plan assets at end of year $ 84,659 $ 78,137 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: 2023 2022 (dollars in thousands) Projected benefit obligation $ ( 68,952 ) $ ( 68,716 ) Fair value of plan assets 84,659 78,137 Funded status $ 15,707 $ 9,421 The following table summarizes the changes in the unrecognized net loss included as a component of AOCI: Unrecognized Net Loss Before tax Net of tax (dollars in thousands) Balance as of December 31, 2021 $ 13,558 $ 10,545 Recognized as a component of 2022 periodic pension cost ( 653 ) ( 510 ) Unrecognized losses arising in 2022 ( 835 ) ( 651 ) Balance as of December 31, 2022 12,070 9,384 Recognized as a component of 2023 periodic pension cost ( 631 ) ( 492 ) Unrecognized losses arising in 2023 ( 6,119 ) ( 4,775 ) Balance as of December 31, 2023 $ 5,320 $ 4,117 115 The following rates were used to calculate the net periodic pension cost and the present value of benefit obligations as of December 31: 2023 2022 2021 Discount rate-projected benefit obligation 4.73 % 4.93 % 2.80 % Expected long-term rate of return on plan assets 5.00 % 5.00 % 5.00 % The discount rates used were determined using the FTSE Pension Discount Curve (formerly, 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, 2023 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: 2023 2022 Estimated Fair Value % of Total Assets Estimated Fair Value % of Total Assets (dollars in thousands) Equity mutual funds $ 27,998 $ 23,338 Equity common trust funds 20,246 16,919 Equity securities 48,244 57.0 % 40,257 51.5 % Cash and money market funds 6,276 9,102 Fixed income mutual funds 12,639 15,252 Corporate debt securities 2,600 2,324 U.S. Government agency securities 9,908 7,041 Fixed income securities and cash 31,423 37.1 % 33,719 43.2 % Other alternative investment funds 4,992 5.9 % 4,161 5.3 % Total $ 84,659 100.0 % $ 78,137 100.0 % 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 2024 $ 4,799 2025 4,852 2026 4,942 2027 5,007 2028 5,002 Thereafter 24,638 Total $ 49,240 Multiemployer Defined Benefit Pension Plan In connection with the Merger, the Corporation assumed the obligations of Prudential Bancorp under the Prudential Bancorp Pension Plan that had previously been closed to new Prudential Bancorp participants. 116 The Prudential Bancorp Pension Plan is structured as a multiple employer plan under Internal Revenue Code Section 413(c). It maintains a single trust and all assets are commingled and invested on a pooled basis. All amounts payable by the Prudential Bancorp Pension Plan are a general charge upon all its assets. This structure gives rise to the risk if a participating employer fails before funding up to cover the liabilities of its participants and orphans, contributions for all remaining employers will increase, as assets have to be re-allocated to cover such shortfall. Information regarding the Prudential Bancorp Pension Plan as of December 31, 2023 is as follows: Legal Name of Plan Pentegra Defined Benefit Plan for Financial Institutions (dollars in thousands) Plan Employer Identification Number 23-1928421 The Corporation's contribution for the year ended December 31, 2023 (1) $ 358 Are the Corporation's contributions more than 5% of total contributions? No Funded Status 80.12 % (1) Includes 2024 prepayment of $140 thousand. Postretirement Benefits The Corporation provides medical benefits and life insurance benefits under the 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. The components of the net benefit for Postretirement Plan other than pensions are as follows: 2023 2022 2021 (dollars in thousands) Interest cost $ 42 $ 34 $ 32 Net amortization and deferral ( 558 ) ( 525 ) ( 536 ) Net postretirement benefit $ ( 516 ) $ ( 491 ) $ ( 504 ) This table summarizes the changes in the accumulated postretirement benefit obligation for the years ended December 31: 2023 2022 (dollars in thousands) Accumulated postretirement benefit obligation at beginning of year $ 972 $ 1,244 Interest cost 42 34 Benefit payments ( 147 ) ( 155 ) Change in experience ( 31 ) 51 Change in assumptions 8 ( 202 ) Accumulated postretirement benefit obligation at end of year $ 844 $ 972 The fair values of the Postretirement Plan assets were $ 0 as of both December 31, 2023 and 2022. The funded status of the Postretirement Plan, included in other liabilities on the consolidated balance sheets as of December 31, 2023 and 2022 was $ 0.8 million and $ 1.0 million, respectively. 117 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 (dollars in thousands) Balance as of December 31, 2021 $ ( 2,548 ) $ ( 729 ) $ ( 3,277 ) $ ( 2,556 ) Recognized as a component of 2022 postretirement cost 464 61 525 410 Unrecognized gains arising in 2022 — ( 150 ) ( 150 ) ( 118 ) Balance as of December 31, 2022 ( 2,084 ) ( 818 ) ( 2,902 ) ( 2,264 ) Recognized as a component of 2023 postretirement cost 464 94 558 435 Unrecognized gains arising in 2023 — ( 23 ) ( 23 ) ( 18 ) Balance as of December 31, 2023 $ ( 1,620 ) $ ( 747 ) $ ( 2,367 ) $ ( 1,847 ) The following rates were used to calculate net periodic postretirement benefit cost and the present value of benefit obligations as of December 31: 2023 2022 2021 Discount rate-projected benefit obligation 4.73 % 4.93 % 2.80 % 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 FTSE Pension Discount Curve (formerly, the Citigroup Average Life discount rate table), as adjusted based on the Postretirement Plan's expected benefit payments. Estimated future benefit payments under the Postretirement Plan are as follows (dollars in thousands): Year 2024 $ 134 2025 122 2026 110 2027 99 2028 88 Thereafter 304 Total $ 857 NOTE 18 - 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 (dollars in thousands): 2023 2022 2021 Operating lease expense $ 19,372 $ 17,766 $ 16,345 Variable lease expense 3,160 3,017 1,384 Sublease income ( 1,111 ) ( 964 ) ( 860 ) Total lease expense $ 21,421 $ 19,819 $ 16,869 118 Supplemental consolidated balance sheet information related to leases was as follows as of December 31 (dollars in thousands): Operating Leases Balance Sheet Classification 2023 2022 ROU assets Other assets $ 88,188 $ 85,103 Lease liabilities Other liabilities $ 95,230 $ 93,883 Weighted average remaining lease term 6.48 years 6.75 years Weighted average discount rate 3.34 % 2.89 % The discount rate used in determining the lease liability for each individual lease is the FHLB fixed advance rate which corresponds with the remaining lease term. Supplemental cash flow information related to operating leases was as follows (dollars in thousands): 2023 2022 Cash paid for amounts included in the measurement of lease liabilities $ 20,898 $ 19,405 ROU assets obtained in exchange for lease obligations 20,184 18,715 Lease payment obligations for each of the next five years and thereafter, with a reconciliation to the Corporation's lease liability were as follows (dollars in thousands): Year Operating Leases 2024 $ 20,391 2025 18,299 2026 16,603 2027 14,204 2028 11,022 Thereafter 25,948 Total lease payments 106,467 Less: imputed interest ( 11,237 ) Present value of lease liabilities $ 95,230 As of December 31, 2023, the Corporation had not entered into any significant leases that have not yet commenced. 119 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: 2023 Level 1 Level 2 Level 3 Total (dollars in thousands) Loans held for sale $ — $ 15,158 $ — $ 15,158 Available for sale investment securities: U.S. Government securities 42,161 — — 42,161 U.S. Government-sponsored agency securities — 1,010 — 1,010 State and municipal securities — 1,072,013 — 1,072,013 Corporate debt securities — 440,551 — 440,551 Collateralized mortgage obligations — 111,434 — 111,434 Residential mortgage-backed securities — 196,795 — 196,795 Commercial mortgage-backed securities — 534,388 — 534,388 Total available for sale investment securities 42,161 2,356,191 — 2,398,352 Other assets: Investments held in Rabbi Trust 29,819 — — 29,819 Derivative assets 572 157,540 — 158,112 Total assets $ 72,552 $ 2,528,889 $ — $ 2,601,441 Other liabilities: Deferred compensation liabilities $ 29,819 $ — $ — $ 29,819 Derivative liabilities 477 246,157 — 246,634 Total liabilities $ 30,296 $ 246,157 $ — $ 276,453 2022 Level 1 Level 2 Level 3 Total (dollars in thousands) Loans held for sale $ — $ 7,264 $ — $ 7,264 Available for sale investment securities: U.S. Government securities 218,485 — — 218,485 U.S. Government-sponsored agency securities — 1,008 — 1,008 State and municipal securities — 1,105,712 — 1,105,712 Corporate debt securities — 422,309 — 422,309 Collateralized mortgage obligations — 134,033 — 134,033 Residential mortgage-backed securities — 212,698 — 212,698 Commercial mortgage-backed securities — 552,522 — 552,522 Total available for sale investment securities 218,485 2,428,282 — 2,646,767 Other assets: Investments held in Rabbi Trust 23,435 — — 23,435 Derivative assets 672 166,796 — 167,468 Total assets $ 242,592 $ 2,602,342 $ — $ 2,844,934 Other liabilities: Deferred compensation liabilities $ 23,435 $ — $ — $ 23,435 Derivative liabilities 584 296,465 — 297,049 Total liabilities $ 24,019 $ 296,465 $ — $ 320,484 The valuation techniques used to measure fair value for the items in the preceding tables are as follows: Loans held for sale - This category includes mortgage loans held for sale that are measured at fair value. Fair values as of December 31, 2023 and 2022, were measured as the price that secondary market investors were offering for loans with similar 120 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 ($ 433.4 million at December 31, 2023 and $ 415.4 million at December 31, 2022) and other corporate debt issued by non-financial institutions ($ 7.2 million at December 31, 2023 and $ 6.9 million at December 31, 2022). Level 2 investments include subordinated debt and senior debt, and other corporate debt issued by non-financial institutions at December 31, 2023 and 2022. The fair values for these corporate debt securities are determined by a third-party pricing service, as detailed above. 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 ($ 0.6 million at December 31, 2023 and $ 0.7 million at December 31, 2022). 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 ($ 0.5 million at December 31, 2023 and $ 0.2 million at December 31, 2022) and the fair value of interest rate derivatives ($ 157.1 million at December 31, 2023 and $ 166.6 million at December 31, 2022). The fair values of the interest rate locks, forward commitments and interest rate derivatives represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. See "Note 11 - Derivative Financial Instruments," for additional information. Deferred compensation liabilities - Fair value of amounts due to employees under deferred compensation plans, classified as Level 1 liabilities and are included in other liabilities on the consolidated balance sheets. The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Investments held in Rabbi Trust" above. Derivative liabilities - Level 1 liabilities, representing the fair value of foreign currency exchange contracts ($ 0.5 million and $ 0.6 million at December 31, 2023 and 2022, respectively). 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 ($ 0.9 million at December 31, 2023 and $ 0.2 million at December 31, 2022) and the fair value of interest rate derivatives ($ 245.6 million at December 31, 2023 and $ 296.3 million at December 31, 2022). 121 The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Derivative assets" above. 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 assets measured at fair value on a nonrecurring basis : 2023 2022 (dollars in thousands) Loans, net $ 102,135 $ 121,115 OREO 896 5,790 MSRs (1) 49,696 50,044 Total assets $ 152,727 $ 176,949 (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 8 - 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. The amount shown is the balance of non-accrual loans, net of related ACL. See "Note 5 - 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 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, 2023 valuation were 7.4 % and 9.5 %, respectively. Management reviews the reasonableness of the significant inputs to the third-party valuation in comparison to market data. See "Note 8 - 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 + 15% ( 4 )% Prepayment Rate - 15% 4 % Discount Rate - 200 bps 10 % Discount Rate + 200 bps ( 8 )% 122 The following table details the book values and the estimated fair values of the Corporation's financial instruments as of December 31, 2023 and 2022. A general description of the methods and assumptions used to estimate such fair values is also provided. 2023 Estimated Fair Value Carrying Amount Level 1 Level 2 Level 3 Total FINANCIAL ASSETS (dollars in thousands) Cash and cash equivalents $ 549,710 $ 549,710 $ — $ — $ 549,710 FRB and FHLB stock 124,405 — 124,405 — 124,405 Loans held for sale 15,158 — 15,158 — 15,158 AFS securities 2,398,352 42,161 2,356,191 — 2,398,352 HTM securities 1,267,922 — 1,072,207 — 1,072,207 Loans, net 21,057,690 — — 19,930,560 19,930,560 Accrued interest receivable 107,972 107,972 — — 107,972 Other assets 661,067 452,935 157,540 50,592 661,067 FINANCIAL LIABILITIES Demand and savings deposits $ 17,653,690 $ 17,653,690 $ — $ — $ 17,653,690 Brokered deposits 1,144,692 145,987 999,392 — 1,145,379 Time deposits 2,739,241 — 2,714,709 — 2,714,709 Accrued interest payable 35,083 35,083 — — 35,083 Federal funds purchased 240,000 240,000 — — 240,000 Federal Home Loan Bank advances 1,100,000 1,094,013 — — 1,094,013 Senior debt and subordinated debt 535,384 — 463,270 — 463,270 Other borrowings 612,142 611,269 837 — 612,106 Other liabilities 429,046 165,635 246,157 17,254 429,046 2022 Estimated Fair Value Carrying Amount Level 1 Level 2 Level 3 Total FINANCIAL ASSETS (dollars in thousands) Cash and cash equivalents $ 681,921 $ 681,921 $ — $ — $ 681,921 FRB and FHLB stock 130,186 — 130,186 — 130,186 Loans held for sale 7,264 — 7,264 — 7,264 AFS securities 2,646,767 218,485 2,428,282 — 2,646,767 HTM securities 1,321,256 — 1,125,049 — 1,125,049 Loans, net 20,010,181 — — 18,862,701 18,862,701 Accrued interest receivable 91,579 91,579 — — 91,579 Other assets 642,049 419,419 166,796 55,834 642,049 FINANCIAL LIABILITIES Demand and savings deposits $ 18,851,912 $ 18,851,912 $ — $ — $ 18,851,912 Brokered deposits 208,416 188,416 25,085 — 213,501 Time deposits 1,589,210 — 1,574,747 — 1,574,747 Accrued interest payable 10,185 10,185 — — 10,185 Federal funds purchased 191,000 190,998 — — 190,998 Federal Home Loan Bank advances 1,250,000 1,249,629 — — 1,249,629 Senior debt and subordinated debt 539,634 — 456,867 — 456,867 Other borrowings 890,573 889,393 1,180 — 890,573 Other liabilities 467,705 154,912 296,465 16,328 467,705 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 123 be realized in an immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent management's estimate of the underlying value of the Corporation. For short-term financial instruments, defined as those with remaining maturities of 90 days or less, and excluding those recorded at fair value on the Corporation's consolidated balance sheets, book value was considered to be a reasonable estimate of fair value. The following instruments are predominantly short-term: Assets Liabilities Cash and cash equivalents Demand and savings deposits Accrued interest receivable Other 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, 2023, 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 consist 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 is determined in a manner consistent with the respective type of deposits discussed above. NOTE 20 - 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 borrowers or obligors. Commitments to extend credit are agreements to lend to a borrowers or obligors 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 borrower or obligor'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 borrower or obligor. 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 borrower or obligor to a third party. Commercial letters of credit are conditional commitments issued to facilitate foreign and domestic trade transactions for borrowers or obligors. The credit risk involved in issuing letters of credit is similar to that involved in extending loan facilities. These obligations are underwritten consistent 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 has commitments to extend credit and letters of credit. 124 The following table presents the Corporation's commitments to extend credit and letters of credit: 2023 2022 (dollars in thousands) Commercial and industrial $ 4,929,981 $ 4,832,858 Real estate - commercial mortgage and real estate - construction 1,867,830 1,972,505 Real estate - home equity 1,992,700 1,890,258 Total commitments to extend credit $ 8,790,511 $ 8,695,621 Standby letters of credit $ 264,440 $ 260,829 Commercial letters of credit 67,396 49,288 Total letters of credit $ 331,836 $ 310,117 Residential Lending The Corporation originates and sells residential mortgages to secondary market investors. The Corporation provides customary representations and warranties to secondary market investors that specify, among other things, that the loans have been underwritten to the standards of the secondary market investor. The Corporation may be required to repurchase specific loans, or reimburse the investor for a credit loss incurred on a sold loan if it is determined that the representations and warranties have not been met. Under some agreements with secondary market investors, the Corporation may have additional credit exposure beyond customary representations and warranties, based on the specific terms of those agreements. The Corporation maintains a reserve for estimated losses related to loans sold to investors. As of December 31, 2023 and 2022, the total reserve for losses on residential mortgage loans sold was $ 1.8 million and $ 1.4 million, for each period, including reserves for both representation and warranty and credit loss exposures. In addition, a component of ACL for OBS credit exposures of $ 2.7 million and $ 6.0 million as of December 31, 2023 and December 31, 2022, 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. 125 NOTE 21 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY CONDENSED BALANCE SHEETS December 31, 2023 2022 (dollars in thousands) ASSETS Cash and cash equivalents $ 171,433 $ 169,208 Other assets 62,500 58,497 Receivable from subsidiaries 276,215 194,869 Investments in: Bank subsidiary 2,794,106 2,708,663 Non-bank subsidiaries 42,496 38,348 Total Assets $ 3,346,750 $ 3,169,585 LIABILITIES AND EQUITY Senior and subordinated debt $ 535,384 $ 539,634 Other liabilities 51,227 50,194 Total Liabilities 586,611 589,828 Shareholders' equity 2,760,139 2,579,757 Total Liabilities and Shareholders' Equity $ 3,346,750 $ 3,169,585 126 CONDENSED STATEMENTS OF INCOME 2023 2022 2021 (dollars in thousands) Income: Dividends from subsidiaries $ 300,000 $ 207,000 $ 469,339 Other 794 725 258 300,794 207,725 469,597 Expenses 37,448 51,887 58,527 Income before income taxes and equity in undistributed net income of subsidiaries 263,346 155,838 411,070 Income tax benefit ( 7,861 ) ( 12,331 ) ( 12,516 ) 271,207 168,169 423,586 Equity in undistributed net income (loss) of: Bank subsidiaries 8,932 121,388 ( 133,157 ) Non-bank subsidiaries 4,141 ( 2,576 ) ( 14,932 ) Net Income 284,280 286,981 275,497 Preferred stock dividends ( 10,248 ) ( 10,248 ) ( 10,277 ) Net Income Available to Common Shareholders $ 274,032 $ 276,733 $ 265,220 127 CONDENSED STATEMENTS OF CASH FLOWS 2023 2022 2021 (dollars in thousands) Cash Flows From Operating Activities: Net Income $ 284,280 $ 286,981 $ 275,497 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of issuance costs and discount of long-term debt 750 724 1,846 Stock-based compensation 12,540 14,000 8,402 Net change in other assets ( 37,591 ) 44,790 119,822 Equity in undistributed net (income) loss of subsidiaries ( 13,073 ) ( 120,213 ) 148,091 Write-off of unamortized costs on trust preferred securities — — 12,390 Net change in other liabilities and payable to non-bank subsidiaries ( 50,047 ) ( 198,349 ) 78,716 Total adjustments ( 87,421 ) ( 259,048 ) 369,267 Net cash provided by operating activities 196,859 27,933 644,764 Cash Flows From Investing Activities Net cash paid for acquisition — ( 21,811 ) — Net cash used in investing activities — ( 21,811 ) — Cash Flows From Financing Activities: Repayments of long-term borrowings ( 5,000 ) ( 81,496 ) ( 153,612 ) Net proceeds from issuance of common stock 3,160 7,876 7,437 Dividends paid ( 115,738 ) ( 116,009 ) ( 112,028 ) Acquisition of treasury stock ( 77,056 ) — ( 43,909 ) Net cash used in financing activities ( 194,634 ) ( 189,629 ) ( 302,112 ) Net increase (decrease) in Cash and Cash Equivalents 2,225 ( 183,507 ) 342,652 Cash and Cash Equivalents at Beginning of Year 169,208 352,715 10,063 Cash and Cash Equivalents at End of Year $ 171,433 $ 169,208 $ 352,715 128 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, 2023, 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, 2023, the Corporation's internal control over financial reporting is effective based on those criteria. /s/ CURTIS J. MYERS Curtis J. Myers Chairman and Chief Executive Officer /s/ BETH ANN L. CHIVINSKI Beth Ann L. Chivinski Senior Executive Vice President and Interim 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, 2023 and 2022, 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, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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 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. 130 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 5 to the consolidated financial statements, the Company’s allowance for credit losses related to loans evaluated collectively for expected credit losses (collective ACL) was $254.8 million, of a total allowance for credit losses of $293.4 million as of December 31, 2023. 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 forecasted PD rates revert back to a historical average PD rate. The LGD model calculates an 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 constant pre-payment rates, and inputs related to loan level cash flows, maturity dates, and interest rates. The constant pre-payment rates utilized in the EAD calculation are sourced from a prepayment calculation 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 the PD, LGD, and EAD and their key assumptions and inputs. Key assumptions and inputs used in the estimation of the PD rate include historical default observations, 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 historical average default rates. Key assumptions and inputs used in the estimation of the LGD rate include the loan pool segmentation, historical loss observations, and the historical observation period. Key assumptions and inputs used in the estimation of the EAD include a constant prepayment rate (CPR) and loan level cash flow adjustments. Key assumptions and inputs used in the estimation of the CPR include historical prepayment observations, 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 assumptions 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 • development of the PD and LGD models and of the methods used to calculate the CPR and 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 and LGD models 131 • 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 29, 2024 132 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.